----

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

|   | TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 FOR THE TRANSITION PERIOD FROM |
|--------|-----------------------------------------------------------------------------------------------------------------------------------|

| Delaware                                                            | 75-0571592                                |
|---------------------------------------------------------------------|-------------------------------------------|
| (State      or other jurisdiction of incorporation or organization) | (I.R.S.      Employer Identification No.) |

| 5444      Westheimer Road                     | 77056-5306      |
|-----------------------------------------------|-----------------|
| Houston,      Texas                           | (Zip      Code) |
| (Address      of principal executive offices) |            |

| Title of each      class                  | Name of each exchange      on which registered |
|-------------------------------------------|------------------------------------------------|
| Common      Stock, par value $1 per share | New      York Stock Exchange                   |
| 7.55%      Depositary Shares              | New      York Stock Exchange                   |
| 5.00%      Corporate Units                | New      York Stock Exchange                   |
|                                      |                                           |

----

SOUTHERN UNION COMPANY AND SUBSIDIARIES

|                                                 |                                                                                                                             | Page   |
|------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                 | PART      I                                                                                                                      |   |
| ITEM 1.                                              | Business.                                                                                                                        | 1      |
| ITEM 1A.                                             | Risk Factors.                                                                                                                    | 15     |
| ITEM 1B.                                             | Unresolved Staff Comments.                                                                                                       | 23     |
| ITEM 2.                                              | Properties.                                                                                                                      | 24     |
| ITEM 3.                                              | Legal Proceedings.                                                                                                               | 24     |
| ITEM 4.                                              | Submission of Matters to a Vote of Security      Holders.                                                                        | 24     |
|                                                 | PART      II                                                                                                                     |   |
| ITEM 5.                                              | Market for the Registrant’s Common Stock, Related      Stockholder Matters and Issuer Purchases of Equity      Securities. | 25     |
| ITEM 6.                                              | Selected Financial Data.                                                                                                         | 28     |
| ITEM 7.                                              | Management's Discussion and Analysis of Financial Condition      and Results of Operations.                                      | 29     |
| ITEM 7A.                                             | Quantitative and Qualitative Disclosures About Market      Risk.                                                                 | 51     |
| ITEM 8.                                              | Financial Statements and Supplementary    Data.                                                                                  | 53     |
| ITEM 9.                                              | Changes in and Disagreements with Accountants on Accounting      and Financial Disclosure.                                       | 53     |
| ITEM 9A.                                             | Controls and Procedures.                                                                                                         | 53     |
| ITEM 9B.                                             | Other Information.                                                                                                               | 55     |
|                                                 | PART      III                                                                                                                    |   |
| ITEM 10.                                             | Directors, Executive Officers and Corporate      Governance.                                                                     | 55     |
| ITEM 11.                                             | Executive Compensation.                                                                                                          | 55     |
| ITEM 12.                                             | Security Ownership of Certain Beneficial Owners and      Management and Related Stockholder Matters.                             | 55     |
| ITEM 13.                                             | Certain Relationships and Related Transactions, and      Director Independence.                                                  | 55     |
| ITEM 14.                                             | Principal Accountant Fees and Services.                                                                                          | 55     |
|                                                 | PART      IV                                                                                                                     |   |
| ITEM 15.                                             | Exhibits, Financial StatementSchedules.                                                                                          | 56     |
| Signatures.                                          | 60                                                                                                                               |
| Index to the Consolidated Financial      Statements. | F-1                                                                                                                              |

----

Table of Contents

ITEM 1.    Business.

| · | The      Transportation and Storage segment, which is primarily engaged in the      interstate transportation and storage of natural gas from gas producing      areas in Texas, Oklahoma, Colorado, the Gulf of Mexico and the Gulf Coast      to markets throughout the Midwest and from the Gulf Coast to Florida, and      liquefied natural gas (LNG) terminalling and      regasification services.  Its operations are currently conducted      through Panhandle Eastern Pipe Line Company, LP (PEPL) and its      subsidiaries (collectively Panhandle) and its 50      percent equity ownership interest in Florida Gas Transmission Company, LLC      (Florida Gas)      through Citrus Corp. (Citrus); |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The      Gathering and Processing segment, which is primarily engaged in the      gathering, treating, processing and redelivery of natural gas and natural      gas liquids (NGLs) in Texas and New      Mexico.  Its operations are conducted through Southern Union Gas      Services (SUGS);      and |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The      Distribution segment, which is primarily engaged in the local distribution      of natural gas in Missouri and  Massachusetts.  Its      operations are conducted through Missouri Gas Energy and New England Gas      Company. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                             |   | Year      Ended        |   |   | Year      Ended        |   | Year      Ended        |      |
|----------------------------------|--------|------------------------|--------|--------|------------------------|--------|------------------------|-----------|
|                             |   | December      31, 2007 |   |   | December      31, 2006 |   | December      31, 2005 |      |
|                             |   |                   |   |   |                   |   |                   |      |
| Panhandle                        |   |                   |   |   |                   |   |                   |      |
| PEPL                             |   |                   | 662    |   |                   |   | 579                    |      |   | 609 |   |
| Trunkline                        |   |                   | 648    |   |                   |   | 486                    |      |   | 459 |   |
| Sea      Robin                   |   |                   | 144    |   |                   |   | 115                    |      |   | 146 |   |
| Trunkline      LNG Usage Volumes |   |                   | 261    |   |                   |   | 149                    |      |   | 108 |   |
|                             |   |                   |   |   |                   |   |                   |      |   |   |   |
| Citrus and CCE      Holdings (1) |   |                   |   |   |                   |   |                   |      |   |   |   |
| Florida      Gas                 |   |                   | 751    |   |                   |   | 737                    |      |   | 699 |   |
| Transwestern                     |   |                   | N/A    |   |                   |   | 572                    |  (2) |   | 589 |   |
|                             |   |                   |   |   |                   |   |                   |      |   |   |   |

| (1) | Represents      100 percent of Transwestern and Florida Gas versus the Company's effective      equity ownership interest. |
|-----|----------------------------------------------------------------------------------------------------------------------------|

| (2) | Represents transportation volumes      for Transwestern for the eleven-month period ended November 30,      2006. |
|-----|-------------------------------------------------------------------------------------------------------------------|

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|                                                                                |   | As      of        |   |
|-------------------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                                |   | December 31, 2007 |   |
| Panhandle                                                                           |   |              |   |
| Approximate      Miles of Pipelines                                                 |   |              |   |
| PEPL                                                                                |   |              | 6,000  |   |
| Trunkline                                                                           |   |              | 3,500  |   |
| Sea      Robin                                                                      |   |              | 400    |   |
| Peak      Day Delivery Capacity (Bcf/d)                                             |   |              |   |   |
| PEPL                                                                                |   |              | 2.8    |   |
| Trunkline                                                                           |   |              | 1.7    |   |
| Sea      Robin                                                                      |   |              | 1.0    |   |
| Trunkline      LNG                                                                  |   |              | 2.1    |   |
| Trunkline      LNG Sustainable Send Out Capacity (Bcf/d)                            |   |              | 1.8    |   |
| Underground      Storage Capacity-Owned (Bcf)                                       |   |              | 74.4   |   |
| Underground      Storage Capacity-Leased (Bcf)                                      |   |              | 19.9   |   |
| Trunkline      LNG Terminal Storage Capacity (Bcf)                                  |   |              | 9.0    |   |
| Average      Number of Transportation Customers                                     |   |              | 500    |   |
| Weighted      Average Remaining Life in Years of Firm Transportation      Contracts |   |              |   |   |
| PEPL                                                                                |   |              | 4.6    |   |
| Trunkline                                                                           |   |              | 9.0    |   |
| Sea      Robin (1)                                                                  |   |              | N/A    |   |
| Weighted      Average Remaining Life in Years of Firm Storage Contracts             |   |              |   |   |
| PEPL                                                                                |   |              | 5.9    |   |
| Trunkline                                                                           |   |              | 3.1    |   |
|                                                                                |   |              |   |   |
| Florida Gas      (2)                                                                |   |              |   |   |
| Approximate      Total Miles of Pipelines                                           |   |              | 5,000  |   |
| Peak      Day Delivery Capacity (Bcf/d)                                             |   |              | 2.3    |   |
| Average      Number of Transportation Customers                                     |   |              | 125    |   |
| Weighted      Average Remaining Life of Firm Transportation Contracts               |   |              | 8.7    |   |
|                                                                                |   |              |   |   |

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|                              |   | Percent      of                 |   | Weighted               |   |
|-----------------------------------|--------|---------------------------------|--------|------------------------|--------|
|                              |   | Segment      Revenues           |   | Average      Life      |   |
|                              |   | For      Year Ended             |   | of      Contracts at   |   |
| Customer                          |   | December      31, 2007 (1) |   | December      31, 2007 |   |
|                              |   |                            |   |                   |   |   |   |
| BG      LNG Services              |   |                            | 28     | %                      |   | 16      years (LNG, transportation) |   |
| ProLiance                         |   |                            | 11     |                   |   |         5.2      years (transportation) 6.9 years (storage) |   |
| Other      top 10 customers       |   |                            | 26     |                   |   |  N/A |   |
| Remaining      customers          |   |                            | 35     |                   |   |  N/A |   |
|   Total      percentage |   |                            | 100    | %                      |   |   |   |
|                              |   |                            |   |                   |   |   |   |

| (1) | Panhandle      has no single customer, or group of customers under common control, that      accounted for ten percent or more of the Company’s total consolidated      operating revenues. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                            |   | Percent      of                 |   |                   |   |
|---------------------------------|--------|---------------------------------|--------|------------------------|--------|
|                            |   | Florida      Gas'               |   |                   |   |
|                            |   | Total      Operating            |   | Weighted               |   |
|                            |   | Revenues                        |   | Average      Life      |   |
|                            |   | For      Year Ended             |   | of      Contracts at   |   |
| Customer                        |   | December      31, 2007 (1) |   | December      31, 2007 |   |
|                            |   |                            |   |                   |   |   |   |
| Florida      Power & Light  |   |                            | 40     | %                      |   |   | 7.3 |        Years |   |
| Tampa      Electric/Peoples Gas |   |                            | 16     |                   |   |   | 9.6 |        Years |   |
| Other      top 10 customers     |   |                            | 28     |                   |   |   | N/A |   |   |
| Remaining      customers        |   |                            | 16     |                   |   |   | N/A |   |   |
| Total      percentage           |   |                            | 100    | %                      |   |   |   |   |   |
|                            |   |                            |   |                   |   |   |   |   |   |

| (1) | The      Company accounts for its investment in Florida Gas through its equity      investment in Citrus using the equity method.  Accordingly, it      reports its share of Florida Gas’ net earnings within Earnings from unconsolidated      investments in the Consolidated Statement of      Operations. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                       |   | Date      of Last |   |                                                                                                                      |
|----------------------------|--------|-------------------|--------|---------------------------------------------------------------------------------------------------------------------------|
| Company                    |   | Rate      Filing  |   | Status                                                                                                                    |
|                       |   |              |   |                                                                                                                      |
| PEPL                       |   | May      1992     |   | Settlement      effective April 1997                                                                                      |
| Trunkline                  |   | January      1996 |   | Settlement      effective May 2001                                                                                        |
| Sea      Robin             |   | June      2007    |   | Ongoing;      procedural schedule currently suspended (1)                                                                 |
| Trunkline      LNG         |   | June      2001    |   | Settlement      effective January 2002 (2)                                                                                |
| Southwest      Gas Storage |   | August      2007  |   | Settlement      approved February 2008                                                                                    |
| Florida      Gas           |   | October      2003 |   | Settlement      effective March 2005; rate moratorium in effect until October 2007;      required to file by October 2009 |
|                       |   |              |   |                                                                                                                      |

| (1) | Filed      rates put into effect January 1, 2008, subject to  refund. |
|-----|-----------------------------------------------------------------------|

| (2) | Settlement      provides for a rate moratorium through2015. |
|-----|-------------------------------------------------------------|

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|   | · | field      gathering and compression of natural gas for delivery to its      plants; |
|--------|--------|--------------------------------------------------------------------------------------|

|   | · | treating,      dehydration, sulfur recovery and other conditioning;  and |
|--------|--------|--------------------------------------------------------------------------|

|   | · | natural      gas processing and marketing ofproducts. |
|--------|--------|-------------------------------------------------------|

|                                       |   | Percent      of        |   | Weighted                  |   |
|--------------------------------------------|--------|------------------------|--------|---------------------------|--------|
|                                       |   | Segment      Revenues  |   | Average      Life         |   |
|                                       |   | For      Year Ended    |   | of      Firm Contracts at |   |
| Customer                                   |   | December      31, 2007 |   | December      31, 2007    |   |
|                                       |   |                   |   |                      |   |   |
| ConocoPhillips      Company  (1) |   |                   | 16     | %                         |   | Month-to-Month |   |
| Other      top 10 customers                |   |                   | 47     |                      |   | N/A |   |
| Remaining      customers                   |   |                   | 37     |                      |   | N/A |   |
| Total      percentage                      |   |                   | 100    | %                         |   |   |   |
|                                       |   |                   |   |                      |   |   |   |

| (1) | SUGS      has no single customer, or group of customers under common control, that      accounted for ten percent or more of the Company’s total consolidated      operating revenues. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | Fee-Based.  Under      fee-based arrangements, SUGS receives a fee or fees for one or more of the      following services:  gathering, compressing, treating or      processing natural gas.  The fee or fees are usually based on      the volume or level of service provided to gather, compress, treat or      process natural gas.  While fee-based arrangements are generally      not subject to commodity risk, certain operating conditions as well as      provisions of these arrangements, including fuel recovery mechanisms, may      subject SUGS to a limited amount of commodity  risk. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Percent-of-Proceeds,  Percent-of-Value      or Percent-of-Liquids.  Under percent-of-proceeds      arrangements, SUGS generally gathers and processes natural gas from      producers for an agreed percentage of the proceeds from the sales of the      resulting residue gas and NGLs.  The percent-of-value and      percent-of-liquids are variations on this arrangement.  These      types of arrangements expose SUGS to some commodity price risk as the      costs and revenues from the contracts are directly correlated with the      price of natural gas and NGLs. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Conditioning      Fee.  Conditioning fee arrangements provide a guaranteed      minimum margin or fee on gas that must be processed for liquid hydrocarbon      extraction in order to meet the quality specifications of the transmission      pipelines.  In addition to the minimum margin or fee, SUGS keeps      all or a large percentage of the value of the NGLs.  The revenue      earned is directly related to the processing value of the gas, however,      SUGS is kept whole on a minimum value or fee in low processing spread      environments. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Keep-Whole      and Wellhead.  A keep-whole arrangement allows SUGS to      keep 100 percent of the NGLs produced and requires the return of the      processed natural gas, or value of the gas, to the producer or      owner.  Since some of the gas is used during processing, SUGS      must compensate the producer or owner for the gas shrink entailed in      processing by supplying additional gas or by paying an agreed value for      the gas utilized.  These arrangements have the highest commodity      price exposure for SUGS because the costs are dependent on the price of      natural gas and the revenues are based on the price of NGLs.  As      a result, SUGS benefits from these types of arrangements when the value of      the NGLs is high relative to the cost of the natural gas and is      disadvantaged when the cost of the natural gas is high relative to the      value of NGLs.  SUGS has the ability to eliminate its exposure      to negative processing spreads by treating, dehydrating and blending the      wellhead gas with leaner gas in order to meet downstream transmission      pipeline specifications rather than processing the gas.  In      situations where the negative processing spread is eliminated, such      contracts are referred to as wellheadcontracts. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | contract      fees charged, |
|--------|--------|-----------------------------|

|   | · | pressures      maintained on the gatheringsystems, |
|--------|--------|----------------------------------------------------|

|   | · | location      of the gathering systems relative to competitors and producer drilling      activity, |
|--------|--------|-----------------------------------------------------------------------------------------------------|

|   | · | efficiency      and reliability of the operations,and |
|--------|--------|-------------------------------------------------------|

|   | · | delivery      capabilities in each system and plantlocation. |
|--------|--------|--------------------------------------------------------------|

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|                                                             |   | Years      Ended December 31, |    |
|------------------------------------------------------------------|--------|-------------------------------|---------|
|                                                             |   | 2007                          |    |   | 2006 |   |   | 2005 |   |
| Average      number of customers:                                |   |                          |    |   |   |   |   |   |   |
| Residential                                                      |   |                          | 483,753 |   |   |   | 482,882 |   |   |   | 480,381 |   |
| Commercial                                                       |   |                          | 66,631  |   |   |   | 67,120 |   |   |   | 66,608 |   |
| Industrial                                                       |   |                          | 122     |   |   |   | 129 |   |   |   | 142 |   |
| Total      average customers served                              |   |                          | 550,506 |   |   |   | 550,131 |   |   |   | 547,131 |   |
| Transportation      customers                                    |   |                          | 1,517   |   |   |   | 1,473 |   |   |   | 1,383 |   |
| Total      average gas sales and transportation customers        |   |                          | 552,023 |   |   |   | 551,604 |   |   |   | 548,514 |   |
|                                                             |   |                          |    |   |   |   |   |   |   |   |   |   |
| Gas      sales (MMcf):                                           |   |                          |    |   |   |   |   |   |   |   |   |   |
| Residential                                                      |   |                          | 37,916  |   |   |   | 34,946 |   |   |   | 39,160 |   |
| Commercial                                                       |   |                          | 15,988  |   |   |   | 14,938 |   |   |   | 16,633 |   |
| Industrial                                                       |   |                          | 504     |   |   |   | 517 |   |   |   | 525 |   |
|     Gas      sales billed                    |   |                          | 54,408  |   |   |   | 50,401 |   |   |   | 56,318 |   |
| Net      change in unbilled gas sales                            |   |                          | 1,788   |   |   |   | (1,025 | ) |   |   | 185 |   |
|     Total      gas sales                     |   |                          | 56,196  |   |   |   | 49,376 |   |   |   | 56,503 |   |
| Gas      transported                                             |   |                          | 26,911  |   |   |   | 26,340 |   |   |   | 27,609 |   |
|     Total      gas sales and gas transported |   |                          | 83,107  |   |   |   | 75,716 |   |   |   | 84,112 |   |
|                                                             |   |                          |    |   |   |   |   |   |   |   |   |   |
| Gas      sales revenues ($ in thousands):                        |   |                          |    |   |   |   |   |   |   |   |   |   |
| Residential                                                      |   | $                             | 495,464 |   |   | $ | 472,926 |   |   | $ | 500,874 |   |
| Commercial                                                       |   |                          | 186,987 |   |   |   | 189,837 |   |   |   | 201,122 |   |
| Industrial                                                       |   |                          | 10,900  |   |   |   | 11,140 |   |   |   | 10,499 |   |
|     Gas      revenues billed                 |   |                          | 693,351 |   |   |   | 673,903 |   |   |   | 712,495 |   |
| Net      change in unbilled gas sales revenues                   |   |                          | 9,491   |   |   |   | (25,681 | ) |   |   | 19,561 |   |
|     Total      gas sales revenues            |   |                          | 702,842 |   |   |   | 648,222 |   |   |   | 732,056 |   |
| Gas      transportation revenues                                 |   |                          | 12,669  |   |   |   | 12,253 |   |   |   | 12,885 |   |
| Other      revenues                                              |   |                          | 16,598  |   |   |   | 8,246 |   |   |   | 7,758 |   |
|     Total      operating revenues            |   | $                             | 732,109 |   |   | $ | 668,721 |   |   | $ | 752,699 |   |
|                                                             |   |                          |    |   |   |   |   |   |   |   |   |   |
|                                                             |   |                          |    |   |   |   |   |   |   |   |   |   |
| Weather:                                                         |   |                          |    |   |   |   |   |   |   |   |   |   |
| Massachusetts      Utility Operations:                           |   |                          |    |   |   |   |   |   |   |   |   |   |
| Degree      days (1)                                             |   |                          | 5,371   |   |   |   | 4,901 |   |   |   | 5,801 |   |
| Percent      of 10-year measure (2)                              |   |                          | 86      | % |   |   | 90 | % |   |   | 106 | % |
| Percent      of 30-year measure (2)                              |   |                          | 89      | % |   |   | 85 | % |   |   | 101 | % |
|                                                             |   |                          |    |   |   |   |   |   |   |   |   |   |
| Missouri      Utility Operations:                                |   |                          |    |   |   |   |   |   |   |   |   |   |
| Degree      days (1)                                             |   |                          | 4,776   |   |   |   | 3,996 |   |   |   | 4,621 |   |
| Percent      of 10-year measure (2)                              |   |                          | 92      | % |   |   | 77 | % |   |   | 89 | % |
| Percent      of 30-year measure (2)                              |   |                          | 92      | % |   |   | 77 | % |   |   | 89 | % |
|                                                             |   |                          |    |   |   |   |   |   |   |   |   |   |

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|                    |   | Date      of Last |   |                                       |   |
|-------------------------|--------|-------------------|--------|--------------------------------------------|--------|
| Utility      Operations |   | Rate      Filing  |   | Status      (1)                            |   |
|                    |   |              |   |                                       |   |
| Missouri                |   | May      2006     |   | MPSC      rate order effective April 2007. |   |
|                    |   |              |   |                                       |   |
| Massachusetts           |   | June      2007    |   | Settlement      effective August 2007.     |   |
|                    |   |              |   |                                       |   |

| (1) | For      more information related to these rate filings, see Item 8.  Financial      Statements and Supplementary Data, Note 16 – Regulation and      Rates. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                         |   | Number      of employees   |   | Expiration      of    |
|------------------------------|--------|----------------------------|--------|-----------------------|
| Company                      |   | Represented      by Unions |   | Current      Contract |
|                         |   |                       |   |                  |
| PEPL                         |   |                       |   |                  |
| USW      Local 348           |   |  215                  |   | May      27, 2009     |
|                         |   |                       |   |                  |
| Missouri      Gas Energy     |   |                       |   |                  |
| Gas      Workers 781         |   |  195                  |   | April      30, 2009   |
| IBEW      Local 53           |   |  98                   |   | April      30, 2009   |
| USW      Local 5-267         |   |  27                   |   | April      30, 2009   |
| USW      Local 12561, 14228  |   |  142                  |   | April      30, 2009   |
|                         |   |                       |   |                  |
| New      England Gas Company |   |                       |   |                  |
| UWUA      Local 431          |   |  72                   |   | April      30, 2010   |
|                         |   |                       |   |                  |

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ITEM 1A.  Risk Factors.

----

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|   | · | examine      and potentially acquire regulated or unregulated businesses, including      transportation and storage assets and gathering and processing businesses      within the natural gas industry; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | enter      into joint venture agreements and/or other transactions with other      industry participants or financialinvestors; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|

|   | · | selectively      divest parts of its business, including parts of its core operations;      and |
|--------|--------|-------------------------------------------------------------------------------------------------|

|   | · | continue      expanding its existing operations. |
|--------|--------|--------------------------------------------------|

|   | · | its      success in bidding for theopportunities; |
|--------|--------|---------------------------------------------------|

|   | · | its      ability to assess the risks of the  opportunities; |
|--------|--------|-------------------------------------------------------------|

|   | · | its      ability to obtain regulatory approvals on favorable terms;    and |
|--------|--------|----------------------------------------------------------------------------|

|   | · | its      access to financing on acceptableterms. |
|--------|--------|--------------------------------------------------|

|   | · | the      risk of diverting management's attention from day-to-day      operations; |
|--------|--------|------------------------------------------------------------------------------------|

|   | · | the      risk that the acquired businesses will require substantial capital and      financial investments; |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

|   | · | the      risk that the investments will fail to perform in accordance with      expectations; and |
|--------|--------|---------------------------------------------------------------------------------------------------|

|   | · | the      risk of substantial difficulties in the transition and integration      process. |
|--------|--------|-------------------------------------------------------------------------------------------|

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| · | the      impact of seasonality and weather; |
|--------|---------------------------------------------|

| · | general      economic conditions; |
|--------|-----------------------------------|

| · | the      level of domestic crude oil and natural gas production and      consumption; |
|--------|---------------------------------------------------------------------------------------|

| · | the      availability of imported natural gas, NGLs and crude  oil; |
|--------|---------------------------------------------------------------------|

| · | actions      taken by foreign oil and gas producingnations; |
|--------|-------------------------------------------------------------|

| · | the      availability of local, intrastate and interstate transportation      systems; |
|--------|----------------------------------------------------------------------------------------|

| · | the      availability of natural gas liquids transportation and fractionation      capacity; |
|--------|----------------------------------------------------------------------------------------------|

| · | the      availability and marketing of competitivefuels; |
|--------|----------------------------------------------------------|

| · | the      impact of energy conservation efforts;and |
|--------|----------------------------------------------------|

| · | the      extent of governmental regulation andtaxation. |
|--------|---------------------------------------------------------|

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

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

|   | · | adverse      weather conditions, such as warmer than normal weather in the Company’s      service territories, and the operational impact of natural      disasters; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

|   | · | the      outcome of pending and futurelitigation; |
|--------|--------|---------------------------------------------------|

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

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

|   | · | The      Company’s increased exposure to highly competitive commodity businesses      through its Gathering and Processingsegment; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the      Company’s ability to acquire new businesses and assets and integrate those      operations into its existing operations, as well as its ability to expand      its existing businesses andfacilities; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

|   | · | changes      in the ratings of the debt securities of Southern Union or any of its      subsidiaries; |
|--------|--------|-------------------------------------------------------------------------------------------------------|

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

|   | · | acts      of nature, sabotage, terrorism or other acts causing damage greater than      the Company’s insurance coveragelimits; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------|

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

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

ITEM 1B.  Unresolved Staff Comments.

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Table of Contents

ITEM 2.  Properties.

ITEM 3.  Legal Proceedings.

ITEM 4.  Submission of Matters to a Vote of SecurityHolders.

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Table of Contents

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

|                    |   | Dollars      per share |   |
|-------------------------|--------|------------------------|--------|
|                    |   | High                   |   |   | Low |   |   | Dividends |   |
|                    |   |                   |   |   |   |   |   |   |   |
| (Quarter      Ended)    |   |                   |   |   |   |   |   |   |   |
| December      31, 2007  |   | $                      | 33.01  |   |   | $ | 28.46 |   |   | $ | 0.15 |   |
| September      30, 2007 |   |                   | 35.05  |   |   |   | 27.20 |   |   |   | 0.10 |   |
| June      30, 2007      |   |                   | 35.50  |   |   |   | 30.35 |   |   |   | 0.10 |   |
| March      31, 2007     |   |                   | 30.50  |   |   |   | 26.81 |   |   |   | 0.10 |   |
|                    |   |                   |   |   |   |   |   |   |   |   |   |   |
| (Quarter      Ended)    |   |                   |   |   |   |   |   |   |   |   |   |   |
| December      31, 2006  |   | $                      | 29.76  |   |   | $ | 26.19 |   |   | $ | 0.10 |   |
| September      30, 2006 |   |                   | 27.75  |   |   |   | 25.83 |   |   |   | 0.10 |   |
| June      30, 2006      |   |                   | 27.22  |   |   |   | 22.76 |   |   |   | 0.10 |   |
| March      31, 2006     |   |                   | 25.55  |   |   |   | 22.90 |   |   |   | 0.10 |   |
|                    |   |                   |   |   |   |   |   |   |   |   |   |   |

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Table of Contents

|                               | 2002   | 2003   | 2004   | 2005   | 2006   | 2007   |   |
|------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Southern      Union                | 100    | 117    | 160    | 166    | 199    | 212    |   |
| S&P      500 Index             | 100    | 129    | 143    | 150    | 173    | 183    |   |
| Bloomberg      U.S. Pipeline Index | 100    | 164    | 209    | 270    | 305    | 353    |   |
|                               |   |   |   |   |   |   |   |

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Table of Contents

|                                      |   |                                          |      |                     |   |                         |
|-------------------------------------------|--------|-----------------------------------------------|-----------|--------------------------|--------|------------------------------|
|                                      |   | Number      of Securities                     |      |                     |   | Number      of Securities    |
|                                      |   | to      Be issued Upon                        |      | Weighted-Average         |   | Remaining      Available for |
|                                      |   | Exercise      of                              |      | Exercise      Price of   |   | Future      Issuance Under   |
| Plan Category                             |   | Outstanding Options/SARs                      |      | Outstanding Options/SARs |   | Equity CompensationPlans     |
|  Plans      approved by stockholders |   |  2,076,836      |  (1) |  $22.87             |   |   6,304,479        |

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Table of Contents

ITEM 6.  SELECTED FINANCIALDATA. 

|                                       |   |                                                     |      |   |                  |   |      |                     |   |   | For      the      |   |   |          |      |   |          |   |      |
|--------------------------------------------|--------|----------------------------------------------------------|-----------|--------|-----------------------|--------|-----------|--------------------------|--------|--------|-------------------|--------|--------|---------------|-----------|--------|---------------|--------|-----------|
|                                       |   | For      the years ended                                 |      |   | six      months ended |   |      | For      the years ended |   |   |
|                                       |   |                                                     |      |   | December      31,     |   |      |                     |   |   | December      31, |   |   | June      30, |      |   |
|                                       |   | 2007                                                     |      |   | 2006 (1)         |   |      | 2005                     |   |   | 2004 (2)     |   |   | 2004          |      |   | 2003      (3) |   |      |
|                                       |   | (In      thousands of dollars, except per share amounts) |      |   |
|                                       |   |                                                     |      |   |                  |   |      |                     |   |   |              |   |   |          |      |   |          |   |      |
| Total      operating revenues              |   | $                                                        | 2,616,665 |   |                  | $      | 2,340,144 |                     |   | $      | 1,266,882         |   |   | $             | 517,849   |   |          | $      | 1,149,268 |   |   | $ | 596,330 |   |   |
| Earnings      from unconsolidated          |   |                                                     |      |   |                  |   |      |                     |   |   |              |   |   |          |      |   |          |   |      |   |   |   |   |   |   |
|      investments  |   |                                                     | 100,914   |   |                  |   | 141,370   |                     |   |   | 70,742            |   |   |          | 4,745     |   |          |   | 200       |   |   |   | 422 |   |   |
| Net      earnings (loss):                  |   |                                                     |      |   |                  |   |      |                     |   |   |              |   |   |          |      |   |          |   |      |   |   |   |   |   |   |
| Continuing      operations (4)             |   |                                                     | 211,346   |   |                  |   | 199,718   |                     |   |   | 135,731           |   |   |          | (1,635    | )      |          |   | 51,729    |   |   |   | (12,425 | ) |   |
| Discontinued      operations (5)           |   |                                                     | -         |   |                  |   | (152,952  | )                        |   |   | (132,413          | )      |   |          | 7,723     |   |          |   | 49,610    |   |   |   | 88,614 |   |   |
| Available      for common stockholders     |   |                                                     | 211,346   |   |                  |   | 46,766    |                     |   |   | 3,318             |   |   |          | 6,088     |   |          |   | 101,339   |   |   |   | 76,189 |   |   |
| Net      earnings (loss) per diluted       |   |                                                     |      |   |                  |   |      |                     |   |   |              |   |   |          |      |   |          |   |      |   |   |   |   |   |   |
| common      share (6):                     |   |                                                     |      |   |                  |   |      |                     |   |   |              |   |   |          |      |   |          |   |      |   |   |   |   |   |   |
| Continuing      operations                 |   |                                                     | 1.75      |   |                  |   | 1.70      |                     |   |   | 1.20              |   |   |          | (0.02     | )      |          |   | 0.63      |   |   |   | (0.19 | ) |   |
| Discontinued      operations               |   |                                                     | -         |   |                  |   | (1.30     | )                        |   |   | (1.17             | )      |   |          | 0.09      |   |          |   | 0.61      |   |   |   | 1.36 |   |   |
| Available      for common stockholders     |   |                                                     | 1.75      |   |                  |   | 0.40      |                     |   |   | 0.03              |   |   |          | 0.07      |   |          |   | 1.24      |   |   |   | 1.17 |   |   |
| Total      assets                          |   |                                                     | 7,397,913 |   |                  |   | 6,782,790 |                     |   |   | 5,836,819         |   |   |          | 5,568,289 |   |          |   | 4,572,458 |   |   |   | 4,590,938 |   |   |
| Stockholders’      equity            |   |                                                     | 2,205,806 |   |                  |   | 2,050,408 |                     |   |   | 1,854,069         |   |   |          | 1,497,557 |   |          |   | 1,261,991 |   |   |   | 920,418 |   |   |
| Current      portion of long-term debt and |   |                                                     |      |   |                  |   |      |                     |   |   |              |   |   |          |      |   |          |   |      |   |   |   |   |   |   |
| capital      lease obligation              |   |                                                     | 434,680   |   |                  |   | 461,011   |                     |   |   | 126,648           |   |   |          | 89,650    |   |          |   | 99,997    |   |   |   | 734,752 |   |   |
| Long-term      debt and capital lease      |   |                                                     |      |   |                  |   |      |                     |   |   |              |   |   |          |      |   |          |   |      |   |   |   |   |   |   |
| obligation,      excluding current portion |   |                                                     | 2,960,326 |   |                  |   | 2,689,656 |                     |   |   | 2,049,141         |   |   |          | 2,070,353 |   |          |   | 2,154,615 |   |   |   | 1,611,653 |   |   |
| Company-obligated      mandatorily         |   |                                                     |      |   |                  |   |      |                     |   |   |              |   |   |          |      |   |          |   |      |   |   |   |   |   |   |
| redeemable      preferred securities       |   |                                                     |      |   |                  |   |      |                     |   |   |              |   |   |          |      |   |          |   |      |   |   |   |   |   |   |
| of      subsidiary trust                   |   |                                                     | -         |   |                  |   | -         |                     |   |   | -                 |   |   |          | -         |   |          |   | -         |   |   |   | 100,000 |   |   |
| Cash      dividends declared on common     |   |                                                     |      |   |                  |   |      |                     |   |   |              |   |   |          |      |   |          |   |      |   |   |   |   |   |   |
| stock      (7)                             |   |                                                     | 53,968    |   |                  |   | 46,289    |                     |   |   | -                 |   |   |          | -         |   |          |   | -         |   |   |   | - |   |   |
|                                       |   |                                                     |      |   |                  |   |      |                     |   |   |              |   |   |          |      |   |          |   |      |   |   |   |   |   |   |

| (1) | Includes      the impact of significant acquisitions and sales of assets.  See      Item      8.  Financial Statements and Supplementary Data, Note 3 –      Acquisitions and Sales and Item 8.  Financial      Statements and Supplementary Data, Note 19 – Discontinued Operations      for information related to the acquisitions and    sales. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | The      Company’s investment in CCE Holdings, which was accounted for using the      equity method, was included in the Company’s Consolidated Balance Sheet at      December 31, 2004.  The Company’s share of net income from CCE      Holdings was recorded as Earnings from unconsolidated      investments in the Company’s Consolidated Statement of Operations      since its acquisition on November 17, 2004.  For these reasons,      the Consolidated Statement of Operations for the periods subsequent to      such acquisition is not comparable to the year of    acquisition. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Panhandle      was acquired on June 11, 2003 and was accounted for as a      purchase.  The Panhandle assets were included in the Company's      Consolidated Balance Sheet at June 30, 2003 and its results of operations      have been included in the Company's Consolidated Statement of Operations      since its acquisition on June 11, 2003.  For these reasons, the      Consolidated Statement of Operations for the periods subsequent to such      acquisition is not comparable to the year of  acquisition. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Net      earnings from continuing operations are net of dividends on preferred      stock of $17.4 million, $17.4 million, $17.4 million, $8.7 million and      $12.7 million for the years ended December 31, 2007, 2006 and |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | On      August 24, 2006, the Company completed the sales of the assets of its PG      Energy natural gas distribution division to UGI Corporation and the Rhode      Island operations of its New England Gas Company natural gas distribution      division to National Grid USA.  On January 1, 2003, ONEOK      acquired the Company’s Southern Union Gas natural gas operating division      and related assets.  These dispositions  were      accounted for as discontinued operations in the Consolidated Statement of      Operations.  For additional related information, see Item 8. Financial Statements      and Supplementary Data, Note 19 – Discontinued      Operations. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | Earnings      per share for all periods presented were computed based on the weighted      average number of shares of common stock and common stock equivalents      out­standing during the period, adjusted for the five percent stock      dividends distributed on September 1, 2005, August 31, 2004, July 31, 2003      and July 15, 2002. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | No      cash dividends on common stock were paid during the reporting periods      prior to 2006.  See Item 5. Market for      Registrant’s Common Equity, Related Stockholder Matters and Issuer      Purchases of Equity Securities and Item 8.  Financial      Statements and Supplementary Data, Note 10 – Stockholders’ Equity –      Dividends. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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ITEM 7.  Management’s Discussion and Analysis of FinancialCondition and Results of Operations.

