----

|   |  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                   |
|                                      |                                           |

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|                                                 |                                                                                                                             | Page    |
|------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------|---------|
|  Glossary.                                 | PART      I                                                                                                                      |  1 |
| ITEM 1.                                              | Business.                                                                                                                        | 2       |
| ITEM 1A.                                             | Risk      Factors.                                                                                                               | 17      |
| ITEM 1B.                                             | Unresolved      Staff Comments.                                                                                                  | 28      |
| ITEM 2.                                              | Properties.                                                                                                                      | 28      |
| ITEM 3.                                              | Legal      Proceedings.                                                                                                          | 28      |
| ITEM 4.                                              | Submission      of Matters to a Vote of Security Holders.                                                                        | 28      |
|                                                 | PART      II                                                                                                                     |    |
| ITEM 5.                                              | Market      for the Registrant’s Common Stock, Related Stockholder Matters and Issuer      Purchases of Equity Securities. | 29      |
| ITEM 6.                                              | Selected      Financial Data.                                                                                                    | 32      |
| ITEM 7.                                              | Management's      Discussion and Analysis of Financial Condition and Results of      Operations.                                 | 33      |
| ITEM 7A.                                             | Quantitative      and Qualitative Disclosures About Market Risk.                                                                 | 61      |
| ITEM 8.                                              | Financial      Statements and Supplementary Data.                                                                                | 64      |
| ITEM 9.                                              | Changes      in and Disagreements with Accountants on Accounting and Financial      Disclosure.                                  | 64      |
| ITEM 9A.                                             | Controls      and Procedures.                                                                                                    | 64      |
| ITEM 9B.                                             | Other      Information.                                                                                                          | 66      |
|                                                 | PART      III                                                                                                                    |    |
| ITEM 10.                                             | Directors,      Executive Officers and Corporate Governance.                                                                     | 66      |
| ITEM 11.                                             | Executive      Compensation.                                                                                                     | 66      |
| ITEM 12.                                             | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters.                        | 66      |
| ITEM 13.                                             | Certain      Relationships and Related Transactions, and Director      Independence.                                             | 66      |
| ITEM 14.                                             | Principal      Accountant Fees and Services.                                                                                     | 66      |
|                                                 | PART      IV                                                                                                                     |    |
| ITEM 15.                                             | Exhibits,      Financial Statement Schedules.                                                                                    | 67      |
| Signatures.                                          | 72                                                                                                                               |
| Index to the Consolidated Financial      Statements. | F-1                                                                                                                              |

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GLOSSARY

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ITEM 1.    Business.

| ·   | The      Transportation and Storage segment is primarily engaged in the interstate      transportation and storage of natural gas and also provides LNG      terminalling and regasification services.  Its operations are      conducted through Panhandle and its 50 percent equity ownership interest      in Florida Gas through Citrus. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      Gathering and Processing segment is primarily engaged in the gathering,      treating, processing and redelivery of natural gas and NGL in Texas and      New Mexico.  Its operations are conducted through      SUGS. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      Distribution segment 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, 2008 |   |   | December      31, 2007 |   |   | December      31, 2006 |   |   |
|                             |   |                   |   |   |                   |   |   |                   |   |   |
| Panhandle                        |   |                   |   |   |                   |   |   |                   |   |   |
| PEPL                             |   |                   | 702    |   |                   |   | 662    |                   |   |   | 579 |   |   |
| Trunkline                        |   |                   | 643    |   |                   |   | 648    |                   |   |   | 486 |   |   |
| Sea      Robin                   |   |                   | 126    |   |                   |   | 144    |                   |   |   | 115 |   |   |
| Trunkline      LNG Usage Volumes |   |                   | 9      |   |                   |   | 261    |                   |   |   | 149 |   |   |
|                             |   |                   |   |   |                   |   |   |                   |   |   |   |   |   |
| Citrus and CCE      Holdings (1) |   |                   |   |   |                   |   |   |                   |   |   |   |   |   |
| Florida      Gas                 |   |                   | 786    |   |                   |   | 751    |                   |   |   | 737 |   |   |
| Transwestern                     |   |                   | N/A    |   |                   |   | N/A    |                   |   |   | 572 |   |  (2) |

| (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, 2008 |   |
| 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)                                           |   |              | 68.1   |   |
| Underground      Storage Capacity-Leased (Bcf)                                          |   |              | 32.3   |   |
| Trunkline      LNG Terminal Storage Capacity (Bcf)                                      |   |              | 9.0    |   |
| Approximate      Average Number of Transportation Customers                             |   |              | 500    |   |
| Weighted      Average Remaining Life in Years of Firm Transportation      Contracts     |   |              |   |   |
| PEPL                                                                                    |   |              | 5.8    |   |
| Trunkline                                                                               |   |              | 8.3    |   |
| Sea      Robin (1)                                                                      |   |              | N/A    |   |
| Weighted      Average Remaining Life in Years of Firm Storage Contracts                 |   |              |   |   |
| PEPL                                                                                    |   |              | 8.6    |   |
| Trunkline                                                                               |   |              | 2.9    |   |
|                                                                                    |   |              |   |   |
| Florida Gas      (2)                                                                    |   |              |   |   |
|         Approximate Total Miles of Pipelines                                  |   |              | 4,900  |   |
|         Peak Day Delivery Capacity (Bcf/d)                                    |   |              | 2.3    |   |
|         Average Number of Transportation Customers                            |   |              | 132    |   |
|         Weighted Average Remaining Life of Firm Transportation      Contracts |   |              | 8.2    |   |

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|                              |   | Percent      of                 |   |                   | Weighted             |                                                 |
|-----------------------------------|--------|---------------------------------|--------|------------------------|----------------------|------------------------------------------------------|
|                              |   | Segment      Revenues           |   |                   | Average      Life    |                                                 |
|                              |   | For      Year Ended             |   |                   | of      Contracts at |                                                 |
| Customer                          |   | December      31, 2008 (1) |   | December      31, 2008 |                 |
|                              |   |                            |   |                   |                 |                                                 |
| BG      LNG Services              |   |                            | 23     | %                      |                 | 15      years (LNG, transportation)                  |
| ProLiance                         |   |                            | 12     |                   |                 | 9.6      years (transportation) 13.9 years (storage) |
| Other      top 10 customers       |   |                            | 26     |                   |                 |  N/A                                            |
| Remaining      customers          |   |                            | 39     |                   |                 |  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. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                            |   | Percent      of                 |   |                   |                 |   |     |
|---------------------------------|--------|---------------------------------|--------|------------------------|----------------------|--------|----------|
|                            |   | Florida      Gas'               |   |                   |                 |   |     |
|                            |   | Total      Operating            |   |                   | Weighted             |
|                            |   | Revenues                        |   |                   | Average      Life    |
|                            |   | For      Year Ended             |   |                   | of      Contracts at |
| Customer                        |   | December      31, 2008 (1) |   | December      31, 2008 |
|                            |   |                            |   |                   |                 |   |     |
| Florida      Power & Light  |   |                            | 39     | %                      |                 |   | 6.3Years |
| Tampa      Electric/Peoples Gas |   |                            | 16     |                   |                 |   | 9.3Years |
| Other      top 10 customers     |   |                            | 29     |                   |                 |   | 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  |   | Rate      Proceedings Status               |
|                       |   |              |   |                                       |
| PEPL                       |   | May      1992     |   | Settlement      effective April 1997       |
| Trunkline                  |   | January      1996 |   | Settlement      effective May 2001         |
| Sea      Robin             |   | June      2007    |   | Settlement      effective December 2008    |
| Trunkline      LNG         |   | June      2001    |   | Settlement      effective January 2002 (1) |
| Southwest      Gas Storage |   | August      2007  |   | Settlement      effective February 2008    |
| Florida      Gas           |   | October      2003 |   | Settlement      effective March 2005 (2)   |

| (1)   | Settlement      provides for a rate moratorium through2015. |
|-----------------|-------------------------------------------------------------|

| (2)   | Rate      moratorium was in effect until October 2007; required to file by October      2009. |
|-----------------|-----------------------------------------------------------------------------------------------|

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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 of natural gas and  NGL. |
|--------------------|--------------------------------------------------------------------|

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|                                   |   | Percent      of                 |   |                   | Weighted             |   |   |      |
|----------------------------------------|--------|---------------------------------|--------|------------------------|----------------------|--------|--------|-----------|
|                                   |   | Segment      Revenues           |   |                   | Average      Life    |   |   |      |
|                                   |   | For      Year Ended             |   |                   | of      Contracts at |   |   |      |
| Customer                               |   | December      31, 2008 (1) |   | December      31, 2008 |                 |   |   |
|                                   |   |                            |   |                   |                 |   |   |      |
| Louis      Dreyfus Energy Services, LP |   |                            | 11     | %                      |                 |   | 5.8    |  (2) |   |   |   |
| Other      top 10 customers            |   |                            | 49     |                   |                 |   | N/A    |      |   |   |   |
| Remaining      customers               |   |                            | 40     |                   |                 |   | 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. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | The      weighted average contract life excludes evergreen      arrangements. |
|-----------------|-------------------------------------------------------------------------------|

| ·   | Fee-Based.  Under      fee-based arrangements, SUGS receives a fee or fees for one or more of the      following services:  gathering, compressing, dehydrating,      treating or processing natural gas.  The fee or fees are usually      based on the volume or level of service provided to gather, compress,      dehydrate, treat or process natural gas.  While fee-based      arrangements are generally not subject to commodity risk, certain      operating conditions as well as certain 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 natural gas and NGL.  The      percent-of-value and percent-of-liquids arrangements are variations on the      percent-of-proceeds structure.  These types of arrangements      expose SUGS to significant commodity price risk as the costs and revenues      from the contracts are directly related to the price of natural gas and      NGL. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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 NGL, if      any.  While the revenue earned is directly related to the      processing value of the gas, SUGS is kept whole with a minimum value or      fee in low processing spreadenvironments. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | Keep-Whole      and Wellhead.  A keep-whole arrangement allows SUGS to      keep 100 percent of the NGL produced and requires the return of the Btu or      dollar value of the produced gas to the producer or      owner.  Since some of the gas is converted to NGL during      processing, SUGS must compensate the producer or owner for the Btu      shrinkage entailed in processing by replacing the Btu shrinkage or by      paying an agreed value for the Btu 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 NGL.  As a result, SUGS benefits from these types of      arrangements when the value of the NGL 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 NGL.  Rather than incurring the      negative margins during an unfavorable processing environment, 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 wellhead      contracts. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | contract      fees charged; |
|--------------------|-----------------------------|

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

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

| ·   | capacity      and type of processing and treating available to SUGS and its      competitors; |
|--------------------|-----------------------------------------------------------------------------------------------|

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

| ·   | availability      of third-party NGL transportation and fractionation capacity;      and |
|--------------------|------------------------------------------------------------------------------------------|

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

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|                                                             |   | Years      Ended December 31, |    |
|------------------------------------------------------------------|--------|-------------------------------|---------|
|                                                             |   | 2008                          |    |   | 2007 |   |   | 2006 |   |
| Average      number of customers:                                |   |                          |    |   |   |   |   |   |   |
| Residential                                                      |   |                          | 485,971 |   |   |   | 483,753 |   |   |   | 482,882 |   |
| Commercial                                                       |   |                          | 65,479  |   |   |   | 66,631 |   |   |   | 67,120 |   |
| Industrial                                                       |   |                          | 122     |   |   |   | 122 |   |   |   | 129 |   |
| Total      average customers served                              |   |                          | 551,572 |   |   |   | 550,506 |   |   |   | 550,131 |   |
| Transportation      customers                                    |   |                          | 1,579   |   |   |   | 1,517 |   |   |   | 1,473 |   |
| Total      average gas sales and transportation customers        |   |                          | 553,151 |   |   |   | 552,023 |   |   |   | 551,604 |   |
|                                                             |   |                          |    |   |   |   |   |   |   |   |   |   |
| Gas      sales (MMcf):                                           |   |                          |    |   |   |   |   |   |   |   |   |   |
| Residential                                                      |   |                          | 43,018  |   |   |   | 37,916 |   |   |   | 34,946 |   |
| Commercial                                                       |   |                          | 17,977  |   |   |   | 15,988 |   |   |   | 14,938 |   |
| Industrial                                                       |   |                          | 427     |   |   |   | 504 |   |   |   | 517 |   |
|     Gas      sales billed                    |   |                          | 61,422  |   |   |   | 54,408 |   |   |   | 50,401 |   |
| Net      change in unbilled gas sales                            |   |                          | 47      |   |   |   | 1,788 |   |   |   | (1,025 | ) |
|     Total      gas sales                     |   |                          | 61,469  |   |   |   | 56,196 |   |   |   | 49,376 |   |
| Gas      transported                                             |   |                          | 28,214  |   |   |   | 26,911 |   |   |   | 26,340 |   |
|     Total      gas sales and gas transported |   |                          | 89,683  |   |   |   | 83,107 |   |   |   | 75,716 |   |
|                                                             |   |                          |    |   |   |   |   |   |   |   |   |   |
| Gas      sales revenues ($ in thousands):                        |   |                          |    |   |   |   |   |   |   |   |   |   |
| Residential                                                      |   | $                             | 559,293 |   |   | $ | 495,464 |   |   | $ | 472,926 |   |
| Commercial                                                       |   |                          | 223,141 |   |   |   | 186,987 |   |   |   | 189,837 |   |
| Industrial                                                       |   |                          | 9,352   |   |   |   | 10,900 |   |   |   | 11,140 |   |
|     Gas      revenues billed                 |   |                          | 791,786 |   |   |   | 693,351 |   |   |   | 673,903 |   |
| Net      change in unbilled gas sales revenues                   |   |                          | 3,632   |   |   |   | 9,491 |   |   |   | (25,681 | ) |
|     Total      gas sales revenues            |   |                          | 795,418 |   |   |   | 702,842 |   |   |   | 648,222 |   |
| Gas      transportation revenues                                 |   |                          | 14,135  |   |   |   | 12,669 |   |   |   | 12,253 |   |
| Other      revenues                                              |   |                          | 12,120  |   |   |   | 16,598 |   |   |   | 8,246 |   |
|     Total      operating revenues            |   | $                             | 821,673 |   |   | $ | 732,109 |   |   | $ | 668,721 |   |
|                                                             |   |                          |    |   |   |   |   |   |   |   |   |   |
|                                                             |   |                          |    |   |   |   |   |   |   |   |   |   |
| Weather:                                                         |   |                          |    |   |   |   |   |   |   |   |   |   |
| Missouri      Utility Operations:                                |   |                          |    |   |   |   |   |   |   |   |   |   |
| Degree      days (1)                                             |   |                          | 5,499   |   |   | 4,776 |   |   | 3,996 |
| Percent      of 10-year measure (2)                              |   |                          | 106     | % |   |   | 92 | % |   |   | 77 | % |
| Percent      of 30-year measure (2)                              |   |                          | 106     | % |   |   | 92 | % |   |   | 77 | % |
|                                                             |   |                          |    |   |   |   |   |   |   |   |   |   |
| Massachusetts      Utility Operations:                           |   |                          |    |   |   |   |   |   |   |   |   |   |
| Degree      days (1)                                             |   |                          | 5,348   |   |   | 5,371 |   |   | 4,901 |
| Percent      of 10-year measure (2)                              |   |                          | 83      | % |   |   | 86 | % |   |   | 90 | % |
| Percent      of 30-year measure (2)                              |   |                          | 88      | % |   |   | 89 | % |   |   | 85 | % |

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|                    |   | Date      of Last |   |                                         |
|-------------------------|--------|-------------------|--------|----------------------------------------------|
| Utility      Operations |   | Rate      Filing  |   | Rate      Proceedings Status (1)             |
|                    |   |              |   |                                         |
| Missouri                |   | May      2006     |   | MPSC      rate order effective April 2007.   |
|                    |   |              |   |                                         |
| Massachusetts           |   | July      2008    |   | MDPU      rate order effective February2009. |

|   | (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   |   |                                |
|-----------------------------------------|--------|----------------------------|--------|-------------------------------------|
| Company                                 |   | Represented      by Unions |   | Expiration      of Current Contract |
|                                    |   |                       |   |                                |
| PEPL                                    |   |                       |   |                                |
| USW      Local 348                      |   |  214                  |   | May      27, 2009                   |
|                                    |   |                       |   |                                |
| Missouri      Gas Energy  (1) |   |                       |   |                                |
| Gas      Workers 781                    |   |  204                  |   | April      30, 2009                 |
| IBEW      Local 53                      |   |  97                   |   | April      30, 2009                 |
| USW      Local 5-267                    |   |  26                   |   | April      30, 2009                 |
| USW      Local 12561, 14228             |   |  142                  |   | April      30, 2009                 |
|                                    |   |                       |   |                                |   |
| New      England Gas Company            |   |                       |   |                                |   |
| UWUA      Local 431                     |   |  72                   |   | April      30, 2010                 |

| (1)   | The      Company recently completed negotiation of a five year contract with the      collective bargaining units representing certain of its Missouri Gas      Energy employees.  The contract will be effective on May 1,      2009.  The contract has been ratified by the respective      bargaining units. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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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. |
|--------------------|--------------------------------------------------|

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| ·   | 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      level of worldwide oil production and  consumption; |
|--------------------|--------------------------------------------------------------|

| ·   | the      availability and level of natural gas and NGL  storage; |
|--------------------|------------------------------------------------------------------|

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

| ·   | actions      taken by foreign oil and natural gas producing  nations; |
|--------------------|-----------------------------------------------------------------------|

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

| ·   | the      availability of NGL 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 or NGL and related services by the Company’s      customers, in the composition of the Company’s customer base and in the      sources of natural gas available to theCompany; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the      effects of inflation and the timing and extent of changes in the prices      and overall demand for and availability of natural gas or NGL 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 exposure to highly competitive commodity businesses through its      Gathering and Processing segment; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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. |
|--------------------|-----------------------------------------|

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ITEM 1B.  Unresolved Staff Comments.

ITEM 2.  Properties.

ITEM 3.  Legal Proceedings.

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

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

|                    |   | Dollars      per share |   |
|-------------------------|--------|------------------------|--------|
|                    |   | High                   |   |   | Low |   |   | Dividends |   |
|                    |   |                   |   |   |   |   |   |   |   |
|                    |   |                   |   |   |   |   |   |   |   |
| December      31, 2008  |   | $                      | 20.69  |   |   | $ | 10.60 |   |   | $ | 0.15 |   |
| September      30, 2008 |   |                   | 27.24  |   |   |   | 19.70 |   |   |   | 0.15 |   |
| June      30, 2008      |   |                   | 27.73  |   |   |   | 23.26 |   |   |   | 0.15 |   |
| March      31, 2008     |   |                   | 29.77  |   |   |   | 21.56 |   |   |   | 0.15 |   |
|                    |   |                   |   |   |   |   |   |   |   |   |   |   |
|                    |   |                   |   |   |   |   |   |   |   |   |   |   |
| 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 |   |

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|                               |   | 2003      |   |   | 2004      |   |   | 2005      |   |   | 2006      |   |   | 2007      |   |   | 2008      |   |
|------------------------------------|--------|-----------|--------|--------|-----------|--------|--------|-----------|--------|--------|-----------|--------|--------|-----------|--------|--------|-----------|--------|
| Southern      Union                |   |  100 |   |   |  137 |   |   |  142 |   |   |  170 |   |   |  181 |   |   |  83  |   |
| S&P      500 Index             |   |  100 |   |   |  111 |   |   |  116 |   |   |  135 |   |   |  142 |   |   |  90  |   |
| Bloomberg      U.S. Pipeline Index |   |  100 |   |   |  131 |   |   |  173 |   |   |  201 |   |   |  238 |   |   |  146 |   |

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|                                      |   | Number      of Securities                                                                                                                                                                                                                              |   |                   |   |                         |
|-------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|--------|------------------------------|
|                                      |   | to      Be Issued Upon                                                                                                                                                                                                                                 |   | Weighted-Average       |   | Number      of Securities    |
|                                      |   | Exercise      of                                                                                                                                                                                                                                       |   | Exercise      Price of |   | Remaining      Available for |
|                                      |   | Outstanding                                                                                                                                                                                                                                            |   | Outstanding            |   | Future      Issuance Under   |
| Plan Category                             |   | Options/SARs                                                                                                                                                                                                                                           |   | Options/SARs           |   | Equity CompensationPlans     |
|  Plans      approved by stockholders |   |                                        2,647,461     (1) |   |  $19.24           |   |   3,933,940        |

| Period                                               |   | Total      Number of Shares Purchased (1) |   |   | Average      Price Paid per Share |   |   | Total      Number of Shares Purchased as Part of Publicly Announced Plans or      Programs (2) |   |   | Average      Price Paid per Share |   |   | Maximum      Number of Shares that May Yet Be Purchased Under the Publicly Announced      Plans or Programs (2) |   |
|------------------------------------------------------|--------|-------------------------------------------|--------|--------|-----------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------|--------|--------|-----------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------------------|--------|
| October      1, 2008 through October 31, 2008   |   |                                      | 6,233  |   |                              | $      | 13.85  |                                                                                                |   |   | 198,900                           |   |   | $                                                                                                               | 21.75  |   |   |   |   |
| November      1, 2008 through November 30, 2008 |   |                                      | 673    |   |                              |   | 13.36  |                                                                                                |   |   | -                                 |   |   |                                                                                                            | -      |   |   |   |   |
| December      1, 2008 through December 31, 2008      |   |                                      | 5,050  |   |                              |   | 12.38  |                                                                                                |   |   | -                                 |   |   |                                                                                                            | -      |   |   |   |   |
| Total                                                |   |                                      | 11,956 |   |                              | $      | 13.20  |                                                                                                |   |   | 198,900                           |   |   | $                                                                                                               | 21.75  |   |   |   | 4,600,013 |   |

| (1)   | Shares      of common stock purchased in open-market transactions and held in various      Company employee benefit plan trusts by the trustees using cash amounts      deferred by the participants in such plans (and quarterly cash dividends      issued by the Company on shares held in such  plans). |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | On      May 22, 2008, the Company announced that the Finance Committee of its      Board of Directors had authorized a program to repurchase a portion of the      depositary shares representing ownership of its Preferred Stock at the      Company’s discretion in the open market and/or through privately      negotiated transactions, subject to market conditions, applicable legal      requirements and other factors.  Effective October 8, 2008, the      Company has the right to redeem all of the Preferred Stock at par upon      applicable notice.  See Item 8.  Financial      Statements and Supplementary Data, Note 12 – Preferred Securities      for additional information related to the repurchase of depositary      shares. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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ITEM 6.  SELECTED FINANCIALDATA. 

|                                       |   |                                                     |      |   |                  |   |      |            |   |   |      |   |   | For      the  |      |   | For      the |   |
|--------------------------------------------|--------|----------------------------------------------------------|-----------|--------|-----------------------|--------|-----------|-----------------|--------|--------|-----------|--------|--------|---------------|-----------|--------|--------------|--------|
|                                       |   | For      the years ended                                 |      |   | six      months ended |   |      | year      ended |   |
|                                       |   | December      31,                                        |      |   | December      31,     |   |      | June      30,   |   |
|                                       |   | 2008                                                     |      |   | 2007                  |   |      | 2006 (1)   |   |   | 2005      |   |   | 2004 (2) |      |   | 2004         |   |
|                                       |   | (In      thousands of dollars, except per share amounts) |      |
|                                       |   |                                                     |      |   |                  |   |      |            |   |   |      |   |   |          |      |   |         |   |
| Total      operating revenues              |   | $                                                        | 3,070,154 |   |                  | $      | 2,616,665 |            |   | $      | 2,340,144 |   |   | $             | 1,266,882 |   |         | $      | 517,849 |   |   | $ | 1,149,268 |   |
| Earnings      from unconsolidated          |   |                                                     |      |   |                  |   |      |            |   |   |      |   |   |          |      |   |         |   |   |   |   |   |   |   |
|      investments  |   |                                                     | 75,030    |   |                  |   | 100,914   |            |   |   | 141,370   |   |   |          | 70,742    |   |         |   | 4,745 |   |   |   | 200 |   |
| Net      earnings (loss):                  |   |                                                     |      |   |                  |   |      |            |   |   |      |   |   |          |      |   |         |   |   |   |   |   |   |   |
| Continuing      operations (3)             |   |                                                     | 279,412   |   |                  |   | 211,346   |            |   |   | 199,718   |   |   |          | 135,731   |   |         |   | (1,635 | ) |   |   | 51,729 |   |
| Discontinued      operations (4)           |   |                                                     | -         |   |                  |   | -         |            |   |   | (152,952  | )      |   |          | (132,413  | )      |         |   | 7,723 |   |   |   | 49,610 |   |
| Available      for common stockholders     |   |                                                     | 279,412   |   |                  |   | 211,346   |            |   |   | 46,766    |   |   |          | 3,318     |   |         |   | 6,088 |   |   |   | 101,339 |   |
| Net      earnings (loss) per diluted       |   |                                                     |      |   |                  |   |      |            |   |   |      |   |   |          |      |   |         |   |   |   |   |   |   |   |
| common      share (5):                     |   |                                                     |      |   |                  |   |      |            |   |   |      |   |   |          |      |   |         |   |   |   |   |   |   |   |
| Continuing      operations                 |   |                                                     | 2.26      |   |                  |   | 1.75      |            |   |   | 1.70      |   |   |          | 1.20      |   |         |   | (0.02 | ) |   |   | 0.63 |   |
| Discontinued      operations               |   |                                                     | -         |   |                  |   | -         |            |   |   | (1.30     | )      |   |          | (1.17     | )      |         |   | 0.09 |   |   |   | 0.61 |   |
| Available      for common stockholders     |   |                                                     | 2.26      |   |                  |   | 1.75      |            |   |   | 0.40      |   |   |          | 0.03      |   |         |   | 0.07 |   |   |   | 1.24 |   |
| Total      assets                          |   |                                                     | 7,997,907 |   |                  |   | 7,397,913 |            |   |   | 6,782,790 |   |   |          | 5,836,819 |   |         |   | 5,568,289 |   |   |   | 4,572,458 |   |
| Stockholders’      equity            |   |                                                     | 2,367,952 |   |                  |   | 2,205,806 |            |   |   | 2,050,408 |   |   |          | 1,854,069 |   |         |   | 1,497,557 |   |   |   | 1,261,991 |   |
| Current      portion of long-term debt and |   |                                                     |      |   |                  |   |      |            |   |   |      |   |   |          |      |   |         |   |   |   |   |   |   |   |
| capital      lease obligation              |   |                                                     | 60,623    |   |                  |   | 434,680   |            |   |   | 461,011   |   |   |          | 126,648   |   |         |   | 89,650 |   |   |   | 99,997 |   |
| Long-term      debt and capital lease      |   |                                                     |      |   |                  |   |      |            |   |   |      |   |   |          |      |   |         |   |   |   |   |   |   |   |
| obligation,      excluding current portion |   |                                                     | 3,257,434 |   |                  |   | 2,960,326 |            |   |   | 2,689,656 |   |   |          | 2,049,141 |   |         |   | 2,070,353 |   |   |   | 2,154,615 |   |
| Cash      dividends declared on common     |   |                                                     |      |   |                  |   |      |            |   |   |      |   |   |          |      |   |         |   |   |   |   |   |   |   |
| stock      (6)                             |   |                                                     | 74,384    |   |                  |   | 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 until it became a wholly-owned subsidiary on December 1,      2006, 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.  See Item 8. Financial Statements      and Supplementary Data, Note 3 – Acquisitions and Sales – CCE Holdings      Transactions for information related to CCE Holding becoming a      wholly-owned subsidiary of the Company on December 1,  2006. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Net      earnings from continuing operations are net of dividends on preferred      stock of $12.2 million, $17.4 million, $17.4 million, $17.4 million, $8.7      million and $12.7 million for the years ended December 31, 2008, 2007,      2006 and 2005, the six months ended December 31, 2004 and the year ended      June 30, 2004, respectively.  Additionally, net earnings from      continuing operations are net of the $3.5 million Loss on extinguishment of      preferred stock applicable to the year ended December 31,      2008.  For additional related information, see Item 8. Financial Statements      and Supplementary Data, Note12 – Preferred    Securities. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | 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.  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. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5)   | 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 and July 31,      2003. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6)   | 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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| ·   | items      that do not impact net earnings, such as extraordinary items, discontinued      operations and the impact of changes in accounting    principles; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

| ·   | dividends      on preferred stock; and |
|--------------------|----------------------------------------|

| ·   | loss      on extinguishment of preferredstock. |
|--------------------|------------------------------------------------|

