----

----

**UNITED      STATES SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,      D. C. 20549**

**FORM      10-K/A**

**(Amendment      No. 1) **

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

**For      the Fiscal Year Ended December 31, 2004**

**OR**

**X      **
**TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934      FOR THE TRANSITION PERIOD FROM JULY 1, 2004 TO DECEMBER 31,      2004**

**Commission      File No. 1-6407**

**SOUTHERN      UNION COMPANY**

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

| **One                PEI Center, Second Floor**         | **18711**                 |
|---------------------------------------------------------|---------------------------|
| **Wilkes-Barre,                Pennsylvania**           | (Zip                Code) |
| (Address                of principal executive offices) |                      |

**(570)      820-2400**

| **Title                of each class**                  | **Name                of each exchange on which registered** |
|---------------------------------------------------------|--------------------------------------------------------------|
| **Common                Stock, par value $1 per share** | **New                York Stock Exchange**                   |
| **7.55%                Depositary Shares**              | **New                York Stock Exchange**                   |
| **5.75%                Corporate Units**                | **New                York Stock Exchange**                   |
| **5.00%                Corporate Units**                | **New                York Stock Exchange**                   |

**X**

**X**

**DOCUMENTS      INCORPORATED BY REFERENCE**

----

----

**EXPLANATORY        NOTE**

----

**SOUTHERN      UNION COMPANY AND SUBSIDIARIES**

**FORM      10-K**

**DECEMBER      31, 2004**

|                                                           |                                                                                                                   | Page   |
|----------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------|--------|
|                                                           | **PART                I**                                                                                              |   |
| ITEM                1.                                         | Business.                                                                                                              | 1      |
| ITEM                2.                                         | Properties.                                                                                                            | 16     |
| ITEM                3.                                         | Legal                Proceedings.                                                                                      | 16     |
| ITEM                4.                                         | Submission                of Matters to a Vote of Security Holders.                                                    | 16     |
|                                                           | **PART                II**                                                                                             |   |
| ITEM                5.                                         | Market                for the Registrant’s Common Stock and Related Stockholder                Matters.          | 17     |
| ITEM                6.                                         | Selected                Financial Data.                                                                                | 19     |
| ITEM                7.                                         | Management's                Discussion and Analysis of Results of Operations and Financial                Condition*.* | 20     |
| ITEM                7A.                                        | Quantitative                and Qualitative Disclosures About Market Risk.                                             | 48     |
| ITEM                8.                                         | Financial                Statements and Supplementary Data.                                                            | 50     |
| ITEM                9.                                         | Changes                in and Disagreements with Accountants on Accounting and Financial                Disclosure.    | 50     |
| ITEM                9A.                                        | Controls                and Procedures.                                                                                | 50     |
| ITEM                9B.                                        | Other                Information.                                                                                      | 51     |
|                                                           | **PART                III**                                                                                            |   |
| ITEM                10.                                        | Directors                and Executive Officers of the Registrant.                                                     | 52     |
| ITEM                11.                                        | Executive                Compensation.                                                                                 | 52     |
| ITEM                12.                                        | Security                Ownership of Certain Beneficial Owners and Management.                                         | 52     |
| ITEM                13.                                        | Certain                Relationships and Related Transactions.                                                         | 52     |
| ITEM                14.                                        | Principal                Accountants Fee and Services.                                                                 | 52     |
|                                                           | **PART                IV**                                                                                             |   |
| ITEM                15.                                        | Exhibits,                Financial Statement Schedules, and Reports on Form 8-K.                                       | 53     |
| Signatures.                                                    |                                                                                                                   |
| Index                to the Consolidated Financial Statements. | F-1                                                                                                                    |

----

**PART      I**

**ITEM      1. Business.**

**Please        note that the information contained in this Form 10-K/A, including the financial        statements and the notes thereto, does not reflect events occurring after        March        16, 2005 (the date on which Southern Union filed its 2004 Transition Report        on        Form 10-K). For a description of those events, please see*****Note        XXIII - Subsequent Events*****and the Company’s Exchange Act reports filed since March 16,        2005.**

 

***Our      Business***

***Introduction***

*Southern      Union*
*Company*
*Panhandle      Energy*
*Bcf/d*
*LNG*
*CCE      Holdings*
*TWP*
*FGT*

***CCE      Holdings’ Acquisition of CrossCountry Energy -***
*CrossCountry      Energy*
*ONEOK*
*Citrus*
*Note      X - Stockholders’ Equity*

*FERC*

***Acquisition      of Panhandle Energy -***
*Note      X - Stockholders’ Equity)*

*Panhandle      Eastern Pipe Line*
*Trunkline*
*Sea      Robin*
*Trunkline      LNG*
*LNG      Holdings*
*.*
*Southwest      Gas Storage*

***Sale      of Southern Union Gas and Related Assets -***
*Mercado*
*SUPro*
*STC*
*SUEI*
*Investments*
*Norteño*
*Texas*
*Operations*

***Other      Sales -***

| **Subsidiary                  or Asset Sold**                                                                 |   | **Date                  Sold**  |   | **Proceeds**                 |   | **Pre-Tax                  Gain (Loss)** |
|---------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|------------------------------|--------|------------------------------------------|
| ProvEnergy                  Power Company LLC (a)                                                             |   | October                  2003   |   | $                  2,175,000 |   | $                  (1,150,000)           |
| PG                  Energy Services’ propane operations (b)                                             |   | April                  2002     |   | 2,300,000                    |   | 1,200,000                                |
| Carrizo                  Springs Pipeline (c)                                                                 |   | December                  2001  |   | 1,000,000                    |   | 561,000                                  |
| South                  Florida Natural Gas and Atlantic Gas Corporation (d)                                   |   | December                  2001  |   | 10,000,000                   |   | (1,500,000)                              |
| Morris                  Merchants, Inc. (e)                                                                   |   | October                  2001   |   | 1,586,000                    |   | --                                       |
| Valley                  Propane, Inc. (f)                                                                     |   | September                  2001 |   | 5,301,000                    |   | --                                       |
| ProvEnergy                  Oil Enterprises (g)                                                               |   | August                  2001    |   | 15,776,000                   |   | --                                       |
| PG                  Energy Services’ commercial and industrial gas marketing                  contracts |   | July                  2001      |   | 4,972,000                    |   | 4,653,000                                |

** **

***Business      Segments***

| ·   | The                Transportation and Storage segment, which is primarily engaged in                the                interstate transportation and storage of natural gas in the Midwest                and                Southwest and also provides LNG terminalling and regasification services.                Its operations are conducted through Panhandle Energy, which the                Company                acquired on June 11, 2003; and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                Distribution segment, which is primarily engaged in the local distribution                of natural gas in Missouri, Pennsylvania, Massachusetts and Rhode                Island.                Its operations are conducted through the Company’s three regulated utility                divisions: Missouri Gas Energy, PG Energy and New England Gas Company. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Item      1. Business - Transportation and Storage Segment*
*Item      1. Business - Distribution Segment*

*Note      XXI - Reportable Segments*

| ·   | PEI                Power Corporation (*Power                Corp*.),                an exempt wholesale generator (within the meaning of the Public Utility                Holding Company Act of 1935), generates and sells electricity provided                by                two power plants that share a site in Archbald, Pennsylvania. Power                Corp.                wholly owns one plant, a 25-megawatt cogeneration facility fueled                by a                combination of natural gas and methane. Power Corp. owns 49.9% of                the                second plant, a 45-megawatt natural gas-fired facility, through a                joint                venture with Cayuga Energy. These plants sell electricity to the                broad                mid-Atlantic wholesale energy market administered by PJM Interconnection,                L.L.C. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Fall                River Gas Appliance Company, Inc. rents water heaters and conversion                burners (primarily for residential use) to over 13,300 customers                and                offers service contracts on gas appliances in the city of Fall River                and                the towns of Somerset, Swansea and Westport, all located in southeastern                Massachusetts. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Valley                Appliance and Merchandising Company (*VAMCO*)                rents natural gas burning appliances and offers appliance service                contract                programs to residential customers. During the year ended June 30,                2002,                VAMCO provided construction management services for natural gas-related                projects to commercial and industrial                customers. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | PG                Energy Services, Inc. (*Energy                Services*)                offers the inspection, maintenance and servicing of residential and                small                commercial gas-fired equipment to 16,200 residential and commercial                users                primarily in central and northeastern Pennsylvania. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Alternate                Energy Corporation was an energy consulting firm that retained patents                on                a natural gas/diesel co-firing system and on "Passport" FMS (Fuel                Management System) which monitors and controls the transfer of fuel                on                dual-fuel equipment. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Note      IX - Unconsolidated Investments,*

| ·   | PointServe,                Inc. (*PointServe*)                -- The Company has a remaining investment of $2,603,000 in PointServe,                a                business-to-business online scheduling solution, after recording                non-cash                charges of $1,603,000 and $10,380,000 during the years ended June                30, 2004                and 2002, respectively, to recognize a decrease in fair value. The                Company                recognized these valuation adjustments to reflect significant lower                private equity valuation metrics and changes in the business outlook                of                PointServe. PointServe is a closely held, privately owned company                and, as                such, has no published market                value. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Advent                Networks, Inc. (*Advent*)                -                In December 2004, the Company recorded a total non-cash charge of                $16,425,000 to recognize an other-than-temporary impairment of the                carrying value of its investment in Advent. This impairment was comprised                of a write-down of $4,925,000 and $11,500,000 to the Company’s investment                and convertible notes receivable accounts, respectively. The Company                reevaluated the fair value of its investment in Advent as a result                of                Advent's recent efforts to raise additional capital from private                investors, which placed a significantly lower valuation on Advent                than                reflected in the carrying value of the Company’s investment in Advent. The                foregoing, as well as certain other factors, led to the non-cash                charge                discussed above. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Transportation      and Storage Segment***

***Services***

*Phase      I*
*Phase      II*

*TBtu*

*Note      XVI - Regulation and Rates*

*Item      7. Management’s Discussion and Analysis - Other Matters (Customer      Concentrations*

*ITEM      7. Management’s Discussion and Analysis - Business Segment      Results*
*Note      XXI - Reportable Segments.*

***Regulation***

*Item      1. Business - Environmental*

*Item      7. Management’s Discussion and Analysis - Other Matters.*

***Competition***

***Distribution      Segment***

***Services***

*MMcf*

*ITEM      7. Management’s Discussion and Analysis - Business Segment      Results*
*Note      XXI - Reportable Segments.*

***Missouri      Gas Energy -***
*MPSC*
*Item      1. Business - Regulation and Rates*
*.*

|                                                                  |   | **                                             Six Months Ended**               |   |                                     |   |     |   |     |    |
|-----------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|----------|--------|----------|---------|
|                                                                  |   | **                                                December 31,** |   | **Year                  Ended June 30,** |   |
|                                                                  |   |                                                                                                                                                                                                                   |   | **2004**                                 |   | **2004** |   | **2003** |    | **2002** |   |
| Average                  number of customers:                         |   |                                                                                                                                                                                                                   |   |                                     |   |     |   |     |    |   |   |   |   |   |   |   |
| Residential                                                           |   |                                                                                                                                                                                                                   |   |                                     |   | 429,292  |   |     | 432,037 |   |   | 430,861 |   |   | 428,215 |   |
| Commercial                                                            |   |                                                                                                                                                                                                                   |   |                                     |   | 61,273   |   |     | 61,957  |   |   | 60,774 |   |   | 58,749 |   |
| Industrial                  and irrigation                            |   |                                                                                                                                                                                                                   |   |                                     |   | 98       |   |     | 95      |   |   | 99 |   |   | 95 |   |
| Total                  average customers served                       |   |                                                                                                                                                                                                                   |   |                                     |   | 490,663  |   |     | 494,089 |   |   | 491,734 |   |   | 487,059 |   |
| Transportation                  customers                             |   |                                                                                                                                                                                                                   |   |                                     |   | 879      |   |     | 786     |   |   | 461 |   |   | 378 |   |
| Total                  average gas sales and transportation customers |   |                                                                                                                                                                                                                   |   |                                     |   | 491,542  |   |     | 494,875 |   |   | 492,195 |   |   | 487,437 |   |
|                                                                  |   |                                                                                                                                                                                                                   |   |                                     |   |     |   |     |    |   |   |   |   |   |   |   |
| Gas                  sales in MMcf:                                   |   |                                                                                                                                                                                                                   |   |                                     |   |     |   |     |    |   |   |   |   |   |   |   |
| Residential                                                           |   |                                                                                                                                                                                                                   |   |                                     |   | 10,837   |   |     | 36,880  |   |   | 39,821 |   |   | 35,039 |   |
| Commercial                                                            |   |                                                                                                                                                                                                                   |   |                                     |   | 5,082    |   |     | 16,026  |   |   | 17,399 |   |   | 15,686 |   |
| Industrial                  and irrigation                            |   |                                                                                                                                                                                                                   |   |                                     |   | 152      |   |     | 338     |   |   | 391 |   |   | 417 |   |
| Gas                  sales billed                                     |   |                                                                                                                                                                                                                   |   |                                     |   | 16,071   |   |     | 53,244  |   |   | 57,611 |   |   | 51,142 |   |
| Net                  change in unbilled gas sales                     |   |                                                                                                                                                                                                                   |   |                                     |   | 3,503    |   |     | 112     |   |   | 61 |   |   | (16 | ) |
| Total                  gas sales                                      |   |                                                                                                                                                                                                                   |   |                                     |   | 19,574   |   |     | 53,356  |   |   | 57,672 |   |   | 51,126 |   |
| Gas                  transported                                      |   |                                                                                                                                                                                                                   |   |                                     |   | 11,721   |   |     | 25,761  |   |   | 26,893 |   |   | 27,324 |   |
| Total                  gas sales and gas transported                  |   |                                                                                                                                                                                                                   |   |                                     |   | 31,295   |   |     | 79,117  |   |   | 84,565 |   |   | 78,450 |   |
|                                                                  |   |                                                                                                                                                                                                                   |   |                                     |   |     |   |     |    |   |   |   |   |   |   |   |
| Gas                  sales revenues (thousands of dollars):           |   |                                                                                                                                                                                                                   |   |                                     |   |     |   |     |    |   |   |   |   |   |   |   |
| Residential                                                           |   |                                                                                                                                                                                                                   |   |                                     | $      | 139,086  |   | $        | 395,350 |   | $ | 337,293 |   | $ | 293,544 |   |
| Commercial                                                            |   |                                                                                                                                                                                                                   |   |                                     |   | 58,054   |   |     | 163,826 |   |   | 138,676 |   |   | 122,619 |   |
| Industrial                  and irrigation                            |   |                                                                                                                                                                                                                   |   |                                     |   | 1,923    |   |     | 3,943   |   |   | 3,930 |   |   | 3,841 |   |
| Gas                  revenues billed                                  |   |                                                                                                                                                                                                                   |   |                                     |   | 199,063  |   |     | 563,119 |   |   | 479,899 |   |   | 420,004 |   |
| Net                  change in unbilled gas sales revenues            |   |                                                                                                                                                                                                                   |   |                                     |   | 38,124   |   |     | 2,024   |   |   | 3,434 |   |   | (2,278 | ) |
| Total                  gas sales revenues                             |   |                                                                                                                                                                                                                   |   |                                     |   | 237,187  |   |     | 565,143 |   |   | 483,333 |   |   | 417,726 |   |
| Gas                  transportation revenues                          |   |                                                                                                                                                                                                                   |   |                                     |   | 4,095    |   |     | 8,702   |   |   | 8,439 |   |   | 8,202 |   |
| Other                  revenues                                       |   |                                                                                                                                                                                                                   |   |                                     |   | 4,261    |   |     | 7,013   |   |   | 5,017 |   |   | 3,199 |   |
| Total                  operating revenues                             |   |                                                                                                                                                                                                                   |   |                                     | $      | 245,543  |   | $        | 580,858 |   | $ | 496,789 |   | $ | 429,127 |   |
|                                                                  |   |                                                                                                                                                                                                                   |   |                                     |   |     |   |     |    |   |   |   |   |   |   |   |
| Weather:                                                              |   |                                                                                                                                                                                                                   |   |                                     |   |     |   |     |    |   |   |   |   |   |   |   |
| Degree                  days (a)                                      |   |                                                                                                                                                                                                                   |   |                                     |   | 1,669    |   |     | 4,770   |   |   | 5,105 |   |   | 4,419 |   |
| Percent                  of 10-year measure (b)                       |   |                                                                                                                                                                                                                   |   |                                     |   | 81       | %      |     | 92      | % |   | 98 | % |   | 85 | % |
| Percent                  of 30-year measure (b)                       |   |                                                                                                                                                                                                                   |   |                                     |   | 82       | %      |     | 92      | % |   | 98 | % |   | 85 | % |

| (a) | "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. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b)   | Information                with respect to weather conditions is provided by the National Oceanic                and                Atmospheric Administration. Percentages of 10- and 30-year measure                are                computed based on the weighted average volumes of gas sales billed.                The                10- and 30-year measure is used for consistent external reporting                purposes. Measures of normal weather used by the Company's regulatory                authorities to set rates vary by jurisdiction. Periods used to measure                normal weather for regulatory purposes range from 10 years to 30                years. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***PG      Energy -***
*PPUC*
*Item      1. Business - Regulation and Rates*
*.*

|                                                                  |   | **                             Six                  Months Ended** |   |                                     |   |     |   |     |    |
|-----------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|----------|--------|----------|---------|
|                                                                  |   | **                                               December 31,**    |   | **Year                  Ended June 30,** |   |
|                                                                  |   |                                                                                                                                                                                                                |   | **2004**                                 |   | **2004** |   | **2003** |    | **2002** |   |
| Average                  number of customers:                         |   |                                                                                                                                                                                                                |   |                                     |   |     |   |     |    |   |   |   |   |   |   |   |
| Residential                                                           |   |                                                                                                                                                                                                                |   |                                     |   | 142,152  |   |     | 142,422 |   |   | 141,769 |   |   | 141,223 |   |
| Commercial                                                            |   |                                                                                                                                                                                                                |   |                                     |   | 14,469   |   |     | 14,384  |   |   | 14,141 |   |   | 13,707 |   |
| Industrial                  and irrigation                            |   |                                                                                                                                                                                                                |   |                                     |   | 115      |   |     | 116     |   |   | 120 |   |   | 104 |   |
| Public                  authorities and other                         |   |                                                                                                                                                                                                                |   |                                     |   | 345      |   |     | 340     |   |   | 337 |   |   | 212 |   |
| Total                  average customers served                       |   |                                                                                                                                                                                                                |   |                                     |   | 157,081  |   |     | 157,262 |   |   | 156,367 |   |   | 155,246 |   |
| Transportation                  customers                             |   |                                                                                                                                                                                                                |   |                                     |   | 586      |   |     | 602     |   |   | 613 |   |   | 624 |   |
| Total                  average gas sales and transportation customers |   |                                                                                                                                                                                                                |   |                                     |   | 157,667  |   |     | 157,864 |   |   | 156,980 |   |   | 155,870 |   |
|                                                                  |   |                                                                                                                                                                                                                |   |                                     |   |     |   |     |    |   |   |   |   |   |   |   |
| Gas                  sales in MMcf:                                   |   |                                                                                                                                                                                                                |   |                                     |   |     |   |     |    |   |   |   |   |   |   |   |
| Residential                                                           |   |                                                                                                                                                                                                                |   |                                     |   | 4,649    |   |     | 17,133  |   |   | 18,372 |   |   | 15,053 |   |
| Commercial                                                            |   |                                                                                                                                                                                                                |   |                                     |   | 2,130    |   |     | 6,505   |   |   | 6,732 |   |   | 5,325 |   |
| Industrial                  and irrigation                            |   |                                                                                                                                                                                                                |   |                                     |   | 150      |   |     | 379     |   |   | 376 |   |   | 277 |   |
| Public                  authorities and other                         |   |                                                                                                                                                                                                                |   |                                     |   | 99       |   |     | 290     |   |   | 334 |   |   | 145 |   |
| Gas                  sales billed                                     |   |                                                                                                                                                                                                                |   |                                     |   | 7,028    |   |     | 24,307  |   |   | 25,814 |   |   | 20,800 |   |
| Net                  change in unbilled gas sales                     |   |                                                                                                                                                                                                                |   |                                     |   | 1,955    |   |     | 34      |   |   | 4 |   |   | (22 | ) |
| Total                  gas sales                                      |   |                                                                                                                                                                                                                |   |                                     |   | 8,983    |   |     | 24,341  |   |   | 25,818 |   |   | 20,778 |   |
| Gas                  transported                                      |   |                                                                                                                                                                                                                |   |                                     |   | 11,679   |   |     | 26,007  |   |   | 28,366 |   |   | 26,976 |   |
| Total                  gas sales and gas transported                  |   |                                                                                                                                                                                                                |   |                                     |   | 20,662   |   |     | 50,348  |   |   | 54,184 |   |   | 47,754 |   |
|                                                                  |   |                                                                                                                                                                                                                |   |                                     |   |     |   |     |    |   |   |   |   |   |   |   |
| Gas                  sales revenues (thousands of dollars):           |   |                                                                                                                                                                                                                |   |                                     |   |     |   |     |    |   |   |   |   |   |   |   |
| Residential                                                           |   |                                                                                                                                                                                                                |   |                                     | $      | 60,119   |   | $        | 183,941 |   | $ | 175,337 |   | $ | 148,860 |   |
| Commercial                                                            |   |                                                                                                                                                                                                                |   |                                     |   | 23,699   |   |     | 62,407  |   |   | 56,730 |   |   | 46,307 |   |
| Industrial                  and irrigation                            |   |                                                                                                                                                                                                                |   |                                     |   | 1,512    |   |     | 3,376   |   |   | 2,895 |   |   | 2,509 |   |
| Public                  authorities and other                         |   |                                                                                                                                                                                                                |   |                                     |   | 1,057    |   |     | 2,676   |   |   | 2,667 |   |   | 1,233 |   |
| Gas                  revenues billed                                  |   |                                                                                                                                                                                                                |   |                                     |   | 86,387   |   |     | 252,400 |   |   | 237,629 |   |   | 198,909 |   |
| Net                  change in unbilled gas sales revenues            |   |                                                                                                                                                                                                                |   |                                     |   | 20,310   |   |     | 929     |   |   | 135 |   |   | (276 | ) |
| Total                  gas sales revenues                             |   |                                                                                                                                                                                                                |   |                                     |   | 106,697  |   |     | 253,329 |   |   | 237,764 |   |   | 198,633 |   |
| Gas                  transportation revenues                          |   |                                                                                                                                                                                                                |   |                                     |   | 5,968    |   |     | 13,872  |   |   | 15,389 |   |   | 14,445 |   |
| Other                  revenues                                       |   |                                                                                                                                                                                                                |   |                                     |   | 523      |   |     | 1,713   |   |   | 1,515 |   |   | 4,779 |   |
| Total                  operating revenues                             |   |                                                                                                                                                                                                                |   |                                     | $      | 113,188  |   | $        | 268,914 |   | $ | 254,668 |   | $ | 217,857 |   |
|                                                                  |   |                                                                                                                                                                                                                |   |                                     |   |     |   |     |    |   |   |   |   |   |   |   |
| Weather:                                                              |   |                                                                                                                                                                                                                |   |                                     |   |     |   |     |    |   |   |   |   |   |   |   |
| Degree                  days                                          |   |                                                                                                                                                                                                                |   |                                     |   | 2,301    |   |     | 6,240   |   |   | 6,654 |   |   | 5,373 |   |
| Percent                  of 10-year measure                           |   |                                                                                                                                                                                                                |   |                                     |   | 100      | %      |     | 103     | % |   | 109 | % |   | 89 | % |
| Percent                  of 30-year measure                           |   |                                                                                                                                                                                                                |   |                                     |   | 98       | %      |     | 100     | % |   | 106 | % |   | 86 | % |