| · | Expanding through development      of the Company’s existing businesses.  The Company will      continue to pursue growth opportunities through the expansion of its      existing asset base, while maintaining its focus on providing safe and      reliable service to its customers.  In each of its business      segments, the Company identifies opportunities for organic growth through      incremental volumes and system enhancements to generate operating      efficiencies.  In its interstate transmission and distribution      businesses, the Company seeks rate increases and/or improved rate design      as appropriate to achieve a fair return on its investment.  See      Item      7.  Management’s Discussion and Analysis of Financial Condition      and Results of Operations – Liquidity and Capital Resources – Investing      Activities for information related to the Company’s principal      capital expenditure projects.  See Item      8.  Financial Statements and Supplementary Data, Note 16 –      Regulation and Rates for information related to ratemaking      activities. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | New      initiatives.  The Company regularly      assesses strategies to enhance stockholder value,      including diversification of earning      sources through strategic acquisitions or joint ventures in      the diversified natural gas  industry. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Disciplined capital      expenditures and cost containment programs.  The Company      will continue to focus on system optimization and cost savings while      making prudent capital expenditures across its base of energy      infrastructure assets. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

|   | · | items      that do not impact net earnings from continuing operations, such as      extraordinary items, discontinued operations and the impact of changes in      accounting principles; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | income      taxes; |
|--------|--------|--------------------|

|   | · | interest;      and |
|--------|--------|--------------------|

|   | · | dividends      on preferred stock. |
|--------|--------|------------------------------------|

|                                                |   | Years      Ended December 31, |    |
|-----------------------------------------------------|--------|-------------------------------|---------|
|                                                |   | 2007                          |    |   | 2006 |   |   | 2005 |   |
|                                                |   | (In      thousands)           |    |
| EBIT:                                               |   |                          |    |   |   |   |   |   |   |
| Transportation      and storage segment             |   | $                             | 391,029 |   |   | $ | 417,536 |   |   | $ | 281,344 |   |
| Gathering      and processing segment               |   |                          | 65,368  |   |   |   | 62,630 |   |   |   | - |   |
| Distribution      segment                           |   |                          | 70,568  |   |   |   | 41,883 |   |   |   | 61,698 |   |
| Corporate      and other                            |   |                          | 151     |   |   |   | 14,324 |   |   |   | (11,424 | ) |
| Total      EBIT                                     |   |                          | 527,116 |   |   |   | 536,373 |   |   |   | 331,618 |   |
| Interest      expense                               |   |                          | 203,146 |   |   |   | 210,043 |   |   |   | 128,470 |   |
| Earnings      from continuing operations before     |   |                          |    |   |   |   |   |   |   |   |   |   |
| income      taxes                                   |   |                          | 323,970 |   |   |   | 326,330 |   |   |   | 203,148 |   |
| Federal      and state income taxes                 |   |                          | 95,259  |   |   |   | 109,247 |   |   |   | 50,052 |   |
| Earnings      from continuing operations            |   |                          | 228,711 |   |   |   | 217,083 |   |   |   | 153,096 |   |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |
| Discontinued      operations:                       |   |                          |    |   |   |   |   |   |   |   |   |   |
| Loss      from discontinued operations              |   |                          |    |   |   |   |   |   |   |   |   |   |
| before      income taxes                            |   |                          | -       |   |   |   | (2,369 | ) |   |   | (111,588 | ) |
| Federal      and state income taxes                 |   |                          | -       |   |   |   | 150,583 |   |   |   | 20,825 |   |
| Loss      from discontinued operations              |   |                          | -       |   |   |   | (152,952 | ) |   |   | (132,413 | ) |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |
| Preferred      stock dividends                      |   |                          | 17,365  |   |   |   | 17,365 |   |   |   | 17,365 |   |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |
| Net      earnings available for common stockholders |   | $                             | 211,346 |   |   | $ | 46,766 |   |   | $ | 3,318 |   |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |

|   | · | Impact      of the $153 million loss from discontinued operations in the 2006 period      associated with the August 2006 sales of the assets of the Company’s PG      Energy natural gas distribution division and the Rhode Island operations      of its New England Gas Company natural gas distribution      division; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

|   | · | Higher      EBIT contributions of $28.7 million from the Distribution segment      primarily due to higher net operating revenue resulting from the Missouri      Gas Energy rate increase effective April 3, 2007 eliminating the impact of      weather and conservation for residential margin  revenues; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Lower      interest expense of $6.9 million primarily due to the retirement of debt      in 2006 associated with the bridge loan facility entered into to finance      the acquisition of the Sid Richardson Energy Services business, partially      offset by increased interest expense related to the $600 million Junior      Subordinated Notes issued in October 2006 and higher interest expense on      Panhandle debt primarily due to higher debt balances;  and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Lower      income tax expense from continuing operations of $14 million primarily due      to the lower  federal and state effective income tax rate (EITR) of 29 percent in      the 2007 period versus 33 percent in the 2006 period primarily due to the      tax benefit associated with the increase in the dividends received      deduction as a result of increased dividends from the Company’s      unconsolidated investment inCitrus. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Lower      EBIT contributions of $26.5 million from the Transportation and Storage      segment largely due to the gain on CCE Holdings’ exchange of Transwestern      in 2006, partially offset by higher LNG terminalling revenue associated      with the Trunkline LNG Phase I and Phase II expansions completed in April      2006 and July 2006, respectively, higher pipeline reservation revenues      driven by higher average rates on contracts, higher parking revenues and      higher equity earnings from Citrus resulting from the Company’s increased      equity ownership in Citrus from 25 percent to 50 percent effective      December 1, 2006; and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Impact      of the pre-acquisition pre-tax mark-to-market gain of $37.2 million in the      2006 period on the put options associated with the acquisition of the Sid      Richardson Energy Services business, partially offset by $12.8 million of      executive bonus compensation awarded and paid in  2006. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

|                                                         |   | Years      Ended December 31, |    |
|--------------------------------------------------------------|--------|-------------------------------|---------|
| Transportation      and Storage Segment                      |   | 2007                          |    |   | 2006 |   |   | 2005 |   |
|                                                         |   | (In      thousands)           |    |
|                                                         |   |                          |    |   |   |   |   |   |   |
| Operating      revenues                                      |   | $                             | 658,446 |   |   | $ | 577,182 |   |   | $ | 505,233 |   |
|                                                         |   |                          |    |   |   |   |   |   |   |   |   |   |
| Operating      expenses                                      |   |                          | 252,903 |   |   |   | 206,181 |   |   |   | 204,711 |   |
| Depreciation      and amortization                           |   |                          | 85,641  |   |   |   | 72,724 |   |   |   | 62,171 |   |
| Taxes      other than on income                              |   |                          |    |   |   |   |   |   |   |   |   |   |
| and      revenues                                            |   |                          | 29,699  |   |   |   | 25,405 |   |   |   | 28,196 |   |
| Total      operating income                                  |   |                          | 290,203 |   |   |   | 272,872 |   |   |   | 210,155 |   |
| Earnings      from unconsolidated                            |   |                          |    |   |   |   |   |   |   |   |   |   |
| investments                                                  |   |                          | 99,222  |   |   |   | 141,310 |   |   |   | 70,618 |   |
| Other      income, net                                       |   |                          | 1,604   |   |   |   | 3,354 |   |   |   | 571 |   |
| EBIT                                                         |   | $                             | 391,029 |   |   | $ | 417,536 |   |   | $ | 281,344 |   |
|                                                         |   |                          |    |   |   |   |   |   |   |   |   |   |
| Operating      information:                                  |   |                          |    |   |   |   |   |   |   |   |   |   |
| Panhandle      natural gas volumes transported               |   |                          |    |   |   |   |   |   |   |   |   |   |
| (in      trillion British thermal units (TBtu))              |   |                          | 1,454   |   |   |   | 1,180 |   |   |   | 1,214 |   |
| CCE      Holdings natural gas volumes transported (TBtu) (1) |   |                          |    |   |   |   |   |   |   |
| Florida      Gas                                             |   |                          | 751     |   |   |   | 737 |   |   |   | 699 |   |
| Transwestern                                                 |   |                          | -       |   |   |   | 572 |   |   |   | 589 |   |
|                                                         |   |                          |    |   |   |   |   |   |   |   |   |   |

| (1) | Represents      100 percent of Florida Gas and Transwestern natural gas volumes      transported versus the Company’s effective equity ownership      interests.  The Company’s effective equity ownership interests      in Florida Gas and Transwestern were 25 percent and 50 percent,      respectively, until December 1, 2006, when the Company’s indirect interest      in Transwestern was transferred to Energy Transfer, increasing the      Company’s effective indirect ownership interest in Florida Gas to 50      percent. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Higher      operating revenues of $81.3 million as the result  of: |
|--------|--------------------------------------------------------------------|

| ·      | Increased      transportation and storage revenue of $59.8 million attributable      to: |
|--------------------------------------|------------------------------------------------------------------------------------------|

|   | o | Higher      transportation reservation revenues of $27.4 million primarily due to      reduced discounting resulting in higher average rates realized on      contracts driven by higher customer demand and utilization of contract      capacity; |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | Higher      parking revenues of $18 million resulting from customer demand for parking      services and market conditions; |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------|

|   | o | Higher      storage revenues of $7.8 million due to increased contracted capacity;      and |
|--------|---|---------------------------------------------------------------------------------------------|

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|   | o | Higher      other commodity revenues of $6.5 million due to higher throughput volumes      including transportation of higher LNG volumes on Trunkline, higher      volumes on Sea Robin due to adverse hurricane impacts on 2006 throughput,      and higher throughput on Panhandle due to storage refill      activity. |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | A      $23.6 million increase in LNG terminalling revenue based on a capacity      increase on the BG LNG Services contract as a result of the Trunkline LNG      Phase I and Phase II expansions, which were placed in service in April      2006 and July 2006, respectively, as well as higher volumes resulting from      an increase in LNG cargoes; and |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | A      decrease in other revenue of $2.2 million primarily due to higher      operational sales of gas in 2006. |
|--------|-----------------------------------------------------------------------------------------------------------------|

| · | Higher      operating expenses of $46.7 million as the result  of: |
|--------|--------------------------------------------------------------------|

|   | o | A      $15.6 million increase in corporate services costs relating to Southern      Union’s disposition of certain assets during 2006, resulting in a larger      allocation of corporate services costs to the remaining business      units; |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | A      $13.1 million increase in contract storage costs attributable to an      increase in leased capacity; |
|--------|---|--------------------------------------------------------------------------------------------------------------|

|   | o | A      $6.2 million increase in LNG power costs resulting from increased      cargoes; |
|--------|---|----------------------------------------------------------------------------------------|

|   | o | A      $3.4 million increase in fuel tracker costs primarily due to a net      under-recovery in 2007; |
|--------|---|--------------------------------------------------------------------------------------------------------|

|   | o | A      $2.4 million net increase in labor and benefits primarily due to incentive      and merit increases; and |
|--------|---|----------------------------------------------------------------------------------------------------------------------|

|   | o | A      $1.8 million increase in insurance due to higher  premiums. |
|--------|---|--------------------------------------------------------------------|

| · | Increased      depreciation and amortization expense of $12.9 million due to a $411.2      million increase in property, plant and equipment placed in service in      2007.  Depreciation and amortization expense is expected to      continue to increase primarily due to higher capital spending, including      compression modernization and other expenditures;  and |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Higher taxes other than on income      of $4.3 million primarily due to a $2.8 million refund received in 2006      for franchise and sales taxes and higher property and compressor fuel      taxes in 2007. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | $74.8      million nonrecurring gain in 2006 resulting from the transfer of      Transwestern to Energy Transfer in December 2006 in connection with the      redemption of Energy Transfer’s interest in CCE Holdings pursuant to the      Redemption Agreement; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | $28      million of earnings in 2006 attributable to  Transwestern; |
|--------|---------------------------------------------------------------------|

| · | Higher      equity earnings of approximately $42 million from Citrus’ core business      largely due to the increase in the Company’s effective ownership from 25      percent to 50 percent as a result of the transactions under the Redemption      Agreement, which closed in December2006; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | A      $7.6 million gain in 2007 related to a reduction in a previously      established liability to Enron associated with the Duke      lawsuit; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|

| · | A      gain of $7.5 million recognized by Citrus in 2007 associated with      settlement of the Duke lawsuit; and |
|--------|-------------------------------------------------------------------------------------------------------------------|

| · | A      $3.6 million gain in 2007 related to the sale of Enron bankruptcy claim      receivables. |
|--------|--------------------------------------------------------------------------------------------------|

| · | Higher      operating revenues of $71.9 million primarily due  to: |
|--------|--------------------------------------------------------------------|

|   | o | A      $49.3 million increase in LNG terminalling revenue primarily due to      expanded vaporization capacity, a base capacity increase on the BG LNG      Services contract and higher volumes resulting from an increase in LNG      cargoes; |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | o | Increased      transportation and storage revenue of $17 million due to higher      reservation revenues of $15.6 million, which were primarily driven by      higher average rates on contracts, higher parking revenues of $1.6 million      and higher storage revenues of $4.7 million due to increased contracted      capacity.  These increases were partially offset by lower usage      revenues of $4.9 million, of which $3.1 million resulted from the 2006      impact on Sea Robin in 2006 of the hurricanes that occurred in the third      quarter of 2005 and $1.8 million resulted from lower overall capacity      utilization at Trunkline; and |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | Increased      other revenue of $5.7 million primarily due to $3.7 million of      non-recurring operational sales of gas in 2006 and $1.1 million of higher      liquids revenue. |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Higher      operating expenses of $1.5 million primarily due  to: |
|--------|-------------------------------------------------------------------|

|   | o | Approximately      $3.2 million of higher pipeline integrity assessment  costs; |
|--------|---|---------------------------------------------------------------------------------|

|   | o | Approximately      $1.6 million of higher maintenance project  costs; |
|--------|---|-----------------------------------------------------------------------|

|   | o | $1.3      million for 2006 inspections of facilities due to Hurricane      Rita; |
|--------|---|----------------------------------------------------------------------------------|

|   | o | $2.1      million of higher LNG fuel and electric power tracker costs associated      with greater LNG cargo activity; |
|--------|---|------------------------------------------------------------------------------------------------------------------------|

|   | o | A      $3.8 million nonrecurring adjustment in 2005 for lower vacation accruals      due to a change in vacation pay practice;and |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------|

|   | o | Favorable      offsetting impact of a $9.7 million decrease in insurance related costs      due to accrued losses recorded in 2005 associated with the hurricanes and      lower 2006 premiums and a $4.4 million decrease in benefit costs primarily      related to lower postretirement benefit expenses including the impact of      enactment of Medicare Part D reimbursements and benefit plan      changes; |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Increased      depreciation and amortization expense of $10.6 million due to an increase      in property, plant and equipment placed in service in 2006, including the      Trunkline LNG Phase I and Phase IIexpansions; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Favorable      offsetting impact of decreased taxes other than on income of $2.8 million      primarily due to refunds of franchise and sales taxes received in 2006;      and |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Favorable      offsetting impact of a $2.8 million increase in other income, net      primarily due to a gain on sale of certain Trunkline assets in      2006. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | A      nonrecurring gain of $74.8 million resulting from the transfer of      Transwestern pursuant to the Redemption Agreement in  2006; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------|

| · | Higher      earnings from Florida Gas of $5.5 million, $2.8 million of which related      to the December 2006 incremental earnings resulting from the Company’s      additional 25 percent indirect ownership interest in Florida Gas as a      result of the transactions under the Redemption  Agreement; |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Lower      earnings from discontinued operations of $10.6 million (adjusted to      reflect the Company’s 50 percent share) related to Transwestern primarily      due to: |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | Lower      net revenues of $4.8 million primarily related to the $8 million impact of      a decrease in transportation volumes associated with the replacement of      expired contracts at discounted rates, partially offset by $3.2 million of      increased operational gas salesrevenue; |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | Higher      operating expense of $5.5 million primarily related to higher system      balancing expenses of $3.7 million and $2 million of higher electricity      costs due to the addition of San Juan  compression; |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | A      decrease of $1.9 million in net earnings attributable to Transwestern      because 2006 contained only eleven months versus a full year of operations      in 2005 due to the redemption of Transwestern on December 1, 2006;      and |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | Favorable      offsetting impact of lower depreciation expense of $2.4 million due to the      cessation of depreciation on Transwestern following the execution of the      Redemption Agreement with EnergyTransfer. |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                                 |   | Years      Ended December 31, |        |
|------------------------------------------------------|--------|-------------------------------|-------------|
| Gathering      and Processing Segment                |   | 2007                          |        |   | 2006 (1) |   |
|                                                 |   |                          |        |   |   |   |
|                                                 |   |                          |        |   |   |   |
| Gross      margin  (2)                     |   | $                             | 210,780     |   |   | $ | 172,152 |   |
| Operating      expenses                              |   |                          | 84,550      |   |   |   | 61,428 |   |
| Depreciation      and amortization                   |   |                          | 59,560      |   |   |   | 47,321 |   |
| Taxes      other than on income and revenues         |   |                          | 2,742       |   |   |   | 2,156 |   |
| Total      operating income                          |   |                          | 63,928      |   |   |   | 61,247 |   |
| Earnings      (loss) from unconsolidated investments |   |                          | 1,300       |   |   |   | (188 | ) |
| Other      income, net                               |   |                          | 140         |   |   |   | 1,571 |   |
| EBIT                                                 |   | $                             | 65,368      |   |   | $ | 62,630 |   |
|                                                 |   |                          |        |   |   |   |   |   |
|                                                 |   |                          |        |   |   |   |   |   |
| Operating      Statistics:                           |   |                          |        |   |   |   |   |   |
| Volumes                                              |   |                          |        |   |   |   |   |   |
| Avg      natural gas processed (MMBtu/d)             |   |                          | 426,097     |   |   |   | 451,675 |   |
| Avg      NGLs produced (gallons/d)                   |   |                          | 1,337,450   |   |   |   | 1,423,138 |   |
| Avg      natural gas wellhead (MMBtu/d)              |   |                          | 637,794     |   |   |   | 585,185 |   |
| Natural      gas sales (MMBtu)                       |   |                          | 105,677,108 |   |   |   | 113,362,236 |   |
| NGLs      sales (gallons)                            |   |                          | 469,907,600 |   |   |   | 421,896,247 |   |
|                                                 |   |                          |        |   |   |   |   |   |
| Average      Pricing                                 |   |                          |        |   |   |   |   |   |
| Realized      natural gas ($/MMBtu)                  |   | $                             | 6.26        |   |   | $ | 5.83 |   |
| Realized      NGLs ($/gallon)                        |   |                          | 1.13        |   |   |   | 0.97 |   |
| Natural      Gas Daily WAHA ($/MMBtu)                |   |                          | 6.35        |   |   |   | 5.78 |   |
| Natural      Gas Daily El Paso ($/MMBtu)             |   |                          | 6.20        |   |   |   | 5.68 |   |
| Estimated      plant processing spread ($/gallon)    |   |                          | 0.55        |   |   |   | 0.43 |   |
|                                                 |   |                          |        |   |   |   |   |   |

| (2)  | Gross      margin consists of Operating revenues less      Cost of gas and other      energy.  The Company believes that this measurement is      more meaningful for understanding and analyzing the Gathering and      Processing segment’s operating results for the periods presented because      commodity costs are a significant factor in the determination of the      segment’s revenues. |
|-----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Gross      margin was higher by $38.6 million primarily due  to: |
|--------|------------------------------------------------------------------|

|   | o | Realization      of operating results for the complete twelve-month period in 2007 versus      ten months in the 2006 period; |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------|

|   | o | Favorable      impact of market-driven higher average realized natural gas and NGLs      prices of $6.26 per MMBtu and $1.13 per gallon in the 2007 period versus      $5.83 per MMBtu and $0.97 per gallon in the 2006 period, respectively;      and |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | Higher      producer fee revenues of $5 million primarily due to increased volumes      from the Atoka producing region associated with the Company’s Mi Vida      system. |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| · | Operating      expenses were higher by $23.1 million primarily due  to: |
|--------|-------------------------------------------------------------------------|

|   | o | Incurrence      of twelve months of activity in the 2007 period versus ten months in the      2006 period; |
|--------|---|------------------------------------------------------------------------------------------------------------|

|   | o | A      $4.9 million increase in corporate services costs relating to Southern      Union’s disposition of certain assets during 2006, resulting in a larger      allocation of corporate services costs to the remaining business units;      and |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | Increases      in operating costs such as employee labor and benefit costs and contractor      services costs resulting from competitive forces within the midstream      energy industry, as well as higher costs incurred for chemical and      lubricant petroleum products used in SUGS’ gathering and processing      operations; |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Depreciation      and amortization expense was higher by $12.2 million primarily due to the      incurrence of twelve months of activity in the 2007 period versus ten      months in the 2006 period and a $57.5 million increase in property, plant      and equipment placed in service in2007; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Earnings      (loss) from unconsolidated investments increased by $1.5 million primarily      due to the Company’s proportionate equity share of $463,000 related to a      settlement with a producer for damages incurred from sour gas delivered      into the Grey Ranch facility and the benefit derived from improved      operating efficiencies realized at the Grey Ranch facility;      and |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Other      income, net decreased by $1.4 million primarily due to approximately      $911,000 of lower interest income resulting from higher available cash      balances for investment purposes in the 2006 period versus the 2007      period, principally due to the $53.7 million of cash on hand at the March      1, 2006 acquisition date. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Processing      plant outages; |
|--------|--------|--------------------------------|

|   | · | Higher      than anticipated FF&U efficiencylevels; |
|--------|--------|---------------------------------------------------------|

|   | · | Impact      of commodity prices in general; |
|--------|--------|---------------------------------------------|

|   | · | Lower      than expected recovery of NGLs from the residue gas stream;      and |
|--------|--------|---------------------------------------------------------------------------------|

|   | · | Lower      than expected recovery of natural gas volumes to be    processed. |
|--------|--------|------------------------------------------------------------------------------|

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|                                             |   | Years      Ended December 31, |    |
|--------------------------------------------------|--------|-------------------------------|---------|
| Distribution      Segment                        |   | 2007                          |    |   | 2006 |   |   | 2005 |   |
|                                             |   | (In      thousands)           |    |
|                                             |   |                          |    |   |   |   |   |   |   |
| Net      operating revenues   (1) |   | $                             | 222,097 |   |   | $ | 174,584 |   |   | $ | 184,257 |   |
|                                             |   |                          |    |   |   |   |   |   |   |   |   |   |
| Operating      expenses                          |   |                          | 108,788 |   |   |   | 90,178 |   |   |   | 87,306 |   |
| Depreciation      and amortization               |   |                          | 30,251  |   |   |   | 30,353 |   |   |   | 29,447 |   |
| Taxes      other than on income                  |   |                          |    |   |   |   |   |   |   |   |   |   |
| and      revenues                                |   |                          | 10,588  |   |   |   | 10,040 |   |   |   | 3,208 |   |
| Total      operating income                      |   |                          | 72,470  |   |   |   | 44,013 |   |   |   | 64,296 |   |
| Other      income (expenses), net                |   |                          | (1,902  | ) |   |   | (2,130 | ) |   |   | (2,598 | ) |
| EBIT                                             |   | $                             | 70,568  |   |   | $ | 41,883 |   |   | $ | 61,698 |   |
|                                             |   |                          |    |   |   |   |   |   |   |   |   |   |

| (1)  Operating      revenues for the Distribution segment are reported net of Cost                                            |   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|             of gasand other energy and      Revenue-related      taxes, which are both pass-throughcosts. |

| · | Net      operating revenues increased $47.5 million primarily due to the Missouri      Gas Energy $27.2 million annual revenue rate increase effective April 3,      2007 and higher consumption volumes resulting from colder weather in 2007      versus 2006 as evidenced by a 13.8 percent increase in consumption volumes      and a 14 percent increase in degreedays; |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The      net operating revenues increase was partially offset by higher operating      expenses of $18.6 million in the 2007 period versus the 2006 period      primarily due to: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | Increased      benefit costs of approximately $7.1 million primarily due      to higher pension costs resulting from the recent Missouri Gas      Energy rate case; |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | Increased      general expenses of approximately $4.5 million primarily due to cathodic      protection maintenance, the establishment of a customer education program      for energy efficiency associated with the 2007 rate case and other      costs; |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | Increased      labor expenses of approximately $5.5 million primarily due to the filling      of vacant positions and incentive and merit increases in 2007 versus      2006; |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | Higher      uncollectible accounts of approximately $1.8 million resulting primarily      from higher revenues realized in the 2007 period versus the 2006      period. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| · | Net      operating revenues were $9.7 million lower primarily due to a 12.6 percent      reduction in consumption volumes resulting from the warmer than normal      weather, as evidenced by a 15 percent reduction in degree      days; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Higher      taxes other than on income and revenues of $6.8 million primarily due to      refunds received for Missouri property tax settlements in 2005;      and |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Higher      operating expenses of $2.9 million primarily due to higher bad debt      expenses of $900,000 due to the residual effects of higher gas prices in      the 2005 to 2006 winter season and higher general expenses in 2006 of $1.3      million primarily due to higher corrosion control costs resulting from      drier weather in 2006 compared to2005. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Impact      of a mark-to-market gain in 2006 of $37.2 million on put options for the      pre-acquisition period associated with the March 1, 2006 acquisition of      the Sid Richardson Energy Services business;and |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Favorable      offsetting impact of a decrease in operating expenses in 2007 versus 2006      due to executive bonus compensation of $12.8 million awarded by the      compensation committee of the Company’s Board of Directors in 2006 in      respect of transactional activity and a $10.7 million increase in      corporate services costs allocated to the Company’s business units in      2007. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | A      mark-to-market gain of $37.2 million on put options for the      pre-acquisition period associated with the March 1, 2006 acquisition of      Sid Richardson Energy Services; |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Negative      impact of $12.8 million of executive bonus compensation awarded and paid      in 2006; |
|--------|------------------------------------------------------------------------------------------------------|

| · | Negative      impact of a $6.5 million write-down in the carrying value of the Scranton      corporate building recorded in2006; |
|--------|----------------------------------------------------------------------------------------------------------------------------------|

| · | Negative      impact of $1.4 million of corporate stock-based compensation costs      resulting from the implementation of and accounting under Financial      Accounting Standards Board (FASB) Statement No.      123(R), Accounting for Stock-Based Compensation in  2006; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Impact      of $3.8 million of non-cash compensation expense in the third quarter of      2005 related to separation agreements with former executives of the      Company; and |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Charges      of $6.3 million in the first quarter of 2005 to: (i) reserve for an      other-than-temporary impairment in the Company’s investment in a      technology company, and (ii) record a liability for the guarantee by a      subsidiary of the Company of a line of credit between the technology      company and a bank. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Impact      of interest expense of $49.2 million and debt issuance cost amortization      of $7.8 million in 2006 associated with the bridge loan facility entered      into to finance the acquisition of the Sid Richardson Energy Services      business, which was retired using approximately $1.1 billion in net      proceeds from the sale of certain assets in August 2006 and funds obtained      in October 2006 from the issuance of the $600 million Junior Subordinated      Notes; |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Lower      interest expense of $6 million associated with borrowings under the      Company’s credit agreements primarily due to lower average outstanding      balances in 2007 compared to 2006; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Lower      interest expense of $2.2 million due to the retirement of the 2.75% Senior      Notes in August 2006; |
|--------|------------------------------------------------------------------------------------------------------------------|

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| · | Lower      interest expense of $1.6 million associated with interest owed to Missouri      Gas Energy’s ratepayers in connection with its purchased gas cost recovery      mechanism primarily due to higher levels of overcollections in      2006; |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Partially      offset by increased interest expense of $34.9 million related to the $600      million Junior Subordinated Notes issued in October  2006; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Partially      offset by increased interest expense of $20.6 million related to Panhandle      debt primarily due to higher debt balances in 2007 versus 2006;      and |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Partially      offset by increased interest expense of $4.8 million under the 6.15%      Senior Notes issued in August 2006. |
|--------|------------------------------------------------------------------------------------------------------------------------------|

| · | Interest      expense of $49.2 million and debt issuance cost amortization of $7.8      million associated with the bridge loan facility entered into to finance      the acquisition of the Sid Richardson Energy Services      business; |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Increased      interest expense of $10.8 million related to Panhandle debt primarily due      to higher average interest rates in 2006 versus  2005; |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Interest      expense of $2.5 million under the $465 million 2006 Term    Loan; |
|--------|---------------------------------------------------------------------------------|

| · | Interest      expense of $8.3 million related to the $600 million Junior Subordinated      Notes issued in 2006; and |
|--------|----------------------------------------------------------------------------------------------------------------------|

| · | Increased      interest expense of $4.4 million associated with borrowings under the      Company’s credit agreements primarily due to higher average outstanding      balances and higher interest rates in 2006 compared to    2005. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Tax      benefits of $30.9 million in 2007 versus $11.5 million in 2006 associated      with the increase in the dividends received deduction as a result of      increased dividends from the Company’s unconsolidated investment in      Citrus; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Reduced      tax expense of $523,000 in 2007 versus $5.4 million in 2006 associated      with the decrease in nondeductible executive compensation;    and |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Partially offset by the release      of $9.4 million of tax reserves in 2006 for uncertain tax positions      established in prior years due to the completion of the Internal Revenue      Service (IRS) audit for the fiscal year ended      June 30, 2003 and expiring state  statutes. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The      release in 2005 of an $11.9 million valuation allowance, which was      originally established in 2004 for a deferred tax asset related to the      difference between the book and tax basis of the Company’s investment in      CCE Holdings.  The Company determined that this valuation      allowance was no longer necessary because the book income from CCE      Holdings was substantially greater than the taxable income for 2005 and      was expected to continue to be higher for the foreseeable      future; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The      release in 2006 of $9.4 million of tax reserves for uncertain tax      positions established in prior years due to the completion of the IRS      audit for the fiscal year ended June 30, 2003 and expiring state statutes;      and |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | $5.4      million of additional taxes resulting from the $14.5 million of      non-deductible executive compensation paid in  2006. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------|

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| · | The      Company incurred $142.4 million of income tax expense in 2006 resulting      from $379.8 million of non-deductible goodwill related to the disposition      of these assets in 2006 compared to $65.6 million of income tax expense      resulting from $175 million of non-deductible goodwill impairment related      to these assets recorded in 2005;and |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The      Company incurred income tax expense of $17.6 million in 2006 as a result      of the write-off of a tax-related regulatory asset of PG      Energy. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                             |   | Years      ended December 31, |    |
|--------------------------------------------------|--------|-------------------------------|---------|
| Property,      Plant and Equipment Additions     |   | 2007                          |    |   | 2006 |   |   | 2005 |   |
|                                             |   | (In      thousands)           |    |
| Transportation      and Storage Segment          |   |                          |    |   |   |   |   |   |   |
| LNG      Terminal Expansions/Enhancements        |   | $                             | 133,469 |   |   | $ | 57,045 |   |   | $ | 75,263 |   |
| Trunkline      Field Zone Expansion              |   |                          | 185,180 |   |   |   | 12,314 |   |   |   | 169 |   |
| East      End Enhancement                        |   |                          | 80,249  |   |   |   | 52,102 |   |   |   | 1,012 |   |
| Compression      Modernization                   |   |                          | 81,687  |   |   |   | 11,642 |   |   |   | - |   |
| Other,      primarily pipeline integrity, system |   |                          |    |   |   |   |   |   |   |   |   |   |
| reliability,      information technology, air    |   |                          |    |   |   |   |   |   |   |   |   |   |
| emission      compliance                         |   |                          | 110,568 |   |   |   | 111,718 |   |   |   | 112,971 |   |
| Total                                            |   |                          | 591,153 |   |   |   | 244,821 |   |   |   | 189,415 |   |
|                                             |   |                          |    |   |   |   |   |   |   |   |   |   |
| Gathering      and Processing Segment            |   |                          | 48,633  |   |   |   | 35,101 |  (1) |   |   | - |   |
|                                             |   |                          |    |   |   |   |   |   |   |   |   |   |
| Distribution      Segment                        |   |                          |    |   |   |   |   |   |   |   |   |   |
| Missouri      Safety Program                     |   |                          | 11,405  |   |   |   | 11,592 |   |   |   | 11,426 |   |
| Other,      primarily system replacement         |   |                          |    |   |   |   |   |   |   |   |   |   |
| and      expansion                               |   |                          | 33,364  |   |   |   | 36,362 |   |   |   | 73,470 |   |
|                                             |   |                          |    |   |   |   |   |   |   |   |   |   |
| Total                                            |   |                          | 44,769  |   |   |   | 47,954 |   |   |   | 84,896 |   |
|                                             |   |                          |    |   |   |   |   |   |   |   |   |   |
| Corporate      and other                         |   |                          | 4,173   |   |   |   | 4,798 |   |   |   | 2,306 |   |
|                                             |   |                          |    |   |   |   |   |   |   |   |   |   |
| Total  (2)                             |   | $                             | 688,728 |   |   | $ | 332,674 |   |   | $ | 276,617 |   |
|                                             |   |                          |    |   |   |   |   |   |   |   |   |   |

