UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                 ----------------

                                    FORM 10-Q


                         For the quarterly period ended
                         ------------------------------

                                 March 31, 2002


                           Commission File No. 1-6407

                              ---------------------


                             SOUTHERN UNION COMPANY
             (Exact name of registrant as specified in its charter)



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


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

       Registrant's telephone number, including area code: (570) 820-2400

           Securities Registered Pursuant to Section 12(b) of the Act:

      Title of each class              Name of each exchange in which registered
      -------------------              -----------------------------------------
Common Stock, par value $1 per share            New York Stock Exchange


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

The number of shares of the registrant's Common Stock outstanding on May 10,
2002 was 52,378,438.



<PAGE>




                     SOUTHERN UNION COMPANY AND SUBSIDIARIES
                                    FORM 10-Q
                                 March 31, 2002
                                      Index




PART I.  FINANCIAL INFORMATION                                           Page(s)
                                                                         -------

     Item 1.  Financial Statements

              Consolidated statements of operations - three, nine
                 and twelve months ended March 31, 2002 and 2001           2-4

              Consolidated balance sheet - March 31, 2002 and 2001
                 and June 30, 2001                                         5-6

              Consolidated statement of stockholders' equity - nine
                 months ended March 31, 2002 and twelve months ended
                 June 30, 2001                                              7

              Consolidated statements of cash flows - three, nine and
                  twelve months ended March 31, 2002 and 2001              8-10

              Notes to consolidated financial statements                  11-21

     Item 2.  Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                      22-32

     Item 3.  Quantitative and Qualitative Disclosures about
                 Market Risk                                                31

PART II.  OTHER INFORMATION

     Item 1.  Legal Proceedings

                  (See "COMMITMENTS AND CONTINGENCIES" in Notes to
                   Consolidated Financial Statements)                     18-21

     Item 6.  Exhibits and Reports on Form 8-K

                  Reports on Form 8-K

                    Date
                    Filed             Description of Filing
                  ---------    -------------------------------------

                  01/31/02     Announcement of operating performance
                                  for the quarter and six months
                                  ended December 31, 2001 and 2000
                                  and filing, under Item 9, summary
                                  statements of income of the Company
                                  for the quarter and six months ended
                                  December 31, 2001 and 2000 (unaudited)
                                  and notes thereto.




--------------------------------------------------------------------------------

                                       1
<PAGE>




                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS



                                                    Three Months Ended March 31,
                                                    ----------------------------
                                                        2002            2001
                                                    ------------    ------------
                                                       (thousands of dollars,
                                                     except shares and per share
                                                               amounts)

Operating revenues...............................   $   528,298     $   914,653
Cost of gas and other energy.....................      (331,853)       (685,404)
Revenue-related taxes............................       (20,398)        (33,664)
                                                    -----------     -----------
Operating margin.................................       176,047         195,585

Operating expenses:
  Operating, maintenance and general.............        54,903          69,766
  Depreciation and amortization..................        17,970          24,615
  Taxes, other than on income and revenues.......         7,080           8,480
                                                    -----------     -----------
    Total operating expenses.....................        79,953         102,861
                                                    -----------     -----------
    Net operating revenues.......................        96,094          92,724
                                                    -----------     -----------

Other income (expense):
  Interest.......................................       (21,920)        (29,163)
  Dividends on preferred securities of
    subsidiary trust.............................        (2,370)         (2,370)
  Other, net.....................................         3,293          14,364
                                                    -----------     -----------
    Total other expenses, net....................       (20,997)        (17,169)
                                                    -----------     -----------

    Earnings before income taxes.................        75,097          75,555

Federal and state income taxes...................        31,309          34,749
                                                    -----------     -----------

Net earnings available for common stock..........   $    43,788     $    40,806
                                                    ===========     ===========

Net earnings per share:
  Basic..........................................   $       .86     $       .78
                                                    ===========     ===========
  Diluted........................................   $       .82     $       .74
                                                    ===========     ===========

Weighted average shares outstanding:
  Basic..........................................    50,877,363      52,436,073
                                                    ===========     ===========
  Diluted........................................    53,621,846      55,511,625
                                                    ===========     ===========









                             See accompanying notes.