|                                                   |   | Years      Ended December 31, |    |
|--------------------------------------------------------|--------|-------------------------------|---------|
|                                                   |   | 2008                          |    |   | 2007 |   |   | 2006 |   |
|                                                   |   | (In      thousands)           |    |
| EBIT:                                                  |   |                          |    |   |   |   |   |   |   |
| Transportation      and storage segment  (1) |   | $                             | 404,834 |   |   | $ | 407,459 |   |   | $ | 431,959 |   |
| Gathering      and processing segment                  |   |                          | 145,363 |   |   |   | 65,368 |   |   |   | 62,630 |   |
| Distribution      segment  (1)               |   |                          | 61,418  |   |   |   | 62,195 |   |   |   | 36,349 |   |
| Corporate      and other  (1)                |   |                          | (4,281  | ) |   |   | (7,906 | ) |   |   | 5,435 |   |
| Total      EBIT                                        |   |                          | 607,334 |   |   |   | 527,116 |   |   |   | 536,373 |   |
| Interest      expense                                  |   |                          | 207,408 |   |   |   | 203,146 |   |   |   | 210,043 |   |
| Earnings      from continuing operations before        |   |                          |    |   |   |   |   |   |   |   |   |   |
| income      taxes                                      |   |                          | 399,926 |   |   |   | 323,970 |   |   |   | 326,330 |   |
| Federal      and state income taxes                    |   |                          | 104,775 |   |   |   | 95,259 |   |   |   | 109,247 |   |
| Earnings      from continuing operations               |   |                          | 295,151 |   |   |   | 228,711 |   |   |   | 217,083 |   |
|                                                   |   |                          |    |   |   |   |   |   |   |   |   |   |
| Discontinued      operations:                          |   |                          |    |   |   |   |   |   |   |   |   |   |
| Loss      from discontinued operations                 |   |                          |    |   |   |   |   |   |   |   |   |   |
| before      income taxes                               |   |                          | -       |   |   |   | - |   |   |   | (2,369 | ) |
| Federal      and state income taxes                    |   |                          | -       |   |   |   | - |   |   |   | 150,583 |   |
| Loss      from discontinued operations                 |   |                          | -       |   |   |   | - |   |   |   | (152,952 | ) |
| Preferred      stock dividends                         |   |                          | 12,212  |   |   |   | 17,365 |   |   |   | 17,365 |   |
| Loss      on extinguishment of preferred stock         |   |                          | 3,527   |   |   |   | - |   |   |   | - |   |
|                                                   |   |                          |    |   |   |   |   |   |   |   |   |   |
| Net      earnings available for common stockholders    |   | $                             | 279,412 |   |   | $ | 211,346 |   |   | $ | 46,766 |   |

| (1)   | In      the fourth quarter of 2008, the Company ceased including the management      and royalty fees charged by Southern Union to its Transportation and      Storage segment in its evaluation of segment results as it was no longer      deemed necessary by executive management.  The Company had not      previously included management and royalty fees in the evaluation of its      other reportable segments.  Additionally, in the fourth quarter      of 2008, the Company commenced allocating certain corporate administrative      services costs to the Distribution segment.  Previously, the      corporate administrative services costs allocation was limited to the      Transportation and Storage and Gathering and Processing      segments.  Executive management determined that such allocation      to all of the Company's reportable segments would enable it to better      measure and evaluate the performance of each of its reportable      segments.  The allocation to the Distribution segment was $9.5      million, representing the estimated 2008 annual allocation provided to the      Distribution segment.  The administrative services allocation      was primarily based upon each reportable segment's pro-rata share of      combined net investment, margin and certain      expenses.  Management believes that the allocation method and      underlying assumptions utilized by the Company were      reasonable. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                            |   |                  |    |   |                     |   |    | Recast      Adjustments |   |   |   |   |   |   |   |
|---------------------------------|--------|-----------------------|---------|--------|--------------------------|--------|---------|-------------------------|--------|--------|--------|--------|--------|--------|--------|
|                            |   | EBIT      as Reported |    |   | Increase      (Decrease) |   |    | Recast      EBIT        |   |
| Segment                         |   | 2007                  |    |   | 2006                     |   |    | 2007                    |   |   | 2006   |   |   | 2007   |   |   | 2006 |   |
|                            |   | (In      thousands)   |    |
|                            |   |                  |    |   |                     |   |    |                    |   |   |   |   |   |   |   |   |   |   |
| Transportation      and Storage |   | $                     | 391,029 |   |                     | $      | 417,536 |                    |   | $      | 16,430 |   |   | $      | 14,423 |   |   | $ | 407,459 |   |   | $ | 431,959 |   |
| Distribution                    |   |                  | 70,568  |   |                     |   | 41,883  |                    |   |   | (8,373 | )      |   |   | (5,534 | ) |   |   | 62,195 |   |   |   | 36,349 |   |
| Corporate      and Other        |   |                  | 151     |   |                     |   | 14,324  |                    |   |   | (8,057 | )      |   |   | (8,889 | ) |   |   | (7,906 | ) |   |   | 5,435 |   |

| ·   | Higher      EBIT contributions of $80 million from the Gathering and Processing      segment primarily due to higher market-driven realized average natural gas      and NGL prices and the impact of $50.1 million of higher net hedging gains      in the 2008 period versus the 2007 period, partially offset by a reduction      of gross margin of approximately $10.6 million resulting from the impact      of Hurricane Ike on the Company’s third-party NGL fractionator, the      establishment of a $3 million bad debt reserve for a customer that filed      for bankruptcy protection, and higher depreciation expense of $3.2      million. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Higher      interest expense of $4.3 million primarily attributable to higher interest      expense of $21.1 million in 2008 associated with new debt issued during      the 2008 and 2007 periods primarily to fund capital expenditures for      enhancement projects in the Transportation and Storage segment and retire      maturing debt, partially offset by lower interest expense of $13.1 million      on the $465 million 2012 Term Loan agreement in 2008 primarily due to      lower LIBOR interest rates, and higher capitalized interest of $4.3      million resulting from higher average capital project balances outstanding      in the 2008 period versus the 2007period; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Lower      EBIT contribution of $2.6 million from the Transportation and Storage      segment primarily due to lower equity earnings attributable to Citrus of      $24 million primarily resulting from $18.7 million of nonrecurring gains      in the 2007 period related to the settlement of litigation and the sale of      bankruptcy-related receivables, partially offset by higher EBIT      contributions of $21.4 million in 2008 from Panhandle primarily      attributable to higher transportation reservation revenues, partially      offset by higher operating expenses;and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Higher      income taxes of $9.5 million primarily due to higher pre-tax income in      2008, partially offset by a lower EITR in the 2008 period versus the 2007      period primarily attributable to a $22.1 million tax benefit resulting      from a reduction in the Company’s deferred income tax liability in the      fourth quarter of 2008 associated with the dividends received deduction      for anticipated dividends from the Company’s unconsolidated investment in      Citrus. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Higher      EBIT contributions of $25.8 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 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      in Citrus. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | Lower      EBIT contributions of $24.5 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                                               |   | 2008                          |    |   | 2007 |   |   | 2006 |   |
|                                                                                  |   | (In      thousands)           |    |
|                                                                                  |   |                          |    |   |   |   |   |   |   |
| Operating      revenues                                                               |   | $                             | 721,640 |   |   | $ | 658,446 |   |   | $ | 577,182 |   |
|                                                                                  |   |                          |    |   |   |   |   |   |   |   |   |   |
| Operating      expenses                                                               |   |                          | 258,062 |   |   |   | 236,473 |   |   |   | 191,758 |   |
| Depreciation      and amortization                                                    |   |                          | 103,807 |   |   |   | 85,641 |   |   |   | 72,724 |   |
| Taxes      other than on income and revenues                                          |   |                          | 32,061  |   |   |   | 29,699 |   |   |   | 25,405 |   |
| Total      operating income                                                           |   |                          | 327,710 |   |   |   | 306,633 |   |   |   | 287,295 |   |
| Earnings      from unconsolidated investments                                         |   |                          | 75,173  |   |   |   | 99,222 |   |   |   | 141,310 |   |
| Other      income, net                                                                |   |                          | 1,951   |   |   |   | 1,604 |   |   |   | 3,354 |   |
| EBIT                                                                                  |   | $                             | 404,834 |   |   | $ | 407,459 |   |   | $ | 431,959 |   |
|                                                                                  |   |                          |    |   |   |   |   |   |   |   |   |   |
| Operating      information:                                                           |   |                          |    |   |   |   |   |   |   |   |   |   |
| Panhandle      natural gas volumes transported (TBtu)                                 |   |                          | 1,471   |   |   |   | 1,454 |   |   |   | 1,180 |   |
|           CCE Holdings natural gas volumes transported (TBtu) (1) |   |                          |    |   |   |   |   |   |   |
| Florida      Gas                                                                      |   |                          | 786     |   |   |   | 751 |   |   |   | 737 |   |
| Transwestern                                                                          |   |                          | N/A     |   |   |   | N/A |   |   |   | 572 |   |

| (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. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A      $15.1 million nonrecurring gain recorded in the 2007 period related to the      settlement of litigation; |
|--------------------|------------------------------------------------------------------------------------------------------------------|

| ·   | A      $3.6 million nonrecurring gain recorded in the 2007 period related to the      sale of bankruptcy-relatedreceivables; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

| ·   | Higher      operating expenses of $6 million primarily due to increased property taxes      and higher overall costs experienced in 2008 applicable to employee labor      and benefits, outside contract services costs and other operating      costs; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Higher      depreciation expense of $2.6 million primarily due to increased plant      placed in service; |
|--------------------|-----------------------------------------------------------------------------------------------------------|

| ·   | Higher      interest expense of $4.5 million due to higher debt balances, including      the $500 million Construction Loan Agreement related to the Phase VIII      Expansion project, which was funded on October 1,  2008; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Higher      operating revenues of $4.7 million primarily due to higher reservation      revenues of $4.5 million attributable to increased capacity from prior      expansions and the extra day in 2008 for the leap year;  and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Lower      income taxes of $9.4 million primarily due to lower pre-tax      earnings. |
|--------------------|---------------------------------------------------------------------------------------|

----

Table of Contents

| ·   | Higher      transportation reservation revenues of $49.1 million primarily due to the      phased completion of the Trunkline Field Zone Expansion project during the      period from December 2007 to February 2008 and reduced discounting      resulting in higher average rates realized on contracts driven by higher      customer demand, and approximately $1.2 million of additional revenues      attributable to the extra day in the 2008 leap  year; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Higher      transportation commodity revenues of $7.1 million primarily due to a rate      increase on Sea Robin, net of related customer liability refund provisions      and the impact of approximately $4.1 million of lower revenues      attributable to reduced volumes flowing after Hurricane    Ike; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Higher      parking revenues of $8.2 million resulting from customer demand for      parking services and marketconditions; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------|

| ·   | Higher      storage revenues of $6.7 million primarily due to increased leased storage      capacity; and |
|--------------------|-----------------------------------------------------------------------------------------------------------|

| ·   | A      $6.5 million decrease in LNG terminalling revenue due to lower volumes      from decreased LNG cargoes during2008. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------|

| ·   | Higher      operating expenses of $21.6 million primarily attributable    to: |
|--------------------|-------------------------------------------------------------------------------|

| o   | Expense      of $13.5 million related to damages to the Company’s facilities resulting      from Hurricanes Gustav and Ike; |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------|

| o   | A      $10.2 million increase in contract storage costs resulting from an      increase in leased storagecapacity; |
|---------------|--------------------------------------------------------------------------------------------------------------------|

| o   | A      $4 million increase in insurance costs primarily due to higher property      premiums; |
|---------------|-----------------------------------------------------------------------------------------------|

| o   | A      $3.5 million net increase in labor primarily due to merit      increases; |
|---------------|----------------------------------------------------------------------------------|

| o   | A      $5.7 million decrease in fuel tracker costs primarily due to a net      over-recovery in 2008 versus a net under-recovery in 2007;    and |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | A      $5.5 million decrease in LNG power costs resulting from a reduced number      of LNG cargoes during 2008; |
|---------------|------------------------------------------------------------------------------------------------------------------|

| ·   | Increased      depreciation and amortization expense of $18.2 million due to a $387.8      million increase in property, plant and equipment placed in service after      December 31, 2007.  Depreciation and amortization expense is      expected to continue to increase primarily due to higher capital spending,      primarily from the LNG terminal infrastructure enhancement and compression      modernization projects and other capital expenditures;  and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Increased      taxes, other than on income, of $2.4 million primarily due to higher      property taxes attributable to higher property tax assessments resulting      from increased earnings, partially offset by lower compressor fuel tax on      a reduced number of LNG cargoes. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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 |
|---------------|---------------------------------------------------------------------------------------------|

| 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; |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

| ·   | 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 $44.7 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. |
|--------------------|--------------------------------------------------------------------------------------------------|

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Table of Contents

|                                                 |   | Years      Ended December 31, |        |
|------------------------------------------------------|--------|-------------------------------|-------------|
| Gathering      and Processing Segment                |   | 2008                          |        |   | 2007 |   |   | 2006 |   |
|                                                 |   | (In      thousands)           |        |
|                                                 |   |                          |        |   |   |   |   |   |   |
| Operating      revenues, excluding impact of         |   |                          |        |   |   |   |   |   |   |
| commodity      derivative instruments                |   | $                             | 1,463,966   |   |   | $ | 1,214,806 |   |   | $ | 1,079,297 |   |
| Realized      and unrealized commodity derivatives   |   |                          | 57,075      |   |   |   | 6,941 |   |   |   | 10,919 |   |
| Operating      revenues                              |   |                          | 1,521,041   |   |   |   | 1,221,747 |   |   |   | 1,090,216 |   |
| Cost      of gas and other energy                    |   |                          | (1,216,953  | ) |   |   | (1,010,967 | ) |   |   | (918,064 | ) |
| Gross      margin  (1)                     |   |                          | 304,088     |   |   |   | 210,780 |   |   |   | 172,152 |   |
| Operating      expenses                              |   |                          | 90,657      |   |   |   | 84,550 |   |   |   | 61,428 |   |
| Depreciation      and amortization                   |   |                          | 62,716      |   |   |   | 59,560 |   |   |   | 47,321 |   |
| Taxes      other than on income and revenues         |   |                          | 4,466       |   |   |   | 2,742 |   |   |   | 2,156 |   |
| Total      operating income                          |   |                          | 146,249     |   |   |   | 63,928 |   |   |   | 61,247 |   |
| Earnings      (loss) from unconsolidated investments |   |                          | (990        | ) |   |   | 1,300 |   |   |   | (188 | ) |
| Other      income, net                               |   |                          | 104         |   |   |   | 140 |   |   |   | 1,571 |   |
| EBIT                                                 |   | $                             | 145,363     |   |   | $ | 65,368 |   |   | $ | 62,630 |   |
|                                                 |   |                          |        |   |   |   |   |   |   |   |   |   |
|                                                 |   |                          |        |   |   |   |   |   |   |   |   |   |
| Operating      Statistics:                           |   |                          |        |   |   |   |   |   |   |   |   |   |
| Volumes                                              |   |                          |        |   |   |   |   |   |   |   |   |   |
| Avg      natural gas processed (MMBtu/d)             |   |                          | 410,511     |   |   |   | 426,097 |   |   |   | 451,675 |   |
| Avg      NGL produced (gallons/d)                    |   |                          | 1,321,325   |   |   |   | 1,337,450 |   |   |   | 1,423,138 |   |
| Avg      natural gas wellhead volumes (MMBtu/d)      |   |                          | 596,150     |   |   |   | 637,794 |   |   |   | 585,185 |   |
| Natural      gas sales (MMBtu)  (2)        |   |                          | 92,376,383  |   |   |   | 105,677,108 |   |   |   | 113,362,236 |   |
| NGL      sales (gallons)  (2)              |   |                          | 542,311,822 |   |   |   | 469,907,600 |   |   |   | 421,896,247 |   |
|                                                 |   |                          |        |   |   |   |   |   |   |   |   |   |
| Average      Pricing                                 |   |                          |        |   |   |   |   |   |   |   |   |   |
| Realized      natural gas ($/MMBtu)  (3)   |   | $                             | 7.67        |   |   | $ | 6.26 |   |   | $ | 5.83 |   |
| Realized      NGL ($/gallon)  (3)          |   |                          | 1.37        |   |   |   | 1.13 |   |   |   | 0.97 |   |
| Natural      Gas Daily WAHA ($/MMBtu)                |   |                          | 7.57        |   |   |   | 6.35 |   |   |   | 5.78 |   |
| Natural      Gas Daily El Paso ($/MMBtu)             |   |                          | 7.44        |   |   |   | 6.20 |   |   |   | 5.68 |   |
| Estimated      plant processing spread ($/gallon)    |   |                          | 0.64        |   |   |   | 0.55 |   |   |   | 0.43 |   |

| (2)   | Volumes      processed by SUGS include volumes sold under various buy-sell      arrangements.  For the years ended December 31, 2008 and 2007      and the ten-months ended December 31, 2006, the Company’s operating      revenues and related volumes  attributable to its buy-sell      arrangements for natural gas totaled $95.7 million, $91.6 million and      $75.3 million, and 12.2 million MMBtus, 13.6 million MMBtus and 12.4      million MMBtus, respectively.  The Company’s operating revenues      and related volumes in 2008 attributable to its buy-sell arrangements for      NGL totaled $117.9 million and 83 million gallons, respectively, and was      insignificant for the 2007 and 2006periods. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | Excludes      impact of realized and unrealized commodity derivative gains and losses      detailed in the above EBITpresentation. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

| ·   | Higher      gross margin of $93.3 million primarily as the result  of: |
|--------------------|------------------------------------------------------------------------|

| o   | Impact      of $50.1 million of higher net hedging gains in the 2008 period versus the      2007 period (which includes the impact of $59.7 million of unrealized      gains recorded in 2008); |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | Higher      market-driven realized average natural gas and NGL prices (unadjusted for      the impact of realized and unrealized commodity derivative gains and      losses) of $7.67 per MMBtu and $1.37 per gallon in the 2008 period versus      $6.26 per MMBtu and $1.13 per gallon in the 2007  period; |
|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | Favorable      gross margin impact of lower levels of fuel, flare, and unaccounted for      gas losses in the 2008 period versus the unusually high levels experienced      in the first and second quarters of 2007; and unfavorable gross margin      impact of approximately $10.6 million resulting from damage by Hurricane      Ike on the Company’s third-party NGL fractionator.  Commencing      September 11, 2008, the Company was forced to shut in its natural gas      processing plants and attendant production for approximately a week and      operated at reduced production levels for the remainder of the      month. |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Operating      expenses were higher by $6.1 million primarily due  to: |
|--------------------|------------------------------------------------------------------------|

| o   | A      $3 million bad debt reserve for receivables associated with a customer      that filed for bankruptcy protection in the third quarter of      2008; |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | A      $2.3 million increase in chemical and lubricants costs, which generally      track with the price of oil; and |
|---------------|----------------------------------------------------------------------------------------------------------------------|

| o   | A      $2.1 million increase in utility costs primarily due to higher compressor      fuel costs resulting from rising overall average cost of natural gas in      2008 versus 2007. |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Higher      depreciation expense of $3.2 million primarily attributable to a $50.3      million increase in property, plant and equipment placed in service after      2007; and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Lower      equity earnings of $2.3 million from the Company’s unconsolidated      investment in Grey Ranch, which was out of service for approximately five      months during 2008 because of a fire at the Grey Ranch processing      plant. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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 NGL 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. |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

| ·   | 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. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

|                                                   |   | Years      Ended December 31, |    |
|--------------------------------------------------------|--------|-------------------------------|---------|
| Distribution      Segment                              |   | 2008                          |    |   | 2007 |   |   | 2006 |   |
|                                                   |   | (In      thousands)           |    |
|                                                   |   |                          |    |   |   |   |   |   |   |
| Net      operating revenues   (1)       |   | $                             | 221,111 |   |   | $ | 222,097 |   |   | $ | 174,584 |   |
|                                                   |   |                          |    |   |   |   |   |   |   |   |   |   |
| Operating      expenses                                |   |                          | 116,288 |   |   |   | 117,161 |   |   |   | 95,712 |   |
| Depreciation      and amortization                     |   |                          | 30,530  |   |   |   | 30,251 |   |   |   | 30,353 |   |
| Taxes      other than on income                        |   |                          |    |   |   |   |   |   |   |   |   |   |
| and      revenues                                      |   |                          | 11,045  |   |   |   | 10,588 |   |   |   | 10,040 |   |
| Total      operating income                            |   |                          | 63,248  |   |   |   | 64,097 |   |   |   | 38,479 |   |
| Other      income (expenses), net                      |   |                          | (1,830  | ) |   |   | (1,902 | ) |   |   | (2,130 | ) |
| EBIT                                                   |   | $                             | 61,418  |   |   | $ | 62,195 |   |   | $ | 36,349 |   |
|                                                   |   |                          |    |   |   |   |   |   |   |   |   |   |
| Operating      Information:                            |   |                          |    |   |   |   |   |   |   |   |   |   |
| Gas      sales volumes (MMcf)                          |   |                          | 61,469  |   |   |   | 56,196 |   |   |   | 49,376 |   |
| Gas      transported volumes (MMcf)                    |   |                          | 28,214  |   |   |   | 26,911 |   |   |   | 26,340 |   |
|                                                   |   |                          |    |   |   |   |   |   |   |   |   |   |
| Weather – Degree      Days:   (2) |   |                          |    |   |   |   |   |   |   |   |   |   |
| Missouri      Gas Energy service territories           |   |                          | 5,499   |   |   |   | 4,776 |   |   |   | 3,996 |   |
| New      England Gas Company service territories       |   |                          | 5,348   |   |   |   | 5,371 |   |   |   | 4,901 |   |

| (1)            Operating revenues for the Distribution segment are reported net of Cost of gasand other energy and      Revenue-related      taxes, which are pass-through      costs.               |   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| (2)  "Degree      days" are a measure of the coldness of the weather      experienced.  A degree day is equivalent to each degree that the      daily mean temperature for a day falls below 65 degrees      Fahrenheit. |

| ·   | Lower      net operating revenues of $1 million primarily due to lower market-driven      pipeline capacity release and off-system sales at Missouri Gas Energy in      the 2008 period versus the 2007period; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Higher      taxes other than on income of $500,000 primarily attributable to higher      property taxes resulting from increased property appraisals;      and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Lower      operating expenses of $900,000 primarily attributable  to: |
|--------------------|-----------------------------------------------------------------------|

| o   | Lower      injuries and damage claims of $1.2 million primarily due to an insurance      reimbursement of $900,000 in 2008 related to prior year      expenditures; |
|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | Lower      provisions for uncollectible customer accounts of approximately $2.1      million primarily resulting from the impact of governmental assistance      provided to Missouri Gas Energy’s low income customers, which has reduced      the Company’s customer allowance reserve;and |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | Higher      environmental remediation costs of $2 million primarily attributable to      site investigation evaluations completed during 2008.  The MPSC      has denied Missouri Gas Energy’s request during the third quarter of 2008      to defer certain environmental costs for recovery consideration in a      future rate proceeding. |
|---------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

| ·   | 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 $21.4 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      corporate services costs of $2.8 million 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   | Higher      uncollectible accounts of approximately $1.8 million resulting primarily      from higher revenues realized in the 2007 period versus the 2006      period. |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Impact      of a $6.9 million impairment in 2007 related to the Company’s former      corporate office building; |
|--------------------|------------------------------------------------------------------------------------------------------------------------|

| ·   | Higher      non-allocable corporate legal expenses of $6 million incurred in the 2008      period versus the 2007 period; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------|

| ·   | Higher      contribution of $1 million from PEI Power Corporation primarily due to      higher revenues resulting from increased electricity production and higher      electricity prices in 2008; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Impact      of an $800,000 charge in 2007 to reserve for an other-than-temporary      impairment of the Company’s investment in a technology company;      and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Higher      interest income of $700,000 in the 2008 period versus the 2007 period      associated with short-term investments held by the  Company. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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 $13.1 million increase in      corporate services costs allocated to the Company’s business units in      2007. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | Higher      interest expense of $21.1 million primarily due to higher outstanding debt      balances from the $300 million 6.20% Senior Notes, the $400 million 7.00%      Senior Notes, and the $455 million 2012 Term Loan issued in October 2007,      June 2008, and March 2007, respectively, partially offset by lower      interest expense from the repayment in August 2008 of the $300 million      4.80% Senior Notes and the $125 million 6.15% Senior Notes and the      repayment in March 2007 of the $200 million 2.75% Senior Notes and the LNG      Holdings $255.6 million Term Loan; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Higher      net interest expense of $1.5 million associated with the remarketing of      the $100 million 4.375% Senior Notes in February 2008, which were replaced      with the higher interest rate $100 million 6.089% Senior      Notes; |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Lower      interest expense of $13.1 million primarily due to the effect of lower      LIBOR interest rates on the $465 million 2012 Term Loan      agreement; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Lower      interest expense of $4.3 million primarily due to the impact of the higher      level of interest costs capitalized attributable to higher average capital      project balances outstanding in 2008 compared to 2007;  and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Lower      interest expense of $2.4 million associated with borrowings under the      Company’s credit agreements primarily due to lower average interest rates,      partially offset by higher average outstanding balances in 2008 compared      to 2007 and higher interest expense resulting from the issuance of the      $150 million Short-Term-Facility in October  2008. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 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; |
|--------------------|------------------------------------------------------------------------------------------------------------------|

| ·   | 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; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Increased      interest expense of $34.9 million related to the $600 million Junior      Subordinated Notes issued in October2006; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------|

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

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

| ·   | Tax      benefit of $22.1 million resulting from a reduction in the Company’s      deferred income tax liability in the fourth quarter of 2008 associated      with the dividends received deduction for anticipated dividends from the      Company’s unconsolidated investment in Citrus. Due to the anticipated      increase in dividends from Citrus after the completion of the Phase VIII      Expansion, the Company expects the entire deferred income tax liability      related to  its investment in Citrus will be realized at the      Company’s statutory income tax rate less the dividends received deduction;      and |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Lower      tax benefit of $5.2 million associated with the decrease in the dividends      received deduction from the Company’s unconsolidated investment in Citrus.      The dividends received deduction for dividends paid by Citrus prior to the      aforementioned reduction in the Company’s deferred income tax liability      was $23 million in 2008 versus $30.9 million in 2007. The dividends      received deduction for Citrus’ unremitted earnings after such reduction in      the Company’s deferred income tax liability was $2.7 million in      2008. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | 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 IRS audit for the fiscal year ended June 30, 2003 and expiring      state statutes. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                                  |   | Years      ended December 31, |     |
|-------------------------------------------------------|--------|-------------------------------|----------|
|                                                  |   | 2008                          |     |   | 2007 |   |   | 2006 |   |
|                                                  |   |                          |     |   | (In      thousands) |   |   |   |   |
| Cash      flows provided by (used in):                |   |                          |     |   |   |   |   |   |   |
| Operating      activities                             |   | $                             | 486,827  |   |   | $ | 470,408 |   |   | $ | 458,805 |   |
| Investing      activities                             |   |                          | (568,952 | ) |   |   | (666,604 | ) |   |   | (806,804 | ) |
| Financing      activities                             |   |                          | 80,753   |   |   |   | 196,135 |   |   |   | 336,812 |   |
| Increase      (decrease) in cash and cash equivalents |   | $                             | (1,372   | ) |   | $ | (61 | ) |   | $ | (11,187 | ) |

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|                                                |   | Years      ended December 31, |    |   |   |   |
|-----------------------------------------------------|--------|-------------------------------|---------|--------|--------|--------|
| Property,      Plant and Equipment Additions        |   | 2008                          |    |   | 2007   |   |   | 2006 |   |   |   |   |
|                                                |   | (In      thousands)           |    |   |   |   |
| Transportation      and Storage Segment             |   |                          |    |   |   |   |   |   |   |   |   |   |
| LNG      Terminal Expansions/Enhancements           |   | $                             | 157,325 |   |   | $      | 133,469 |   |   | $ | 57,045 |   |   |   |   |
| Trunkline      Field Zone Expansion                 |   |                          | 72,276  |   |   |   | 185,180 |   |   |   | 12,314 |   |   |   |   |
| East      End Enhancement                           |   |                          | 35,062  |   |   |   | 80,249 |   |   |   | 52,102 |   |   |   |   |
| Compression      Modernization                      |   |                          | 56,288  |   |   |   | 81,687 |   |   |   | 11,642 |   |   |   |   |
| Other,      primarily pipeline integrity, system    |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |
| reliability,      information technology, air       |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |
| emission      compliance and hurricane expenditures |   |                          | 113,053 |   |   |   | 110,568 |   |   |   | 111,718 |   |   |   |   |
| Total                                               |   |                          | 434,004 |   |   |   | 591,153 |   |   |   | 244,821 |   |   |   |   |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Gathering      and Processing Segment               |   |                          | 67,317  |   |   |   | 48,633 |   |   |   | 35,101 |  (1) |   |   |  |   |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Distribution      Segment                           |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Missouri      Safety Program                        |   |                          | 14,124  |   |   |   | 11,405 |   |   |   | 11,592 |   |   |   |   |   |
| Other,      primarily system replacement            |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and      expansion                                  |   |                          | 27,001  |   |   |   | 33,364 |   |   |   | 36,362 |   |   |   |   |   |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                               |   |                          | 41,125  |   |   |   | 44,769 |   |   |   | 47,954 |   |   |   |   |   |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Corporate      and other                            |   |                          | 9,345   |   |   |   | 4,173 |   |   |   | 4,798 |   |   |   |   |   |
|                                                |   |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  (2)                                |   | $                             | 551,791 |   |   | $      | 688,728 |   |   | $ | 332,674 |   |   |   |   |   |