***New      England Gas Company -***
*RIPUC*
*MDTE*
*Item      1. Business - Regulation and Rates*

|                                                                |   | **                                            Six Months Ended**               |   |                                   |   |          |   |     |          |
|---------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|---------------|--------|----------|---------------|
|                                                                |   | **                                               December 31,** |   | **Year                Ended June 30,** |   |
|                                                                |   |                                                                                                                                                                                                                       |   | **2004**                               |   | **2004**      |   | **2003** |          | **2002** |   |
| Average                number of customers:                         |   |                                                                                                                                                                                                                       |   |                                   |   |          |   |     |          |   |   |   |   |   |   |   |
| Residential                                                         |   |                                                                                                                                                                                                                       |   |                                   |   | 270,051       |   |     | 269,926       |   |   | 268,312 |   |   | 265,206 |   |
| Commercial                                                          |   |                                                                                                                                                                                                                       |   |                                   |   | 25,358        |   |     | 25,798        |   |   | 25,442 |   |   | 21,696 |   |
| Industrial                and irrigation                            |   |                                                                                                                                                                                                                       |   |                                   |   | 207           |   |     | 226           |   |   | 225 |   |   | 3,472 |   |
| Public                authorities and other                         |   |                                                                                                                                                                                                                       |   |                                   |   | 50            |   |     | 47            |   |   | 41 |   |   | 43 |   |
| Total                average customers served                       |   |                                                                                                                                                                                                                       |   |                                   |   | 295,666       |   |     | 295,997       |   |   | 294,020 |   |   | 290,417 |   |
| Transportation                customers                             |   |                                                                                                                                                                                                                       |   |                                   |   | 1,248         |   |     | 1,242         |   |   | 1,462 |   |   | 1,505 |   |
| Total                average gas sales and transportation customers |   |                                                                                                                                                                                                                       |   |                                   |   | 296,914  |   |     | 297,239  |   |   | 295,482  |   |   | 291,922  |   |
|                                                                |   |                                                                                                                                                                                                                       |   |                                   |   |          |   |     |          |   |   |   |   |   |   |   |
| Gas                sales in MMcf:                                   |   |                                                                                                                                                                                                                       |   |                                   |   |          |   |     |          |   |   |   |   |   |   |   |
| Residential                                                         |   |                                                                                                                                                                                                                       |   |                                   |   | 6,633         |   |     | 24,194        |   |   | 25,481 |   |   | 19,975 |   |
| Commercial                                                          |   |                                                                                                                                                                                                                       |   |                                   |   | 2,669         |   |     | 9,753         |   |   | 9,725 |   |   | 6,196 |   |
| Industrial                and irrigation                            |   |                                                                                                                                                                                                                       |   |                                   |   | 1,234         |   |     | 1,968         |   |   | 2,055 |   |   | 3,271 |   |
| Public                authorities and other                         |   |                                                                                                                                                                                                                       |   |                                   |   | 9             |   |     | 25            |   |   | 28 |   |   | 23 |   |
| Gas                sales billed                                     |   |                                                                                                                                                                                                                       |   |                                   |   | 10,545        |   |     | 35,940        |   |   | 37,289 |   |   | 29,465 |   |
| Net                change in unbilled gas sales                     |   |                                                                                                                                                                                                                       |   |                                   |   | 3,074         |   |     | (1,366        | ) |   | 1,336 |   |   | (333 | ) |
| Total                gas sales                                      |   |                                                                                                                                                                                                                       |   |                                   |   | 13,619        |   |     | 34,574        |   |   | 38,625 |   |   | 29,132 |   |
| Gas                transported                                      |   |                                                                                                                                                                                                                       |   |                                   |   | 3,859         |   |     | 9,080         |   |   | 10,959 |   |   | 11,457 |   |
| Total                gas sales and gas transported                  |   |                                                                                                                                                                                                                       |   |                                   |   | 17,478        |   |     | 43,654        |   |   | 49,584 |   |   | 40,589 |   |
|                                                                |   |                                                                                                                                                                                                                       |   |                                   |   |          |   |     |          |   |   |   |   |   |   |   |
| Gas                sales revenues (thousands of dollars):           |   |                                                                                                                                                                                                                       |   |                                   |   |          |   |     |          |   |   |   |   |   |   |   |
| Residential                                                         |   |                                                                                                                                                                                                                       |   |                                   | $      | 97,734        |   | $        | 307,534       |   | $ | 290,370 |   | $ | 236,331 |   |
| Commercial                                                          |   |                                                                                                                                                                                                                       |   |                                   |   | 35,509        |   |     | 111,712       |   |   | 97,091 |   |   | 65,316 |   |
| Industrial                and irrigation                            |   |                                                                                                                                                                                                                       |   |                                   |   | 11,581        |   |     | 16,542        |   |   | 15,045 |   |   | 20,804 |   |
| Public                authorities and other                         |   |                                                                                                                                                                                                                       |   |                                   |   | 193           |   |     | 437           |   |   | 511 |   |   | 275 |   |
| Gas                revenues billed                                  |   |                                                                                                                                                                                                                       |   |                                   |   | 145,017       |   |     | 436,225       |   |   | 403,017 |   |   | 322,726 |   |
| Net                change in unbilled gas sales revenues            |   |                                                                                                                                                                                                                       |   |                                   |   | 36,914        |   |     | 5,231         |   |   | (12,657 | ) |   | (17,788 | ) |
| Total                gas sales revenues                             |   |                                                                                                                                                                                                                       |   |                                   |   | 181,931       |   |     | 441,456       |   |   | 390,360 |   |   | 304,938 |   |
| Gas                transportation revenues                          |   |                                                                                                                                                                                                                       |   |                                   |   | 5,952         |   |     | 11,835        |   |   | 14,906 |   |   | 13,820 |   |
| Other                revenues                                       |   |                                                                                                                                                                                                                       |   |                                   |   | 2,732         |   |     | 1,343         |   |   | 2,242 |   |   | 3,190 |   |
| Total                operating revenues                             |   |                                                                                                                                                                                                                       |   |                                   | $      | 190,615       |   | $        | 454,634       |   | $ | 407,508 |   | $ | 321,948 |   |
|                                                                |   |                                                                                                                                                                                                                       |   |                                   |   |          |   |     |          |   |   |   |   |   |   |   |
| Weather:                                                            |   |                                                                                                                                                                                                                       |   |                                   |   |          |   |     |          |   |   |   |   |   |   |   |
| Degree                days                                          |   |                                                                                                                                                                                                                       |   |                                   |   | 2,004         |   |     | 5,644         |   |   | 6,143 |   |   | 4,980 |   |
| Percent                of 10-year measure                           |   |                                                                                                                                                                                                                       |   |                                   |   | 98            | %      |     | 102           | % |   | 111 | % |   | 88 | % |
| Percent                of 30-year measure                           |   |                                                                                                                                                                                                                       |   |                                   |   | 96            | %      |     | 98            | % |   | 107 | % |   | 85 | % |

***Gas      Supply***

***Competition***

***Regulation      and Rates***

*Item      7. Management’s Discussion and Analysis - Other Matters      (Regulatory).*

***Investment      in CCE Holdings***

*** ***
*EFS-PA*
*GE*

*MMcf/d*

*Note      IX - Unconsolidated Investments*

***Environmental***

*Item      7. Management’s Discussion and Analysis - Other Matters      (Contingencies)*

***Real      Estate***

***Insurance***

***Employees***

*ERPs*
*RIF*
*Item      7. Management’s Discussion and Analysis - Results of Operations (Business      Restructuring Charges*

***Available      Information***

*SEC*

*Code*

*Guidelines*

**ITEM      2. Properties.**

***Transportation      and Storage***

*ITEM      1. Business - Transportation and Storage Segment *

***Distribution***

*ITEM      1. Business - Distribution Segment *

***Other***

**ITEM      3. Legal Proceedings.**

*Note      XVIII - Commitments and Contingencies*
*ITEM      7. Management’s Discussion and Analysis - Other Matters (Cautionary Statement      Regarding Forward-Looking Information).*

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

| (I)   | A                proposal to elect the following three persons to serve as Class II                directors until the 2007 Annual Meeting of Stockholders or until                their                successors are duly elected and qualified was approved, and the number                of                votes for the nominees elected were as                follows: |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                |   | Votes      |   | Votes      |
|-------------------------------------|--------|------------|--------|------------|
| Director                            |   | For        |   | Withheld   |
|                                |   |       |   |       |
| Kurt                A. Gitter       |   | 75,225,836 |   | 1,150,970  |
| Adam                M. Lindemann    |   | 62,061,565 |   | 14,315,241 |
| George                Rountree, III |   | 74,916,441 |   | 1,460,365  |

**PART      II**

**ITEM      5. Market for the Registrant’s Common Stock and Related Stockholder      Matters.**

***Market      Information***

|                                          |   | **$/Share** |   |
|-----------------------------------------------|--------|-------------|--------|
|                                          |   | **High**    |   | **Low** |   |
|                                          |   |        |        |   |   |  |   |
| January                1 to February 28, 2005 |   | $           | 25.67  |   | $ | 21.81 |   |
|                                          |   |        |        |   |   |  |   |
| (Quarter                Ended)                |   |        |        |   |   |  |   |
| December                31, 2004              |   |        | 24.97  |   |   | 20.50 |   |
| September                30, 2004             |   |        | 20.65  |   |   | 18.00 |   |
|                                          |   |        |        |   |   |  |   |
| (Quarter                Ended)                |   |        |        |   |   |  |   |
| June                30, 2004                  |   |        | 20.33  |   |   | 17.98 |   |
| March                31, 2004                 |   |        | 18.81  |   |   | 16.90 |   |
| December                31, 2003              |   |        | 17.82  |   |   | 15.88 |   |
| September                30, 2003             |   |        | 17.00  |   |   | 14.10 |   |
|                                          |   |        |        |   |   |  |   |
| (Quarter                Ended)                |   |        |        |   |   |  |   |
| June                30, 2003                  |   |        | 16.19  |   |   | 10.98 |   |
| March                31, 2003                 |   |        | 15.62  |   |   | 10.96 |   |
| December                31, 2002              |   |        | 15.41  |   |   | 9.21 |   |
| September                30, 2002             |   |        | 15.48  |   |   | 9.25 |   |

***Holders***

***Dividends***

***Equity      Compensation Plans***

*1992      Plan*

|                                                |                                         |                                   | **                                 Number of Securities**                                         |
|-----------------------------------------------------|----------------------------------------------|----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                |                                         |                                   | **                              Remaining Available for**                                                        |
|                                                |                                         |                                   | **                                Future Issuance Under**                                              |
|                                                | **Number                of Securities**      |                                   | **                                Equity Compensation**                                                |
|                                                | **to                be issued Upon**         | **Weighted-Average**                   | **                                          Plans (excluding** |
|                                                | **Exercise                of**               | **Exercise                Price of**   | **securities**                                                                                                                                                                         |
| **Plan                Category**                    | **Outstanding                Options**  | **Outstanding                Options** | **                                  reflected in first column)**                             |
|  Plans                approved by shareholders |  2,941,391                              |  $14.41                           |  6,620,773                                                                                                                                                                        |
| Plans                not approved by shareholders   | 664,564                                      | $                9.70                  | --                                                                                                                                                                                     |

**ITEM      6. Selected Financial Data**
**.**

|                                                 |   |                        **As              of and for the**                                |   |                                                     |                                                                     |
|------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|--------------------------------------------------------------------------|
|                                                 |   |                                     **six months ended**                                      |   |                                                     |                                                                     |
|                                                 |   |                                           **December                31,** |   | **As                of and for the year ended June 30,** |                                                                     |
|                                                 |   |                                                                                                                                                                                                        |   | **   2004(a)**                            |                                                                     | **                               2004(b)** |   | **                              2003(b)** |   | **               2002(c)** |   | **                              2001(d)** |   | **     2000(e)** |   |
|                                                 |   |                                                                                                                                                                                                        |        |                                                     | **(dollars                in thousands, except in share amounts)**  |
| Total                operating revenues              |   |                                                                                                                                                                                                        |        |                                                     | $                794,338                                                 | $                1,799,774 | $1,188,500 | $                980,614 | $                1,461,811 |   |   | $ | 566,833 |   |
| Net                earnings (loss):                  |   |                                                                                                                                                                                                        |        |                                                     |                                                                     |   |   |   |   |   |   |   |   |   |
| Continuing                operations (f)             |   |                                                                                                                                                                                                        |        |                                                     | 6,088                                                                    | 101,339 | 43,669 | 1,520 | 40,159 |   |   |   | (10,251 | ) |
| Discontinued                operations (g)           |   |                                                                                                                                                                                                        |        |                                                     | --                                                                       | -- | 32,520 | 18,104 | 16,524 |   |   |   | 20,096 |   |
| Available                for common shareholders     |   |                                                                                                                                                                                                        |   |                                                     | 6,088                                                                    | 101,339 | 76,189 | 19,624 | 57,285 |   |   |   | 9,845 |   |
| Net                earnings (loss) per diluted       |   |                                                                                                                                                                                                        |        |                                                     |                                                                     |   |   |   |   |   |   |   |   |   |
| common                share (h):                     |   |                                                                                                                                                                                                        |        |                                                     |                                                                     |   |   |   |   |   |   |   |   |   |
| Continuing                operations                 |   |                                                                                                                                                                                                        |        |                                                     | 0.07                                                                     | 1.30 | 0.70 | 0.02 | 0.64 |   |   |   | (.19 | ) |
| Discontinued                operations               |   |                                                                                                                                                                                                        |        |                                                     | --                                                                       | -- | 0.52 | 0.29 | 0.27 |   |   |   | 0.37 |   |
| Available                for common shareholders     |   |                                                                                                                                                                                                        |   |                                                     | 0.07                                                                     | 1.30 | 1.22 | 0.31 | 0.91 |   |   |   | 0.18 |   |
| Total                assets                          |   |                                                                                                                                                                                                        |        |                                                     | 5,568,289                                                                | 4,572,458 | 4,590,938 | 2,680,064 | 2,907,299 |   |   |   | 2,021,460 |   |
| Stockholders’                equity            |   |                                                                                                                                                                                                        |        |                                                     | 1,497,557                                                                | 1,261,991 | 920,418 | 685,346 | 721,857 |   |   |   | 735,455 |   |
| Current                portion of long-term debt and |   |                                                                                                                                                                                                        |   |                                                     |                                                                     |   |   |   |   |   |
| capital                lease obligation              |   |                                                                                                                                                                                                        |        |                                                     |                                                                     |  |   |   | 89,650 |   |   |  |   |   | 99,997 |   |   |  |   |   | 734,752 |   |   |  |   |   | 108,203 |   |   |  |   |   | 5,913 |   |   |   |   | 2,193 |   |
| Long-term                debt and capital lease      |   |                                                                                                                                                                                                        |        |                                                     |                                                                     |   |   |   |   |   |   |   |   |   |
| obligation,                excluding current portion |   |                                                                                                                                                                                                        |   |                                                     | 2,070,353                                                                | 2,154,615 | 1,611,653 | 1,082,210 | 1,329,631 |   |   |   | 733,744 |   |
| Company-obligated                mandatorily         |   |                                                                                                                                                                                                        |        |                                                     |                                                                     |   |   |   |   |   |   |   |   |   |
| redeemable                preferred securities       |   |                                                                                                                                                                                                        |   |                                                     |                                                                     |   |   |   |   |   |   |   |   |   |
| of                subsidiary trust                   |   |                                                                                                                                                                                                        |        |                                                     | --                                                                       | -- | 100,000 | 100,000 | 100,000 |   |   |   | 100,000 |   |
| Average                customers served (i)          |   |                                                                                                                                                                                                        |        |                                                     | 946,123                                                                  | 948,831 | 945,705 | 942,849 | 970,927 |   |   |   | 605,000 |   |

| (a)   | The                Company’s investment in CCE Holdings, which is accounted for using the                equity method, is included in the Company’s Consolidated Balance Sheet at                December 31, 2004. The Company’s share of net income or loss from CCE                Holdings is recorded as earnings from unconsolidated investments                in the                Company’s Consolidated Statement of Operations since November 17,                2004. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| (c)   | Effective                July 1, 2001, the Company has ceased amortization of goodwill pursuant                to                the Financial Accounting Standards Board Standard*Accounting for Goodwill and Other Intangible Assets.*Goodwill,                which was previously classified on the Consolidated Balance Sheet                as                additional purchase cost assigned to utility plant and amortized                on a                straight-line basis over forty years, is now subject to at least                an annual                assessment for impairment by applying a fair-value based test.                Additionally, during the year ended June 30, 2002, the Company recorded                an                after-tax restructuring charge of $8,990,000. See *Note                VII - Goodwill and Intangibles*                and *Note                XIV - Employee Benefits*. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d)   | The                New England Operations, formed through the acquisition of Providence                Energy Corporation and Fall River Gas Company on September 28, 2000,                and                Valley Resources, Inc. on September 20, 2000, were accounted for                as a                purchase and are included in the Company's Consolidated Balance Sheet                at                June 30, 2001. The results of operations for the New England Operations                have been included in the Company's Consolidated Statement of Operations                since their respective acquisition dates. For these reasons, the                Consolidated Statement of Operations for the periods subsequent to                the                acquisitions is not comparable to the same periods in prior                years. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (e)   | The                Pennsylvania Operations were acquired on November 4, 1999 and were                accounted for as a purchase. The Pennsylvania Operations’ assets were                included in the Company's Consolidated Balance Sheet at June 30,                2000 and                its results of operations have been included in the Company's Consolidated                Statement of Operations since November 4, 1999. For these reasons,                the                Consolidated Statement of Operations for the periods subsequent to                the                acquisition is not comparable to the same periods in prior                years. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (f)   | Net                earnings from continuing operations are net of dividends on preferred                stock of $8,683,000 and $12,686,000 for the six months ended December                31,                2004 and the year ended June 30, 2004,                respectively. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (g) | Effective                January 1, 2003, the Company sold its Southern Union Gas Company                natural                gas operating division and related assets, which have been accounted                for                as discontinued operations in the Consolidated Statement of Operations                for                the respective periods presented in this document. Net earnings from                discontinued operations do not include any allocation of interest                expense                or other corporate costs, in accordance with generally accepted accounting                principles. At the time of the sale, all outstanding debt of Southern                Union Company and subsidiaries was maintained at the corporate level,                and                no debt was assumed by ONEOK, Inc. in the sale of the Texas                Operations. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (h) | Earnings                per share for all periods presented were computed based on the weighted                average number of shares of common stock and common stock equivalents                out-standing during the period adjusted for the 5% stock dividends                distributed on August 31, 2004, July 31, 2003, July 15, 2002, August                30,                2001 and June 30, 2000. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

**Please        note that the information contained in this Form 10-K/A, including the financial        statements and the notes thereto, does not reflect events occurring after        March        16, 2005 (the date on which Southern Union filed its 2004 Transition Report        on        Form 10-K). For a description of those events, please see **
***Note        XXIII - Subsequent Events***
**        and the Company’s Exchange Act reports filed since March 16,        2005.**

***Introduction***

***Overview***

*Southern      Union*
*Company*
*Panhandle      Energy*
*Bcf/d*
*LNG*
*CCE      Holdings*
*TWP*
*FGT*

*CrossCountry      Energy*
*ONEOK*
*Citrus*
*Note      X - Stockholders’ Equity*

*FERC*

*Note      X - Stockholders’ Equity)*

*Panhandle      Eastern Pipe Line*
*Trunkline*
*Sea      Robin*
*Trunkline      LNG*
*LNG      Holdings*
*.*
*Southwest      Gas Storage*

***Business      Strategy***

*Effectively      managing the Company’s substantial base of energy infrastructure assets.*

*Strengthening      the Company’s balance sheet while maintaining an investment grade rating and      credit profile. *

*Expanding      through development of the Company’s existing businesses. *

*Selectively      acquiring regulated businesses primarily within the natural gas industry.*

***Results      of Operations***

*Note      XXI - Reportable Segments*

***Consolidated      Results -- Six Months Ended December 31, 2004 and      2003***

|                                                          |   |                                             |    |     |   |
|---------------------------------------------------------------|--------|--------------------------------------------------|---------|----------|--------|
|                                                          |   | **Six                Months Ended December 31,** |    |
|                                                          |   | **2004**                                         |    | **2003** |   |
|                                                          |   | ***(thousands                of dollars)***      |    |
| Operating                income (loss):                       |   |                                             |         |     |   |  |   |
| Distribution                segment                           |   | $                                                | 19,396  |     | $      | 32,916 |   |
| Transportation                and storage segment             |   |                                             | 90,121  |     |   | 90,430 |   |
| All                other                                      |   |                                             | (1,783  | )        |   | (736 | ) |
| Corporate                                                     |   |                                             | (803    | )        |   | (3,344 | ) |
| Total                operating income                         |   |                                             | 106,931 |     |   | 119,266 |   |
|                                                          |   |                                             |         |     |   |  |   |
| Other                income (expenses):                       |   |                                             |         |     |   |  |   |
| Interest                                                      |   |                                             | (64,898 | )        |   | (66,600 | ) |
| Earnings                from unconsolidated investments       |   |                                             | 4,745   |     |   | 112 |   |
| Other,                net                                     |   |                                             | (18,080 | )        |   | 4,299 |   |
| Total                other expenses, net                      |   |                                             | (78,233 | )        |   | (62,189 | ) |
|                                                          |   |                                             |         |     |   |  |   |
| Earnings                before income tax                     |   |                                             | 28,698  |     |   | 57,077 |   |
| Federal                and state income tax                   |   |                                             | 13,927  |     |   | 22,362 |   |
| Net                earnings                                   |   |                                             | 14,771  |     |   | 34,715 |   |
|                                                          |   |                                             |         |     |   |  |   |
| Preferred                stock dividends                      |   |                                             | (8,683  | )        |   | (4,004 | ) |
|                                                          |   |                                             |         |     |   |  |   |
| Net                earnings available for common shareholders |   | $                                                | 6,088   |     | $      | 30,711 |   |

***Net      Earnings Available for Common Shareholders***
*.      *
*per      share*

| ·   | a                $13,520,000 decrease in operating income from the Distribution segment                (see *Business                Segment Results - Distribution Segment*); |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                $309,000 decrease in operating income from the Transportation and                Storage                segment (see *Business* *Segment                Results - Transportation and Storage Segment*); |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                $1,047,000 increase in operating loss from subsidiary operations                included                in All Other category (see *All                Other Operations*); |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                $22,379,000 increase in other expense (see *Other,                Net*);                and |
|--------------------|--------------------------------------------------------------------------------------------------------------|

| ·   | a                $4,679,000 increase in preferred stock dividends (see *Preferred                Stock Dividends*). |
|--------------------|---------------------------------------------------------------------------------------------------------------------|

| ·   | a                $2,541,000 decrease in corporate costs (see *Corporate*); |
|--------------------|----------------------------------------------------------------------------|

| ·   | a                $1,702,000 decrease in interest expense (see *Interest                Expense*); |
|--------------------|---------------------------------------------------------------------------------------------------|

| ·   | a                $4,633,000 increase in earnings from unconsolidated investments (see                *Earnings                from Unconsolidated Investments*);                and |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                $8,435,000 decrease in income tax expense (see *Federal                and State Income Taxes*). |
|--------------------|-------------------------------------------------------------------------------------------------------------------|

***All      Other Operations.***

***Corporate.***

***Interest      Expense.***
*Preferred      Securities*
*2002      Term Note*
*Note      XII - Preferred Securities*
*Bridge      Loan*