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|                                               |   | Contractual      Obligations (In thousands) |      |
|----------------------------------------------------|--------|---------------------------------------------|-----------|
|                                               |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 2013      and |   |
|                                               |   | Total                                       |      |   | 2008 |   |   | 2009 |   |   | 2010 |   |   | 2011 |   |   | 2012 |   |   | thereafter |   |
|                                               |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term      debt (1), (2)                       |   | $                                           | 3,388,913 |   |   | $ | 434,831 |   |   | $ | 60,623 |   |   | $ | 140,500 |   |   | $ | - |   |   | $ | 857,389 |   |   | $ | 1,895,570 |   |
| Short-term      borrowing,                         |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| including      credit facilities (1)               |   |                                        | 123,000   |   |   |   | 123,000 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Gas      purchases (3)                             |   |                                        | 618,822   |   |   |   | 244,103 |   |   |   | 209,202 |   |   |   | 165,517 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Missouri      Gas Energy Safety Program            |   |                                        | 141,324   |   |   |   | 12,991 |   |   |   | 12,633 |   |   |   | 12,760 |   |   |   | 12,887 |   |   |   | 10,868 |   |   |   | 79,185 |   |
| Transportation      contracts                      |   |                                        | 310,987   |   |   |   | 74,786 |   |   |   | 70,732 |   |   |   | 55,815 |   |   |   | 44,664 |   |   |   | 11,819 |   |   |   | 53,171 |   |
| Storage      contracts (4)                         |   |                                        | 175,169   |   |   |   | 32,273 |   |   |   | 24,242 |   |   |   | 18,720 |   |   |   | 17,250 |   |   |   | 14,302 |   |   |   | 68,382 |   |
| Operating      lease payments                      |   |                                        | 143,903   |   |   |   | 16,423 |   |   |   | 19,236 |   |   |   | 18,294 |   |   |   | 18,230 |   |   |   | 13,929 |   |   |   | 57,791 |   |
| Interest      payments on debt  (5), (6) |   |                                        | 4,196,668 |   |   |   | 213,424 |   |   |   | 190,243 |   |   |   | 184,631 |   |   |   | 182,961 |   |   |   | 151,448 |   |   |   | 3,273,961 |   |
| Benefit      plan contributions                    |   |                                        | 24,314    |   |   |   | 24,314 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Other  (7)                               |   |                                        | 4,116     |   |   |   | 1,690 |   |   |   | 980 |   |   |   | 872 |   |   |   | 389 |   |   |   | 185 |   |   |   | - |   |
| Total      contractual cash obligations            |   | $                                           | 9,127,216 |   |   | $ | 1,177,835 |   |   | $ | 587,891 |   |   | $ | 597,109 |   |   | $ | 276,381 |   |   | $ | 1,059,940 |   |   | $ | 5,428,060 |   |
|                                               |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (1) | The      Company is party to debt agreements containing certain covenants that, if      not satisfied, would give rise to an event of default that would cause      such debt to become immediately due and payable.  Such covenants      require the Company to maintain a certain level of net worth, to meet      certain debt to total capitalization ratios, and to meet certain ratios of      earnings before depreciation, interest and taxes to cash interest      expense.  At December 31, 2007, the Company was in compliance      with all of its covenants.  See Item 8.  Financial      Statements and Supplementary Data, Note 13 – Debt      Obligations. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | The      long-term debt principal payment obligations exclude $6.1 million of      unamortized debt premium as of December 31,  2007. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------|

| (3) | The      Company has purchase gas tariffs in effect for all its utility service      areas that provide for recovery of its purchased gas costs under defined      methodologies. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Represents      charges for third party storagecapacity. |
|-----|----------------------------------------------------------|

| (5) | Interest      payments on debt are based upon the applicable stated or variable interest      rates as of December 31, 2007.  Includes approximately $2.5      billion of interest payments associated with the $600 million Junior      Subordinated Notes due November 1,2066. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | Excludes      interest on the $100 million 6.089% Senior Notes due February 16, 2010      entered into on February 19, 2008. See      Item      8.  Financial Statements and Supplementary Data, Note 25 –      Subsequent Event. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (7) | Includes      FIN 48 unrecognized tax benefits and various other contractual      obligations. |
|-----|------------------------------------------------------------------------------------------------|

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ITEM 7A.  Quantitative and Qualitative Disclosures AboutMarket Risk.

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|   | · | Processing      plant outages; |
|--------|--------|--------------------------------|

|   | · | Higher      than anticipated FF&U efficiencylevels; |
|--------|--------|---------------------------------------------------------|

|   | · | Impact      of commodity prices in general; |
|--------|--------|---------------------------------------------|

|   | · | Lower      than expected recovery of NGLs from the residue gas stream;      and |
|--------|--------|---------------------------------------------------------------------------------|

|   | · | Lower      than expected recovery of natural gas volumes to be    processed. |
|--------|--------|------------------------------------------------------------------------------|

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ITEM 8.  Financial Statements and SupplementaryData.

ITEM 9.  Changes in and Disagreements with Accountants onAccounting and Financial Disclosure.

ITEM 9A.  Controls and Procedures.

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| · | Provide      reasonable assurance that transactions are recorded as necessary to permit      preparation of financial statements in accordance with accounting      principles generally accepted in the United States of America, and that      receipts and expenditures of the Company are being made only in accordance      with authorizations of management and directors of the      Company; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Pertain      to the maintenance of records that in reasonable detail accurately and      fairly reflect the transactions and dispositions of the assets of the      Company; and |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | Provide      reasonable assurance regarding the prevention or timely detection of      unauthorized acquisition, use or disposition of the Company’s assets that      could have a material effect on the financial  statements. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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ITEM 9B.  Other Information.

ITEM 10.  Directors, Executive Officers and CorporateGovernance.

ITEM 11.  Executive Compensation.

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

ITEM 13.  Certain Relationships and Related Transactions,and Director Independence.

ITEM14.  Principal Accounting Fees and Services.

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ITEM 15.  Exhibits, Financial StatementSchedules.

| (a)(1)      and (2) | Financial Statements      and Financial StatementSchedules. |
|---------------------|-------------------------------------------------------------|

| (a)(3) | Exhibits. |
|--------|-----------|

|   | 2(a) | Purchase      and Sale Agreement by and among SRCG, Ltd. and SRG Genpar, L.P., as      Sellers and Southern Union Panhandle LLC and Southern Union Gathering      Company LLC, as Buyers, dated as of December 15, 2005. (Filed as Exhibit      10.1 to Southern Union’s Current Report on Form 8-K filed on December 16,      2005 and incorporated herein byreference.) |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2(b) | Purchase      and Sale Agreement between Southern Union Company and UGI Corporation,      dated as of January 26, 2006. (Filed as Exhibit 10.1 to Southern Union’s      Current Report on Form 8-K filed on January 30, 2006 and incorporated      herein by reference.) |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2(c) | First      Amendment to the Purchase and Sale Agreement between Southern Union      Company and UGI Corporation, dated as of August 24, 2006. (Filed as      Exhibit 10.1 to Southern Union’s Current Report on Form 8-K filed on      August 30, 2006 and incorporated herein by  reference.) |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2(d) | Purchase      and Sale Agreement between Southern Union Company and National Grid USA,      dated as of February 15, 2006. (Filed as Exhibit 10.1 to Southern Union’s      Current Report on Form 8-K filed on February 17, 2006 and incorporated      herein by reference.) |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2(e) | Limited      Settlement Agreement between Southern Union Company, Narragansett Electric      Company d/b/a National Grid, the Department of the Attorney General for      the State of Rhode Island and the Rhode Island Department of Environmental      Management, dated as of August 24, 2006. (Filed as Exhibit 10.2 to      Southern Union’s Current Report on Form 8-K filed on August 30, 2006 and      incorporated herein by reference.) |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2(f) | First      Amendment to the Purchase and Sale Agreement between Southern Union      Company and National Grid USA, dated as of August 24, 2006. (Filed as      Exhibit 10.3 to Southern Union’s Current Report on Form 8-K filed on      August 30, 2006 and incorporated herein by  reference.) |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2(g) | Redemption      Agreement by and between CCE Holdings, LLC and Energy Transfer Partners,      L.P., dated as of September 18, 2006. (Filed as Exhibit 10.1 to Southern      Union’s Current Report on Form 8-K filed on September 18, 2006 and      incorporated herein by reference.) |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2(h) | Letter      Agreement by and between Southern Union Company and Energy Transfer      Partners, L.P., dated as of September 14, 2006. (Filed as Exhibit 10.2 to      Southern Union’s Current Report on Form 8-K filed on September 18, 2006      and incorporated herein byreference) |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3(a) | Amended      and Restated Certificate of Incorporation of Southern Union Company.      (Filed as Exhibit 3(a) to Southern Union’s Annual Report on Form 10-K      filed on March 16, 2006 and incorporated herein by    reference.) |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3(b) | By-Laws      of Southern Union Company, as amended through January 3,      2007.  (Filed as Exhibit 3.1 to Southern Union’s Current Report      on Form 8-K filed on January 3, 2007 and incorporated herein by      reference.) |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3(c) | Certificate      of Designations, Preferences and Rights re: Southern Union Company’s 7.55%      Noncumulative Preferred Stock, Series A. (Filed as Exhibit 4.1 to Southern      Union’s Form 8-A/A dated October 17, 2003 and incorporated herein by      reference.) |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | 4(a) | Specimen      Common Stock Certificate.  (Filed as Exhibit 4(a) to Southern      Union's Annual Report on Form 10-K for the year ended December 31, 1989      and incorporated herein byreference.) |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(b) | Indenture      between The Bank of New York Trust Company, N.A., as successor to Chase      Manhattan Bank, N.A., as trustee, and Southern Union Company dated      January 31, 1994.  (Filed as Exhibit 4.1 to Southern      Union's Current Report on Form 8-K dated February 15, 1994 and      incorporated herein by reference.) |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(c) | Officers'      Certificate dated January 31, 1994 setting forth the terms of the 7.60%      Senior Debt Securities due 2024.  (Filed as Exhibit 4.2 to      Southern Union's Current Report on Form 8-K dated February 15, 1994      and incorporated herein byreference.) |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(d) | Officer's      Certificate of Southern Union Company dated November 3, 1999 with respect      to 8.25% Senior Notes due 2029.  (Filed as Exhibit 99.1 to      Southern Union's Current Report on Form 8-K filed on November 19, 1999 and      incorporated herein by reference.) |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(e) | Form      of Supplemental Indenture No. 1, dated June 11, 2003, between Southern      Union Company and The Bank of New York Trust Company, N.A., as successor      to JP Morgan Chase Bank (formerly the Chase Manhattan Bank, National      Association). (Filed as Exhibit 4.5 to Southern Union’s Form 8-A/A dated      June 20, 2003 and incorporated herein by  reference.) |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(f) | Supplemental      Indenture No. 2, dated February 11, 2005, between Southern Union Company      and The Bank of New York Trust Company, N.A., as successor to JP Morgan      Chase Bank, N.A. (f/n/a JP Morgan Chase Bank). (Filed as Exhibit 4.4 to      Southern Union’s Form 8-A/A dated February 22, 2005 and incorporated      herein by reference.) |
|--------|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |  4(g) | Subordinated      Debt Securities Indenture between Southern Union Company and The Bank of      New York Trust Company, N.A., as successor to JP Morgan Chase Bank      (as successor      to The Chase Manhattan Bank, N.A.), as Trustee. (Filed as Exhibit 4-G to      Southern Union’s Registration Statement on Form S-3 (No. 33-58297) and      incorporated herein by reference.) |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(h) | Second      Supplemental Indenture, dated October 23, 2006, between Southern Union      Company and The Bank of New York Trust Company, N.A., successor to JP      Morgan Chase Bank, N.A., formerly known as JPMorgan Chase Bank, formerly      known as The Chase Manhattan Bank (National      Association).  (Filed as Exhibit 4.1 to Southern Union’s Form      8-K/A dated October 24, 2006 and incorporated herein by      reference.) |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(i) | 2006      Series A Junior Subordinated Notes Due November 1, 2066 dated October 23,      2006 (Filed as Exhibit 4.2 to Southern Unions Current Report on Form 8-K/A      filed on October 24, 2006 and incorporated herein by      reference.) |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 4(j) | Replacement      Capital Covenant, dated as of October 23, 2006 by Southern Union Company,      a Delaware corporation with its successors and assigns, in favor of and      for the benefit of each Covered Debtor (as defined in the Covenant).      (Filed as Exhibit 4.3 to Southern Union’s Current Report on Form 8-K/A      filed on October 24, 2006 and incorporated herein by      reference.) |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |        4(k) | Southern      Union is a party to other debt instruments, none of which authorizes the      issuance of debt securities in an amount which exceeds 10% of the total      assets of Southern Union.  Southern Union hereby agrees to      furnish a copy of any of these instruments to the Commission upon      request. |
|--------|------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(a) | Construction      and Term Loan Agreement between Citrus Corp., as borrower, and Pipeline      Funding Company, LLC, as lender and administrative agent, dated as of      February 5, 2008. (Filed as Exhibit 10.1 to Southern Union’s Current      Report on Form 8-K filed on February 8, 2008 and incorporated herein by      reference.) |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(b) | Amended      and Restated Credit Agreement between Trunkline LNG Holdings, LLC, as      borrower, Panhandle Eastern Pipeline Company, LP and CrossCountry Citrus,      LLC, as guarantors, the financial institutions listed therein Bayerische      Hypo-Und Vereinsbank AG, New York Branch, as  administrative |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | agent,      dated as of June 29, 2007. (Filed as Exhibit 10.1 to Southern Union’s      Current Report on Form 8-K filed on July 6, 2007 and incorporated herein      by reference.) |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(c) | Credit      Agreement between Trunkline LNG Holdings, LLC, as borrower, Panhandle      Eastern Pipeline Company, LP and Trunkline LNG Company, LLC, as      guarantors, the financial institutions listed therein and Hypo-Und      Vereinsbank AG, New York Branch, as administrative agent, dated as of      March 15, 2007. (Filed as Exhibit 10.1 to Southern Union’s Current Report      on Form 8-K filed on March 21, 2007 and incorporated herein by      reference.) |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(d) | Fourth      Amended and Restated Revolving Credit Agreement between Southern Union      Company and the Banks named therein dated September 29, 2005. (Filed as      Exhibit 10.1 to Southern Union’s Current Report on Form 8-K filed on      October 5, 2005 and incorporated herein by  reference.) |
|--------|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(e) | First      Amendment to the Fourth Amended and Restated Revolving Credit Agreement      between Southern Union Company and the Banks named      therein.  (Filed as Exhibit 10.1 to Southern Union’s Current      Report on Form 8-K filed on March 6, 2006 and incorporated herein by      reference.) |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(f) | Second      Amendment to Fourth Amended and Restated Revolving Credit Agreement dated      September 29, 2005, among the Company, as borrower, and the lenders party      there. (Filed as Exhibit 10.1 to Southern Union’s Current Report on Form      8-K filed on October 23, 2007 and incorporated herein by      reference.) |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(g) | Form      of Indemnification Agreement between Southern Union Company and each of      the Directors of Southern Union Company.  (Filed as Exhibit      10(i) to Southern Union’s Annual Report on Form 10-K for the year ended      December 31, 1986 and incorporated herein by  reference.) |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(h) | Southern      Union Company 1992 Long-Term Stock Incentive Plan, As Amended. (Filed as      Exhibit 10(l) to Southern Union’s Annual Report on Form 10-K for the year      ended June 30, 1998 and incorporated herein by  reference.) |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(i) | Southern      Union Company Director's Deferred Compensation Plan.  (Filed as      Exhibit 10(g) to Southern Union's Annual Report on Form 10-K for the year      ended December 31, 1993 and incorporated herein by      reference.) |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(j) | First      Amendment to Southern Union Company Director’s Deferred Compensation Plan,      effective April 1, 2007. (Filed as Exhibit 10(h) to Southern Union      Company’s Quarterly Report for the quarter ended September 30, 2007 and      incorporated herein by reference.) |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(k) | Southern      Union Company Amended Supplemental Deferred Compensation Plan with      Amendments.  (Filed as Exhibit 4 to Southern Union’s Form S-8      filed May 27, 1999 and incorporated herein by  reference.) |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(l) | Separation      Agreement and General Release Agreement between Thomas F. Karam and      Southern Union Company dated November 8, 2005. (Filed as Exhibit 10.1 to      Southern Union’s Current Report on Form 8-K filed on November 8, 2005 and      incorporated herein by reference.) |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(m) | Separation      Agreement and General Release Agreement between John E. Brennan and      Southern Union Company dated July 1, 2005. (Filed as Exhibit 10.1 to      Southern Union’s Current Report on Form 8-K filed on July 5, 2005 and      incorporated herein by reference.) |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(n) | Separation      Agreement and General Release Agreement between David J. Kvapil and      Southern Union Company dated July 1, 2005. (Filed as Exhibit 10.4 to      Southern Union’s Current Report on Form 8-K filed on July 5, 2005 and      incorporated herein by reference.) |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(o) | Second      Amended and Restated Southern Union Company 2003 Stock and Incentive Plan.      (Filed as Exhibit 4 to Form S-8, SEC File No. 333-138524, filed on      November 8, 2006 and incorporated herein by  reference.) |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | 10(p) | Southern      Union Company Pennsylvania Division Stock Incentive      Plan.  (Filed as Exhibit 4 to Form S-8, SEC File No. 333-36146,      filed on May 3, 2000 and incorporated herein by  reference.) |
|--------|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(q) | Southern      Union Company Pennsylvania Division 1992 Stock Option      Plan.  (Filed as Exhibit 4 to Form S-8, SEC File No. 333-36150,      filed on May 3, 2000 and incorporated herein by  reference.) |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | 10(r) | Form      of Long Term Incentive Award Agreement, dated December 28, 2006, between      Southern Union Company and the undersigned. (Filed as Exhibit 99.1 to      Southern Union’s Form 8-K dated January 3, 2007) and incorporated herein      by reference.) |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |  10(s) | Capital      Stock Agreement dated June 30, 1986, as amended April 3, 2000      ("Agreement"), among El Paso Energy Corporation (as successor in interest      to Sonat, Inc.); CrossCountry Energy, LLC (assignee of Enron Corp., which      is the successor in interest to InterNorth, Inc. by virtue of a name      change and successor in interest to Houston Natural Gas Corporation by      virtue of a merger) and Citrus Corp. (Filed as Exhibit 10(p) to Southern      Union’s Form 10-K dated March 1, 2007 and incorporated herein by      reference.) |
|--------|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |  10(t) | Certificate      of Incorporation of Citrus Corp.  (Filed as Exhibit 10(q) to      Southern Union’s Form 10-K dated March 1, 2007 and incorporated herein by      reference.) |
|--------|-------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |  10(u) | By-Laws      of Citrus Corp., filed herewith.  (Filed as Exhibit 10(r) to      Southern Union’s Form 10-K dated March 1, 2007 and incorporated herein by      reference.) |
|--------|-------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 12 | Ratio of earnings to fixed  charges. |
|--------|----|--------------------------------------|

|   | 14 | Code      of Ethics and Business Conduct. (Filed as Exhibit 14 to Southern Union’s      Annual Report on Form 10-K filed on March 16, 2006 and incorporated herein      by reference.) |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 21 | Subsidiaries of the  Registrant. |
|--------|----|----------------------------------|

|   | 23.1 | Consent of Independent Registered Public Accounting Firm      for Southern Union Company. |
|--------|------|-------------------------------------------------------------------------------------------|

|   | 23.2 | Consent of Independent Registered Public Accounting Firm      for Citrus Corp. |
|--------|------|--------------------------------------------------------------------------------|

|   | 24 | Power ofAttorney. |
|--------|----|-------------------|

|   | 31.1 | Certificate by Chief Executive Officer pursuant to Rule      13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act      of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of      2002. |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 31.2 | Certificate by Chief Financial Officer pursuant to Rule      13a-14(a) or Rule 15d-14(a) promulgated under the Securities Exchange Act      of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of      2002. |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 32.1 | Certificate by Chief Executive Officer pursuant to Rule      13a-14(b) or Rule 15d-14(b) promulgated under the Securities Exchange Act      of 1934 and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.      Section 1350. |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 32.2 | Certificate by Chief Financial Officer pursuant to Rule      13a-14(b) or Rule 15d-14(b) promulgated under the Securities Exchange Act      of 1934 and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.      Section 1350. |
|--------|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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SIGNATURES

|   | SOUTHERN      UNION COMPANY                                                   |
|--------|-------------------------------------------------------------------------------|
|   |                                                                          |
|   | By:      /s/   George      L. Lindemann                        |
|   |       George      L. Lindemann                  |
|   |       Chairman      of the Board, President and |
|   |       Chief      Executive Officer              |

| Signature/Name                                                                                               | Title                                                                                                         |
|--------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|
|  /s/ George L.      Lindemann*George      L. Lindemann                                                  |  Chairman      of the Board, President andChief      Executive Officer(Principal      Executive Officer) |
|  /s/ Richard N.      MarshallRichard      N. Marshall                                                   |  Senior      Vice President and Chief Financial Officer(Principal      Financial Officer)                |
|  /s/ George E.      AldrichGeorge      E. Aldrich                                                       |  Vice      President and Controller(Chief      Accounting Officer)                                       |
|  /s/ David      Brodsky*David      Brodsky                                                              |  Director                                                                                                |
|  /s/ Frank W.      Denius*Frank      W. Denius                                                          |  Director                                                                                                |
|  /s/ Kurt A. Gitter,      M.D.*Kurt      A. Gitter, M.D                                                 |  Director                                                                                                |
|  /s/ Herbert H.      Jacobi*Herbert      H. Jacobi                                                      |  Director                                                                                                |
|  /s/ Adam M.      Lindemann*Adam      M. Lindemann                                                      |  Director                                                                                                |
|  /s/ Thomas N.      McCarter, III*Thomas      N. McCarter, III                                          |  Director                                                                                                |
|  /s/ George Rountree,      III*George      Rountree, III                                                |  Director                                                                                                |
|  /s/ Allan D.      Scherer*Allan      Scherer                                                           |  Director                                                                                                |
|                                                                                                         |                                                                                                          |
| *By:  /s/ RICHARD N.      MARSHALL                                                                 | *By:  /s/ ROBERT M.      KERRIGAN, III                                                              |
|          Richard      N. Marshall                               |          Robert      M. Kerrigan, III                            |
|          Senior      Vice President and Chief Financial Officer |          Vice      President, Assistant General Counsel and      |
|          Attorney-in-fact                                       |          Secretary                                               |
|                                                                                                         |          Attorney-in-fact                                        |

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SOUTHERN UNION COMPANY AND SUBSIDIARIES

| Financial      Statements and Supplementary Data:                                  | Page(s):       |
|------------------------------------------------------------------------------------|----------------|
| Consolidated Statement of Operations                                               | F-2            |
| Consolidated Balance Sheet                                                         | F-3      - F-4 |
| Consolidated Statement of Cash Flows                                               | F-5            |
| Consolidated Statement of Stockholders’ Equity and      Comprehensive Income | F-6      - F-7 |
| Notes to Consolidated Financial Statements                                         | F-8            |
| Report of Independent Registered Public Accounting      Firm                       | F-71           |

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SOUTHERN UNION COMPANY AND SUBSIDIARIES

|                                                         |   | Years      Ended December 31,                 |      |
|--------------------------------------------------------------|--------|-----------------------------------------------|-----------|
|                                                         |   | 2007                                          |      |   | 2006 |   |   | 2005 |   |
|                                                         |   | (In      thousands, except per share amounts) |      |
| Operating      revenues (Note 21):                           |   |                                          |      |   |   |   |   |   |   |
| Gas      distribution                                        |   | $                                             | 732,109   |   |   | $ | 668,721 |   |   | $ | 752,699 |   |
| Gas      transportation and storage                          |   |                                          | 658,446   |   |   |   | 577,182 |   |   |   | 505,233 |   |
| Gas      gathering and processing                            |   |                                          | 1,221,747 |   |   |   | 1,090,216 |   |   |   | - |   |
| Other                                                        |   |                                          | 4,363     |   |   |   | 4,025 |   |   |   | 8,950 |   |
| Total      operating revenues                                |   |                                          | 2,616,665 |   |   |   | 2,340,144 |   |   |   | 1,266,882 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Operating      expenses:                                     |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Cost      of gas and other energy                            |   |                                          | 1,483,715 |   |   |   | 1,377,147 |   |   |   | 529,450 |   |
| Revenue-related      taxes                                   |   |                                          | 38,584    |   |   |   | 35,281 |   |   |   | 40,080 |   |
| Operating,      maintenance and general                      |   |                                          | 444,408   |   |   |   | 381,844 |   |   |   | 302,025 |   |
| Depreciation      and amortization                           |   |                                          | 177,999   |   |   |   | 152,103 |   |   |   | 92,562 |   |
| Taxes,      other than on income and revenues                |   |                                          | 44,874    |   |   |   | 38,684 |   |   |   | 33,648 |   |
| Total      operating expenses                                |   |                                          | 2,189,580 |   |   |   | 1,985,059 |   |   |   | 997,765 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Operating      income                                        |   |                                          | 427,085   |   |   |   | 355,085 |   |   |   | 269,117 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Other      income (expenses):                                |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Interest      expense                                        |   |                                          | (203,146  | ) |   |   | (210,043 | ) |   |   | (128,470 | ) |
| Earnings      from unconsolidated investments                |   |                                          | 100,914   |   |   |   | 141,370 |   |   |   | 70,742 |   |
| Other,      net  (Note 4)                          |   |                                          | (883      | ) |   |   | 39,918 |   |   |   | (8,241 | ) |
| Total      other expenses, net                               |   |                                          | (103,115  | ) |   |   | (28,755 | ) |   |   | (65,969 | ) |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Earnings      from continuing operations before income taxes |   |                                          | 323,970   |   |   |   | 326,330 |   |   |   | 203,148 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Federal      and state income taxes (Note 15)                |   |                                          | 95,259    |   |   |   | 109,247 |   |   |   | 50,052 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Earnings      from continuing operations                     |   |                                          | 228,711   |   |   |   | 217,083 |   |   |   | 153,096 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Discontinued      operations (Note 19):                      |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Loss      from discontinued operations before                |   |                                          |      |   |   |   |   |   |   |   |   |   |
| income      taxes                                            |   |                                          | -         |   |   |   | (2,369 | ) |   |   | (111,588 | ) |
| Federal      and state income taxes                          |   |                                          | -         |   |   |   | 150,583 |   |   |   | 20,825 |   |
| Loss      from discontinued operations                       |   |                                          | -         |   |   |   | (152,952 | ) |   |   | (132,413 | ) |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Net      earnings                                            |   |                                          | 228,711   |   |   |   | 64,131 |   |   |   | 20,683 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Preferred      stock dividends                               |   |                                          | (17,365   | ) |   |   | (17,365 | ) |   |   | (17,365 | ) |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Net      earnings available for common stockholders          |   | $                                             | 211,346   |   |   | $ | 46,766 |   |   | $ | 3,318 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Net      earnings available for common stockholders          |   |                                          |      |   |   |   |   |   |   |   |   |   |
| from      continuing operations per share (Note 5):          |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Basic                                                        |   | $                                             | 1.76      |   |   | $ | 1.74 |   |   | $ | 1.24 |   |
| Diluted                                                      |   | $                                             | 1.75      |   |   | $ | 1.70 |   |   | $ | 1.20 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Net      earnings available for common stockholders per      |   |                                          |      |   |   |   |   |   |   |   |   |   |
| share      (Note 5):                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Basic                                                        |   | $                                             | 1.76      |   |   | $ | 0.41 |   |   | $ | 0.03 |   |
| Diluted                                                      |   | $                                             | 1.75      |   |   | $ | 0.40 |   |   | $ | 0.03 |   |
| Cash      dividends declared on common stock per share:      |   | $                                             | 0.45      |   |   | $ | 0.40 |   |   |   | N/A |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Weighted      average shares outstanding (Note 5):           |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Basic                                                        |   |                                          | 119,930   |   |   |   | 114,787 |   |   |   | 109,395 |   |
| Diluted                                                      |   |                                          | 120,674   |   |   |   | 117,344 |   |   |   | 112,794 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |

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SOUTHERN UNION COMPANY AND SUBSIDIARIES

|                                                      |   | Years      Ended December 31, |      |
|-----------------------------------------------------------|--------|-------------------------------|-----------|
|                                                      |   | 2007                          |      |   | 2006 |   |
|                                                      |   | (In      thousands)           |      |
| Current      assets:                                      |   |                          |      |   |   |   |
| Cash      and cash equivalents                            |   | $                             | 5,690     |   |   | $ | 5,751 |   |
| Accounts      receivable, billed and unbilled,            |   |                          |      |   |   |   |   |   |
| net      of allowances of $4,144 and $4,830, respectively |   |                          | 358,521   |   |   |   | 298,231 |   |
| Accounts      receivable – affiliates               |   |                          | 29,943    |   |   |   | 3,546 |   |
| Inventories                                               |   |                          | 263,618   |   |   |   | 241,137 |   |
| Deferred      gas purchase costs                          |   |                          | 3,496     |   |   |   | - |   |
| Gas      imbalances - receivable                          |   |                          | 105,371   |   |   |   | 69,877 |   |
| Prepayments      and other assets                         |   |                          | 41,685    |   |   |   | 72,317 |   |
| Total      current assets                                 |   |                          | 808,324   |   |   |   | 690,859 |   |
|                                                      |   |                          |      |   |   |   |   |   |
| Property,      plant and equipment (Note 6):              |   |                          |      |   |   |   |   |   |
| Plant      in service                                     |   |                          | 5,509,992 |   |   |   | 5,025,631 |   |
| Construction      work in progress                        |   |                          | 377,918   |   |   |   | 178,935 |   |
|                                                      |   |                          | 5,887,910 |   |   |   | 5,204,566 |   |
| Less      accumulated depreciation and amortization       |   |                          | (785,623  | ) |   |   | (620,139 | ) |
| Net      property, plant and equipment                    |   |                          | 5,102,287 |   |   |   | 4,584,427 |   |
|                                                      |   |                          |      |   |   |   |   |   |
| Deferred      charges:                                    |   |                          |      |   |   |   |   |   |
| Regulatory      assets  (Note 8)                |   |                          | 64,193    |   |   |   | 65,865 |   |
| Deferred      charges                                     |   |                          | 60,468    |   |   |   | 61,602 |   |
| Total      deferred charges                               |   |                          | 124,661   |   |   |   | 127,467 |   |
|                                                      |   |                          |      |   |   |   |   |   |
| Unconsolidated      investments  (Note 9)       |   |                          | 1,240,420 |   |   |   | 1,254,749 |   |
|                                                      |   |                          |      |   |   |   |   |   |
| Goodwill  (Note      7)                         |   |                          | 89,227    |   |   |   | 89,227 |   |
|                                                      |   |                          |      |   |   |   |   |   |
| Other                                                     |   |                          | 32,994    |   |   |   | 36,061 |   |
|                                                      |   |                          |      |   |   |   |   |   |
|                                                      |   |                          |      |   |   |   |   |   |
| Total      assets                                         |   | $                             | 7,397,913 |   |   | $ | 6,782,790 |   |
|                                                      |   |                          |      |   |   |   |   |   |