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

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|                                          |   | Contractual      Obligations (In thousands) |      |
|-----------------------------------------------|--------|---------------------------------------------|-----------|
|                                          |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 2014      and |   |
|                                          |   | Total                                       |      |   | 2009 |   |   | 2010 |   |   | 2011 |   |   | 2012 |   |   | 2013 |   |   | thereafter |   |
|                                          |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term      debt (1), (2)                  |   | $                                           | 3,315,904 |   |   | $ | 60,623 |   |   | $ | 141,678 |   |   | $ | 991 |   |   | $ | 816,355 |   |   | $ | 250,687 |   |   | $ | 2,045,570 |   |
| Short-term      borrowing,                    |   |                                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| including      credit facilities (1)          |   |                                        | 401,459   |   |   |   | 401,459 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Gas      purchases (3)                        |   |                                        | 343,643   |   |   |   | 144,926 |   |   |   | 132,351 |   |   |   | 2,607 |   |   |   | 2,580 |   |   |   | 2,551 |   |   |   | 58,628 |   |
| Missouri      Gas Energy Safety Program       |   |                                        | 126,372   |   |   |   | 11,662 |   |   |   | 12,887 |   |   |   | 10,869 |   |   |   | 10,977 |   |   |   | 11,087 |   |   |   | 68,890 |   |
| Transportation      contracts                 |   |                                        | 432,299   |   |   |   | 78,691 |   |   |   | 78,256 |   |   |   | 77,522 |   |   |   | 72,822 |   |   |   | 46,517 |   |   |   | 78,491 |   |
| Storage      contracts (4)                    |   |                                        | 235,890   |   |   |   | 37,310 |   |   |   | 34,221 |   |   |   | 32,262 |   |   |   | 23,266 |   |   |   | 20,673 |   |   |   | 88,158 |   |
| Operating      lease payments                 |   |                                        | 127,732   |   |   |   | 21,354 |   |   |   | 16,275 |   |   |   | 16,525 |   |   |   | 14,164 |   |   |   | 14,130 |   |   |   | 45,284 |   |
| Interest      payments on debt  (5) |   |                                        | 4,193,527 |   |   |   | 205,797 |   |   |   | 197,141 |   |   |   | 192,426 |   |   |   | 170,202 |   |   |   | 163,266 |   |   |   | 3,264,695 |   |
| Benefit      plan contributions               |   |                                        | 11,463    |   |   |   | 11,463 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Fractionation      contract                   |   |                                        | 136,820   |   |   |   | - |   |   |   | 13,682 |   |   |   | 13,682 |   |   |   | 13,682 |   |   |   | 13,682 |   |   |   | 82,092 |   |
| Other  (6)                          |   |                                        | 17,753    |   |   |   | 9,572 |   |   |   | 911 |   |   |   | 900 |   |   |   | 802 |   |   |   | 397 |   |   |   | 5,171 |   |
| Total      contractual cash obligations       |   | $                                           | 9,342,862 |   |   | $ | 982,857 |   |   | $ | 627,402 |   |   | $ | 347,784 |   |   | $ | 1,124,850 |   |   | $ | 522,990 |   |   | $ | 5,736,979 |   |

| (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, 2008, 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 $2.2 million of      unamortized debt premium as of December 31,  2008. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------|

| (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, 2008.  Includes approximately $2.5      billion of interest payments associated with the $600 million Junior      Subordinated Notes due November 1,2066. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  (6)   | Includes      FIN No. 48 unrecognized tax benefits and various other contractual      obligations. |
|-----------------------|----------------------------------------------------------------------------------------------------|

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| ·   | the      economic lives of plant, property andequipment; |
|--------------------|----------------------------------------------------------|

| ·   | the      fair values used to allocate purchase price and to determine possible      asset impairment charges; |
|--------------------|---------------------------------------------------------------------------------------------------------------|

| ·   | reserves      for environmental claims, legal fees and other litigation or contingent      liabilities; |
|--------------------|---------------------------------------------------------------------------------------------------------|

| ·   | provisions      for income taxes and establishment of tax valuation reserves, including      the interpretation of complex taxlaws; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------|

| ·   | provisions      for uncollectible receivables; |
|--------------------|------------------------------------------------|

| ·   | exposures      under contractual indemnification; |
|--------------------|---------------------------------------------------|

| ·   | pension      and other postretirement benefit plan  liabilities; |
|--------------------|------------------------------------------------------------------|

| ·   | the      fair values associated with derivative financial instruments;      and |
|--------------------|---------------------------------------------------------------------------------|

| ·   | unbilled      revenues. |
|--------------------|-------------------------|

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| ·   | Future      demand for services provided by theCompany; |
|--------------------|---------------------------------------------------------|

| ·   | Impact      of future market conditions on customer and vendor  pricing; |
|--------------------|--------------------------------------------------------------------------|

| ·   | Regulatory      developments; |
|--------------------|-------------------------------|

| ·   | Inflationary      trends; |
|--------------------|---------------------------|

| ·   | Estimated      useful lives of assets and ongoing capital  requirements; |
|--------------------|--------------------------------------------------------------------------|

| ·   | Discount      rates used; and |
|--------------------|-------------------------------|

| ·   | Terminal      asset values using EBITDA-based market  multiples. |
|--------------------|------------------------------------------------------------------|

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| ·   | Level      1 – Observable inputs such as quoted prices in active markets for      identical assets or liabilities; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------|

| ·   | Level      2 – Observable inputs such as: (i) quoted prices for similar assets or      liabilities in active markets; (ii) quoted prices for identical or similar      assets or liabilities in markets that are not active and do not require      significant adjustment based on unobservable inputs; or (iii) valuations      based on pricing models, discounted cash flow methodologies or similar      techniques where significant inputs (e.g., interest rates, yield curves,      etc.) are derived principally from observable market data, or can be      corroborated by observable market data, for substantially the full term of      the assets or liabilities; and |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | Level      3 – Unobservable inputs, including valuations based on pricing models,      discounted cash flow methodologies or similar techniques where at least      one significant model assumption or input is      unobservable.  Unobservable inputs are used to the extent that      observable inputs are not available and reflect the Company’s own      assumptions about the assumptions market participants would use in pricing      the assets or liabilities.  Unobservable inputs are based on the      best information available in the circumstances, which might include the      Company’s own data. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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ITEM 7A.  Quantitative and Qualitative Disclosures AboutMarket Risk.

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

| ·   | Higher      than anticipated fuel, flare and unaccounted-for natural gas      levels; |
|--------------------|---------------------------------------------------------------------------------------|

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

| ·   | Decline      in drilling and/or connections of newsupply; |
|--------------------|-----------------------------------------------------------|

| ·   | Reduction      in available NGL take-awaycapacity; |
|--------------------|----------------------------------------------------|

| ·   | Reduction      in NGL available from wellheadsupply; |
|--------------------|------------------------------------------------------|

| ·   | Lower      than expected recovery of NGL from the inlet gas stream;    and |
|--------------------|----------------------------------------------------------------------------|

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

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| Instrument      Type                                    |   | Index                                          |   | Average      Fixed Price (per MMBtu) |   |   | Volumes      (MMBtu/d) (3) |   |                | Fair      Value of Assets |   |
|---------------------------------------------------------|--------|------------------------------------------------|--------|--------------------------------------|--------|--------|---------------------------------|--------|---------------------|---------------------------|--------|
|                                                    |   |                                           |   |                                 |   |   |                            |   | (In      thousands) |                      |
| Natural Gas - Cash Flow      Hedges  (1)      |   |                                           |   |                                 |   |   |                            |   |                |
| Fixed-rate      swap                                    |   | Gas      Daily - Waha                          |   | $                                    | 9.49   |   |                            |   | 11,050              |                      |   | $ | 16,991 |   |
| Fixed-rate      swap                                    |   | Gas      Daily - El Paso Permian               |   | $                                    | 9.49   |   |                            |   | 8,950               |                      |   |   | 13,762 |   |
|                                                    |   |                                           |   | Total                                |   |   |                            | 20,000 |                |                      | $      | 30,753 |   |
|                                                    |   |                                           |   |                                 |   |   |                            |   |                |                      |   |   |   |   |
| Processing Spread - Economic      Hedges  (2) |   |                                           |   |                                 |   |   |                            |   |                |                      |   |   |
| Fixed-rate      swap                                    |   | Gas      Daily - Waha (natural gas)            |   | $                                    | 7.40   |   |                            |   | 16,575              |                      |   | $ | 32,988 |   |
|                                                    |   | OPIS      - Mt. Belvieu (NGL)                  |   |                                 |   |   |                            |   |                |                      |   |   |   |   |
| Fixed-rate      swap                                    |   | Gas      Daily - El Paso Permian (natural gas) |   | $                                    | 7.40   |   |                            |   | 13,425              |                      |   |   | 26,718 |   |
|                                                    |   | OPIS      - Mt. Belvieu (NGL)                  |   |                                 |   |   |                            |   |                |                      |   |   |   |   |
|                                                    |   |                                           |   | Total                                |   |   |                            | 30,000 |                |                      | $      | 59,706 |   |

| (1)   | The      Company’s natural gas swap arrangements have been designated as cash flow      hedges.  The effective portion of changes in the fair value of      the cash flow hedges is recorded in Accumulated other      comprehensive loss until the related hedged items impact      earnings.  Any ineffective portion of a cash flow hedge is      reported in current-periodearnings. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | The      Company’s processing spread swap arrangements, which hedge the pricing      differential between NGL volumes and natural gas volumes, are treated as      economic hedges.  The ratio of NGL product sold per MMBtu is      approximately: 33 percent ethane, 32 percent propane, 5 percent isobutane,      14 percent normal butane and 16 percent natural gasoline.  The      change in fair value is reported in current-period    earnings. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | All      volumes are applicable to the period January 1, 2009 to December 31,      2009. |
|-----------------|------------------------------------------------------------------------------------------|

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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 GAAP, 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 Owners andManagement and Related Stockholder Matters.

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

ITEM14.  Principal Accountant 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 for      the year ended December 31, 2005 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) | First      Amendment to Construction and Term Loan Agreement between Citrus Corp., as      borrower, and Pipeline Funding Company, LLC, as lender and administrative      agent, dated as of August 6, 2008. (Filed as Exhibit 10(a) to Southern      Union Company’s Quarterly Report on Form 10-Q for the quarter ended June      30, 2008 and incorporated herein byreference.) |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(b) | 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.) |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

|   | 10(c) | Amendment      Number 1 to the Amended and Restated Credit Agreement between Trunkline      LNG Holdings, LLC, as borrower, Panhandle Eastern Pipe Line Company, LP      and CrossCountry Citrus, LLC, as guarantors, the financial institutions      listed therein and Bayerische Hypo-Und Vereinsbank AG, New York Branch, as      administrative agent, dated as of June 13, 2008. (Filed as Exhibit 10(d)      to Southern Union Company’s Quarterly Report on Form 10-Q for the quarter      ended June 30, 2008 and incorporated herein by  reference.) |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(d) | 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 and      Bayerische Hypo-Und Vereinsbank AG, New York Branch, as administrative      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(e) | 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(f) | Fifth      Amended and Restated Revolving Credit Agreement, dated as of June 20,      2008, among the Company, as borrower, and the lenders party thereto. (Filed as      Exhibit 10.1 to Southern Union’s Current Report on Form 8-K filed on June      25, 2008 and incorporated herein byreference.) |
|--------|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(g) | Form      of Indemnification Agreement between Southern Union Company and each of      the Directors of Southern Union Company and certain senior executive      officers. |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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 on Form 10-Q for the quarter ended June 30,      2007 and incorporated herein byreference.) |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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) | 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.)  * |
|--------|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|   | 10(m) | 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(n) | Employment      Agreement between Southern Union Company and George L. Lindemann, dated as      of August 28, 2008.  (Filed as Exhibit 10(f) to Southern Union      Company’s Quarterly Report on Form 10-Q for the quarter ended September      30, 2008 and incorporated herein by reference.)  * |
|--------|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(o) | Employment      Agreement between Southern Union Company and Eric D. Herschmann, dated as      of August 28, 2008.  (Filed as Exhibit 10(g) to Southern Union      Company’s Quarterly Report on Form 10-Q for the quarter ended September      30, 2008 and incorporated herein by reference.)  * |
|--------|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(p) | Employment      Agreement between Southern Union Company and Robert O. Bond, dated as of      August 28, 2008.  (Filed as Exhibit 10(h) to Southern Union      Company’s Quarterly Report on Form 10-Q for the quarter ended September      30, 2008 and incorporated herein by reference.)  * |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(q) | Employment      Agreement between Southern Union Company and Monica M. Gaudiosi, dated as      of August 28, 2008.  (Filed as Exhibit 10(i) to Southern Union      Company’s Quarterly Report on Form 10-Q for the quarter ended September      30, 2008 and incorporated herein by reference.)  * |
|--------|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(r) | Employment      Agreement between Southern Union Company and Richard N. Marshall, dated as      of August 28, 2008.  (Filed as Exhibit 10(j) to Southern Union      Company’s Quarterly Report on Form 10-Q for the quarter ended September      30, 2008 and incorporated herein by reference.)  * |
|--------|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 10(s) | Form      of Change in Control Severance Agreement, between Southern Union Company      and certain Executives (filed as Exhibit 10.2 to Southern Union’s Current      Report on Form 8-K filed on August 28, 2008 and incorporated herein by      reference.) * |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                10(t)  | 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 CitrusCorp. |
|-------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|           10(u)    | Certificate      of Incorporation of Citrus Corp.  (Filed as Exhibit 10(q) to      Southern Union’s Annual Report on Form 10-K for the year ended December      31, 2006 and incorporated herein byreference.) |
|-------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|           10(v)    | By-Laws      of Citrus Corp., filed herewith.  (Filed as Exhibit 10(r) to      Southern Union’s Annual Report on Form 10-K for the year ended December      31, 2006 and incorporated herein byreference.) |
|-------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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      of Attorney. |
|--------|----|-------------------------|

|   | 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. |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

|   | 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. |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ____________ |
|--------|--------------|

|   | *      Management contract or compensation plan or  arrangement |
|--------|-----------------------------------------------------------------|

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Table of Contents

SIGNATURES

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

| Signature/Name                                                                                               | Title                                                                                                    |
|--------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
|  /s/ George L.      Lindemann*George      L. Lindemann                                                  |  Chairman      of the Board 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                                                       |  Senior      Vice President and Controller(Chief      Accounting Officer)                           |
|  /s/ Michal      Barzuza*Michal      Barzuza /s/ David      Brodsky*David      Brodsky             |  Director  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                                   |

----

Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

| 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      |

----

Table of Contents

CONSOLIDATED STATEMENT OF OPERATIONS

|                                                         |   | Years      Ended December 31,                 |      |
|--------------------------------------------------------------|--------|-----------------------------------------------|-----------|
|                                                         |   | 2008                                          |      |   | 2007 |   |   | 2006 |   |
|                                                         |   | (In      thousands, except per share amounts) |      |
| Operating      revenues (Note 21):                           |   |                                          |      |   |   |   |   |   |   |
| Gas      distribution                                        |   | $                                             | 821,673   |   |   | $ | 732,109 |   |   | $ | 668,721 |   |
| Gas      transportation and storage                          |   |                                          | 721,640   |   |   |   | 658,446 |   |   |   | 577,182 |   |
| Gas      gathering and processing                            |   |                                          | 1,521,041 |   |   |   | 1,221,747 |   |   |   | 1,090,216 |   |
| Other                                                        |   |                                          | 5,800     |   |   |   | 4,363 |   |   |   | 4,025 |   |
| Total      operating revenues                                |   |                                          | 3,070,154 |   |   |   | 2,616,665 |   |   |   | 2,340,144 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Operating      expenses:                                     |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Cost      of gas and other energy                            |   |                                          | 1,774,682 |   |   |   | 1,483,715 |   |   |   | 1,377,147 |   |
| Revenue-related      taxes                                   |   |                                          | 44,259    |   |   |   | 38,584 |   |   |   | 35,281 |   |
| Operating,      maintenance and general                      |   |                                          | 473,614   |   |   |   | 444,408 |   |   |   | 381,844 |   |
| Depreciation      and amortization                           |   |                                          | 199,249   |   |   |   | 177,999 |   |   |   | 152,103 |   |
| Taxes,      other than on income and revenues                |   |                                          | 48,371    |   |   |   | 44,874 |   |   |   | 38,684 |   |
| Total      operating expenses                                |   |                                          | 2,540,175 |   |   |   | 2,189,580 |   |   |   | 1,985,059 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Operating      income                                        |   |                                          | 529,979   |   |   |   | 427,085 |   |   |   | 355,085 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Other      income (expenses):                                |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Interest      expense                                        |   |                                          | (207,408  | ) |   |   | (203,146 | ) |   |   | (210,043 | ) |
| Earnings      from unconsolidated investments                |   |                                          | 75,030    |   |   |   | 100,914 |   |   |   | 141,370 |   |
| Other,      net  (Note 4)                          |   |                                          | 2,325     |   |   |   | (883 | ) |   |   | 39,918 |   |
| Total      other expenses, net                               |   |                                          | (130,053  | ) |   |   | (103,115 | ) |   |   | (28,755 | ) |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Earnings      from continuing operations before income taxes |   |                                          | 399,926   |   |   |   | 323,970 |   |   |   | 326,330 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Federal      and state income taxes (Note 15)                |   |                                          | 104,775   |   |   |   | 95,259 |   |   |   | 109,247 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Earnings      from continuing operations                     |   |                                          | 295,151   |   |   |   | 228,711 |   |   |   | 217,083 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Discontinued      operations (Note 19):                      |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Loss      from discontinued operations before                |   |                                          |      |   |   |   |   |   |   |   |   |   |
| income      taxes                                            |   |                                          | -         |   |   |   | - |   |   |   | (2,369 | ) |
| Federal      and state income taxes                          |   |                                          | -         |   |   |   | - |   |   |   | 150,583 |   |
| Loss      from discontinued operations                       |   |                                          | -         |   |   |   | - |   |   |   | (152,952 | ) |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Net      earnings                                            |   |                                          | 295,151   |   |   |   | 228,711 |   |   |   | 64,131 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Preferred      stock dividends                               |   |                                          | (12,212   | ) |   |   | (17,365 | ) |   |   | (17,365 | ) |
| Loss      on extinguishment of preferred stock               |   |                                          | (3,527    | ) |   |   | - |   |   |   | - |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Net      earnings available for common stockholders          |   | $                                             | 279,412   |   |   | $ | 211,346 |   |   | $ | 46,766 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Net      earnings available for common stockholders          |   |                                          |      |   |   |   |   |   |   |   |   |   |
| from      continuing operations per share (Note 5):          |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Basic                                                        |   | $                                             | 2.26      |   |   | $ | 1.76 |   |   | $ | 1.74 |   |
| Diluted                                                      |   | $                                             | 2.26      |   |   | $ | 1.75 |   |   | $ | 1.70 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Net      earnings available for common stockholders per      |   |                                          |      |   |   |   |   |   |   |   |   |   |
| share      (Note 5):                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Basic                                                        |   | $                                             | 2.26      |   |   | $ | 1.76 |   |   | $ | 0.41 |   |
| Diluted                                                      |   | $                                             | 2.26      |   |   | $ | 1.75 |   |   | $ | 0.40 |   |
| Cash      dividends declared on common stock per share:      |   | $                                             | 0.60      |   |   | $ | 0.45 |   |   | $ | 0.40 |   |
|                                                         |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Weighted      average shares outstanding (Note 5):           |   |                                          |      |   |   |   |   |   |   |   |   |   |
| Basic                                                        |   |                                          | 123,446   |   |   |   | 119,930 |   |   |   | 114,787 |   |
| Diluted                                                      |   |                                          | 123,644   |   |   |   | 120,674 |   |   |   | 117,344 |   |

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Table of Contents

ASSETS

|                                                      |   | December      31,   |      |
|-----------------------------------------------------------|--------|---------------------|-----------|
|                                                      |   | 2008                |      |   | 2007 |   |
|                                                      |   | (In      thousands) |      |
| Current      assets:                                      |   |                |      |   |   |   |
| Cash      and cash equivalents                            |   | $                   | 4,318     |   |   | $ | 5,690 |   |
| Accounts      receivable, billed and unbilled,            |   |                |      |   |   |   |   |   |
| net      of allowances of $6,003 and $4,144, respectively |   |                | 327,358   |   |   |   | 358,521 |   |
| Accounts      receivable – affiliates               |   |                | 14,743    |   |   |   | 29,943 |   |
| Inventories                                               |   |                | 337,858   |   |   |   | 263,618 |   |
| Deferred      gas purchase costs                          |   |                | 64,330    |   |   |   | 3,496 |   |
| Gas      imbalances - receivable                          |   |                | 174,100   |   |   |   | 105,371 |   |
| Derivative      financial instruments (Note 25)           |   |                | 91,423    |   |   |   | 6,999 |   |
| Prepayments      and other assets                         |   |                | 18,226    |   |   |   | 34,686 |   |
|  Total      current assets                           |   |                | 1,032,356 |   |   |   | 808,324 |   |
|                                                      |   |                |      |   |   |   |   |   |
| Property,      plant and equipment (Note 6):              |   |                |      |   |   |   |   |   |
| Plant      in service                                     |   |                | 5,980,297 |   |   |   | 5,509,992 |   |
| Construction      work in progress                        |   |                | 451,359   |   |   |   | 377,918 |   |
|                                                      |   |                | 6,431,656 |   |   |   | 5,887,910 |   |
| Less      accumulated depreciation and amortization       |   |                | (974,651  | ) |   |   | (785,623 | ) |
|  Net      property, plant and equipment              |   |                | 5,457,005 |   |   |   | 5,102,287 |   |
|                                                      |   |                |      |   |   |   |   |   |
| Deferred      charges:                                    |   |                |      |   |   |   |   |   |
| Regulatory      assets  (Note 8)                |   |                | 69,554    |   |   |   | 64,193 |   |
| Deferred      charges                                     |   |                | 59,958    |   |   |   | 60,468 |   |
|  Total      deferred charges                         |   |                | 129,512   |   |   |   | 124,661 |   |
|                                                      |   |                |      |   |   |   |   |   |
| Unconsolidated      investments  (Note 9)       |   |                | 1,259,270 |   |   |   | 1,240,420 |   |
|                                                      |   |                |      |   |   |   |   |   |
| Goodwill  (Note      7)                         |   |                | 89,227    |   |   |   | 89,227 |   |
|                                                      |   |                |      |   |   |   |   |   |
| Other                                                     |   |                | 30,537    |   |   |   | 32,994 |   |
|                                                      |   |                |      |   |   |   |   |   |
|                                                      |   |                |      |   |   |   |   |   |
|  Total      assets                                   |   | $                   | 7,997,907 |   |   | $ | 7,397,913 |   |

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Table of Contents

STOCKHOLDERS' EQUITY AND LIABILITIES

|                                                                            |   | December      31,   |      |
|---------------------------------------------------------------------------------|--------|---------------------|-----------|
|                                                                            |   | 2008                |      |   | 2007 |   |
|                                                                            |   | (In      thousands) |      |
| Stockholders’      equity (Note 10):                                      |   |                |      |   |   |   |
| Common      stock, $1 par value; 200,000 shares authorized;                     |   |                |      |   |   |   |
| 125,122  and      121,102 shares issued at December 31, 2008 and 2007 |   | $                   | 125,122   |   |   | $ | 121,102 |   |
| Preferred      stock, no par value; 6,000 shares authorized;                    |   |                |      |   |   |   |   |   |
| 460      and 920 shares issued at December 31, 2008 and 2007 (Note    12)       |   |                | 115,000   |   |   |   | 230,000 |   |
| Premium      on capital stock                                                   |   |                | 1,893,975 |   |   |   | 1,784,223 |   |
| Less      treasury stock: 1,120 and 1,063                                       |   |                |      |   |   |   |   |   |
| shares,      respectively, at cost                                              |   |                | (28,004   | ) |   |   | (27,839 | ) |
| Less      common stock held in trust: 663                                       |   |                |      |   |   |   |   |   |
| and      783 shares, respectively                                               |   |                | (11,908   | ) |   |   | (15,085 | ) |
| Deferred      compensation plans                                                |   |                | 11,908    |   |   |   | 15,148 |   |
| Accumulated      other comprehensive loss                                       |   |                | (51,423   | ) |   |   | (11,594 | ) |
| Retained      earnings                                                          |   |                | 313,282   |   |   |   | 109,851 |   |
| Total      stockholders' equity                                                 |   |                | 2,367,952 |   |   |   | 2,205,806 |   |
|                                                                            |   |                |      |   |   |   |   |   |
| Long-term      debt obligations  (Note 13)                            |   |                | 3,257,434 |   |   |   | 2,960,326 |   |
|                                                                            |   |                |      |   |   |   |   |   |
| Total      capitalization                                                       |   |                | 5,625,386 |   |   |   | 5,166,132 |   |
|                                                                            |   |                |      |   |   |   |   |   |
| Current      liabilities:                                                       |   |                |      |   |   |   |   |   |
| Long-term      debt due within one year  (Note 13)                    |   |                | 60,623    |   |   |   | 434,680 |   |
| Notes      payable (Note 13)                                                    |   |                | 401,459   |   |   |   | 123,000 |   |
| Accounts      payable and accrued liabilities                                   |   |                | 246,884   |   |   |   | 335,253 |   |
| Federal,      state and local taxes payable                                     |   |                | 54,027    |   |   |   | 35,461 |   |
| Accrued      interest                                                           |   |                | 41,141    |   |   |   | 45,911 |   |
| Gas      imbalances - payable                                                   |   |                | 341,987   |   |   |   | 272,850 |   |
| Derivative      financial instruments (Note 25)                                 |   |                | 77,554    |   |   |   | - |   |
| Other                                                                           |   |                | 128,190   |   |   |   | 76,558 |   |
| Total      current liabilities                                                  |   |                | 1,351,865 |   |   |   | 1,323,713 |   |
|                                                                            |   |                |      |   |   |   |   |   |
| Derivative      financial instruments (Note 25)                                 |   |                | 59,768    |   |   |   | 39,469 |   |
|                                                                            |   |                |      |   |   |   |   |   |
| Deferred      credits                                                           |   |                | 238,338   |   |   |   | 175,594 |   |
|                                                                            |   |                |      |   |   |   |   |   |
| Accumulated      deferred income taxes  (Note 15)                     |   |                | 722,550   |   |   |   | 693,005 |   |
|                                                                            |   |                |      |   |   |   |   |   |
| Commitments      and contingencies  (Note 18)                         |   |                |      |   |   |   |   |   |
|                                                                            |   |                |      |   |   |   |   |   |
| Total      stockholders' equity and liabilities                                 |   | $                   | 7,997,907 |   |   | $ | 7,397,913 |   |