***Earnings      from Unconsolidated Investments.***

***Other,      Net.***
*Southwest*

***Federal      and State Income Taxes.***

***Preferred      Stock Dividends***
*Note      XII - Preferred Securities.*

***Employees.***
*Item      1. Business - Employees*

***Consolidated      Results - Years Ended June 30, 2004, 2003 and 2002***

|                                                                        |   | **Years                Ended June 30,**     |     |
|-----------------------------------------------------------------------------|--------|---------------------------------------------|----------|
|                                                                        |   | **2004**                                    |     | **2003** |   | **2002** |   |
|                                                                        |   | ***(thousands                of dollars)*** |     |
| Operating                income (loss):                                     |   |                                        |     |   |   |   |   |
| Distribution                segment                                         |   | $                                           | 118,894  |   | $ | 142,762 |   | $ | 135,502 |   |
| Transportation                and storage segment                           |   |                                        | 193,502  |   |   | 9,628 |   |   | -- |   |
| All                other                                                    |   |                                        | (3,514   | ) |   | 13 |   |   | -- |   |
| Business                restructuring charges                               |   |                                        | --       |   |   | -- |   |   | (29,159 | ) |
| Corporate                                                                   |   |                                        | (3,555   | ) |   | (10,039 | ) |   | (15,218 | ) |
| Total                operating income                                       |   |                                        | 305,327  |   |   | 142,364 |   |   | 91,125 |   |
|                                                                        |   |                                        |          |   |   |  |   |   |  |   |
| Other                income (expenses):                                     |   |                                        |          |   |   |  |   |   |  |   |
|                  Interest                                              |   |                                        | (127,867 | ) |   | (83,343 | ) |   | (90,992 | ) |
|                  Dividends on preferred securities of subsidiary trust |   |                                        | --       |   |   | (9,480 | ) |   | (9,480 | ) |
| Earnings                from unconsolidated investments                     |   |                                        | 200      |   |   | 422 |   |   | 1,420 |   |
|                  Other, net                                            |   |                                        | 5,468    |   |   | 17,979 |   |   | 12,858 |   |
| Total                other expenses, net                                    |   |                                        | (122,199 | ) |   | (74,422 | ) |   | (86,194 | ) |
|                                                                        |   |                                        |          |   |   |  |   |   |  |   |
| Federal                and state income taxes                               |   |                                        | 69,103   |   |   | 24,273 |   |   | 3,411 |   |
| Net                earnings from continuing operations                      |   |                                        | 114,025  |   |   | 43,669 |   |   | 1,520 |   |
|                                                                        |   |                                        |          |   |   |  |   |   |  |   |
| Discontinued                operations:                                     |   |                                        |          |   |   |  |   |   |  |   |
|                  Earnings from discontinued operations before          |   |                                        |          |   |   |  |   |   |  |   |
| income                taxes                                                 |   |                                        | --       |   |   | 84,773 |   |   | 29,801 |   |
|                  Federal and state income taxes                        |   |                                        | --       |   |   | 52,253 |   |   | 11,697 |   |
| Net                earnings from discontinued operations                    |   |                                        | --       |   |   | 32,520 |   |   | 18,104 |   |
|                                                                        |   |                                        |          |   |   |  |   |   |  |   |
| Net                earnings                                                 |   |                                        | 114,025  |   |   | 76,189 |   |   | 19,624 |   |
|                                                                        |   |                                        |          |   |   |  |   |   |  |   |
| Preferred                stock dividends                                    |   |                                        | (12,686  | ) |   | -- |   |   | -- |   |
|                                                                        |   |                                        |          |   |   |  |   |   |  |   |
| Net                earnings available for common shareholders               |   | $                                           | 101,339  |   | $ | 76,189 |   | $ | 19,624 |   |

***Net      Earnings Available for Common Shareholders - 2004 Compared to 2003.***
** **
*net      earnings from continuing operations*

| ·   | a                $183,874,000 increase in operating income from the Transportation                and                Storage segment (see *Business* *Segment                Results - Transportation and Storage Segment*); |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                $6,484,000 decrease in corporate costs (see *Corporate*);                and |
|--------------------|-----------------------------------------------------------------------------------------------|

| ·   | a                $9,480,000 decrease in dividends on preferred securities of subsidiary                trust (see *Dividends                on Preferred Securities of Subsidiary Trust*). |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                $23,868,000 decrease in operating income from the Distribution segment                (see *Business                Segment Results - Distribution Segment*); |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                $3,527,000 decrease in operating income from subsidiary operations                included in the All Other category (see *All                Other Operations*); |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                $44,524,000 increase in interest expense (see *Interest                Expense*); |
|--------------------|----------------------------------------------------------------------------------------------------|

| ·   | a                $222,000 decrease in earnings from unconsolidated                investments; |
|--------------------|------------------------------------------------------------------------------------------------|

| ·   | a                $12,511,000 decrease in other income (see *Other,                Net*); |
|--------------------|------------------------------------------------------------------------------------------|

| ·   | a                $44,830,000 increase in income tax expense (see *Federal                and State Income Taxes*);                and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                $12,686,000 increase in preferred stock dividends (see *Preferred                Stock Dividends*). |
|--------------------|----------------------------------------------------------------------------------------------------------------------|

*Discontinued      Operations*

***Net      Earnings Available for Common Shareholders - 2003 Compared to 2002.***

| ·   | a                $7,260,000 increase in operating income from the Distribution segment                (see                *Business                Segment Results - Distribution Segment*); |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                $9,628,000 increase in operating income from the Transportation and                Storage segment (see *Business* *Segment                Results - Transportation and Storage Segment*); |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                $13,000 increase in operating income from subsidiary operations included                in the All Other category; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                total of $29,159,000 in business restructuring charges, recorded                during                2002 with no comparable charge in 2003 (see *Business                Restructuring Charges*); |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a                $5,179,000 decrease in corporate costs (see *Corporate*); |
|--------------------|----------------------------------------------------------------------------|

| ·   | a                $7,649,000 decrease in interest expense (see *Interest                Expense*);                and |
|--------------------|----------------------------------------------------------------------------------------------------------------------|

| ·   | a $5,121,000                increase in other income (see *Other,                Net*). |
|--------------------|----------------------------------------------------------------------------------------------|

| ·   | a                $998,000 decrease in earnings from unconsolidated                investments; |
|--------------------|------------------------------------------------------------------------------------------------|

| ·   | a                $20,862,000 increase in income tax expense (see *Federal                and State Income Taxes*). |
|--------------------|--------------------------------------------------------------------------------------------------------------------|

*Discontinued      Operations*

***All      Other Operations.***

***Business      Restructuring Charges.***
*ERPs*
*RIF*

***Corporate.***

***Interest      Expense.***
*Dividends      on Preferred Securities of Subsidiary Trust*

***Dividends      on Preferred Securities of Subsidiary Trust.***
*FASB*
*Accounting      for Certain Financial Instruments with Characteristics of both Liabilities      and      Equity, *
*Interest      Expense*
*Note      XII - Preferred Securities*

***Other,      Net.***

*Florida      Operations*

***Federal      and State Income Taxes.***

***Preferred      Stock Dividends***
*Note      XII - Preferred Securities.*

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

***Employees.***
*Item      1. Business - Employees*

***Business      Segment Results***

***Distribution      Segment***
**--      **

***Distribution      Segment Results - Six Months Ended December 31, 2004 and      2003***

|                                                          |   | **Six                Months Ended December 31,** |     |
|---------------------------------------------------------------|--------|--------------------------------------------------|----------|
|                                                          |   | **2004**                                         |     | **2003** |   |
|                                                          |   | ***(thousands                of dollars)***      |     |
| **Financial                Results**                          |   |                                             |          |   |   |  |   |
| Operating                revenues                             |   | $                                                | 549,346  |   | $ | 491,851 |   |
| Cost                of gas and other energy                   |   |                                             | (360,889 | ) |   | (311,102 | ) |
| Revenue-related                taxes                          |   |                                             | (18,037  | ) |   | (17,461 | ) |
| Net                operating revenues, excluding depreciation |   |                                             |          |   |   |  |   |
| and                amortization                               |   |                                             | 170,420  |   |   | 163,288 |   |
| Operating                expenses:                            |   |                                             |          |   |   |  |   |
| Operating,                maintenance, and general            |   |                                             | 104,295  |   |   | 89,489 |   |
| Depreciation                and amortization                  |   |                                             | 32,511   |   |   | 29,263 |   |
| Taxes                other than on income and revenues        |   |                                             | 14,218   |   |   | 11,620 |   |
| Total                operating expenses                       |   |                                             | 151,024  |   |   | 130,372 |   |
| Operating                income                               |   | $                                                | 19,396   |   | $ | 32,916 |   |
|                                                          |   |                                             |          |   |   |  |   |
| **Operating                Information**                      |   |                                             |          |   |   |  |   |
| Gas                sales volumes (MMcf)                       |   |                                             | 42,176   |   |   | 41,328 |   |
| Gas                transported volumes (MMcf)                 |   |                                             | 27,259   |   |   | 28,858 |   |
| Weather:                                                      |   |                                             |          |   |   |  |   |
| Degree                Days:                                   |   |                                             |          |   |   |  |   |
| Missouri                Gas Energy service territories        |   |                                             | 1,669    |   |   | 1,827 |   |
| PG                Energy service territories                  |   |                                             | 2,301    |   |   | 2,268 |   |
| New                England Gas Company service territories    |   |                                             | 2,004    |   |   | 1,878 |   |
| Percent                of 30-year measure:                    |   |                                             |          |   |   |  |   |
| Missouri                Gas Energy service territories        |   |                                             | 82       | % |   | 90 | % |
| PG                Energy service territories                  |   |                                             | 98       | % |   | 96 | % |
| New                England Gas Company service territories    |   |                                             | 96       | % |   | 90 | % |

***Operating      Revenues.***
*Mcf*
*MMcf*
** **
** **

***Net      Operating Revenues.***

***Customers.***

***Operating      Expenses.***

***Distribution      Segment Results -- Years Ended June 30, 2004, 2003 and 2002.***

|                                                          |   | **Years                Ended June 30,**     |      |
|---------------------------------------------------------------|--------|---------------------------------------------|-----------|
|                                                          |   | **2004**                                    |      | **2003** |   | **2002** |   |
|                                                          |   | ***(thousands                of dollars)*** |      |   |   |
| **Financial                Results**                          |   |                                        |           |   |   |  |   |   |  |   |
| Operating                revenues                             |   | $                                           | 1,304,405 |   | $ | 1,158,964 |   | $ | 968,933 |   |
| Cost                of gas and other energy                   |   |                                        | (863,637  | ) |   | (723,719 | ) |   | (568,447 | ) |
| Revenue-related                taxes                          |   |                                        | (45,395   | ) |   | (40,485 | ) |   | (33,410 | ) |
| Net                operating revenues, excluding depreciation |   |                                        |           |   |   |  |   |   |  |   |
| and                amortization                               |   |                                        | 395,373   |   |   | 394,760 |   |   | 367,076 |   |
| Operating                expenses:                            |   |                                        |           |   |   |  |   |   |  |   |
| Operating,                maintenance, and general            |   |                                        | 194,394   |   |   | 171,463 |   |   | 154,906 |   |
| Depreciation                and amortization                  |   |                                        | 57,601    |   |   | 56,396 |   |   | 53,937 |   |
| Taxes                other than on income and revenues        |   |                                        | 24,484    |   |   | 24,139 |   |   | 22,731 |   |
| Total                operating expenses                       |   |                                        | 276,479   |   |   | 251,998 |   |   | 231,574 |   |
| Operating                income                               |   | $                                           | 118,894   |   | $ | 142,762 |   | $ | 135,502 |   |
|                                                          |   |                                        |           |   |   |  |   |   |  |   |
| **Operating                Information**                      |   |                                        |           |   |   |  |   |   |  |   |
| Gas                sales volumes (MMcf)                       |   |                                        | 112,271   |   |   | 122,115 |   |   | 101,036 |   |
| Gas                transported volumes (MMcf)                 |   |                                        | 60,848    |   |   | 66,218 |   |   | 65,757 |   |
| Weather:                                                      |   |                                        |           |   |   |  |   |   |  |   |
| Degree                Days:                                   |   |                                        |           |   |   |  |   |   |  |   |
| Missouri                Gas Energy service territories        |   |                                        | 4,770     |   |   | 5,105 |   |   | 4,419 |   |
| PG                Energy service territories                  |   |                                        | 6,240     |   |   | 6,654 |   |   | 5,373 |   |
| New                England Gas Company service territories    |   |                                        | 5,644     |   |   | 6,143 |   |   | 4,980 |   |
| Percent                of 30-year measure:                    |   |                                        |           |   |   |  |   |   |  |   |
| Missouri                Gas Energy service territories        |   |                                        | 92        | % |   | 98 | % |   | 85 | % |
| PG                Energy service territories                  |   |                                        | 100       | % |   | 106 | % |   | 86 | % |
| New                England Gas Company service territories    |   |                                        | 98        | % |   | 107 | % |   | 85 | % |

***Operating      Revenues.***
** **
** **

***Net      Operating Revenues.***
** **

***Customers.***

***Operating      Expenses.***

*Business      Restructuring Charges*
*.*

**Transportation      and Storage Segment --**

***Transportation      and Storage Segment Results - Six Months Ended December 31, 2004 and      2003.***

|                                                                        |   | **Six                Months Ended December 31,** |    |
|-----------------------------------------------------------------------------|--------|--------------------------------------------------|---------|
|                                                                        |   | **2004**                                         |    | **2003** |   |
|                                                                        |   | ***(thousands                of dollars)***      |    |
| **Financial                Results**                                        |   |                                             |         |   |   |  |   |
| Reservation                revenue                                          |   | $                                                | 171,624 |   | $ | 176,268 |   |
| LNG                terminalling revenue                                     |   |                                             | 28,694  |   |   | 30,265 |   |
| Commodity                revenue                                            |   |                                             | 37,623  |   |   | 33,503 |   |
| Other                revenue                                                |   |                                             | 4,802   |   |   | 4,437 |   |
| Total                operating revenue                                      |   |                                             | 242,743 |   |   | 244,473 |   |
| Operating                expenses:                                          |   |                                             |         |   |   |  |   |
| Operating,                maintenance, and general                          |   |                                             | 109,796 |   |   | 107,796 |   |
| Depreciation                and amortization                                |   |                                             | 30,159  |   |   | 33,158 |   |
| Taxes                other than on income and revenues                      |   |                                             | 12,667  |   |   | 13,089 |   |
| Total                operating expense                                      |   |                                             | 152,622 |   |   | 154,043 |   |
| Operating                income                                             |   | $                                                | 90,121  |   | $ | 90,430 |   |
|                                                                        |   |                                             |         |   |   |  |   |
| **Operating                Information**                                    |   |                                             |         |   |   |  |   |
| Gas                transported in trillions of British thermal units (Tbtu) |   |                                             | 630     |   |   | 667 |   |

***Operating      Revenues.***

***Operating      Expenses.***

***Transportation      and Storage Segment Results - Years Ended June 30, 2004 and 2003 (from June      12,      2003 to June 30, 2003***

|                                      |                                                   |                                   |                     |    |                     |                                        |                   | **June                12, 2003** |
|-------------------------------------------|--------------------------------------------------------|----------------------------------------|--------------------------|---------|--------------------------|---------------------------------------------|------------------------|----------------------------------|
|                                      |                                                   |                                   |                     |    |                     | **Year                Ended**               |                   | **to**                           |
|                                      |                                                   |                                   |                     |    |                     | **June                30, 2004**            |                   | **June                30, 2003** |
|                                      |                                                   |                                   |                     |    |                     | ***(thousands                of dollars)*** |
| **Financial                Results**      |                                                   |                                   |                     |    |                     |                                        |
| Reservation                revenue        |                                                   |                                   | $                355,343 |    | $                17,117  |
| LNG                terminalling revenue   |                                                   |                                   | 57,988                   |    | 3,244                    |
| Commodity                revenue          |                                                   |                                   |                     | 68,412  |                     | 3,484                                       |
| Other                revenue              |                                                   |                                   |                     | 9,140   |                     | 677                                         |
|                                      | Total                operating revenues                |                                   |                     | 490,883 |                     | 24,522                                      |
| Operating                expenses:        |                                                   |                                   |                     |    |                     |
|                                      | Operating,                maintenance, and general     |                                   | 210,105                  |    | 10,102                   |
|                                      | Depreciation                and amortization           |                                   | 59,988                   |    | 3,197                    |
|                                      | Taxes                other than on income and revenues | 27,288                                 |                     | 1,595   |
|                                      |                                                   | Total                operating expense |                     | 297,381 |                     | 14,894                                      |
|                                      |                                                   | Operating                income        |                     |    | $                193,502 |                                        | $                9,628 |
|                                      |                                                   |                                   |                     |    |                     |                                        |                   |                             |
| **Operating                Information**  |                                                   |                                   |                     |    |                     |
| Volumes                transported (Tbtu) |                                                   |                                   | 1,321                    |    | 69                       |

**Liquidity      and Capital Resources**

***Operating      Activities.***

*Note      II --*
*Acquisitions      and Sales*
*Item      7. Management’s Discussion and Analysis -*
*Other      Matters (Cautionary Statement Regarding Forward-Looking      Information).*

*      Long-Term Facility*
*Uncommitted      Facilities*
*      Senior Notes*

***Investing      Activities.***

*Missouri      Gas Energy Safety Program*

***Financing      Activities.***

*Bridge      Loan*

*Item      7. Management’s Discussion and Analysis - Liquidity and Capital Resources      (Investing Activities*

*the      Panhandle Tender Offer*
*      Panhandle Calls*

* 2002 Term Note*
*S&P*
*Moody’s*
*Item 7. Management’s      Discussion and Analysis -*
*Quantitative and Qualitative Disclosures      About Market Risk*

***Other      Matters***

***Stock      Splits and Dividends.***
** **
** **

***Customer      Concentrations.***

***Off-Balance      Sheet Arrangements and Aggregate Contractual      Obligations***

|                                                 |   |  **  Contractual                Obligations (thousands of dollars) ** |      | **2010                and** |   |
|------------------------------------------------------|--------|-------------------------------------------------------------------------------------------|-----------|-----------------------------|--------|
|                                                 |   | **Total**                                                                                 |      | **2005**                    |   | **2006** |   | **2007** |   | **2008** |   | **2009** |   |  **thereafter** |   |
| Long-term                debt,                       |   |                                                                                      |           |                        |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| including                capital leases (1) (2)      |   | $                                                                                         | 2,149,251 |                        | $      | 89,650 |   | $ | 139,867 |   | $ | 433,564 |   | $ | 301,646 |   | $ | 61,998 |   | $ | 1,122,526 |   |
| Short-term                borrowing,                 |   |                                                                                      |      |                        |   |   |   |   |   |   |   |  |   |   |  |   |   |   |   |   |   |   |
| including                credit facilities (1)       |   |                                                                                      | 699,000   |                        |   | 699,000 |   |   | -- |   |   | -- |   |   | -- |   |   | -- |   |   | -- |   |
| Gas                purchases (3)                     |   |                                                                                      | 1,379,808 |                        |   | 436,583 |   |   | 250,832 |   |   | 184,955 |   |   | 170,104 |   |   | 150,567 |   |   | 186,767 |   |
| Missouri                Gas Energy Safety Program    |   |                                                                                      | 175,350   |                        |   | 7,720 |   |   | 10,524 |   |   | 10,630 |   |   | 10,736 |   |   | 10,843 |   |   | 124,897 |   |
| Storage                contracts (4)                 |   |                                                                                      | 147,224   |                        |   | 27,444 |   |   | 23,999 |   |   | 17,444 |   |   | 16,159 |   |   | 14,658 |   |   | 47,520 |   |
| LNG                facilities and pipeline expansion |   |                                                                                      | 115,608   |                        |   | 107,379 |   |   | 8,229 |   |   | -- |   |   | -- |   |   | -- |   |   | -- |   |
| Operating                lease payments              |   |                                                                                      | 70,495    |                        |   | 18,873 |   |   | 18,397 |   |   | 13,754 |   |   | 8,340 |   |   | 4,196 |   |   | 6,935 |   |
| Interest                payments on debt             |   |                                                                                      | 1,860,506 |                        |   | 134,766 |   |   | 129,696 |   |   | 112,347 |   |   | 104,969 |   |   | 94,096 |   |   | 1,284,632 |   |
| Benefit                plan contributions            |   |                                                                                      | 28,473    |                        |   | 28,473 |   |   | -- |   |   | -- |   |   | -- |   |   | -- |   |   | -- |   |
| Non-trading                derivative liabilities    |   |                                                                                      | 14,989    |                        |   | 6,707 |   |   | 6,194 |   |   | 2,088 |   |   | -- |   |   | -- |   |   | -- |   |
| Total                contractual cash obligations    |   | $                                                                                         | 6,640,704 |                        | $      | 1,556,595 |   | $ | 587,738 |   | $ | 774,782 |   | $ | 611,954 |   | $ | 336,358 |   | $ | 2,773,277 |   |

| (1)   | The                Company is party to certain debt agreements that contain certain                covenants                that if not satisfied would be 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. See                *Note                XIII - Debt and Capital Lease*. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | The                long-term debt cash obligations exclude $14,688,000 of unamortized                debt                premium as of December 31, 2004. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| (4)   | Charges                for third party storage capacity. |
|-----------------|----------------------------------------------------------|

***Cash      Management.***
*** ***
** **

***Management      Agreement.***
*** ***
*Manager*
*the      Management Agreement*

***Contingencies.***
*MGP*

*Item      7. Management’s Discussion and Analysis - Other Matters (Cautionary Statement      Regarding Forward-Looking Information)*
*Note      XVIII -*
*Commit-ments      and Contingencies*

*PCBs*
*SIP*
*NOx*
*MACT*
*Item      7. Management’s Discussion and Analysis - Other Matters (Cautionary Statement      Regarding Forward-Looking Information)*
*Note      XVIII -*
*Commit-ments      and Contingencies*

*Southwest*

*MMS*
*SX*

***Inflation.***

***Regulatory.***

*DAC*

*Phase      I*
*Phase      II*

***Critical      Accounting Policies.***
*Note      I - Summary of Significant Accounting Policies*

*Effects      of Regulation -- *
*Accounting      for the Effects of Certain Types of Regulation, *

*Long-Lived      Assets -- *

*Goodwill      and Other Intangible Assets*

*Impairment      of Long-Lived Assets and Assets to be Disposed Of*

*Investments      in Securities -- *

*Pensions      and Other Postretirement Benefits*
*Employers’      Accounting for Pensions*
*Employers’      Accounting for Postretirement Benefits Other Than Pensions*

*Derivatives*
*** ***
*and      Hedging Activities -- *
*Accounting      for Derivative Instruments and Hedging Activities, *
*fair      value hedge*
*cash      flow hedge*
*trading      or non-hedging instrument*

*Note      XI -- Derivative Instruments and Hedging Activities.*

*Commitments      and Contingencies -- *
*Note*
*XVIII      -- Commitments and Contingencies.*

*Purchase      Accounting --*
*Business      Combinations. *
* *

***Accounting      Pronouncements***

*FSP*
*Accounting      and Disclosure Requirements Related to the Medicare Prescription Drug,      Improvement and Modernization Act of 2003*
*Medicare      Prescription Drug Act*

*123R,      Share-Based Payment (revised 2004)*
*,      Accounting for Stock-Based Compensation*
*Accounting      for Stock Issued to Employees*
*Statement      of Cash Flows*

*      Act*
*FSP      FAS 109-1*
*“Application      of FASB Statement No. 109, ‘Accounting for Income Taxes,’ to the Tax Deduction      on Qualified Production Activities Provided by the American Jobs Creation Act      of      2004*
*Accounting      for Income Taxes*

*FERC*

***Cautionary      Statement Regarding Forward-Looking Information.***
** **

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

*Accounting      for the Effects of Certain Types of Regulation,*

*Debt      and Capital Lease*

*Taxing      Authorities*
*TIF      Plan*
*TIF      Debt*

*Accounting      for Derivative Instruments and Hedging Activities,*

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

*Index      to Consolidated Financial Statements *

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

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

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

*Exchange        Act*
*CEO*
*CFO*

***Management’s        Report on Internal Control Over Financial Reporting.***

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

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

*Internal        Control-Integrated Framework*
* *
*        (COSO)*

***Changes        in Internal Control Over Financial Reporting.***

**ITEM      9B. **
***Other      Information.***

**PART      III**

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

*Board      of Directors -- Board Size and Composition, Board Committees and Meetings -      Audit Committee and - Corporate Governance Committee and - Corporate Governance      Guidelines and Code of Ethics*
*      Report of the Audit Committee, *
*Executive      Officers and Compensation --*
*Executive      Officers Who Are Not Directors *
*      Executive Compensation -- Section 16(a) Beneficial Ownership Reporting      Compliance. *

**ITEM      11. **
***Executive      Compensation.***

*Executive      Officers and Compensation -- Executive Compensation *
*Certain      Relationships*

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

*Executive      Officers and Compensation - Information Regarding Plans and Other Arrangements      Not Subject to Shareholder Approval and - Equity Compensation Plans and Security      Ownership.*

**ITEM      13. **
***Certain      Relationships and Related Transactions.***

*Certain      Relationships.*

**ITEM      14. **
***Principal      Accountants Fee and Services.***

*Independent      Auditors.*

**PART      IV**

**ITEM      15. **
***Exhibits,      Financial Statement Schedules and Reports on Form      8-K.***

**(a)(1)      and (2)**
**Financial      Statements and Financial Statement Schedules.**
*Index      to Consolidated Financial Statements*