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Tableof Contents

SOUTHERN UNION COMPANY AND SUBSIDIARIES

|                                                             |   | Years      Ended December 31, |      |
|------------------------------------------------------------------|--------|-------------------------------|-----------|
|                                                             |   | 2007                          |      |   | 2006 |   |
|                                                             |   | (In      thousands)           |      |
| Stockholders’      equity (Note 10):                       |   |                          |      |   |   |   |
| Common      stock, $1 par value; 200,000 shares authorized;      |   |                          |      |   |   |   |
| 121,102      shares issued at December 31, 2007                  |   | $                             | 121,102   |   |   | $ | 120,718 |   |
| Preferred      stock, no par value; 6,000 shares authorized;     |   |                          |      |   |   |   |   |   |
| 920      shares issued at December 31, 2007  (Note 12) |   |                          | 230,000   |   |   |   | 230,000 |   |
| Premium      on capital stock                                    |   |                          | 1,784,223 |   |   |   | 1,775,763 |   |
| Less      treasury stock: 1,063 and 1,059                        |   |                          |      |   |   |   |   |   |
| shares,      respectively, at cost                               |   |                          | (27,839   | ) |   |   | (27,708 | ) |
| Less      common stock held in trust: 783                        |   |                          |      |   |   |   |   |   |
| and      863 shares, respectively                                |   |                          | (15,085   | ) |   |   | (14,628 | ) |
| Deferred      compensation plans                                 |   |                          | 15,148    |   |   |   | 14,691 |   |
| Accumulated      other comprehensive loss                        |   |                          | (11,594   | ) |   |   | (901 | ) |
| Retained      earnings (deficit)                                 |   |                          | 109,851   |   |   |   | (47,527 | ) |
| Total      stockholders' equity                                  |   |                          | 2,205,806 |   |   |   | 2,050,408 |   |
|                                                             |   |                          |      |   |   |   |   |   |
| Long-term      debt obligations  (Note 13)             |   |                          | 2,960,326 |   |   |   | 2,689,656 |   |
|                                                             |   |                          |      |   |   |   |   |   |
| Total      capitalization                                        |   |                          | 5,166,132 |   |   |   | 4,740,064 |   |
|                                                             |   |                          |      |   |   |   |   |   |
| Current      liabilities:                                        |   |                          |      |   |   |   |   |   |
| Long-term      debt due within one year  (Note 13)     |   |                          | 434,680   |   |   |   | 461,011 |   |
| Notes      payable (Note 13)                                     |   |                          | 123,000   |   |   |   | 100,000 |   |
| Accounts      payable and accrued liabilities                    |   |                          | 335,253   |   |   |   | 316,764 |   |
| Federal,      state and local taxes payable                      |   |                          | 35,461    |   |   |   | 30,828 |   |
| Accrued      interest                                            |   |                          | 45,911    |   |   |   | 46,342 |   |
| Customer      deposits                                           |   |                          | 17,589    |   |   |   | 14,670 |   |
| Deferred      gas purchases                                      |   |                          | -         |   |   |   | 15,551 |   |
| Gas      imbalances - payable                                    |   |                          | 272,850   |   |   |   | 146,995 |   |
| Other                                                            |   |                          | 58,969    |   |   |   | 68,663 |   |
| Total      current liabilities                                   |   |                          | 1,323,713 |   |   |   | 1,200,824 |   |
|                                                             |   |                          |      |   |   |   |   |   |
| Deferred      credits                                            |   |                          | 215,063   |   |   |   | 224,725 |   |
|                                                             |   |                          |      |   |   |   |   |   |
| Accumulated      deferred income taxes  (Note 15)      |   |                          | 693,005   |   |   |   | 617,177 |   |
|                                                             |   |                          |      |   |   |   |   |   |
| Commitments      and contingencies  (Note 18)          |   |                          |      |   |   |   |   |   |
|                                                             |   |                          |      |   |   |   |   |   |
| Total      stockholders' equity and liabilities                  |   | $                             | 7,397,913 |   |   | $ | 6,782,790 |   |
|                                                             |   |                          |      |   |   |   |   |   |

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SOUTHERN UNION COMPANY AND SUBSIDIARIES

|                                                                                |   | Years      Ended December 31, |     |
|-------------------------------------------------------------------------------------|--------|-------------------------------|----------|
|                                                                                |   | 2007                          |     |   | 2006 |   |   | 2005 |   |
|                                                                                |   | (In      thousands)           |     |
| Cash      flows provided by (used in) operating activities:                         |   |                          |     |   |   |   |   |   |   |
|    Net      earnings                                                 |   | $                             | 228,711  |   |   | $ | 64,131 |   |   | $ | 20,683 |   |
|    Adjustments      to reconcile net earnings to net cash flows      |   |                          |     |   |   |   |   |   |   |   |   |   |
| provided      by (used in) operating activities:                                    |   |                          |     |   |   |   |   |   |   |   |   |   |
| Depreciation      and amortization                                                  |   |                          | 177,999  |   |   |   | 154,601 |   |   |   | 126,393 |   |
| Goodwill      impairment                                                            |   |                          | -        |   |   |   | - |   |   |   | 175,000 |   |
| Amortization      of debt expense, net                                              |   |                          | 743      |   |   |   | 12,130 |   |   |   | 2,186 |   |
| Deferred      income taxes                                                          |   |                          | 71,147   |   |   |   | 225,843 |   |   |   | 61,211 |   |
| Provision      for bad debts                                                        |   |                          | 11,391   |   |   |   | 20,151 |   |   |   | 22,519 |   |
| Provision      for impairment of other assets                                       |   |                          | 7,660    |   |   |   | 6,500 |   |   |   | 2,338 |   |
| (Gain)      loss on derivative                                                      |   |                          | 9        |   |   |   | (55,146 | ) |   |   | - |   |
| Loss      on sale of subsidiaries and other assets                                  |   |                          | -        |   |   |   | 56,815 |   |   |   | - |   |
| Non-cash      stock compensation                                                    |   |                          | 3,345    |   |   |   | 6,804 |   |   |   | 3,848 |   |
| Earnings      from unconsolidated investments, adjusted for cash      distributions |   |                          | 2,636    |   |   |   | (92,607 | ) |   |   | (55,742 | ) |
| Other                                                                               |   |                          | 12,999   |   |   |   | (5,643 | ) |   |   | (1,821 | )  |
| Changes      in operating assets and liabilities, net of acquisitions:              |   |                          |     |   |   |   |   |   |   |   |   |   |
| Accounts      receivable, billed and unbilled                                       |   |                          | (76,778  | ) |   |   | 147,450 |   |   |   | (126,590 | ) |
| Accounts      payable and accrued liabilities                                       |   |                          | (22,788  | ) |   |   | (67,021 | ) |   |   | 43,681 |   |
| Customer      deposits                                                              |   |                          | 2,919    |   |   |   | 3,542 |   |   |   | 2,940 |   |
| Deferred      gas purchase costs                                                    |   |                          | (19,047  | ) |   |   | (35,906 | ) |   |   | 59,385 |   |
| Inventories                                                                         |   |                          | 41,113   |   |   |   | (14,369 | ) |   |   | (52,420 | ) |
| Deferred      charges and credits                                                   |   |                          | (3,443   | ) |   |   | (37,459 | ) |   |   | (26,849 | ) |
| Prepaids      and other assets                                                      |   |                          | 47,700   |   |   |   | 104,889 |   |   |   | (41,256 | ) |
| Taxes      and other liabilities                                                    |   |                          | (15,908  | ) |   |   | (35,900 | ) |   |   | 3,131 |   |
| Net      cash flows provided by operating activities                                |   |                          | 470,408  |   |   |   | 458,805 |   |   |   | 218,637 |   |
| Cash      flows (used in) provided by investing activities:                         |   |                          |     |   |   |   |   |   |   |   |   |   |
| Additions      to property, plant and equipment                                     |   |                          | (616,883 | ) |   |   | (347,896 | ) |   |   | (279,721 | ) |
| Acquisitions      of operations, net of cash received                               |   |                          | -        |   |   |   | (1,537,627 | ) |   |   | - |   |
| Proceeds      (payments) from sale of subsidiaries                                  |   |                          | (49,304  | ) |   |   | 1,076,714 |   |   |   | - |   |
| Other                                                                               |   |                          | (417     | ) |   |   | 2,005 |   |   |   | (2,808 | ) |
| Net      cash flows used in investing activities                                    |   |                          | (666,604 | ) |   |   | (806,804 | ) |   |   | (282,529 | ) |
| Cash      flows provided by (used in) financing activities:                         |   |                          |     |   |   |   |   |   |   |   |   |   |
| Decrease      in book overdraft                                                     |   |                          | (7,738   | ) |   |   | (4,941 | ) |   |   | (17,091 | ) |
| Issuance      of long-term debt                                                     |   |                          | 755,000  |   |   |   | 1,065,000 |   |   |   | 255,626 |   |
| Issuance      costs of debt and equity                                              |   |                          | (5,794   | ) |   |   | (10,590 | ) |   |   | (3,536 | ) |
| Issuance      of common stock and equity units                                      |   |                          | -        |   |   |   | 125,000 |   |   |   | 431,772 |   |
| Issuance      of Bridge Loan                                                        |   |                          | -        |   |   |   | 1,600,000 |   |   |   | - |   |
| Repayment      of Bridge Loan                                                       |   |                          | -        |   |   |   | (1,600,000 | ) |   |   | - |   |
| Dividends      paid on common and preferred stock                                   |   |                          | (65,295  | ) |   |   | (51,695 | ) |   |   | (17,365 | ) |
| Repayment      of debt and capital lease obligation                                 |   |                          | (508,406 | ) |   |   | (470,365 | ) |   |   | (335,567 | ) |
| Net      (payments) borrowings under revolving credit facilities                    |   |                          | 23,000   |   |   |   | (320,000 | ) |   |   | (279,000 | ) |
| Proceeds      from exercise of stock options                                        |   |                          | 3,718    |   |   |   | 9,216 |   |   |   | 22,242 |   |
| Other                                                                               |   |                          | 1,650    |   |   |   | (4,813 | ) |   |   | (6,304 | ) |
| Net      cash flows provided by financing activities                                |   |                          | 196,135  |   |   |   | 336,812 |   |   |   | 50,777 |   |
| Change      in cash and cash equivalents                                            |   |                          | (61      | ) |   |   | (11,187 | ) |   |   | (13,115 | ) |
| Cash      and cash equivalents at beginning of period                               |   |                          | 5,751    |   |   |   | 16,938 |   |   |   | 30,053 |   |
| Cash      and cash equivalents at end of period                                     |   | $                             | 5,690    |   |   | $ | 5,751 |   |   | $ | 16,938 |   |
|                                                                                |   |                          |     |   |   |   |   |   |   |   |   |   |
|                                                                                |   |                          |     |   |   |   |   |   |   |   |   |   |
| Cash      paid for interest, net of amounts capitalized                             |   | $                             | 213,656  |   |   | $ | 204,573 |   |   | $ | 139,770 |   |
| Cash      paid for income taxes, net of refunds                                     |   |                          | 13,979   |   |   |   | 50,750 |   |   |   | (2,007 | ) |
|                                                                                |   |                          |     |   |   |   |   |   |   |   |   |   |

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Table of Contents

SOUTHERN UNION COMPANY AND SUBSIDIARIES

|                                                                  | Common                                                                                                                                |   | Preferred                                                                                                           |   | Premium                                                                                                                   |   |                                                                                                    |   | Common                                                                                                  |   | Deferred                                                                                          |   | Accumulated                                                                                                                                                   |   |                                                                                              | Total                                                                                                                           |   |
|-----------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                  | Stock,                                                                                                                                |   | Stock,                                                                                                              |   | on                                                                                                                        |   | Treasury                                                                                                |   | Stock                                                                                                   |   | Compen-                                                                                           |   | Other                                                                                                                                                         |   | Retained                                                                                          | Stock                                                                                                                           |   |
|                                                                  | $1      Par                                                                                                                           |   | No      Par                                                                                                         |   | Capital                                                                                                                   |   | Stock,                                                                                                  |   | Held                                                                                                    |   | sation                                                                                            |   | Comprehensive                                                                                                                                                 |   | Earnings                                                                                          | Holders                                                                                                                         |   |
|                                                                  | Value                                                                                                                                 |   | Value                                                                                                               |   | Stock                                                                                                                     |   | at      cost                                                                                            |   | In      Trust                                                                                           |   | Plans                                                                                             |   | Income      (Loss)                                                                                                                                            |   | (Deficit)                                                                                         | Equity                                                                                                                          |   |
|                                                                  | (In      thousands)                                                                                                                   |   |
|                                                                  |                                                                                                                                  |   |                                                                                                                |   |                                                                                                                      |   |                                                                                                    |   |                                                                                                    |   |                                                                                              |   |                                                                                                                                                          |   |                                                                                              |                                                                                                                            |   |
| Balance      December 31, 2004                                        |  $          90,763                                                             |   |  $    230,000                                                                              |   |  $  1,204,590                                                                                              |   |  $   (12,870)                                                                       |   |  $   (17,980)                                                                       |   |  $   14,128                                                                   |   |  $            (59,118)                                                                       |   |  $    48,044                                                             |  $   1,497,557                                                                                              |   |
| Comprehensive      income (loss):                                     |                                                                                                                                  |   |                                                                                                                |   |                                                                                                                      |   |                                                                                                    |   |                                                                                                    |   |                                                                                              |   |                                                                                                                                                          |   |                                                                                              |                                                                                                                            |   |
|    Net      earnings                                   |                       - |   |                    - |   |                     - |   |                  - |   |                  - |   |                 - |   |                           - |   |        20,683                                                  |            20,683                                                        |   |
|         Unrealized gain on hedging                          |                                                                                                                        |   |                                                                                                                |   |                                                                                                                      |   |                                                                                                    |   |                                                                                                    |   |                                                                                              |   |                                                                                                                                                          |   |                                                                                              |                                                                                                                            |   |
|        activities,      net of tax |                       - |   |                    - |   |                     - |   |                  - |   |                  - |   |                 - |   |                   1,075                                             |   |                 - |              1,075                                             |   |
|    Minimum      pension liability                      |                                                                                                                                  |   |                                                                                                                |   |                                                                                                                      |   |                                                                                                    |   |                                                                                                    |   |                                                                                              |   |                                                                                                                                                          |   |                                                                                              |                                                                                                                            |   |
|       adjustment,      net of tax       |                       - |   |                    - |   |                     - |   |                  - |   |                  - |   |                 - |   |                   1,771                                             |   |                 - |              1,771                                             |   |
|    Comprehensive      income                           |                                                                                                                                  |   |                                                                                                                |   |                                                                                                                      |   |                                                                                                    |   |                                                                                                    |   |                                                                                              |   |                                                                                                                                                          |   |                                                                                              |            23,529                                                        |   |
|    Preferred      stock dividends                      |                       - |   |                    - |   |                     - |   |                  - |   |                  - |   |                 - |   |                           - |   |      (17,365)                                                            |           (17,365)                                                            |   |
|    Distibution      of common stock                    |                                                                                                                                  |   |                                                                                                                |   |                                                                                                                      |   |                                                                                                    |   |                                                                                                    |   |                                                                                              |   |                                                                                                                                                          |   |                                                                                              |                                                                                                                            |   |
|        held      in trust          |                       - |   |                    - |   |             3,130                                             |   |                  - |   |          4,186                                             |   |                 - |   |                           - |   |                 - |              7,316                                             |   |
|    Issuance      of common stock                       |              14,913                                                  |   |                    - |   |         316,859                                                                   |   |                  - |   |                  - |   |                 - |   |                           - |   |                 - |          331,772                                                                   |   |
|    Issuance      cost of equity units                  |                       - |   |                    - |   |           (2,622)                                                       |   |                  - |   |                  - |   |                 - |   |                           - |   |                 - |             (2,622)                                                 |   |
|    Restricted      stock award                         |                       - |   |                    - |   |             4,998                                             |   |                  - |   |                  - |   |       (4,998)                                                       |   |                           - |   |                 - |                      - |   |
|    Restricted      stock amortization                  |                       - |   |                    - |   |                     - |   |                  - |   |                  - |   |         2,198                                             |   |                           - |   |                 - |              2,198                                             |   |
|    Contract      adjustment payment                    |                       - |   |                    - |   |           (1,759)                                                       |   |                  - |   |                  - |   |                 - |   |                           - |   |                 - |             (1,759)                                                 |   |
|    Purchase      of treasury stock                     |                       - |   |                    - |   |                     - |   |       (15,032)                                                            |   |                  - |   |                 - |   |                           - |   |                 - |           (15,032)                                                            |   |
|    5%      stock dividend                              |                5,294                                       |   |                    - |   |         129,121                                                                   |   |                  - |   |                  - |   |                 - |   |                           - |   |    (134,415)                                                                       |                      - |   |
|    Stock      option award                             |                       - |   |                    - |   |             3,848                                             |   |                  - |   |                  - |   |                 - |   |                           - |   |                 - |              3,848                                             |   |
|    Exercise      of stock options                      |                1,560                                       |   |                    - |   |           20,617                                                        |   |             336                             |   |            (271)                                 |   |                 - |   |                           - |   |                 - |            22,242                                                        |   |
|    Payment      on note receivable                     |                       - |   |                    - |   |             2,385                                             |   |                  - |   |                  - |   |                 - |   |                           - |   |                 - |              2,385                                             |   |
|    Contributions      to Trust                         |                       - |   |                    - |   |                     - |   |                  - |   |         (1,025)                                                 |   |         1,025                                             |   |                           - |   |                 - |                      - |   |
|    Disbursements      from Trust                       |                       - |   |                    - |   |                     - |   |                  - |   |          2,180                                             |   |       (2,180)                                                       |   |                           - |   |                 - |                      - |   |
| Balance      December 31, 2005                                        |  $        112,530                                                                        |   |  $    230,000                                                                              |   |  $  1,681,167                                                                                              |   |  $   (27,566)                                                                       |   |  $   (12,910)                                                                       |   |  $   10,173                                                                   |   |  $            (56,272)                                                                       |   |  $  (83,053)                                                                       |  $   1,854,069                                                                                              |   |
|                                                                  |                                                                                                                                  |   |                                                                                                                |   |                                                                                                                      |   |                                                                                                    |   |                                                                                                    |   |                                                                                              |   |                                                                                                                                                          |   |                                                                                              |                                                                                                                            |   |
|                                                                  |                                                                                                                                  |   |                                                                                                                |   |                                                                                                                      |   |                                                                                                    |   |                                                                                                    |   |                                                                                              |   |                                                                                                                                                          |   |                                                                                              |                                                                                                                            |   |
| Comprehensive      income (loss):                                     |                                                                                                                                  |   |                                                                                                                |   |                                                                                                                      |   |                                                                                                    |   |                                                                                                    |   |                                                                                              |   |                                                                                                                                                          |   |                                                                                              |                                                                                                                            |   |
|    Net      earnings                                   |                       - |   |                    - |   |                     - |   |                  - |   |                  - |   |                 - |   |                           - |   |        64,131                                                  |            64,131                                                        |   |
|    Unrealized      loss on hedging                     |                                                                                                                                  |   |                                                                                                                |   |                                                                                                                      |   |                                                                                                    |   |                                                                                                    |   |                                                                                              |   |                                                                                                                                                          |   |                                                                                              |                                                                                                                            |   |
|        activities,      net of tax |                       - |   |                    - |   |                     - |   |                  - |   |                  - |   |                 - |   |                      918                             |   |                 - |                 918                             |   |
|   Change      in fair value of hedging                      |                                                                                                                                  |   |                                                                                                                |   |                                                                                                                      |   |                                                                                                    |   |                                                                                                    |   |                                                                                              |   |                                                                                                                                                          |   |                                                                                              |                                                                                                                            |   |
|      derivatives,      net of tax            |                       - |   |                    - |   |                     - |   |                  - |   |                  - |   |                 - |   |                   5,276                                             |   |                 - |              5,276                                             |   |
|   Reversal      of minimum pension                          |                                                                                                                                  |   |                                                                                                                |   |                                                                                                                      |   |                                                                                                    |   |                                                                                                    |   |                                                                                              |   |                                                                                                                                                          |   |                                                                                              |                                                                                                                            |   |
|      liability      related to disposition   |                       - |   |                    - |   |                     - |   |                  - |   |                  - |   |                 - |   |                 26,331                                                        |   |                 - |            26,331                                                        |   |
|    Minimum      pension liability                      |                                                                                                                                  |   |                                                                                                                |   |                                                                                                                      |   |                                                                                                    |   |                                                                                                    |   |                                                                                              |   |                                                                                                                                                          |   |                                                                                              |                                                                                                                            |   |
|       adjustment,      net of tax       |                       - |   |                    - |   |                     - |   |                  - |   |                  - |   |                 - |   |                   6,803                                             |   |                 - |              6,803                                             |   |
|    Comprehensive      income                           |                                                                                                                                  |   |                                                                                                                |   |                                                                                                                      |   |                                                                                                    |   |                                                                                                    |   |                                                                                              |   |                                                                                                                                                          |   |                                                                                              |          103,459                                                                   |   |
|    Adjustment      to initially apply FASB             |                                                                                                                                  |   |                                                                                                                |   |                                                                                                                      |   |                                                                                                    |   |                                                                                                    |   |                                                                                              |   |                                                                                                                                                          |   |                                                                                              |                                                                                                                            |   |
|       Statement      No. 158            |                       - |   |                    - |   |                     - |   |                  - |   |                  - |   |                 - |   |                 16,043                                                        |   |                 - |            16,043                                                        |   |
|    Preferred      stock dividends                      |                       - |   |                    - |   |           (8,683)                                                       |   |                  - |   |                  - |   |                 - |   |                           - |   |        (8,682)                                                 |           (17,365)                                                            |   |
|   Cash      dividends declared                              |                       - |   |                    - |   |         (26,366)                                                                  |   |                  - |   |                  - |   |                 - |   |                           - |   |      (19,923)                                                            |           (46,289)                                                            |   |
|   Share-based      compensation                             |                       - |   |                    - |   |             6,804                                             |   |                  - |   |                  - |   |                 - |   |                           - |   |                 - |              6,804                                             |   |
|   Implementation      of FAS 123R                           |                       - |   |                    - |   |           (2,800)                                                       |   |                  - |   |                  - |   |         2,800                                             |   |                           - |   |                 - |                      - |   |
|   Restricted      stock awards                              |                   146                       |   |                    - |   |              (146)                                       |   |            (142)                                 |   |                  - |   |                 - |   |                           - |   |                 - |                (142)                                 |   |
|   Exercise      of stock options                            |                   629                       |   |                    - |   |             9,544                                             |   |                  - |   |                  - |   |                 - |   |                           - |   |                 - |            10,173                                                        |   |
|   Contributions      to Trust                               |                       - |   |                    - |   |                     - |   |                  - |   |         (3,079)                                                 |   |         3,079                                             |   |                           - |   |                 - |                      - |   |
|   Disbursements      from Trust                             |                       - |   |                    - |   |                     - |   |                  - |   |          1,361                                             |   |       (1,361)                                                       |   |                           - |   |                 - |                      - |   |
|   Equity      Units Conversion                              |                7,413                                       |   |                    - |   |         116,243                                                                   |   |                  - |   |                  - |   |                 - |   |                           - |   |                 - |          123,656                                                                   |   |
| Balance      December 31, 2006                                        |  $        120,718                                                                        |   |  $    230,000                                                                              |   |  $  1,775,763                                                                                              |   |  $   (27,708)                                                                       |   |  $   (14,628)                                                                       |   |  $   14,691                                                                   |   |  $                 (901)                                            |   |  $  (47,527)                                                                       |  $   2,050,408                                                                                              |   |
|                                                                  |                                                                                                                                  |   |                                                                                                                |   |                                                                                                                      |   |                                                                                                    |   |                                                                                                    |   |                                                                                              |   |                                                                                                                                                          |   |                                                                                              |                                                                                                                            |   |

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|                                                                             |   | Common              |    |   | Preferred   |   |    | Premium |   |   |         |   |   | Common        |    |   | Deferred |   |    | Accumulated        |   |   |      |   |   | Total    |    |
|----------------------------------------------------------------------------------|--------|---------------------|---------|--------|-------------|--------|---------|---------|--------|--------|--------------|--------|--------|---------------|---------|--------|----------|--------|---------|--------------------|--------|--------|-----------|--------|--------|----------|---------|
|                                                                             |   | Stock,              |    |   | Stock,      |   |    | on      |   |   | Treasury     |   |   | Stock         |    |   | Compen-  |   |    | Other              |   |   | Retained  |   |   | Stock-   |    |
|                                                                             |   | $1      Par         |    |   | No      Par |   |    | Capital |   |   | Stock,       |   |   | Held          |    |   | sation   |   |    | Comprehensive      |   |   | Earnings  |   |   | holders' |    |
|                                                                             |   | Value               |    |   | Value       |   |    | Stock   |   |   | at      cost |   |   | In      Trust |    |   | Plans    |   |    | Income      (Loss) |   |   | (Deficit) |   |   | Equity   |    |
|                                                                             |   | (In      thousands) |    |
|                                                                             |   |                |    |   |        |   |    |    |   |   |         |   |   |          |    |   |     |   |    |               |   |   |      |   |   |     |    |
| Balance      December 31, 2006                                                   |   | $                   | 120,718 |   |        | $      | 230,000 |    |   | $      | 1,775,763    |   |   | $             | (27,708 | )      |     | $      | (14,628 | )                  |   | $      | 14,691    |   |   | $        | (901    | ) |   | $ | (47,527 | ) |   | $ | 2,050,408 |   |
| Comprehensive      income (loss):                                                |   |                |    |   |        |   |    |    |   |   |         |   |   |          |    |   |     |   |    |               |   |   |      |   |   |     |    |   |   |   |   |   |   |   |   |   |
|    Net      earnings                                              |   |                | -       |   |        |   | -       |    |   |   | -            |   |   |          | -       |   |     |   | -       |               |   |   | -         |   |   |     | -       |   |   |   | 228,711 |   |   |   | 228,711 |   |
|    Reclassification      of unrealized                            |   |                |    |   |        |   |    |    |   |   |         |   |   |          |    |   |     |   |    |               |   |   |      |   |   |     |    |   |   |   |   |   |   |   |   |   |
|         gain      on hedging activities, |   |                |    |   |        |   |    |    |   |   |         |   |   |          |    |   |     |   |    |               |   |   |      |   |   |     |    |   |   |   |   |   |   |   |   |   |
|         net      of tax                  |   |                | -       |   |        |   | -       |    |   |   | -            |   |   |          | -       |   |     |   | -       |               |   |   | -         |   |   |     | (4,001  | ) |   |   | - |   |   |   | (4,001 | ) |
|   Change      in fair value of hedging                                 |   |                |    |   |        |   |    |    |   |   |         |   |   |          |    |   |     |   |    |               |   |   |      |   |   |     |    |   |   |   |   |   |   |   |   |   |
|      derivatives,      net of tax                       |   |                | -       |   |        |   | -       |    |   |   | -            |   |   |          | -       |   |     |   | -       |               |   |   | -         |   |   |     | (11,320 | ) |   |   | - |   |   |   | (11,320 | ) |
|   Realized      gain (loss) on interest                                |   |                |    |   |        |   |    |    |   |   |         |   |   |          |    |   |     |   |    |               |   |   |      |   |   |     |    |   |   |   |   |   |   |   |   |   |
|       rate      hedges, net of tax                 |   |                | -       |   |        |   | -       |    |   |   | -            |   |   |          | -       |   |     |   | -       |               |   |   | -         |   |   |     | (2,366  | ) |   |   |   |   |   |   | (2,366 | ) |
| Recognized      actuarial gain (loss)                                            |   |                |    |   |        |   |    |    |   |   |         |   |   |          |    |   |     |   |    |               |   |   |      |   |   |     |    |   |   |   |   |   |   |   |   |   |
|      and      prior service credit (cost),              |   |                |    |   |        |   |    |    |   |   |         |   |   |          |    |   |     |   |    |               |   |   |      |   |   |     |    |   |   |   |   |   |   |   |   |   |
|      net      of tax                                    |   |                | -       |   |        |   | -       |    |   |   | -            |   |   |          | -       |   |     |   | -       |               |   |   | -         |   |   |     | 6,994   |   |   |   | - |   |   |   | 6,994 |   |
|    Comprehensive      income                                      |   |                | -       |   |        |   | -       |    |   |   | -            |   |   |          | -       |   |     |   | -       |               |   |   | -         |   |   |     | -       |   |   |   | - |   |   |   | 218,018 |   |
|    Preferred      stock dividends                                 |   |                | -       |   |        |   | -       |    |   |   | -            |   |   |          | -       |   |     |   | -       |               |   |   | -         |   |   |     | -       |   |   |   | (17,365 | ) |   |   | (17,365 | ) |
|   Cash      dividends declared                                         |   |                | -       |   |        |   | -       |    |   |   | -            |   |   |          | -       |   |     |   | -       |               |   |   | -         |   |   |     | -       |   |   |   | (53,968 | ) |   |   | (53,968 | ) |
|   Share-based      compensation                                        |   |                | -       |   |        |   | -       |    |   |   | 3,345        |   |   |          | -       |   |     |   | -       |               |   |   | -         |   |   |     | -       |   |   |   | - |   |   |   | 3,345 |   |
|   Restricted      stock issuances                                      |   |                | 111     |   |        |   | -       |    |   |   | (111         | )      |   |          | (131    | )      |     |   | -       |               |   |   | -         |   |   |     | -       |   |   |   | - |   |   |   | (131 | ) |
|   Exercise      of stock options                                       |   |                | 273     |   |        |   | -       |    |   |   | 5,226        |   |   |          | -       |   |     |   | -       |               |   |   | -         |   |   |     | -       |   |   |   | - |   |   |   | 5,499 |   |
|   Contributions      to Trust                                          |   |                | -       |   |        |   | -       |    |   |   | -            |   |   |          | -       |   |     |   | (769    | )                  |   |   | 769       |   |   |     | -       |   |   |   | - |   |   |   | - |   |
|   Disbursements      from Trust                                        |   |                | -       |   |        |   | -       |    |   |   | -            |   |   |          | -       |   |     |   | 312     |               |   |   | (312      | )      |   |     | -       |   |   |   | - |   |   |   | - |   |
| Balance      December 31, 2007                                                   |   | $                   | 121,102 |   |        | $      | 230,000 |    |   | $      | 1,784,223    |   |   | $             | (27,839 | )      |     | $      | (15,085 | )                  |   | $      | 15,148    |   |   | $        | (11,594 | ) |   | $ | 109,851 |   |   | $ | 2,205,806 |   |
|                                                                             |   |                |    |   |        |   |    |    |   |   |         |   |   |          |    |   |     |   |    |               |   |   |      |   |   |     |    |   |   |   |   |   |   |   |   |   |

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SOUTHERN UNION COMPANY AND SUBSIDIARIES

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|                                                                             |   | Years      Ended December 31, |    |
|----------------------------------------------------------------------------------|--------|-------------------------------|---------|
|                                                                             |   | 2007                          |    |   | 2006 |   |   | 2005 |   |
|                                                                             |   | (In      thousands)           |    |
| Beginning      balance                                                           |   | $                             | 4,830   |   |   | $ | 15,893 |   |   | $ | 15,424 |   |
| Additions:      charged to cost and    expenses     (1) |   |                          | 11,391  |   |   |   | 9,646 |   |   |   | 22,519 |   |
| Deductions:      write-off of uncollectible accounts                             |   |                          | (12,657 | ) |   |   | (9,756 | ) |   |   | (22,751 | ) |
| Balance      related to discontinued operations (2)                              |   |                          | -       |   |   |   | (10,968 | ) |   |   | - |   |
| Other                                                                            |   |                          | 580     |   |   |   | 15 |   |   |   | 701 |   |
| Ending      balance                                                              |   | $                             | 4,144   |   |   | $ | 4,830 |   |   | $ | 15,893 |   |
|                                                                             |   |                          |    |   |   |   |   |   |   |   |   |   |

| (2)  | Represents      elimination of the allowance for doubtful accounts balance resulting from      the Company’s August 24, 2006 sale of the assets of the PG Energy natural      gas distribution division and the Rhode Island operations of its New      England Gas Company natural gas distribution  division. |
|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                                           |   | Year      Ended                               |   |
|----------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                           |   | December      31,                             |   |
|                                                           |   | 2005                                          |   |
|                                                           |   | (In      thousands, except per share amounts) |   |
|                                                           |   |                                          |   |   |
| Net      earnings, as reported                                 |   | $                                             | 20,683 |   |
| Add      stock-based compensation expense included in          |   |                                          |   |  |
| reported      net earnings, net of related taxes               |   |                                          | 3,767  |   |
| Deduct      total stock-based employee compensation            |   |                                          |   |   |
| expense      determined under fair value based                 |   |                                          |   |   |
| method      for all awards, net of related taxes               |   |                                          | 4,355  |   |
| Pro      forma net earnings                                    |   | $                                             | 20,095 |   |
|                                                           |   |                                          |   |   |
| Net      earnings available for common stockholders per share: |   |                                          |   |  |
| Basic-      as reported                                        |   | $                                             | 0.03   |   |
| Basic-      pro forma                                          |   | $                                             | 0.02   |   |
|                                                           |   |                                          |   |   |
| Diluted-      as reported                                      |   | $                                             | 0.03   |   |
| Diluted-      pro forma                                        |   | $                                             | 0.02   |   |
|                                                           |   |                                          |   |   |

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|                                          |   | At      March 1, 2006 |      |
|-----------------------------------------------|--------|-----------------------|-----------|
|                                          |   | (In      thousands)   |      |
|                                          |   |                  |      |
| Property,      plant and equipment (1)        |   | $                     | 1,562,835 |   |
| Current      assets (2)                       |   |                  | 162,793   |   |
| Unconsolidated      investment  (3) |   |                  | 5,767     |   |
| Other      non-current assets (4)             |   |                  | 2,618     |   |
| Total      assets acquired                    |   |                  | 1,734,013 |   |
| Current      liabilities                      |   |                  | 141,244   |   |
| Deferred      taxes                           |   |                  | 8,427     |   |
| Other      non-current liabilities            |   |                  | 634       |   |
| Total      liabilities assumed                |   |                  | 150,305   |   |
| Net      assets acquired                      |   | $                     | 1,583,708 |   |
|                                          |   |                  |      |   |

| (1) | Includes      an allocation of $13.5 million to other intangibles for leases and      software with weighted average lives of 4 years and 1 year      respectively. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Includes      cash and cash equivalents of approximately $53.7  million. |
|-----|--------------------------------------------------------------------------|

| (3) | Represents      a 50 percent ownership interest in Grey Ranch Plant LP (Grey      Ranch). |
|-----|-------------------------------------------------------------------------------------------|

| (4) | Except      for $33,000 of other non-current assets, balance is comprised of      intangibles for customer relationships with a weighted-average life of 3      years. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                     |   | Year      Ended                               |      |
|----------------------------------------------------------|--------|-----------------------------------------------|-----------|
|                                                     |   | December      31,                             |      |
|                                                     |   | 2006                                          |      |   | 2005 |   |
|                                                     |   | (In      thousands, except per share amounts) |           |
|                                                     |   |                                          |      |   |   |   |
| Operating      revenue                                   |   | $                                             | 2,570,693 |   |   | $ | 2,636,056 |   |
| Net      earnings available for common shareholders      |   |                                          |      |   |   |   |   |  |
| from      continuing operations                          |   |                                          | 209,807   |   |   |   | 163,471 |   |
|                                                     |   |                                          |      |   |   |   |   |   |
| Net      earnings available for common shareholders from |   |                                          |      |   |   |   |   |  |
| continuing      operations per share:                    |   |                                          |      |   |   |   |   |   |
| Basic                                                    |   | $                                             | 1.83      |   |   | $ | 1.49 |   |
| Diluted                                                  |   | $                                             | 1.79      |   |   | $ | 1.45 |   |
|                                                     |   |                                          |      |   |   |   |   |   |