----

Table of Contents

CONSOLIDATED STATEMENT OF CASH

|                                                                                |   | Years      Ended December 31, |     |
|-------------------------------------------------------------------------------------|--------|-------------------------------|----------|
|                                                                                |   | 2008                          |     |   | 2007 |   |   | 2006 |   |
|                                                                                |   | (In      thousands)           |     |
| Cash      flows provided by (used in) operating activities:                         |   |                          |     |   |   |   |   |   |   |
|    Net      earnings                                                 |   | $                             | 295,151  |   |   | $ | 228,711 |   |   | $ | 64,131 |   |
|    Adjustments      to reconcile net earnings to net cash flows      |   |                          |     |   |   |   |   |   |   |   |   |   |
| provided      by (used in) operating activities:                                    |   |                          |     |   |   |   |   |   |   |   |   |   |
| Depreciation      and amortization                                                  |   |                          | 199,249  |   |   |   | 177,999 |   |   |   | 154,601 |   |
| Amortization      of debt expense, net                                              |   |                          | 965      |   |   |   | 743 |   |   |   | 12,130 |   |
| Deferred      income taxes                                                          |   |                          | 83,066   |   |   |   | 71,147 |   |   |   | 225,843 |   |
| Provision      for bad debts                                                        |   |                          | 12,338   |   |   |   | 11,391 |   |   |   | 20,151 |   |
| Provision      for impairment of other assets                                       |   |                          | -        |   |   |   | 7,660 |   |   |   | 6,500 |   |
| Unrealized      (gain) loss on derivative                                           |   |                          | (57,821  | ) |   |   | 9 |   |   |   | (55,146 | ) |
| Loss      on sale of subsidiaries and other assets                                  |   |                          | -        |   |   |   | - |   |   |   | 56,815 |   |
| Non-cash      stock compensation                                                    |   |                          | 6,468    |   |   |   | 3,345 |   |   |   | 6,804 |   |
| Earnings      from unconsolidated investments, adjusted for cash      distributions |   |                          | 2,120    |   |   |   | 2,636 |   |   |   | (92,607 | ) |
| Other                                                                               |   |                          | 10,283   |   |   |   | 12,999 |   |   |   | (5,643 | ) |
| Changes      in operating assets and liabilities, net of acquisitions:              |   |                          |     |   |   |   |   |   |   |   |   |   |
| Accounts      receivable, billed and unbilled                                       |   |                          | 6,168    |   |   |   | (76,778 | ) |   |   | 147,450 |   |
| Accounts      payable and accrued liabilities                                       |   |                          | (48,416  | ) |   |   | (22,788 | ) |   |   | (67,021 | ) |
| Deferred      gas purchase costs                                                    |   |                          | 9,501    |   |   |   | (19,047 | ) |   |   | (35,906 | ) |
| Inventories                                                                         |   |                          | (67,786  | ) |   |   | 41,113 |   |   |   | (14,369 | ) |
| Deferred      charges and credits                                                   |   |                          | (16,806  | ) |   |   | (3,443 | ) |   |   | (37,459 | ) |
| Prepaids      and other assets                                                      |   |                          | 16,755   |   |   |   | 47,700 |   |   |   | 104,889 |   |
| Taxes      and other liabilities                                                    |   |                          | 35,592   |   |   |   | (12,989 | ) |   |   | (32,358 | ) |
| Net      cash flows provided by operating activities                                |   |                          | 486,827  |   |   |   | 470,408 |   |   |   | 458,805 |   |
| Cash      flows (used in) provided by investing activities:                         |   |                          |     |   |   |   |   |   |   |   |   |   |
| Additions      to property, plant and equipment                                     |   |                          | (588,611 | ) |   |   | (616,883 | ) |   |   | (347,896 | ) |
| Acquisitions      of operations, net of cash received                               |   |                          | -        |   |   |   | - |   |   |   | (1,537,627 | ) |
| Proceeds      (payments) from sale of subsidiaries                                  |   |                          | -        |   |   |   | (49,304 | ) |   |   | 1,076,714 |   |
| Plant      retirements and other                                                    |   |                          | 19,659   |   |   |   | (417 | ) |   |   | 2,005 |   |
| Net      cash flows used in investing activities                                    |   |                          | (568,952 | ) |   |   | (666,604 | ) |   |   | (806,804 | ) |
| Cash      flows provided by (used in) financing activities:                         |   |                          |     |   |   |   |   |   |   |   |   |   |
| Decrease      in book overdraft                                                     |   |                          | (19,932  | ) |   |   | (7,738 | ) |   |   | (4,941 | ) |
| Issuance      of long-term debt                                                     |   |                          | 403,820  |   |   |   | 755,000 |   |   |   | 1,065,000 |   |
| Issuance      costs of debt and equity                                              |   |                          | (4,073   | ) |   |   | (5,794 | ) |   |   | (10,590 | ) |
| Issuance      of common stock and equity units                                      |   |                          | 100,000  |   |   |   | - |   |   |   | 125,000 |   |
| Issuance      of Bridge Loan                                                        |   |                          | -        |   |   |   | - |   |   |   | 1,600,000 |   |
| Repayment      of Bridge Loan                                                       |   |                          | -        |   |   |   | - |   |   |   | (1,600,000 | ) |
| Dividends      paid on common and preferred stock                                   |   |                          | (88,164  | ) |   |   | (65,295 | ) |   |   | (51,695 | ) |
| Extinguishment      of preferred stock                                              |   |                          | (115,232 | ) |   |   | - |   |   |   | - |   |
| Repayment      of debt obligations                                                  |   |                          | (476,829 | ) |   |   | (508,406 | ) |   |   | (470,365 | ) |
| Net      (payments) borrowings under revolving credit facilities                    |   |                          | 278,459  |   |   |   | 23,000 |   |   |   | (320,000 | ) |
| Proceeds      from exercise of stock options                                        |   |                          | 4,009    |   |   |   | 3,718 |   |   |   | 9,216 |   |
| Other                                                                               |   |                          | (1,305   | ) |   |   | 1,650 |   |   |   | (4,813 | ) |
| Net      cash flows provided by financing activities                                |   |                          | 80,753   |   |   |   | 196,135 |   |   |   | 336,812 |   |
| Change      in cash and cash equivalents                                            |   |                          | (1,372   | ) |   |   | (61 | ) |   |   | (11,187 | ) |
| Cash      and cash equivalents at beginning of period                               |   |                          | 5,690    |   |   |   | 5,751 |   |   |   | 16,938 |   |
| Cash      and cash equivalents at end of period                                     |   | $                             | 4,318    |   |   | $ | 5,690 |   |   | $ | 5,751 |   |
|                                                                                |   |                          |     |   |   |   |   |   |   |   |   |   |
|                                                                                |   |                          |     |   |   |   |   |   |   |   |   |   |
| Cash      paid for interest, net of amounts capitalized                             |   | $                             | 221,152  |   |   | $ | 213,656 |   |   | $ | 204,573 |   |
| Cash      paid for income taxes, net of refunds                                     |   |                          | (4,001   | ) |   |   | 13,979 |   |   |   | 50,750 |   |

----

Table of Contents

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVEINCOME

|                                                                   | 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, 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                                                  |   |
|   Net      change in other                                   |                                                                                              |   |                                                                                                    |   |                                                                                                          |   |                                                                                              |   |                                                                                              |   |                                                                                  |   |                                                                                                                                                |   |                                                                                                                                              |   |                                                                                                                |   |
|       comprehensive      loss (Note 22), |                 - |   |                  - |   |                   - |   |                 - |   |                 - |   |               - |   |                39,328                                                    |   |                -                                                       |   |           39,328                                                  |   |
|   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                                                                                        |   |
| Comprehensive      income (loss):                                      |                                                                                              |   |                                                                                                    |   |                                                                                                          |   |                                                                                              |   |                                                                                              |   |                                                                                  |   |                                                                                                                                                |   |                                                                                                                                              |   |                                                                                                                |   |
|    Net      earnings                                    |  -                                                                                           |   |          -                                                                               |   |  -                                                                                                       |   |  -                                                                                           |   |          -                                                                         |   |         -                                                                   |   |          -                                                                                             |   |    228,711                                                                                                                         |   | 228,711                                                                                                             |   |
|    Net      change in other                             |                                                                                              |   |                                                                                                    |   |                                                                                                          |   |                                                                                              |   |                                                                                              |   |                                                                                  |   |                                                                                                                                                |   |                                                                                                                                              |   |                                                                                                                |   |
|       comprehensive      loss (Note 22), | -                                                                                                 |   |          -                                                                               |   | -                                                                                                             |   | -                                                                                                 |   |     -                                                                         |   |    -                                                                   |   |            (10,693)                                                                          |   |       -                                                                                                             |   | (10,693)                                                                                                            |   |
|    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                                                    |   |

----

Table of Contents

|                                                              | Common                                                                                                                    |   | Preferred                                                                                                                       |   | Premium                                                                                                                                                 |   |                                                                                                                |   | Common                                                                                                              |   | Deferred                                                                                                            |   | Accumulated                                                                                                                                                                                             |     |                                                                                                                            |     | Total                                                                                                                                             |
|-------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|---------------------------------------------------------------------------------------------------------------------------------|----------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                              | Stock,                                                                                                                    |   | Stock,                                                                                                                          |   | on                                                                                                                                                      |   | Treasury                                                                                                            |   | Stock                                                                                                               |   | Compen-                                                                                                             |   | Other                                                                                                                                                                                                   |     |                                                                                                                            |     | Stock-                                                                                                                                            |
|                                                              | $1      Par                                                                                                               |   | No      Par                                                                                                                     |   | Capital                                                                                                                                                 |   | Stock,                                                                                                              |   | Held                                                                                                                |   | sation                                                                                                              |   | Comprehensive                                                                                                                                                                                           | Retained |                                                                                                                            | holders' |
|                                                              | Value                                                                                                                     |   | Value                                                                                                                           |   | Stock                                                                                                                                                   |   | at      cost                                                                                                        |   | In      Trust                                                                                                       |   | Plans                                                                                                               |   | Income      (Loss)                                                                                                                                                                                      |     | Earnings                                                                                                                        |     | Equity                                                                                                                                            |
|                                                              | (In      thousands)                                                                                                       |
|                                                              |                                                                                                                      |   |                                                                                                                            |   |                                                                                                                                                    |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                                                                                                    |     |                                                                                                                            |     |                                                                                                                                              |
| Balance      December 31, 2007                                    |  $    121,102                                                                                    |   |  $  230,000                                                                                                      |   |  $    1,784,223                                                                                                                |   |  $      (27,839)                                                                                               |   |  $  (15,085)                                                                                         |   |  $     15,148                                                                         |   |  $                 (11,594)                                                                                   |     |  $    109,851                                                                                          |     |  $  2,205,806                                                                                                                      |
| Comprehensive      income (loss):                                 |                                                                                                                      |   |                                                                                                                            |   |                                                                                                                                                    |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                                                                                                    |     |                                                                                                                            |     |                                                                                                                                              |
|    Net      earnings                               |                     - |   |                      - |   |                          - |   |                    - |   |                    - |   |                    - |   |                                  - |     |         295,151                                                                         |     |             295,151                                                                   |
|    Net      change in other                        |                                                                                                                      |   |                                                                                                                            |   |                                                                                                                                                    |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                                                                                                    |     |                                                                                                                            |     |                                                                                                                                              |
|      comprehensive      loss (Note 22),  |                     - |   |                      - |   |                          - |   |                    - |   |                    - |   |                    - |   |                    (40,920)                                                                              |     |                      - |     |           (40,920)                                                                              |
|    Comprehensive      income                       |                     - |   |                      - |   |                          - |   |                    - |   |                    - |   |                    - |   |                                  - |     |                      - |     |            254,231                                                                         |
|    Effect      of changing plan meas-              |                                                                                                                      |   |                                                                                                                            |   |                                                                                                                                                    |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                                                                                                    |     |                                                                                                                            |     |                                                                                                                                              |
|       urement      date pursuant to |                                                                                                                      |   |                                                                                                                            |   |                                                                                                                                                    |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                                                                                                    |     |                                                                                                                            |     |                                                                                                                                              |
|    Adoption      of FASB Statement                 |                                                                                                                      |   |                                                                                                                            |   |                                                                                                                                                    |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                                                                                                    |     |                                                                                                                            |     |                                                                                                                                              |
|       No.      158 Measurement Date |                                                                                                                      |   |                                                                                                                            |   |                                                                                                                                                    |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                                                                                                    |     |                                                                                                                            |     |                                                                                                                                              |
|       Provisions      (Note 14)     |                     - |   |                      - |   |                          - |   |                    - |   |                    - |   |                    - |   |                           1,091                                       |     |           (1,597)                                                             |     |                 (506)                                             |
|    Preferred      stock dividends                  |                     - |   |                      - |   |                          - |   |                    - |   |                    - |   |                    - |   |                                  - |     |          (12,212)                                                                  |     |             (12,212)                                                                  |
|    Cash      dividends declared                    |                     - |   |                      - |   |                          - |   |                    - |   |                    - |   |                    - |   |                                  - |     |        (74,384)                                                                              |     |           (74,384)                                                                              |
|    Issuance      of common stock -                 |                                                                                                                      |   |                                                                                                                            |   |                                                                                                                                                    |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                                                                                                    |     |                                                                                                                            |     |                                                                                                                                              |
|      remarketing      obligation         |                                                                                                                      |   |                                                                                                                            |   |                                                                                                                                                    |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                                                                                                    |     |                                                                                                                            |     |                                                                                                                                              |
|      (Note      13)                      |           3,693                                                         |   |                      - |   |              96,307                                                                    |   |                    - |   |                    - |   |                    - |   |                                  - |     |                      - |     |            100,000                                                                         |
|   Share-based      compensation                         |                     - |   |                      - |   |                6,468                                                         |   |                    - |   |                    - |   |                    - |   |                                  - |     |                      - |     |                6,468                                                   |
|   Restricted      stock issuances                       |                 90                        |   |                      - |   |                    (90)                                  |   |             (165)                                       |   |                    - |   |                    - |   |                                  - |     |                      - |     |                  (165)                                       |
|   Exercise      of stock options                        |               237                                   |   |                      - |   |                3,772                                                         |   |                    - |   |                    - |   |                    - |   |                                  - |     |                      - |     |                4,009                                                   |
|   Extinguishment      of preferred                      |                                                                                                                      |   |                                                                                                                            |   |                                                                                                                                                    |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                |   |                                                                                                                                                                                                    |     |                                                                                                                            |     |                                                                                                                                              |
|      stock      (Note 12)                |                     - |   |       (115,000)                                                                                   |   |                3,295                                                         |   |                    - |   |                    - |   |                    - |   |                                  - |     |          (3,527)                                                                   |     |           (115,232)                                                                             |
|   Contributions      to Trust                           |                     - |   |                      - |   |                          - |   |                    - |   |         (1,096)                                                             |   |           1,096                                                   |   |                                  - |     |                      - |     |                         - |
|   Disbursements      from Trust                         |                     - |   |                      - |   |                          - |   |                    - |   |          4,273                                                         |   |        (4,336)                                                                   |   |                                  - |     |                      - |     |                    (63)                            |
| Balance      December 31, 2008                                    |  $   125,122                                                                                          |   |  $    115,000                                                                                          |   |  $    1,893,975                                                                                                                |   |  $      (28,004)                                                                                               |   |  $   (11,908)                                                                                   |   |  $     11,908                                                                         |   |  $                (51,423)                                                                                         |     |  $   313,282                                                                                                |     |  $  2,367,952                                                                                                                      |

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1.  Corporate Structure

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|                                                                             |   | Years      Ended December 31, |    |
|----------------------------------------------------------------------------------|--------|-------------------------------|---------|
|                                                                             |   | 2008                          |    |   | 2007 |   |   | 2006 |   |
|                                                                             |   | (In      thousands)           |    |
| Beginning      balance                                                           |   | $                             | 4,144   |   |   | $ | 4,830 |   |   | $ | 15,893 |   |
| Additions:      charged to cost and    expenses     (1) |   |                          | 12,338  |   |   |   | 11,391 |   |   |   | 9,646 |   |
| Deductions:      write-off of uncollectible accounts                             |   |                          | (10,560 | ) |   |   | (12,657 | ) |   |   | (9,756 | ) |
| Balance      related to discontinued operations (2)                              |   |                          | -       |   |   |   | - |   |   |   | (10,968 | ) |
| Other                                                                            |   |                          | 81      |   |   |   | 580 |   |   |   | 15 |   |
| Ending      balance                                                              |   | $                             | 6,003   |   |   | $ | 4,144 |   |   | $ | 4,830 |   |

| (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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|                                                |   | Transportation      & Storage |    |   | Gathering      & Processing |   |   | Distribution |   |   | Total   |   |
|-----------------------------------------------------|--------|-----------------------------------|---------|--------|---------------------------------|--------|--------|--------------|--------|--------|---------|--------|
| At      December 31, 2008                           |   |  (In      thousands)         |    |
| Current                                             |   |                              |    |   |                            |   |   |         |   |   |    |   |
| Natural      gas held for operations  (1) |   | $                                 | 182,547 |   |                            | $      | -      |         |   | $      | -       |   |   | $ | 182,547 |   |
| Materials      and Supplies                         |   |                              | 14,056  |   |                            |   | 9,278  |         |   |   | 4,488   |   |   |   | 27,822 |   |
| NGL      (2)                                        |   |                              | -       |   |                            |   | 8,521  |         |   |   | -       |   |   |   | 8,521 |   |
| Natural      gas in underground storage (3)         |   |                              | -       |   |                            |   | -      |         |   |   | 118,968 |   |   |   | 118,968 |   |
|    Total      Current                |   |                              | 196,603 |   |                            |   | 17,799 |         |   |   | 123,456 |   |   |   | 337,858 |   |
|                                                |   |                              |    |   |                            |   |   |         |   |   |    |   |   |   |   |   |
| Non-Current                                         |   |                              |    |   |                            |   |   |         |   |   |    |   |   |   |   |   |
| Natural      gas held for operations  (1) |   |                              | 17,687  |   |                            |   | -      |         |   |   | -       |   |   |   | 17,687 |   |
|                                                |   |                              |    |   |                            |   |   |         |   |   |    |   |   |   |   |   |
|                                                |   | $                                 | 214,290 |   |                            | $      | 17,799 |         |   | $      | 123,456 |   |   | $ | 355,545 |   |
|                                                |   |                              |    |   |                            |   |   |         |   |   |    |   |   |   |   |   |
|                                                |   |                              |    |   |                            |   |   |         |   |   |    |   |   |   |   |   |
| At      December 31, 2007                           |   |                              |    |   |                            |   |   |         |   |   |    |   |   |   |   |   |
| Current                                             |   |                              |    |   |                            |   |   |         |   |   |    |   |   |   |   |   |
| Natural      gas held for operations (1)            |   | $                                 | 168,010 |   |                            | $      | -      |         |   | $      | -       |   |   | $ | 168,010 |   |
| Materials      and Supplies                         |   |                              | 12,791  |   |                            |   | 6,176  |         |   |   | 3,822   |   |   |   | 22,789 |   |
| Natural      gas in underground storage (3)         |   |                              | -       |   |                            |   | -      |         |   |   | 72,819  |   |   |   | 72,819 |   |
|    Total      Current                |   |                              | 180,801 |   |                            |   | 6,176  |         |   |   | 76,641  |   |   |   | 263,618 |   |
|                                                |   |                              |    |   |                            |   |   |         |   |   |    |   |   |   |   |   |
| Non-Current                                         |   |                              |    |   |                            |   |   |         |   |   |    |   |   |   |   |   |
| Natural      gas held for operations (1)            |   |                              | 18,947  |   |                            |   | -      |         |   |   | -       |   |   |   | 18,947 |   |
|                                                |   |                              |    |   |                            |   |   |         |   |   |    |   |   |   |   |   |
|                                                |   | $                                 | 199,748 |   |                            | $      | 6,176  |         |   | $      | 76,641  |   |   | $ | 282,565 |   |

| (1)   | Natural      gas volumes held for operations at December 31, 2008 and December 31, 2007      were 31,751,000 MMBtu and 26,001,000 MMBtu,  respectively. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | NGL      at December 31, 2008 and December 31, 2007 was 20,453,000 gallons and nil,      respectively. |
|-----------------|--------------------------------------------------------------------------------------------------------|

| (3)   | Natural      gas volumes in underground storage at December 31, 2008 and December 31,      2007 were 12,702,000 MMBtu and 11,823,000 MMBtu,    respectively. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | Level      1 – Observable inputs such as quoted prices in active markets for      identical assets or liabilities; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------|

| ·   | Level      2 – Observable inputs such as: (i) quoted prices for similar assets or      liabilities in active markets; (ii) quoted prices for identical or similar      assets or liabilities in markets that are not active and do not require      significant adjustment based on unobservable inputs; or (iii) valuations      based on pricing models, discounted cash flow methodologies or similar      techniques where significant inputs (e.g., interest rates, yield curves,      etc.) are derived principally from observable market data, or can be      corroborated by observable market data, for substantially the full term of      the assets or liabilities; and |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | Level      3 – Unobservable inputs, including valuations based on pricing models,      discounted cash flow methodologies or similar techniques where at least      one significant model assumption or input is      unobservable.  Unobservable inputs are used to the extent that      observable inputs are not available and reflect the Company’s own      assumptions about the assumptions market participants would use in pricing      the assets or liabilities.  Unobservable inputs are based on the      best information available in the circumstances, which might include the      Company’s own data. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                                |   | Years      Ended December 31,                 |    |
|-----------------------------------------------------|--------|-----------------------------------------------|---------|
|                                                |   | 2008                                          |    |   | 2007 |   |   | 2006 |   |
|                                                |   | (In      thousands, except per share amounts) |    |
|                                                |   |                                          |    |   |   |   |   |   |   |
| Net      earnings from continuing operations        |   | $                                             | 295,151 |   |   | $ | 228,711 |   |   | $ | 217,083 |   |
| Loss      from discontinued operations              |   |                                          | -       |   |   |   | - |   |   |   | (152,952 | ) |
| Preferred      stock dividends                      |   |                                          | (12,212 | ) |   |   | (17,365 | ) |   |   | (17,365 | ) |
| Loss      on extinguishment of preferred stock      |   |                                          | (3,527  | ) |   |   | - |   |   |   | - |   |
| Net      earnings available for common stockholders |   | $                                             | 279,412 |   |   | $ | 211,346 |   |   | $ | 46,766 |   |
|                                                |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Weighted      average shares outstanding - Basic    |   |                                          | 123,446 |   |   |   | 119,930 |   |   |   | 114,787 |   |
| Weighted      average shares outstanding - Diluted  |   |                                          | 123,644 |   |   |   | 120,674 |   |   |   | 117,344 |   |
|                                                |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Basic      earnings per share:                      |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Net      earnings available for common stockholders |   |                                          |    |   |   |   |   |   |   |   |   |   |
| from      continuing operations                     |   | $                                             | 2.26    |   |   | $ | 1.76 |   |   | $ | 1.74 |   |
| Loss      from discontinued operations              |   |                                          | -       |   |   |   | - |   |   |   | (1.33 | ) |
| Net      earnings available for common stockholders |   | $                                             | 2.26    |   |   | $ | 1.76 |   |   | $ | 0.41 |   |
|                                                |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Diluted      earnings per share:                    |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Net      earnings available for common              |   |                                          |    |   |   |   |   |   |   |   |   |   |
| stockholders      from continuing operations        |   | $                                             | 2.26    |   |   | $ | 1.75 |   |   | $ | 1.70 |   |
| Loss      from discontinued operations              |   |                                          | -       |   |   |   | - |   |   |   | (1.30 | ) |
| Net      earnings available for common stockholders |   | $                                             | 2.26    |   |   | $ | 1.75 |   |   | $ | 0.40 |   |

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|                                               |   | Years      Ended December 31, |    |
|----------------------------------------------------|--------|-------------------------------|---------|
|                                               |   | 2008                          |    |   | 2007 |   |   | 2006 |   |
|                                               |   | (In      thousands)           |    |
|                                               |   |                          |    |   |   |   |   |   |   |
| Weighted      average shares outstanding - Basic   |   |                          | 123,446 |   |   |   | 119,930 |   |   |   | 114,787 |   |
| Add      assumed vesting of restricted stock       |   |                          | 10      |   |   |   | 35 |   |   |   | 35 |   |
| Add      assumed conversion of equity units        |   |                          | -       |   |   |   | 248 |   |   |   | 2,021 |   |
| Add      assumed exercise of stock options         |   |                          |    |   |   |   |   |   |   |   |   |   |
| and      SARs                                      |   |                          | 188     |   |   |   | 461 |   |   |   | 501 |   |
| Weighted      average shares outstanding - Diluted |   |                          | 123,644 |   |   |   | 120,674 |   |   |   | 117,344 |   |

|                                            |   | December      31,                             |                 |
|-------------------------------------------------|--------|-----------------------------------------------|----------------------|
|                                            |   | 2008                                          |                 |   | 2007 |   |   | 2006 |   |
|                                            |   | (In      thousands, except per share amounts) |                 |
|                                            |   |                                          |                 |   |   |   |   |   |   |
| Options      excluded                           |   |                                          | 1,127                |   |   |   | - |   |   |   | - |   |
| Exercise      price ranges of options excluded  |   |                                          | $23.62      - $28.48 |   |   |   | N/A |   |   |   | N/A |   |
| SARs      excluded                              |   |                                          | 416                  |   |   |   | - |   |   |   | - |   |
| Exercise      price ranges of SARs excluded     |   |                                          | $28.07      - $28.48 |   |   |   | N/A |   |   |   | N/A |   |
| Year-to-date      weighted-average market price |   |                                          | $22.85               |   |   |   | $30.58 |   |   |   | $25.99 |   |

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|                                                        |   |                    |   |   |                |   |      |          |   |
|-------------------------------------------------------------|--------|-------------------------|--------|--------|---------------------|--------|-----------|---------------|--------|
|                                                        |   |                    |   |   | December      31,   |   |
| Property,      Plant and Equipment                          |   | Lives      in Years (1) |   |   | 2008 (2)       |   |      | 2007 (2) |   |
|                                                        |   |                    |   |   | (In      thousands) |   |
| Regulated      Operations:                                  |   |                    |   |   |                |   |      |          |   |
|     Distribution      plant             |   |                    | 25-60  |   |                | $      | 945,132   |          |   | $ | 912,519 |   |
|     Gathering      and processing plant |   |                    | 26     |   |                |   | 110,246   |          |   |   | 111,542 |   |
|     Transmission      plant             |   |                    | 36-46  |   |                |   | 2,088,018 |          |   |   | 1,770,742 |   |
|     General      - LNG                  |   |                    | 20-40  |   |                |   | 624,883   |          |   |   | 624,250 |   |
|     Underground      storage plant      |   |                    | 36-46  |   |                |   | 307,401   |          |   |   | 290,753 |   |
|     General      plant and other        |   |                    | 1-50   |   |                |   | 257,456   |          |   |   | 201,387 |   |
|     Construction      work in progress  |   |                    |   |   |                |   | 409,973   |          |   |   | 359,867 |   |
|                                                        |   |                    |   |   |                |   | 4,743,109 |          |   |   | 4,271,060 |   |
| Less      accumulated depreciation and amortization         |   |                    |   |   |                |   | 803,091   |          |   |   | 673,952 |   |
|                                                        |   |                    |   |   |                |   | 3,940,018 |          |   |   | 3,597,108 |   |
|                                                        |   |                    |   |   |                |   |      |          |   |   |   |   |
| Non-regulated      Operations:                              |   |                    |   |   |                |   |      |          |   |   |   |   |
|   Distribution      plant                         |   |                    | 25-75  |   |                |   | 17,846    |          |   |   | 17,830 |   |
|   Gathering      and processing plant             |   |                    | 1-50   |   |                |   | 1,617,734 |          |   |   | 1,567,411 |   |
|   General      plant and other                    |   |                    | 3-15   |   |                |   | 11,581    |          |   |   | 13,558 |   |
|   Construction      work in progress              |   |                    |   |   |                |   | 41,386    |          |   |   | 18,051 |   |
|                                                        |   |                    |   |   |                |   | 1,688,547 |          |   |   | 1,616,850 |   |
| Less      accumulated depreciation and amortization         |   |                    |   |   |                |   | 171,560   |          |   |   | 111,671 |   |
|                                                        |   |                    |   |   |                |   | 1,516,987 |          |   |   | 1,505,179 |   |
|                                                        |   |                    |   |   |                |   |      |          |   |   |   |   |
| Net      property, plant and equipment                      |   |                    |   |   |                | $      | 5,457,005 |          |   | $ | 5,102,287 |   |

| (1)   | The      composite weighted-average depreciation rates for the years ended December      31, 2008, 2007 and 2006 were 3.5 percent, 3.4 percent and 3.0 percent,      respectively. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Includes      capitalized computerized software costtotaling: |
|-----------------|---------------------------------------------------------------|

| Unamortized      computer software cost      |   | $      | 116,010 |   |   | $      | 109,167 |   |
|----------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|
| Less      accumulated amortization           |   |   | 57,020  |   |   |   | 45,824  |   |
| Net      capitalized computer software costs |   | $      | 58,990  |   |   | $      | 63,343  |   |

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| Goodwill      Analysis               |   | Amounts           |     |
|--------------------------------------|--------|-------------------|----------|
|                                 |   | (In    thousands) |     |
|                                 |   |              |     |
| 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   |   |
| Impairment      losses               |   |              | -        |   |
| Balance      as of December 31, 2008 |   | $                 | 89,227   |   |

|                                                 |   | December      31,   |   |
|------------------------------------------------------|--------|---------------------|--------|
| Regulatory      Assets                               |   | 2008                |   |   | 2007 |   |
|                                                 |   | (In      thousands) |   |
|                                                 |   |                |   |   |   |   |
|   Pension      and Postretirement Benefits |   | $                   | 27,496 |   |   | $ | 32,889 |   |
|   Environmental                            |   |                | 34,971 |   |   |   | 21,782 |   |
|   Missouri      Safety Program             |   |                | 3,309  |   |   |   | 5,546 |   |
|   Other                                    |   |                | 3,778  |   |   |   | 3,976 |   |
|                                                 |   | $                   | 69,554 |   |   | $ | 64,193 |   |

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|                            |   | December      31,   |      |
|---------------------------------|--------|---------------------|-----------|
| Unconsolidated      Investments |   | 2008                |      |   | 2007 |   |
|                            |   | (In      thousands) |      |
| Equity      investments:        |   |                |      |   |   |   |
| Citrus                          |   | $                   | 1,238,198 |   |   | $ | 1,219,009 |   |
| Other                           |   |                | 21,072    |   |   |   | 21,411 |   |
|                            |   | $                   | 1,259,270 |   |   | $ | 1,240,420 |   |

|                                     |   | At      December 31, |      |
|------------------------------------------|--------|----------------------|-----------|
|                                     |   | 2008                 |      |   | 2007 |   |
|                                     |   |                 |      |   | Other      Equity |   |   |   |   |   | Other      Equity |   |
|                                     |   | Citrus               |      |   | Investments |   |   | Citrus |   |   | Investments |   |
|                                     |   | (In      thousands)  |      |
| Balance      Sheet Data:                 |   |                 |      |   |   |   |   |   |   |   |   |   |
|   Current      assets          |   | $                    | 78,624    |   |   | $ | 7,813 |   |   | $ | 59,644 |   |   | $ | 7,324 |   |
|   Non-current      assets      |   |                 | 3,459,281 |   |   |   | 43,525 |   |   |   | 3,049,214 |   |   |   | 38,008 |   |
|   Current      liabilities     |   |                 | 162,342   |   |   |   | 7,716 |   |   |   | 208,508 |   |   |   | 1,040 |   |
|   Non-current      liabilities |   |                 | 2,154,550 |   |   |   | 272 |   |   |   | 1,697,218 |   |   |   | 1,792 |   |

|                                     |                | Years      Ended December 31, |    |
|------------------------------------------|---------------------|-------------------------------|---------|
|                                     |                | 2008                          |    |   | 2007 |   |   | 2006 |   |
|                                     |                |                          |    |   | Other      Equity |   |   |   |   |   | Other      Equity |   |   | CCE |   |   |   |   |   | Other      Equity |   |
|                                     |                | Citrus                        |    |   | Investments |   |   | Citrus |   |   | Investments |   |   | Holdings      (1) |   |   | Citrus      (4) |   |   | Investments |   |
|                                     | (In      thousands) |                          |
| Statement      of Operations Data:       |                |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                 |                | $                             | 504,819 |   |   | $ | 14,291 |   |   | $ | 495,513 |   |   | $ | 13,061 |   |   | $ | - |   |   | $ | 37,598 |   |   | $ | 5,386 |   |
| Operating      income (loss)             |                |                          | 275,245 |   |   |   | 3,019 |   |   |   | 283,203 |   |   |   | 4,424 |   |   |   | (5,729) |   |   |   | 21,201 |   |   |   | 1,157 |   |
| Equity      earnings                     |                |                          | -       |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 70,086 | (2 | ) |   | - |   |   |   | - |   |
| Interest      expense                    |                |                          | 82,830  |   |   |   | 67 |   |   |   | 73,871 |   |   |   | 127 |   |   |   | 25,445 |   |   |   | 7,109 |   |   |   | 146 |   |
| Earnings      from                       |                |                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   discontinued      operations |                |                          | -       |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 156,612 | (3 | ) |   | - |   |   |   | - |   |
| Net      earnings                        |                |                          | 126,942 |   |   |   | 1,850 |   |   |   | 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 |   |                       | 47,672  |   |                     |            |   |   |
| Net      investment in excess of underlying equity |   | $                          | 629,016 |   |                     |            |   |   |

| (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 “CCE Holdings’ Goodwill”      discussion for additional relatedinformation. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Shareholder             |   | Date                  |   | Amount         |   |   | Amount              |   |
|-------------------------|--------|-----------------------|--------|----------------|--------|--------|---------------------|--------|
| Record      Date        |   | Paid                  |   | Per      Share |   |   | Paid                |   |
|                    |   |                  |   |           |   |   | (In      thousands) |   |
|                    |   |                  |   |           |   |   |                |   |
| December      26, 2008  |   | January      9, 2009  |   | $              | 0.15   |   |                | $      | 18,600 |   |
| September      26, 2008 |   | October      10, 2008 |   |           | 0.15   |   |                |   | 18,597 |   |
| June      27, 2008      |   | July      11, 2008    |   |           | 0.15   |   |                |   | 18,595 |   |
| March      28, 2008     |   | April      11, 2008   |   |           | 0.15   |   |                |   | 18,592 |   |
|                    |   |                  |   |           |   |   |                |   |   |   |
| 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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| ·   | Processing      plant outages; |
|--------------------|--------------------------------|

| ·   | Higher      than anticipated fuel, flare and unaccounted-for natural gas      levels; |
|--------------------|---------------------------------------------------------------------------------------|