**(a)(3)**
**Exhibits**

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

**(b)**
**Reports      on Form 8-K**

**DateFiled **
**Description  of Filing**

|   | 11/10/2004 | Filing                under Item 1.01, the Amended and Restated Limited Liability Company                Agreement between CCE Holdings, LLC, CCE Acquisition, LLC (a wholly-owned                subsidiary of the Company) and EFS-PA, LLC, dated November 5, 2004;                and                the Administrative Services Agreement between CCE Holdings, LLC and                SU                Pipeline Management LP (a wholly-owned subsidiary of the Company),                dated                November 5, 2004. |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 11/22/2004 | Filing                under Item 2.01, the press release issued by Southern Union Company                announcing that CCE Holdings, LLC on November 17, 2004, completed                the                acquisition of 100% of the equity interests of Cross Country Energy,                LLC                from Enron Corp. and completed the divestiture of its interests in                Northern Plains Natural Gas Company, LLC and NBP Services, LLC to                ONEOK,                Inc.; and filing under Item 2.03, a description of the guarantee                provided                by Panhandle Energy related to the bridge financing entered into                by                Southern Union on November 17, 2004 of $407,000,000 to fund a portion                of                Southern Union’s equity investment in CCE Holdings,                LLC. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 11/22/2004 | Filing                under Item 7.01, the investor call presentation “CrossCountry Energy                Acquisition” presented by Southern Union Company on November 22,                2004. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 12/01/2004 | Filing                under Item 5.02, the press release issued by Southern Union Company                announcing the election of Herbert H. Jacobi as a new Class III director                effective December 1, 2004. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 12/21/2004 | Filing                under Item 5.03, the press released issued by Southern Union Company                announcing the Board of Directors of the Company amended the Company’s                Bylaws (i) to change from a June 30 fiscal year end to a December                31                calendar year end, and (ii) to provide that future annual meetings                of                stockholders will be held on the last Tuesday in April, or on such                other                date as determined by the Board. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (*) | Indicates                Management Compensation Plan. |
|-----|--------------------------------------------------------|

----

**                                                                                                                                                   SIGNATURES**

| Signature/Name                                        | Title                                                                                                                       |
|-------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------|
| GEORGE                  L. LINDEMANN*                 | Chairman                  of the Board, Chief Executive Officer and Director (Principal Executive                  Officer) |
|                                                  |                                                                                                                        |
| DAVID                  BRODSKY*                       | Director                                                                                                                    |
|                                                  |                                                                                                                        |
| FRANK                  W. DENIUS*                     | Director                                                                                                                    |
|                                                  |                                                                                                                        |
| KURT                  A. GITTER, M.D.*                | Director                                                                                                                    |
|                                                  |                                                                                                                        |
| HERBERT                  H. JACOBI*                   | Director                                                                                                                    |
|                                                  |                                                                                                                        |
| THOMAS                  F. KARAM                      | Director                                                                                                                    |
| Thomas                  F. Karam                      |                                                                                                                        |
|                                                  |                                                                                                                        |
| ADAM                  M. LINDEMANN*                   | Director                                                                                                                    |
|                                                  |                                                                                                                        |
| THOMAS                  N. McCARTER, III*             | Director                                                                                                                    |
|                                                  |                                                                                                                        |
| GEORGE                  ROUNTREE, III*                | Director                                                                                                                    |
|                                                  |                                                                                                                        |
| DAVID                  J. KVAPIL                      | Executive                  Vice President and Chief Financial Officer                                                       |
| David                  J. Kvapil                      | (Principal                  Financial Officer and Principal Accounting Officer)                                             |
|                                                  |                                                                                                                        |
| *By                  THOMAS                  F. KARAM |                                                                                                                        |
| Thomas                  F. Karam                      |                                                                                                                        |
| Attorney-in-fact                                      |                                                                                                                        |

----

**SOUTHERN      UNION COMPANY AND SUBSIDIARIES**

**INDEX      TO CONSOLIDATED FINANCIAL STATEMENTS**

| Financial                Statements:                                                                                         |                       |
|------------------------------------------------------------------------------------------------------------------------------|----------------------------|
| Consolidated                statement of operations - six months ended December 31, 2004                and                  |                       |
| years                ended June 30, 2004, 2003 and 2002                                                                      | F-2                        |
| Consolidated                balance sheet - December 31, 2004, June 30, 2004 and June 30,                2003                | F-3                to F-4  |
| Consolidated                statement of cash flows - six months ended December 31, 2004                and                  |                       |
| years                ended June 30, 2004, 2003 and 2002                                                                      | F-5                        |
| Consolidated                statement of stockholders' equity and comprehensive income (loss)                -               |                       |
| six                months ended December 31, 2004 and years ended June 30, 2004, 2003                and                2002 | F-6                to F-7  |
| Notes                to consolidated financial statements                                                                    | F-8                to F-54 |
| Report                of independent registered public accounting firm                                                       |                       |

----

**SOUTHERN      UNION COMPANY AND SUBSIDIARIES **

**CONSOLIDATED      STATEMENT OF OPERATIONS**

| **                                                                                                                                                        Six                Months**                                                                    |   |                                    |       |     |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|------------|----------|--------|
| **                                                                                                                                                            Ended**                                                                                                                                                |   |                                    |       |
| **                                                                                                                                                                    December 31,**                                                                                         |   | **Years                Ended June 30,** |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | **2004**                                |       | **2004** |   | **2003** |   | **2002** |   |
|                                                                                                                                                                          (thousands                of dollars, except shares and per share amounts) |   |
| Operating                revenues:revenues:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Gas                distribution                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | $                                       | 549,346    |     | $      | 1,304,405 |   | $ | 1,158,964 |   | $ | 968,933 |   |
| Gas                transportation and storage                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                    | 242,743    |     |   | 490,883 |   |   | 24,522 |   |   | - |   |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                    | 2,249      |     |   | 4,486 |   |   | 5,014 |   |   | 11,681 |   |
| Total                operating revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                    | 794,338    |     |   | 1,799,774 |   |   | 1,188,500 |   |   | 980,614 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Cost                of gas and other energy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                    | (361,256   | )        |   | (864,438 | ) |   | (724,611 | ) |   | (573,077 | ) |
| Revenue-related                taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                    | (18,037    | )        |   | (45,395 | ) |   | (40,485 | ) |   | (33,409 | ) |
| Net                operating revenues, excluding depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| and                amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                    | 415,045    |     |   | 889,941 |   |   | 423,404 |   |   | 374,128 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Operating                expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Operating,                maintenance and general                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                    | 217,967    |     |   | 411,811 |   |   | 193,745 |   |   | 171,147 |   |
| Business                restructuring charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                    | --         |     |   | -- |   |   | -- |   |   | 29,159 |   |
| Depreciation                and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                    | 63,376     |     |   | 118,755 |   |   | 60,642 |   |   | 58,989 |   |
| Taxes,                other than on income and revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                    | 26,771     |     |   | 54,048 |   |   | 26,653 |   |   | 23,708 |   |
| Total                operating expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                    | 308,114    |     |   | 584,614 |   |   | 281,040 |   |   | 283,003 |   |
| Operating                income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                    | 106,931    |     |   | 305,327 |   |   | 142,364 |   |   | 91,125 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Other                income (expenses):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                    | (64,898    | )        |   | (127,867 | ) |   | (83,343 | ) |   | (90,992 | ) |
| Earnings                from unconsolidated investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                    | 4,745      |     |   | 200 |   |   | 422 |   |   | 1,420 |   |
| Dividends                on preferred securities of subsidiary trust                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                    | --         |     |   | -- |   |   | (9,480 | ) |   | (9,480 | ) |
| Other,                net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                    | (18,080    | )        |   | 5,468 |   |   | 17,979 |   |   | 12,858 |   |
| Total                other expenses, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                    | (78,233    | )        |   | (122,199 | ) |   | (74,422 | ) |   | (86,194 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Earnings                from continuing operations before income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                    | 28,698     |     |   | 183,128 |   |   | 67,942 |   |   | 4,931 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Federal                and state income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                    | 13,927     |     |   | 69,103 |   |   | 24,273 |   |   | 3,411 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Net                earnings from continuing operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                    | 14,771     |     |   | 114,025 |   |   | 43,669 |   |   | 1,520 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Discontinued                operations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Earnings                from discontinued operations before                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| income                taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                    | --         |     |   | -- |   |   | 84,773 |   |   | 29,801 |   |
| Federal                and state income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                    | --         |     |   | -- |   |   | 52,253 |   |   | 11,697 |   |
| Net                earnings from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                    | --         |     |   | -- |   |   | 32,520 |   |   | 18,104 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Net                earnings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                    | 14,771     |     |   | 114,025 |   |   | 76,189 |   |   | 19,624 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Preferred                stock dividends                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                    | (8,683     | )        |   | (12,686 | ) |   | -- |   |   | -- |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Net                earnings available for common shareholders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | $                                       | 6,088      |     | $      | 101,339 |   | $ | 76,189 |   | $ | 19,624 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Net                earnings available for common shareholders from                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| continuing                operations per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | $                                       | 0.07       |     | $      | 1.34 |   | $ | 0.72 |   | $ | 0.03 |   |
| Diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | $                                       | 0.07       |     | $      | 1.30 |   | $ | 0.70 |   | $ | 0.02 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Net                earnings available for common shareholders per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | $                                       | 0.07       |     | $      | 1.34 |   | $ | 1.26 |   | $ | 0.33 |   |
| Diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | $                                       | 0.07       |     | $      | 1.30 |   | $ | 1.22 |   | $ | 0.31 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Weighted                average shares outstanding:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                    | 81,995,878 |     |   | 75,442,238 |   |   | 60,584,293 |   |   | 59,420,048 |   |
| Diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                    | 85,298,894 |     |   | 77,694,607 |   |   | 62,523,110 |   |   | 62,596,907 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                    |       |     |   |   |   |   |   |   |   |   |   |
| See                accompanying notes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                    |       |

----

**SOUTHERN        UNION COMPANY AND SUBSIDIARIES**

**CONSOLIDATED        BALANCE SHEET**

**ASSETS**

|                                                          |   | **December                31,**                                            |      | **June                30,** |   |
|---------------------------------------------------------------|--------|----------------------------------------------------------------------------|-----------|-----------------------------|--------|
|                                                          |   | **2004**                                                                   |      | **2004**                    |   | **2003** |   |
|                                                          |   | ***                     (thousands of dollars)*** |      |
| Property,                plant and equipment:                 |   |                                                                       |           |                        |   |  |   |   |  |   |
| Plant                in service                               |   | $                                                                          | 3,869,221 |                        | $      | 3,772,616 |   | $ | 3,710,541 |   |
| Construction                work in progress                  |   |                                                                       | 237,283   |                        |   | 169,264 |   |   | 75,484 |   |
|                                                          |   |                                                                       | 4,106,504 |                        |   | 3,941,880 |   |   | 3,786,025 |   |
| Less                accumulated depreciation and amortization |   |                                                                       | (778,876  | )                           |   | (734,367 | ) |   | (641,225 | ) |
| Net                property, plant and equipment              |   |                                                                       | 3,327,628 |                        |   | 3,207,513 |   |   | 3,144,800 |   |
|                                                          |   |                                                                       |      |                        |   |  |   |   |  |   |
| Current                assets:                                |   |                                                                       |      |                        |   |  |   |   |  |   |
| Cash                and cash equivalents                      |   |                                                                       | 30,053    |                        |   | 19,971 |   |   | 86,997 |   |
| Accounts                receivable, billed and unbilled, net  |   |                                                                       | 333,492   |                        |   | 181,924 |   |   | 192,402 |   |
| Inventories                                                   |   |                                                                       | 267,136   |                        |   | 200,295 |   |   | 173,757 |   |
| Deferred                gas purchase costs                    |   |                                                                       | --        |                        |   | 3,933 |   |   | 24,603 |   |
| Gas                imbalances - receivable                    |   |                                                                       | 36,122    |                        |   | 22,045 |   |   | 34,911 |   |
| Prepayments                and other                          |   |                                                                       | 45,705    |                        |   | 27,561 |   |   | 18,971 |   |
| Total                current assets                           |   |                                                                       | 712,508   |                        |   | 455,729 |   |   | 531,641 |   |
|                                                          |   |                                                                       |      |                        |   |  |   |   |  |   |
| Goodwill                                                      |   |                                                                       | 640,547   |                        |   | 640,547 |   |   | 642,921 |   |
|                                                          |   |                                                                       |      |                        |   |  |   |   |  |   |
| Deferred                charges                               |   |                                                                       | 199,064   |                        |   | 190,735 |   |   | 188,261 |   |
|                                                          |   |                                                                       |      |                        |   |  |   |   |  |   |
| Unconsolidated                investments                     |   |                                                                       | 631,893   |                        |   | 20,856 |   |   | 22,682 |   |
|                                                          |   |                                                                       |      |                        |   |  |   |   |  |   |
| Other                                                         |   |                                                                       | 56,649    |                        |   | 57,078 |   |   | 60,633 |   |
|                                                          |   |                                                                       |      |                        |   |  |   |   |  |   |
|                                                          |   |                                                                       |      |                        |   |  |   |   |  |   |
|                                                          |   |                                                                       |      |                        |   |  |   |   |  |   |
|                                                          |   |                                                                       |      |                        |   |   |   |   |   |   |
|                                                          |   |                                                                       |      |                        |   |   |   |   |   |   |
|                                                          |   |                                                                       |      |                        |   |   |   |   |   |   |
|                                                          |   |                                                                       |      |                        |   |   |   |   |   |   |
|                                                          |   |                                                                       |      |                        |   |   |   |   |   |   |
|                                                          |   |                                                                       |      |                        |   |   |   |   |   |   |
|                                                          |   |                                                                       |      |                        |   |   |   |   |   |   |
|                                                          |   |                                                                       |      |                        |   |   |   |   |   |   |
|                                                          |   |                                                                       |      |                        |   |   |   |   |   |   |
|                                                          |   |                                                                       |      |                        |   |   |   |   |   |   |
|                                                          |   |                                                                       |      |                        |   |  |   |   |  |   |
|                                                          |   |                                                                       |      |                        |   |  |   |   |  |   |
|                                                          |   |                                                                       |      |                        |   |  |   |   |  |   |
| Total                assets                                   |   | $                                                                          | 5,568,289 |                        | $      | 4,572,458 |   | $ | 4,590,938 |   |
|                                                          |   |                                                                       |           |                        |   |  |   |   |  |   |

----

**SOUTHERN        UNION COMPANY AND SUBSIDIARIES**

**CONSOLIDATED        BALANCE SHEET (CONTINUED)**

**STOCKHOLDERS'      EQUITY AND LIABILITIES**

|                                                                       |   |  ** December                31,** |      | **June                30,** |   |
|----------------------------------------------------------------------------|--------|---------------------------------------------|-----------|-----------------------------|--------|
|                                                                       |   | **2004**                                    |      | **2004**                    |   | **2003** |   |
|                                                                       |   | ***(thousands                of dollars)*** |      |
| Stockholders’                equity:                                 |   |                                        |           |                        |   |  |   |   |  |   |
| Common                stock, $1 par value; authorized 200,000,000 shares;  |   |                                        |      |                        |   |  |   |   |  |   |
| issued                90,762,650 shares at December 31, 2004               |   | $                                           | 90,763    |                        | $      | 77,141 |   | $ | 73,074 |   |
| Preferred                stock, no par value; authorized 6,000,000 shares; |   |                                        |      |                        |   |  |   |   |  |   |
| issued                920,000 shares at December 31, 2004                  |   |                                        | 230,000   |                        |   | 230,000 |   |   | -- |   |
| Premium                on capital stock                                    |   |                                        | 1,204,590 |                        |   | 975,104 |   |   | 909,191 |   |
| Less                treasury stock; 404,536, 404,536 and 282,333           |   |                                        |      |                        |   |  |   |   |  |   |
| shares,                respectively, at cost                               |   |                                        | (12,870   | )                           |   | (12,870 | ) |   | (10,467 | ) |
| Less                common stock held in trust: 1,198,034, 1,089,147       |   |                                        |      |                        |   |   |   |   |   |   |
| and                1,114,738 shares, respectively                          |   |                                        | (17,980   | )                           |   | (15,812 | ) |   | (15,617 | ) |
| Deferred                compensation plans                                 |   |                                        | 14,128    |                        |   | 11,960 |   |   | 9,960 |   |
| Accumulated                other comprehensive loss                        |   |                                        | (59,118   | )                           |   | (50,224 | ) |   | (62,579 | ) |
| Retained                earnings                                           |   |                                        | 48,044    |                        |   | 46,692 |   |   | 16,856 |   |
|                                                                       |   |                                        |      |                        |   |  |   |   |  |   |
| Total                stockholders' equity                                  |   |                                        | 1,497,557 |                        |   | 1,261,991 |   |   | 920,418 |   |
|                                                                       |   |                                        |      |                        |   |  |   |   |  |   |
| Company-obligated                mandatorily redeemable preferred          |   |                                        |      |                        |   |  |   |   |  |   |
| securities                of subsidiary trust holding                      |   |                                        |      |                        |   |  |   |   |  |   |
| solely                subordinated notes of Southern Union                 |   |                                        | --        |                        |   | -- |   |   | 100,000 |   |
|                                                                       |   |                                        |      |                        |   |  |   |   |  |   |
|  Long-term                debt and capital lease obligation           |   |                                        | 2,070,353 |                        |   | 2,154,615 |   |   | 1,611,653 |   |
|                                                                       |   |                                        |      |                        |   |  |   |   |  |   |
| Total                capitalization                                        |   |                                        | 3,567,910 |                        |   | 3,416,606 |   |   | 2,632,071 |   |
|                                                                       |   |                                        |      |                        |   |  |   |   |  |   |
| Current                liabilities:                                        |   |                                        |      |                        |   |  |   |   |  |   |
| Long-term                debt and capital lease obligation                 |   |                                        |      |                        |   |  |   |   |  |   |
| due                within one year                                         |   |                                        | 89,650    |                        |   | 99,997 |   |   | 734,752 |   |
| Notes                payable                                               |   |                                        | 699,000   |                        |   | 21,000 |   |   | 251,500 |   |
| Accounts                payable                                            |   |                                        | 183,018   |                        |   | 122,309 |   |   | 112,840 |   |
| Federal,                state and local taxes                              |   |                                        | 33,946    |                        |   | 32,866 |   |   | 6,743 |   |
| Accrued                interest                                            |   |                                        | 36,934    |                        |   | 36,891 |   |   | 40,871 |   |
| Customer                deposits                                           |   |                                        | 13,156    |                        |   | 12,043 |   |   | 12,585 |   |
| Gas                imbalances - payable                                    |   |                                        | 102,567   |                        |   | 72,057 |   |   | 64,519 |   |
| Other                                                                      |   |                                        | 155,565   |                        |   | 116,783 |   |   | 130,196 |   |
|                                                                       |   |                                        |      |                        |   |  |   |   |  |   |
| Total                current liabilities                                   |   |                                        | 1,313,836 |                        |   | 513,946 |   |   | 1,354,006 |   |
|                                                                       |   |                                        |      |                        |   |  |   |   |  |   |
| Deferred                credits                                            |   |                                        | 321,049   |                        |   | 292,946 |   |   | 322,154 |   |
|                                                                       |   |                                        |      |                        |   |  |   |   |  |   |
| Accumulated                deferred income taxes                           |   |                                        | 365,494   |                        |   | 348,960 |   |   | 282,707 |   |
|                                                                       |   |                                        |      |                        |   |  |   |   |  |   |
| Commitments                and contingencies                               |   |                                        |      |                        |   |  |   |   |   |   |
|                                                                       |   |                                        |      |                        |   |  |   |   |  |   |
| Total                stockholders' equity and liabilities                  |   | $                                           | 5,568,289 |                        | $      | 4,572,458 |   | $ | 4,590,938 |   |