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|                                                |   | Years      Ended December 31,                 |    |
|-----------------------------------------------------|--------|-----------------------------------------------|---------|
|                                                |   | 2007                                          |    |   | 2006 |   |   | 2005 |   |
|                                                |   | (In      thousands, except per share amounts) |    |
|                                                |   |                                          |    |   |   |   |   |   |   |
| Net      earnings from continuing operations        |   | $                                             | 228,711 |   |   | $ | 217,083 |   |   | $ | 153,096 |   |
| Loss      from discontinued operations              |   |                                          | -       |   |   |   | (152,952 | ) |   |   | (132,413 | ) |
| Preferred      stock dividends                      |   |                                          | (17,365 | ) |   |   | (17,365 | ) |   |   | (17,365 | ) |
| Net      earnings available for common stockholders |   | $                                             | 211,346 |   |   | $ | 46,766 |   |   | $ | 3,318 |   |
|                                                |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Weighted      average shares outstanding - Basic    |   |                                          | 119,930 |   |   |   | 114,787 |   |   |   | 109,395 |   |
| Weighted      average shares outstanding - Diluted  |   |                                          | 120,674 |   |   |   | 117,344 |   |   |   | 112,794 |   |
|                                                |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Basic      earnings per share:                      |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Net      earnings available for common stockholders |   |                                          |    |   |   |   |   |   |   |   |   |   |
| from      continuing operations                     |   | $                                             | 1.76    |   |   | $ | 1.74 |   |   | $ | 1.24 |   |
| Loss      from discontinued operations              |   |                                          | -       |   |   |   | (1.33 | ) |   |   | (1.21 | ) |
| Net      earnings available for common stockholders |   | $                                             | 1.76    |   |   | $ | 0.41 |   |   | $ | 0.03 |   |
|                                                |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Diluted      earnings per share:                    |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Net      earnings available for common              |   |                                          |    |   |   |   |   |   |   |   |   |   |
| stockholders      from continuing operations        |   | $                                             | 1.75    |   |   | $ | 1.70 |   |   | $ | 1.20 |   |
| Loss      from discontinued operations              |   |                                          | -       |   |   |   | (1.30 | ) |   |   | (1.17 | ) |
| Net      earnings available for common stockholders |   | $                                             | 1.75    |   |   | $ | 0.40 |   |   | $ | 0.03 |   |
|                                                |   |                                          |    |   |   |   |   |   |   |   |   |   |

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|                                                |   | Years      Ended December 31, |    |
|-----------------------------------------------------|--------|-------------------------------|---------|
|                                                |   | 2007                          |    |   | 2006 |   |   | 2005 |   |
|                                                |   | (In      thousands)           |    |
| Weighted      average shares outstanding - Basic    |   |                          | 119,930 |   |   |   | 114,787 |   |   |   | 109,395 |   |
| Add      assumed vesting of restricted stock        |   |                          | 35      |   |   |   | 35 |   |   |   | 16 |   |
| Add      assumed conversion of equity units         |   |                          | 248     |   |   |   | 2,021 |   |   |   | 2,141 |   |
| Add      assumed exercise of stock options          |   |                          |    |   |   |   |   |   |   |   |   |   |
| and      stock appreciation rights                  |   |                          | 461     |   |   |   | 501 |   |   |   | 1,242 |   |
| Weighted      average shares outstanding - Dilutive |   |                          | 120,674 |   |   |   | 117,344 |   |   |   | 112,794 |   |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |

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|                                                                                                                 |   |                           |   | December      31,   |      |
|----------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|--------|---------------------|-----------|
| Property,      Plant and Equipment                                                                                   |   | Lives      in Years (1)        |   | 2007                |      |   | 2006 |   |
|                                                                                                                 |   |                           |   | (In      thousands) |      |
|                                                                                                                 |   |                           |   |                |      |   |   |   |
| Gathering      and processing plant                                                                                  |   |  3-50                     |   | $                   | 1,678,953 |   |   | $ | 1,623,265 |   |
| Transmission      plant                                                                                              |   |  36-46                    |   |                | 1,770,742 |   |   |   | 1,400,547 |   |
| Distribution      plant                                                                                              |   |  10-75                    |   |                | 930,349   |   |   |   | 897,075 |   |
| General      - LNG                                                                                                   |   |  20-40                    |   |                | 624,250   |   |   |   | 619,018 |   |
| Underground      storage plant                                                                                       |   |  36-46                    |   |                | 290,753   |   |   |   | 279,845 |   |
| General      plant and other                                                                                         |   |  1-50                     |   |                | 214,945   |   |   |   | 205,881 |   |
| Plant in service      (2)                                                                                            |   |                           |   |                | 5,509,992 |   |   |   | 5,025,631 |   |
| Construction      work in progress                                                                                   |   |                           |   |                | 377,918   |   |   |   | 178,935 |   |
|                                                                                                                 |   |                           |   |                | 5,887,910 |   |   |   | 5,204,566 |   |
| Less accumulated depreciation and      amortization (2)                                                              |   |                           |   |                | 785,623   |   |   |   | 620,139 |   |
| Net      property, plant and equipment                                                                               |   |                           |   | $                   | 5,102,287 |   |   | $ | 4,584,427 |   |
| _________________________                                                                                            |   |                           |   |                |      |   |   |   |   |   |
| (1) The      composite weighted-average depreciation rates for the years ended December      31, 2007, 2006 and |   |                           |   |                |      |   |   |   |  |   |
|            2005 were 3.4 percent, 3.0 percent and 3.0 percent,respectively.                 |   |       |   |                |      |   |   |   |   |   |
|                                                                                                                 |   |                           |   |                |      |   |   |   |   |   |
| (2)      Includes capitalized computerized software cost totaling:                                                   |   |                           |   |                |      |   |   |   |   |   |
|                                                                                                                 |   |                           |   |                |      |   |   |   |   |   |
| Unamortized      computer software cost                                                                              |   |                           |   | $                   | 109,167   |   |   | $ | 96,556 |   |
| Less      accumulated amortization                                                                                   |   |                           |   |                | 45,824    |   |   |   | 41,186 |   |
| Net      capitalized computer software costs                                                                         |   |                           |   | $                   | 63,343    |   |   | $ | 55,370 |   |
|                                                                                                                 |   |                           |   |                |      |   |   |   |   |   |

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| Goodwill      Analysis               |   | Amounts           |     |
|--------------------------------------|--------|-------------------|----------|
|                                 |   | (In    thousands) |     |
|                                 |   |              |     |
| Balance      as of December 31, 2004 |   |              | 640,547  |   |
| Impairment      losses               |   |              | (175,000 | ) |
| Balance      as of December 31, 2005 |   |              | 465,547  |   |
| Impairment      losses               |   |              | -        |   |
| Write-off      associated with sales |   |              | (376,320 | ) |
| Balance      as of December 31, 2006 |   |              | 89,227   |   |
| Impairment      losses               |   |              | -        |   |
| Balance      as of December 31, 2007 |   | $                 | 89,227   |   |
|                                 |   |              |     |   |

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|                                     |   | December      31,   |   |
|------------------------------------------|--------|---------------------|--------|
| Regulatory      Assets                   |   | 2007                |   |   | 2006 |   |
|                                     |   | (In      thousands) |   |
|                                     |   |                |   |   |   |   |
| Pension      and Postretirement Benefits |   | $                   | 32,889 |   |   | $ | 33,969 |   |
| Environmental                            |   |                | 21,782 |   |   |   | 15,571 |   |
| Missouri      Safety Program             |   |                | 5,546  |   |   |   | 8,751 |   |
| Other                                    |   |                | 3,976  |   |   |   | 7,574 |   |
|                                     |   | $                   | 64,193 |   |   | $ | 65,865 |   |
|                                     |   |                |   |   |   |   |   |   |

|                            |   | December      31,   |      |
|---------------------------------|--------|---------------------|-----------|
| Unconsolidated      Investments |   | 2007                |      |   | 2006 |   |
|                            |   | (In      thousands) |      |
| Equity      investments:        |   |                |      |   |   |   |
| Citrus                          |   | $                   | 1,219,009 |   |   | $ | 1,233,172 |   |
| Other                           |   |                | 21,411    |   |   |   | 20,802 |   |
| Investments      at cost        |   |                | -         |   |   |   | 775 |   |
|                            |   | $                   | 1,240,420 |   |   | $ | 1,254,749 |   |
|                            |   |                |      |   |   |   |   |   |

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|                                     |   | At      December 31, 2007 |      |   | At      December 31, 2006 |   |
|------------------------------------------|--------|---------------------------|-----------|--------|---------------------------|--------|
|                                     |   |                      |      |   | Other      Equity         |   |   |   |   |   | Other      Equity |   |
|                                     |   | Citrus                    |      |   | Investments               |   |   | Citrus |   |   | Investments |   |
|                                     |   | (In      thousands)       |      |
| Balance      Sheet Data:                 |   |                      |      |   |                      |   |   |   |   |   |   |   |
|   Current      assets          |   | $                         | 59,644    |   |                      | $      | 7,324 |   |   | $ | 64,295 |   |   | $ | 3,552 |   |
|   Non-current      assets      |   |                      | 3,049,214 |   |                      |   | 38,008 |   |   |   | 3,056,818 |   |   |   | 37,633 |   |
|   Current      liabilities     |   |                      | 208,508   |   |                      |   | 1,040 |   |   |   | 191,341 |   |   |   | 1,589 |   |
|   Non-current      liabilities |   |                      | 1,697,218 |   |                      |   | 1,792 |   |   |   | 1,636,671 |   |   |   | 1,802 |   |
|                                     |   |                      |      |   |                      |   |   |   |   |   |   |   |   |   |   |   |

|                               |   | Year      Ended           |    |   | Year      Ended        |   |
|------------------------------------|--------|---------------------------|---------|--------|------------------------|--------|
|                               |   | December      31, 2007    |    |   | December      31, 2006 |   |
|                               |   |                      |    |   | Other      Equity      |   |   | CCE |   |   |   |   |   | Other      Equity |   |
|                               |   | Citrus                    |    |   |  Investments      |   |   |  Holdings      (1) |   |   | Citrus      (4) |   |   | Investments |   |
|                               |   |  (In      thousands) |    |
| Statement      of Operations Data: |   |                      |    |   |                   |   |   |   |   |   |   |   |   |   |   |
| Revenues                           |   | $                         | 495,513 |   |                   | $      | 13,061 |   |   | $ | - |   |   | $ | 37,598 |   |   | $ | 5,386 |   |
| Operating      income (loss)       |   |                      | 283,203 |   |                   |   | 4,424 |   |   |   | (5,729 | ) |   |   | 21,201 |   |   |   | 1,157 |   |
| Equity      earnings               |   |                      | -       |   |                   |   | - |   |   |   | 70,086 |        (2) |   |   | - |   |   |   | - |   |
| Interest      expense              |   |                      | 73,871  |   |                   |   | 127 |   |   |   | 25,445 |   |   |   | 7,109 |   |   |   | 146 |   |
| Earnings      from discontinued    |   |                      |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| operations                         |   |                      | -       |   |                   |   | - |   |   |   | 156,612 |        (3) |   |   | - |   |   |   | - |   |
| Net      earnings                  |   |                      | 157,092 |   |                   |   | 5,256 |   |   |   | 196,857 |   |   |   | 9,579 |   |   |   | 1,005 |   |
|                               |   |                      |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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|                                               |   | Excess      Purchase Costs |    |   | Amortization      Period |            |
|----------------------------------------------------|--------|----------------------------|---------|--------|--------------------------|-----------------|
|                                               |   | (In      thousands)        |         |   |                          |            |
|                                               |   |                       |    |   |                     |            |
| Property,      plant and equipment                 |   | $                          | 2,885   |   |                     | 40      years   |   |
| Capitalized      software                          |   |                       | 1,478   |   |                     | 5      years    |   |
| Long-term      debt  (1)                 |   |                       | (80,204 | )      |                     | 4-20      years |   |
| Deferred      taxes  (1)                 |   |                       | (6,883  | )      |                     | 40      years   |   |
| Other      net liabilities                         |   |                       | (541    | )      |                     |  N/A       |   |
| Goodwill  (2)                            |   |                       | 664,609 |   |                     |  N/A       |   |
| Sub-total                                          |   |                       | 581,344 |   |                     |            |   |
| Accumulated,      net accretion to equity earnings |   |                       | 36,102  |   |                     |            |   |
| Net      investment in excess of underlying equity |   | $                          | 617,446 |   |                     |            |   |
|                                               |   |                       |    |   |                     |            |   |

| (1) | Accretion      of this amount increases equity earnings and accumulated net      accretion. |
|-----|---------------------------------------------------------------------------------------------|

| (2) | The      Company’s tax basis in the investment in Citrus includes equity      goodwill.  See “Goodwill Evaluation”  below. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Shareholder             |   | Date                  |   | Amount         |   |   | Amount              |   |
|-------------------------|--------|-----------------------|--------|----------------|--------|--------|---------------------|--------|
| Record      Date        |   | Paid                  |   | Per      Share |   |   | Paid                |   |
|                    |   |                  |   |           |   |   | (In      thousands) |   |
|                    |   |                  |   |           |   |   |                |   |
| December      28, 2007  |   | January      11, 2008 |   | $              | 0.15   |   |                | $      | 17,999 |   |
| September      28, 2007 |   | October      12, 2007 |   |           | 0.10   |   |                |   | 11,997 |   |
| June      29, 2007      |   | July      13, 2007    |   |           | 0.10   |   |                |   | 11,995 |   |
| March      30, 2007     |   | April      13, 2007   |   |           | 0.10   |   |                |   | 11,977 |   |
|                    |   |                  |   |           |   |   |                |   |   |   |
| December      29, 2006  |   | January      12, 2007 |   | $              | 0.10   |   |                | $      | 11,961 |   |
| September      29, 2006 |   | October      13, 2006 |   |           | 0.10   |   |                |   | 11,956 |   |
| June      30, 2006      |   | July      14, 2006    |   |           | 0.10   |   |                |   | 11,197 |   |
| March      31, 2006     |   | April      14, 2006   |   |           | 0.10   |   |                |   | 11,175 |   |
|                    |   |                  |   |           |   |   |                |   |   |   |

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|   | · | An      increase from 7,000,000 to 9,000,000 in the aggregate number of shares of      stock that may be issued under theplan; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|

|   | · | An      increase from 725,000 to 1,500,000 in the total number of shares of stock      that may be issued pursuant to stock awards, performance units and other      equity-based rights; and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | An      increase from 4,000 to 5,000 in the maximum number of shares of restricted      common stock that each non-employee director is eligible to receive      annually. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | Processing      plant outages; |
|--------|--------|--------------------------------|

|   | · | Higher      than anticipated FF&U efficiencylevels; |
|--------|--------|---------------------------------------------------------|

|   | · | Impact      of commodity prices in general; |
|--------|--------|---------------------------------------------|

|   | · | Lower      than expected recovery of NGLs from the residue gas stream;      and |
|--------|--------|---------------------------------------------------------------------------------|

|   | · | Lower      than expected recovery of natural gas volumes to be    processed. |
|--------|--------|------------------------------------------------------------------------------|

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|                                                                 |   | Years      Ended December 31, |   |
|----------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                 |   | 2007                          |   |   | 2006 |   |
|                                                                 |   | (In      thousands)           |   |
|                                                                 |   |                          |   |   |   |   |
| Change      in fair value of commodity hedges - increase             |   |                          |   |   |   |   |
| (decrease)      in Accumulated other      comprehensive loss,        |   |                          |   |   |   |   |
| excluding      tax expense effect of $(775) and $7,556, respectively |   | $                             | (2,054 | ) |   | $ | 19,826 |   |
| Reclassification      of unrealized gain on                          |   |                          |   |   |   |   |   |   |
| commodity      hedges - increase of Operating      Revenues,         |   |                          |   |   |   |   |   |   |
| excluding      tax expense effect of $2,425 and $4,266, respectively |   |                          | 6,422  |   |   |   | 11,350 |   |
| Loss      realized upon cash settlement - decrease                   |   |                          |   |   |   |   |   |   |
| of      Operating      revenues                                      |   |                          | 718    |   |   |   | 45 |   |
| Loss      on ineffectiveness of commodity hedges                     |   |                          | -      |   |   |   | 1,634 |   |
| Cash      realized on settlement of commodity hedges                 |   |                          | 35,374 |   |   |   | 74,214 |   |
|                                                                 |   |                          |   |   |   |   |   |   |

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|                                                            |   | December      31, 2007 |      |   | December      31, 2006 |   |
|-----------------------------------------------------------------|--------|------------------------|-----------|--------|------------------------|--------|
|                                                            |   | Carrying      Value    |      |   | Fair      Value        |   |   | Carrying      Value |   |   | Fair      Value |   |
|                                                            |   | (In      thousands)    |      |
| Long-Term      Debt Obligations:                                |   |                   |      |   |                   |   |   |   |   |   |   |   |
|                                                            |   |                   |      |   |                   |   |   |   |   |   |   |   |
| Southern      Union                                             |   |                   |      |   |                   |   |   |   |   |   |   |   |
| 7.60%      Senior Notes due 2024                                |   | $                      | 359,765   |   |                   | $      | 378,473 |   |   | $ | 359,765 |   |   | $ | 384,948 |   |
| 8.25%      Senior Notes due 2029                                |   |                   | 300,000   |   |                   |   | 336,090 |   |   |   | 300,000 |   |   |   | 371,367 |   |
| 7.24%      to 9.44% First Mortgage Bonds                        |   |                   | 19,500    |   |                   |   | 19,500 |   |   |   | 19,500 |   |   |   | 19,500 |   |
| due      2020 to 2027                                           |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| 4.375%      Senior Notes due 2008                               |   |                   | 100,000   |   |                   |   | 100,000 |   |   |   | 100,000 |   |   |   | 100,000 |   |
| 6.15%      Senior Notes due 2008                                |   |                   | 125,000   |   |                   |   | 124,538 |   |   |   | 125,000 |   |   |   | 125,655 |   |
| 7.20%      Junior Subordinated Notes due 2066                   |   |                   | 600,000   |   |                   |   | 590,280 |   |   |   | 600,000 |   |   |   | 598,572 |   |
|                                                            |   |                   | 1,504,265 |   |                   |   | 1,548,881 |   |   |   | 1,504,265 |   |   |   | 1,600,042 |   |
|                                                            |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Panhandle                                                       |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| 2.75%      Senior Notes due 2007                                |   |                   | -         |   |                   |   | - |   |   |   | 200,000 |   |   |   | 200,000 |   |
| 4.80%      Senior Notes due 2008                                |   |                   | 300,000   |   |                   |   | 298,140 |   |   |   | 300,000 |   |   |   | 300,000 |   |
| 6.05%      Senior Notes due 2013                                |   |                   | 250,000   |   |                   |   | 252,650 |   |   |   | 250,000 |   |   |   | 251,053 |   |
| 6.20%      Senior Notes due 2017                                |   |                   | 300,000   |   |                   |   | 297,240 |   |   |   | - |   |   |   | - |   |
| 6.50%      Senior Notes due 2009                                |   |                   | 60,623    |   |                   |   | 62,132 |   |   |   | 60,623 |   |   |   | 61,721 |   |
| 8.25%      Senior Notes due 2010                                |   |                   | 40,500    |   |                   |   | 43,396 |   |   |   | 40,500 |   |   |   | 43,180 |   |
| 7.00%      Senior Notes due 2029                                |   |                   | 66,305    |   |                   |   | 65,198 |   |   |   | 66,305 |   |   |   | 71,947 |   |
| Term      Loan due 2007                                         |   |                   | -         |   |                   |   | - |   |   |   | 255,626 |   |   |   | 255,626 |   |
| Term      Loan due 2012  (1)                          |   |                   | 412,220   |   |                   |   | 412,220 |   |   |   | 465,000 |   |   |   | 465,000 |   |
| Term      Loan due 2012                                         |   |                   | 455,000   |   |                   |   | 455,000 |   |   |   | - |   |   |   | - |   |
| Net      premiums on long-term debt                             |   |                   | 6,093     |   |                   |   | 6,093 |   |   |   | 9,613 |   |   |   | 9,613 |   |
|                                                            |   |                   | 1,890,741 |   |                   |   | 1,892,069 |   |   |   | 1,647,667 |   |   |   | 1,658,140 |   |
|                                                            |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Total      Long-Term Debt Obligations                           |   |                   | 3,395,006 |   |                   |   | 3,440,950 |   |   |   | 3,151,932 |   |   |   | 3,258,182 |   |
|                                                            |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Credit      Facilities                                          |   |                   | 123,000   |   |                   |   | 123,000 |   |   |   | 100,000 |   |   |   | 100,000 |   |
|                                                            |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Total      consolidated debt obligations                        |   |                   | 3,518,006 |   |                   | $      | 3,563,950 |   |   |   | 3,251,932 |   |   | $ | 3,358,182 |   |
| Less      fair value swaps of Panhandle                         |   |                   | -         |   |                   |   |   |   |   |   | 1,265 |   |   |   |   |   |
| Less      current portion of long-term debt  (2), (3) |   |                   | 434,680   |   |                   |   |   |   |   |   | 461,011 |   |   |   |   |   |
| Less      short-term debt                                       |   |                   | 123,000   |   |                   |   |   |   |   |   | 100,000 |   |   |   |   |   |
| Total      consolidated long-term debt obligations              |   | $                      | 2,960,326 |   |                   |   |   |   |   | $ | 2,689,656 |   |   |   |   |   |
|                                                            |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |

| (1) | At      December 31, 2006, this Term Loan was due in 2008.  See the      following LNG Holdings      Term Loans discussion for information  related |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | to      the extension of the maturity date from April 4, 2008 to June 29,      2012. |
|--------|--------------------------------------------------------------------------------------|

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|                        |   |                |    |   |   |   |   |   |   |   |    |   |   |   |   |   | 2013      and |   |
|-----------------------------|--------|---------------------|---------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|--------|---------------|--------|
|                        |   | 2008                |    |   | 2009   |   |   | 2010   |   |   | 2011    |   |   | 2012   |   |   | thereafter    |   |
|                        |   | (In      thousands) |    |
|                        |   |                |    |   |   |   |   |   |   |   |    |   |   |   |   |   |          |   |
| Southern      Union Company |   | $                   | 125,000 |   |   | $      | -      |   |   | $      | 100,000 |   |   | $      | -      |   |          | $      | - |   |   | $ | 1,279,265 |   |
| Panhandle                   |   |                | 309,831 |   |   |   | 60,623 |   |   |   | 40,500  |   |   |   | -      |   |          |   | 857,389 |   |   |   | 616,305 |   |
| Total                       |   | $                   | 434,831 |   |   | $      | 60,623 |   |   | $      | 140,500 |   |   | $      | -      |   |          | $      | 857,389 |   |   | $ | 1,895,570 |   |
|                        |   |                |    |   |   |   |   |   |   |   |    |   |   |   |   |   |          |   |   |   |   |   |   |   |

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|   | (a)   | Under      the Company’s Long-Term Facility, the consolidated debt to total      capitalization ratio, as defined therein, cannot exceed 65      percent.                                                                                                                                |
|--------|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (b)   | Under      the Company’s Long-Term Facility, the Company must maintain an earnings      before interest, tax, depreciation and amortization interest coverage      ratio of at least 2.00 times.                                                                                         |
|   | (c)   | Under      the Company’s First Mortgage Bond indentures for the Fall River Gas      division of New England Gas Company, the Company’s consolidated debt to      total capitalization ratio, as defined therein, cannot exceed 70 percent      at the end of any calendar quarter. |
|   | (d)   | All      of the Company’s major borrowing agreements contain cross-defaults if the      Company defaults on an agreement involving at least $3 million of      principal.                                                                                                                |

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|                                                      |   | Pension      Plans |                                                                                                    |
|-----------------------------------------------------------|--------|--------------------|---------------------------------------------------------------------------------------------------------|
|                                                      |   | Pre-SFAS      158  |                                                                                                    |   |   | Pre-SFAS      158 |   | SFAS      158 |   |   |   |
|                                                      |   | without      AML   |                                                                                                    | AML |   | with      AML |   | adoption |   | Post-SFAS |   |
|                                                      |   | adjustment         |                                                                                                    | adjustment |   | adjustment |   | adjustment |   | 158 |   |
|                                                      |   |               | (in      thousands)                                                                                     |   |
| Intangible      asset (included in Deferred      charges) |   | $                  | 4,883                                                                                                   |   | $  |        (1,085) |   | $  |         3,798 |   | $   |      (3,798) |   | $ | - |   |
| Pension      liabilities, current (included in Other      |   |               |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   current      liabilities)                     |   |               |                  - |   |   |               - |   |   |                   - |   |   |                13 |   |   |              13 |   |
| Pension      liabilities, noncurrent      (included in    |   |               |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Deferred      credits)                        |   |               |         58,062                                                  |   |   |   (12,016) |   |   |         46,046 |   |   |           7,066 |   |   |       53,112 |   |
| Accumulated      deferred income taxes (benefit)          |   |               |       (16,234)                                                            |   |   |       4,128 |   |   |        (12,106) |   |   |         (4,107) |   |   |      (16,213) |   |
| Accumulated      other comprehensive income (loss),       |   |               |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    net      of tax                         |   |               |       (26,711)                                                            |   |   |       6,803 |   |   |        (19,908) |   |   |         (6,770) |   |   |      (26,678) |   |
| Accumulated      other comprehensive income (loss),       |   |               |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    pre-tax                                 |   |               |       (42,945)                                                            |   |   |     10,931 |   |   |        (32,014) |   |   |       (10,877) |   |   |      (42,891) |   |
|                                                      |   |               |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                                        |   | Other      Postretirement Plans |                                                                                                    |
|-------------------------------------------------------------|--------|---------------------------------|---------------------------------------------------------------------------------------------------------|
|                                                        |   | Pre-SFAS      158               |                                                                                                    |   |   | Pre-SFAS      158 |   | SFAS      158 |   |   |   |
|                                                        |   | without      AML                |                                                                                                    | AML |   | with      AML |   | adoption |   | Post-SFAS |   |
|                                                        |   | adjustment                      |                                                                                                    | adjustment |   | adjustment |   | adjustment |   | 158 |   |
|                                                        |   | (in      thousands)             |                                                                                                    |
| Prepaid      postretirement costs (included in Deferred     |   |                            |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   charges)                                        |   | $                               | -                                                                                                       |   | $   |          - |   |  $  |                - |   |  $   |         248 |   | $ | 248 |   |
| Postretirement      liabilities, current (included in Other |   |                            |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  current      liabilities)                             |   |                            |                  - |   |   |             - |   |   |                   - |   |   |                87 |   |   |              87 |   |
| Postretirement      liabilities, noncurrent (included in    |   |                            |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Deferred      credits)                          |   |                            |         57,258                                                  |   |   |             - |   |   |         57,258 |   |   |       (29,402) |   |   |       27,856 |   |
| Accumulated      deferred income taxes                      |   |                            |                  - |   |   |             - |   |   |                   - |   |   |           6,750 |   |   |         6,750 |   |
| Accumulated      other comprehensive income (loss),         |   |                            |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    net      of tax                           |   |                            |                  - |   |   |             - |   |   |                   - |   |   |         22,813 |   |   |       22,813 |   |
| Accumulated      other comprehensive income (loss),         |   |                            |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    pre-tax                                   |   |                            |                  - |   |   |             - |   |   |                   - |   |   |         29,563 |   |   |       29,563 |   |
|                                                        |   |                            |                                                                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |

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Table of Contents

|                                                            |   |                     |    |   |                            |   |     | Other  |   |
|-----------------------------------------------------------------|--------|--------------------------|---------|--------|---------------------------------|--------|----------|--------|--------|
|                                                            |   | Pension      Benefits At |    |   | Postretirement      Benefits At |   |
|                                                            |   | December      31,        |    |   | December      31,               |   |
|                                                            |   | 2007                     |    |   | 2006                            |   |     | 2007   |   |   | 2006 |   |
|                                                            |   | (In      thousands)      |    |
| Change      in benefit obligation:                              |   |                     |    |   |                            |   |     |   |   |   |   |   |
| Benefit      obligation at beginning of period                  |   | $                        | 162,955 |   |                            | $      | 415,338  |   |   | $ | 74,082 |   |   | $ | 115,148 |   |
| Service      cost                                               |   |                     | 2,715   |   |                            |   | 7,443    |   |   |   | 1,788 |   |   |   | 2,507 |   |
| Interest      cost                                              |   |                     | 9,388   |   |                            |   | 20,889   |   |   |   | 4,053 |   |   |   | 5,556 |   |
| Benefits      paid, net                                         |   |                     | (9,900  | )      |                            |   | (19,668  | )      |   |   | (2,893 | ) |   |   | (4,418 | ) |
| Medicare      Part D subsidy receipts                           |   |                     | -       |   |                            |   | -        |   |   |   | 289 |   |   |   | - |   |
| Actuarial      (gain) loss and other                            |   |                     | (3,512  | )      |                            |   | (24,347  | )      |   |   | (3,780 | ) |   |   | (9,925 | ) |
| Plan      amendments                                            |   |                     | 1,178   |   |                            |   | -        |   |   |   | 2,734 |   |   |   | 972 |   |
| Curtailment      recognition                                    |   |                     | -       |   |                            |   | (28,119  | )      |   |   | - |   |   |   | (2,250 | ) |
| Settlement      recognition and other  (1)            |   |                     | -       |   |                            |   | (208,581 | )      |   |   | - |   |   |   | (33,508 | ) |
| Benefit      obligation at end of period                        |   | $                        | 162,824 |   |                            | $      | 162,955  |   |   | $ | 76,273 |   |   | $ | 74,082 |   |
|                                                            |   |                     |    |   |                            |   |     |   |   |   |   |   |   |   |   |   |
| Change      in plan assets:                                     |   |                     |    |   |                            |   |     |   |   |   |   |   |   |   |   |   |
| Fair      value of plan assets at beginning of period           |   | $                        | 108,633 |   |                            | $      | 298,289  |   |   | $ | 46,233 |   |   | $ | 45,509 |   |
| Return      on plan assets and other                            |   |                     | 12,796  |   |                            |   | 17,187   |   |   |   | 1,494 |   |   |   | 3,203 |   |
| Employer      contributions                                     |   |                     | 16,813  |   |                            |   | 28,399   |   |   |   | 9,176 |   |   |   | 14,926 |   |
| Benefits      paid, net                                         |   |                     | (9,900  | )      |                            |   | (19,668  | )      |   |   | (2,893 | ) |   |   | (4,418 | ) |
| Settlement      recognition and other  (1)            |   |                     | -       |   |                            |   | (215,574 | )      |   |   | - |   |   |   | (12,987 | ) |
| Fair      value of plan assets at end of period                 |   | $                        | 128,342 |   |                            | $      | 108,633  |   |   | $ | 54,010 |   |   | $ | 46,233 |   |
|                                                            |   |                     |    |   |                            |   |     |   |   |   |   |   |   |   |   |   |
| Funded      status:                                             |   |                     |    |   |                            |   |     |   |   |   |   |   |   |   |   |   |
| Funded      status at measurement date                          |   | $                        | (34,482 | )      |                            | $      | (54,322  | )      |   | $ | (22,263 | ) |   | $ | (27,849 | ) |
| Contributions      subsequent to measurement date               |   |                     | 4,025   |   |                            |   | 1,197    |   |   |   | 440 |   |   |   | 154 |   |
| Funded      status at end of period                             |   | $                        | (30,457 | )      |                            | $      | (53,125  | )      |   | $ | (21,823 | ) |   | $ | (27,695 | ) |
|                                                            |   |                     |    |   |                            |   |     |   |   |   |   |   |   |   |   |   |
| Amounts      recognized in the Consolidated                     |   |                     |    |   |                            |   |     |   |   |   |   |   |   |   |   |   |
|   Balance      Sheet consist of:                      |   |                     |    |   |                            |   |     |   |   |   |   |   |   |   |   |   |
| Noncurrent      assets                                          |   | $                        | -       |   |                            | $      | -        |   |   | $ | 1,418 |   |   | $ | 248 |   |
| Current      liabilities                                        |   |                     | (13     | )      |                            |   | (13      | )      |   |   | (57 | ) |   |   | (87 | ) |
| Noncurrent      liabilities                                     |   |                     | (30,444 | )      |                            |   | (53,112  | )      |   |   | (23,184 | ) |   |   | (27,856 | ) |
|                                                            |   | $                        | (30,457 | )      |                            | $      | (53,125  | )      |   | $ | (21,823 | ) |   | $ | (27,695 | ) |
|                                                            |   |                     |    |   |                            |   |     |   |   |   |   |   |   |   |   |   |
| Amounts      recognized in Accumulated other                    |   |                     |    |   |                            |   |     |   |   |   |   |   |   |   |   |   |
|   comprehensive      loss (pre-tax basis) consist of: |   |                     |    |   |                            |   |     |   |   |   |   |   |   |   |   |   |
| Net      actuarial loss (gain)                                  |   | $                        | 24,376  |   |                            | $      | 39,093   |   |   | $ | (12,831 | ) |   | $ | (11,128 | ) |
| Prior      service cost (credit)                                |   |                     | 4,353   |   |                            |   | 3,798    |   |   |   | (12,892 | ) |   |   | (18,435 | ) |
|                                                            |   | $                        | 28,729  |   |                            | $      | 42,891   |   |   | $ | (25,723 | ) |   | $ | (29,563 | ) |
|                                                            |   |                     |    |   |                            |   |     |   |   |   |   |   |   |   |   |   |

| (1) | Effective      August 24, 2006, the Company transferred five pension plans and two other      postretirement plans to the buyers of      the assets of the Company's PG Energy natural gas distribution division      and the Rhode Island operations of its New England Gas      Company natural gas distribution  division. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