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

| ·   | Decline      in drilling and/or connections of newsupply; |
|--------------------|-----------------------------------------------------------|

| ·   | Reduction      in available NGL take-awaycapacity; |
|--------------------|----------------------------------------------------|

| ·   | Reduction      in NGL available from wellheadsupply; |
|--------------------|------------------------------------------------------|

| ·   | Lower      than expected recovery of NGL from the inlet gas stream;    and |
|--------------------|----------------------------------------------------------------------------|

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

|                                                                             |   | Years      Ended December 31, |   |
|----------------------------------------------------------------------------------|--------|-------------------------------|--------|
|                                                                             |   | 2008                          |   |   | 2007 |   |   | 2006 |   |
|                                                                             |   | (In      thousands)           |   |
|                                                                             |   |                          |   |   |   |   |   |   |   |
| Change      in fair value of commodity hedges - (increase)                       |   |                          |   |   |   |   |   |   |   |
| decrease      in Accumulated other      comprehensive loss,                      |   |                          |   |   |   |   |   |   |   |
| excluding      tax expense effect of $13,549, $(775) and $7,556,    respectively |   | $                             | 37,594 |   |   | $ | (2,054 | ) |   | $ | 19,826 |   |
| Reclassification      of unrealized gain on                                      |   |                          |   |   |   |   |   |   |   |   |   |   |
| commodity      hedges - increase of Operating      revenues,                     |   |                          |   |   |   |   |   |   |   |   |   |   |
| excluding      tax expense effect of $2,466, $2,425 and $4,266,    respectively  |   |                          | 6,841  |   |   |   | 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                             |   |                          | 6,841  |   |   |   | 35,374 |   |   |   | 74,214 |   |

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|                                          |   | December      31, 2008 |      |   | December      31, 2007 |   |
|-----------------------------------------------|--------|------------------------|-----------|--------|------------------------|--------|
|                                          |   | Carrying      Value    |      |   | Fair      Value        |   |   | Carrying      Value |   |   | Fair      Value |   |
|                                          |   | (In      thousands)    |      |
| Long-Term      Debt Obligations:              |   |                   |      |   |                   |   |   |   |   |   |   |   |
|                                          |   |                   |      |   |                   |   |   |   |   |   |   |   |
| Southern      Union                           |   |                   |      |   |                   |   |   |   |   |   |   |   |
| 7.60%      Senior Notes due 2024              |   | $                      | 359,765   |   |                   | $      | 272,165 |   |   | $ | 359,765 |   |   | $ | 378,473 |   |
| 8.25%      Senior Notes due 2029              |   |                   | 300,000   |   |                   |   | 229,470 |   |   |   | 300,000 |   |   |   | 336,090 |   |
| 7.24%      to 9.44% First Mortgage Bonds      |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| due      2020 to 2027                         |   |                   | 19,500    |   |                   |   | 16,248 |   |   |   | 19,500 |   |   |   | 19,500 |   |
| 4.375%      Senior Notes due 2008             |   |                   | -         |   |                   |   | - |   |   |   | 100,000 |   |   |   | 100,000 |   |
| 6.15%      Senior Notes due 2008              |   |                   | -         |   |                   |   | - |   |   |   | 125,000 |   |   |   | 124,538 |   |
| 6.089%      Senior Notes due 2010             |   |                   | 100,000   |   |                   |   | 92,701 |   |   |   | - |   |   |   | - |   |
| 7.20%      Junior Subordinated Notes due 2066 |   |                   | 600,000   |   |                   |   | 215,999 |   |   |   | 600,000 |   |   |   | 590,280 |   |
| Note      Payable                             |   |                   | 3,820     |   |                   |   | 3,820 |   |   |   | - |   |   |   | - |   |
|                                          |   |                   | 1,383,085 |   |                   |   | 830,403 |   |   |   | 1,504,265 |   |   |   | 1,548,881 |   |
|                                          |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Panhandle                                     |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| 4.80%      Senior Notes due 2008              |   |                   | -         |   |                   |   | - |   |   |   | 300,000 |   |   |   | 298,140 |   |
| 6.05%      Senior Notes due 2013              |   |                   | 250,000   |   |                   |   | 211,646 |   |   |   | 250,000 |   |   |   | 252,650 |   |
| 6.20%      Senior Notes due 2017              |   |                   | 300,000   |   |                   |   | 230,956 |   |   |   | 300,000 |   |   |   | 297,240 |   |
| 6.50%      Senior Notes due 2009              |   |                   | 60,623    |   |                   |   | 59,604 |   |   |   | 60,623 |   |   |   | 62,132 |   |
| 8.25%      Senior Notes due 2010              |   |                   | 40,500    |   |                   |   | 39,668 |   |   |   | 40,500 |   |   |   | 43,396 |   |
| 7.00%      Senior Notes due 2029              |   |                   | 66,305    |   |                   |   | 46,158 |   |   |   | 66,305 |   |   |   | 65,198 |   |
| 7.00%      Senior Notes due 2018              |   |                   | 400,000   |   |                   |   | 318,033 |   |   |   | - |   |   |   | - |   |
| Term      Loans due 2012                      |   |                   | 815,391   |   |                   |   | 753,262 |   |   |   | 867,220 |   |   |   | 867,220 |   |
| Net      premiums on long-term debt           |   |                   | 2,153     |   |                   |   | 2,153 |   |   |   | 6,093 |   |   |   | 6,093 |   |
|                                          |   |                   | 1,934,972 |   |                   |   | 1,661,480 |   |   |   | 1,890,741 |   |   |   | 1,892,069 |   |
|                                          |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Total      Long-Term Debt Obligations         |   |                   | 3,318,057 |   |                   |   | 2,491,883 |   |   |   | 3,395,006 |   |   |   | 3,440,950 |   |
|                                          |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Credit      Facilities                        |   |                   | 251,459   |   |                   |   | 243,205 |   |   |   | 123,000 |   |   |   | 123,000 |   |
| Short-Term      Facility                      |   |                   | 150,000   |   |                   |   | 148,496 |   |   |   | - |   |   |   | - |   |
|                                          |   |                   |      |   |                   |   |   |   |   |   |   |   |   |   |   |   |
| Total      consolidated debt obligations      |   |                   | 3,719,516 |   |                   | $      | 2,883,584 |   |   |   | 3,518,006 |   |   | $ | 3,563,950 |   |
| Less      current portion of long-term debt   |   |                   | 60,623    |   |                   |   |   |   |   |   | 434,680 |   |   |   |   |   |
| Less      short-term debt                     |   |                   | 401,459   |   |                   |   |   |   |   |   | 123,000 |   |   |   |   |   |
| Total      long-term debt                     |   | $                      | 3,257,434 |   |                   |   |   |   |   | $ | 2,960,326 |   |   |   |   |   |

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|                        |   |                |   |   |   |   |    |   |   |   |   |   |   |   |    |   | 2014      and |   |
|-----------------------------|--------|---------------------|--------|--------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|---------|--------|---------------|--------|
|                        |   | 2009                |   |   | 2010   |   |    | 2011   |   |   | 2012   |   |   | 2013   |    |   | thereafter    |   |
|                        |   | (In      thousands) |   |
|                        |   |                |   |   |   |   |    |   |   |   |   |   |   |   |    |   |          |   |
| Southern      Union Company |   | $                   | -      |   |   | $      | 101,178 |   |   | $      | 991    |   |   | $      | 964     |   |          | $      | 687 |   |   | $ | 1,279,265 |   |
| Panhandle                   |   |                | 60,623 |   |   |   | 40,500  |   |   |   | -      |   |   |   | 815,391 |   |          |   | 250,000 |   |   |   | 766,305 |   |
|                        |   |                |   |   |   |   |    |   |   |   |   |   |   |   |    |   |          |   |   |   |   |   |   |   |
| Total                       |   | $                   | 60,623 |   |   | $      | 141,678 |   |   | $      | 991    |   |   | $      | 816,355 |   |          | $      | 250,687 |   |   | $ | 2,045,570 |   |

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|   | (a)   | Under      the Company’s Revolver, the consolidated debt to total capitalization      ratio, as defined therein, cannot exceed 65 percent;                                                                                                                                                   |
|--------|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (b)   | Under      the Company’s Revolver, 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; and |
|   | (d)   | All      of the Company’s major borrowing agreements contain cross-defaults if the      Company defaults on an agreement involving at least $2 million of      principal.                                                                                                                    |

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|                                                                               |   |                |   |   | Other          |   |   |   |   |
|------------------------------------------------------------------------------------|--------|---------------------|--------|--------|----------------|--------|--------|--------|--------|
| Balance      Sheet Impact of FASB Statement No. 158                                |   | Pension             |   |   | Postretirement |   |   |   |   |
| Measurement      Date Provisions                                                   |   | Plans               |   |   | Plans          |   |   | Total  |   |
|                                                                               |   | (In      thousands) |   |
|                                                                               |   |                |   |   |           |   |   |   |   |
| Decrease      Retained      earnings, net of tax of $799 and $88, respectively     |   | $                   | 1,323  |   |           | $      | 274    |   |   | $ | 1,597 |   |
| (Decrease)      increase Accumulated      other comprehensive loss, net of tax     |   |                |   |   |           |   |   |   |   |   |   |   |
|    of      $(698) and $22, respectively                             |   |                | (1,157 | )      |           |   | 66     |   |   |   | (1,091 | ) |
| Increase      pension liabilities - noncurrent (included in Deferred      credits) |   |                | (267   | )      |           |   | (450   | )      |   |   | (717 | ) |
| Decrease      Accumulated deferred      income taxes                               |   |                | 101    |   |           |   | 110    |   |   |   | 211 |   |

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|                                                                |   |                     |    |   |                            |   |    | Other  |   |
|---------------------------------------------------------------------|--------|--------------------------|---------|--------|---------------------------------|--------|---------|--------|--------|
|                                                                |   | Pension      Benefits At |    |   | Postretirement      Benefits At |   |
|                                                                |   | December      31,        |    |   | December      31,               |   |
|                                                                |   | 2008                     |    |   | 2007                            |   |    | 2008   |   |   | 2007 |   |
|                                                                |   | (In      thousands)      |    |
| Change      in benefit obligation:                                  |   |                     |    |   |                            |   |    |   |   |   |   |   |
| Benefit      obligation at beginning of period                      |   | $                        | 162,824 |   |                            | $      | 162,955 |   |   | $ | 76,273 |   |   | $ | 74,082 |   |
| Service      cost                                                   |   |                     | 3,245   |   |                            |   | 2,715   |   |   |   | 2,664 |   |   |   | 1,788 |   |
| Interest      cost                                                  |   |                     | 12,466  |   |                            |   | 9,388   |   |   |   | 5,938 |   |   |   | 4,053 |   |
| Benefits      paid, net                                             |   |                     | (13,325 | )      |                            |   | (9,900  | )      |   |   | (2,899 | ) |   |   | (2,893 | ) |
| Medicare      Part D subsidy receipts                               |   |                     | -       |   |                            |   | -       |   |   |   | - |   |   |   | 289 |   |
| Actuarial      (gain) loss and other                                |   |                     | 6,853   |   |                            |   | (3,512  | )      |   |   | (225 | ) |   |   | (3,780 | ) |
| Plan      amendments                                                |   |                     | -       |   |                            |   | 1,178   |   |   |   | 9,368 |   |   |   | 2,734 |   |
| Benefit      obligation at end of period  (1)             |   | $                        | 172,063 |   |                            | $      | 162,824 |   |   | $ | 91,119 |   |   | $ | 76,273 |   |
|                                                                |   |                     |    |   |                            |   |    |   |   |   |   |   |   |   |   |   |
| Change      in plan assets:                                         |   |                     |    |   |                            |   |    |   |   |   |   |   |   |   |   |   |
| Fair      value of plan assets at beginning of period               |   | $                        | 128,342 |   |                            | $      | 108,633 |   |   | $ | 54,010 |   |   | $ | 46,233 |   |
| Return      on plan assets and other                                |   |                     | (30,983 | )      |                            |   | 12,796  |   |   |   | (10,121 | ) |   |   | 1,494 |   |
| Employer      contributions                                         |   |                     | 18,361  |   |                            |   | 16,813  |   |   |   | 10,040 |   |   |   | 9,176 |   |
| Benefits      paid, net                                             |   |                     | (13,325 | )      |                            |   | (9,900  | )      |   |   | (2,899 | ) |   |   | (2,893 | ) |
| Fair      value of plan assets at end of period  (1), (2) |   | $                        | 102,395 |   |                            | $      | 128,342 |   |   | $ | 51,030 |   |   | $ | 54,010 |   |
|                                                                |   |                     |    |   |                            |   |    |   |   |   |   |   |   |   |   |   |
| Amount      underfunded at end of period  (3)                  |   | $                        | (69,668 | )      |                            | $      | (30,457 | )      |   | $ | (40,089 | ) |   | $ | (21,823 | ) |
|                                                                |   |                     |    |   |                            |   |    |   |   |   |   |   |   |   |   |   |
| Amounts      recognized in the Consolidated                         |   |                     |    |   |                            |   |    |   |   |   |   |   |   |   |   |   |
|   Balance      Sheet consist of:                          |   |                     |    |   |                            |   |    |   |   |   |   |   |   |   |   |   |
| Noncurrent      assets                                              |   | $                        | -       |   |                            | $      | -       |   |   | $ | - |   |   | $ | 1,418 |   |
| Current      liabilities                                            |   |                     | (13     | )      |                            |   | (13     | )      |   |   | (140 | ) |   |   | (57 | ) |
| Noncurrent      liabilities                                         |   |                     | (69,655 | )      |                            |   | (30,444 | )      |   |   | (39,949 | ) |   |   | (23,184 | ) |
|                                                                |   | $                        | (69,668 | )      |                            | $      | (30,457 | )      |   | $ | (40,089 | ) |   | $ | (21,823 | ) |
|                                                                |   |                     |    |   |                            |   |    |   |   |   |   |   |   |   |   |   |
| Amounts      recognized in Accumulated other                        |   |                     |    |   |                            |   |    |   |   |   |   |   |   |   |   |   |
|   comprehensive      loss (pre-tax basis) consist of:     |   |                     |    |   |                            |   |    |   |   |   |   |   |   |   |   |   |
| Net      actuarial loss (gain)                                      |   | $                        | 68,005  |   |                            | $      | 24,376  |   |   | $ | 1,785 |   |   | $ | (12,831 | ) |
| Prior      service cost (credit)                                    |   |                     | 3,655   |   |                            |   | 4,353   |   |   |   | (2,171 | ) |   |   | (12,892 | ) |
|                                                                |   | $                        | 71,660  |   |                            | $      | 28,729  |   |   | $ | (386 | ) |   | $ | (25,723 | ) |

| (1)   | Prior      to 2008, the measurement date for the Company’s pension and other      postretirement plans applicable to the Distribution segment was September      30 and the measurement date for the other postretirement plans applicable      to the Transportation and Storage segment was December      31.  Effective December 31, 2008, in accordance with the      measurement provisions of Statement No. 158, all pension and other      postretirement plans are measured as of December  31. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Plan      assets are recorded at fair value versus a calculated value as of the      respective measurement dates.           |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | The      funded status as of December 31, 2007 includes $4 million and $440,000 of      contributions made during the fourth quarter of 2007 to the pension and      other postretirement benefit plans,  respectively. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                |   |                      |    |   |                         |   |    | Other  |   |
|-------------------------------------|--------|---------------------------|---------|--------|------------------------------|--------|---------|--------|--------|
|                                |   | Pension      Benefits     |    |   | Postretirement      Benefits |   |
|                                |   | December      31,         |    |   | December      31,            |   |
|                                |   | 2008                      |    |   | 2007                         |   |    | 2008   |   |   | 2007 |   |
|                                |   |  (In      thousands) |    |
|                                |   |                      |    |   |                         |   |    |   |   |   |   |   |
| Projected      benefit obligation   |   | $                         | 172,063 |   |                         | $      | 162,824 |   |   |   | N/A |   |   |   | N/A |   |
| Accumulated      benefit obligation |   |                      | 163,999 |   |                         |   | 154,950 |   |   | $ | 86,917 |   |   | $ | 71,571 |   |
| Fair      value of plan assets      |   |                      | 102,395 |   |                         |   | 128,342 |   |   |   | 46,340 |   |   |   | 54,010 |   |

|                                               |   | Pension      Benefits         |    |   | Other      Postretirement Benefits |   |
|----------------------------------------------------|--------|-------------------------------|---------|--------|------------------------------------|--------|
|                                               |   | Years      Ended December 31, |    |   | Years      Ended December 31,      |   |
|                                               |   | 2008                          |    |   | 2007                               |   |   | 2006 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                                               |   | (In      thousands)           |    |
| Net      Periodic Benefit Cost:                    |   |                          |    |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Service      cost                                  |   | $                             | 2,596   |   |                               | $      | 2,715 |   |   | $ | 2,599 |   |   | $ | 2,525 |   |   | $ | 1,788 |   |   | $ | 1,890 |   |
| Interest      cost                                 |   |                          | 9,972   |   |                               |   | 9,388 |   |   |   | 8,899 |   |   |   | 5,415 |   |   |   | 4,053 |   |   |   | 3,615 |   |
| Expected      return on plan assets                |   |                          | (11,501 | )      |                               |   | (9,619 | ) |   |   | (8,909 | ) |   |   | (3,246 | ) |   |   | (2,858 | ) |   |   | (1,871 | ) |
| Prior      service cost (credit) amortization      |   |                          | 560     |   |                               |   | 623 |   |   |   | 584 |   |   |   | (1,521 | ) |   |   | (2,809 | ) |   |   | (3,011 | ) |
| Recognized      actuarial (gain) loss amortization |   |                          | 6,867   |   |                               |   | 8,029 |   |   |   | 7,236 |   |   |   | (1,006 | ) |   |   | (768 | ) |   |   | (145 | ) |
| Transfer      of assets in excess                  |   |                          |    |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| of      obligations                                |   |                          | -       |   |                               |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,915 |   |   |   | - |   |
|                                               |   |                          | 8,494   |   |                               |   | 11,136 |   |   |   | 10,409 |   |   |   | 2,167 |   |   |   | 1,321 |   |   |   | 478 |   |
| Regulatory      adjustment (1)                     |   |                          | 2,728   |   |                               |   | (1,578 | ) |   |   | (7,710 | ) |   |   | 2,665 |   |   |   | 2,665 |   |   |   | 2,665 |   |
| Net      periodic benefit cost                     |   | $                             | 11,222  |   |                               | $      | 9,558 |   |   | $ | 2,699 |   |   | $ | 4,832 |   |   | $ | 3,986 |   |   | $ | 3,143 |   |

| (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 of 1974, as amended, or other utility      commission specific guidelines.  The difference between these      amounts and periodic benefit cost calculated pursuant to Statement Nos. 87      and 106 is deferred as a regulatory asset or liability and amortized to      expense over periods in which this difference will be recovered in rates,      as promulgated by the applicable utility commission  . |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                               |      |   | Pension      Benefits         |   | Other      Postretirement Benefits |
|------------------------------------|-----------|--------|-------------------------------|--------|------------------------------------|
|                               |      |   | Years      Ended December 31, |   | Years      Ended December 31,      |
|                               |      |   | 2008                          |   | 2007                               |   | 2006 |   | 2008 |   | 2007 |   | 2006 |
|                               |      |   |                          |   |                               |   |   |   |   |   |   |   |   |
| Discount      rate                 |      | 6.05%  |                          | 6.24%  |                               | 5.77% |   | 6.05% |   | 6.34% |   | 5.78% |
| Rate      of compensation increase |      |   |                          |   |                               |   |   |   |   |   |
|                               | (average) |   | 3.24%                         |   | 3.47%                              |   | 3.24% |   | N/A |   | N/A |   | N/A |

|                               |   | Pension      Benefits         |   |   | Other      Postretirement Benefits |   |
|------------------------------------|--------|-------------------------------|--------|--------|------------------------------------|--------|
|                               |   | Years      Ended December 31, |   |   | Years      Ended December 31,      |   |
|                               |   | 2008                          |   |   | 2007                               |   |   | 2006 |   |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                               |   |                          |   |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount      rate                 |   |                          | 6.24   | %      |                               |   | 5.77 | % |   |   | 5.50 | % |   |   | 6.52 | % |   |   | 5.78 | % |   |   | 5.50 | % |
| Expected      return on assets:    |   |                          |   |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tax      exempt accounts           |   |                          | 8.75   | %      |                               |   | 8.75 | % |   |   | 8.75 | % |   |   | 7.00 | % |   |   | 7.00 | % |   |   | 7.00 | % |
| Taxable      accounts              |   |                          | N/A    |   |                               |   | N/A |   |   |   | N/A |   |   |   | 5.00 | % |   |   | 5.00 | % |   |   | 5.00 | % |
| Rate      of compensation increase |   |                          | 3.47   | %      |                               |   | 3.24 | % |   |   | 3.24 | % |   |   | N/A |   |   |   | N/A |   |   |   | N/A |   |

|                                                    |   | December      31, |   |
|---------------------------------------------------------|--------|-------------------|--------|
|                                                    |   | 2008              |   |   | 2007 |   |
|                                                    |   |              |   |   |   |   |
| Health      care cost trend rate assumed for next year  |   |              | 9.00   | % |   |   | 10.00 | % |
| Ultimate      trend rate                                |   |              | 4.85   | % |   |   | 5.13 | % |
| Year      that the rate reaches the ultimate trend rate |   | 2017              |   |   | 2017 |   |

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|                                                         |                | One      Percentage |   |   | One      Percentage |   |
|--------------------------------------------------------------|---------------------|---------------------|--------|--------|---------------------|--------|
|                                                         |                | Point      Increase |   |   | Point      Decrease |   |
|                                                         | (In      thousands) |
|                                                         |                |                |   |   |                |   |
| Effect      on total of service and interest cost            |                | $                   | 816    |   |                | $      | (741 | ) |
| Effect      on accumulated postretirement benefit obligation |                | $                   | 8,486  |   |                | $      | (7,476 | ) |

|                   |   | Pension      Benefits |   |   | Other      Postretirement Benefits |   |
|------------------------|--------|-----------------------|--------|--------|------------------------------------|--------|
|                   |   | At      December 31,  |   |   | At      December 31,               |   |
| Asset      Category    |   | 2008                  |   |   | 2007                               |   |   | 2008 |   |   | 2007 |   |
|                   |   |                  |   |   |                               |   |   |   |   |   |   |   |
| Equity      securities |   |                  | 53     | %      |                               |   | 61 | % |   |   | 32 | % |   |   | 31 | % |
| Debt      securities   |   |                  | 25     | %      |                               |   | 24 | % |   |   | 55 | % |   |   | 62 | % |
| Other                  |   |                  | 22     | %      |                               |   | 15 | % |   |   | 13 | % |   |   | 7 | % |
| Total                  |   |                  | 100    | %      |                               |   | 100 | % |   |   | 100 | % |   |   | 100 | % |

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|      |   |                |   |   | Other                 |   |   | Other                  |   |
|-----------|--------|---------------------|--------|--------|-----------------------|--------|--------|------------------------|--------|
|      |   |                |   |   | Postretirement        |   |   | Postretirement         |   |
|      |   |                |   |   | Benefits              |   |   | Benefits               |   |
|      |   | Pension             |   |   | (Gross,      Before   |   |   | (Medicare      Part D  |   |
| Years     |   | Benefits            |   |   | Medicare      Part D) |   |   | Subsidy      Receipts) |   |
|      |   | (In      thousands) |   |
|      |   |                |   |   |                  |   |   |                   |   |
| 2009      |   | $                   | 11,017 |   |                  | $      | 3,983  |                   |   | $ | 576 |   |
| 2010      |   |                | 11,046 |   |                  |   | 4,249  |                   |   |   | 648 |   |
| 2011      |   |                | 11,026 |   |                  |   | 4,740  |                   |   |   | 712 |   |
| 2012      |   |                | 12,207 |   |                  |   | 5,372  |                   |   |   | 804 |   |
| 2013      |   |                | 12,074 |   |                  |   | 6,085  |                   |   |   | 749 |   |
| 2014-2018 |   |                | 63,460 |   |                  |   | 39,011 |                   |   |   | 4,736 |   |

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|                                                 |   | Years      Ended December 31, |    |
|------------------------------------------------------|--------|-------------------------------|---------|
| Income      Tax Expense                              |   | 2008                          |    |   | 2007 |   |   | 2006 |   |
|                                                 |   | (In      thousands)           |    |
| Current:                                             |   |                          |    |   |   |   |   |   |   |
| Federal                                              |   | $                             | 22,267  |   |   | $ | 18,458 |   |   | $ | 19,798 |   |
| State                                                |   |                          | (558    | ) |   |   | 5,654 |   |   |   | 2,251 |   |
|                                                 |   |                          | 21,709  |   |   |   | 24,112 |   |   |   | 22,049 |   |
|                                                 |   |                          |    |   |   |   |   |   |   |   |   |   |
| Deferred:                                            |   |                          |    |   |   |   |   |   |   |   |   |   |
| Federal                                              |   |                          | 68,370  |   |   |   | 62,502 |   |   |   | 74,563 |   |
| State                                                |   |                          | 14,696  |   |   |   | 8,645 |   |   |   | 12,635 |   |
|                                                 |   |                          | 83,066  |   |   |   | 71,147 |   |   |   | 87,198 |   |
|                                                 |   |                          |    |   |   |   |   |   |   |   |   |   |
| Total      federal and state income tax              |   |                          |    |   |   |   |   |   |   |   |   |   |
|         expense from continuing operations |   | $                             | 104,775 |   |   | $ | 95,259 |   |   | $ | 109,247 |   |
|                                                 |   |                          |    |   |   |   |   |   |   |   |   |   |
| Effective      tax rate                              |   |                          | 26      | % |   |   | 29 | % |   |   | 34 | % |