----

**SOUTHERN        UNION COMPANY AND SUBSIDIARIES **

**CONSOLIDATED        STATEMENT OF CASH FLOWS**

| **                                                                                                                                                          Six Months** |   |                                      |     |                                   |   |     |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|----------|----------------------------------------|--------|----------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | **Ended**                                 |     |                                   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | **December                31,**           |     | **Year                Ended June 30,** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | **2004**                                  |     | **2004**                               |   | **2003** |   | **2002** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | **(thousands                of dollars)** |     |
| Cash                flows provided by (used in) operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                      |     |                                   |   |     |   |   |   |   |   |   |   |
| Net                earnings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | $                                         | 14,771   |                                   | $      | 114,025  |   | $ | 76,189 |   | $ | 19,624 |   |
| Adjustments                to reconcile net earnings to net cash flows                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                      |     |                                   |   |     |   |   |   |   |   |   |   |
| provided                by (used in) operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                      |     |                                   |   |     |   |   |   |   |   |   |   |
| Depreciation                and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                      | 63,376   |                                   |   | 118,755  |   |   | 60,642 |   |   | 58,989 |   |
| Amortization                of debt premium                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                      | (1,510   | )                                      |   | (14,243  | )      |   | (1,307 | ) |   | -- |   |
| Deferred                income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                      | 12,082   |                                   |   | 67,455   |   |   | 78,747 |   |   | 28,397 |   |
| Provision                for bad debts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                      | 11,649   |                                   |   | 21,216   |   |   | 17,873 |   |   | 12,260 |   |
| Provision                for impairment of other assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                      | 16,425   |                                   |   | 1,603    |   |   | -- |   |   | 10,380 |   |
| Financial                derivative trading gains                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                      | (302     | )                                      |   | (605     | )      |   | (605 | ) |   | (6,204 | ) |
| Amortization                of debt expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                      | 1,064    |                                   |   | 4,143    |   |   | 2,919 |   |   | 2,936 |   |
| Gain                on sale of subsidiaries and other assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                      | --       |                                   |   | --       |   |   | (62,992 | ) |   | (6,414 | ) |
| Loss                on sale of subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                      | --       |                                   |   | 1,150    |   |   | -- |   |   | 1,500 |   |
| Gain                on settlement of interest rate swaps                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                      | --       |                                   |   | --       |   |   | -- |   |   | (17,166 | ) |
| Gain                on extinguishment of debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                      | --       |                                   |   | (6,354   | )      |   | -- |   |   | -- |   |
| Business                restructuring charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                      | --       |                                   |   | --       |   |   | -- |   |   | 24,440 |   |
| Net                cash provided (used by) assets held for sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                      | --       |                                   |   | --       |   |   | (23,698 | ) |   | 48,618 |   |
| Earnings                from unconsolidated investments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                      | (4,745   | )                                      |   | (200     | )      |   | (422 | ) |   | (1,420 | ) |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                      | (895     | )                                      |   | (470     | )      |   | (707 | ) |   | 355 |   |
| Changes                in operating assets and liabilities, net of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                      |     |                                   |   |     |   |   |   |   |   |   |   |
| acquisitions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                      |     |                                   |   |     |   |   |   |   |   |   |   |
| Accounts                receivable, billed and unbilled                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                      | (174,716 | )                                      |   | (6,181   | )      |   | (48,520 | ) |   | 71,932 |   |
| Gas                imbalance receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                      | (14,077  | )                                      |   | 20,341   |   |   | 6,330 |   |   | -- |   |
| Accounts                payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                      | 53,304   |                                   |   | 7,649    |   |   | 22,865 |   |   | (12,102 | ) |
| Gas                imbalance payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                      | 30,510   |                                   |   | (1,278   | )      |   | 4,851 |   |   | -- |   |
| Customer                deposits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                      | 1,113    |                                   |   | (542     | )      |   | 5,013 |   |   | (53 | ) |
| Deferred                gas purchase costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                      | 10,239   |                                   |   | 20,670   |   |   | (21,006 | ) |   | 53,436 |   |
| Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                      | (66,841  | )                                      |   | (25,824  | )      |   | (34,583 | ) |   | 1,044 |   |
| Deferred                charges and credits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                      | 22,743   |                                   |   | 13,773   |   |   | (12,561 | ) |   | 16,804 |   |
| Prepaids                and other assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                      | (11,974  | )                                      |   | 8,978    |   |   | 2,541 |   |   | (3,735 | ) |
| Taxes                and other liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                      | 18,323   |                                   |   | (4,831   | )      |   | (15,736 | ) |   | (30,142 | ) |
| Net                cash flows provided by (used) in operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                      | (19,461  | )                                      |   | 339,230  |   |   | 55,833 |   |   | 273,479 |   |
| Cash                flows (used in) provided by investing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                      |     |                                   |   |     |   |   |   |   |   |   |   |
| Additions                to property, plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                      | (178,437 | )                                      |   | (226,053 | )      |   | (79,730 | ) |   | (70,698 | ) |
| Acquisition                of equity interest in unconsolidated investment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                      | (605,388 | )                                      |   | --       |   |   | -- |   |   | -- |   |
| Acquisitions                of operations, net of cash received                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                      | --       |                                   |   | --       |   |   | (522,316 | ) |   | -- |   |
| Notes                receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                      | --       |                                   |   | (2,000   | )      |   | (6,750 | ) |   | (2,750 | ) |
| Purchase                of investment securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                      | --       |                                   |   | --       |   |   | -- |   |   | (938 | ) |
| Proceeds                from sale of subsidiaries and other assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                      | --       |                                   |   | 2,175    |   |   | 437,000 |   |   | 40,935 |   |
| Proceeds                from sale of interest rate swaps                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                      | --       |                                   |   | --       |   |   | -- |   |   | 17,166 |   |
| Net                cash used in assets held for sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                      | --       |                                   |   | --       |   |   | (13,410 | ) |   | (23,215 | ) |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                      | (1,711   | )                                      |   | (1,131   | )      |   | (6,154 | ) |   | 274 |   |
| Net                cash flows used in investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                      | (785,536 | )                                      |   | (227,009 | )      |   | (191,360 | ) |   | (39,226 | ) |
| Cash                flows provided by (used in) financing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                      |     |                                   |   |     |   |   |   |   |   |   |   |
| Increase                (decrease) in bank overdraft                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                      | 7,405    |                                   |   | 1,820    |   |   | (137 | ) |   | 137 |   |
| Issuance                of long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                      | --       |                                   |   | 750,000  |   |   | 311,087 |   |   | -- |   |
| Issuance                costs of debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                      | (337     | )                                      |   | (8,530   | )      |   | (313 | ) |   | (921 | ) |
| Issuance                of preferred stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                      | --       |                                   |   | 230,000  |   |   | -- |   |   | -- |   |
| Issuance                costs of preferred stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                      | --       |                                   |   | (6,590   | )      |   | -- |   |   | -- |   |
| Issuance                of common stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                      | 228,287  |                                   |   | --       |   |   | 168,682 |   |   | -- |   |
| Issuance                of equity units                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                      | --       |                                   |   | --       |   |   | 125,000 |   |   | -- |   |
| Issuance                cost of equity units                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                      | --       |                                   |   | --       |   |   | (3,443 | ) |   | -- |   |
| Purchase                of treasury stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                      | --       |                                   |   | (2,403   | )      |   | (2,181 | ) |   | (41,632 | ) |
| Dividends                paid on preferred stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                      | (8,683   | )                                      |   | (8,393   | )      |   | -- |   |   | -- |   |
| Repayment                of debt and capital lease obligation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                      | (94,123  | )                                      |   | (908,773 | )      |   | (500,135 | ) |   | (145,131 | ) |
| Net                (payments) borrowings under revolving credit facilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                      | 678,000  |                                   |   | (230,500 | )      |   | 119,700 |   |   | (58,800 | ) |
| Proceeds                from exercise of stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                      | 4,530    |                                   |   | 4,122    |   |   | 3,047 |   |   | 8,346 |   |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                      | --       |                                   |   | --       |   |   | 1,217 |   |   | 2,529 |   |
| Net                cash flows provided by (used in) financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                      | 815,079  |                                   |   | (179,247 | )      |   | 222,524 |   |   | (235,472 | ) |
| Change                in cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                      | 10,082   |                                   |   | (67,026  | )      |   | 86,997 |   |   | (1,219 | ) |
| Cash                and cash equivalents at beginning of period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                      | 19,971   |                                   |   | 86,997   |   |   | -- |   |   | 1,219 |   |
| Cash                and cash equivalents at end of period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | $                                         | 30,053   |                                   | $      | 19,971   |   | $ | 86,997 |   | $ | -- |   |
|  Cash                paid for interest, net of amounts capitalized for the six months                ended                December 31, 2004 and the years ended June 30, 2004, 2003 an 2002                was                $69,954,000, $143,715,000, $90,462,000 and $99,643,000, respectively.                Cash                refunded for income taxes in the years ended June 30, 2004 and 2002                was                $10,875,000 and $4,214,000, respectively, while cash paid for income                taxes                for the six months ended December 31, 2004 and the year ended June                30,                2003 was $7,764,000 and $2,351,000, respectively.See                accompanying notes.                                                                                                                               |

----

**SOUTHERN        UNION COMPANY AND SUBSIDIARIES**

**CONSOLIDATED        STATEMENT OF STOCKHOLDERS' EQUITY AND        COMPREHENSIVE INCOME (LOSS)**

**                                                                                                                                                                                                                                                    Accumulated**

**                                                                                                                                                                                                                             Common                  Other                                            Total**

**                                                                                                                    Common                Preferred          Premium              Treasury               Stock               Comprehen-                                      Stock-**

**                                                                                                               Stock,      $1          Stock,      No          on      Capital        Stock,      at               Held      in               sive      Income             Retained             holders’**

** **
**                                      **
**Par      Value**
**          **
**Par      Value**
**                 **
** Stock**
** **
**      Cost **
**                  **
** Trust      **
**                   **
** (Loss) **
**                **
**Earnings        **
**Equity            **

**                                                                                                                                                                                                         (thousands of dollars)**
**           **

| Balance                July 1, 2001               |   | $      | 54,553 |   |   | --      |   | $      | 676,324 |   | $      | (15,869 | )      | $      | (11,697 | )      | $      | 13,443  |   | $      | 5,103   |   | $      | 721,857   |   |
|---------------------------------------------------|--------|--------|--------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|-----------|--------|
|                                              |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |      |   |
| Comprehensive                income (loss):       |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |      |   |
| Net                earnings                       |   |   | --     |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | 19,624  |   |   | 19,624    |   |
| Unrealized                loss in investment      |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |      |   |
| securities,                net of tax benefit     |   |   | --     |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | (18,249 | )      |   | --      |   |   | (18,249   | )      |
| Minimum                pension liability          |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |      |   |
| adjustment,                net of tax benefit     |   |   | --     |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | (10,498 | )      |   | --      |   |   | (10,498   | )      |
| Unrealized                gain on hedging         |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |      |   |
| activities,                net of tax             |   |   | --     |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | 804     |   |   | --      |   |   | 804       |   |
| Comprehensive                income (loss)        |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   | (8,319    | )      |
| Payment                on note receivable         |   |   | --     |   |   | --      |   |   | 202     |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | 202       |   |
| Purchase                of treasury stock         |   |   | --     |   |   | --      |   |   | --      |   |   | (41,632 | )      |   | --      |   |   | --      |   |   | --      |   |   | (41,632   | )      |
| 5%                stock dividend                  |   |   | 2,618  |   |   | --      |   |   | 22,091  |   |   | --      |   |   | --      |   |   | --      |   |   | (24,727 | )      |   | (18       | )      |
| Stock                compensation plan            |   |   | --     |   |   | --      |   |   | 1,248   |   |   | --      |   |   | 1,257   |   |   | --      |   |   | --      |   |   | 2,505     |   |
| Sale                of common stock held in trust |   |   | --     |   |   | --      |   |   | 26      |   |   | --      |   |   | 1,945   |   |   | --      |   |   | --      |   |   | 1,971     |   |
| Exercise                of stock options          |   |   | 884    |   |   | --      |   |   | 8,021   |   |   | (172    | )      |   | 47      |   |   | --      |   |   | --      |   |   | 8,780     |   |
| Balance                June 30, 2002              |   |   | 58,055 |   |   | --      |   |   | 707,912 |   |   | (57,673 | )      |   | (8,448  | )      |   | (14,500 | )      |   | --      |   |   | 685,346   |   |
|                                              |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |      |   |
| Comprehensive                income (loss):       |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |      |   |
| Net                earnings                       |   |   | --     |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | 76,189  |   |   | 76,189    |   |
| Unrealized                loss in investment      |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |      |   |
| securities,                net of tax benefit     |   |   | --     |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | (581    | )      |   | --      |   |   | (581      | )      |
| Minimum                pension liability          |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |      |   |
| adjustment,                net of tax benefit     |   |   | --     |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | (41,930 | )      |   | --      |   |   | (41,930   | )      |
| Unrealized                loss on hedging         |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |      |   |
| activities,                net of tax benefit     |   |   | --     |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | (5,568  | )      |   | --      |   |   | (5,568    | )      |
| Comprehensive                income               |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   | 28,110    |   |
| Payment                on note receivable         |   |   | --     |   |   | --      |   |   | 305     |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | 305       |   |
| Purchase                of treasury stock         |   |   | --     |   |   | --      |   |   | --      |   |   | (2,181  | )      |   | --      |   |   | --      |   |   | --      |   |   | (2,181    | )      |
| 5%                stock dividend                  |   |   | 3,468  |   |   | --      |   |   | 55,832  |   |   | --      |   |   | --      |   |   | --      |   |   | (59,333 | )      |   | (33       | )      |
| Stock                compensation plan            |   |   | --     |   |   | --      |   |   | 480     |   |   | --      |   |   | 737     |   |   | --      |   |   | --      |   |   | 1,217     |   |
| Issuance                of stock for acquisition  |   |   | --     |   |   | --      |   |   | --      |   |   | 48,900  |   |   | --      |   |   | --      |   |   | --      |   |   | 48,900    |   |
| Issuance                of common stock           |   |   | 10,925 |   |   | --      |   |   | 157,757 |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | 168,682   |   |
| Issuance                costs of equity units     |   |   | --     |   |   | --      |   |   | (3,443  | )      |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | (3,443    | )      |
| Contract                adjustment payment        |   |   | --     |   |   | --      |   |   | (11,713 | )      |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | (11,713   | )      |
| Sale                of common stock held in trust |   |   | --     |   |   | --      |   |   | (243    | )      |   | --      |   |   | 2,424   |   |   | --      |   |   | --      |   |   | 2,181     |   |
| Exercise                of stock options          |   |   | 626    |   |   | --      |   |   | 2,304   |   |   | 487     |   |   | (370    | )      |   | --      |   |   | --      |   |   | 3,047     |   |
| Balance                June 30, 2003              |   |   | 73,074 |   |   | --      |   |   | 909,191 |   |   | (10,467 | )      |   | (5,657  | )      |   | (62,579 | )      |   | 16,856  |   |   | 920,418   |   |
|                                              |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |      |   |
| Comprehensive                income (loss):       |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |      |   |
| Net                earnings                       |   |   | --     |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | 114,025 |   |   | 114,025   |   |
| Unrealized                loss in investment      |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |      |   |
| securities,                net of tax benefit     |   |   | --     |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | (21     | )      |   | --      |   |   | (21       | )      |
| Minimum                pension liability          |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |      |   |
| adjustment,                net of tax             |   |   | --     |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | 10,768  |   |   | --      |   |   | 10,768    |   |
| Unrealized                gain on hedging         |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |      |   |
| activities,                net of tax             |   |   | --     |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | 1,608   |   |   | --      |   |   | 1,608     |   |
| Comprehensive                income               |   |   |   |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   |    |   |   | 126,380   |   |
| Preferred                stock dividends          |   |   | --     |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | (12,686 | )      |   | (12,686   | )      |
| Payment                on note receivable         |   |   | --     |   |   | --      |   |   | 347     |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | 347       |   |
| Purchase                of treasury stock         |   |   | --     |   |   | --      |   |   | --      |   |   | (2,403  | )      |   | --      |   |   | --      |   |   | --      |   |   | (2,403    | )      |
| 5%                stock dividend                  |   |   | 3,656  |   |   | --      |   |   | 67,847  |   |   | --      |   |   | --      |   |   | --      |   |   | (71,503 | )      |   | --        |   |
| Sale                of common stock held in trust |   |   | --     |   |   | --      |   |   | 598     |   |   | --      |   |   | 1,805   |   |   | --      |   |   | --      |   |   | 2,403     |   |
| Issuance                of preferred stock        |   |   | --     |   |   | 230,000 |   |   | (6,590  | )      |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | 223,410   |   |
| Exercise                of stock options          |   |   | 411    |   |   | --      |   |   | 3,711   |   |   | --      |   |   | --      |   |   | --      |   |   | --      |   |   | 4,122     |   |
| Balance                June 30, 2004              |   | $      | 77,141 |   | $      | 230,000 |   | $      | 975,104 |   | $      | (12,870 | )      | $      | (3,852  | )      | $      | (50,224 | )      | $      | 46,692  |   | $      | 1,261,991 |   |

|                                                 |   |   |   |   |   |    |   |   |      |   |   |    |   |   |   |   |   |    |   |   |   |   |   |      |   |
|-------------------------------------------------|--------|--------|--------|--------|--------|---------|--------|--------|-----------|--------|--------|---------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|--------|-----------|--------|
| Comprehensive                  income (loss):   |   |   |   |   |   |    |   |   |      |   |   |    |   |   |   |   |   |    |   |   |   |   |   |      |   |
| Net                  earnings                   |   |   | --     |   |   | --      |   |   | --        |   |   | --      |   |   | --     |   |   | --      |   |   | 14,771 |   |   | 14,771    |   |
| Minimum                  pension liability      |   |   |   |   |   |    |   |   |      |   |   |    |   |   |   |   |   |    |   |   |   |   |   |      |   |
| adjustment,                  net of tax benefit |   |   | --     |   |   | --      |   |   | --        |   |   | --      |   |   | --     |   |   | (8,832) |   |   | --     |   |   | (8,832)   |   |
| Unrealized                  loss on hedging     |   |   |   |   |   |    |   |   |      |   |   |    |   |   |   |   |   |    |   |   |   |   |   |      |   |
| activities,                  net of tax         |   |   | --     |   |   | --      |   |   | --        |   |   | --      |   |   | --     |   |   | (62)    |   |   | --     |   |   | (62)      |   |
| Comprehensive                  income           |   |   |   |   |   |    |   |   |      |   |   |    |   |   |   |   |   |    |   |   |   |   |   | 5,877     |   |
| Preferred                  stock dividends      |   |   | --     |   |   | --      |   |   | --        |   |   | --      |   |   | --     |   |   | --      |   |   | (8,683 | )      |   | (8,683    | )      |
| 5%                  stock dividend              |   |   | 242    |   |   | --      |   |   | 4,494     |   |   | --      |   |   | --     |   |   | --      |   |   | (4,736 | )      |   | --        |   |
| Payment                  on note receivable     |   |   | --     |   |   | --      |   |   | 473       |   |   | --      |   |   | --     |   |   | --      |   |   | --     |   |   | 473       |   |
| Issuance                  of common stock       |   |   | 13,042 |   |   | --      |   |   | 215,245   |   |   | --      |   |   | --     |   |   | --      |   |   | --     |   |   | 228,287   |   |
| Exercise                  of stock options      |   |   | 338    |   |   | --      |   |   | 9,274     |   |   | --      |   |   | --     |   |   | --      |   |   | --     |   |   | 9,612     |   |
| Balance                  December 31, 2004      |   | $      | 90,763 |   | $      | 230,000 |   | $      | 1,204,590 |   | $      | (12,870 | )      | $      | (3,852 | )      | $      | (59,118 | )      | $      | 48,044 |   | $      | 1,497,557 |

*Common      Stock, $1 Par Value*

----

**SOUTHERN      UNION COMPANY AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL      STATEMENTS**

**I       Summary of Significant Accounting Policies**

***Operations.***
*Southern      Union*
*Company*
*Panhandle      Energy*
*Bcf/d*
*LNG*
*CCE      Holdings*
*TWP*
*FGT*

***Basis      of Presentation.***
*Note      XXII - Transition Period Comparative Data.*

*CrossCountry      Energy*

*ONEOK*
*Note      II -- Acquisitions and Sales*
*Note      XIX -- Discontinued Operations*

***Principles      of Consolidation.***

***Purchase      Accounting***
*.      *
*Business      Combinations. *
* *

***Use      of Estimates.***

***Segment      Reporting.***
*FASB*
*Disclosures      about Segments of an Enterprise and Related Information*

***Gas      Utility Revenues and Gas Purchase Costs.***

***Transportation      and Storage Revenues.***
*FERC*

***Earnings      Per Share.***
*Earnings      per Share*

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

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

|                                                                     |   |  **Six                Months** |   |                            |   |                                   |   |
|--------------------------------------------------------------------------|--------|-------------------------------------|--------|---------------------------------|--------|----------------------------------------|--------|
|                                                                     |   |                                |   | **Ended**                       |   |                                   |   |
|                                                                     |   |                                |   | **December                31,** |   | **Year                Ended June 30,** |   |
|                                                                     |   |                                |   | **2004**                        |   | **2004**                               |   | **2003** |   | **2002** |   |
|                                                                     |   |                                |        |                            |   |                                        |   |   |  |   |   |  |   |   |  |   |
| Net                earnings, as reported                                 |   |                                |        |                            | $      | 14,771                                 |   | $ | 114,025 |   | $ | 76,189 |   | $ | 19,624 |   |
| Deduct                total stock-based employee compensation            |   |                                     |   |                            |        |                                   |   |   |   |   |   |   |
| expense                determined under fair value based method          |   |                                |   |                            |   |                                        |   |   |  |   |   |   |   |   |   |   |
| for                all awards, net of related taxes                      |   |                                |        |                            |   | 496                                    |   |   | 1,699 |   |   | 1,373 |   |   | 953 |   |
| Pro                forma net earnings                                    |   |                                |        |                            | $      | 14,275                                 |   | $ | 112,326 |   | $ | 74,816 |   | $ | 18,671 |   |
|                                                                     |   |                                |        |                            |   |                                        |   |   |  |   |   |  |   |   |  |   |
| Net                earnings available for common shareholders per share: |   |                                     |   |                            |        |                                   |   |  |   |   |  |   |
| Basic-                as reported                                        |   |                                |        |                            | $      | 0.07                                   |   | $ | 1.34 |   | $ | 1.26 |   | $ | 0.33 |   |
| Basic-                pro forma                                          |   |                                |        |                            | $      | 0.07                                   |   | $ | 1.32 |   | $ | 1.23 |   | $ | 0.31 |   |
|                                                                     |   |                                |        |                            |   |                                   |   |   |   |   |   |   |   |   |   |   |
| Diluted-                as reported                                      |   |                                |        |                            | $      | 0.07                                   |   | $ | 1.30 |   | $ | 1.22 |   | $ | 0.31 |   |
| Diluted-                pro forma                                        |   |                                |        |                            | $      | 0.06                                   |   | $ | 1.29 |   | $ | 1.21 |   | $ | 0.30 |   |

***Accumulated      Other Comprehensive Income.***
*Reporting      Comprehensive Income.*

|                                                                                                    |   |                                                      Six Months    |   |                                   |   |
|---------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|
|                                                                                                    |   | **                                                      Ended**              |   |                                   |   |
|                                                                                                    |   | **                                                      December 31,**  |   | **Year                Ended June 30,** |   |
|                                                                                                    |   |                                                                                                                                                                                                                                                                       |        |                                   |   | **2004** |   |   | **2004** |   |   | **2003** |   |   | **2002** |   |
|                                                                                                    |   |                                                                                                                                                                                                                                                                       |        |                                   |   |  |   |   |  |   |   |  |   |   |  |   |
| Net                earnings                                                                             |   |                                                                                                                                                                                                                                                                       |        |                                   | $      | 14,771 |   | $ | 114,025 |   | $ | 76,189 |   | $ | 19,624 |   |
| Other                comprehensive income (loss):                                                       |   |                                                                                                                                                                                                                                                                       |        |                                   |   |   |   |   |   |   |   |   |   |   |   |   |
|                  Unrealized loss in investment securities, net of tax                benefit       |   | --                                                                                                                                                                                                                                                                         |   |                                   | (21    | ) |   | (581 | ) |   | (18,249 | ) |
|                  Unrealized gain (loss) on hedging activities, net of tax                (benefit) |   | 2,154                                                                                                                                                                                                                                                                      |   |                                   | 7,105  |   |   | (5,562 | ) |   | 406 |   |
| Realized                gain (loss) on hedging activities in net earnings,                              |   |                                                                                                                                                                                                                                                                       |   |                                   |   |   |   |   |   |   |   |   |
| net                of tax (benefit)                                                                     |   | (2,216                                                                                                                                                                                                                                                                     | )      |                                   | (5,497 | ) |   | (6 | ) |   | 398 |   |
| Minimum                pension liability adjustment, net of tax (benefit)                               |   | (8,832                                                                                                                                                                                                                                                                     | )      |                                   | 10,768 |   |   | (41,930 | ) |   | (10,498 | ) |
| Other                comprehensive income (loss)                                                        |   |                                                                                                                                                                                                                                                                       |        |                                   |   | (8,894 | ) |   | 12,355 |   |   | (48,079 | ) |   | (27,943 | ) |
| Comprehensive                income (loss)                                                              |   |                                                                                                                                                                                                                                                                       |        |                                   | $      | 5,877 |   | $ | 126,380 |   | $ | 28,110 |   | $ | (8,319 | ) |

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

***Inventories.***
*Btu*

***Unconsolidated      Investments.***
* *

***Regulatory      Assets and Liabilities.***
*Accounting      for the Effects of Certain Types of Regulation, *

***Goodwill          and Other Intangible Assets.***
*Accounting          for Goodwill and Other Intangible Assets. *
*Note          VII - Goodwill and Intangibles*

***Fair        Value of Financial Instruments.***

***Gas      Imbalances.***

***Fuel      Tracker.***

***Interest      Cost Capitalized.***
*Capitalization      of Interest Cost*

***Derivative      Instruments and Hedging Activities.***
*Accounting      for Derivative Instruments and Hedging Activities*
*Note      XI - Derivative Instruments and Hedging Activities*

***Asset      Retirement Obligations.***
*Accounting      for Asset Retirement Obligations (ARO). *

***Income      Taxes.***
*Accounting      for Income Taxes*

***New      Pronouncements.***

*FSP*
*Accounting      and Disclosure Requirements Related to the Medicare Prescription Drug,      Improvement and Modernization Act of 2003*
*Medicare      Prescription Drug Act*

*123R,      Share-Based Payment (revised 2004)*
*,      Accounting for Stock-Based Compensation*
*Accounting      for Stock Issued to Employees*
*Statement      of Cash Flows*

*the      Act*
*FSP      FAS 109-1*
*“Application      of FASB Statement No. 109, ‘Accounting for Income Taxes,’ to the Tax Deduction      on Qualified Production Activities Provided by the American Jobs Creation Act      of      2004*
*Accounting      for Income Taxes*

*FERC*

**II      Acquisitions and Sales**

*ONEOK*
*TWP*
*Citrus*
*FGT*
*Note      X - Stockholders’ Equity*

*FERC*

*Note      X - Stockholders’ Equity)*

*Panhandle      Eastern Pipe Line*
*Trunkline*
*Sea      Robin*
*Trunkline      LNG*
*LNG      Holdings*
*.*
*Southwest      Gas Storage*

|                                                                   |   | **At                  June 11, 2003** |       |
|------------------------------------------------------------------------|--------|---------------------------------------|------------|
|                                                                   |   | **(in                  thousands)**   |       |
| Property,                  plant and equipment (excluding intangibles) |   | $                                     | 1,904,762  |   |
| Intangibles                                                            |   |                                  | 9,503      |   |
| Current                  assets (a)                                    |   |                                  | 217,645    |   |
| Other                  non-current assets                              |   |                                  | 30,098     |   |
| Total                  assets acquired                                 |   |                                  | 2,162,008  |   |
| Long-term                  debt                                        |   |                                  | (1,207,617 | ) |
| Current                  liabilities                                   |   |                                  | (165,585   | ) |
| Other                  non-current liabilities                         |   |                                  | (125,785   | ) |
| Total                  liabilities assumed                             |   |                                  | (1,498,987 | ) |
| ** **Net                  assets acquired                         |   | $                                     | 663,021    |   |

| (a)   | Includes                cash and cash equivalents of approximately $60 million.   |
|-----------------|---------------------------------------------------------------------------------------------|