|                                |   |                  |    |   |                         |   |    | Other  |   |
|-------------------------------------|--------|-----------------------|---------|--------|------------------------------|--------|---------|--------|--------|
|                                |   | Pension      Benefits |    |   | Postretirement      Benefits |   |
|                                |   | December      31,     |    |   | December      31,            |   |
|                                |   | 2007                  |    |   | 2006                         |   |    | 2007   |   |   | 2006 |   |
|                                |   | (In      thousands)   |    |
|                                |   |                  |    |   |                         |   |    |   |   |   |   |   |
| Projected      benefit obligation   |   | $                     | 162,824 |   |                         | $      | 162,955 |   |   |   | N/A |   |   |   | N/A |   |
| Accumulated      benefit obligation |   |                  | 154,950 |   |                         |   | 155,876 |   |   | $ | 71,571 |   |   | $ | 68,033 |   |
| Fair      value of plan assets      |   |                  | 128,342 |   |                         |   | 108,633 |   |   |   | 47,890 |   |   |   | 39,937 |   |
|                                |   |                  |    |   |                         |   |    |   |   |   |   |   |   |   |   |   |

|                                    |   | Pension      Benefits         |   |   | Other      Postretirement Benefits |   |
|-----------------------------------------|--------|-------------------------------|--------|--------|------------------------------------|--------|
|                                    |   | Years      Ended December 31, |   |   | Years      Ended December 31,      |   |
|                                    |   | 2007                          |   |   | 2006                               |   |   | 2005 |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
|                                    |   | (In      thousands)           |   |
| Net      Periodic Benefit Cost:         |   |                          |   |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Service      cost                       |   | $                             | 2,715  |   |                               | $      | 2,599 |   |   | $ | 2,550 |   |   | $ | 1,788 |   |   | $ | 1,890 |   |   | $ | 2,908 |   |
| Interest      cost                      |   |                          | 9,388  |   |                               |   | 8,899 |   |   |   | 9,355 |   |   |   | 4,053 |   |   |   | 3,615 |   |   |   | 4,908 |   |
| Expected      return on plan assets     |   |                          | (9,619 | )      |                               |   | (8,909 | ) |   |   | (8,728 | ) |   |   | (2,858 | ) |   |   | (1,871 | ) |   |   | (1,375 | ) |
| Prior      service cost amortization    |   |                          | 623    |   |                               |   | 584 |   |   |   | 782 |   |   |   | (2,809 | ) |   |   | (3,011 | ) |   |   | (551 | ) |
| Actuarial      (gain) loss amortization |   |                          | 8,029  |   |                               |   | 7,236 |   |   |   | 5,364 |   |   |   | (768 | ) |   |   | (145 | ) |   |   | (163 | ) |
| Curtailment      recognition            |   |                          | -      |   |                               |   | - |   |   |   | 3,172 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Settlement      recognition             |   |                          | -      |   |                               |   | - |   |   |   | (644 | ) |   |   | - |   |   |   | - |   |   |   | - |   |
| Transfer      of assets in excess       |   |                          |   |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| of      obligations                     |   |                          | -      |   |                               |   | - |   |   |   | - |   |   |   | 1,915 |   |   |   | - |   |   |   | - |   |
|                                    |   |                          | 11,136 |   |                               |   | 10,409 |   |   |   | 11,851 |   |   |   | 1,321 |   |   |   | 478 |   |   |   | 5,727 |   |
| Regulatory      adjustment (1)          |   |                          | (1,578 | )      |                               |   | (7,710 | ) |   |   | (7,521 | ) |   |   | 2,665 |   |   |   | 2,665 |   |   |   | 2,665 |   |
| Net      periodic benefit cost          |   | $                             | 9,558  |   |                               | $      | 2,699 |   |   | $ | 4,330 |   |   | $ | 3,986 |   |   | $ | 3,143 |   |   | $ | 8,392 |   |
|                                    |   |                          |   |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (1) | In      the Distribution segment, the Company recovers certain qualified pension      benefit plan and other postretirement benefit plan costs through rates      charged to utility customers.  Certain utility commissions      require that the recovery of these costs be based on the Employee      Retirement Income Security Act or other utility commission specific      guidelines.  The difference between these amounts and periodic      benefit cost calculated pursuant to Statement No. 87 is initially deferred      as a regulatory asset and subsequently amortized to periodic benefit cost      over periods, promulgated by the applicable utility commission, in which      this difference will be recovered inrates. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|                               |   | Pension      Benefits         |   | Other      Postretirement Benefits |
|------------------------------------|--------|-------------------------------|--------|------------------------------------|
|                               |   | Years      Ended December 31, |   | Years      Ended December 31,      |
|                               |   | 2007                          |   | 2006                               |   | 2005 |   | 2007 |   | 2006 |   | 2005 |
|                               |   |                          |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount      rate                 |   |                          | 6.24   | %                                  |   |   | 5.77 | % |   |   | 5.50 | % |   |   | 6.34 | % |   |   | 5.78 | % |   |   | 5.50 | % |
| Rate      of compensation increase |   |                          |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (average)                          |   |                          | 3.47   | %                                  |   |   | 3.24 | % |   |   | 3.24 | % |   |   | N/A |   |   |   | N/A |   |   |   | N/A |   |
|                               |   |                          |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                               |   | Pension      Benefits         |   | Other      Postretirement Benefits |
|------------------------------------|--------|-------------------------------|--------|------------------------------------|
|                               |   | Years      Ended December 31, |   | Years      Ended December 31,      |
|                               |   | 2007                          |   | 2006                               |   | 2005 |   | 2007 |   | 2006 |   | 2005 |
|                               |   |                          |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount      rate                 |   |                          | 5.77   | %                                  |   |   | 5.50 | % |   |   | 5.75 | % |   |   | 5.78 | % |   |   | 5.50 | % |   |   | 5.75 | % |
| Expected      return on assets:    |   |                          |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tax      exempt accounts           |   |                          | 8.75   | %                                  |   |   | 8.75 | % |   |   | 9.00 | % |   |   | 7.00 | % |   |   | 7.00 | % |   |   | 7.00 | % |
| Taxable      accounts              |   |                          | N/A    |                               |   |   | N/A |   |   |   | N/A |   |   |   | 5.00 | % |   |   | 5.00 | % |   |   | 5.00 | % |
| Rate      of compensation increase |   |                          | 3.24   | %                                  |   |   | 3.24 | % |   |   | 3.40 | % |   |   | N/A |   |   |   | N/A |   |   |   | N/A |   |
|                               |   |                          |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                                    |   | December      31, |
|---------------------------------------------------------|--------|-------------------|
|                                                    |   | 2007              |   | 2006 |
|                                                    |   |              |   |   |   |   |
| Health      care cost trend rate assumed for next year  |   |              | 10.00 | % |   |   | 11.00 | % |
| Ultimate      trend rate                                |   |              | 5.13 | % |   |   | 4.80 | % |
| Year      that the rate reaches the ultimate trend rate |   |              | 2017 |   |   | 2013 |
|                                                    |   |              |   |   |   |   |   |   |

----

Table of Contents

|                                                         |   | One      Percentage Point |   |   | One      Percentage Point |   |
|--------------------------------------------------------------|--------|---------------------------|--------|--------|---------------------------|--------|
|                                                         |   | Increase                  |   |   | Decrease                  |   |
|                                                         |   | (In      thousands)       |   |
|                                                         |   |                      |   |   |                      |   |
| Effect      on total of service and interest cost            |   | $                         | 733    |   |                      | $      | (587 | ) |
| Effect      on accumulated postretirement benefit obligation |   | $                         | 7,082  |   |                      | $      | (5,754 | ) |
|                                                         |   |                      |   |   |                      |   |   |   |

|                          |   | Pension      Benefits |   | Other      Postretirement Benefits |
|-------------------------------|--------|-----------------------|--------|------------------------------------|
|                          |   | At      September 30, |   | At      September 30,              |
| Asset      Category           |   | 2007                  |   | 2006                               |   | 2007 |   | 2006 |
|                          |   |                  |   |                               |   |   |   |   |   |   |   |   |
| Equity      securities        |   |                  | 61     | %                                  |   |   | 76 | % |   |   | 31 | % |   |   | 24 | % |
| Debt      securities          |   |                  | 24     | %                                  |   |   | 10 | % |   |   | 62 | % |   |   | 66 | % |
| Other      - cash equivalents |   |                  | 15     | %                                  |   |   | 14 | % |   |   | 7 | % |   |   | 10 | % |
| Total                         |   |                  | 100    | %                                  |   |   | 100 | % |   |   | 100 | % |   |   | 100 | % |
|                          |   |                  |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents

|      |   |                |   |   | Other                 |   |   | Other                  |   |
|-----------|--------|---------------------|--------|--------|-----------------------|--------|--------|------------------------|--------|
|      |   |                |   |   | Postretirement        |   |   | Postretirement         |   |
|      |   |                |   |   | Benefits              |   |   | Benefits               |   |
|      |   | Pension             |   |   | (Gross,      Before   |   |   | (Medicare      Part D  |   |
| Years     |   | Benefits            |   |   | Medicare      Part D) |   |   | Subsidy      Receipts) |   |
|      |   | (In      thousands) |   |
|      |   |                |   |   |                  |   |   |                   |   |
| 2008      |   | $                   | 10,172 |   |                  | $      | 4,093  |                   |   | $ | 607 |   |
| 2009      |   |                | 10,774 |   |                  |   | 4,083  |                   |   |   | 684 |   |
| 2010      |   |                | 10,929 |   |                  |   | 4,296  |                   |   |   | 763 |   |
| 2011      |   |                | 10,854 |   |                  |   | 4,831  |                   |   |   | 855 |   |
| 2012      |   |                | 12,084 |   |                  |   | 5,467  |                   |   |   | 809 |   |
| 2013-2017 |   |                | 61,034 |   |                  |   | 37,394 |                   |   |   | 5,533 |   |
|      |   |                |   |   |                  |   |   |                   |   |   |   |   |

----

Table of Contents

|                                    |   | Years      Ended December 31, |   |
|-----------------------------------------|--------|-------------------------------|--------|
| Income      Tax Expense                 |   | 2007                          |   |   | 2006 |   |   | 2005 |   |
|                                    |   | (In      thousands)           |   |
| Current:                                |   |                          |   |   |   |   |   |   |   |
| Federal                                 |   | $                             | 18,458 |   |   | $ | 19,798 |   |   | $ | 168 |   |
| State                                   |   |                          | 5,654  |   |   |   | 2,251 |   |   |   | 1,062 |   |
|                                    |   |                          | 24,112 |   |   |   | 22,049 |   |   |   | 1,230 |   |
|                                    |   |                          |   |   |   |   |   |   |   |   |   |   |
| Deferred:                               |   |                          |   |   |   |   |   |   |   |   |   |   |
| Federal                                 |   |                          | 62,502 |   |   |   | 74,563 |   |   |   | 43,110 |   |
| State                                   |   |                          | 8,645  |   |   |   | 12,635 |   |   |   | 5,712 |   |
|                                    |   |                          | 71,147 |   |   |   | 87,198 |   |   |   | 48,822 |   |
|                                    |   |                          |   |   |   |   |   |   |   |   |   |   |
| Total      federal and state income tax |   |                          |   |   |   |   |   |   |   |   |   |   |
| expense      from continuing operations |   | $                             | 95,259 |   |   | $ | 109,247 |   |   | $ | 50,052 |   |
|                                    |   |                          |   |   |   |   |   |   |   |   |   |   |
| Effective      tax rate                 |   |                          | 29.4   | % |   |   | 33.5 | % |   |   | 24.6 | % |
|                                    |   |                          |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents

|                                              |   | December      31,   |     |
|---------------------------------------------------|--------|---------------------|----------|
| Deferred      Income Tax Analysis                 |   | 2007                |     |   | 2006 |   |
|                                              |   | (In      thousands) |     |
| Deferred      income tax assets:                  |   |                |     |   |   |   |
| Alternative      minimum tax credit               |   | $                   | 13,560   |   |   | $ | 8,178 |   |
| Post-retirement      benefits                     |   |                | 24,320   |   |   |   | 17,673 |   |
| Pension      benefits                             |   |                | 6,579    |   |   |   | 13,810 |   |
| Unconsolidated      investments                   |   |                | 5,443    |   |   |   | 11,530 |   |
| Other                                             |   |                | 19,621   |   |   |   | 27,936 |   |
| Total      deferred income tax assets             |   |                | 69,523   |   |   |   | 79,127 |   |
|                                              |   |                |     |   |   |   |   |   |
| Deferred      income tax liabilities:             |   |                |     |   |   |   |   |   |
| Property,      plant and equipment                |   |                | (693,350 | ) |   |   | (624,797 | ) |
| Investment      in CCE Holdings (Citrus)          |   |                | (34,113  | ) |   |   | (18,700 | ) |
| Goodwill                                          |   |                | (15,665  | ) |   |   | (14,592 | ) |
| Regulatory      liability                         |   |                | (2,020   | ) |   |   | (2,989 | ) |
| Other                                             |   |                | (16,077  | ) |   |   | (35,738 | ) |
| Total      deferred income tax liabilities        |   |                | (761,225 | ) |   |   | (696,816 | ) |
| Net      deferred income tax liability            |   |                | (691,702 | ) |   |   | (617,689 | ) |
| Less      current income tax assets (liabilities) |   |                | 1,303    |   |   |   | (512 | ) |
| Accumulated      deferred income taxes            |   | $                   | (693,005 | ) |   | $ | (617,177 | ) |
|                                              |   |                |     |   |   |   |   |   |

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|                                                       |   | Years      Ended December 31, |    |
|------------------------------------------------------------|--------|-------------------------------|---------|
| Effective      Income Tax Rate Analysis                    |   | 2007                          |    |   | 2006 |   |   | 2005 |   |
|                                                       |   | (In      thousands)           |    |
| Computed      statutory income tax expense                 |   |                          |    |   |   |   |   |   |   |
| from      continuing operations at 35%                     |   | $                             | 113,389 |   |   | $ | 114,215 |   |   | $ | 71,102 |   |
| Changes      in income taxes resulting from:               |   |                          |    |   |   |   |   |   |   |   |   |   |
| Valuation      allowance                                   |   |                          | -       |   |   |   | - |   |   |   | (11,942 | ) |
| Dividend      received deduction                           |   |                          | (28,994 | ) |   |   | (10,696 | ) |   |   | (8,732 | ) |
| Executive      compensation, non deductible                |   |                          | 491     |   |   |   | 5,063 |   |   |   | - |   |
| State      income taxes, net of federal income tax benefit |   |                          | 9,295   |   |   |   | 9,411 |   |   |   | 4,403 |   |
| Analysis      of deferred tax accounts                     |   |                          | -       |   |   |   | (7,490 | ) |   |   | (4,757 | ) |
| Other                                                      |   |                          | 1,078   |   |   |   | (1,256 | ) |   |   | (22 | ) |
| Actual      income tax expense from continuing operations  |   | $                             | 95,259  |   |   | $ | 109,247 |   |   | $ | 50,052 |   |
|                                                       |   |                          |    |   |   |   |   |   |   |   |   |   |

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|                                 |   | December      31,   |   |
|--------------------------------------|--------|---------------------|--------|
|                                 |   | 2007                |   |   | 2006 |   |
|                                 |   | (In      thousands) |   |
|                                 |   |                |   |   |   |   |
| Current                              |   | $                   | 6,772  |   |   | $ | 5,098 |   |
| Noncurrent                           |   |                | 15,209 |   |   |   | 18,632 |   |
| Total      Environmental Liabilities |   | $                   | 21,981 |   |   | $ | 23,730 |   |
|                                 |   |                |   |   |   |   |   |   |

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|   | 19.  Discontinued      Operations |
|--------|---------------------------------------------|

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|                                                  |   | Years      Ended                             |     |
|-------------------------------------------------------|--------|----------------------------------------------|----------|
|                                                  |   | December      31,                            |     |
|                                                  |   | 2006 (2)                                |     |   | 2005 |   |
|                                                  |   | (In      thousands,except per share amounts) |     |
|                                                  |   |                                         |     |   |   |   |
| Operating      revenues                               |   | $                                            | 512,935  |   |   | $ | 752,549 |   |
| Operating      income (loss)                          |   |                                         | 54,662   |   |   |   | (106,073 | ) |
| Loss      from discontinued operations  (1) |   |                                         | (152,952 | ) |   |   | (132,413 | ) |
| Net      loss available from discontinued             |   |                                         |     |   |   |   |   |   |
| operations      per share:                            |   |                                         |     |   |   |   |   |   |
| Basic                                                 |   | $                                            | (1.33    | ) |   | $ | (1.21 | ) |
| Diluted                                               |   | $                                            | (1.30    | ) |   | $ | (1.17 | ) |
|                                                  |   |                                         |     |   |   |   |   |   |

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|                               |   | In      Service |   |                                             |   |                |   |
|------------------------------------|--------|-----------------|--------|--------------------------------------------------|--------|---------------------|--------|
| ARO      Description               |   | Date            |   | Long-Lived      Assets                           |   | Amount              |   |
|                               |   |            |   |                                             |   | (In      thousands) |   |
| Retire      offshore lateral lines |   | Various         |   | Offshore      lateral lines                      |   | $                   | 5,539  |   |
| Other                              |   | Various         |   | Mainlines,      compressors and gathering plants |   |                | 1,446  |   |
|                               |   |            |   |                                             |   |                |   |   |

|                              |   | Years      Ended December 31, |   |
|-----------------------------------|--------|-------------------------------|--------|
|                              |   | 2007                          |   |   | 2006 |   |   | 2005 |   |
|                              |   | (In      thousands)           |   |
|                              |   |                          |   |   |   |   |   |   |   |
| Beginning      balance            |   | $                             | 10,535 |   |   | $ | 8,200 |   |   | $ | 5,657 |   |
| Addition      from Sid Richardson |   |                          |   |   |   |   |   |   |   |   |   |   |
| Energy      Services acquisition  |   |                          | -      |   |   |   | 885 |   |   |   | - |   |
| Incurred                          |   |                          | 2,314  |   |   |   | 1,189 |   |   |   | 2,371 |   |
| Settled                           |   |                          | (907   | ) |   |   | (414 | ) |   |   | (285 | ) |
| Accretion      expense            |   |                          | 820    |   |   |   | 675 |   |   |   | 457 |   |
| Ending      balance               |   | $                             | 12,762 |   |   | $ | 10,535 |   |   | $ | 8,200 |   |
|                              |   |                          |   |   |   |   |   |   |   |   |   |   |

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|   | · | items      that do not impact net earnings from continuing operations, such as      extraordinary items, discontinued operations and the impact of changes in      accounting principles; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | income      taxes; |
|--------|--------|--------------------|

|   | · | interest;      and |
|--------|--------|--------------------|

|   | · | dividends      on preferred stock. |
|--------|--------|------------------------------------|

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|                                                  |   | Years      Ended December 31, |      |
|-------------------------------------------------------|--------|-------------------------------|-----------|
| Segment      Data                                     |   | 2007                          |      |   | 2006 |   |   | 2005 |   |
|                                                  |   | (In      thousands)           |      |
| Operating      revenues from external customers:      |   |                          |      |   |   |   |   |   |   |
| Transportation      and Storage                       |   | $                             | 658,446   |   |   | $ | 577,182 |   |   | $ | 505,233 |   |
| Gathering      and Processing                         |   |                          | 1,221,747 |   |   |   | 1,090,216 |   |   |   | - |   |
| Distribution                                          |   |                          | 732,109   |   |   |   | 668,721 |   |   |   | 752,699 |   |
| Total      segment operating revenues                 |   |                          | 2,612,302 |   |   |   | 2,336,119 |   |   |   | 1,257,932 |   |
| Corporate      and other                              |   |                          | 4,363     |   |   |   | 4,025 |   |   |   | 8,950 |   |
|                                                  |   | $                             | 2,616,665 |   |   | $ | 2,340,144 |   |   | $ | 1,266,882 |   |
|                                                  |   |                          |      |   |   |   |   |   |   |   |   |   |
| Depreciation      and amortization:                   |   |                          |      |   |   |   |   |   |   |   |   |   |
| Transportation      and Storage                       |   | $                             | 85,641    |   |   | $ | 72,724 |   |   | $ | 62,171 |   |
| Gathering      and Processing                         |   |                          | 59,560    |   |   |   | 47,321 |   |   |   | - |   |
| Distribution                                          |   |                          | 30,251    |   |   |   | 30,353 |   |   |   | 29,447 |   |
| Total      segment depreciation and amortization      |   |                          | 175,452   |   |   |   | 150,398 |   |   |   | 91,618 |   |
| Corporate      and other                              |   |                          | 2,547     |   |   |   | 1,705 |   |   |   | 944 |   |
|                                                  |   | $                             | 177,999   |   |   | $ | 152,103 |   |   | $ | 92,562 |   |
|                                                  |   |                          |      |   |   |   |   |   |   |   |   |   |
| Earnings      (loss) from unconsolidated investments: |   |                          |      |   |   |   |   |   |   |   |   |   |
| Transportation      and Storage                       |   | $                             | 99,222    |   |   | $ | 141,310 |   |   | $ | 70,618 |   |
| Gathering      and Processing                         |   |                          | 1,300     |   |   |   | (188 | ) |   |   | - |   |
| Corporate      and other                              |   |                          | 392       |   |   |   | 248 |   |   |   | 124 |   |
|                                                  |   | $                             | 100,914   |   |   | $ | 141,370 |   |   | $ | 70,742 |   |
|                                                  |   |                          |      |   |   |   |   |   |   |   |   |   |
| Other      income (expense), net:                     |   |                          |      |   |   |   |   |   |   |   |   |   |
| Transportation      and Storage                       |   | $                             | 1,604     |   |   | $ | 3,354 |   |   | $ | 571 |   |
| Gathering      and Processing                         |   |                          | 140       |   |   |   | 1,571 |   |   |   | - |   |
| Distribution                                          |   |                          | (1,902    | ) |   |   | (2,130 | ) |   |   | (2,598 | ) |
| Total      segment other income (expense), net        |   |                          | (158      | ) |   |   | 2,795 |   |   |   | (2,027 | ) |
| Corporate      and other                              |   |                          | (725      | ) |   |   | 37,123 |   |   |   | (6,214 | ) |
|                                                  |   | $                             | (883      | ) |   | $ | 39,918 |   |   | $ | (8,241 | ) |
|                                                  |   |                          |      |   |   |   |   |   |   |   |   |   |
| Segment      performance:                             |   |                          |      |   |   |   |   |   |   |   |   |   |
| Transportation      and Storage EBIT                  |   | $                             | 391,029   |   |   | $ | 417,536 |   |   | $ | 281,344 |   |
| Gathering      and Processing EBIT                    |   |                          | 65,368    |   |   |   | 62,630 |   |   |   | - |   |
| Distribution      EBIT                                |   |                          | 70,568    |   |   |   | 41,883 |   |   |   | 61,698 |   |
| Total      segment EBIT                               |   |                          | 526,965   |   |   |   | 522,049 |   |   |   | 343,042 |   |
| Corporate      and other                              |   |                          | 151       |   |   |   | 14,324 |   |   |   | (11,424 | ) |
| Interest      expense                                 |   |                          | 203,146   |   |   |   | 210,043 |   |   |   | 128,470 |   |
| Federal      and state income taxes                   |   |                          | 95,259    |   |   |   | 109,247 |   |   |   | 50,052 |   |
| Earnings      from continuing operations              |   |                          | 228,711   |   |   |   | 217,083 |   |   |   | 153,096 |   |
| Loss      from discontinued operations before         |   |                          |      |   |   |   |   |   |   |   |   |   |
| income      taxes                                     |   |                          | -         |   |   |   | (2,369 | ) |   |   | (111,588 | ) |
| Federal      and state income taxes                   |   |                          | -         |   |   |   | 150,583 |   |   |   | 20,825 |   |
| Loss      from discontinued operations                |   |                          | -         |   |   |   | (152,952 | ) |   |   | (132,413 | ) |
| Net      earnings                                     |   |                          | 228,711   |   |   |   | 64,131 |   |   |   | 20,683 |   |
| Preferred      stock dividends                        |   |                          | 17,365    |   |   |   | 17,365 |   |   |   | 17,365 |   |
| Net      earnings available for common stockholders   |   | $                             | 211,346   |   |   | $ | 46,766 |   |   | $ | 3,318 |   |
|                                                  |   |                          |      |   |   |   |   |   |   |   |   |   |

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|                            |   | Years      Ended December 31, |      |
|---------------------------------|--------|-------------------------------|-----------|
| Segment      Data               |   | 2007                          |      |   | 2006 |   |
|                            |   | (In      thousands)           |      |
| Total      assets:              |   |                          |      |   |   |   |
| Transportation      and Storage |   | $                             | 4,550,822 |   |   | $ | 3,874,318 |   |
| Gathering      and Processing   |   |                          | 1,709,901 |   |   |   | 1,722,055 |   |
| Distribution                    |   |                          | 1,020,460 |   |   |   | 1,016,491 |   |
| Total      segment assets       |   |                          | 7,281,183 |   |   |   | 6,612,864 |   |
| Corporate      and other        |   |                          | 116,730   |   |   |   | 169,926 |   |
| Total      consolidated assets  |   | $                             | 7,397,913 |   |   | $ | 6,782,790 |   |
|                            |   |                          |      |   |   |   |   |   |

|                                     |   | Years      Ended December 31, |    |
|------------------------------------------|--------|-------------------------------|---------|
|                                     |   | 2007                          |    |   | 2006 |   |   | 2005 |   |
|                                     |   | (In      thousands)           |    |
| Expenditures      for long-lived assets: |   |                          |    |   |   |   |   |   |   |
| Transportation      and Storage          |   | $                             | 591,153 |   |   | $ | 244,821 |   |   | $ | 189,415 |   |
| Gathering      and Processing            |   |                          | 48,633  |   |   |   | 35,101 |   |   |   | - |   |
| Distribution                             |   |                          | 44,769  |   |   |   | 47,954 |   |   |   | 84,896 |   |
| Total      segment expenditures for      |   |                          |    |   |   |   |   |   |   |   |   |   |
| long-lived      assets                   |   |                          | 684,555 |   |   |   | 327,876 |   |   |   | 274,311 |   |
| Corporate      and other                 |   |                          | 4,173   |   |   |   | 4,798 |   |   |   | 2,306 |   |
| Total      consolidated expenditures for |   |                          |    |   |   |   |   |   |   |   |   |   |
| long-lived      assets                   |   | $                             | 688,728 |   |   | $ | 332,674 |   |   | $ | 276,617 |   |
|                                     |   |                          |    |   |   |   |   |   |   |   |   |   |

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|                        |   |                               |   | Percent      of Consolidated  |
|-----------------------------|--------|------------------------------------|--------|-------------------------------|
|                        |   | Percent      of Transportation and |   | Company      Total            |
|                        |   | Storage      Segment Revenues      |   | Operating      Revenues       |
|                        |   | Years      Ended December 31,      |   | Years      Ended December 31, |
| Customer                    |   | 2007                               |   | 2006                          |   | 2005 |   | 2007 |   | 2006 |   | 2005 |
|                        |   |                               |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| BG      LNG Services        |   |                               | 28     | %                             |   |   | 24 | % |   |   | 17 | % |   |   | 7 | % |   |   | 6 | % |   |   | 4 | % |
| ProLiance                   |   |                               | 11     |                          |   |   | 12 |   |   |   | 16 |   |   |   | 3 |   |   |   | 3 |   |   |   | 4 |   |
| Ameren      Corp            |   |                               | 9      |                          |   |   | 10 |   |   |   | 11 |   |   |   | 2 |   |   |   | 3 |   |   |   | 3 |   |
| Other      top 10 customers |   |                               | 17     |                          |   |   | 19 |   |   |   | 14 |   |   |   | 4 |   |   |   | 5 |   |   |   | 4 |   |
| Remaining      customers    |   |                               | 35     |                          |   |   | 35 |   |   |   | 42 |   |   |   | 9 |   |   |   | 8 |   |   |   | 10 |   |
| Total      percentage       |   |                               | 100    | %                             |   |   | 100 | % |   |   | 100 | % |   |   | 25 | % |   |   | 25 | % |   |   | 25 | % |
|                        |   |                               |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                            |   | Percent      of Gathering and    |   |          | Percent      of Consolidated          |   |
|---------------------------------|--------|----------------------------------|--------|---------------|---------------------------------------|--------|
|                            |   | Processing      Segment Revenues |   |          | Company      Total Operating Revenues |   |
|                            |   | Years      Ended December 31,    |   |          | Years      Ended December 31,         |   |
| Customer                        |   | 2007                             |   | 2006 (1) |                                  | 2007   |   | 2006 (1) |
|                            |   |                             |   |          |                                  |   |   |   |   |   |   |   |
| ConocoPhillips      Company     |   |                             | 16     | %             |                                  |   | 22 | % |   |   | 8 | % |   |   | 10 | % |
| BP      Energy Company          |   |                             | 6      |          |                                  |   | 11 |   |   |   | 3 |   |   |   | 5 |   |
| Constellation      Power Source |   |                             | 7      |          |                                  |   | 10 |   |   |   | 3 |   |   |   | 5 |   |
| Other      top 10 customers     |   |                             | 34     |          |                                  |   | 22 |   |   |   | 16 |   |   |   | 10 |   |
| Remaining      customers        |   |                             | 37     |          |                                  |   | 35 |   |   |   | 17 |   |   |   | 17 |   |
| Total      percentage           |   |                             | 100    | %             |                                  |   | 100 | % |   |   | 47 | % |   |   | 47 | % |
|                            |   |                             |   |          |                                  |   |   |   |   |   |   |   |   |   |   |   |

| (1) | Represents      results from operations for the period subsequent to the March 1, 2006      acquisition. |
|-----|----------------------------------------------------------------------------------------------------------|

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|                                                                          |   | Year      Ended December 31, |    |
|-------------------------------------------------------------------------------|--------|------------------------------|---------|
| Other      Comprehensive Income (Loss)                                        |   | 2007                         |    |   | 2006 |   |   | 2005 |   |
|                                                                          |   | (In      thousands)          |    |
| Net      Earnings                                                             |   | $                            | 228,711 |   |   | $ | 64,131 |   |   | $ | 20,683 |   |
| Other      Comprehensive Income (Loss) Adjustments:                           |   |                         |    |   |   |   |   |   |   |   |   |   |
| Change      in fair value of interest rate hedges, net of tax of    $(5,241), |   |                         |    |   |   |   |   |   |   |   |   |   |
| $(745)      and $73, respectively                                             |   |                         | (10,041 | ) |   |   | (49 | ) |   |   | 108 |   |
| Reclassification      of unrealized gain on interest rate hedges              |   |                         |    |   |   |   |   |   |   |   |   |   |
| into      earnings, net of tax of $(13), $608 and $608, respectively          |   |                         | (4      | ) |   |   | 967 |   |   |   | 967 |   |
| Realized      gain (loss) on interest rate hedges, net of tax of    $(1,488), |   |                         |    |   |   |   |   |   |   |   |   |   |
| $0      and $0, respectively                                                  |   |                         | (2,366  | ) |   |   | - |   |   |   | - |   |
| Reversal      of minimum pension liability related to disposition, net        |   |                         |    |   |   |   |   |   |   |   |   |   |
| of      tax of $0, $16,004 and $0, respectively                               |   |                         | -       |   |   |   | 26,331 |   |   |   | - |   |
| Minimum      pension liability adjustment, net of tax of $0, $4,128           |   |                         |    |   |   |   |   |   |   |   |   |   |
| and      $1,064, respectively                                                 |   |                         | -       |   |   |   | 6,803 |   |   |   | 1,771 |   |
| Change      in fair value of commodity hedges, net of tax of $(775),          |   |                         |    |   |   |   |   |   |   |   |   |   |
| $7,466      and $0, respectively                                              |   |                         | (1,279  | ) |   |   | 12,360 |   |   |   | - |   |
| Reclassification      of unrealized gain on commodity hedges                  |   |                         |    |   |   |   |   |   |   |   |   |   |
| into      earnings, net of tax of $(2,425), $(4,266) and $0,    repectively   |   |                         | (3,997  | ) |   |   | (7,084 | ) |   |   | - |   |
| Actuarial      gain and prior service      credit (cost) relating to          |   |                         |    |   |   |   |   |   |   |   |   |   |
| pension      and other postretirement benefits,                               |   |                         |    |   |   |   |   |   |   |   |   |   |
| net      of tax of $1,055, $0 and $0, respectively                            |   |                         | 3,597   |   |   |   | - |   |   |   | - |   |
| Reclassification      of actuarial gain and prior service credit              |   |                         |    |   |   |   |   |   |   |   |   |   |
| (cost)      relating to pension and other postretirement benefits             |   |                         |    |   |   |   |   |   |   |   |   |   |
| into      earnings, net of tax of $1,619, $0 and $0, respectively             |   |                         | 3,397   |   |   |   | - |   |   |   | - |   |
| Total      other comprehensive income (loss)                                  |   |                         | (10,693 | ) |   |   | 39,328 |   |   |   | 2,846 |   |
| Total      comprehensive income                                               |   | $                            | 218,018 |   |   | $ | 103,459 |   |   | $ | 23,529 |   |
|                                                                          |   |                         |    |   |   |   |   |   |   |   |   |   |

|                                                                                       |   | Years      Ended December 31, |    |
|--------------------------------------------------------------------------------------------|--------|-------------------------------|---------|
|                                                                                       |   | 2007                          |    |   | 2006 |   |
|                                                                                       |   | (In      thousands)           |    |
| Interest      rate hedges, net                                                             |   | $                             | (14,723 | ) |   | $ | (2,312 | ) |
| Commodity      hedges, net                                                                 |   |                          | -       |   |   |   | 5,276 |   |
| Benefit      Plans:                                                                        |   |                          |    |   |   |   |   |   |
| Net      actuarial loss and prior service costs, net - pensions                            |   |                          | (17,907 | ) |   |   | (26,678 | ) |
| Net      actuarial gain and prior service credit, net - other postretirement      benefits |   |                          | 21,036  |   |   |   | 22,813 |   |
| Total      Accumulated other comprehensive loss, net of tax                                |   | $                             | (11,594 | ) |   | $ | (901 | ) |
|                                                                                       |   |                          |    |   |   |   |   |   |

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|                         |   | Years      ended December 31, |   |
|------------------------------|--------|-------------------------------|--------|
|                         |   | 2007                          |   | 2006 |   | 2005 |   |
| Expected      volatility     |   | 30.11%      to 32.12%         |   | 32.90% |   | 20.57%      to 37.61% |   |
| Expected      dividend yield |   | 2.10%                         |   | 1.43% |   | 1.67% |   |
| Risk-free      interest rate |   | 3.70%      to 3.89%           |   | 4.69% |   | 3.76%      to 4.63% |   |
| Expected      life           |   | 6.00      to 7.50 years       |   | 6.00      years |   | 0.75      to 6.50 years |  |
|                         |   |                          |   |   |   |   |   |