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|                                                   |   | December      31,         |     |
|--------------------------------------------------------|--------|---------------------------|----------|
| Deferred      Income Tax Analysis                      |   | 2008                      |     |   |   | 2007 |   |
|                                                   |   |  (In      thousands) |     |
| Deferred      income tax assets:                       |   |                      |     |   |   |   |   |
| Alternative      minimum tax credit                    |   | $                         | 7,249    |   |   |   | $ | 13,560 |   |
| Post-retirement      benefits                          |   |                      | 34,492   |   |   |   |   | 24,320 |   |
| Pension      benefits                                  |   |                      | 25,470   |   |   |   |   | 6,579 |   |
| Unconsolidated      investments                        |   |                      | 5,448    |   |   |   |   | 5,443 |   |
| Derivative      financial instruments (interest rates) |   |                      | 19,578   |   |   |   |   | 8,856 |   |
| Other                                                  |   |                      | 23,515   |   |   |   |   | 10,765 |   |
| Total      deferred income tax assets                  |   |                      | 115,752  |   |   |   |   | 69,523 |   |
|                                                   |   |                      |     |   |   |   |   |   |   |
| Deferred      income tax liabilities:                  |   |                      |     |   |   |   |   |   |   |
| Property,      plant and equipment                     |   |                      | (770,761 | ) |   |   |   | (693,350 | ) |
| Unconsolidated      Investments (Citrus)               |   |                      | (6,204   | ) |   |   |   | (34,113 | ) |
| Derivative      financial instruments (commodities)    |   |                      | (33,233  | ) |   |   |   | - |   |
| Goodwill                                               |   |                      | (16,953  | ) |   |   |   | (15,665 | ) |
| Environmental      reserve                             |   |                      | (10,999  | ) |   |   |   | (6,637 | ) |
| Other                                                  |   |                      | (22,807  | ) |   |   |   | (11,460 | ) |
| Total      deferred income tax liabilities             |   |                      | (860,957 | ) |   |   |   | (761,225 | ) |
| Net      deferred income tax liability                 |   |                      | (745,205 | ) |   |   |   | (691,702 | ) |
| Less      current income tax assets (liabilities)      |   |                      | (22,655  | ) |   |   |   | 1,303 |   |
| Accumulated      deferred income taxes                 |   | $                         | (722,550 | ) |   |   | $ | (693,005 | ) |

|                                                       |   | Years      Ended December 31, |    |
|------------------------------------------------------------|--------|-------------------------------|---------|
| Effective      Income Tax Rate Analysis                    |   | 2008                          |    |   | 2007 |   |   | 2006 |   |
|                                                       |   | (In      thousands)           |    |
| Computed      statutory income tax expense                 |   |                          |    |   |   |   |   |   |   |
| from      continuing operations at 35%                     |   | $                             | 139,974 |   |   | $ | 113,389 |   |   | $ | 114,215 |   |
| Changes      in income taxes resulting from:               |   |                          |    |   |   |   |   |   |   |   |   |   |
| Dividend      received deduction                           |   |                          | (44,862 | ) |   |   | (28,994 | ) |   |   | (10,696 | ) |
|     to      deferred tax liability     |   |                          |    |   |   |   |   |   |   |   |   |   |
| Executive      compensation, non deductible                |   |                          | 78      |   |   |   | 491 |   |   |   | 5,063 |   |
| State      income taxes, net of federal income tax benefit |   |                          | 9,190   |   |   |   | 9,295 |   |   |   | 9,411 |   |
| Analysis      of deferred tax accounts                     |   |                          | -       |   |   |   | - |   |   |   | (7,490 | ) |
| Other                                                      |   |                          | 395     |   |   |   | 1,078 |   |   |   | (1,256 | ) |
| Actual      income tax expense from continuing operations  |   | $                             | 104,775 |   |   | $ | 95,259 |   |   | $ | 109,247 |   |

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|                                     |   | Years      ended December 31, |   |
|------------------------------------------|--------|-------------------------------|--------|
|                                     |   | 2008                          |   |   | 2007 |   |
|                                     |   | (in      thousands)           |   |
|                                     |   |                          |   |   |   |   |
| Beginning      of the year               |   | $                             | 570    |   |   | $ | 570 |   |
|                                     |   |                          |   |   |   |   |   |   |
| Additions:                               |   |                          |   |   |   |   |   |   |
| Tax      positions taken in prior years  |   |                          | 4,427  |   |   |   | - |   |
| Tax      positions taken in current year |   |                          | 2,783  |   |   |   | - |   |
|                                     |   |                          |   |   |   |   |   |   |
| Reductions:                              |   |                          |   |   |   |   |   |   |
| Lapse      of statutue of limitations    |   |                          | (570   | ) |   |   | - |   |
|                                     |   |                          |   |   |   |   |   |   |
| End      of year                         |   | $                             | 7,210  |   |   | $ | 570 |   |

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|                                 |   | December      31,   |   |
|--------------------------------------|--------|---------------------|--------|
|                                 |   | 2008                |   |   | 2007 |   |
|                                 |   | (In      thousands) |   |
|                                 |   |                |   |   |   |   |
| Current                              |   | $                   | 3,513  |   |   | $ | 6,772 |   |
| Noncurrent                           |   |                | 15,626 |   |   |   | 15,209 |   |
| Total      Environmental Liabilities |   | $                   | 19,139 |   |   | $ | 21,981 |   |

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|                                                  |   |                                         |     |
|-------------------------------------------------------|--------|----------------------------------------------|----------|
|                                                  |   | Year      Ended                              |     |
|                                                  |   | December      31, 2006 (2)              |     |
|                                                  |   | (In      thousands,except per share amounts) |     |
|                                                  |   |                                         |     |
| Operating      revenues                               |   | $                                            | 512,935  |   |
| Operating      income                                 |   |                                         | 54,662   |   |
| Loss      from discontinued operations  (1) |   |                                         | (152,952 | ) |
| Net      loss available from discontinued             |   |                                         |     |   |
| operations      per share:                            |   |                                         |     |   |
| Basic                                                 |   | $                                            | (1.33    | ) |
| Diluted                                               |   | $                                            | (1.30    | ) |

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|                                             |   | In      Service |   |                                             |   |                |   |
|--------------------------------------------------|--------|-----------------|--------|--------------------------------------------------|--------|---------------------|--------|
| ARO      Description                             |   | Date            |   | Long-Lived      Assets                           |   | Amount              |   |
|                                             |   |            |   |                                             |   | (In      thousands) |   |
| Retire      offshore platforms and lateral lines |   | Various         |   | Offshore      lateral lines                      |   | $                   | 6,574  |   |
| Other                                            |   | Various         |   | Mainlines,      compressors and gathering plants |   | $                   | 1,269  |   |

|                                      |   | Years      Ended December 31, |   |
|-------------------------------------------|--------|-------------------------------|--------|
|                                      |   | 2008                          |   |   | 2007 |   |   | 2006 |   |
|                                      |   | (In      thousands)           |   |
|                                      |   |                          |   |   |   |   |   |   |   |
| Beginning      balance                    |   | $                             | 12,762 |   |   | $ | 10,535 |   |   | $ | 8,200 |   |
| Addition      from acquisition of the Sid |   |                          |   |   |   |   |   |   |   |   |   |   |
| Richardson      Energy Services business  |   |                          | -      |   |   |   | - |   |   |   | 885 |   |
| Incurred                                  |   |                          | 33,773 |   |   |   | 64 |   |   |   | - |   |
| Revisions                                 |   |                          | 6,379  |   |   |   | 2,250 |   |   |   | 1,189 |   |
| Settled                                   |   |                          | (2,141 | ) |   |   | (907 | ) |   |   | (414 | ) |
| Accretion      expense                    |   |                          | 868    |   |   |   | 820 |   |   |   | 675 |   |
| Ending      balance                       |   | $                             | 51,641 |   |   | $ | 12,762 |   |   | $ | 10,535 |   |

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

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

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

| ·   | dividends      on preferred stock; and |
|--------------------|----------------------------------------|

| ·   | loss      on extinguishment of preferredstock. |
|--------------------|------------------------------------------------|

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|                                                  |   | Years      Ended December 31, |      |
|-------------------------------------------------------|--------|-------------------------------|-----------|
| Segment      Data                                     |   | 2008                          |      |   | 2007 |   |   | 2006 |   |
|                                                  |   | (In      thousands)           |      |
| Operating      revenues from external customers:      |   |                          |      |   |   |   |   |   |   |
| Transportation      and Storage                       |   | $                             | 721,640   |   |   | $ | 658,446 |   |   | $ | 577,182 |   |
| Gathering      and Processing                         |   |                          | 1,521,041 |   |   |   | 1,221,747 |   |   |   | 1,090,216 |   |
| Distribution                                          |   |                          | 821,673   |   |   |   | 732,109 |   |   |   | 668,721 |   |
| Total      segment operating revenues                 |   |                          | 3,064,354 |   |   |   | 2,612,302 |   |   |   | 2,336,119 |   |
| Corporate      and other                              |   |                          | 5,800     |   |   |   | 4,363 |   |   |   | 4,025 |   |
|                                                  |   | $                             | 3,070,154 |   |   | $ | 2,616,665 |   |   | $ | 2,340,144 |   |
|                                                  |   |                          |      |   |   |   |   |   |   |   |   |   |
| Depreciation      and amortization:                   |   |                          |      |   |   |   |   |   |   |   |   |   |
| Transportation      and Storage                       |   | $                             | 103,807   |   |   | $ | 85,641 |   |   | $ | 72,724 |   |
| Gathering      and Processing                         |   |                          | 62,716    |   |   |   | 59,560 |   |   |   | 47,321 |   |
| Distribution                                          |   |                          | 30,530    |   |   |   | 30,251 |   |   |   | 30,353 |   |
| Total      segment depreciation and amortization      |   |                          | 197,053   |   |   |   | 175,452 |   |   |   | 150,398 |   |
| Corporate      and other                              |   |                          | 2,196     |   |   |   | 2,547 |   |   |   | 1,705 |   |
|                                                  |   | $                             | 199,249   |   |   | $ | 177,999 |   |   | $ | 152,103 |   |
|                                                  |   |                          |      |   |   |   |   |   |   |   |   |   |
| Earnings      (loss) from unconsolidated investments: |   |                          |      |   |   |   |   |   |   |   |   |   |
| Transportation      and Storage                       |   | $                             | 75,173    |   |   | $ | 99,222 |   |   | $ | 141,310 |   |
| Gathering      and Processing                         |   |                          | (990      | ) |   |   | 1,300 |   |   |   | (188 | ) |
| Corporate      and other                              |   |                          | 847       |   |   |   | 392 |   |   |   | 248 |   |
|                                                  |   | $                             | 75,030    |   |   | $ | 100,914 |   |   | $ | 141,370 |   |
|                                                  |   |                          |      |   |   |   |   |   |   |   |   |   |
| Other      income (expense), net:                     |   |                          |      |   |   |   |   |   |   |   |   |   |
| Transportation      and Storage                       |   | $                             | 1,951     |   |   | $ | 1,604 |   |   | $ | 3,354 |   |
| Gathering      and Processing                         |   |                          | 104       |   |   |   | 140 |   |   |   | 1,571 |   |
| Distribution                                          |   |                          | (1,830    | ) |   |   | (1,902 | ) |   |   | (2,130 | ) |
| Total      segment other income (expense), net        |   |                          | 225       |   |   |   | (158 | ) |   |   | 2,795 |   |
| Corporate      and other                              |   |                          | 2,100     |   |   |   | (725 | ) |   |   | 37,123 |   |
|                                                  |   | $                             | 2,325     |   |   | $ | (883 | ) |   | $ | 39,918 |   |

|                                                |   | Years      Ended December 31, |    |
|-----------------------------------------------------|--------|-------------------------------|---------|
| Segment      Data                                   |   | 2008                          |    |   | 2007 |   |   | 2006 |   |
|                                                |   | (In      thousands)           |    |
|                                                |   |                          |    |   |   |   |   |   |   |
| Segment      performance:                           |   |                          |    |   |   |   |   |   |   |
| Transportation      and Storage EBIT  (1) |   | $                             | 404,834 |   |   | $ | 407,459 |   |   | $ | 431,959 |   |
| Gathering      and Processing EBIT                  |   |                          | 145,363 |   |   |   | 65,368 |   |   |   | 62,630 |   |
| Distribution      EBIT  (1)               |   |                          | 61,418  |   |   |   | 62,195 |   |   |   | 36,349 |   |
| Total      segment EBIT                             |   |                          | 611,615 |   |   |   | 535,022 |   |   |   | 530,938 |   |
| Corporate      and other  (1)             |   |                          | (4,281  | ) |   |   | (7,906 | ) |   |   | 5,435 |   |
| Interest      expense                               |   |                          | 207,408 |   |   |   | 203,146 |   |   |   | 210,043 |   |
| Federal      and state income taxes                 |   |                          | 104,775 |   |   |   | 95,259 |   |   |   | 109,247 |   |
| Earnings      from continuing operations            |   |                          | 295,151 |   |   |   | 228,711 |   |   |   | 217,083 |   |
| Loss      from discontinued operations before       |   |                          |    |   |   |   |   |   |   |   |   |   |
| income      taxes                                   |   |                          | -       |   |   |   | - |   |   |   | (2,369 | ) |
| Federal      and state income taxes                 |   |                          | -       |   |   |   | - |   |   |   | 150,583 |   |
| Loss      from discontinued operations              |   |                          | -       |   |   |   | - |   |   |   | (152,952 | ) |
| Net      earnings                                   |   |                          | 295,151 |   |   |   | 228,711 |   |   |   | 64,131 |   |
| Preferred      stock dividends                      |   |                          | 12,212  |   |   |   | 17,365 |   |   |   | 17,365 |   |
| Loss      on extinguishment of preferred stock      |   |                          | 3,527   |   |   |   | - |   |   |   | - |   |
| Net      earnings available for common stockholders |   | $                             | 279,412 |   |   | $ | 211,346 |   |   | $ | 46,766 |   |

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| (1)   | In      the fourth quarter of 2008, the Company ceased including the management      and royalty fees charged by Southern Union to its Transportation and      Storage segment in its evaluation of segment results as it was no longer      deemed necessary by executive management.  The Company had not      previously included management and royalty fees in the evaluation of its      other reportable segments.  Additionally, in the fourth quarter      of 2008, the Company commenced allocating certain corporate administrative      services costs to the Distribution segment.  Previously, the      corporate administrative services costs allocation was limited to the      Transportation and Storage and Gathering and Processing      segments.  Executive management determined that such allocation      to all of the Company's reportable segments would enable it to better      measure and evaluate the performance of each of its reportable      segments.  The allocation to the Distribution segment was $9.5      million, representing the estimated 2008 annual allocation provided to the      Distribution segment.  The administrative services allocation      was primarily based upon each reportable segment's pro-rata share of      combined net investment, margin and certain      expenses.  Management believes that the allocation method and      underlying assumptions utilized by the Company were      reasonable. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                            |   |                  |    |   |                     |   |    | Recast      Adjustments |   |   |   |   |   |   |   |
|---------------------------------|--------|-----------------------|---------|--------|--------------------------|--------|---------|-------------------------|--------|--------|--------|--------|--------|--------|--------|
|                            |   | EBIT      as Reported |    |   | Increase      (Decrease) |   |    | Recast      EBIT        |   |
| Segment                         |   | 2007                  |    |   | 2006                     |   |    | 2007                    |   |   | 2006   |   |   | 2007   |   |   | 2006 |   |
|                            |   | (In      thousands)   |    |
|                            |   |                  |    |   |                     |   |    |                    |   |   |   |   |   |   |   |   |   |   |
| Transportation      and Storage |   | $                     | 391,029 |   |                     | $      | 417,536 |                    |   | $      | 16,430 |   |   | $      | 14,423 |   |   | $ | 407,459 |   |   | $ | 431,959 |   |
| Distribution                    |   |                  | 70,568  |   |                     |   | 41,883  |                    |   |   | (8,373 | )      |   |   | (5,534 | ) |   |   | 62,195 |   |   |   | 36,349 |   |
| Corporate      and Other        |   |                  | 151     |   |                     |   | 14,324  |                    |   |   | (8,057 | )      |   |   | (8,889 | ) |   |   | (7,906 | ) |   |   | 5,435 |   |

|                            |   |   | December      31,   |      |
|---------------------------------|--------|--------|---------------------|-----------|
| Segment      Data               |   | 2008   |                |      | 2007 |   |
|                            |   |   | (In      thousands) |      |
| Total      assets:              |   |   |                |      |   |   |
| Transportation      and Storage |   | $      | 4,969,336           |      |   | $ | 4,550,822 |   |
| Gathering      and Processing   |   |   | 1,764,497           |      |   |   | 1,709,901 |   |
| Distribution                    |   |   | 1,177,124           |      |   |   | 1,020,460 |   |
|  Total      segment assets |   |   |                | 7,910,957 |   |   |   | 7,281,183 |   |
| Corporate      and other        |   |   |                | 86,950    |   |   |   | 116,730 |   |
| Total      consolidated assets  |   | $      | 7,997,907           |      |   | $ | 7,397,913 |   |

|                                                                   |   | Years      Ended December 31, |                |
|------------------------------------------------------------------------|--------|-------------------------------|---------------------|
|                                                                   |   |                          | 2008                |   |   | 2007 |   |   | 2006 |   |
|                                                                   |   |                          | (In      thousands) |   |
| Expenditures      for long-lived assets:                               |   |                          |                |   |   |   |   |   |   |
| Transportation      and Storage                                        |   | $                             | 434,004             |   |   | $ | 591,153 |   |   | $ | 244,821 |   |
| Gathering      and Processing                                          |   |                          | 67,317              |   |   |   | 48,633 |   |   |   | 35,101 |   |
| Distribution                                                           |   |                          | 41,125              |   |   |   | 44,769 |   |   |   | 47,954 |   |
| Total      segment expenditures for                                    |   |                          |                |   |   |   |   |   |   |   |   |   |
|        long-lived      assets                                     |   |                          |                | 542,446 |   |   |   | 684,555 |   |   |   | 327,876 |   |
| Corporate      and other                                               |   |                          | 9,345               |   |   |   | 4,173 |   |   |   | 4,798 |   |
|      Total      consolidated expenditures for |   |                          |                |   |   |   |   |   |   |   |   |   |
| long-lived      assets  (1)                                  |   |                          | $                   | 551,791 |   |   | $ | 688,728 |   |   | $ | 332,674 |   |

| (1)   | Includes net period changes in      capital accruals totaling $(21.9)million, $71.8 million and $14.9million for the years ended      December 31, 2008, 2007 and 2006,  respectively. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

|                        |   |                               |   |   |                          |   |   |   |   |   | Percent      of Consolidated |   |
|-----------------------------|--------|------------------------------------|--------|--------|-------------------------------|--------|--------|--------|--------|--------|------------------------------|--------|
|                        |   | Percent      of Transportation and |   |   | Company      Total            |   |
|                        |   | Storage      Segment Revenues      |   |   | Operating      Revenues       |   |
|                        |   | Years      Ended December 31,      |   |   | Years      Ended December 31, |   |
| Customer                    |   | 2008                               |   |   | 2007                          |   |   | 2006   |   |   | 2008                         |   |   | 2007 |   |   |   | 2006 |   |
|                        |   |                               |   |   |                          |   |   |   |   |   |                         |   |   |   |   |   |   |   |   |
| BG      LNG Services        |   |                               | 23     | %      |                          |   | 28     | %      |   |   | 24                           | %      |   |   | 6 | % |   |   | 7 |  % |   |   |   | 6 | % |
| ProLiance                   |   |                               | 12     |   |                          |   | 11     |   |   |   | 12                           |   |   |   | 3 |   |   |   | 3 |   |   |   |   | 3 |   |
| Ameren      Corp            |   |                               | 8      |   |                          |   | 9      |   |   |   | 10                           |   |   |   | 2 |   |   |   | 2 |   |   |   |   | 3 |   |
| Other      top 10 customers |   |                               | 18     |   |                          |   | 17     |   |   |   | 19                           |   |   |   | 5 |   |   |   | 4 |   |   |   |   | 5 |   |
| Remaining      customers    |   |                               | 39     |   |                          |   | 35     |   |   |   | 35                           |   |   |   | 9 |   |   |   | 9 |   |   |   |   | 8 |   |
| 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                               |   | 2008                             |   |   | 2007                                  |   |   | 2006 (1) |   |   | 2008 |   |   | 2007 |   |   | 2006 (1) |   |
|                                   |   |                             |   |   |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Louis      Dreyfus Energy Services, LP |   |                             | 11     | %      |                                  |   | 0 | % |   |   | 0 | % |   |   | 6 | % |   |   | 0 | % |   |   | 0 | % |
| ConocoPhillips      Company            |   |                             | 8      |   |                                  |   | 16 |   |   |   | 22 |   |   |   | 4 |   |   |   | 8 |   |   |   | 10 |   |
| BP      Energy Company                 |   |                             | 8      |   |                                  |   | 6 |   |   |   | 11 |   |   |   | 4 |   |   |   | 3 |   |   |   | 5 |   |
| Constellation      Power Source        |   |                             | 0      |   |                                  |   | 7 |   |   |   | 10 |   |   |   | 0 |   |   |   | 3 |   |   |   | 5 |   |
| Other      top 10 customers            |   |                             | 33     |   |                                  |   | 34 |   |   |   | 22 |   |   |   | 16 |   |   |   | 16 |   |   |   | 10 |   |
| Remaining      customers               |   |                             | 40     |   |                                  |   | 37 |   |   |   | 35 |   |   |   | 17 |   |   |   | 17 |   |   |   | 17 |   |
| Total      percentage                  |   |                             | 100    | %      |                                  |   | 100 | % |   |   | 100 | % |   |   | 47 | % |   |   | 47 | % |   |   | 47 | % |

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

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Table of Contents

|                                                                                   |   | Years      Ended December 31, |    |
|----------------------------------------------------------------------------------------|--------|-------------------------------|---------|
| Other      Comprehensive Income (Loss)                                                 |   | 2008                          |    |   | 2007 |   |   | 2006 |   |
|                                                                                   |   | (In      thousands)           |    |
| Net      Earnings                                                                      |   | $                             | 295,151 |   |   | $ | 228,711 |   |   | $ | 64,131 |   |
| Other      Comprehensive Income (Loss) Adjustments:                                    |   |                          |    |   |   |   |   |   |   |   |   |   |
| Change      in fair value of interest rate hedges, net of tax of    $(7,816),          |   |                          |    |   |   |   |   |   |   |   |   |   |
| $(5,241)      and $(745), respectively                                                 |   |                          | (11,551 | ) |   |   | (10,041 | ) |   |   | (49 | ) |
| Reclassification      of unrealized gain (loss) on interest rate hedges                |   |                          |    |   |   |   |   |   |   |   |   |   |
| into      earnings, net of tax of $(2,287), $(13) and $608,    respectively            |   |                          | (3,268  | ) |   |   | (4 | ) |   |   | 967 |   |
| Realized      loss on interest rate hedges, net of tax of $(620),                      |   |                          |    |   |   |   |   |   |   |   |   |   |
| $(1,488)      and $0, respectively                                                     |   |                          | (1,175  | ) |   |   | (2,366 | ) |   |   | - |   |
| Reversal      of minimum pension liability related to disposition, net                 |   |                          |    |   |   |   |   |   |   |   |   |   |
| of      tax of $0, $0 and $16,004, respectively                                        |   |                          | -       |   |   |   | - |   |   |   | 26,331 |   |
| Minimum      pension liability adjustment, net of tax of $0, $0                        |   |                          |    |   |   |   |   |   |   |   |   |   |
| and      $4,128, respectively                                                          |   |                          | -       |   |   |   | - |   |   |   | 6,803 |   |
| Change      in fair value of commodity hedges, net of tax of $13,549,                  |   |                          |    |   |   |   |   |   |   |   |   |   |
| $(775)      and $7,466, respectively                                                   |   |                          | 24,045  |   |   |   | (1,279 | ) |   |   | 12,360 |   |
| Reclassification      of unrealized gain on commodity hedges into                      |   |                          |    |   |   |   |   |   |   |   |   |   |
| earnings,      net of tax of $(2,466), $(2,425) and $(4,266), repectively              |   |                          | (4,375  | ) |   |   | (3,997 | ) |   |   | (7,084 | ) |
| Actuarial      gain (loss) relating to pension and other postretirement      benefits, |   |                          |    |   |   |   |   |   |   |
|  net      of tax of $(23,763), $3,043 and $0, respectively                        |   |                          | (41,784 | ) |   |   | 5,521 |   |   |   | - |   |
| Prior      service cost relating to pension and other postretirement                   |   |                          |    |   |   |   |   |   |   |   |   |   |
| benefit      plan amendments, net of tax of $(3,691), $(1,987) and $0,                 |   |                          |    |   |   |   |   |   |   |   |   |   |
| respectively                                                                           |   |                          | (5,677  | ) |   |   | (1,924 | ) |   |   | - |   |
| Reclassification      of actuarial loss and prior service credit                  |   |                          |    |   |   |   |   |   |   |   |   |   |
| relating      to pension and other postretirement benefits into                        |   |                          |    |   |   |   |   |   |   |   |   |   |
| earnings,      net of tax of $2,034, $1,619 and $0, respectively                       |   |                          | 2,865   |   |   |   | 3,397 |   |   |   | - |   |
| Total      other comprehensive income (loss)                                           |   |                          | (40,920 | ) |   |   | (10,693 | ) |   |   | 39,328 |   |
| Total      comprehensive income                                                        |   | $                             | 254,231 |   |   | $ | 218,018 |   |   | $ | 103,459 |   |

|                                                                                                         |   | December      31,   |    |
|--------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|
|                                                                                                         |   | 2008                |    |   | 2007 |   |
|                                                                                                         |   | (In      thousands) |    |
| Interest      rate hedges, net                                                                               |   | $                   | (30,717 | ) |   | $ | (14,723 | ) |
| Commodity      hedges, net                                                                                   |   |                | 19,670  |   |   |   | - |   |
| Benefit      Plans:                                                                                          |   |                |    |   |   |   |   |   |
| Net      actuarial loss and prior service costs, net - pensions                                              |   |                | (44,664 | ) |   |   | (17,907 | ) |
|    Net      actuarial gain and prior service credit, net - other postretirement      benefits |   |                | 4,288   |   |   |   | 21,036 |   |
| Total      Accumulated other comprehensive loss, net of tax                                                  |   | $                   | (51,423 | ) |   | $ | (11,594 | ) |

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

|   | 23.       Related      Party Transactions |
|--------|------------------------------------------------|

|   | 24.       Stock-Based Compensation |
|--------|-----------------------------------------|

----

Table of Contents

|                         |   | Years      ended December 31, |   |
|------------------------------|--------|-------------------------------|--------|
|                         |   | 2008                          |   |   | 2007 |   |   | 2006 |   |
| Expected      volatility     |   |                          | 30.57% |   |   | 30.11%      to 32.12% |   |   |   | 32.90% |   |
| Expected      dividend yield |   |                          | 2.19%  |   |   |   | 2.10% |   |   |   | 1.43% |   |
| Risk-free      interest rate |   |                          | 1.71%  |   |   | 3.70%      to 3.89% |   |   |   | 4.69% |   |
| Expected      life           |   | 6      years                  |   |   | 6.00      to 7.50 years |   | 6.00      years |   |

|                               |   | Second      Amended 2003 Plan |      |   | 1992      Plan |   |
|------------------------------------|--------|-------------------------------|-----------|--------|----------------|--------|
|                               |   |                          |      |   | Weighted       |   |   |   |   |   | Weighted |   |
|                               |   | Shares                        |      |   | Average        |   |   | Shares |   |   | Average |   |
|                               |   | Under                         |      |   | Exercise       |   |   | Under |   |   | Exercise |   |
|                               |   | Option                        |      |   | Price          |   |   | Option |   |   | Price |   |
|                               |   |                          |      |   |           |   |   |   |   |   |   |   |
| Outstanding      December 31, 2005 |   |                          | 1,289,510 |   |           | $      | 20.62 |   |   |   | 1,259,624 |   |   | $ | 13.15 |   |
| Granted                            |   |                          | -         |   |           |   | - |   |   |   | - |   |   |   | - |   |
| 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   |   |           |   | 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 |   |
| Granted                            |   |                          | 792,934   |   |           |   | 12.55 |   |   |   | - |   |   |   | - |   |
| Exercised                          |   |                          | (12,725   | )      |           |   | 16.83 |   |   |   | (224,593 | ) |   |   | 12.71 |   |
| Forfeited                          |   |                          | (773      | )      |           |   | 16.83 |   |   |   | - |   |   |   | - |   |
| Outstanding      December 31, 2008 |   |                          | 2,311,111 |   |           | $      | 20.61 |   |   |   | 312,109 |   |   | $ | 13.70 |   |
|                               |   |                          |      |   |           |   |   |   |   |   |   |   |   |   |   |   |
| Exercisable      December 31, 2006 |   |                          | 533,363   |   |           |   | 22.38 |   |   |   | 715,196 |   |   |   | 12.60 |   |
| Exercisable      December 31, 2007 |   |                          | 565,560   |   |           |   | 22.25 |   |   |   | 536,702 |   |   |   | 13.28 |   |
| Exercisable      December 31, 2008 |   |                          | 769,216   |   |           |   | 22.66 |   |   |   | 312,109 |   |   |   | 13.70 |   |