*Energy      Services*

**Pro      Forma Financial Information**

|                                                             | (Unaudited)Year                Ended June 30,** ** |
|------------------------------------------------------------------|---------------------------------------------------------|
|                                                             | 2003                                                    |   | 2002 |
| Operating                revenues                                | $                                                       | 1,671,114 |   | $ | 1,467,630 |
| Net                earnings from continuing operations           |                                                    | 132,458 |   |   | 56,073 |
| Net                earnings per share from continuing operations |                                                    |   |   |   |   |
| Basic                                                            |                                                    | 1.76 |   |   | 0.75 |
| Diluted                                                          |                                                    | 1.72 |   |   | 0.72 |

**III      Other Income (Expense), Net**

*Note      IX -- Unconsolidated Investments*
*Southwest*

**IV      Cash Flow Information**

**V       Earnings Per Share**

*EPS*

|                                                          |   | **                                                   Six Months**                    |   |                                   |       |                 |   |       |    |
|---------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|------------|----------------------|--------|------------|---------|
|                                                          |   | **                                                       Ended** |   |                                   |       |                 |   |       |    |
|                                                          |   | **                                                   December 31,**                  |   | **Year                Ended June 30,** |       |
|                                                          |   |                                                                                                                                                                                                                                                                |   | **2004**                               |       | **2004**             |   | **2003**   |    | **2002** |   |
|                                                          |   |                                                                                                                                                                                                                                                                |   |                                   |       |                 |   |       |    |
| Net                earnings available for common shareholders |   |                                                                                                                                                                                                                                                                |   |                                   |       |                 |   |       |    |   |   |   |
| from                continuing operations                     |   |                                                                                                                                                                                                                                                                |   |                                   | $          | 6,088                |   | $          | 101,339 |   | $ | 43,669 |   | $ | 1,520 |   |
| Net                earnings from discontinued operations      |   | --                                                                                                                                                                                                                                                                  |   |                                   | --         |                 |   | 32,520     |    |   | 18,104 |   |
| Net                earnings available for common shareholders | $      | 6,088                                                                                                                                                                                                                                                               |   | $                                      | 101,339    |                 | $      | 76,189     |    | $ | 19,624 |   |
|                                                          |   |                                                                                                                                                                                                                                                                |   |                                   |       |                 |   |       |    |   |   |   |
| Weighted                average shares outstanding -- basic   |   | 81,995,878                                                                                                                                                                                                                                                          |   |                                   | 75,442,238 |                 |   | 60,584,293 |    |   | 59,420,048 |   |
| Weighted                average shares outstanding -- diluted |   | 85,298,894                                                                                                                                                                                                                                                          |   |                                   | 77,694,607 |                 |   | 62,523,110 |    |   | 62,596,907 |   |
|                                                          |   |                                                                                                                                                                                                                                                                |   |                                   |       |                 |   |       |    |   |   |   |
|  Basic              earnings per share:                  |   |                                                                                                                                                                                                                                                                |   |                                   |       |                 |   |       |    |   |   |   |   |   |   |   |
| Net                earnings available for common shareholders |   |                                                                                                                                                                                                                                                                |   |                                   |       |                 |   |       |    |   |   |   |   |   |   |   |
| from                continuing operations                     |   |                                                                                                                                                                                                                                                                |   |                                   | $          | 0.07                 |   | $          | 1.34    |   | $ | 0.72 |   | $ | 0.03 |   |
| Net                earnings from discontinued operations      |   |                                                                                                                                                                                                                                                                |   |                                   |       | --                   |   |       | --      |   |   | 0.54 |   |   | 0.30 |   |
| Net                earnings available for common shareholders |   |                                                                                                                                                                                                                                                                |   |                                   | $          | 0.07                 |   | $          | 1.34    |   | $ | 1.26 |   | $ | 0.33 |   |
|                                                          |   |                                                                                                                                                                                                                                                                |   |                                   |       |                 |   |       |    |   |   |   |
|  Diluted              earnings per share:                |   |                                                                                                                                                                                                                                                                |   |                                   |       |                 |   |       |    |   |   |   |   |   |   |   |
| Net                earnings available for common shareholders |   |                                                                                                                                                                                                                                                                |   |                                   |       |                 |   |       |    |   |   |   |   |   |   |   |
|                from continuing operations                |   |                                                                                                                                                                                                                                                                |   |                                   | $          | 0.07                 |   | $          | 1.30    |   | $ | 0.70 |   | $ | 0.02 |   |
| Net                earnings from discontinued operations      |   |                                                                                                                                                                                                                                                                |   |                                   |       | --                   |   |       | --      |   |   | 0.52 |   |   | 0.29 |   |
| Net                earnings available for common shareholders |   |                                                                                                                                                                                                                                                                |   |                                   | $          | 0                .07 |   | $          | 1.30    |   | $ | 1.22 |   | $ | 0.31 |   |
|                                                          |   |                                                                                                                                                                                                                                                                |   |                                   |       |                 |   |       |    |   |   |   |

|                                                                  |   | **Six                  Months****Ended****December                  31,** |       |   **Year                  Ended June 30,** |   |
|-----------------------------------------------------------------------|--------|---------------------------------------------------------------------------|------------|------------------------------------------------------|--------|
|                                                                  |   | **2004**                                                                  |       | **2004**                                             |   | **2003** |   | **2002** |   |
| Weighted                  average shares outstanding                  |   |                                                                      | 83,153,406 |                                                 |   | 76,599,311 |   |   | 61,853,526 |   |   | 60,767,881 |   |
| Less                  weighted average rabbi trust shares outstanding |   |                                                                      | (1,157,528 | )                                                    |   | (1,157,073 | ) |   | (1,269,233 | ) |   | (1,347,833 | ) |
| Weighted                  average shares outstanding - Basic          |   |                                                                      | 81,995,878 |                                                 |   | 75,442,238 |   |   | 60,584,293 |   |   | 59,420,048 |   |
|                                                                  |   |                                                                      |       |                                                 |   |   |   |   |   |   |   |   |   |
| Weighted                  average shares outstanding                  |   |                                                                      | 83,153,406 |                                                 |   | 76,599,311 |   |   | 61,853,526 |   |   | 60,767,881 |   |
| Add                  assumed conversion of equity units               |   |                                                                      | 1,116,968  |                                                 |   | -- |   |   | -- |   |   | -- |   |
| Add                  assumed exercise of stock options                |   |                                                                      | 1,028,520  |                                                 |   | 1,095,296 |   |   | 669,584 |   |   | 1,829,026 |   |
| Weighted                  average shares outstanding - Dilutive       |   |                                                                      | 85,298,894 |                                                 |   | 77,694,607 |   |   | 62,523,110 |   |   | 62,596,907 |   |

*Note        XIII - Debt and Capital Lease*
*        Note        X - Stockholders’ Equity.*

*Note      XIII - Debt and Capital Lease*
*      Note      X - Stockholders’ Equity.*

**VI       Property, Plant and Equipment**

***Plant.***
*Note      XIII*
*Debt      and Capital Lease.*

|                                                              |   | **December                31,** |      | **June                30,** |   |
|-------------------------------------------------------------------|--------|---------------------------------|-----------|-----------------------------|--------|
|                                                              |   | **2004**                        |      | **2004**                    |   | **2003** |   |
|                                                              |   |                            |      |                        |   |   |   |
| Distribution                plant                                 |   | $                               | 1,707,174 |                        | $      | 1,662,345 |   | $ | 1,611,098 |   |
| Transmission                plant                                 |   |                            | 1,185,647 |                        |   | 1,159,825 |   |   | 1,238,972 |   |
| General--                LNG                                      |   |                            | 388,703   |                        |   | 388,459 |   |   | 297,694 |   |
| General                plant-- other                              |   |                            | 143,435   |                        |   | 141,140 |   |   | 165,036 |   |
| Underground                storage plant                          |   |                            | 274,337   |                        |   | 287,005 |   |   | 236,639 |   |
| Gathering                plant                                    |   |                            | 46,074    |                        |   | 39,746 |   |   | 56,076 |   |
| Other                                                             |   |                            | 126,308   |                        |   | 96,308 |   |   | 107,444 |   |
| Total                plant (a)                                    |   |                            | 3,871,678 |                        |   | 3,774,828 |   |   | 3,712,959 |   |
| Less                contributions in aid of construction          |   |                            | (2,457    | )                           |   | (2,212 | ) |   | (2,418 | ) |
| Plant                in service                                   |   |                            | 3,869,221 |                        |   | 3,772,616 |   |   | 3,710,541 |   |
| Construction                work in progress                      |   |                            | 237,283   |                        |   | 169,264 |   |   | 75,484 |   |
|                                                              |   |                            | 4,106,504 |                        |   | 3,941,880 |   |   | 3,786,025 |   |
| Less                accumulated depreciation and amortization (a) |   |                            | (778,876  | )                           |   | (734,367 | ) |   | (641,225 | ) |
| Net                property, plant and equipment                  |   | $                               | 3,327,628 |                        | $      | 3,207,513 |   | $ | 3,144,800 |   |

| Unamortized                computer software cost      |   | $      | 118,596 |   | $      | 82,369  |   | $      | 87,647  |   |
|--------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
| Less                accumulated amortization           |   |   | (40,378 | )      |   | (36,483 | )      |   | (27,663 | )      |
| Net                capitalized computer software costs |   | $      | 78,218  |   | $      | 45,886  |   | $      | 59,984  |   |

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

***Depreciation      and Amortization.***

**VII      Goodwill and Intangibles**

*Goodwill      and Other Intangible Assets*

|                                                           |   | **Total** |    |
|----------------------------------------------------------------|--------|-----------|---------|
| Balance                as of July 1, 2001                      |   | $         | 652,048 |   |
|  Impairment                losses                         |   |      | (1,417  | ) |
|  Sale                of subsidiaries and other operations |   |      | (7,710  | ) |
| Balance                as of June 30, 2002                     |   |      | 642,921 |   |
| Impairment                losses                               |   |      | --      |   |
| Balance                as of June 30, 2003                     |   |      | 642,921 |   |
| Impairment                losses                               |   |      | --      |   |
|  Reversal                of income tax reserve            |   |      | (2,374  | ) |
| Balance                as of June 30, 2004                     |   |      | 640,547 |   |
| Impairment                Losses                               |   |      | --      |   |
| Balance                as of December 31, 2004                 |   | $         | 640,547 |   |

*Note      XIX - Discontinued Operations*

**VIII      Deferred Charges and Deferred Credits**

|                                                |   | **December                31,** |    | **June                30,** |   |
|-----------------------------------------------------|--------|---------------------------------|---------|-----------------------------|--------|
|                                                |   | **2004**                        |    | **2004**                    |   | **2003** |   |
| Deferred                Charges                     |   |                            |    |                        |   |   |   |
| Pensions                                            |   | $                               | 54,097  |                        | $      | 45,625 |   | $ | 39,088 |   |
| Unamortized                debt expense             |   |                            | 37,869  |                        |   | 38,596 |   |   | 34,209 |   |
| Income                taxes                         |   |                            | 32,661  |                        |   | 31,441 |   |   | 30,514 |   |
| Retirement                costs other than pensions |   |                            | 24,459  |                        |   | 26,008 |   |   | 29,028 |   |
| Service                Line Replacement program     |   |                            | 15,161  |                        |   | 16,722 |   |   | 18,974 |   |
| Environmental                                       |   |                            | 16,332  |                        |   | 12,220 |   |   | 14,304 |   |
| Other                                               |   |                            | 18,485  |                        |   | 20,123 |   |   | 22,144 |   |
| Total                Deferred Charges               |   | $                               | 199,064 |                        | $      | 190,735 |   | $ | 188,261 |   |

*Accounting      for the Effects of Certain Types of Regulation. *

|                                                |   | **December                31,** |    | **June                30,** |   |
|-----------------------------------------------------|--------|---------------------------------|---------|-----------------------------|--------|
|                                                |   | **2004**                        |    | **2004**                    |   | **2003** |   |
| Deferred                Credits                     |   |                            |    |                        |   |   |   |
| Pensions                                            |   | $                               | 109,908 |                        | $      | 97,380 |   | $ | 88,016 |   |
| Retirement                costs other than pensions |   |                            | 58,507  |                        |   | 60,404 |   |   | 65,144 |   |
| Costs                of removal                     |   |                            | 29,337  |                        |   | 28,519 |   |   | 27,286 |   |
| Environmental                                       |   |                            | 25,919  |                        |   | 23,082 |   |   | 32,322 |   |
| Derivative                instrument liability      |   |                            | 16,232  |                        |   | 13,704 |   |   | 26,151 |   |
| Customer                advances for construction   |   |                            | 14,740  |                        |   | 13,518 |   |   | 12,008 |   |
| Provision                for self-insured claims    |   |                            | 12,296  |                        |   | 10,542 |   |   | 12,000 |   |
| Investment                tax credit                |   |                            | 5,157   |                        |   | 5,367 |   |   | 5,791 |   |
| Other                                               |   |                            | 48,953  |                        |   | 40,430 |   |   | 53,436 |   |
| Total                Deferred Credits               |   | $                               | 321,049 |                        | $      | 292,946 |   | $ | 322,154 |   |

*** ***
** **

*Accounting      for the Effects of Certain Types of Regulation.*

**IX          Unconsolidated Investments**

|                                                          |   | **December                31,****2004** |         | **June                30,****2004** |   | **                         June 30,****2003** |   |
|---------------------------------------------------------------|--------|-----------------------------------------|--------------|-------------------------------------|--------|--------------------------------------------------------------------------------------------|--------|
|                                                          |   |                                    |         |                                |   |                                                                                       |   |   |   |   |
| Equity                Investment in CCE Holdings              |   | $                                       | 615,861      |                                | $      | -                                                                                          |   | $ | - |   |
| Other                Equity Investments                       |   |                                    |  12,919 |                                |   | 12,818                                                                                     |   |   | 13,041 |   |
| Other                Investments, at Cost                     |   |                                    | 3,113        |                                |   | 8,038                                                                                      |   |   | 9,641 |   |
|                                                          |   |                                    |         |                                |   |                                                                                       |   |   |   |   |
| Total                Investments in Unconsolidated Affiliates |   | $                                       | 631,893      |                                | $      | 20,856                                                                                     |   | $ | 22,682 |   |

*      Goodwill and Other Intangible Assets.*

**CCE      Holdings.**
*GE*

*Manager*
*the        Management Agreement*

*Transfer        Restriction Period*

**Other      Equity Investments.**

|                                                                                                                                                                                                                                                                                                                                                                                                              |   | **As                of December 31,****2004**                                   |                                                     |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------|----------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                              |   |          CCE              Holdings |                                                     |                         Other Equity**                         Investments** |   |
| **Balance                Sheet Data:**                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                            |                                                     |   |   |   |   |
| Current                assets                                                                                                                                                                                                                                                                                                                                                                                     |   | $                                                                               | 64,482                                                   |   | $ | 1,255 |   |
| Non-current                assets                                                                                                                                                                                                                                                                                                                                                                                 |   |                                                                            | 2,249,386                                                |   |   | 22,847 |   |
| Current                liabilities                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                            | 65,670                                                   |   |   | 833 |   |
| Non-current                liabilities                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                            | 1,057,908                                                |   |   | 2,625 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                            |                                                     |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                              |   | For              the Period Ended December 31, 2004                   |
|                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                            |                                                     |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                                                            | **                   CCE Holdings**  |   |   | **                    Other Equity****                     Investments** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                            |                                                     |   |   |   |   |
| **Income                Statement Data:****(a)**                                                                                                                                                                                                                                                                                                                                                                  |   |                                                                            |                                                     |   |   |   |   |
| Revenues                                                                                                                                                                                                                                                                                                                                                                                                          |   | $                                                                               | 27,195                                                   |   | $ | 1,919 |   |
| Operating                income                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                            | 7,300                                                    |   |   | 394 |   |
| Net                income                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                                            | 9,290                                                    |   |   | 295 |   |
|  (a)                The CCE Holdings summarized income statement information represents                the                results of operations from the date CCE Holdings acquired CrossCountry                Energy on November 17, 2004 to December 31, 2004. CCE Holdings did                not                have any operations prior to the CrossCountry Energy acquisition.                  |

*Note      I, Summary of Significant Accounting Policies - Purchase      Accounting.*

**Other      Investments, at Cost.**
*Advent*
*PointServe*

**X       Stockholders’ Equity**

***Stock      Splits and Dividends.***
** **

***Common      Stock.***
*2003      Plan) *

*1992      Plan*

*Pennsylvania      Option Plan*
*Pennsyl-vania Incentive Plan*

|                                         |   | **2003                Plan**    |    | **1992                Plan**      |   |
|----------------------------------------------|--------|---------------------------------|---------|-----------------------------------|--------|
|                                         |   |                            |    | **Weighted**                      |   |   |   | **Weighted** |   |
|                                         |   | **Shares                Under** |    | **Average**                       |   | **Shares                Under** |   | **Average** |   |
|                                         |   | **Option**                      |    | **Exercise                Price** |   | **Option** |   | **Exercise                Price** |   |
|                                         |   |                            |         |                              |   |  |   |   |  |   |   |  |   |
| Outstanding                July 1, 2001      |   |                            | --      |                              | $      | -- |   |   | 4,957,666 |   | $ | 11.29 |   |
| Granted                                      |   |                            | --      |                              |   | -- |   |   | 75,249 |   |   | 13.83 |   |
| Exercised                                    |   |                            | --      |                              |   | -- |   |   | (1,020,546 | ) |   | 9.54 |   |
| Canceled                                     |   |                            | --      |                              |   | -- |   |   | (188,856 | ) |   | 14.45 |   |
| Outstanding                June 30, 2002     |   |                            | --      |                              |   | -- |   |   | 3,823,513 |   |   | 11.65 |   |
| Granted                                      |   |                            | --      |                              |   | -- |   |   | -- |   |   | -- |   |
| Exercised                                    |   |                            | --      |                              |   | -- |   |   | (662,982 | ) |   | 4.65 |   |
| Canceled                                     |   |                            | --      |                              |   | -- |   |   | (185,161 | ) |   | 14.67 |   |
| Outstanding                June 30, 2003     |   |                            |    |                              |   | -- |   |   | 2,975,370 |   |   | 13.02 |   |
| Granted                                      |   |                            | 729,227 |                              |   | 17.67 |   |   | -- |   |   | -- |   |
| Exercised                                    |   |                            | --      |                              |   | --                - |   |   | (352,486 | ) |   | 9.91 |   |
| Canceled                                     |   |                            | --      |                              |   | -- |   |   | (2,190 | ) |   | 15.38 |   |
| Outstanding                June 30, 2004     |   |                            | 729,227 |                              |   | 17.67 |   |   | 2,620,694 |   |   | 13.44 |   |
| Granted                                      |   |                            |         |                              |   |  |   |   | -- |   |   |  |   |
| Exercised                                    |   |                            |         |                              |   |  |   |   | (340,068 | ) |   | 13.32 |   |
| Canceled                                     |   |                            | (51,450 | )                                 |   | 17.67 |   |   | (17,012 | ) |   | 15.36 |   |
| Outstanding                December 31, 2004 |   |                            | 677,777 |                              | $      | 17.67 |   |   | 2,263,614 |   | $ | 13.44 |   |

| **Options                Outstanding** |   | **Options                Exercisable** |
|----------------------------------------|--------|----------------------------------------|
|                                   |   |                                   | **Weighted                Average** | **Weighted** |   |   |   | **Weighted** |
| **Range                of**            |   | **Number                of**           |   | **Remaining** |   | **Average** |   | **Number                of** |   | **Average** |
| **Exercise                Prices**     |   | **Options**                            |   | **Contractual                Life** |   | **Exercise                Price** |   | **Options** |   | **Exercise                Price** |
|                                   |   |                                   |   |   |   |   |   |   |   |   |
| $                0.00 - $ 7.99         |   | 120,779                                |   | 0.8                years |   | $                6.74 |   | 105,932 |   | $                6.74 |
| 8.00                - 11.99            |   | 271,058                                |   | 2.3                years |   | 10.22 |   | 271,058 |   | 10.22 |
| 12.00                - 13.99           |   | 503,785                                |   | 3.7                years |   | 13.26 |   | 469,484 |   | 13.26 |
| 14.00                - 17.99           |   | 1,367,992                              |   | 5.4                years |   | 14.74 |   | 1,159,090 |   | 14.62 |
|                                   |   | 2,263,614                              |   |   |   |   |   | 2,005,564 |   |   |

**Pennsylvania**
**      Pennsylvania**

**                      2003                      1992**
**                 Option**
**           Incentive**

**                             Plan **
** **
**                   Plan**
** **
**               Plan**
** **
**                     Plan**

| Options                exercisable at: |   |      |    |    |
|----------------------------------------|--------|-----------|---------|---------|
| December                31, 2004       | 21,000 | 2,005,564 | 443,929 | 220,635 |
| June                30, 2004           | --     | 2,008,066 | 443,929 | 217,571 |
| June                30, 2003           | --     | 1,966,753 | 443,929 | 214,507 |
| June                30, 2002           | --     | 2,145,327 | 459,467 | 211,442 |

| Weighted                average exercise price at:: |                   |                   |                  |                   |
|-----------------------------------------------------|------------------------|------------------------|-----------------------|------------------------|
| December                31, 2004                    | $                17.67 | $                13.29 | $                9.21 | $                10.70 |
| June                30, 2004                        | --                     | 13.12                  | 9.21                  | 10.65                  |
| June                30, 2003                        | --                     | 12.29                  | 9.21                  | 10.60                  |
| June                30, 2002                        | --                     | 9.51                   | 9.12                  | 10.55                  |

***Warrant.***

***Retained      Earnings.***

***February      2005 Equity Issuances***
**.      **

***July        2004 Equity Issuances.***

***June        2003 Equity Issuances.***

**XI      Derivative Instruments and Hedging Activities**

*Accounting      for Derivative Instruments and Hedging Activities, *
*fair      value hedge*
*cash      flow hedge*
*trading      or non-hedging instrument*

***Cash      Flow Hedges.***

***Fair        Value Hedges.***
*Accounting        for Derivative Instruments and Hedging Activities,*

***Trading      and Non-Hedging Activities.***

**XII      Preferred Securities **

*Subsidiary      Trust*
*Preferred      Securities*
*Subordinated      Notes*

**XIII      Debt and Capital Leases**

|                                                                  |   | **December                31,** |      | **June                30,** |   |
|-----------------------------------------------------------------------|--------|---------------------------------|-----------|-----------------------------|--------|
|                                                                  |   | **2004**                        |      | **2004**                    |   | **2003** |   |
| **Southern                Union Company**                             |   |                            |           |                        |   |  |   |   |  |   |
| 7.60%                Senior Notes due 2024                            |   | $                               | 359,765   |                        | $      | 359,765 |   | $ | 359,765 |   |
| 8.25%                Senior Notes due 2029                            |   |                            | 300,000   |                        |   | 300,000 |   |   | 300,000 |   |
| 2.75%                Senior Notes due 2006                            |   |                            | 125,000   |                        |   | 125,000 |   |   | 125,000 |   |
| Term                Note due 2005                                     |   |                            | 76,087    |                        |   | 111,087 |   |   | 211,087 |   |
| 6.50%                to 10.25% First Mortgage Bonds, due 2008 to 2029 |   |                            | 112,421   |                        |   | 113,435 |   |   | 115,884 |   |
| 7.70%                debentures, due 2027                             |   |                            | --        |                        |   | -- |   |   | 6,756 |   |
| Capital                lease and other, due 2004 to 2007              |   |                            | 117       |                        |   | 277 |   |   | 9,179 |   |
|                                                                  |   |                            | 973,390   |                        |   | 1,009,564 |   |   | 1,127,671 |   |
|                                                                  |   |                            |           |                        |   |  |   |   |  |   |
| **Panhandle                Energy**                                   |   |                            |           |                        |   |  |   |   |  |   |
| 2.75%                Senior Notes due 2007                            |   |                            | 200,000   |                        |   | 200,000 |   |   | -- |   |
| 4.80%                Senior Notes due 2008                            |   |                            | 300,000   |                        |   | 300,000 |   |   | -- |   |
| 6.05%                Senior Notes due 2013                            |   |                            | 250,000   |                        |   | 250,000 |   |   | -- |   |
| 6.125%                Senior Notes due 2004                           |   |                            | --        |                        |   | -- |   |   | 292,500 |   |
| 7.875%                Senior Notes due 2004                           |   |                            | --        |                        |   | 52,455 |   |   | 100,000 |   |
| 6.50%                Senior Notes due 2009                            |   |                            | 60,623    |                        |   | 60,623 |   |   | 158,980 |   |
| 8.25%                Senior Notes due 2010                            |   |                            | 40,500    |                        |   | 40,500 |   |   | 60,000 |   |
| 7.00%                Senior Notes due 2029                            |   |                            | 66,305    |                        |   | 66,305 |   |   | 135,890 |   |
| Term                Loan due 2007                                     |   |                            | 258,433   |                        |   | 263,926 |   |   | 275,358 |   |
| 7.95%                Debentures due 2023                              |   |                            | --        |                        |   | -- |   |   | 76,500 |   |
| 7.20%                Debentures due 2024                              |   |                            | --        |                        |   | -- |   |   | 58,000 |   |
| Net                premiums on long-term debt                         |   |                            | 14,688    |                        |   | 16,199 |   |   | 61,506 |   |
|                                                                  |   |                            | 1,190,549 |                        |   | 1,250,008 |   |   | 1,218,734 |   |
|                                                                  |   |                            |           |                        |   |  |   |   |  |   |
| Total                consolidated debt and capital lease              |   |                            | 2,163,939 |                        |   | 2,259,572 |   |   | 2,346,405 |   |
| Less                current portion                                   |   |                            | 89,650    |                        |   | 99,997 |   |   | 734,752 |   |
| Less                fair value swaps of Panhandle Energy              |   |                            | 3,936     |                        |   | 4,960 |   |   | -- |   |
| Total                consolidated long-term debt and capital lease    |   | $                               | 2,070,353 |                        | $      | 2,154,615 |   | $ | 1,611,653 |   |
|                                                                  |   |                            |           |                        |   |  |   |   |  |   |