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|                               |   |   |   |   | Second      Amended 2003 Plan |      |      | 1992      Plan |   |
|------------------------------------|--------|--------|--------|--------|-------------------------------|-----------|-----------|----------------|--------|
|                               |   |   |   |   |                          |      |      | Weighted       |   |   |   |   |   | Weighted |   |
|                               |   |   |   |   | Shares                        |      |      | Average        |   |   | Shares |   |   | Average |   |
|                               |   |   |   |   | Under                         |      |      | Exercise       |   |   | Under |   |   | Exercise |   |
|                               |   |   |   |   | Option                        |      |      | Price          |   |   | Option |   |   | Price |   |
|                               |   |   |   |   |                          |      |      |           |   |   |   |   |   |   |   |
| Outstanding      January 1, 2005   |   |   |   |   |                          | 698,522   |      |           | $      | 16.83 |   |   |   | 2,390,705 |   |   | $ | 12.81 |   |
| Granted                            |   |   |   |   |                          | 731,349   |      |           |   | 23.52 |   |   |   | 136,608 |   |   |   | 12.75 |   |
| Exercised                          |   |   |   |   |                          | (62,976   | )         |           |   | 16.83 |   |   |   | (794,105 | ) |   |   | 12.47 |   |
| Forfeited                          |   |   |   |   |                          | (77,385   | )         |           |   | 16.83 |   |   |   | (473,584 | ) |   |   | 12.45 |   |
| Outstanding      December 31, 2005 |   |   |   |   |                          | 1,289,510 |      |           | $      | 20.62 |   |   |   | 1,259,624 |   |   | $ | 13.15 |   |
| Granted                            |   |   |   |   |                          | -         |  (1) |           |   | - |   |   |   | - |   |   |   | - |   |
| Exercised                          |   |   |   |   |                          | (121,137  | )         |           |   | 17.31 |   |   |   | (521,289 | ) |   |   | 13.92 |   |
| Forfeited                          |   |   |   |   |                          | (157,894  | )         |           |   | 18.23 |   |   |   | (23,139 | ) |   |   | 12.92 |   |
| Outstanding      December 31, 2006 |   |   |   |   |                          | 1,010,479 |      |           | $      | 21.39 |   |   |   | 715,196 |   |   | $ | 12.60 |   |
| Granted                            |   |   |   |   |                          | 717,098   |  (2) |           |   | 28.48 |   |   |   | - |   |   |   | - |   |
| Exercised                          |   |   |   |   |                          | (98,027   | )         |           |   | 19.32 |   |   |   | (176,515 | ) |   |   | 10.51 |   |
| Forfeited                          |   |   |   |   |                          | (97,875   | )         |           |   | 22.95 |   |   |   | (1,979 | ) |   |   | 13.03 |   |
| Outstanding      December 31, 2007 |   |   |   |   |                          | 1,531,675 |      |           | $      | 24.74 |   |   |   | 536,702 |   |   | $ | 13.28 |   |
|                               |   |   |   |   |                          |      |      |           |   |   |   |   |   |   |   |   |   |   |   |
| Exercisable      December 31, 2005 |   |   |   |   |                          | 355,259   |      |           |   | 21.85 |   |   |   | 1,147,902 |   |   |   | 13.06 |   |
| Exercisable      December 31, 2006 |   |   |   |   |                          | 533,363   |      |           |   | 22.38 |   |   |   | 715,196 |   |   |   | 12.60 |   |
| Exercisable      December 31, 2007 |   |   |   |   |                          | 565,560   |      |           |   | 22.25 |   |   |   | 536,702 |   |   |   | 13.28 |   |
|                               |   |   |   |   |                          |      |      |           |   |   |   |   |   |   |   |   |   |   |   |

|   |  Southern      Union’s common stock in excess of $28.07 for each SAR on the applicable      vesting date. |
|--------|----------------------------------------------------------------------------------------------------------------------|

|   |  Southern      Union’s common stock in excess of $28.48 for each SAR on the applicable      vesting date. |
|--------|----------------------------------------------------------------------------------------------------------------------|

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Table of Contents

|                                       |   | Options      Outstanding |      | Options      Exercisable |            |
|--------------------------------------------|--------|--------------------------|-----------|--------------------------|-----------------|
|                                       |   |                     |      | Weighted      Average    |            | Weighted |   |   |   | Weighted |   |
|                                       |   |                     |      | Remaining                |            | Average |   | Number of |   | Average |   |
| Range      of Exercise      Prices         |   | Number      of Options   |      | Contractual      Life    |            | Exercise      Price |   | Options |   | Exercise      Price |   |
|                                       |   |                     |      |                     |            |   |   |   |   |   |   |
|        Second Amended 2003      Plan: |   |                     |      |                     |            |   |   |   |   |   |   |
| 16.82      - 20.00                         |   |                     | 242,135   |                     | 6.11      years |   | $ | 16.83 |   |   | 105,800 |   | $ | 16.83 |   |
| 20.01      - 25.00                         |   |                     | 572,442   |                     | 7.70      years |   |   | 23.41 |   |   | 459,760 |   |   | 23.50 |   |
| 25.01      - 28.48                         |   |                     | 717,098   |                     | 9.97      years |   |   | 28.48 |   |   | - |   |   | - |   |
|                                       |   |                     | 1,531,675 |                     | 8.51      years |   | $ | 24.74 |   |   | 565,560 |   | $ | 22.25 |   |
|                                       |   |                     |      |                     |            |   |   |   |   |   |   |   |   |   |   |
| 1992      Plan:                            |   |                     |      |                     |            |   |   |   |   |   |   |   |   |   |   |
| 12.63      - 14.66                         |   |                     | 536,702   |                     | 1.50      years |   | $ | 13.28 |   |   | 536,702 |   | $ | 13.28 |   |
|                                       |   |                     | 536,702   |                     | 1.50      years |   | $ | 13.28 |   |   | 536,702 |   | $ | 13.28 |   |
|                                       |   |                     |      |                     |            |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents

|                                                  |   | Number      of         |     |   | Weighted-Average |   |
|-------------------------------------------------------|--------|------------------------|----------|--------|------------------|--------|
|                                                  |   | Restricted      Shares |     |   | Grant-Date       |   |
| Nonvested      Restricted Stock Equity Units          |   | Outstanding            |     |   | Fair-Value       |   |
|                                                  |   |                   |     |   |             |   |
| Nonvested      restricted shares at January 1, 2005   |   |                   | -        |   |             | $      | - |   |
| Granted                                               |   |                   | 209,903  |   |             |   | 24.15 |   |
| Vested                                                |   |                   | -        |   |             |   | - |   |
| Forfeited                                             |   |                   | -        |   |             |   | - |   |
| Nonvested      restricted shares at December 31, 2005 |   |                   | 209,903  |   |             | $      | 24.15 |   |
| Granted                                               |   |                   | 137,036  |   |             |   | 26.50 |   |
| Vested                                                |   |                   | (146,335 | )      |             |   | 24.17 |   |
| Forfeited                                             |   |                   | (31,820  | )      |             |   | 24.44 |   |
| Nonvested      restricted shares at December 31, 2006 |   |                   | 168,784  |   |             | $      | 25.98 |   |
| Granted                                               |   |                   | 156,044  |   |             |   | 28.99 |   |
| Vested                                                |   |                   | (111,322 | )      |             |   | 26.67 |   |
| Forfeited                                             |   |                   | (12,336  | )      |             |   | 24.96 |   |
| Nonvested      restricted shares at December 31, 2007 |   |                   | 201,170  |   |             | $      | 28.00 |   |
|                                                  |   |                   |     |   |             |   |   |   |

|                                                  |   | Number      of                  |    |   | Weighted-Average |   |
|-------------------------------------------------------|--------|---------------------------------|---------|--------|------------------|--------|
|                                                  |   | Restricted      Stock Liability |    |   | Grant-Date       |   |
| Nonvested      Restricted Stock Liability Units       |   | Units      Outstanding          |    |   | Fair-Value       |   |
|                                                  |   |                            |    |   |             |   |
| Nonvested      restricted shares at December 31, 2005 |   |                            | -       |   |             | $      | - |   |
| Granted                                               |   |                            | 108,869 |   |             |   | 28.07 |   |
| Vested                                                |   |                            | -       |   |             |   | - |   |
| Forfeited                                             |   |                            | -       |   |             |   | - |   |
| Nonvested      restricted shares at December 31, 2006 |   |                            | 108,869 |   |             | $      | 28.07 |   |
| Granted                                               |   |                            | 143,460 |   |             |   | 28.49 |   |
| Vested                                                |   |                            | (36,283 | )      |             |   | 28.07 |   |
| Forfeited                                             |   |                            | (2,744  | )      |             |   | 28.07 |   |
| Nonvested      restricted shares at December 31, 2007 |   |                            | 213,302 |   |             | $      | 28.35 |   |
|                                                  |   |                            |    |   |             |   |   |   |

----

Table of Contents

|                                     |   | Quarters      Ended                           |    |
|------------------------------------------|--------|-----------------------------------------------|---------|
|                                     |   | March      31                                 |    |   | June      30 |   |   | September      30 |   |   | December      31 |   |
|                                     |   | (In      thousands, except per share amounts) |    |
|                                     |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Operating      revenues                  |   | $                                             | 780,232 |   |   | $ | 588,049 |   |   | $ | 525,473 |   |   | $ | 722,911 |   |
| Operating      income                    |   |                                          | 129,594 |   |   |   | 87,400 |   |   |   | 96,980 |   |   |   | 113,111 |   |
| Earnings      from continuing operations |   |                                          | 78,721  |   |   |   | 50,975 |   |   |   | 45,283 |   |   |   | 53,732 |   |
| Net      earnings available for common   |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| stockholders                             |   |                                          | 74,380  |   |   |   | 46,634 |   |   |   | 40,941 |   |   |   | 49,391 |   |
| Diluted      net earnings per share      |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| available      for common stockholders:  |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing      operations               |   | $                                             | 0.62    |   |   | $ | 0.39 |   |   | $ | 0.34 |   |   | $ | 0.41 |   |
| Available      for common stockholders   |   | $                                             | 0.62    |   |   | $ | 0.39 |   |   | $ | 0.34 |   |   | $ | 0.41 |   |
|                                     |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                                                                   |   | Quarters      Ended                           |    |
|----------------------------------------------------------------------------------------|--------|-----------------------------------------------|---------|
|                                                                                   |   | March      31                                 |    |   | June      30 |   |   | September      30 |   |   | December      31 |   |
|                                                                                   |   | (In      thousands, except per share amounts) |    |
|                                                                                   |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Operating      revenues                                                                |   | $                                             | 547,166 |   |   | $ | 552,355 |   |   | $ | 564,418 |   |   | $ | 676,205 |   |
| Operating      income                                                                  |   |                                          | 102,847 |   |   |   | 69,792 |   |   |   | 69,961 |   |   |   | 112,485 |   |
| Earnings      from continuing operations                                               |   |                                          | 73,418  |   |   |   | 16,321 |   |   |   | 11,829 |   |   |   | 115,515 |   |
| Net      earnings (loss) from discontinued operations                                  |   |                                          | 24,529  |   |   |   | (2,587 | ) |   |   | (174,473 | ) |   |   | (421 | ) |
| Net      earnings (loss) available for common                                          |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     stockholders                                                   |   |                                          | 93,606  |   |   |   | 9,393 |   |   |   | (166,985 | ) |   |   | 110,752 |   |
| Diluted      net earnings (loss) per share                                             |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     available      for common stockholders:                        |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
|         Continuing      operations             |   | $                                             | 0.60    |   |   | $ | 0.10 |   |   | $ | 0.06 |   |   | $ | 0.92 |   |
|         Available      for common stockholders |   | $                                             | 0.82    |   |   | $ | 0.08 |   |   | $ | (1.42 | ) |   | $ | 0.92 |   |
|                                                                                   |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

Table of Contents

----

----

| Consolidated      Financial Statements                       |
|--------------------------------------------------------------|
|                                                         |   |   |   |   |
| Years      ended December 31, 2007, 2006 and 2005            |
|                                                         |   |   |   |   |
|                                                         |   |   |   |   |
|                                                         |   |   |   |   |
| TABLE      OF CONTENTS                                       |
|                                                         |   |   |   |   |
|                                                         |   |   | Page |   |
|                                                         |   |   |   |   |
| Report      of Independent Registered Public Accounting Firm |   | 2 |   |
|                                                         |   |   |   |   |
| Audited      Consolidated Financial Statements               |   |   |   |
|                                                         | Consolidated      Balance Sheets |   | 3 |   |
|                                                         | Consolidated      Statements of Income |   | 4 |   |
|                                                         | Consolidated      Statements of Stockholders' Equity |   | 5 |   |
|                                                         | Consolidated      Statements of Comprehensive Income |   | 5 |   |
|                                                         | Consolidated      Statements of Cash Flows |   | 6 |   |
|                                                         | Notes      to Consolidated Financial Statements |   | 7 -      29 |   |

----

----

|                                                                                             |   |                |      |   |              |   |
|--------------------------------------------------------------------------------------------------|--------|---------------------|-----------|--------|-------------------|--------|
|                                                                                             |   |                |      |   |              |   |
|                                                                                             |   |                |      |   |              |   |
|                                                                                             |   |                |      |   |              |   |
|                                                                                             |   | December      31,   |      |   | December      31, |   |
|                                                                                             |   | 2007                |      |   | 2006              |   |
|                                                                                             |   | (In      thousands) |      |
| ASSETS                                                                                           |   |                |      |   |              |   |
|                                                                                             |   |                |      |   |              |   |
| Current      Assets                                                                              |   |                |      |   |              |   |
| Cash      and cash equivalents                                                                   |   | $                   | 3,572     |   |              | $      | 15,267 |   |
| Accounts      receivable, billed and unbilled,                                                   |   |                |      |   |              |   |   |   |
|      less      allowances of $18 and $282, respectively                 |   |                | 39,350    |   |              |   | 45,049 |   |
| Materials      and supplies                                                                      |   |                | 12,745    |   |              |   | 2,954 |   |
| Exchange      gas receivable                                                                     |   |                | 1,729     |   |              |   | - |   |
| Other                                                                                            |   |                | 2,248     |   |              |   | 1,025 |   |
|     Total      Current Assets                                                |   |                | 59,644    |   |              |   | 64,295 |   |
|                                                                                             |   |                |      |   |              |   |   |   |
| Property,      Plant and Equipment                                                               |   |                |      |   |              |   |   |   |
| Plant      in service                                                                            |   |                | 4,265,844 |   |              |   | 4,163,082 |   |
| Construction      work in progress                                                               |   |                | 150,742   |   |              |   | 85,746 |   |
|                                                                                             |   |                | 4,416,586 |   |              |   | 4,248,828 |   |
| Less      accumulated depreciation and amortization                                              |   |                | 1,401,638 |   |              |   | 1,304,133 |   |
|     Property,      Plant and Equipment, Net                                  |   |                | 3,014,948 |   |              |   | 2,944,695 |   |
|                                                                                             |   |                |      |   |              |   |   |   |
| Other      Assets                                                                                |   |                |      |   |              |   |   |   |
| Unamortized      debt expense                                                                    |   |                | 4,221     |   |              |   | 4,687 |   |
| Regulatory      assets                                                                           |   |                | 19,207    |   |              |   | 31,007 |   |
| Other                                                                                            |   |                | 10,838    |   |              |   | 76,429 |   |
|     Total      Other Assets                                                  |   |                | 34,266    |   |              |   | 112,123 |   |
|                                                                                             |   |                |      |   |              |   |   |   |
| Total      Assets                                                                                |   | $                   | 3,108,858 |   |              | $      | 3,121,113 |   |
|                                                                                             |   |                |      |   |              |   |   |   |
|                                                                                             |   |                |      |   |              |   |   |   |
|  LIABILITIES      AND STOCKHOLDERS' EQUITY                                                  |   |                |      |   |              |   |   |   |
|                                                                                             |   |                |      |   |              |   |   |   |
|  Current      Liabilities                                                                   |   |                |      |   |              |   |   |   |
|  Current      portion of long-term debt                                                     |   | $                   | 44,000    |   |              | $      | 84,000 |   |
|  Accounts      payable - trade and other                                                    |   |                | 33,422    |   |              |   | 25,070 |   |
|  Accounts      payable - affiliated companies                                               |   |                | 8,416     |   |              |   | 2,823 |   |
|  Accrued      interest                                                                      |   |                | 14,251    |   |              |   | 14,805 |   |
|  Accrued      income taxes                                                                  |   |                | 7,599     |   |              |   | 2,375 |   |
|  Accrued      taxes, other than income                                                      |   |                | 5,437     |   |              |   | 9,332 |   |
|  Exchange      gas payable                                                                  |   |                | 22,547    |   |              |   | 24,225 |   |
|  Capital      accruals                                                                      |   |                | 22,636    |   |              |   | 22,185 |   |
|  Dividends      payable                                                                     |   |                | 42,600    |   |              |   | - |   |
|  Other                                                                                      |   |                | 7,600     |   |              |   | 6,526 |   |
|      Total      Current Liabilities                                     |   |                | 208,508   |   |              |   | 191,341 |   |
|                                                                                             |   |                |      |   |              |   |   |   |
|  Deferred      Credits                                                                      |   |                |      |   |              |   |   |   |
|  Deferred      income taxes, net                                                            |   |                | 763,364   |   |              |   | 777,404 |   |
|  Regulatory      liabilities                                                                |   |                | 14,842    |   |              |   | 14,256 |   |
|  Other                                                                                      |   |                | 9,202     |   |              |   | 8,129 |   |
|      Total      Deferred Credits                                        |   |                | 787,408   |   |              |   | 799,789 |   |
|                                                                                             |   |                |      |   |              |   |   |   |
|  Long-Term      Debt                                                                        |   |                | 909,810   |   |              |   | 836,882 |   |
|  Commitments      and contingencies (Note 14)                                               |   |                |      |   |              |   |   |   |
|                                                                                             |   |                |      |   |              |   |   |   |
|  Stockholders'      Equity                                                                  |   |                |      |   |              |   |   |   |
| Common      stock, $1 par value; 1,000 shares  authorized, issued and      outstanding |   |                | 1         |   |              |   | 1 |   |
| Additional      paid-in capital                                                                  |   |                | 634,271   |   |              |   | 634,271 |   |
| Accumulated      other comprehensive loss                                                        |   |                | (7,885    | )      |              |   | (10,524 | ) |
| Retained      earnings                                                                           |   |                | 576,745   |   |              |   | 669,353 |   |
|      Total      Stockholders' Equity                                    |   |                | 1,203,132 |   |              |   | 1,293,101 |   |
|                                                                                             |   |                |      |   |              |   |   |   |
|  Total      Liabilities and Stockholders' Equity                                            |   | $                   | 3,108,858 |   |              | $      | 3,121,113 |   |
|                                                                                             |   |                |      |   |              |   |   |   |

----

|                                                            |   |                |    |   |              |   |    |              |   |
|-----------------------------------------------------------------|--------|---------------------|---------|--------|-------------------|--------|---------|-------------------|--------|
|                                                            |   |                |    |   |              |   |    |              |   |
|                                                            |   |                |    |   |              |   |    |              |   |
|                                                            |   |                |    |   |              |   |    |              |   |
|                                                            |   |                |    |   |              |   |    |              |   |
|                                                            |   |                |    |   |              |   |    |              |   |
|                                                            |   | Year      Ended     |    |   | Year      Ended   |   |    | Year      Ended   |   |
|                                                            |   | December      31,   |    |   | December      31, |   |    | December      31, |   |
|                                                            |   | 2007                |    |   | 2006              |   |    | 2005              |   |
|                                                            |   | (In      thousands) |    |
|                                                            |   |                |    |   |              |   |    |              |   |
| Operating      Revenues                                         |   |                |    |   |              |   |    |              |   |
| Transportation      of natural gas                              |   | $                   | 495,513 |   |              | $      | 485,189 |              |   | $ | 476,049 |   |
|                                                            |   |                |    |   |              |   |    |              |   |   |   |   |
| Total      Operating Revenues                                   |   |                | 495,513 |   |              |   | 485,189 |              |   |   | 476,049 |   |
|                                                            |   |                |    |   |              |   |    |              |   |   |   |   |
| Operating      Expenses                                         |   |                |    |   |              |   |    |              |   |   |   |   |
| Operations      and maintenance                                 |   |                | 82,058  |   |              |   | 77,941  |              |   |   | 78,829 |   |
| Depreciation      and amortization                              |   |                | 100,634 |   |              |   | 98,653  |              |   |   | 91,125 |   |
| Taxes,      other than income taxes                             |   |                | 29,618  |   |              |   | 34,765  |              |   |   | 34,306 |   |
|                                                            |   |                |    |   |              |   |    |              |   |   |   |   |
|     Total      Operating Expenses           |   |                | 212,310 |   |              |   | 211,359 |              |   |   | 204,260 |   |
|                                                            |   |                |    |   |              |   |    |              |   |   |   |   |
|                                                            |   |                |    |   |              |   |    |              |   |   |   |   |
| Operating      Income                                           |   |                | 283,203 |   |              |   | 273,830 |              |   |   | 271,789 |   |
|                                                            |   |                |    |   |              |   |    |              |   |   |   |   |
| Other      Income (Expenses)                                    |   |                |    |   |              |   |    |              |   |   |   |   |
| Interest      expense and related charges, net                  |   |                | (73,871 | )      |              |   | (76,428 | )                 |   |   | (79,290 | ) |
| Other,      net                                                 |   |                | 39,984  |   |              |   | 4,633   |              |   |   | 6,531 |   |
|                                                            |   |                |    |   |              |   |    |              |   |   |   |   |
|     Total      Other Income (Expenses), net |   |                | (33,887 | )      |              |   | (71,795 | )                 |   |   | (72,759 | ) |
|                                                            |   |                |    |   |              |   |    |              |   |   |   |   |
| Income      Before Income Taxes                                 |   |                | 249,316 |   |              |   | 202,035 |              |   |   | 199,030 |   |
|                                                            |   |                |    |   |              |   |    |              |   |   |   |   |
| Federal      and State Income Tax Expense                       |   |                | 92,224  |   |              |   | 75,960  |              |   |   | 75,086 |   |
|                                                            |   |                |    |   |              |   |    |              |   |   |   |   |
| Net      Income                                                 |   | $                   | 157,092 |   |              | $      | 126,075 |              |   | $ | 123,944 |   |
|                                                            |   |                |    |   |              |   |    |              |   |   |   |   |

----

|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|-----------|--------|-------------------|--------|-----------|-------------------|--------|
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |
|                                                                                                                                                                                                           |   | Year      Ended     |      |   | Year      Ended   |   |      | Year      Ended   |   |
|                                                                                                                                                                                                           |   | December      31,   |      |   | December      31, |   |      | December      31, |   |
|                                                                                                                                                                                                           |   | 2007                |      |   | 2006              |   |      | 2005              |   |
|                                                                                                                                                                                                           |   | (In      thousands) |      |
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |
| Common      Stock                                                                                                                                                                                              |   |                |      |   |              |   |      |              |   |
| Balance,      beginning and end of period                                                                                                                                                                      |   | $                   | 1         |   |              | $      | 1         |              |   | $ | 1 |   |
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |   |   |   |
| Additional      Paid-in Capital                                                                                                                                                                                |   |                |      |   |              |   |      |              |   |   |   |   |
| Balance,      beginning and end of period                                                                                                                                                                      |   |                | 634,271   |   |              |   | 634,271   |              |   |   | 634,271 |   |
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |   |   |   |
| Accumulated      Other Comprehensive Loss                                                                                                                                                                      |   |                |      |   |              |   |      |              |   |   |   |   |
| Balance,      beginning of period                                                                                                                                                                              |   |                | (10,524   | )      |              |   | (13,162   | )                 |   |   | (15,800 | ) |
| Recognition      in earnings of previously deferred net losses related to derivative      instruments used as cash flow hedges                                                                                 |   |                | 2,639     |   |              |   | 2,638     |              |   |   | 2,638 |   |
| Balance,      end of period                                                                                                                                                                                    |   |                | (7,885    | )      |              |   | (10,524   | )                 |   |   | (13,162 | ) |
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |   |   |   |
| Retained      Earnings                                                                                                                                                                                         |   |                |      |   |              |   |      |              |   |   |   |   |
| Balance,      beginning of period                                                                                                                                                                              |   |                | 669,353   |   |              |   | 668,678   |              |   |   | 665,934 |   |
| Net      income                                                                                                                                                                                                |   |                | 157,092   |   |              |   | 126,075   |              |   |   | 123,944 |   |
| Dividends  (1)                                                                                                                                                                                       |   |                | (249,700  | )      |              |   | (125,400  | )                 |   |   | (121,200 | ) |
| Balance,      end of period                                                                                                                                                                                    |   |                | 576,745   |   |              |   | 669,353   |              |   |   | 668,678 |   |
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |   |   |   |
| Total      Stockholders' Equity                                                                                                                                                                                |   | $                   | 1,203,132 |   |              | $      | 1,293,101 |              |   | $ | 1,289,788 |   |
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |   |   |   |
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |   |   |   |
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |   |   |   |
| CONSOLIDATED      STATEMENTS OF COMPREHENSIVE INCOME                                                                                                                                                           |
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |   |   |   |
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |   |   |   |
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |   |   |   |
|                                                                                                                                                                                                           |   | Year      Ended     |      |   | Year      Ended   |   |      | Year      Ended   |   |
|                                                                                                                                                                                                           |   | December      31,   |      |   | December      31, |   |      | December      31, |   |
|                                                                                                                                                                                                           |   | 2007                |      |   | 2006              |   |      | 2005              |   |
|                                                                                                                                                                                                           |   | (In      thousands) |      |
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |   |   |   |
| Net      income                                                                                                                                                                                                |   | $                   | 157,092   |   |              | $      | 126,075   |              |   | $ | 123,944 |   |
| Recognition      in earnings of previously deferred net losses related to derivative      instruments used as cash flow hedges                                                                                 |   |                | 2,639     |   |              |   | 2,638     |              |   |   | 2,638 |   |
|  Total      Comprehensive Income                                                                                                                                                                          |   | $                   | 159,731   |   |              | $      | 128,713   |              |   | $ | 126,582 |   |
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |   |   |   |
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |   |   |   |
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |   |   |   |
| (1) Includes      $42.6 million in Dividends Payable, declared in December 2007, payable in      January, 2008 and which was paid on January 18, 2008. (See Note 7 -      Related Party Transaction) |   |
|                                                                                                                                                                                                           |   |                |      |   |              |   |      |              |   |   |   |   |

----

|                                                                                        |   |                |     |   |              |   |     |              |   |
|---------------------------------------------------------------------------------------------|--------|---------------------|----------|--------|-------------------|--------|----------|-------------------|--------|
|                                                                                        |   |                |     |   |              |   |     |              |   |
|                                                                                        |   |                |     |   |              |   |     |              |   |
|                                                                                        |   |                |     |   |              |   |     |              |   |
|                                                                                        |   |                |     |   |              |   |     |              |   |
|                                                                                        |   |                |     |   |              |   |     |              |   |
|                                                                                        |   | Year      Ended     |     |   | Year      Ended   |   |     | Year      Ended   |   |
|                                                                                        |   | December      31,   |     |   | December      31, |   |     | December      31, |   |
|                                                                                        |   | 2007                |     |   | 2006              |   |     | 2005              |   |
|                                                                                        |   | (In      thousands) |     |
| Cash      flows provided by operating activities                                            |   |                |     |   |              |   |     |              |   |
| Net      income                                                                             |   | $                   | 157,092  |   |              | $      | 126,075  |              |   | $ | 123,944 |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities: |   |                |     |   |              |   |     |              |   |   |   |   |
|                                                                                        |   |                |     |   |              |   |     |              |   |   |   |   |
| Depreciation      and amortization                                                          |   |                | 100,634  |   |              |   | 98,653   |              |   |   | 91,125 |   |
| Amortization      of hedge loss in other comprehensive income                               |   |                | 2,639    |   |              |   | 2,638    |              |   |   | 2,638 |   |
| Amortization      of discount and swap hedge loss in long term debt                         |   |                | 528      |   |              |   | 527      |              |   |   | 530 |   |
| Amortization      of regulatory assets and other deferred charges                           |   |                | 1,250    |   |              |   | 3,274    |              |   |   | 3,380 |   |
| Amortization      of debt costs                                                             |   |                | 994      |   |              |   | 1,048    |              |   |   | 1,053 |   |
| Deferred      income taxes                                                                  |   |                | (12,277  | )      |              |   | 18,629   |              |   |   | 12,740 |   |
| Allowance      for funds used during construction                                           |   |                | (4,683   | )      |              |   | (1,630   | )                 |   |   | (1,441 | ) |
| Gain      on sale of assets                                                                 |   |                | -        |   |              |   | -        |              |   |   | (1,236 | ) |
| Changes      in operating assets and liabilities:                                           |   |                |     |   |              |   |     |              |   |   |   |   |
| Accounts      receivable                                                                    |   |                | 5,699    |   |              |   | (3,327   | )                 |   |   | 403 |   |
| Accounts      payable                                                                       |   |                | 11,950   |   |              |   | (3,316   | )                 |   |   | (10,567 | ) |
| Accrued      interest                                                                       |   |                | (554     | )      |              |   | (286     | )                 |   |   | (324 | ) |
| Accrued      income tax                                                                     |   |                | 5,224    |   |              |   | 3,247    |              |   |   | (7,204 | ) |
| Other      current assets and liabilities                                                   |   |                | (8,944   | )      |              |   | 18,749   |              |   |   | 3,234 |   |
| Other      long-term assets and liabilities                                                 |   |                | 74,668   |   |              |   | (24,627  | )                 |   |   | 36,140 |   |
| Net      cash provided by operating activities                                              |   |                | 334,220  |   |              |   | 239,654  |              |   |   | 254,415 |   |
|                                                                                        |   |                |     |   |              |   |     |              |   |   |   |   |
| Cash      flows used in investing activities                                                |   |                |     |   |              |   |     |              |   |   |   |   |
| Capital      expenditures                                                                   |   |                | (175,370 | )      |              |   | (106,023 | )                 |   |   | (37,610 | ) |
| Allowance      for funds used during construction                                           |   |                | 4,683    |   |              |   | 1,630    |              |   |   | 1,441 |   |
| Proceeds      from sale of assets                                                           |   |                | -        |   |              |   | -        |              |   |   | 1,715 |   |
| Net      cash used in investing activities                                                  |   |                | (170,687 | )      |              |   | (104,393 | )                 |   |   | (34,454 | ) |
|                                                                                        |   |                |     |   |              |   |     |              |   |   |   |   |
| Cash      flows used in financing activities                                                |   |                |     |   |              |   |     |              |   |   |   |   |
| Dividends      paid                                                                         |   |                | (207,100 | )      |              |   | (125,400 | )                 |   |   | (121,200 | ) |
| Net      (payments) borrowings on the revolving credit facilities                           |   |                | 76,400   |   |              |   | (2,000   | )                 |   |   | (75,000 | ) |
| Long-term      debt finance costs                                                           |   |                | (528     | )      |              |   | -        |              |   |   | - |   |
| Payments      on long-term debt                                                             |   |                | (44,000  | )      |              |   | (14,000  | )                 |   |   | (14,000 | ) |
| Net      cash used in financing activities                                                  |   |                | (175,228 | )      |              |   | (141,400 | )                 |   |   | (210,200 | ) |
|                                                                                        |   |                |     |   |              |   |     |              |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents                                   |   |                | (11,695  | )      |              |   | (6,139   | )                 |   |   | 9,761 |   |
|                                                                                        |   |                |     |   |              |   |     |              |   |   |   |   |
| Cash      and cash equivalents, beginning of period                                         |   |                | 15,267   |   |              |   | 21,406   |              |   |   | 11,645 |   |
|                                                                                        |   |                |     |   |              |   |     |              |   |   |   |   |
| Cash      and cash equivalents, end of period                                               |   | $                   | 3,572    |   |              | $      | 15,267   |              |   | $ | 21,406 |   |
|                                                                                        |   |                |     |   |              |   |     |              |   |   |   |   |
| Supplemental      disclosure of cash flow information                                       |   |                |     |   |              |   |     |              |   |   |   |   |
|                                                                                        |   |                |     |   |              |   |     |              |   |   |   |   |
| Interest      paid (net of amounts capitalized)                                             |   | $                   | 72,439   |   |              | $      | 72,067   |              |   | $ | 74,714 |   |
| Income      tax paid                                                                        |   | $                   | 103,589  |   |              | $      | 56,814   |              |   | $ | 66,954 |   |
|                                                                                        |   |                |     |   |              |   |     |              |   |   |   |   |