--------------------------------------------------------------------------------

                                       2
<PAGE>




                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS



                                                     Nine Months Ended March 31,
                                                     ---------------------------
                                                         2002           2001
                                                     ------------   ------------
                                                        (thousands of dollars,
                                                     except shares and per share
                                                              amounts)

Operating revenues................................   $ 1,078,708    $ 1,664,461
Cost of gas and other energy......................      (651,791)    (1,203,862)
Revenue-related taxes.............................       (39,980)       (62,597)
                                                     -----------    -----------
  Operating margin................................       386,937        398,002

Operating expenses:
  Operating, maintenance and general...............      162,061        168,935
  Business restructuring charges...................       32,706             --
  Depreciation and amortization....................       57,821         64,319
  Taxes, other than on income and revenues.........       22,756         21,290
                                                     -----------    -----------
    Total operating expenses.......................      275,344        254,544
                                                     -----------    -----------
    Net operating revenues.........................      111,593        143,458
                                                     -----------    -----------

Other income (expense)
  Interest.........................................      (70,992)       (75,772)
  Dividends on preferred securities of subsidiary
    trust..........................................       (7,110)        (7,110)
  Other, net.......................................       26,482         23,761
                                                     -----------    -----------
    Total other expenses, net......................      (51,620)       (59,121)
                                                     -----------    -----------

    Earnings before income taxes and change in
      accounting principle.........................       59,973         84,337

Federal and state income taxes.....................       26,838         38,789
                                                     -----------    -----------

Earnings before change in accounting principle.....       33,135         45,548

Change in accounting principle, net of tax.........           --            602
                                                     -----------    -----------
Net earnings available for common stock............  $    33,135    $    46,150
                                                     ===========    ===========

Net earnings per share:
  Basic:
    Before change in accounting principle..........  $       .65    $       .88
    Change in accounting principle, net of tax.....           --            .01
                                                     -----------    -----------
                                                     $       .65    $       .89
                                                     ===========    ===========

  Diluted:
    Before change in accounting principle..........  $       .61    $       .83
    Change in accounting principle, net of tax.....           --            .01
                                                     -----------    -----------
                                                     $       .61    $       .84
                                                     ===========    ===========
Weighted average shares outstanding:
  Basic............................................   51,360,879     51,956,473
                                                     ===========    ===========
  Diluted..........................................   54,323,851     54,831,308
                                                     ===========    ===========






                            See accompanying notes.

--------------------------------------------------------------------------------

                                       3

<PAGE>




                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS



                                                   Twelve Months Ended March 31,
                                                   -----------------------------
                                                       2002             2001
                                                   ------------     ------------
                                                   (thousands of dollars, except
                                                   shares and per share amounts)

Operating revenues..............................   $ 1,347,060      $ 1,826,995
Cost of gas and other energy....................      (822,678)      (1,299,378)
Revenue-related taxes...........................       (46,185)         (68,077)
                                                   -----------      -----------
  Operating margin..............................       478,197          459,540

Operating expenses:
  Operating, maintenance and general............       232,679          206,875
  Business restructuring charges................        32,706               --
  Depreciation and amortization.................        80,488           79,920
  Taxes, other than on income and revenues......        31,323           24,780
                                                   -----------      -----------
    Total operating expenses....................       377,196          311,575
                                                   -----------      -----------
    Net operating revenues......................       101,001          147,965
                                                   -----------      -----------

Other income (expense):
  Interest......................................       (98,739)         (90,661)
  Dividends on preferred securities of
    subsidiary trust............................        (9,480)          (9,480)
  Other, net....................................        79,537           19,580
                                                   -----------      -----------
    Total other expenses, net...................       (28,682)         (80,561)
                                                   -----------      -----------

    Earnings before income taxes and change in
      accounting principle......................        72,319           67,404

Federal and state income taxes..................        28,049           32,558
                                                   -----------      -----------

Earnings before change in accounting principle..        44,270           34,846

Change in accounting principle, net of tax......            --              602
                                                   -----------      -----------

Net earnings available for common stock.........   $    44,270      $    35,448
                                                   ===========      ===========