***Term      Note.***
*      2002      Term Note*

***Additional      Debt.***

***Panhandle      Refinancing.***
*the      Panhandle Tender Offer*
*      Panhandle Calls*

***Capital      Lease.***
*AMR*

***Notes      Payable.***
*      Long-Term Facility*
*Uncommitted      Facilities*
*      Senior Notes*

***Bridge      Loan.***
*the      Bridge Loan*

**XIV      Employee Benefits**

***Pension      and Other Post-Retirement Benefits.***
*Plans*
*Panhandle      Energy*

**Pension      Benefits                                                                  Post-Retirement      Benefits                                     **

|                                                                   |       | **December                  31,** | ** **    | **June                  30,** | ** ** | **December                  31,** | ** ** | **June                  30,** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------------------|---------------|-------------------------------|------------|-----------------------------------|------------|-------------------------------|------------|
| ** **                                                             | ** ** | **2004**                          | ** **    | **2004**                      | ** ** | **2003**                          | ** ** | **2004**                      | ** ** | **2004** | ** ** | **2003** |   |
| Change                  in Benefit Obligation:                         |       |                              |               |                          |       |                                   |       |                          |            |   |   |  |   |   |  |   |   |  |   |
| Benefit                  obligation at beginning of period             |       | $                                 | 386,493       |                          | $          | 350,860                           |       | $                             | 317,012    |   | $ | 152,425 |   | $ | 90,344 |   | $ | 76,596 |   |
| Service                  cost                                          |       |                              | 3,689         |                          |       | 6,533                             |       |                          | 5,655      |   |   | 2,091 |   |   | 3,993 |   |   | 1,177 |   |
| Interest                  Cost                                         |       |                              | 11,412        |                          |       | 22,591                            |       |                          | 22,899     |   |   | 4,607 |   |   | 8,739 |   |   | 5,579 |   |
| Benefits                  paid                                         |       |                              | (10,217       | )                             |       | (20,649                           | )          |                          | (20,046    | ) |   | (3,346 | ) |   | (6,263 | ) |   | (6,676 | ) |
| Actuarial                  loss                                        |       |                              | 9,095         |                          |       | 21,796                            |       |                          | 26,350     |   |   | 14,484 |   |   | 7,687 |   |   | 13,357 |   |
| Acquisition                                                            |       |                              | --            |                          |       | --                                |       |                          | --         |   |   | -- |   |   | 42,752 |   |   | -- |   |
| Plan                  amendments                                       |       |                              | 446           |                          |       | 7,703                             |       |                          | 1,095      |   |   | (1,308 | ) |   | 5,173 |   |   | 311 |   |
| Settlement                  recognition                                |       |                              | (2,402        | )                             |       | (2,341                            | )          |                          | (2,105     | ) |   | -- |   |   | -- |   |   | -- |   |
| Benefit                  obligation at end of period                   |       | $                                 | 398,516       |                          | $          | 386,493                           |       | $                             | 350,860    |   | $ | 168,953 |   | $ | 152,425 |   | $ | 90,344 |   |
|                                                                   |       |                              |               |                          |       |                                   |       |                          |            |   |   |  |   |   |  |   |   |  |   |
| Change                  in Plan Assets:                                |       |                              |               |                          |       |                                   |       |                          |            |   |   |  |   |   |  |   |   |  |   |
| Fair                  value of plan assets at beginning of period      |       |  $                           | 276,154  |                          | $          | 237,376                           |       | $                             | 284,911    |   | $ | 34,004 |   | $ | 21,332 |   | $ | 22,408 |   |
| Return                  on plan assets                                 |       |                              | 1,980         |                          |       | 55,725                            |       |                          | (30,900    | ) |   | 160 |   |   | 3,211 |   |   | 27 |   |
| Employer                  contributions                                |       |                              | 11,320        |                          |       | 6,043                             |       |                          | 5,516      |   |   | 7,144 |   |   | 15,724 |   |   | 5,572 |   |
| Benefits                  paid                                         |       |                              | (10,217       | )                             |       | (20,649                           | )          |                          | (20,046    | ) |   | (3,346 | ) |   | (6,263 | ) |   | (6,675 | ) |
| Settlement                  recognition                                |       |                              | (2,402        | )                             |       | (2,341                            | )          |                          | (2,105     | ) |   | -- |   |   | -- |   |   | -- |   |
| Fair                  value of plan assets at end of period            |       | $                                 | 276,835       |                          | $          | 276,154                           |       | $                             | 237,376    |   | $ | 37,962 |   | $ | 34,004 |   | $ | 21,332 |   |
|                                                                   |       |                              |               |                          |       |                                   |       |                          |            |   |   |  |   |   |  |   |   |  |   |
| Funded                  Status:                                        |       |                              |               |                          |       |                                   |       |                          |            |   |   |  |   |   |  |   |   |  |   |
| Funded                  status at end of period                        |       | $                                 | (121,680      | )                             | $          | (110,339                          | )          | $                             | (113,484   | ) | $ | (130,991 | ) | $ | (118,421 | ) | $ | (69,012 | ) |
| Unrecognized                  net actuarial loss                       |       |                              | 130,164       |                          |       | 114,344                           |       |                          | 134,752    |   |   | 41,017 |   |   | 25,972 |   |   | 20,343 |   |
| Unrecognized                  prior service cost                       |       |                              | 13,439        |                          |       | 13,737                            |       |                          | 7,179      |   |   | 3,409 |   |   | 5,038 |   |   | 130 |   |
| Prepaid/                  (accrued) at measurement date                |       |                              | 21,923        |                          |       | 17,742                            |       |                          | 28,447     |   |   | (86,565 | ) |   | (87,411 | ) |   | (48,539 | ) |
| Contributions                  subsequent to                           |       |                              |          |                          |       |                              |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| measurement                  date                                      |       |                              | 1,044         |                          |       | 3,750                             |       |                          | 4,534      |   |   | 1,815 |   |   | 2,151 |   |   | 4,675 |   |
| Net                  asset (liability) recognized at                   |       |                              |          |                          |       |                              |       |                          |       |   |   |   |   |   |   |   |   |   |   |
| end                  of period                                         |       | $                                 | 22,967        |                          | $          | 21,492                            |       | $                             | 32,981     |   | $ | (84,750 | ) | $ | (85,260 | ) | $ | (43,864 | ) |
|                                                                   |       |                              |               |                          |       |                                   |       |                          |            |   |   |  |   |   |  |   |   |  |   |
| Amounts                  recognized in the Consolidated Balance Sheet: |       |                                   |          |                          |            |                              |       |                               |       |   |  |   |   |  |   |
| Prepaid                  benefit cost                                  |       | $                                 | 28,705        |                          | $          | 28,172                            |       | $                             | 27,597     |   | $ | -- |   | $ | -- |   | $ | -- |   |
| Accrued                  benefit liability                             |       |                              | (101,487      | )                             |       | (87,448                           | )          |                          | (89,366    | ) |   | (84,750 | ) |   | (85,260 | ) |   | (43,864 | ) |
| Intangible                  asset                                      |       |                              | 10,923        |                          |       | 10,366                            |       |                          | 3,671      |   |   | -- |   |   | -- |   |   | - |   |
| Accumulated                  other comprehensive loss                  |       |                              | 84,826        |                          |       | 70,402                            |       |                          | 91,079     |   |   | -- |   |   | -- |   |   | - |   |
| Net                  asset (liability) recognized                      |       | $                                 | 22,967        |                          | $          | 21,492                            |       | $                             | 32,981     |   | $ | (84,750 | ) | $ | (85,260 | ) | $ | (43,864 | ) |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | **Pension                Benefits**    |   |                                                                                                                |   | **Post-retirement                Benefits** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|
| **                                                                                                    Six  Months** |   |                                   |   |                                                                                                                |   |                                        |   | **                 Six                Months** |   |   |   |   |   |   |   |
| **                                                                                                 Ended**                                   |   |                                   |   | **                               Ended** |   |                                        |   |
| **                                                                                                 December                31,**             |   | **Year                Ended June 30,** |   | **December                31,**                                                                                     |   | **Years                Ended June 30,**     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | **2004**                               |   | **2004**                                                                                                            |   | **2003**                                    |   | **2002** |   |   |   | **2004** |   | **2004** |   | **2003** |   | **2002** |   |
| Discount                rate:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                   |   |                                                                                                                |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beginning                of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                   | 6.00   | %                                                                                                                   |   | 6.50                                        | %      |   | 7.50 | % |   | 7.50 | % |   |   |   |   | 6.00 | % |   | 6.50 | % |   | 7.50 | % |   | 7.50 | % |
| End                of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                   | 5.75   | %                                                                                                                   |   | 6.00                                        | %      |   | 6.50 | % |   | 7.50 | % |   |   |   |   | 5.75 | % |   | 6.00 | % |   | 6.50 | % |   | 7.50 | % |
| Rate                of compensation increase(average)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                   | 3.40   | %                                                                                                                   |   | 3.60                                        | %      |   | 4.00 | % |   | 5.00 | % |   |   |   |   | N/A |   |   | N/A |   |   | N/A |   |   | N/A |   |
| Health                care cost trend rate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                   | N/A    |                                                                                                                |   | N/A                                         |   |   | N/A |   |   | N/A |   |   |   |   |   | 13.00 | % |   | 13.00 | % |   | 13.00 | % |   | 12.00 | % |

|                                                 |   | **Pension                  Benefits** |    | **Post-retirement                  Benefits** |   |
|------------------------------------------------------|--------|---------------------------------------|---------|-----------------------------------------------|--------|
|                                                 |   | **Six                  Months**       |    |                                          |   |   |   |   |   | **Six                  Months** |   |   |   |   |   |   |   |
|                                                 |   | **Ended**                             |    |                                          |   | **Ended** |   |   |   |   |   |   |   |
|                                                 |   | **December                  31,**     |    | **Year                  Ended June 30,**      |   | **December31,** |   | **Year                  Ended June 30,** |   |
|                                                 |   | **2004**                              |    | **2004**                                      |   | **2003** |   | **2002** |   | **2004** |   | **2004** |   | **2003** |   | **2002** |   |
|                                                 |   |                                  |    |                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Service                  Cost                        |   | $                                     | 3,689   |                                          | $      | 6,533 |   | $ | 5,655 |   | $ | 5,707 |   | $ | 2,091 |   | $ | 3,993 |   | $ | 1,177 |   | $ | 1,136 |   |
| Interest                  Cost                       |   |                                  | 11,412  |                                          |   | 22,591 |   |   | 22,899 |   |   | 22,570 |   |   | 4,607 |   |   | 8,739 |   |   | 5,579 |   |   | 5,362 |   |
| Expected                  return on plan assets      |   |                                  | (12,302 | )                                             |   | (21,477 | ) |   | (24,749 | ) |   | (25,868 | ) |   | (1,100 | ) |   | (1,640 | ) |   | (1,734 | ) |   | (1,701 | ) |
| Amortization                  of prior service cost  |   |                                  | 744     |                                          |   | 1,145 |   |   | 790 |   |   | 984 |   |   | 321 |   |   | 266 |   |   | (65 | ) |   | (100 | ) |
| Recognized                  actuarial (gain) loss    |   |                                  | 3,982   |                                          |   | 8,402 |   |   | 2,433 |   |   | 194 |   |   | 379 |   |   | 485 |   |   | (234 | ) |   | (737 | ) |
| Curtailment                  recognition             |   |                                  | --      |                                          |   | -- |   |   | -- |   |   | 8,905 |   |   | -- |   |   | -- |   |   | -- |   |   | 1,200 |   |
| Special                  termination benefits charge |   |                                  | --      |                                          |   | -- |   |   | -- |   |   | 8,957 |   |   | -- |   |   | -- |   |   | -- |   |   | 1,309 |   |
| Settlement                  recognition              |   |                                  | (386    | )                                             |   | (445 | ) |   | (558 | ) |   | (457 | ) |   | -- |   |   | -- |   |   | -- |   |   | -- |   |
| Net                  periodic benefit cost           |   | $                                     | 7,139   |                                          | $      | 16,749 |   | $ | 6,470 |   | $ | 20,992 |   | $ | 6,298 |   | $ | 11,843 |   | $ | 4,723 |   | $ | 6,469 |   |

*MPSC*

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | **Pension                Benefits**    |   |                                                                                                                                   |   | **Post-retirement                Benefits** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|
| **                                                                                                                   Six Months**      |   |                                   |   |                                                                                                                                   |   |                                        |   | **                                     Six Months** |   |   |   |   |   |
| **                                                                                                                   Ended**           |   |                                   |   |                                                                                                                                   |   |                                        |   | **                                  Ended** |   |   |   |   |   |
| **                                                                                                                 December                31,** |   | **Year                ended June 30,** |   | **                                 December 31,** |   | **Year                ended June 30,**      |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | **2004**                               |   | **2004**                                                                                                                               |   | **2003**                                    |   | **2002** |   |   |   | **2004** |   | **2004** |   | **2003** |   | **2002** |   |
| Discount                rate:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                   |   |                                                                                                                                   |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Beginning                of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                   | 6.50   | %                                                                                                                                      |   | 7.50                                        | %      |   | 7.50 | % |   | 8.00 | % |   |   |   |   | 6.50 | % |   | 7.50 | % |   | 7.50 | % |   | 7.50 | % |
| End                of year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                   | 6.00   | %                                                                                                                                      |   | 6.50                                        | %      |   | 7.50 | % |   | 7.50 | % |   |   |   |   | 6.00 | % |   | 6.50 | % |   | 7.50 | % |   | 7.50 | % |
| Expected                return on assets - exempt                accounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                   |   |                                                                                                                                   |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| tax                exempt accounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                   | 9.00   | %                                                                                                                                      |   | 9.00                                        | %      |   | 9.00 | % |   | 9.00 | % |   |   |   |   | 7.00 | % |   | 7.00 | % |   | 9.00 | % |   | 9.00 | % |
| Expected                return on assets -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                   |   |                                                                                                                                   |   |                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| taxable                accounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                   | N/A    |                                                                                                                                   |   | N/A                                         |   |   | N/A |   |   | N/A |   |   |   |   |   | 5.00 | % |   | 5.00 | % |   | 5.50 | % |   | 5.40 | % |
| Rate                of compensation increase (average)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                   | 3.60   | %                                                                                                                                      |   | 4.00                                        | %      |   | 5.00 | % |   | 5.00 | % |   |   |   |   | N/A |   |   | N/A |   |   | N/A |   |   | N/A |   |
| Health                care cost trend rate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                   | N/A    |                                                                                                                                   |   | N/A                                         |   |   | N/A |   |   | N/A |   |   |   |   |   | 13.00 | % |   | 13.00 | % |   | 12.00 | % |   | 12.00 | % |

|                                                                |  **One                Percentage Point****Increase                in Health Care****Trend                Rate** |   |  **One                Percentage Point****Decrease                in Health Care****Trend                Rate** |
|---------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------|
| Effect                on total service and interest cost components | $                1,858                                                                                               |   | $                (1,489)                                                                                             |
| Effect                on post-retirement benefit obligation         | $                18,111                                                                                              |   | $                (14,622)                                                                                            |

***Pension      Plan Asset Information.***

***Post-retirement      Health and Life Plans’ Asset Information.***

|                                   |   | **Pension**                                              |   | **Post-Retirement**         |   |
|----------------------------------------|--------|----------------------------------------------------------|--------|-----------------------------|--------|
|                                   |   | **                    December 31,** |   | **June                30,** |   | **                  December 31,** |   | **June                30,** |   |
|                                   |   | **2004**                                                 |   | **2004**                    |   | **2003** |   | **2004** |   | **2004** |   | **2003** |   |
| **Asset                Category**      |   |                                                     |        |                        |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                                   |   |                                                     |        |                        |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Equity                securities       |   |                                                     | 66     | %                           |   | 68 | % |   | 51 | % |   | 18 | % |   | 21 | % |   | 26 | % |
| Debt                securities         |   |                                                     | 28     | %                           |   | 26 | % |   | 45 | % |   | 47 | % |   | 50 | % |   | 64 | % |
| Other-                cash equivalents |   |                                                     | 6      | %                           |   | 6 | % |   | 4 | % |   | 35 | % |   | 29 | % |   | 10 | % |
| Total                                  |   |                                                     | 100    | %                           |   | 100 | % |   | 100 | % |   | 100 | % |   | 100 | % |   | 100 | % |

|                            |   | **Pension****Benefits** |    | **Post-Retirement****Benefits** |   |
|---------------------------------|--------|-------------------------|---------|---------------------------------|--------|
| 2005                            |   | $                       | 24,426  |                            | $      | 7,150 |   |
| 2006                            |   |                    | 21,921  |                            |   | 7,517 |   |
| 2007                            |   |                    | 22,825  |                            |   | 7,327 |   |
| 2008                            |   |                    | 22,966  |                            |   | 7,787 |   |
| 2009                            |   |                    | 24,180  |                            |   | 8,416 |   |
| Years                2010- 2014 |   |                    | 129,777 |                            |   | 54,817 |   |

***Recently      Enacted Legislation.***
*      Medicare Prescription Drug Act*
*Medicare      Part D) *

*FSP*
*Accounting      and Disclosure Requirements Related to the Medicare Prescription Drug,      Improvement and Modernization Act of 2003*

***Defined      Contribution Plan.***

***Panhandle      Energy.***

***Corporate      Restructuring.***
*ERPs*
*RIF*

***Common      Stock Held in Trust.***

**XV      Taxes on Income**

|                                           |   | **                          Six Months**   |                                    |                                     |                                     |       |       |       |       |
|------------------------------------------------|--------|------------------------------------------------------------------------------------|-----------------------------------------|------------------------------------------|------------------------------------------|------------|------------|------------|------------|
|                                           |   | **                          Ended**        |                                    |                                     |                                     |
|                                           |   | **                          December 31,** |                                    | **Year                  Ended June 30,** |                                     |
|                                           |   |                                                                               | **2004**                                |                                     |                                     | **2004**   |       |       | **2003**   |   |   | **2002** |   |
|                                           |   |                                                                               |                                         |                                     |                                     |            |       |       |            |   |   |  |   |
| Income                  Tax Expense:           |   |                                                                               |                                         |                                     |                                     |            |       |       |            |   |   |  |   |
| Current:                                       |   |                                                                               |                                         |                                     |                                     |            |       |       |            |   |   |  |   |
| Federal                                        |   | $                                                                                  | 1,761                                   |                                     | $                                        | 1,497      |       | $          | (15,258    | ) | $ | (8,848 | ) |
| State                                          |   |                                                                               | 84                                      |                                     |                                     | 151        |       |       | (6,563     | ) |   | (1,391 | ) |
|                                           |   |                                                                               | 1,845                                   |                                     |                                     | 1,648      |       |       | (21,821    | ) |   | (10,239 | ) |
|                                           |   |                                                                               |                                         |                                     |                                     |            |       |       |            |   |   |  |   |
|                                           |   |                                                                               | **Six                  Months **   | ** **                               | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                           |   | ** **                                                                         | **Ended**                          |                                     |                                     |
|                                           |   |                                                                               | **December                  31,**  |                                     | **Year                  Ended June 30,** |
|                                           |   |                                                                               | **2004**                                |                                     |                                     | **2004**   |       |       | **2003**   |   |   | **2002** |   |
| Deferred:                                      |   |                                                                               |                                    |                                     |                                     |       |       |       |       |   |   |   |   |
| Federal                                        |   |                                                                               | 10,953                                  |                                     |                                     | 60,380     |       |       | 38,926     |   |   | 13,050 |   |
| State                                          |   |                                                                               | 1,129                                   |                                     |                                     | 7,075      |       |       | 7,168      |   |   | 600 |   |
|                                           |   |                                                                               | 12,082                                  |                                     |                                     | 67,455     |       |       | 46,094     |   |   | 13,650 |   |
| Total                  income tax expense from |   |                                                                               |                                    |                                     |                                     |       |       |       |       |   |   |   |   |
| continuing                  operations         |   | $                                                                                  | 13,927                                  |                                     | $                                        | 69,103     |       | $          | 24,273     |   | $ | 3,411 |   |

|                                                     |   | **December                    31,** |     | **June                    30,** |   |
|----------------------------------------------------------|--------|-------------------------------------|----------|---------------------------------|--------|
|                                                     |   | **2004**                            |     | **2004**                        |   | **2003** |   |
| Deferred                    income tax assets:           |   |                                |          |                            |   |  |   |   |  |   |
| Alternative                    minimum tax credit        |   | $                                   | 24,352   |                            | $      | 24,054 |   | $ | 6,263 |   |
| Insurance                    accruals                    |   |                                | 2,268    |                            |   | 1,601 |   |   | 2,028 |   |
| Bad                    debt reserves                     |   |                                | 4,866    |                            |   | 5,721 |   |   | 4,096 |   |
| Post-retirement                    benefits              |   |                                | 17,326   |                            |   | 1,346 |   |   | 1,078 |   |
| Minimum                    pension liability             |   |                                | 39,909   |                            |   | 33,511 |   |   | 35,159 |   |
| NOL                    carry-forward                     |   |                                | 12,434   |                            |   | -- |   |   | -- |   |
| Unconsolidated                    investments            |   |                                | 11,942   |                            |   | -- |   |   | -- |   |
| Other                                                    |   |                                | 58,419   |                            |   | 8,442 |   |   | 10,313 |   |
| Total                    deferred income tax assets      |   |                                | 171,516  |                            |   | 74,675 |   |   | 58,937 |   |
| Valuation                    allowance                   |   |                                | (11,942  | )                               |   | -- |   |   | -- |   |
| Net                    deferred income tax assets        |   | $                                   | 159,574  |                            | $      | 74,675 |   | $ | 58,937 |   |
|                                                     |   |                                |          |                            |   |  |   |   |  |   |
| Deferred                    income tax liabilities:      |   |                                |          |                            |   |  |   |   |  |   |
| Property,                    plant and equipment         |   | $                                   | (427,380 | )                               | $      | (313,387 | ) | $ | (261,100 | ) |
| Unamortized                    debt expense              |   |                                | (5,991   | )                               |   | (21,607 | ) |   | (5,455 | ) |
| Regulatory                    liability                  |   |                                | (15,358  | )                               |   | (13,151 | ) |   | (14,483 | ) |
| Other                                                    |   |                                | (48,341  | )                               |   | (55,831 | ) |   | (56,510 | ) |
| Total                    deferred income tax liabilities |   |                                | (497,070 | )                               |   | (403,976 | ) |   | (337,548 | ) |
| Net                    deferred income tax liability     |   |                                | (337,496 | )                               |   | (329,301 | ) |   | (278,611 | ) |
| Less                    current income tax assets        |   |                                | 27,998   |                            |   | 19,659 |   |   | 4,096 |   |
| Accumulated                    deferred income taxes     |   | $                                   | (365,494 | )                               | $      | (348,960 | ) | $ | (282,707 | ) |