----

| (1) | Corporate      Structure |
|-----|--------------------------|

| (2) | Significant      Accounting Policies |
|-----|--------------------------------------|

|   | Regulatory      Accounting –      Florida Gas’ accounting policies generally conform to Financial      Accounting Standards Board (FASB) Statement No. 71,      Accounting for the      Effects of Certain Types of Regulation (Statement No.      71).  Accordingly, certain assets and liabilities that      result from the regulated ratemaking process are recorded that would not      be recorded under GAAP for non-regulated  entities. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Revenue      Recognition – Revenues consist primarily of fees earned from gas      transportation services.  Reservation revenues are based on      contracted rates and capacity reserved by the customers and are recognized      monthly.  For interruptible or volumetric based services,      commodity revenues are recorded upon the delivery of natural gas to the      agreed upon delivery point.  Revenues for all services are      generally based on the thermal quantity of gas delivered or subscribed at      a rate specified in the contract. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Because      Florida Gas is subject to FERC regulations, revenues collected during the      pendency of a rate proceeding may be required by the FERC to be refunded      in the final order.  Florida Gas establishes reserves for such      potential refunds, as appropriate.  There were no reserves for      potential rate refund at December 31, 2007 and 2006,      respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Derivative      Instruments – The Company follows FASB Statement No. 133, Accounting for Derivative      Instruments and Hedging Activities, as amended, (Statement No. 133)      to account for derivative and hedging activities.  In accordance      with this statement, all derivatives are recognized on the Consolidated      Balance Sheets |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | at      their fair value.  On the date the derivative contract is      entered into, the Company designates the derivative as (i) a hedge of the      fair value of a recognized asset or liability or of an unrecognized firm      commitment (a fair value      hedge); (ii) a hedge of a forecasted transaction or the variability      of cash flows to be received or paid in conjunction with a recognized      asset or liability (a      cash flow hedge); or (iii) an instrument that is held for trading      or non-hedging purposes (a trading or non-hedging      instrument).  For derivatives treated as a fair value      hedge, the effective portion of changes in fair value is recorded as an      adjustment to the hedged item.  The ineffective portion of a      fair value hedge is recognized in earnings if the short cut method of      assessing effectiveness is not used.  Upon termination of a fair      value hedge of a debt instrument, the resulting gain or loss is amortized      to earnings through the maturity date of the debt      instrument.  For derivatives treated as a cash flow hedge, the      effective portion of changes in fair value is recorded in Accumulated Other      Comprehensive Loss until the related hedge items impact      earnings.  Any ineffective portion of a cash flow hedge is      reported in current period earnings.  For derivatives treated as      trading or non-hedging instruments, changes in fair value are reported in      current-period earnings.  Fair value is determined based upon      quoted market prices and mathematical models using current and historical      data.  As of December 31, 2007, the Company does not have any      hedges in place as it is only amortizing previously terminated      hedges. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Property,      Plant and Equipment  – Property, Plant      and Equipment consists primarily of natural gas pipeline and related      facilities and is recorded at its original cost.  Florida Gas      capitalizes direct costs, such as labor and materials, and indirect costs,      such as overhead and cost of funds, both interest and an equity return      component (see third following paragraph).   Costs of      replacements and renewals of units of property are      capitalized.  The original cost of units of property retired are      charged to accumulated depreciation, net of salvage and removal      costs.  Florida Gas charges to maintenance expense the costs of      repairs and renewal of items determined to be less than units of      property. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The      recognition of an allowance for funds used during construction (AFUDC) is      a utility accounting practice with calculations under guidelines      prescribed by the FERC and capitalized as part of the cost of utility      plant.  It represents the cost of capital invested in      construction work-in-progress.  AFUDC has been segregated into      two component parts – borrowed funds and equity funds.  The      allowance for borrowed and equity funds used during construction,      including related gross up, totaled $10.3 million, $3.4 million and $1.4      million for the years ended December 31, 2007, 2006 and 2005,      respectively.  AFUDC borrowed is included in Interest Expense      and AFUDC equity is included in Other Income in the accompanying      statements of income. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Asset      Retirement Obligations – The Company      applies the provisions of FASB Statement No. 143,      Accounting for Asset Retirement Obligations to record a liability      for the estimated removal costs of assets where there is a legal      obligation associated with removal.  Under this standard, the      liability is recorded at its fair value, with a corresponding asset that      is depreciated over the remaining useful life of the long-lived asset to      which the liability relates.  An ongoing expense will also be      recognized for changes in the value of the liability as a result of the      passage of time. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | FASB Interpretation No. 47,      Accounting for Conditional Asset Retirement Obligations(FIN No. 47) issued by      the FASB in March 2005 clarifies that the term “conditional asset      retirement obligation” as used in FASB Statement No. 143, Accounting for Asset      Retirement Obligations, refers to a legal obligation to perform an      asset retirement activity in which the timing and/or method of settlement      are conditional on a future event that may or may not be within the      control of the entity.  Accordingly, an entity is required to      recognize a liability for the fair value of a conditional asset retirement      obligation (ARO) when incurred, if the fair value of the liability can be      reasonably estimated.  FIN No. 47 provides guidance for      assessing whether sufficient information is available to record an      estimate.  This interpretation was effective for the Company      beginning on December 31, 2005.   Upon adoption of FIN No.      47, Florida Gas recorded an increase in plant in service and a liability      for an ARO of $0.5 million.  This new asset and liability      related to obligations associated with the removal and disposal of      asbestos and asbestos containing materials on Florida Gas’ pipeline      system.  The ARO asset at December 31, 2007 had a net book value      of $0.5 million. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                         |   | Year      Ended December 31, 2007 |   |   | Year      Ended December 31, 2006 |   |   | Year      Ended December 31, 2005 |   |
|------------------------------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|
|                         |   | (In      thousands)               |   |
|                         |   |                              |   |   |                              |   |   |                              |   |
| Beginning      balance       |   | $                                 | 481    |   |                              | $      | 493    |                              |   | $ | - |   |
| Incurred                     |   |                              | -      |   |                              |   | -      |                              |   |   | 493 |   |
| Settled                      |   |                              | (37    | )      |                              |   | (36    | )                                 |   |   | - |   |
| Accretion  Expense |   |                              | 27     |   |                              |   | 24     |                              |   |   | - |   |
| Ending      balance          |   | $                                 | 471    |   |                              | $      | 481    |                              |   | $ | 493 |   |
|                         |   |                              |   |   |                              |   |   |                              |   |   |   |   |

|   | Asset      Impairment – The Company applies the provisions of FASB No. 144, Accounting for      the Impairment or Disposal of Long-Lived Assets, to account for      impairments on long-lived assets.  Impairment losses are      recognized for long-lived assets used in operations when indicators of      impairment are present and the undiscounted cash flows are not sufficient      to recover the assets’ carrying value.  The amount of impairment      is measured by comparing the fair value of the asset to its carrying      amount. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Exchange      Gas – Gas imbalances occur as a result of differences in volumes of      gas received and delivered by a pipeline system. These imbalances due to      or from shippers and operators are valued at an appropriate index      price.  Imbalances are settled in cash or made up in-kind      subject to terms of Florida Gas’ tariff, and generally do not impact      earnings. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Environmental      Expenditures (Note 12) –      Expenditures that relate to an existing condition caused by past      operations, and do not contribute to current or future generation, are      expensed.  Environmental expenditures relating to current or      future revenues are expensed or capitalized as appropriate based on the      nature of the cost incurred.  Liabilities are recorded when      environmental assessments and/or clean ups are probable and the cost can      be reasonably estimated. Remediation obligations are not discounted      because the timing of future cash flow streams is not      predictable. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Cash      and Cash Equivalents – Cash equivalents consist of highly liquid      investments with original maturities of three months or      less.  The carrying amount of cash and cash equivalents      approximates fair value because of the short maturity of these      investments. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Materials      and Supplies – Materials and      supplies are valued at the lower of cost or market      value.  Materials transferred out of warehouses are priced at      average cost.   Materials and supplies include spare parts      which are critical to the pipeline system operations and are valued at the      lower of cost or market.  |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Fuel      Tracker – A liability is recorded for net volumes of gas owed to      customers collectively.  Whenever fuel is due from customers      from prior under recovery based on contractual and specific tariff      provisions an asset is recorded.  Gas owed to or from customers      is valued at market.  Changes in the balances have no effect on      the consolidated income of theCompany. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | Income      Taxes (Note 4)  –  Income taxes are accounted      for under the asset and liability method in accordance with the provisions      of FASB Statement No. 109, Accounting for Income      Taxes.  Under this method, deferred tax assets and      liabilities are recognized for the estimated future tax consequences      attributable to differences between the financial statement carrying      amounts of existing assets and liabilities and their respective tax      basis.  Deferred tax assets and liabilities are measured using      enacted tax rates in effect for the year in which those temporary      differences are expected to be recovered or settled.  The effect      on deferred tax assets and liabilities of a change in tax rate is      recognized in income in the period that includes the enactment      date.  Valuation allowances are established when necessary to      reduce deferred tax assets to the amounts more likely than not to be      realized. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Accounts      Receivable –      The Company establishes an allowance for doubtful accounts on      accounts receivable based on the expected ultimate recovery of these      receivables.  The Company considers many factors including      historical customer collection experience, general and specific economic      trends and known specific issues related to individual customers, sectors      and transactions that might impact collectibility.  Unrecovered      accounts receivable charged against the allowance for doubtful accounts      were $0.3 million, nil and nil in the years ended December 31, 2007, 2006      and 2005, respectively. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Use      of Estimates      – The preparation of financial statements in conformity with GAAP      requires management to make estimates and assumptions that affect the      reported amounts of assets and liabilities and disclosures of contingent      assets and liabilities at the date of the financial statements and the      reported amounts of revenues and expenses during the reporting      period.  Actual results could differ from those      estimates. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| (3) | Long      Term Debt |
|-----|---------------------|

|                                          |   | Years     |   |   | December      31, 2007 |    |   | December      31, 2006 |   |
|-----------------------------------------------|--------|-----------|--------|--------|------------------------|---------|--------|------------------------|--------|
|                                          |   | Due       |   |   | Book      Value        |    |   | Fair      Value        |   |   | Book      Value |   |   | Fair      Value |   |
|                                          |   |      |   |   | (In      thousands)    |    |
| Citrus                                        |   |      |   |   |                   |    |   |                   |   |   |   |   |   |   |   |
| 8.490%      Senior Notes                      |   | 2007-2009 |   |   | $                      | 60,000  |   |                   | $      | 63,572 |   |   | $ | 90,000 |   |   | $ | 95,011 |   |
| Revolving      Credit Agreement Citrus        |   | 2012      |   |   |                   | 62,400  |   |                   |   | 62,400 |   |   |   | - |   |   |   | - |   |
| FGT                                           |   |      |   |   |                   |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| 9.750%      Senior B Notes                    |   | 1999-2008 |   |   |                   | 6,500   |   |                   |   | 6,736 |   |   |   | 13,000 |   |   |   | 13,663 |   |
| 10.110%      Senior C Notes                   |   | 2009-2013 |   |   |                   | 70,000  |   |                   |   | 82,282 |   |   |   | 70,000 |   |   |   | 82,773 |   |
| 9.190%      Senior Notes                      |   | 2005-2024 |   |   |                   | 127,500 |   |                   |   | 158,843 |   |   |   | 135,000 |   |   |   | 167,004 |   |
| 7.625%      Senior Notes                      |   | 2010      |   |   |                   | 325,000 |   |                   |   | 353,352 |   |   |   | 325,000 |   |   |   | 348,137 |   |
| 7.000%      Senior Notes                      |   | 2012      |   |   |                   | 250,000 |   |                   |   | 277,281 |   |   |   | 250,000 |   |   |   | 271,893 |   |
| Revolving      Credit Agreement FGT           |   | 2007      |   |   |                   | -       |   |                   |   | - |   |   |   | 40,000 |   |   |   | 40,000 |   |
| Revolving      Credit Agreement FGT           |   | 2012      |   |   |                   | 54,000  |   |                   |   | 54,000 |   |   |   | - |   |   |   | - |   |
|    Total      debt outstanding |   |      |   |   | $                      | 955,400 |   |                   | $      | 1,058,466 |   |   | $ | 923,000 |   |   | $ | 1,018,481 |   |
| Current      portion of long-term debt        |   |      |   |   |                   | (44,000 | )      |                   |   |   |   |   |   | (84,000 | ) |   |   |   |   |
| Unamortized      Debt Discount and Swap Loss  |   |      |   |   |                   | (1,590  | )      |                   |   |   |   |   |   | (2,118 | ) |   |   |   |   |
|    Total      long-term debt   |   |      |   |   | $                      | 909,810 |   |                   |   |   |   |   | $ | 836,882 |   |   |   |   |   |
|                                          |   |      |   |   |                   |    |   |                   |   |   |   |   |   |   |   |   |   |   |   |

|       |   | December      31, 2007 |    |
|------------|--------|------------------------|---------|
| Year       |   | (In      thousands)    |    |
|       |   |                   |    |
| 2008       |   | $                      | 44,000  |   |
| 2009       |   |                   | 51,500  |   |
| 2010       |   |                   | 346,500 |   |
| 2011       |   |                   | 21,500  |   |
| 2012       |   |                   | 387,900 |   |
| Thereafter |   |                   | 104,000 |   |
|       |   | $                      | 955,400 |   |
|       |   |                   |    |   |

----

| (4) | Income      Taxes |
|-----|-------------------|

|                                     |   | December      31, 2007 |    |   | December      31, 2006 |   |
|------------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
|                                     |   | (In      thousands)    |    |
| Deferred      income tax asset           |   |                   |    |   |                   |   |
| Regulatory      and other reserves       |   | $                      | 5,554   |   |                   | $      | 8,595 |   |
|                                     |   |                   | 5,554   |   |                   |   | 8,595 |   |
|                                     |   |                   |    |   |                   |   |   |   |
| Deferred      income tax liabilities     |   |                   |    |   |                   |   |   |   |
| Depreciation      and amortization       |   |                   | 759,576 |   |                   |   | 742,566 |   |
| Deferred      charges and other assets   |   |                   | -       |   |                   |   | 27,981 |   |
| Regulatory      costs                    |   |                   | 4,717   |   |                   |   | 9,298 |   |
| Other                                    |   |                   | 4,625   |   |                   |   | 6,154 |   |
|                                     |   |                   | 768,918 |   |                   |   | 785,999 |   |
| Net      deferred income tax liabilities |   | $                      | 763,364 |   |                   | $      | 777,404 |   |
|                                     |   |                   |    |   |                   |   |   |   |

----

|                          |   | Year      Ended December 31, 2007 |    |   | Year      Ended December 31, 2006 |   |   | Year      Ended December 31, 2005 |   |
|-------------------------------|--------|-----------------------------------|---------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|
|                          |   | (In      thousands)               |    |
| Current      Tax Provision    |   |                              |    |   |                              |   |   |                              |   |
| Federal                       |   | $                                 | 99,083  |   |                              | $      | 52,135 |                              |   | $ | 53,526 |   |
| State                         |   |                              | 5,418   |   |                              |   | 5,196  |                              |   |   | 8,820 |   |
|                          |   |                              | 104,501 |   |                              |   | 57,331 |                              |   |   | 62,346 |   |
|                          |   |                              |    |   |                              |   |   |                              |   |   |   |   |
| Deferred      Tax Provision   |   |                              |    |   |                              |   |   |                              |   |   |   |   |
| Federal                       |   |                              | (14,531 | )      |                              |   | 15,863 |                              |   |   | 11,079 |   |
| State                         |   |                              | 2,254   |   |                              |   | 2,766  |                              |   |   | 1,661 |   |
|                          |   |                              | (12,277 | )      |                              |   | 18,629 |                              |   |   | 12,740 |   |
| Total      income tax expense |   | $                                 | 92,224  |   |                              | $      | 75,960 |                              |   | $ | 75,086 |   |
|                          |   |                              |    |   |                              |   |   |                              |   |   |   |   |

|                                            |   | Year      Ended December      31, 2007 |   | Year      Ended December      31, 2006 |   | Year      Ended December      31, 2005 |
|-------------------------------------------------|--------|----------------------------------------|--------|----------------------------------------|--------|----------------------------------------|
|                                            |   | (In      thousands)                    |
|                                            |   |                                   |   |                                   |   |                                   |   |   |   |
| Statutory      federal income tax provision     |   | $                                      | 87,261 |                                   |   | $                                      | 70,712 |   |   | $ | 69,661 |   |
| State      income taxes, net of federal benefit |   |                                   | 4,986  |                                   |   |                                   | 5,176 |   |   |   | 6,813 |   |
| Other                                           |   |                                   | (23    | )                                      |   |                                   | 72 |   |   |   | (1,388 | ) |
| Income      tax expense                         |   | $                                      | 92,224 |                                   |   | $                                      | 75,960 |   |   | $ | 75,086 |   |
|                                            |   |                                   |   |                                   |   |                                   |   |   |   |   |   |   |
| Effective      Tax Rate                         |   |                                   | 37.0   | %                                      |   |                                   | 37.6 | % |   |   | 37.7 | % |
|                                            |   |                                   |   |                                   |   |                                   |   |   |   |   |   |   |

| (5) | Employee      Benefit Plans |
|-----|-----------------------------|

----

----

|                                                             |   | Pre-FASB      158   |                |    | FASB      158 adoption adjustment |   |         | Post-FASB      158 |   |
|------------------------------------------------------------------|--------|---------------------|---------------------|---------|-----------------------------------|--------|--------------|--------------------|--------|
|                                                             |   | (in      thousands) |                |
|                                                             |   |                |                |    |                              |   |         |               |   |
| Prepaid      postretirement benefit cost (non-current) (Note 10) |   | $                   | (721                | )  |                              | $      | 3,423        |               |   | $ | 2,702 |   |
| Regulatory      asset                                            |   |                |  1,951         |    |                              |   |  (1,951 | )             |   |   | -    |   |
| Regulatory      liability                                        |   |                | -    |    |                              |   | (1,472       | )                  |   |   | (1,472 | ) |
|                                                             |   |                |                |    |                              |   |         |               |   |   |   |   |

----

|                                                               |   | Year      Ended December 31, 2007 |   |   | Year      Ended December 31, 2006 |   |
|--------------------------------------------------------------------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|
|                                                               |   | (In      thousands)               |   |
| Change      in Benefit Obligation                                  |   |                              |   |   |                              |   |
| Benefit      obligation at the beginning of period                 |   | $                                 | 5,795  |   |                              | $      | 6,665 |   |
| Service      cost                                                  |   |                              | 37     |   |                              |   | 46 |   |
| Interest      cost                                                 |   |                              | 296    |   |                              |   | 312 |   |
| Actuarial      gain                                                |   |                              | (320   | )      |                              |   | (691 | ) |
| Retiree      premiums                                              |   |                              | 415    |   |                              |   | 427 |   |
| Benefits      paid                                                 |   |                              | (1,029 | )      |                              |   | (964 | ) |
| CMS      Medicare Part D Subsidies Received                        |   |                              | 108    |   |                              |   | - |   |
| Benefit      obligation at end of year                             |   |                              | 5,302  |   |                              |   | 5,795 |   |
|                                                               |   |                              |   |   |                              |   |   |   |
| Change      in Plan Assets                                         |   |                              |   |   |                              |   |   |   |
| Fair      value of plan assets at the beginning of period          |   |                              | 8,497  |   |                              |   | 7,840 |   |
| Return      on plan assets                                         |   |                              | 336    |   |                              |   | (37 | ) |
| Employer      contributions                                        |   |                              | 380    |   |                              |   | 1,231 |   |
| Retiree      premiums                                              |   |                              | 415    |   |                              |   | 427 |   |
| Benefits      paid                                                 |   |                              | (1,029 | )      |                              |   | (964 | ) |
| Fair      value of plan assets at end of year   (1) |   |                              | 8,599  |   |                              |   | 8,497 |   |
|                                                               |   |                              |   |   |                              |   |   |   |
| Funded      Status                                                 |   |                              |   |   |                              |   |   |   |
| Funded      status at the end of the year                          |   | $                                 | 3,297  |   |                              | $      | 2,702 |   |
|                                                               |   |                              |   |   |                              |   |   |   |
| Amount      recognized in the Consolidated Balance Sheets          |   |                              |   |   |                              |   |   |   |
| Other      assets - other (Note 10)                                |   | $                                 | 3,297  |   |                              | $      | 2,702 |   |
| Regulatory      liability (Note 11)                                |   |                              | (3,390 | )      |                              |   | (1,472 | ) |
| Net      asset (liability) recognized                              |   | $                                 | (93    | )      |                              | $      | 1,230 |   |
|                                                               |   |                              |   |   |                              |   |   |   |

|   |  (1)  Plan      assets at December 31, 2007 and 2006 include the amounts of assets      expected to be received from the Enron Trust of $6.8 million and $6.5      million, respectively, including a 5 percent annual investment return      based on estimate. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                              |   | Year      Ended December      31, 2007 |   | Year      Ended December      31, 2006 |                         | Year      Ended December      31, 2005 |
|-----------------------------------|--------|----------------------------------------|--------|----------------------------------------|------------------------------|----------------------------------------|
|                              |   |                                   |   |                                   |                         |                                   |   |   |   |
| Discount      rate                |   |                                   | 6.09   | %                                      |                         |                                   | 5.68 | % |   |   | 5.50 | % |
| Health      care cost trend rates |   |                                   | 10.00  | %                                      |                         |                                   | 11.00 | % |   |   | 12.00 | % |
|                              |   | graded      to 5.20% by 2017           |   |                                   | graded      to 4.85% by 2013 |                                   |   | graded      to 4.65% by 2012 |   |
|                              |   |                                   |   |                                   |                         |                                   |   |   |   |   |   |   |

|                                |   | Year      Ended December 31, 2007 |   |   | Year      Ended December 31, 2006 |   |   | Year      Ended December 31, 2005 |   |
|-------------------------------------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|
|                                |   | (In      thousands)               |   |
|                                |   |                              |   |   |                              |   |   |                              |   |
| Service      cost                   |   | $                                 | 37     |   |                              | $      | 46     |                              |   | $ | 71 |   |
| Interest      cost                  |   |                              | 296    |   |                              |   | 312    |                              |   |   | 490 |   |
| Expected      return on plan assets |   |                              | (414   | )      |                              |   | (402   | )                                 |   |   | (352 | ) |
| Recognized      actuarial gain      |   |                              | (230   | )      |                              |   | (223   | )                                 |   |   | (174 | ) |
| Net      periodic (benefit) cost    |   | $                                 | (311   | )      |                              | $      | (267   | )                                 |   | $ | 35 |   |
|                                |   |                              |   |   |                              |   |   |                              |   |   |   |   |

|                                          |   | Year      Ended December      31, 2007 |   | Year      Ended December      31, 2006 |                         | Year      Ended December      31, 2005 |
|-----------------------------------------------|--------|----------------------------------------|--------|----------------------------------------|------------------------------|----------------------------------------|
|                                          |   |                                   |   |                                   |                         |                                   |   |   |   |
| Discount      rate                            |   |                                   | 5.68   | %                                      |                         |                                   | 5.50 | % |   |   | 5.75 | % |
| Rate      of compensation increase            |   |                                   | N/A    |                                   |                         |                                   | N/A |   |   |   | N/A |   |
| Expected      long-term return on plan assets |   |                                   | 5.00   | %                                      |                         |                                   | 5.00 | % |   |   | 5.00 | % |
| Health      care cost trend rates             |   |                                   | 11.00  | %                                      |                         |                                   | 12.00 | % |   |   | 12.00 | % |
|                                          |   | graded      to 4.85% by 2013           |   |                                   | graded      to 4.65% by 2012 |                                   |   | graded      to 4.75% by 2012 |   |
|                                          |   |                                   |   |                                   |                         |                                   |   |   |   |   |   |   |

----

|                                                      |   | One      Percentage Point Increase |   |   | One      Percentage Point Decrease |   |
|-----------------------------------------------------------|--------|------------------------------------|--------|--------|------------------------------------|--------|
|                                                      |   | (In      thousands)                |   |
| Effect      on total service and interest cost components |   | $                                  | 15     |   |                               | $      | (13 | ) |
| Effect      on postretirement benefit obligation          |   | $                                  | 240    |   |                               | $      | (215 | ) |
|                                                      |   |                               |   |   |                               |   |   |   |

|                           |   | December      31, 2007 |   | December      31, 2006 |
|--------------------------------|--------|------------------------|--------|------------------------|
|                           |   |                   |   |                   |   |   |
| Equity      securities         |   |                   | 31     | %                      |   |   | 0 | % |
| Debt      securities           |   |                   | 69     | %                      |   |   | 0 | % |
| Cash      and cash equivalents |   |                   | 0      | %                      |   |   | 100 | % |
| Total                          |   |                   | 100    | %                      |   |   | 100 | % |
|                           |   |                   |   |                   |   |   |   |   |

----

| Years            |   | Expected      Benefits Before Effect of Medicare Part D |   |   | Payments      Medicare Part D |   |   | Net    |   |
|------------------|--------|---------------------------------------------------------|--------|--------|-------------------------------|--------|--------|--------|--------|
|             |   | (In      thousands)                                     |   |
|             |   |                                                    |   |   |                          |   |   |   |   |
| 2008             |   | $                                                       | 551    |   |                          | $      | 96     |   |   | $ | 455 |   |
| 2009             |   |                                                    | 594    |   |                          |   | 99     |   |   |   | 495 |   |
| 2010             |   |                                                    | 614    |   |                          |   | 101    |   |   |   | 513 |   |
| 2011             |   |                                                    | 625    |   |                          |   | 101    |   |   |   | 524 |   |
| 2012             |   |                                                    | 624    |   |                          |   | 100    |   |   |   | 524 |   |
| 2013      - 2017 |   |                                                    | 2,935  |   |                          |   | 454    |   |   |   | 2,481 |   |

| (6) | Major      Customers and Concentration of CreditRisk |
|-----|------------------------------------------------------|

|                                   |   | Year      Ended December 31, 2007 |    |   | Year      Ended December 31, 2006 |   |    | Year      Ended December 31, 2005 |   |
|----------------------------------------|--------|-----------------------------------|---------|--------|-----------------------------------|--------|---------|-----------------------------------|--------|
|                                   |   | (In      thousands)               |    |
|                                   |   |                              |    |   |                              |   |    |                              |   |
| Florida      Power & Light Company |   | $                                 | 195,622 |   |                              | $      | 200,592 |                              |   | $ | 181,486 |   |
| TECO      Energy, Inc.                 |   |                              | 80,815  |   |                              |   | 80,192  |                              |   |   | 76,059 |   |
|                                   |   |                              |    |   |                              |   |    |                              |   |   |   |   |

----

|                                   |   | December      31, 2007 |   |   | December      31, 2006 |   |
|----------------------------------------|--------|------------------------|--------|--------|------------------------|--------|
|                                   |   | (In      thousands)    |   |
|                                   |   |                   |   |   |                   |   |
| Florida      Power & Light Company |   | $                      | 15,130 |   |                   | $      | 15,065 |   |
| TECO      Energy, Inc.                 |   |                   | 6,201  |   |                   |   | 6,161 |   |
|                                   |   |                   |   |   |                   |   |   |   |

| (7) | Related      Party Transactions |
|-----|---------------------------------|

|   | The      Company provided natural gas sales and transportation services to El Paso      affiliates at rates equal to rates charged to non-affiliated customers in      the same class of service.  Revenues related to these      transportation services were approximately nil, $1.0 million and $4.5      million in the years ended December 31, 2007, 2006 and 2005,      respectively.  The Company’s gas sales were immaterial in the      years ended December 31, 2007, 2006 and 2005.  Florida Gas also      purchased transportation services from Southern in connection with its      Phase III |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | Expansion      completed in early 1995.  Florida Gas contracted for firm      capacity of 100,000 Mcf/day on Southern’s system for a primary term of 10      years, to be continued for successive terms of one year each year      thereafter unless cancelled by either party, by giving 180 days notice to      the other party prior to the end of the primary term or any yearly      extension thereof.  The amount expensed for these services      totaled $6.8 million, $6.6 million and $6.3 million in the years ended      December 31, 2007, 2006 and 2005,respectively. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (8) | Regulatory      Matters |
|-----|-------------------------|

----

----

| (9) | Property,      Plant and Equipment |
|-----|------------------------------------|

|                                                 |   | December      31, 2007 |       |   | December      31, 2006 |   |
|------------------------------------------------------|--------|------------------------|------------|--------|------------------------|--------|
|                                                 |   | (In      thousands)    |       |
|                                                 |   |                   |       |   |                   |   |
| Transmission      plant                              |   | $                      | 2,970,560  |   |                   | $      | 2,859,920 |   |
| General      plant                                   |   |                   | 28,540     |   |                   |   | 24,970 |   |
| Intangibles                                          |   |                   | 31,196     |   |                   |   | 25,726 |   |
| Construction      work-in-progress                   |   |                   | 133,824    |   |                   |   | 85,746 |   |
| Acquisition      adjustment                          |   |                   | 1,252,466  |   |                   |   | 1,252,466 |   |
|                                                 |   |                   | 4,416,586  |   |                   |   | 4,248,828 |   |
| Less:      Accumulated depreciation and amortization |   |                   | (1,401,638 | )      |                   |   | (1,304,133 | ) |
| Property,      Plant and Equipment, net              |   | $                      | 3,014,948  |   |                   | $      | 2,944,695 |   |
|                                                 |   |                   |       |   |                   |   |   |   |

| (10) | Other      Assets |
|------|-------------------|

|                                                       |   | December      31, 2007 |   | December      31, 2006 |   |
|------------------------------------------------------------|--------|------------------------|--------|------------------------|--------|
|                                                       |   | (In      thousands)    |   |
|                                                       |   |                   |   |                   |   |
| Ramp-up assets, net      (1)                               |   | $                      | 11,616 |                   | $      | 11,928 |   |
| Fuel      Tracker                                          |   |                   | 2,295  |                   |   | 11,747 |   |
| Cash      balance plan settlement (Note 5)                 |   |                   | 2,326  |                   |   | 4,185 |   |
| Environmental      non-PCB clean-up cost (Note 12)         |   |                   | 1,147  |                   |   | 1,000 |   |
| Other      miscellaneous                                   |   |                   | 1,823  |                   |   | 2,147 |   |
|      Total      Regulatory Assets |   | $                      | 19,207 |                   | $      | 31,007 |   |
|                                                       |   |                   |   |                   |   |   |   |

----

|                                                          |   | December 31, 2007   |   | December      31, 2006 |   |
|---------------------------------------------------------------|--------|---------------------|--------|------------------------|--------|
|                                                          |   | (In      thousands) |   |
|                                                          |   |                |   |                   |   |
| Long-term      receivables  (Note 14)               |   | $                   | 2,859  |                   | $      | 71,648 |   |
| Other      post employment benefits (Note 5)                  |   |                | 3,297  |                   |   | 2,702 |   |
| Preliminary      survey & investigation                   |   |                | 3,021  |                   |   | 996 |   |
| FERC      ACA fee                                             |   |                | 1,061  |                   |   | 839 |   |
| Other      miscellaneous                                      |   |                | 600    |                   |   | 244 |   |
|      Total      Other Assets - other |   | $                   | 10,838 |                   | $      | 76,429 |   |
|                                                          |   |                |   |                   |   |   |   |

| (11) | Deferred      Credits |
|------|-----------------------|

|                                                            |   | December      31, 2007 |   | December      31, 2006 |   |
|-----------------------------------------------------------------|--------|------------------------|--------|------------------------|--------|
|                                                            |   | (In      thousands)    |   |
|                                                            |   |                   |   |                   |   |
| Balancing      tools (1)                                        |   | $                      | 11,413 |                   | $      | 12,154 |   |
| Other      post employment benefits (Note 5)                    |   |                   | 3,390  |                   |   | 1,472 |   |
| Other      miscellaneous                                        |   |                   | 39     |                   |   | 630 |   |
|      Total      Regulatory liabilities |   | $                      | 14,842 |                   | $      | 14,256 |   |
|                                                            |   |                   |   |                   |   |   |   |

|                                                              |   | December      31, 2007 |   | December      31, 2006 |   |
|-------------------------------------------------------------------|--------|------------------------|--------|------------------------|--------|
|                                                              |   | (In      thousands)    |   |
|                                                              |   |                   |   |                   |   |
| Post      construction mitigation costs                           |   | $                      | 1,686  |                   | $      | 2,073 |   |
| Deferred      compensation                                        |   |                   | 889    |                   |   | 1,090 |   |
| Environmental      non-PCB clean-up cost reserve (Note 12)        |   |                   | 1,337  |                   |   | 1,423 |   |
| Taxes      Payable                                                |   |                   | 3,116  |                   |   | 1,664 |   |
| Asset      retirement obligation (Note 2)                         |   |                   | 471    |                   |   | 481 |   |
| Other      miscellaneous                                          |   |                   | 1,703  |                   |   | 1,398 |   |
|      Total      Deferred Credits - other |   | $                      | 9,202  |                   | $      | 8,129 |   |
|                                                              |   |                   |   |                   |   |   |   |

----

| (12) | Environmental      Reserve |
|------|----------------------------|

| (13) | Accumulated      Other Comprehensive Loss |
|------|-------------------------------------------|

|                                                                  |   | Year      Ended        |   |   | Year      Ended        |   |   | Year      Ended        |   |
|-----------------------------------------------------------------------|--------|------------------------|--------|--------|------------------------|--------|--------|------------------------|--------|
|                                                                  |   | December      31, 2007 |   |   | December      31, 2006 |   |   | December      31, 2005 |   |
|                                                                  |   | (In      thousands)    |   |
| Interest      rate swap loss on 7.625% $325 million note due 2010     |   | $                      | 1,873  |   |                   | $      | 1,872  |                   |   | $ | 1,872 |   |
| Interest      rate swap loss on 7.0% $250 million note due 2012       |   |                   | 1,228  |   |                   |   | 1,228  |                   |   |   | 1,228 |   |
| Interest      rate swap gain on 9.19% $150 million note due 2005-2024 |   |                   | (462   | )      |                   |   | (462   | )                      |   |   | (462 | ) |
|      Total                                   |   | $                      | 2,639  |   |                   | $      | 2,638  |                   |   | $ | 2,638 |   |
|                                                                  |   |                   |   |   |                   |   |   |                   |   |   |   |   |

----

|                                                                  | Termination      Date |   | Amortization      Period |   | Original      Gain/(Loss) |    | December      31, 2007 |   | December      31, 2006 |   |
|-----------------------------------------------------------------------|-----------------------|--------|--------------------------|--------|---------------------------|---------|------------------------|--------|------------------------|--------|
|                                                                  |                  |   |                     |   | (In      thousands)       |    |
| Interest      rate swap loss on 7.625% $325 million note due 2010     | December      2000    |   | 10      years            |   | $                         | (18,724 | )                      | $      | (5,461                 | )      | $ | (7,334 | ) |
| Interest      rate swap loss on 7.0% $250 million note due 2012       | July      2002        |   | 10      years            |   |                      | (12,280 | )                      |   | (5,579                 | )      |   | (6,807 | ) |
| Interest      rate swap gain on 9.19% $150 million note due 2005-2024 | November      1994    |   | 20      years            |   |                      | 9,236   |                   |   | 3,155                  |   |   | 3,617 |   |
|      Total                                   |                  |   |                     |   |                      |    |                   | $      | (7,885                 | )      | $ | (10,524 | ) |
|                                                                  |                  |   |                     |   |                      |    |                   |   |                   |   |   |   |   |

| (14) | Commitments      and Contingencies |
|------|------------------------------------|

----

----

----