Net earnings per share:
  Basic:
    Before change in accounting principle.......   $       .86      $       .68
    Change in accounting principle, net of tax..            --              .01
                                                   -----------      -----------
                                                   $       .86      $       .69
                                                   ===========      ===========
  Diluted:
    Before change in accounting principle.......   $       .81      $       .64
    Change in accounting principle, net of tax..            --              .01
                                                   -----------      -----------
                                                   $       .81      $       .65
                                                   ===========      ===========

Weighted average shares outstanding:
  Basic.........................................    51,625,601       51,710,551
                                                   ===========      ===========
  Diluted.......................................    54,584,600       54,433,177
                                                   ===========      ===========








                             See accompanying notes.

--------------------------------------------------------------------------------

                                       4

<PAGE>




                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                     ASSETS


                                                March 31,             June 30,
                                      --------------------------    ------------
                                          2002          2001            2001
                                      ------------  ------------    ------------
                                               (thousands of dollars)

Property, plant and equipment:
  Plant in service.................   $ 2,231,923   $ 2,178,163     $ 2,201,975
  Construction work in progress....        31,844        27,158          25,520
                                      -----------   -----------     -----------
                                        2,263,767     2,205,321       2,227,495
    Less accumulated depreciation
      and amortization.............      (812,358)     (758,717)       (771,170)
                                      -----------   -----------     -----------
      Net property, plant and
        equipment..................     1,451,409     1,446,604       1,456,325
                                      -----------   -----------     -----------


Current assets:
  Cash and cash equivalents........         9,844         8,166           1,219
  Accounts receivable, billed and
    unbilled, net..................       250,258       462,279         218,912
  Inventories, principally at
    average cost...................        84,801        41,639         106,505
  Deferred gas purchase costs......         4,617        99,415          65,171
  Investment securities available
    for sale.......................         4,339        92,241          29,447
  Prepayments and other............        10,992        14,730          14,778
                                      -----------   -----------     -----------
    Total current assets...........       364,851       718,470         436,032
                                      -----------   -----------     -----------

Goodwill, net......................       713,389       733,921         724,620

Deferred charges...................       225,496       212,711         209,644

Investment securities, at cost.....        19,227        20,081          19,081

Real estate........................            --         2,552           2,506

Other..............................        48,672        36,552          41,872
                                      -----------   -----------     -----------





  Total............................   $ 2,823,044   $ 3,170,891     $ 2,890,080
                                      ===========   ===========     ===========













                             See accompanying notes.

--------------------------------------------------------------------------------

                                       5
<PAGE>




                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEET (Continued)

                      STOCKHOLDERS' EQUITY AND LIABILITIES


                                                March 31,             June 30,
                                      --------------------------    ------------
                                          2002          2001            2001
                                      ------------  ------------    ------------
                                               (thousands of dollars)

Common stockholders' equity:
  Common stock, $1 par value;
    authorized 200,000,000 shares;
    issued 54,843,683 shares.......   $    54,844   $    51,992     $    54,553
  Premium on capital stock.........       679,347       626,253         676,324
  Less treasury stock, 2,706,533
    shares at cost.................       (50,752)      (15,869)        (15,869)
  Less common stock held in trust..       (19.878)      (17,547)        (19,650)
  Deferred compensation plans......         9,201         7,499           7,953
  Accumulated other comprehensive
    income (loss)..................        (2,042)       54,940          13,443
  Retained earnings................        38,238        46,150           5,103
                                      -----------   -----------     -----------

  Total common stockholders'
    equity.........................       708,958       753,418         721,857

Company-obligated mandatorily
  redeemable preferred securities
  of subsidiary trust holding
  solely subordinated notes of
  Southern Union...................       100,000       100,000         100,000

Long-term debt and capital lease
  obligation.......................       799,717     1,368,817       1,329,631
                                      -----------   -----------     -----------

    Total capitalization...........     1,608,675     2,222,235       2,151,488

Current liabilities:
  Long-term debt and capital lease
    obligation due within one year.       451,852         5,219           5,913
  Notes payable....................       132,300       211,600         190,600
  Accounts payable.................       126,436       227,917         103,623
  Federal, state and local taxes...        60,829        66,069          32,342
  Accrued interest.................        17,913        18,544          16,105
  Accrued dividends on preferred
    securities of subsidiary trust.         2,370         2,370           2,370
  Customer deposits................        20,271        20,584          20,285
  Other............................        58,024        68,830          67,383
                                      -----------   -----------     -----------