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Table of Contents

|                               |   | Second      Amended 2003 Plan |      |
|------------------------------------|--------|-------------------------------|-----------|
|                               |   |                          |      |   | Weighted      Average |   |
|                               |   | SARs                          |      |   | Exercise      Price |   |
|                               |   |                          |      |   |   |   |
| Outstanding      December 31, 2005 |   |                          | -         |   |   | $ | - |   |
| Granted                            |   |                          | 133,610   |   |   |   | 28.07 |   |
| Outstanding      December 31, 2006 |   |                          | 133,610   |   |   | $ | 28.07 |   |
| Granted                            |   |                          | 282,163   |   |   |   | 28.48 |   |
| Outstanding      December 31, 2007 |   |                          | 415,773   |   |   | $ | 28.35 |   |
| Granted                            |   |                          | 784,779   |   |   |   | 12.55 |   |
| Outstanding      December 31, 2008 |   |                          | 1,200,552 |   |   | $ | 18.02 |   |
|                               |   |                          |      |   |   |   |   |   |
| Exercisable      December 31, 2006 |   |                          | -         |   |   |   | - |   |
| Exercisable      December 31, 2007 |   |                          | 44,533    |   |   |   | 28.07 |   |
| Exercisable      December 31, 2008 |   |                          | 183,115   |   |   |   | 28.28 |   |

|                              |   |                   | Options      Outstanding |                  |                  | Options      Exercisable |            |
|-----------------------------------|--------|------------------------|--------------------------|-----------------------|-----------------------|--------------------------|-----------------|
|                              |   |                   |                     |                  | Weighted      Average |                     | Weighted        |   |   |   |   |   | Weighted |   |
|                              |   |                   |                     |                  | Remaining             |                     | Average         |   |   |   |   |   | Average |   |
| Range      ofExercise      Prices |   | Number      of Options |                     | Contractual      Life |                  | Exercise      Price      |            |   | Number      of Options |   |   | Exercise      Price |   |
|                              |   |                   |                     |                  |                  |                     |            |   |   |   |   |   |   |   |
| Second Amended 2003      Plan:    |   |                   |                     |                  |                  |                     |            |   |   |   |   |   |   |
|  12.55      - 15.00          |   |                   |                     | 792,934               |                  | 9.95      years          |            | $ | 12.55 |   |   |   | - |   |   | $ | - |   |
|  15.01      - 20.00          |   |                   |                     | 228,637               |                  | 5.10      years          |            |   | 16.83 |   |   |   | 161,240 |   |   |   | 16.83 |   |
|  20.01      - 25.00          |   |                   |                     | 572,442               |                  | 6.69      years          |            |   | 23.41 |   |   |   | 516,100 |   |   |   | 23.45 |   |
|  25.01      - 28.48          |   |                   |                     | 717,098               |                  | 8.96      years          |            |   | 28.48 |   |   |   | 91,876 |   |   |   | 28.48 |   |
|                              |   |                   |                     |                  | 2,311,111             |                     | 8.36      years |   | $ | 20.61 |   |   |   | 769,216 |   |   | $ | 22.66 |   |
|                              |   |                   |                     |                  |                  |                     |            |   |   |   |   |   |   |   |   |   |   |   |   |
| 1992      Plan:                   |   |                   |                     |                  |                  |                     |            |   |   |   |   |   |   |   |   |   |   |   |
|  13.50      - 14.66          |   |                   |                     | 312,109               |                  | 1.18      years          |            | $ | 13.70 |   |   |   | 312,109 |   |   | $ | 13.70 |   |
|                              |   |                   |                     |                  | 312,109               |                     | 1.18      years |   | $ | 13.70 |   |   |   | 312,109 |   |   | $ | 13.70 |   |

----

Table of Contents

|                              |   |   | SARs      Outstanding |    |                  | SARs      Exercisable |                |
|-----------------------------------|--------|--------|-----------------------|---------|-----------------------|-----------------------|---------------------|
|                              |   |   |                  |    | Weighted      Average |                  | Weighted            |   |   |   |   |   | Weighted |   |
|                              |   |   |                  |    | Remaining             |                  | Average             |   |   |   |   |   | Average |   |
| Range      ofExercise      Prices |   |   | Number      of SARs   |    | Contractual      Life |                  | Exercise      Price |   |   | Number      of SARs |   |   | Exercise      Price |   |
|                              |   |   |                  |    |                  |                  |                |   |   |   |   |   |   |   |
|  12.55      - 15.00          |   |   |                  | 784,779 |                  | 9.95      years       |                | $ | 12.55 |   |   |   | - |   |   | $ | - |   |
|  25.01      - 28.48          |   |   |                  | 415,773 |                  | 8.65      years       |                |   | 28.35 |   |   |   | 183,115 |   |   |   | 28.28 |   |
|                              |   |   |                  |    | 1,200,552             |                  | 9.50      years     |   | $ | 18.02 |   |   |   | 183,115 |   |   | $ | 28.28 |   |

----

Table of Contents

|                                                  |   | Number      of         |     |   | Weighted-Average |   |
|-------------------------------------------------------|--------|------------------------|----------|--------|------------------|--------|
|                                                  |   | Restricted      Shares |     |   | Grant-Date       |   |
| Nonvested      Restricted Stock Equity Units          |   | Outstanding            |     |   | Fair-Value       |   |
|                                                  |   |                   |     |   |             |   |
| 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 |   |
| Granted                                               |   |                   | 252,066  |   |             |   | 14.99 |   |
| Vested                                                |   |                   | (90,051  | )      |             |   | 28.10 |   |
| Forfeited                                             |   |                   | -        |   |             |   | - |   |
| Nonvested      restricted shares at December 31, 2008 |   |                   | 363,185  |   |             | $      | 18.94 |   |

|                                                 |   | Number      of                  |    |   |                             |   |
|------------------------------------------------------|--------|---------------------------------|---------|--------|----------------------------------|--------|
|                                                 |   | Restricted      Stock Liability |    |   | Weighted-Average      Grant-Date |   |
| Nonvested      Restricted Stock Liability Units      |   | Units      Outstanding          |    |   | Fair-Value                       |   |
|                                                 |   |                            |    |   |                             |   |
| Nonvested      restricted units at December 31, 2005 |   |                            | -       |   |                             | $      | - |   |
| Granted                                              |   |                            | 108,869 |   |                             |   | 28.07 |   |
| Vested                                               |   |                            | -       |   |                             |   | - |   |
| Forfeited                                            |   |                            | -       |   |                             |   | - |   |
| Nonvested      restricted units 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 units at December 31, 2007 |   |                            | 213,302 |   |                             | $      | 28.35 |   |
| Granted                                              |   |                            | 418,583 |   |                             |   | 13.88 |   |
| Vested                                               |   |                            | (82,431 | )      |                             |   | 28.31 |   |
| Forfeited                                            |   |                            | (815    | )      |                             |   | 28.48 |   |
| Nonvested      restricted units at December 31, 2008 |   |                            | 548,639 |   |                             | $      | 17.31 |   |

----

Table of Contents

|                                                   |   | Fair      Value        |    |      | Fair      Value Measurements at December 31, 2008 |   |
|--------------------------------------------------------|--------|------------------------|---------|-----------|---------------------------------------------------|--------|
|                                                   |   | as      of             |    |      | Using      Fair Value Hierarchy                   |   |
|                                                   |   | December      31, 2008 |    |      | Level      1                                      |   |   | Level      2 |   |   | Level      3 |   |
|                                                   |   | (In      thousands)    |    |
| Assets:                                                |   |                   |    |      |                                              |   |   |   |   |   |   |   |
| Cash      equivalents (money                           |   |                   |    |      |                                              |   |   |   |   |   |   |   |
|      market      investments) |   | $                      | 590     |      |                                              | $      | 590 |   |   | $ | - |   |   | $ | - |   |
| Commodity      derivatives                             |   |                   | 91,423  |  (1) |                                              |   | - |   |   |   | 90,459 |   |   |   | 964 |   |
| Long-term      investments                             |   |                   | 729     |      |                                              |   | 729 |   |   |   | - |   |   |   | - |   |
|    Total                                |   | $                      | 92,742  |      |                                              | $      | 1,319 |   |   | $ | 90,459 |   |   | $ | 964 |   |
|                                                   |   |                   |    |      |                                              |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                                           |   |                   |    |      |                                              |   |   |   |   |   |   |   |   |   |   |   |
| Commodity      derivatives                             |   | $                      | 93,692  |      |                                              | $      | - |   |   | $ | 93,786 |   |   | $ | (94 | ) |
| Interest-rate      derivatives                         |   |                   | 43,630  |      |                                              |   | - |   |   |   | - |   |   |   | 43,630 |   |
|    Total                                |   | $                      | 137,322 |      |                                              | $      | - |   |   | $ | 93,786 |   |   | $ | 43,536 |   |

| (1)   | The      Company’s commodity derivative asset balance is primarily associated with      two separate counterparties, each individually comprising $68.9 million      and $20.1 million of the related fair value as of December 31,      2008. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                  |   | Level      3 Financial Assets and Liabilities |    |
|-------------------------------------------------------|--------|-----------------------------------------------|---------|
|                                                  |   | Assets                                        |    |   | Liabilities |   |
|                                                  |   | Commodity                                     |    |   | Commodity |   |   | Interest-rate |   |
|                                                  |   | Derivatives                                   |    |   | Derivatives |   |   | Derivatives |   |
|                                                  |   | (In      thousands)                           |    |
|                                                  |   |                                          |    |   |   |   |   |   |   |
| Balance      at January 1, 2008                       |   | $                                             | 1,320   |   |   | $ | (5,404 | ) |   | $ | 17,121 |   |
| Reclassification      between assets and liabilities  |   |                                          | 4,084   |   |   |   | 4,084 |   |   |   | - |   |
| Total      gains or losses (realized and unrealized): |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Included      in operating revenues  (1)    |   |                                          | 52,108  |   |   |   | 683 |   |   |   | - |   |
| Included      in other comprehensive income           |   |                                          | 37,594  |   |   |   | - |   |   |   | 34,019 |   |
| Purchases      and settlements, net                   |   |                                          | (3,683  | ) |   |   | 543 |   |   |   | (7,510 | ) |
| Transfers      out of Level 3  (2)          |   |                                          | (90,459 | ) |   |   | - |   |   |   | - |   |
| Balance      at December 31, 2008                     |   | $                                             | 964     |   |   | $ | (94 | ) |   | $ | 43,630 |   |

| (1)   | The      amount included in operating revenues for the year ended December 31, 2008      that is attributable to the change in unrealized gains or losses relating      to commodity derivative assets and commodity derivative liabilities held      at December 31, 2008 were gains of $52.1 million and $100,000,      respectively. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Effective      December 31, 2008, the fair value of the Company’s natural gas and NGL      processing spread swap derivatives were determined using published NYMEX      observable inputs, resulting in a transfer of these commodity derivatives      to Level 2. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

| Instrument      Type                                    |   | Index                                          |   | Average      Fixed Price (per MMBtu) |   |   | Volumes      (MMBtu/d) (3) |   |                | Fair      Value of Assets |   |
|---------------------------------------------------------|--------|------------------------------------------------|--------|--------------------------------------|--------|--------|---------------------------------|--------|---------------------|---------------------------|--------|
|                                                    |   |                                           |   |                                 |   |   |                            |   | (In      thousands) |                      |
| Natural Gas - Cash Flow      Hedges  (1)      |   |                                           |   |                                 |   |   |                            |   |                |
| Fixed-rate      swap                                    |   | Gas      Daily - Waha                          |   | $                                    | 9.49   |   |                            |   | 11,050              |                      |   | $ | 16,991 |   |
| Fixed-rate      swap                                    |   | Gas      Daily - El Paso Permian               |   | $                                    | 9.49   |   |                            |   | 8,950               |                      |   |   | 13,762 |   |
|                                                    |   |                                           |   | Total                                |   |   |                            | 20,000 |                |                      | $      | 30,753 |   |
|                                                    |   |                                           |   |                                 |   |   |                            |   |                |                      |   |   |   |   |
| Processing Spread - Economic      Hedges  (2) |   |                                           |   |                                 |   |   |                            |   |                |                      |   |   |
| Fixed-rate      swap                                    |   | Gas      Daily - Waha (natural gas)            |   | $                                    | 7.40   |   |                            |   | 16,575              |                      |   | $ | 32,988 |   |
|                                                    |   | OPIS      - Mt. Belvieu (NGL)                  |   |                                 |   |   |                            |   |                |                      |   |   |   |   |
| Fixed-rate      swap                                    |   | Gas      Daily - El Paso Permian (natural gas) |   | $                                    | 7.40   |   |                            |   | 13,425              |                      |   |   | 26,718 |   |
|                                                    |   | OPIS      - Mt. Belvieu (NGL)                  |   |                                 |   |   |                            |   |                |                      |   |   |   |   |
|                                                    |   |                                           |   | Total                                |   |   |                            | 30,000 |                |                      | $      | 59,706 |   |

| (1)   | The      Company’s natural gas swap arrangements have been designated as cash flow      hedges.  The effective portion of changes in the fair value of      the cash flow hedges is recorded in Accumulated other      comprehensive loss until the related hedged items impact      earnings.  Any ineffective portion of a cash flow hedge is      reported in current-periodearnings. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | The      Company’s processing spread swap arrangements, which hedge the pricing      differential between NGL volumes and natural gas volumes, are treated as      economic hedges.  The ratio of NGL product sold per MMBtu is      approximately: 33 percent ethane, 32 percent propane, 5 percent isobutane,      14 percent normal butane and16 percent natural gasoline.  The      change in fair value is reported in current-period    earnings. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | All      volumes are applicable to the period January 1, 2009 to December 31,      2009. |
|-----------------|------------------------------------------------------------------------------------------|

----

Table of Contents

|                                     |   | Quarters      Ended                           |    |
|------------------------------------------|--------|-----------------------------------------------|---------|
|                                     |   | March      31                                 |    |   | June      30 |   |   | September      30 |   |   | December      31 |   |
|                                     |   | (In      thousands, except per share amounts) |    |
|                                     |   |                                          |    |   |   |   |   |   |   |   |   |   |
| Operating      revenues                  |   | $                                             | 952,698 |   |   | $ | 733,055 |   |   | $ | 657,283 |   |   | $ | 727,118 |   |
| Operating      income                    |   |                                          | 153,555 |   |   |   | 90,277 |   |   |   | 97,280 |   |   |   | 188,867 |   |
| Earnings      from continuing operations |   |                                          | 82,908  |   |   |   | 42,910 |   |   |   | 46,776 |   |   |   | 122,557 |   |
| Net      earnings available for common   |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| stockholders                             |   |                                          | 78,567  |   |   |   | 37,479 |   |   |   | 42,476 |   |   |   | 120,890 |   |
| Diluted      net earnings per share      |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| available      for common stockholders:  |   |                                          |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing      operations               |   | $                                             | 0.64    |   |   | $ | 0.30 |   |   | $ | 0.34 |   |   | $ | 0.97 |   |
| Available      for common stockholders   |   | $                                             | 0.64    |   |   | $ | 0.30 |   |   | $ | 0.34 |   |   | $ | 0.97 |   |

|                                     |   | 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 |   |

----

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

----

----

| Citrus      Corp. and Subsidiaries                           |   |              |
|--------------------------------------------------------------|--------|-------------------|
| Consolidated      Financial Statements                       |   |              |
|                                                         |   |              |   |   |
| Years      ended December 31, 2008, 2007 and 2006            |   |              |
|                                                         |   |              |
|                                                         |   |              |
|                                                         |   |              |
| 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 Shareholders' Equity         |   |  5           |   |   |
| Consolidated      Statements of Comprehensive Income         |   |  5           |   |   |
| Consolidated      Statements of Cash Flows                   |   |  6           |   |   |
| Notes      to Consolidated Financial Statements              |   |  7 -      29 |   |   |
|                                                         |   |              |   |   |   |

----

----

| CITRUS      CORP. AND SUBSIDIARIES                                                               |   |
|--------------------------------------------------------------------------------------------------|--------|
| CONSOLIDATED      BALANCE SHEETS                                                                 |   |
|                                                                                             |   |   |   |   |   |   |
|                                                                                             |   |   |   |   |   |   |
|                                                                                             |   |   |   |   |   |   |
|                                                                                             |   |   |   |   |   |   |
|                                                                                             |   | December      31, |   |   | December      31, |   |
|                                                                                             |   | 2008 |   |   | 2007 |   |
|                                                                                             |   |   |   |   |   |   |
|                                                                                             |   | (In      thousands) |   |
| ASSETS                                                                                           |   |   |   |   |   |   |
|                                                                                             |   |   |   |   |   |   |
| Current      Assets                                                                              |   |   |   |   |   |   |
| Cash      and cash equivalents                                                                   |   | $ | 20,032 |   |   | $ | 3,572 |   |
| Accounts      receivable, billed and unbilled,                                                   |   |   |   |   |   |   |   |   |
|      less      allowances of $18 and $18, respectively                  |   |   | 40,308 |   |   |   | 39,350 |   |
| Materials      and supplies                                                                      |   |   | 14,692 |   |   |   | 12,745 |   |
| Exchange      gas receivable                                                                     |   |   | 1,519 |   |   |   | 1,729 |   |
| Other                                                                                            |   |   | 2,073 |   |   |   | 2,248 |   |
|     Total      Current Assets                                                |   |   | 78,624 |   |   |   | 59,644 |   |
|                                                                                             |   |   |   |   |   |   |   |   |
| Property,      Plant and Equipment                                                               |   |   |   |   |   |   |   |   |
| Plant      in service                                                                            |   |   | 4,499,383 |   |   |   | 4,265,844 |   |
| Construction      work in progress                                                               |   |   | 405,585 |   |   |   | 150,742 |   |
|                                                                                             |   |   | 4,904,968 |   |   |   | 4,416,586 |   |
| Less      accumulated depreciation and amortization                                              |   |   | 1,478,890 |   |   |   | 1,401,638 |   |
|     Property,      Plant and Equipment, Net                                  |   |   | 3,426,078 |   |   |   | 3,014,948 |   |
|                                                                                             |   |   |   |   |   |   |   |   |
| Other      Assets                                                                                |   |   |   |   |   |   |   |   |
| Unamortized      debt expense                                                                    |   |   | 4,048 |   |   |   | 4,221 |   |
| Regulatory      assets                                                                           |   |   | 22,241 |   |   |   | 19,207 |   |
| Other                                                                                            |   |   | 6,914 |   |   |   | 10,838 |   |
|     Total      Other Assets                                                  |   |   | 33,203 |   |   |   | 34,266 |   |
|                                                                                             |   |   |   |   |   |   |   |   |
| Total      Assets                                                                                |   | $ | 3,537,905 |   |   | $ | 3,108,858 |   |
|                                                                                             |   |   |   |   |   |   |   |   |
|                                                                                             |   |   |   |   |   |   |   |   |
|  LIABILITIES      AND STOCKHOLDERS' EQUITY                                                  |   |   |   |   |   |   |   |   |
|                                                                                             |   |   |   |   |   |   |   |   |
|  Current      Liabilities                                                                   |   |   |   |   |   |   |   |   |
|  Current      portion of long-term debt                                                     |   | $ | 51,500 |   |   | $ | 44,000 |   |
|  Accounts      payable - trade and other                                                    |   |   | 33,539 |   |   |   | 33,422 |   |
|  Accounts      payable - affiliated companies                                               |   |   | 8,533 |   |   |   | 8,416 |   |
|  Accrued      interest                                                                      |   |   | 20,918 |   |   |   | 14,251 |   |
|  Accrued      income taxes                                                                  |   |   | - |   |   |   | 7,599 |   |
|  Accrued      taxes, other than income                                                      |   |   | 5,217 |   |   |   | 5,437 |   |
|  Exchange      gas payable                                                                  |   |   | 20,752 |   |   |   | 22,547 |   |
|  Capital      accruals                                                                      |   |   | 14,377 |   |   |   | 22,636 |   |
|  Dividends      payable                                                                     |   |   | - |   |   |   | 42,600 |   |
|  Other                                                                                      |   |   | 7,506 |   |   |   | 7,600 |   |
|      Total      Current Liabilities                                     |   |   | 162,342 |   |   |   | 208,508 |   |
|                                                                                             |   |   |   |   |   |   |   |   |
|  Deferred      Credits                                                                      |   |   |   |   |   |   |   |   |
|  Deferred      income taxes, net                                                            |   |   | 802,006 |   |   |   | 763,364 |   |
|  Regulatory      liabilities                                                                |   |   | 9,206 |   |   |   | 14,842 |   |
|  Other                                                                                      |   |   | 16,318 |   |   |   | 9,202 |   |
|      Total      Deferred Credits                                        |   |   | 827,530 |   |   |   | 787,408 |   |
|                                                                                             |   |   |   |   |   |   |   |   |
|  Long-Term      Debt                                                                        |   |   | 1,327,020 |   |   |   | 909,810 |   |
|  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                                                        |   |   | (5,246 | ) |   |   | (7,885 | ) |
| Retained      earnings                                                                           |   |   | 591,987 |   |   |   | 576,745 |   |
|      Total      Stockholders' Equity                                    |   |   | 1,221,013 |   |   |   | 1,203,132 |   |
|                                                                                             |   |   |   |   |   |   |   |   |
|  Total      Liabilities and Stockholders' Equity                                            |   | $ | 3,537,905 |   |   | $ | 3,108,858 |   |
|                                                                                             |   |   |   |   |   |   |   |   |

----

| CITRUS      CORP. AND SUBSIDIARIES                              |   |
|-----------------------------------------------------------------|--------|
| CONSOLIDATED      STATEMENTS OF INCOME                          |   |
|                                                            |   |   |   |   |
|                                                            |   |   |   |   |
|                                                            |   |   |   |   |   |   |   |   |   |
|                                                            |   |   |   |   |   |   |   |   |   |
|                                                            |   |   |   |   |   |   |   |   |   |
|                                                            |   |   |   |   |   |   |   |   |   |
|                                                            |   | Year      Ended |   |   | Year      Ended |   |   | Year      Ended |   |
|                                                            |   | December      31, |   |   | December      31, |   |   | December      31, |   |
|                                                            |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                                                            |   | (In      thousands) |   |
|                                                            |   |   |   |   |   |   |   |   |   |
|                                                            |   |   |   |   |   |   |   |   |   |
| Operating      Revenues                                         |   |   |   |   |   |   |   |   |   |
| Transportation      of natural gas                              |   | $ | 504,819 |   |   | $ | 495,513 |   |   | $ | 485,189 |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      Operating Revenues                                   |   |   | 504,819 |   |   |   | 495,513 |   |   |   | 485,189 |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      Expenses                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Operations      and maintenance                                 |   |   | 89,314 |   |   |   | 82,058 |   |   |   | 77,941 |   |
| Depreciation      and amortization                              |   |   | 105,849 |   |   |   | 100,634 |   |   |   | 98,653 |   |
| Taxes,      other than income taxes                             |   |   | 34,411 |   |   |   | 29,618 |   |   |   | 34,765 |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
|     Total      Operating Expenses           |   |   | 229,574 |   |   |   | 212,310 |   |   |   | 211,359 |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      Income                                           |   |   | 275,245 |   |   |   | 283,203 |   |   |   | 273,830 |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      Income (Expenses)                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      expense and related charges, net                  |   |   | (82,830 | ) |   |   | (73,871 | ) |   |   | (76,428 | ) |
| Other,      net                                                 |   |   | 8,008 |   |   |   | 39,984 |   |   |   | 4,633 |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
|     Total      Other Income (Expenses), net |   |   | (74,822 | ) |   |   | (33,887 | ) |   |   | (71,795 | ) |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      Before Income Taxes                                 |   |   | 200,423 |   |   |   | 249,316 |   |   |   | 202,035 |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Federal      and State Income Tax Expense                       |   |   | 73,481 |   |   |   | 92,224 |   |   |   | 75,960 |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      Income                                                 |   | $ | 126,942 |   |   | $ | 157,092 |   |   | $ | 126,075 |   |

----

| CITRUS      CORP. AND SUBSIDIARIES                                                                                             |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|
| CONSOLIDATED      STATEMENTS OF STOCKHOLDERS' EQUITY                                                                           |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |
|                                                                                                                           |   |   |   |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |
|                                                                                                                           |   | Year      Ended |   |   | Year      Ended |   |   | Year      Ended |   |
|                                                                                                                           |   | December      31, |   |   | December      31, |   |   | December      31, |   |
|                                                                                                                           |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                                                                                                                           |   | (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                                                                                              |   |   | (7,885 | ) |   |   | (10,524 | ) |   |   | (13,162 | ) |
| Recognition      in earnings of previously deferred net losses related to derivative      instruments used as cash flow hedges |   |   | 2,639 |   |   |   | 2,639 |   |   |   | 2,638 |   |
| Balance,      end of period                                                                                                    |   |   | (5,246 | ) |   |   | (7,885 | ) |   |   | (10,524 | ) |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| Retained      Earnings                                                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance,      beginning of period                                                                                              |   |   | 576,745 |   |   |   | 669,353 |   |   |   | 668,678 |   |
| Net      income                                                                                                                |   |   | 126,942 |   |   |   | 157,092 |   |   |   | 126,075 |   |
| Dividends                                                                                                                      |   |   | (111,700 | ) |   |   | (249,700 | ) |   |   | (125,400 | ) |
| Balance,      end of period                                                                                                    |   |   | 591,987 |   |   |   | 576,745 |   |   |   | 669,353 |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      Stockholders' Equity                                                                                                |   | $ | 1,221,013 |   |   | $ | 1,203,132 |   |   | $ | 1,293,101 |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| CONSOLIDATED      STATEMENTS OF COMPREHENSIVE INCOME                                                                           |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                           |   |   |   |   |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                           |   | Year      Ended |   |   | Year      Ended |   |   | Year      Ended |   |
|                                                                                                                           |   | December      31, |   |   | December      31, |   |   | December      31, |   |
|                                                                                                                           |   | 2008 |   |   | 2007 |   |   | 2006 |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                           |   | (In      thousands) |   |
|                                                                                                                           |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                                                                                |   | $ | 126,942 |   |   | $ | 157,092 |   |   | $ | 126,075 |   |
| Recognition      in earnings of previously deferred net losses related to derivative      instruments used as cash flow hedges |   |   | 2,639 |   |   |   | 2,639 |   |   |   | 2,638 |   |
|  Total      Comprehensive Income                                                                                          |   | $ | 129,581 |   |   | $ | 159,731 |   |   | $ | 128,713 |   |

----

| CITRUS      CORP. AND SUBSIDIARIES                                                          |   |
|---------------------------------------------------------------------------------------------|--------|
| CONSOLIDATED      STATEMENTS OF CASH FLOWS                                                  |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   | Year      Ended |   |   |   | Year      Ended |   |   |   | Year      Ended |   |
|                                                                                        |   | December      31, |   |   |   | December      31, |   |   |   | December      31, |   |
|                                                                                        |   | 2008 |   |   |   | 2007 |   |   |   | 2006 |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   | (In      thousands) |   |
| Cash      flows provided by operating activities                                            |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                                             |   | $ | 126,942 |   |   |   | $ | 157,092 |   |   |   | $ | 126,075 |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities: |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation      and amortization                                                          |   |   | 105,849 |   |   |   |   | 100,634 |   |   |   |   | 98,653 |   |
| Deferred      income taxes                                                                  |   |   | 37,772 |   |   |   |   | (12,277 | ) |   |   |   | 18,629 |   |
| Allowance      for funds used during construction                                           |   |   | (7,093 | ) |   |   |   | (4,683 | ) |   |   |   | (1,630 | ) |
| Other                                                                                       |   |   | 3,842 |   |   |   |   | 5,411 |   |   |   |   | 7,487 |   |
| Changes      in operating assets and liabilities:                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      current assets and liabilities                                                   |   |   | (5,051 | ) |   |   |   | 13,375 |   |   |   |   | 15,067 |   |
| Other      long-term assets and liabilities                                                 |   |   | (680 | ) |   |   |   | 74,668 |   |   |   |   | (24,627 | ) |
| Net      cash provided by operating activities                                              |   |   | 261,581 |   |   |   |   | 334,220 |   |   |   |   | 239,654 |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      flows used in investing activities                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital      expenditures                                                                   |   |   | (521,435 | ) |   |   |   | (175,370 | ) |   |   |   | (106,023 | ) |
| Allowance      for funds used during construction                                           |   |   | 7,093 |   |   |   |   | 4,683 |   |   |   |   | 1,630 |   |
| Net      cash used in investing activities                                                  |   |   | (514,342 | ) |   |   |   | (170,687 | ) |   |   |   | (104,393 | ) |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      flows provided by (used in) financing activities                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Dividends      paid                                                                         |   |   | (154,300 | ) |   |   |   | (207,100 | ) |   |   |   | (125,400 | ) |
| Net      (payments) borrowings on the revolving credit facilities                           |   |   | (31,817 | ) |   |   |   | 76,400 |   |   |   |   | (2,000 | ) |
| Payments      on long-term debt                                                             |   |   | (44,000 | ) |   |   |   | (44,000 | ) |   |   |   | (14,000 | ) |
| Issuance      of long-term debt                                                             |   |   | 500,000 |   |   |   |   | - |   |   |   |   | - |   |
| Issuance      costs of debt                                                                 |   |   | (662 | ) |   |   |   | (528 | ) |   |   |   | - |   |
| Net      cash provided by (used in) financing activities                                    |   |   | 269,221 |   |   |   |   | (175,228 | ) |   |   |   | (141,400 | ) |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents                                   |   |   | 16,460 |   |   |   |   | (11,695 | ) |   |   |   | (6,139 | ) |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents, beginning of period                                         |   |   | 3,572 |   |   |   |   | 15,267 |   |   |   |   | 21,406 |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents, end of period                                               |   | $ | 20,032 |   |   |   | $ | 3,572 |   |   |   | $ | 15,267 |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Supplemental      disclosure of cash flow information                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      paid (net of amounts capitalized)                                             |   | $ | 75,194 |   |   |   | $ | 72,439 |   |   |   | $ | 72,067 |   |
| Income      tax paid                                                                        |   | $ | 43,570 |   |   |   | $ | 103,589 |   |   |   | $ | 56,814 |   |