*NOL*

|                                                                   |   | **Six                  Months**   |   |                                     |   |     |   |     |   |
|------------------------------------------------------------------------|--------|-----------------------------------|--------|------------------------------------------|--------|----------|--------|----------|--------|
|                                                                   |   | **Ended**                         |   |                                     |   |
|                                                                   |   | **December                  31,** |   | **Year                  Ended June 30,** |   |
|                                                                   |   | **2004**                          |   | **2004**                                 |   | **2003** |   | **2002** |   |
|                                                                   |   |                              |   |                                     |   |     |   |     |   |
| Computed                  statutory income tax expense from continuing |   |                              |   |                                     |   |     |   |     |   |
| operations                  at 35%                                     |   | $                                 | 10,044 |                                     | $      | 64,095   |   | $        | 23,780 |   | $ | 1,726 |   |
| Changes                  in income taxes resulting from:               |   |                              |   |                                     |   |          |   |     |        |   |   |  |   |
| Valuation                  allowance                                   |   |                              | 11,942 |                                     |   | --       |   |     | --     |   |   | -- |   |
| Dividend                  received deduction                           |   |                              | (9,800 | )                                        |   | --       |   |     | --     |   |   | -- |   |
| State                  income taxes, net of federal income tax benefit |   |                              | 788    |                                     |   | 4,697    |   |     | 326    |   |   | 695 |   |
| Amortization/write-down                  of goodwill                   |   |                              | --     |                                     |   | --       |   |     | --     |   |   | 3,113 |   |
| Internal                  Revenue Service audit settlement             |   |                              | --     |                                     |   | --       |   |     | --     |   |   | (1,570 | ) |
| Investment                  Tax Credit amortization                    |   |                              | (210   | )                                        |   | (424     | )      |     | (421   | ) |   | (608 | ) |
| Other                                                                  |   |                              | 1,163  |                                     |   | 735      |   |     | 588    |   |   | 55 |   |
| Actual                  income tax expense from continuing operations  |   | $                                 | 13,927 |                                     | $      | 69,103   |   | $        | 24,273 |   | $ | 3,411 |   |

**XVI        Regulation and Rates**

***Missouri        Gas Energy.***

***New        England Gas Company.***

*DAC*

***Panhandle        Energy.***
*Phase        I*
*Phase        II*

**XVII        Leases**

**XVIII        Commitments and Contingencies**

***Environmental.***

*Environmental        Remediation Liabilities,*

***Local        Distribution Company Environmental Matters.***

*MGP*

***Missouri        Gas Energy (MGE).***

***Kansas        City, Missouri Site***
*MDNR*
*VCP*

***St.        Joseph, Missouri Site***
*UST*
*MRBCA*

***New        England Gas Company (NEGC).***

***642        Allens Avenue, Providence, Rhode Island Site***
**        -**
*RIDEM*

***170        Allens Avenue, Providence, Rhode Island Site***
**        - **
*Cargill*

***Cory’s        Lane***
**,        **
***Tiverton,        Rhode Island Site***
**        - **
*Cory’s        Lane Site*

***Bay        Street,***
***Tiverton,        Rhode Island Site***
**        - **
*Bay        Street Area*
*Work        Plan*

***Mt.        Hope Street, North Attleboro, Massachusetts Site***
*Mt.        Hope Street Site*
*MADEP*

***66        Fifth Street, Fall River, Massachusetts Site***
*IRA*

***State        Avenue, Fall River, Massachusetts Site***
**        - **
*State        Avenue Area*
*IRAP*

***Valley        Resources Sites in Rhode Island and Massachusetts***
*Blackstone*
*Blackstone        Litigation*
*EPA*
*FFC*
*Narragansett*

*Stone        & Webster*

***Mercury        Release***

***PG        Energy.***

***Pennsylvania        Sites***
**        - **
*PADEP*

*PPL*

***Panhandle          Energy Environmental Matters***

*PCBs*
*EPA*

*Illinois        EPA*
*CERCLA*

***Air        Quality Control.***

*INGAA*
*NOx*

*SIP*

*MACT*
*HAPs*

***Regulatory.***

***Southwest        Gas Litigation.***

*Southwest*

***Other.***

*MMS*
*SX*

***Commitments.***

*Taxing        Authorities*
*TIF        Plan*
*TIF        Debt*

**XIX        Discontinued Operations **

|                                                                                                  |   | **Year                  Ended June 30,** |    |
|-------------------------------------------------------------------------------------------------------|--------|------------------------------------------|---------|
|                                                                                                  |   | **2003**                            |    | **2002**  |   |
| Operating                  revenues                                                                   |   | $                                        | 144,490 |   | $ | 309,936 |   |
| Net                  operating revenues, excluding depreciation and amortization                  (a) |   | $                                        | 51,480  |   | $ | 105,730 |   |
| Net                  earnings from discontinued operations (b)                                        |   | $                                        | 32,520  |   | $ | 18,104 |   |

| (a)   | Net                  operating revenues consist of operating revenues less gas purchase                  costs                  and revenue-related taxes. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b)   | Net                  earnings from discontinued operations do not include any allocation                  of                  interest expense or other corporate costs, in accordance with generally                  accepted accounting principles. All outstanding debt of Southern                  Union                  Company and subsidiaries is maintained at the corporate level,                  and no debt                  was assumed by ONEOK, Inc. in the sale of the Texas                  Operations. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**XX          Quarterly Operations (Unaudited)**

|  **                                                                           Six                  Months Ended** |   | **Quarter                    Ended** |           |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|----------------|
| **December                    31, 2004**                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | **September                    30**  |           | **December                    31** |   | **Total** |   |
| Operating                    revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $                                    | 234,576        |   | $ | 559,762 |   | $ | 794,338 |   |
| Net                    operating revenues, excluding depreciation and                    amortization                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                 | 164,649        |   |   | 250,396 |   |   | 415,045 |   |
| Net                    earnings (loss) from continuing operations                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                 | (7,140         | ) |   | 21,911 |   |   | 14,771 |   |
| Net                    earnings (loss) available for common shareholders                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                 |  (11,481) |   |   | 17,569 |   |   | 6,088 |   |
| Diluted                    net earnings (loss) per share available for common                    shareholders:(1)                                                                                                                                                                                                                                                                                                                                                                                             |   |                                 |           |   |   |   |   |   |   |   |
| Continuing                    operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                 | (.15           | ) |   | .20 |   |   | .07 |   |
| Available                    for common shareholders                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                 | (.15           | ) |   | .20 |   |   | .07 |   |

| **Year                    Ended**                                                                                 |   | **Quarter                    Ended** |    |
|-------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|---------|
| **June                    30, 2004**                                                                              |   | **September                    30**  |    | **December                    31** |   | **March                    31** |   | **June                    30** |   | **Total** |   |
| Operating                    revenues                                                                             |   | $                                    | 231,351 |   | $ | 507,066 |   | $ | 774,551 |   | $ | 286,806 |   | $ | 1,799,774 |   |
| Net                    operating revenues, excluding depreciation and                    amortization             |   |                                 | 169,266 |   |   | 240,050 |   |   | 297,864 |   |   | 182,761 |   |   | 889,941 |   |
| Net                    earnings (loss) from continuing operations                                                 |   |                                 | (3,707  | ) |   | 38,422 |   |   | 75,367 |   |   | 3,943 |   |   | 114,025 |   |
| Net                    earnings (loss) available for common shareholders                                          |   |                                 | (3,707  | ) |   | 34,418 |   |   | 71,026 |   |   | (398 | ) |   | 101,339 |   |
| Diluted                    net earnings (loss) per share available for common                    shareholders:(1) |   |                                 |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Continuing                    operations                                                                          |   |                                 | (.05    | ) |   | .45 |   |   | .91 |   |   | (.01 | ) |   | 1.30 |   |
| Available                    for common shareholders                                                              |   |                                 | (.05    | ) |   | .45 |   |   | .91 |   |   | (.01 | ) |   | 1.30 |   |

** **
** **

| **Year                    Ended**                                                                                 | **Quarter                    Ended** |
|-------------------------------------------------------------------------------------------------------------------|--------------------------------------|
| **June                    30, 2003**                                                                              | **September                    30**  | **December                    31** | **March                    31** | **June                    30** | **Total** |
| Operating                    revenues                                                                             | $                    99,710          | $                    346,104 | $                    535,663 | $                    207,023 | $                    1,188,500 |
| Net                    operating revenues, excluding depreciation and                    amortization             | 54,464                               | 118,031 | 161,400 | 89,509 | 423,404 |
| Net                    earnings (loss) from continuing operations                                                 | (9,186)                              | 18,519 | 46,234 | (11,898) | 43,669 |
| Net                    earnings (loss) from discontinued operations                                               | 2,691                                | 10,900 | 17,665 | 1,264 | 32,520 |
| Net                    earnings (loss) available for common shareholders                                          | (6,495)                              | 29,419 | 63,899 | (10,634) | 76,189 |
| Diluted                    net earnings (loss) per share available for common                    shareholders:(1) |                                 |   |   |   |   |
| Continuing                    operations                                                                          | (.16)                                | .30 | .75 | (.19) | .70 |
| Discontinued                    operations                                                                        | .05                                  | .18 | .29 | .02 | .52 |
| Available                    for common shareholders                                                              | (.11)                                | .48 | 1.04 | (.17) | 1.22 |

| (1) | The                  sum of earnings per share by quarter may not equal the net earnings                  per                  common and common share equivalents for the year due to variations                  in the                  weighted average common and common share equivalents outstanding                  used in                  computing such amounts. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**XXI        Reportable Segments**

*ProvEnergy        Power*

|                                                   |   | **Six                  Months**   |    |                                     |   |      |   |     |      |
|--------------------------------------------------------|--------|-----------------------------------|---------|------------------------------------------|--------|-----------|--------|----------|-----------|
|                                                   |   | **Ended**                         |    |                                     |   |      |   |     |      |
|                                                   |   | **December                  31,** |    | **Year                  Ended June 30,** |   |
|                                                   |   | **2004**                          |    | **2004**                                 |   | **2003**  |   | **2002** |      |
| Revenues                  from external customers:     |   |                              |         |                                     |   |           |   |     |           |   |   |  |   |
| Distribution                                           |   | $                                 | 549,346 |                                     | $      | 1,304,405 |   | $        | 1,158,964 |   | $ | 968,933 |   |
| Transportation                  and Storage            |   |                              | 242,743 |                                     |   | 490,883   |   |     | 24,522    |   |   | -- |   |
| Total                  segment operating revenues      |   |                              | 792,089 |                                     |   | 1,795,288 |   |     | 1,183,486 |   |   | 968,933 |   |
| All                  Other                             |   |                              | 2,249   |                                     |   | 4,486     |   |     | 5,014     |   |   | 11,681 |   |
| Total                  consolidated operating revenues |   | $                                 | 794,338 |                                     | $      | 1,799,774 |   | $        | 1,188,500 |   | $ | 980,614 |   |
|                                                   |   |                              |         |                                     |   |           |   |     |           |   |   |  |   |
| Depreciation                  and amortization:        |   |                              |    |                                     |   |      |   |     |      |   |   |   |   |
| Distribution                                           |   | $                                 | 32,511  |                                     | $      | 57,601    |   | $        | 56,396    |   | $ | 53,937 |   |
| Transportation                  and Storage            |   |                              | 30,159  |                                     |   | 59,988    |   |     | 3,197     |   |   | -- |   |
| Total                  segment depreciation and        |   |                              |    |                                     |   |      |   |     |      |   |   |   |   |
| amortization                                           |   |                              | 62,670  |                                     |   | 117,589   |   |     | 59,593    |   |   | 53,937 |   |
| All                  Other                             |   |                              | 306     |                                     |   | 572       |   |     | 590       |   |   | 2,387 |   |
|                      Corporate          |   |                              | 400     |                                     |   | 594       |   |     | 459       |   |   | 2,665 |   |
| Total                  consolidated depreciation and   |   |                              |    |                                     |   |      |   |     |      |   |   |   |   |
| amortization                                           |   | $                                 | 63,376  |                                     | $      | 118,755   |   | $        | 60,642    |   | $ | 58,989 |   |

| Operating                  income:                   |   |   |         |   |   |         |   |   |         |   |   |         |   |
|------------------------------------------------------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
| Distribution                                         |   | $      | 19,396  |   | $      | 118,894 |   | $      | 142,762 |   | $      | 135,502 |   |
| Transportation                  and Storage          |   |   | 90,121  |   |   | 193,502 |   |   | 9,628   |   |   | --      |   |
| Total                  segment operating income      |   |   | 109,517 |   |   | 312,396 |   |   | 152,390 |   |   | 135,502 |   |
| All                  Other                           |   |   | (1,783  | )      |   | (3,514  | )      |   | 13      |   |   | --      |   |
| Corporate                                            |   |   | (803    | )      |   | (3,555  | )      |   | (10,039 | )      |   | (15,218 | )      |
| Business                  restructuring charges      |   |   | --      |   |   | --      |   |   | --      |   |   | (29,159 | )      |
| Total                  consolidated operating income |   | $      | 106,931 |   | $      | 305,327 |   | $      | 142,364 |   | $      | 91,125  |   |

|                                                             |   | **Six                  Months**   |      |                                     |   |      |   |     |      |
|------------------------------------------------------------------|--------|-----------------------------------|-----------|------------------------------------------|--------|-----------|--------|----------|-----------|
|                                                             |   | **Ended**                         |      |                                     |   |      |   |     |      |
|                                                             |   | **December                  31,** |      | **Year                  Ended June 30,** |   |
|                                                             |   | **2004**                          |      | **2004**                                 |   | **2003**  |   | **2002** |      |
| Total                  assets:                                   |   |                              |      |                                     |   |      |   |     |      |
| Distribution                                                     |   | $                                 | 2,448,750 |                                     | $      | 2,231,970 |   | $        | 2,243,257 |   | $ | 2,156,106 |   |
| Transportation                  and Storage                      |   |                              | 2,348,354 |                                     |   | 2,197,289 |   |     | 2,212,467 |   |   | -- |   |
| Total                  segment assets                            |   |                              | 4,797,104 |                                     |   | 4,429,259 |   |     | 4,455,724 |   |   | 2,156,106 |   |
| All                  Other                                       |   |                              | 40,320    |                                     |   | 42,133    |   |     | 50,073    |   |   | 53,339 |   |
| Corporate                                                        |   |                              | 730,865   |                                     |   | 101,066   |   |     | 85,141    |   |   | 75,173 |   |
| Sale                  of assets - Texas operations               |   |                              | --        |                                     |   | --        |   |     | --        |   |   | 395,446 |   |
| Total                  consolidated assets                       |   | $                                 | 5,568,289 |                                     | $      | 4,572,458 |   | $        | 4,590,938 |   | $ | 2,680,064 |   |
|                                                             |   |                              |      |                                     |   |      |   |     |      |   |   |   |   |
| Expenditures                  for long-lived assets:             |   |                              |      |                                     |   |      |   |     |      |   |   |   |   |
| Distribution                                                     |   | $                                 | 56,442    |                                     | $      | 78,791    |   | $        | 67,327    |   | $ | 68,042 |   |
| Transportation                  and storage                      |   |                              | 111,886   |                                     |   | 131,378   |   |     | 5,128     |   |   | -- |   |
| Total                  segment expenditures for                  |   |                              |      |                                     |   |      |   |     |      |   |   |   |   |
| long-lived                  assets                               |   |                              | 168,328   |                                     |   | 210,169   |   |     | 72,455    |   |   | 68,042 |   |
| All                  other                                       |   |                              | 133       |                                     |   | 856       |   |     | 1,653     |   |   | 1,365 |   |
| Corporate                                                        |   |                              | 9,976     |                                     |   | 15,028    |   |     | 5,622     |   |   | 1,291 |   |
| Total                  consolidated expenditures for             |   |                              |      |                                     |   |      |   |     |      |   |   |   |   |
|  long-lived                  assets                         |   | $                                 | 178,437   |                                     | $      | 226,053   |   | $        | 79,730    |   | $ | 70,698 |   |
|                                                             |   |                              |      |                                     |   |      |   |     |      |   |   |   |   |
| Reconciliation                  of operating income to earnings  |   |                              |      |                                     |   |      |   |     |      |   |   |   |   |
| from                  continuing operations before income taxes: |   |                              |      |                                     |   |      |   |     |      |
| Operating                  income                                |   | $                                 | 106,931   |                                     | $      | 305,327   |   | $        | 142,364   |   | $ | 91,125 |   |
| Interest                                                         |   |                              | (64,898   | )                                        |   | (127,867  | )      |     | (83,343   | ) |   | (90,992 | ) |
| Earnings                  from unconsolidated                    |   |                              |      |                                     |   |      |   |     |      |   |   |   |   |
| investments                                                      |   |                              | 4,745     |                                     |   | 200       |   |     | 422       |   |   | 1,420 |   |
| Dividends                  on preferred securities of            |   |                              |      |                                     |   |      |   |     |      |   |   |   |   |
| subsidiary                  trust                                |   |                              | --        |                                     |   | --        |   |     | (9,480    | ) |   | (9,480 | ) |
| Other                  income, net                               |   |                              | (18,080   | )                                        |   | 5,468     |   |     | 17,979    |   |   | 12,858 |   |
| Earnings                  from continuing operations             |   |                              |      |                                     |   |      |   |     |      |   |   |   |   |
| before                  income taxes                             |   | $                                 | 28,698    |                                     | $      | 183,128   |   | $        | 67,942    |   | $ | 4,931 |   |

**XXII            Transition Period Comparative Data**

|                                                                         | **Six                    Months Ended December 31,** |
|------------------------------------------------------------------------------|------------------------------------------------------|
|                                                                         | **2004**                                             |   | **2003** |
|                                                                         |                                                 |   |   |   |                               (Unaudited) |
|                                                                         |                                                 |   |   |   |   |
| Operating                    revenues                                        | $                                                    | 794,338 |   | $ | 738,417 |
|                                                                         |                                                 |   |   |   |   |
| Operating                    income                                          |                                                 | 106,931 |   |   | 119,266 |
|                                                                         |                                                 |   |   |   |   |
| Earnings                    before income taxes                              |                                                 | 28,698 |   |   | 57,077 |
|                                                                         |                                                 |   |   |   |   |
| Federal                    and state income taxes                            |                                                 | (13,927) |   |   | (22,362) |
|                                                                         |                                                 |   |   |   |   |
| Net                    earnings                                              |                                                 | 14,771 |   |   | 34,715 |
|                                                                         |                                                 |   |   |   |   |
| Preferred                    stock dividends                                 |                                                 | (8,683) |   |   | (4,004) |
|                                                                         |                                                 |   |   |   |   |
| Net                    earnings available for common shareholders            |                                                 | 6,088 |   |   | 30,711 |
|                                                                         |                                                 |   |   |   |   |
| Net                    earnings available for common shareholders per share: |                                                 |   |   |   |   |
| Basic                                                                        | $                                                    | .07 |   | $ | .41 |
| Diluted                                                                      | $                                                    | .07 |   | $ | .40 |
|                                                                         |                                                 |   |   |   |   |
| Weighted                    average shares outstanding:                      |                                                 |   |   |   |   |
| Basic                                                                        |                                                 | 81,995,878 |   |   | 75,337,197 |
| Diluted                                                                 |                                                 | 85,298,894 |   |   | 77,496,541 |
|                                                                         |                                                 |   |   |   |   |

**XXIII        Subsequent Events**

| ·   | On                  March 24, 2005, the Board of Directors of Advent, one of the Company’s                  cost method investments, approved the filing of a voluntary petition                  for                  relief under Chapter 11 of the United States Bankruptcy Code in                  the                  Western District of Texas. As a result, Southern Union recorded                  a                  $4,000,000 liability associated with the guarantee by a subsidiary                  of the                  Company of a line of credit between Advent and JPMorgan Chase in                  the first                  quarter of 2005. Subsequent to its bankruptcy filing on April 8,                  2005,                  Advent defaulted on its $4,000,000 line of credit with JPMorgan                  Chase, and                  the guarantee liability was funded. Also as of March 31, 2005,                  the Company                  recorded a $508,000 other-than-temporary impairment of its remaining                  unreserved investment in Advent.  The total charge of $4,508,000                  was                  reflected in other income, net in the Consolidated Statement of                  Operations                  for the quarter ended March 31, 2005. The Company’s investment in Advent                  was fully reserved in the Consolidated Balance Sheet as of March                  31,                  2005. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | As                  of March 31, 2005, the Company anticipates that the $11,942,000                  deferred                  tax asset for the difference between the book and tax basis of                  the                  Company’s investment in CCE Holdings will be fully realized. Accordingly,                  the related $11,942,000 valuation allowance is being reversed as                  an                  adjustment to the income tax provision in                  2005. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | On                  April 29, 2005, the Company refinanced the LNG bank loans of $255,626,000,                  due 2007, for the same amount and term and terminated the related                  interest                  rate swaps previously designated as a cash flow hedge to fix the                  interest                  rate applicable to the LNG floating rate debt. As a result, a gain                  of                  $3,465,000 ($2,072,000 net of tax) was recorded in accumulated                  other                  comprehensive income during the second quarter of 2005 and will                  be                  amortized to interest expense through the maturity date of the                  original                  bank loans in 2007. The new notes have substantially the same terms                  as the                  old notes with the exception of the following primary differences:                  (i) the                  assets of Trunkline LNG are not pledged as collateral; (ii) Panhandle                  Energy and Trunkline LNG each severally provided a guarantee for                  the                  notes; and (iii) the interest rate is tied to the rating of Panhandle                  Energy’s unsecured funded debt. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | On                  May 2, 2005, the Company was served with a complaint filed against                  NEGC in                  the Superior Court of Providence, Rhode Island, alleging certain                  grounds                  and claims for damages as a result of previous events that occurred                  in                  Tiverton, Rhode Island. The plaintiffs seek to recover damages                  for the                  diminution in value of their property, lost use and enjoyment of                  their                  properties and emotional stress in an unspecified amount. On                  June 2, 2005, the Company was served with a second multi-plaintiff                  lawsuit                  filed in the Superior Court of Newport County in which the plaintiffs                  make                  similar claims. Both lawsuits are being removed to federal court.                  The                  Company will vigorously defend against both lawsuits. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                  Company repaid the $76,087,000 principal outstanding under its                  2002 Term                  Note and as of June 2, 2005, the 2002 Term Note was                  canceled. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | As                  of June 10, 2005, there was a balance of $128,800,000 outstanding                  under                  the Company’s Long-Term Facility and other credit                  facilities. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Beginning                    January 1, 2005, the Company began using Earnings Before Interest                    and                    Taxes (*EBIT*)                    as the primary financial measure to evaluate segment performance                    and                    internally manage its business. Evaluating segment performance                    based on                    EBIT is a change from utilizing operating income in prior periods.                    EBIT                    will allow management and investors to more effectively evaluate                    the                    performance of all of the Company’s consolidated subsidiaries and                    unconsolidated investments, including its equity investment in                    CCE                    Holdings, which will be included in the Company’s Transportation and                    Storage segment going forward. The Company defines EBIT as net                    earnings                    (loss) available for common shareholders, adjusted for: (i) items                    that do                    not impact earnings (loss) from continuing operations, such as                    extraordinary items, discontinued operations and the impact of                    accounting                    changes; (ii) income taxes; (iii) interest; and (iv) dividends                    on                    preferred stock. EBIT may not be comparable to measures used                    by other                    companies. Additionally, EBIT should be considered in conjunction                    with net                    earnings and other performance measures such as operating income                    or                    operating cash flow. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | On                    April 15, 2005, the SEC amended Regulation S-X so that                    registrants                    are now required to prepare financial statements in accordance                    with FASB Statement 123R, *Share                    Based Payment*, beginning                    with the first interim or annual reporting period of the registrant’s                    first fiscal year beginning on or after June 15, 2005.                     The Company                    is continuing to evaluate the impact of this Statement on its                    consolidated                    financial statements and will adopt this Statement as of January                    1,                    2006. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**REPORT        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

** **

** **
*Internal        Control - Integrated Framework*

*Internal        Control - Integrated Framework*
*Internal        Control - Integrated Framework*