    Total current liabilities......       869,995       621,133         438,621
                                      -----------   -----------     -----------


Deferred credits and other.........       147,532       131,726          96,680
Accumulated deferred income taxes..       196,842       195,797         203,291
Commitments and contingencies......            --            --              --
                                      -----------   -----------     -----------

    Total..........................   $ 2,823,044   $ 3,170,891     $ 2,890,080
                                      ===========   ===========     ===========






                             See accompanying notes.

--------------------------------------------------------------------------------

                                       6

<PAGE>




                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


                                                   Accumu-
                                                    lated
              Common  Premium             Common    Other
              Stock,    on     Treasury   Stock    Compre-   Retained
              $1 Par  Capital   Stock,    Held in  hensive   Earnings/
              Value    Stock   at Cost     Trust   Income    (Deficit)   Total
             -------- -------- --------- --------- --------  --------- ---------
                                    (thousands of dollars)

Balance
 July 1,
 2000....... $ 50,521 $599,835 $(15,554) $(14,522) $115,175  $     --  $735,455

 Comprehen-
  sive
  income:
   Net earn-
    ings....       --       --       --        --        --    57,285    57,285
   Unreal-
    lized
    loss in
    invest-
    ment
    securi-
    ties,
    net of
    tax
    benefit.       --       --       --        --   (96,323)       --   (96,323)
   Minimum
    pension
    liabil-
    ity ad-
    just-
    ment;
    net of
    tax.....       --       --       --        --    (4,324)       --    (4,324)
   Cumula-
    tive ef-
    fect of
    change
    in ac-
    counting
    princi-
    ple, net
    of tax..       --       --       --        --       826        --       826
   Unrea-
    lized
    loss on
    hedging
    activi-
    ties,
    net of
    tax
    benefit.       --       --       --        --    (1,911)       --    (1,911)
                                                                       --------
    Compre-
     hensive
     income
     (loss).                                                            (44,447)
                                                                       --------
  Payment on
   note re-
   ceivable.       --      290       --        --        --        --       290
  Purchase
   of common
   stock
   held in
   trust....       --       --       --    (4,009)       --        --    (4,009)
  5% stock
   dividend.    2,556   49,626       --        --        --   (52,182)       --
  Benefit
   plan
   modifica-
   tion.....       --       --       --     6,560        --        --     6,560
  Issuance
   of stock
   for ac-
   quisi-
   tion.....    1,371   25,930       --        --        --        --    27,301
  Exercise
   of stock
   options..      105      643     (315)      274        --        --       707
             -------- -------- --------  --------  --------  --------  --------
Balance
 June 30,
 2001.......   54,553  676,324  (15,869)  (11,697)   13,443     5,103   721,857

 Comprehen-
  sive
  income:
   Net earn-
    ings....       --       --       --        --        --    33,135    33,135
   Unrea-
    lized
    loss in
    invest-
    ment
    securi-
    ties,
    net of
    tax
    benefit.       --       --       --        --   (16,320)       --   (16,320)
   Unrea-
    lized
    gain on
    hedging
    activi-
    ties,
    net of
    tax.....       --       --       --        --       835        --       835
                                                                       --------
   Compre-
    hensive
    income..                                                             17,650
                                                                       --------
 Purchase of
  treasury
  stock.....       --       --  (34,711)       --        --        --   (34,711)
 Stock com-
  pensation
  plans.....       --      967       --       972        --        --     1,939
 Exercise of
  stock
  options...      291    2,056     (172)       48        --        --     2,223
             -------- -------- --------  --------  --------  --------  --------
Balance
 March 31,
 2002....... $ 54,844 $679,347 $(50,752) $(10,677) $ (2,042) $ 38,238  $708,958
             ======== ======== ========  ========  ========  ========  ========










                            See accompanying notes.