----

| (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 Type of Regulation” (Statement No. 71) and FASB Statement      No. 92 “Regulated      Enterprises – Accounting for Phase-in Plans” (Statement No      92).  Accordingly, under Statement No. 71, certain assets      and liabilities that result from the regulated ratemaking process are      recorded that would not be recorded under GAAP for non-regulated entities.      Statement No. 71 was amended by FASB Statement No. 92 which prohibits      certain allowable regulatory deferrals of phase-in costs under      GAAP.  As a consequence, certain phase-in costs of Florida Gas’      Phase III expansion are not deferred for GAAP, but are deferred for future      recovery for ratemaking purposes. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Revenue      Recognition – Revenues consist primarily of fees earned from gas      transportation services.  Reservation revenues are recognized      monthly based on contracted rates and capacity reserved by the      customers.  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, 2008 and 2007,      respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Derivative      Instruments and Hedging Activities – 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.  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 economic 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.  Upon termination of a cash      flow hedge, the resulting gain or loss is amortized to earnings through      the maturity date of the hedged forecasted transactions.  For      derivatives treated as trading or economic 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, 2008 and 2007,      the Company does not have any hedges in place; it is only amortizing      previously terminated cash flowhedges. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 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 amounts to gross up equity AFUDC to a before tax basis,      totaled $15.6 million, $10.3 million and $3.4 million for the years ended      December 31, 2008, 2007 and 2006, respectively.  AFUDC-borrowed      funds are included in Interest Expense (as a reduction in Interest      Expense) and AFUDC-equity funds are 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 (ARO)” (Statement No. 143) 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, 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.  In 2008      Florida Gas recorded a $1.3 million ARO liability for certain pipeline      abandonment costs. At December 31, 2008, the ARO assets had a net book      value of $1.8 million. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | The      table below provides a reconciliation of the carrying amount of the ARO      liability for the period indicated: |
|--------|---------------------------------------------------------------------------------------------------------------------------|

|                          |   | Year      Ended December 31, 2008 |   |   | Year      Ended December 31, 2007 |   |   | Year      Ended December 31, 2006 |   |
|-------------------------------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|
|                          |   | (In      thousands)               |   |
|                          |   |                              |   |   |                              |   |   |                              |   |
| Beginning      balance        |   | $                                 | 471    |   |                              | $      | 481    |                              |   | $ | 493 |   |
| Incurred                      |   |                              | 1,358  |   |                              |   | -      |                              |   |   | - |   |
| Settled                       |   |                              | (37    | )      |                              |   | (37    | )                                 |   |   | (36 | ) |
| Accretion      Expense        |   |                              | 27     |   |                              |   | 27     |                              |   |   | 24 |   |
| Ending      balance (Note 11) |   | $                                 | 1,819  |   |                              | $      | 471    |                              |   | $ | 481 |   |

|   | Asset      Impairment – The Company applies the provisions of FASB Statement      No. 144, “Accounting for      the Impairment or Disposal of Long-Lived Assets” (Statement No.      144), 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 carryingamount. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Gas      Imbalances – 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.  Gas imbalance receivables from      customers are recorded in Exchange gas receivable and imbalance      payables are recorded in Exchange gas payable in the accompanying      Consolidated Balance Sheets. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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.  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 notpredictable. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Cash      and Cash Equivalents – All liquid investments with maturities of      three months or less at the date of purchase are considered cash      equivalents.   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 the Company.  Fuel due from customers      is recorded as Regulatory assets and over-retained fuel due to customers      is recorded in Regulatory liabilities in the accompanying Consolidated      Balance Sheets. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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” (Statement No. 109).  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 bases.  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 collectability.  Unrecovered      accounts receivable charged against the allowance for doubtful accounts      were nil, $0.3 million and nil in the years ended December 31, 2008, 2007      and 2006, respectively. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | Level      1 – Observable inputs such as quoted prices in active markets for      identical assets or liabilities; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------|

| ·   | Level      2 – Observable inputs such as: (i) quoted prices for similar assets or      liabilities in active markets; (ii) quoted prices for identical or similar      assets or liabilities in markets that are not active and do not require      significant adjustment based on unobservable inputs; or (iii) valuations      based on pricing models where significant inputs (e.g., interest rates,      yield curves, etc.), are derived principally from observable market data,      or can be corroborated by observable market data, for substantially the      full term of the assets or liabilities;and |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Level      3 – Unobservable inputs, including valuations based on pricing models,      discounted cash flow methodologies or similar techniques where at least      one significant model assumption or input is unobservable. Unobservable      inputs are used to the extent that observable inputs are not available and      reflect the Company’s own assumptions about the assumptions market      participants would use in pricing the assets or liabilities. Unobservable      inputs are based on the best information available in the circumstances,      which might include the Company’s owndata. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 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, 2008 |    |      | December      31, 2007 |   |
|-----------------------------------------------|--------|-----------------|--------|--------|------------------------|---------|-----------|------------------------|--------|
|                                          |   | Due             |   |   | Book      Value        |    |      | Fair      Value        |   |   | Book      Value |   |   | Fair      Value |   |
|                                          |   |            |   |   | (In      thousands)    |    |
| Citrus                                        |   |            |   |   |                   |    |      |                   |   |   |   |   |   |   |   |
| 8.490%      Senior Notes                      |   |  2007-2009 |   |   | $                      | 30,000  |      |                   | $      | 31,439 |   |   | $ | 60,000 |   |   | $ | 63,572 |   |
| Revolving      Credit Agreement Citrus        |   | 2012            |   |   |                   | 40,643  |      |                   |   | 37,729 |   |   |   | 62,400 |   |   |   | 62,400 |   |
| Construction      and Term Loan Agreement     |   | 2033            |   |   |                   | 500,000 |      |                   |   | 500,000 |   |   |   | - |   |   |   | - |   |
| FGT                                           |   |            |   |   |                   |    |      |                   |   |   |   |   |   |   |   |   |   |   |   |
| 9.750%      Senior B Notes                    |   |  1999-2008 |   |   |                   | -       |      |                   |   | - |   |   |   | 6,500 |   |   |   | 6,736 |   |
| 10.110%      Senior C Notes                   |   |  2009-2013 |   |   |                   | 70,000  |      |                   |   | 77,010 |   |   |   | 70,000 |   |   |   | 82,282 |   |
| 9.190%      Senior Notes                      |   |  2005-2024 |   |   |                   | 120,000 |      |                   |   | 127,945 |   |   |   | 127,500 |   |   |   | 158,843 |   |
| 7.625%      Senior Notes                      |   | 2010            |   |   |                   | 325,000 |      |                   |   | 341,574 |   |   |   | 325,000 |   |   |   | 353,352 |   |
| 7.000%      Senior Notes                      |   | 2012            |   |   |                   | 250,000 |      |                   |   | 261,891 |   |   |   | 250,000 |   |   |   | 277,281 |   |
| Revolving      Credit Agreement FGT           |   | 2012            |   |   |                   | 43,940  |      |                   |   | 40,790 |   |   |   | 54,000 |   |   |   | 54,000 |   |
|    Total      debt outstanding |   |            |   |   |                   | $       | 1,379,583 |                   |   | $ | 1,418,378 |   |   | $ | 955,400 |   |   | $ | 1,058,466 |   |
| Current      portion of long-term debt        |   |            |   |   |                   |    | (51,500   | )                      |   |   |   |   |   |   | (44,000 | ) |   |   |   |   |
| Unamortized      Debt Discount and Swap Loss  |   |            |   |   |                   |    | (1,063    | )                      |   |   |   |   |   |   | (1,590 | ) |   |   |   |   |
|    Total      long-term debt   |   |            |   |   |                   | $       | 1,327,020 |                   |   |   |   |   |   | $ | 909,810 |   |   |   |   |   |

|       |   | December      31,   |      |
|------------|--------|---------------------|-----------|
|       |   | 2008                |      |
| Year       |   | (In      thousands) |      |
|       |   |                |      |
| 2009       |   | $                   | 51,500    |   |
| 2010       |   |                | 346,500   |   |
| 2011       |   |                | 21,500    |   |
| 2012       |   |                | 356,083   |   |
| 2013       |   |                | 21,500    |   |
| Thereafter |   |                | 582,500   |   |
|       |   | $                   | 1,379,583 |   |
|       |   |                |      |   |

----

|  |   | All      of the debt obligations of Citrus and Florida Gas have events of default      that contain commonly used cross-default provisions.  An event      of default by either Citrus or Florida Gas on any of their borrowed money      obligations in excess of certain thresholds, which is not cured within      defined grace periods, would cause the other debt obligations of Citrus      and Florida Gas to be accelerated. |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

|                          |   | Year      Ended December 31, 2008 |   |   | Year      Ended December 31, 2007 |   |    | Year      Ended December 31, 2006 |   |
|-------------------------------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|---------|-----------------------------------|--------|
| Current      Tax Provision    |   | (In      thousands)               |   |
| Federal                       |   | $                                 | 34,899 |   |                              | $      | 99,083  |                              |   | $ | 52,135 |   |
| State                         |   |                              | 810    |   |                              |   | 5,418   |                              |   |   | 5,196 |   |
|                          |   |                              | 35,709 |   |                              |   | 104,501 |                              |   |   | 57,331 |   |
|                          |   |                              |   |   |                              |   |    |                              |   |   |   |   |
| Deferred      Tax Provision   |   |                              |   |   |                              |   |    |                              |   |   |   |   |
| Federal                       |   |                              | 33,051 |   |                              |   | (14,531 | )                                 |   |   | 15,863 |   |
| State                         |   |                              | 4,721  |   |                              |   | 2,254   |                              |   |   | 2,766 |   |
|                          |   |                              | 37,772 |   |                              |   | (12,277 | )                                 |   |   | 18,629 |   |
| Total      income tax expense |   | $                                 | 73,481 |   |                              | $      | 92,224  |                              |   | $ | 75,960 |   |
|                          |   |                              |   |   |                              |   |    |                              |   |   |   |   |

|                                            |   | Year      Ended December 31, 2008 |   |   | Year      Ended December 31, 2007 |   |   | Year      Ended December 31, 2006 |   |
|-------------------------------------------------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|
|                                            |   | (In      thousands)               |   |
|                                            |   |                              |   |   |                              |   |   |                              |   |
| Statutory      federal income tax provision     |   | $                                 | 70,148 |   |                              | $      | 87,261 |                              |   | $ | 70,712 |   |
| State      income taxes, net of federal benefit |   |                              | 3,595  |   |                              |   | 4,986  |                              |   |   | 5,176 |   |
| Other                                           |   |                              | (262   | )      |                              |   | (23    | )                                 |   |   | 72 |   |
| Income      tax expense                         |   | $                                 | 73,481 |   |                              | $      | 92,224 |                              |   | $ | 75,960 |   |
|                                            |   |                              |   |   |                              |   |   |                              |   |   |   |   |
| Effective      Tax Rate                         |   |                              | 36.7   | %      |                              |   | 37.0   | %                                 |   |   | 37.6 | % |

----

|                                     |   | December      31, 2008 |    |   | December      31, 2007 |   |
|------------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
|                                     |   | (In      thousands)    |    |
| Deferred      income tax asset           |   |                   |    |   |                   |   |
| Regulatory      and other reserves       |   | $                      | 4,403   |   |                   | $      | 5,554 |   |
|                                     |   |                   | 4,403   |   |                   |   | 5,554 |   |
|                                     |   |                   |    |   |                   |   |   |   |
| Deferred      income tax liabilities     |   |                   |    |   |                   |   |   |   |
| Depreciation      and amortization       |   |                   | 796,339 |   |                   |   | 759,576 |   |
| Deferred      charges and other assets   |   |                   | 3,807   |   |                   |   | 4,717 |   |
| Other                                    |   |                   | 6,263   |   |                   |   | 4,625 |   |
|                                     |   |                   | 806,409 |   |                   |   | 768,918 |   |
| Net      deferred income tax liabilities |   | $                      | 802,006 |   |                   | $      | 763,364 |   |
|                                     |   |                   |    |   |                   |   |   |   |

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

----

----

|                                                               |   | As      of December 31, 2008 Measurement Date |   |   | As      of December 31, 2007 Measurement Date |   |
|--------------------------------------------------------------------|--------|-----------------------------------------------|--------|--------|-----------------------------------------------|--------|
|                                                               |   | (In      thousands)                           |   |
| Change      in Benefit Obligation                                  |   |                                          |   |   |                                          |   |
| Benefit      obligation at the beginning of period                 |   | $                                             | 5,302  |   |                                          | $      | 5,795 |   |
| Service      cost                                                  |   |                                          | 165    |   |                                          |   | 37 |   |
| Interest      cost                                                 |   |                                          | 545    |   |                                          |   | 296 |   |
| Amendments       (1)            |   |                                          | 9,892  |   |                                          |   | - |   |
| Actuarial      gain                                                |   |                                          | 662    |   |                                          |   | (320 | ) |
| Retiree      premiums                                              |   |                                          | 565    |   |                                          |   | 415 |   |
| Benefits      paid                                                 |   |                                          | (1,121 | )      |                                          |   | (1,029 | ) |
| CMS      Medicare Part D subsidies received                        |   |                                          | -      |   |                                          |   | 108 |   |
| Benefit      obligation at end of year                             |   |                                          | 16,010 |   |                                          |   | 5,302 |   |
|                                                               |   |                                          |   |   |                                          |   |   |   |
| Change      in Plan Assets                                         |   |                                          |   |   |                                          |   |   |   |
| Fair      value of plan assets at the beginning of period          |   |                                          | 8,599  |   |                                          |   | 8,497 |   |
| Return      on plan assets                                         |   |                                          | (1,132 | )      |                                          |   | 336 |   |
| Employer      contributions                                        |   |                                          | 1,332  |   |                                          |   | 380 |   |
| Retiree      premiums                                              |   |                                          | 565    |   |                                          |   | 415 |   |
| Benefits      paid                                                 |   |                                          | (1,121 | )      |                                          |   | (1,029 | ) |
| Fair      value of plan assets at end of year   (2) |   |                                          | 8,243  |   |                                          |   | 8,599 |   |
|                                                               |   |                                          |   |   |                                          |   |   |   |
| Funded      Status                                                 |   |                                          |   |   |                                          |   |   |   |
| Funded      status at the end of the year                          |   | $                                             | (7,767 | )      |                                          | $      | 3,297 |   |
|                                                               |   |                                          |   |   |                                          |   |   |   |
| Amount      recognized in the Consolidated Balance Sheets          |   |                                          |   |   |                                          |   |   |   |
| Other      assets - other (Note 10)                                |   | $                                             | -      |   |                                          | $      | 3,297 |   |
| Regulatory      assets (Note 10)                                   |   |                                          | 7,675  |   |                                          |   | - |   |
| Regulatory      liability (Note 11)                                |   |                                          | -      |   |                                          |   | (3,390 | ) |
| Deferred      credits - other (Note 11)                            |   |                                          | (7,767 | )      |                                          |   | - |   |
| Net      asset (liability) recognized                              |   | $                                             | (92    | )      |                                          | $      | (93 | ) |

| (1) | In      September 2008, a postretirement benefit plan change to a defined      contribution based design was approved for retirements beginning October      1, 2008. SFAS No. 106 requires that amendments be measured and recognized      at the time of adoption.  Accordingly, the amendment was      measured at August 31, 2008, the end of the month prior to the month      of adoption. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Plan      assets at December 31, 2008 include the amounts of assets received from      the Enron Trust of $7.1 million as final settlement. As of December 31,      2007, Florida Gas estimated approximately $6.8 million would be received      from the Enron Trust, including a 5 percent annual investment return based      on estimate. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                              |   | Year      Ended December 31, 2008 |   | Year      Ended December 31, 2007 |   | Year      Ended December 31, 2006 |   |
|-----------------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|
|                              |   |                              |   |                              |   |                              |   |   |   |
| Discount      rate                |   |                              | 6.14   | %                                 |   |                              | 6.09   | % |   |   | 5.68 | % |
| Health      care cost trend rates |   |                              | 9.00   | %                                 |   |                              | 10.00  | % |   |   | 11.00 | % |
|                              |   | graded      to 4.85% by 2017      |   | graded      to 5.20% by 2017      |   | graded      to 4.85% by 2013      |   |

|                                    |   | Year      Ended December 31, 2008 |   |   | Year      Ended December 31, 2007 |   |   | Year      Ended December 31, 2006 |   |
|-----------------------------------------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|
|                                    |   | (In      thousands)               |   |
|                                    |   |                              |   |   |                              |   |   |                              |   |
| Service      cost                       |   | $                                 | 165    |   |                              | $      | 37     |                              |   | $ | 46 |   |
| Interest      cost                      |   |                              | 545    |   |                              |   | 296    |                              |   |   | 312 |   |
| Expected      return on plan assets     |   |                              | (440   | )      |                              |   | (414   | )                                 |   |   | (402 | ) |
| Amortization      of prior service cost |   |                              | 351    |   |                              |   | -      |                              |   |   | - |   |
| Recognized      actuarial gain          |   |                              | (218   | )      |                              |   | (230   | )                                 |   |   | (223 | ) |
| Net      periodic (benefit) cost        |   | $                                 | 403    |   |                              | $      | (311   | )                                 |   | $ | (267 | ) |

|                                          |   | Year      Ended December 31, 2008      |   | Year      Ended December 31, 2007 |   |                         | Year      Ended December 31, 2006 |   |
|-----------------------------------------------|--------|----------------------------------------|--------|-----------------------------------|--------|------------------------------|-----------------------------------|--------|
|                                          |   |                                   |   |                              |   |                         |                              |   |   |
| Discount      rate                            |   | Jan-Aug:      6.09%Sep-Dec:      7.02% |   |                              | 5.68   | %                            |                              |   | 5.50 | % |
| 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             |   |                                   | 10.00  | %                                 |   |                         | 11.00                             | %      |   |   | 12.00 | % |
|                                          |   | graded      to 5.20% by 2017           |   | graded      to 4.85% by 2013      |   | graded      to 4.65% by 2012 |                              |

----

|                                                      |   | One      Percentage Point Increase |   | One      Percentage Point Decrease |   |
|-----------------------------------------------------------|--------|------------------------------------|--------|------------------------------------|--------|
|                                                      |   | (In      thousands)                |   |
| Effect      on total service and interest cost components |   | $                                  | 45     |                               |   | $ | (46 | ) |
| Effect      on postretirement benefit obligation          |   | $                                  | 1,331  |                               |   | $ | (1,414 | ) |

|                                 |   | December      31, |   |   | December      31, |   |
|--------------------------------------|--------|-------------------|--------|--------|-------------------|--------|
|                                 |   | 2008              |   |   | 2007              |   |
|                                 |   |              |   |   |              |   |
|  Equity      securities         |   |              | 30     | %      |              |   | 31 | % |
|  Debt      securities           |   |              | 70     | %      |              |   | 69 | % |
|  Cash      and cash equivalents |   |  0           | %      |   |  0           | %      |
|  Total                          |   |  100         | %      |   |  100         | %      |
|                                 |   |              |   |   |              |   |   |   |

----

| Years           |   |   | Expected      Benefits Before Effect of Medicare Part D |   |   | Payments      Medicare Part D |   |   | Net    |   |
|-----------------|--------|--------|---------------------------------------------------------|--------|--------|-------------------------------|--------|--------|--------|--------|
|            |   |   | (In      thousands)                                     |   |   |                          |   |   |   |   |
|            |   |   |                                                    |   |   |                          |   |   |   |   |
| 2009            |   |   | $                                                       | 653    |   |                          | $      | 96     |   |   | $ | 557 |   |
| 2010            |   |   |                                                    | 743    |   |                          |   | 99     |   |   |   | 644 |   |
| 2011            |   |   |                                                    | 837    |   |                          |   | 108    |   |   |   | 729 |   |
| 2012            |   |   |                                                    | 920    |   |                          |   | 119    |   |   |   | 801 |   |
| 2013            |   |   |                                                    | 1,011  |   |                          |   | 131    |   |   |   | 880 |   |
|  2014-2019 |   |   |                                                    | 6,487  |   |                          |   | 879    |   |   |   | 5,608 |   |
|            |   |   |                                                    |   |   |                          |   |   |   |   |   |   |   |   |

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

|                                   |   | Year      Ended December 31, 2008 |    |   | Year      Ended December 31, 2007 |   |    | Year      Ended December 31, 2006 |   |
|----------------------------------------|--------|-----------------------------------|---------|--------|-----------------------------------|--------|---------|-----------------------------------|--------|
|                                   |   | (In      thousands)               |    |
|                                   |   |                              |    |   |                              |   |    |                              |   |
| Florida      Power & Light Company |   | $                                 | 197,301 |   |                              | $      | 195,622 |                              |   | $ | 200,592 |   |
| TECO      Energy, Inc.                 |   |                              | 78,255  |   |                              |   | 80,815  |                              |   |   | 80,192 |   |

----

|                                   |   | December      31, 2008 |   |   | December      31, 2007 |   |
|----------------------------------------|--------|------------------------|--------|--------|------------------------|--------|
|                                   |   | (In      thousands)    |   |   |                   |   |
|                                   |   |                   |   |   |                   |   |
| Florida      Power & Light Company |   | $                      | 15,293 |   |                   | $      | 15,130 |   |
| TECO      Energy, Inc.                 |   |                   | 5,430  |   |                   |   | 6,201 |   |

| (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, nil and $1.0 million in      the years ended December 31, 2008, 2007 and 2006,      respectively.  The Company’s gas sales were immaterial in the      years ended December 31, 2008, 2007 and 2006.  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 and $6.8 million and $6.6 million in the      years ended December 31, 2008, 2007 and 2006,  respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

----

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

|                                                                          |   | Lives      in Years |   |   | December      31, 2008 |      |       | December      31, 2007 |   |
|-------------------------------------------------------------------------------|--------|---------------------|--------|--------|------------------------|-----------|------------|------------------------|--------|
|                                                                          |   |                |   |   | (In      thousands)    |      |
|                                                                          |   |                |   |   |                   |      |       |                   |   |
| Transmission      plant                                                       |   |  20-50         |   |   | $                      | 3,208,476 |       |                   | $      | 2,953,642 |   |
| General      plant                                                            |   |  4-40          |   |   |                   | 19,893    |       |                   |   | 28,540 |   |
| Intangibles  (1)                                                    |   |  10            |   |   |                   | 18,548    |       |                   |   | 31,196 |   |
| Construction      work-in-progress                                            |   |                |   |   |                   |      | 405,585    |                   |   |   | 150,742 |   |
| Acquisition      adjustment                                                   |   |  62.5          |   |   |                   | 1,252,466 |       |                   |   | 1,252,466 |   |
|                                                                          |   |                |   |   |                   |      | 4,904,968  |                   |   |   | 4,416,586 |   |
| Less:      Accumulated depreciation and amortization                          |   |                |   |   |                   |      | (1,478,890 | )                      |   |   | (1,401,638 | ) |
| Property,      Plant and Equipment, net                                       |   |                |   |   |                   | $         | 3,426,078  |                   |   | $ | 3,014,948 |   |
|                                                                          |   |                |   |   |                   |      |       |                   |   |   |   |   |
|                                                                          |   |                |   |   |                   |      |       |                   |   |   |   |   |
| (1) Includes      capitalized computer software costs totaling:          |   |                |   |   |                   |      |       |                   |   |
|        Computer      software cost         |   |                |   |   |                   |  $   | 14,556     |                   |   |  $ | 26,498 |   |
|        Less:      accumulated amortization |   |                |   |   |                   |      | (6,363     | )                      |   |   | (16,300 | ) |
|        Net      computer software costs    |   |                |   |   |                   |  $   | 8,193      |                   |   |  $ | 10,198 |   |

----

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

|                                                       |   |  December 31, 2008 |   |   |  December 31, 2007 |   |
|------------------------------------------------------------|--------|-------------------------|--------|--------|-------------------------|--------|
|                                                       |   | (In      thousands)     |   |
|                                                       |   |                    |   |   |                    |   |
| Ramp-up      assets, net (1)                               |   | $                       | 11,304 |   |                    | $      | 11,616 |   |
| Fuel      tracker                                          |   |                    | 102    |   |                    |   | 2,295 |   |
| Other      postretirement benefits (Note 5)                |   |                    | 7,675  |   |                    |   | - |   |
| Cash      balance plan settlement                          |   |                    | 465    |   |                    |   | 2,326 |   |
| Environmental      non-PCB clean-up cost (Note 12)         |   |                    | 1,147  |   |                    |   | 1,147 |   |
| Other      miscellaneous                                   |   |                    | 1,548  |   |                    |   | 1,823 |   |
|      Total      Regulatory Assets |   | $                       | 22,241 |   |                    | $      | 19,207 |   |

| (1)   | Ramp-up      assets are regulatory assets which Florida Gas was specifically allowed to      establish in the FERC certificates authorizing the Phase IV and V      Expansion projects. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                          |   | December      31,   |   |   | December      31, |   |
|---------------------------------------------------------------|--------|---------------------|--------|--------|-------------------|--------|
|                                                          |   | 2008                |   |   | 2007              |   |
|                                                          |   | (In      thousands) |   |
|                                                          |   |                |   |   |              |   |
| Long-term      receivables                                    |   | $                   | 2,756  |   |              | $      | 2,859 |   |
| Other      postretirement benefits (Note 5)                   |   |                | -      |   |              |   | 3,297 |   |
| Preliminary      survey & investigation                   |   |                | 2,802  |   |              |   | 3,021 |   |
| FERC      ACA fee                                             |   |                | 965    |   |              |   | 1,061 |   |
| Other      miscellaneous                                      |   |                | 391    |   |              |   | 600 |   |
|      Total      Other Assets - other |   | $                   | 6,914  |   |              | $      | 10,838 |   |

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

|                                                            |   | December      31,   |   |   | December      31, |   |
|-----------------------------------------------------------------|--------|---------------------|--------|--------|-------------------|--------|
|                                                            |   | 2008                |   |   | 2007              |   |
|                                                            |   | (In      thousands) |   |
|                                                            |   |                |   |   |              |   |
| Balancing      tools (1)                                        |   | $                   | 9,178  |   |              | $      | 11,413 |   |
| Other      postretirement benefits (Note 5)                     |   |                | -      |   |              |   | 3,390 |   |
| Other      miscellaneous                                        |   |                | 28     |   |              |   | 39 |   |
|      Total      Regulatory liabilities |   | $                   | 9,206  |   |              | $      | 14,842 |   |

|   | (1)  Balancing      tools are a regulatory method by which Florida Gas recovers the costs of      operational balancing of the pipeline’s system.  The balance can      be a deferred charge or credit, depending on timing, rate changes and      operational activities. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                              |   | December      31,   |   |   | December      31, |   |   |
|-------------------------------------------------------------------|--------|---------------------|--------|--------|-------------------|--------|--------|
|                                                              |   | 2008                |   |   | 2007              |   |   |
|                                                              |   | (In      thousands) |   |   |
|                                                              |   |                |   |   |              |   |   |
| Post      construction mitigation costs                           |   | $                   | 1,354  |   |              | $      | 1,686  |   |   |
| Other      postretirement benefits (Note 5)                       |   |                | 7,767  |   |              |   | -      |   |   |
| Deferred      compensation                                        |   |                | 687    |   |              |   | 889    |   |   |
| Environmental      non-PCB clean-up cost reserve                  |   |                | 1,283  |   |              |   | 1,337  |   |   |
| Taxes      payable                                                |   |                | 2,246  |   |              |   | 3,116  |   |   |
| Asset      retirement obligation (Note 2)                         |   |                | 1,819  |   |              |   | 471    |   |      |
| Other      miscellaneous                                          |   |                | 1,162  |   |              |   | 1,703  |   |   |
|      Total      Deferred Credits - other |   | $                   | 16,318 |   |              | $      | 9,202  |   |   |
|                                                              |   |                |   |   |              |   |   |   |   |
|                                                              |   |                |   |   |              |   |   |   |   |

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

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

----

|                                                                  |   | Year      Ended     |   |   | Year      Ended   |   |   | Year      Ended   |   |
|-----------------------------------------------------------------------|--------|---------------------|--------|--------|-------------------|--------|--------|-------------------|--------|
|                                                                  |   | December      31,   |   |   | December      31, |   |   | December      31, |   |
|                                                                  |   | 2008                |   |   | 2007              |   |   | 2006              |   |
|                                                                  |   | (In      thousands) |   |
| Interest      rate swap loss on 7.625% $325 million note due 2010     |   | $                   | 1,873  |   |              | $      | 1,873  |              |   | $ | 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  |   |              | $      | 2,639  |              |   | $ | 2,638 |   |
|                                                                  |   |                |   |   |              |   |   |              |   |   |   |   |

|                                                                  | Termination      Date |   | Amortization      Period              |   | Original      Gain/(Loss) |    |   | December      31, 2008 |   |   | December      31, 2007 |   |
|-----------------------------------------------------------------------|-----------------------|--------|---------------------------------------|--------|---------------------------|---------|--------|------------------------|--------|--------|------------------------|--------|
|                                                                  |                  |   |         (In      thousands) |   |
| Interest      rate swap loss on 7.625% $325 million note due 2010     | December      2000    |   | 10      years                         |   | $                         | (18,724 | )      |                   | $      | (3,588 | )                      |   | $ | (5,461 | ) |
| Interest      rate swap loss on 7.0% $250 million note due 2012       | July      2002        |   | 10      years                         |   |                      | (12,280 | )      |                   |   | (4,351 | )                      |   |   | (5,579 | ) |
| Interest      rate swap gain on 9.19% $150 million note due 2005-2024 | November      1994    |   | 20      years                         |   |                      | 9,236   |   |                   |   | 2,693  |                   |   |   | 3,155 |   |
|      Total                                   |                  |   |                                  |   |                      |    |   |                   | $      | (5,246 | )                      |   | $ | (7,885 | ) |
|                                                                  |                  |   |                                  |   |                      |    |   |                   |   |   |                   |   |   |   |   |

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

----

----

----