--------------------------------------------------------------------------------

                                        7

<PAGE>




                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS


                                                    Three Months Ended March 31,
                                                    ----------------------------
                                                        2002            2001
                                                    ------------    ------------
                                                       (thousands of dollars)

Cash flows from (used in) operating activities:
  Net earnings....................................  $     43,788    $    40,806
  Adjustments to reconcile net earnings to net
    cash flows from (used in) operating
    activities:
      Depreciation and amortization...............        17,970         24,615
      Deferred income taxes.......................         4,202          4,398
      Non-cash compensation expense...............            --         (2,216)
      Provision for bad debts.....................         6,005         13,398
      Financial derivative trading gains..........        (3,776)        (3,360)
      Gain on sale of investment securities.......            --        (12,494)
      Other.......................................         1,128            459
        Changes in operating assets and
          liabilities:
            Accounts receivable, billed and
              unbilled............................       (24,224)       (65,258)
            Accounts payable......................         6,929        (54,194)
            Taxes and other liabilities...........        37,806         37,932
            Customer deposits.....................           286           (368)
            Deferred gas purchase costs...........        16,254        (67,305)
            Inventories...........................        85,597         76,904
            Other.................................           794         (4,411)
                                                    ------------    -----------
    Net cash flows from (used in) operating
      activities..................................       192,759        (11,094)
                                                    ------------    -----------
Cash flows from (used in) investing activities:
  Additions to property, plant and equipment......       (21,042)       (25,469)
  Acquisition of operations, net of cash received.            --         (1,646)
  Customer advances...............................          (740)           806
  Deferred charges and credits....................        (2,178)       (12,105)
  Proceeds from sale of investment securities.....            --         15,405
  Other...........................................           264          4,691
                                                    ------------    -----------
    Net cash flows used in investing activities...      (23,696)       (18,318)
                                                    ------------    -----------
Cash flows from (used in) financing activities:
  Issuance cost of debt...........................           (98)            --
  Repayment of debt and capital lease obligation..       (78,169)        (6,898)
  Net (payments) borrowings under revolving
    credit facility...............................       (82,650)        36,600
  Other...........................................         1,698             36
                                                    ------------    -----------
    Net cash flows from (used in) financing
      activities..................................      (159,219)        29,738
                                                    ------------    -----------
Change in cash and cash equivalents...............         9,844            326
Cash and cash equivalents at beginning of period..            --          7,840
                                                    ------------    -----------
Cash and cash equivalents at end of period........  $      9,844    $     8,166
                                                    ============    ===========

Supplemental disclosures of cash flow information:
  Cash paid during the period for:
    Interest......................................  $     19,435    $    30,670
                                                    ============    ===========
    Income taxes .................................  $         90    $     1,000
                                                    ============    ===========
















                            See accompanying notes.

--------------------------------------------------------------------------------

                                       8
<PAGE>




                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS



                                                     Nine Months Ended March 31,
                                                     ---------------------------
                                                         2002           2001
                                                     ------------   ------------
                                                       (thousands of dollars)


Cash flows from (used in) operating activities:
  Net earnings....................................   $     33,135   $    46,150
  Adjustments to reconcile net earnings to net
    cash flows from (used in) operating
    activities:
      Depreciation and amortization...............         57,821        64,319
      Deferred income taxes.......................          7,224        (1,562)
      Business restructuring charges..............         29,400            --
      Gain on sale of assets......................           (561)           --
      Loss on sale of subsidiaries................          1,500            --
      Gain realized on sale of gas marketing
        contracts.................................         (4,653)           --
      Gain on settlement of interest rate swaps...        (17,166)           --
      Provision for bad debts.....................         11,479        19,345
      Financial derivative trading (gains) losses.         (6,109)        5,684
      Gain on sale of investment securities.......             --       (21,363)
      Gain on sale of real estate.................             --       (13,532)
      Cumulative effect of change in accounting
        principle.................................           . --          (602)
      Other.......................................            635         1,735
      Changes in operating assets and liabilities,
        net of acquisitions and dispositions:
          Accounts receivable, billed and
            unbilled..............................        (46,752)     (359,181)
          Accounts payable........................         24,318       110,254
          Taxes and other liabilities.............         26,359        56,410
          Customer deposits.......................            244          (852)
          Deferred gas purchase costs.............         60,554      (102,120)
          Inventories.............................         19,527        33,316
          Other...................................          6,435       (16,015)
                                                     ------------   -----------
    Net cash flows from (used in) operating
      activities..................................        203,390      (178,014)
                                                     ------------   -----------
Cash flows from (used in) investing activities:
  Additions to property, plant and equipment......        (78,189)      (87,172)
  Acquisition of operations, net of cash received.             --      (406,949)
  Proceeds from sale of subsidiaries..............         33,663            --
  Proceeds from sale of gas marketing contracts...          4,972            --
  Proceeds from settlement of interest rate swaps.         17,166            --
  Purchase of investment securities...............           (145)      (12,495)
  Notes receivable................................             --           290
  Customer advances...............................         (1,267)          790
  Deferred charges and credits....................          4,149        (3,630)
  Proceeds from sale of investment securities.....             --        26,777
  Proceeds from sale of real estate, net of
    closing costs.................................             --        20,638
  Other...........................................            264         4,116
                                                     ------------   -----------
    Net cash flows used in investing activities...        (19,387)     (457,635)
                                                     ------------   -----------
Cash flows from (used in) financing activities:
  Issuance of long-term debt......................             --       535,000
  Issuance cost of debt...........................           (617)       (2,538)
  Repayment of debt and capital lease obligation..        (83,974)      (14,607)
  Net (payments) borrowings under revolving credit
    facility......................................        (58,300)      211,597
  Purchase of treasury stock......................        (34,711)           --
  Payment of merger debt assumed..................             --      (114,171)
  Other...........................................          2,224           705
                                                     ------------   -----------
    Net cash flows from (used in) financing
      activities..................................       (175,378)      615,986
                                                     ------------   -----------
Change in cash and cash equivalents...............          8,625       (19,663)
Cash and cash equivalents at beginning of period..          1,219        27,829
                                                     ------------   -----------
Cash and cash equivalents at end of period........   $      9,844   $     8,166
                                                     ============   ===========

Supplemental disclosures of cash flow information:
  Cash paid during the period for:
    Interest......................................   $     76,455   $    78,092
                                                     ============   ===========
    Income taxes..................................   $         90   $     1,052
                                                     ============   ===========


                             See accompanying notes.

--------------------------------------------------------------------------------

                                       9

<PAGE>




                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS


                                                   Twelve Months Ended March 31,
                                                   -----------------------------
                                                       2002             2001
                                                   ------------     ------------
                                                      (thousands of dollars)

Cash flows from (used in) operating activities:
  Net earnings...................................  $    44,270       $   35,448
  Adjustments to reconcile net earnings to net
    cash flows from (used in) operating
    activities:
      Depreciation and amortization..............       80,488           79,920
      Deferred income taxes......................       36,564           (4,482)
      Provision for bad debts....................       24,840           22,678
      Business restructuring charges.............       29,400               --
      Gain on settlement of interest rate swaps..      (17,166)              --
      Gain realized on sale of gas marketing
        contracts................................       (4,653)              --
      Gain on sale of assets.....................         (561)              --
      Loss on sale of subsidiary.................        1,500               --
      Gain on sale of subsidiary.................         (707)              --
      Financial derivative trading (gains)
        losses...................................       (6,109)           7,920
      Cumulative effect of change in accounting
        principle................................           --             (602)
      Gain on sale of investment securities......      (53,219)         (21,363)
      Gain on sale of real estate................           --          (13,532)
      Other......................................        1,145            1,575
      Changes in operating assets and
        liabilities, net of acquisitions and
        dispositions:
          Accounts receivable, billed and
            unbilled.............................      183,254         (307,844)
          Accounts payable.......................     (100,880)         122,621
          Taxes and other liabilities............      (33,412)          41,055
          Customer deposits......................          (55)          (4,382)
          Deferred gas purchase costs............       94,798         (112,085)
          Inventories............................      (45,334)            (245)
          Other..................................       12,064          (4,015)
                                                   -----------       ----------
    Net cash flows from (used in) operating
      activities.................................      246,227        (157,333)
                                                   -----------       ----------
Cash flows from (used in) investing activities:
  Additions to property, plant and equipment.....     (114,793)        (118,188)
  Acquisition of operations, net of cash
    received.....................................       (7,548)        (407,232)
  Purchase of investment securities..............         (145)         (18,488)
  Notes receivable...............................           --              290
  Deferred charges and credits...................       (4,143)          (7,046)
  Proceeds from sale of subsidiaries.............       36,963               --
  Proceeds from sale of investment securities....       58,984           26,777
  Proceeds from sale of real estate, net of
    closing costs................................           --           20,638
  Customer advances..............................         (859)             698
  Proceeds from sale of gas marketing contracts..        4,972               --
  Proceeds from settlement of interest rate
    swaps........................................       17,166               --
  Other..........................................          976            1,604
                                                   -----------       ----------
    Net cash flows used in investing activities..       (8,427)        (500,947)
                                                   -----------       ----------
Cash flows from (used in) financing activities:
  Issuance of long-term debt.....................           --          535,000
  Issuance cost of debt..........................       (1,553)          (3,187)
  Repayment of debt and capital lease obligation.     (122,466)         (15,129)
  Net (payments) borrowings under revolving
    credit facility..............................      (79,300)         211,597
  Purchase of treasury stock.....................      (34,711)            (906)
  Payment of merger debt assumed.................           --         (114,171)
  Other..........................................        1,908              915
                                                   -----------       ----------
    Net cash flows from (used in) financing
      activities.................................     (236,122)         614,119
                                                   -----------       ----------
Change in cash and cash equivalents..............        1,678          (44,161)
Cash and cash equivalents at beginning of period.        8,166           52,327
                                                   -----------       ----------
Cash and cash equivalents at end of period.......  $     9,844       $    8,166
                                                   ===========       ==========

Supplemental disclosures of cash flow
  information:
    Cash paid during the period for:
      Interest...................................  $   103,808       $   95,315
                                                   ===========       ==========
      Income taxes...............................  $    20,090       $    3,652
                                                   ===========       ==========


                             See accompanying notes.

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                                       10

<PAGE>




                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



FINANCIAL STATEMENTS

These interim financial statements should be read in conjunction with the
financial statements and notes thereto contained in Southern Union Company's
(Southern Union and, together with its wholly-owned subsidiaries, the Company)
Annual Report on Form 10-K for the fiscal year ended June 30, 2001. All dollar
amounts in the tables herein, except per share amounts, are stated in thousands
unless otherwise indicated. Certain prior period amounts have been reclassified
to conform with the current period presentation.

The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments (including both normal recurring as well as
any non-recurring) necessary for a fair presentation of the results of
operations for such periods. Because of the seasonal nature of the Company's
operations, the results of operations and cash flows for any interim period are
not necessarily indicative of results for the full year. As further described
below, the Company acquired Providence Energy Corporation and Fall River Gas
Company on September 28, 2000 and Valley Resources, Inc. on September 20, 2000.
Accordingly, the operating activities of the acquired operations are
consolidated with the Company beginning on the respective acquisition dates.
Thus, the results of operations of the Company for the periods subsequent to the
acquisitions are not comparable to those periods prior to the acquisitions nor
are the fiscal 2002 results of operations comparable with prior periods. Also,
the results of operations for the three- and nine-month periods ended March 31,
2002 are not indicative of results that would necessarily be achieved for a full
year since the majority of the Company's operating margin is earned during the
winter heating season.

ACQUISITIONS AND DIVESTITURES

In December 2001, a subsidiary of the Company sold its 43-mile Carrizo Springs
Pipeline for cash of $1,000,000, resulting in a pre-tax gain of $561,000. Also
in December 2001, the Company sold South Florida Natural Gas, a natural gas
division of Southern Union, and Atlantic Gas Corporation, a Florida propane
subsidiary of the Company (collectively, the Florida Operations), for
$10,000,000, resulting in a pre-tax loss of $1,500,000.

In September 2000, Southern Union completed the acquisitions of Providence
Energy Corporation (ProvEnergy), Fall River Gas Company (Fall River Gas) and
Valley Resources, Inc. (Valley Resources). Collectively, these operations
(hereafter referred to as the Company's New England Operations) were acquired
for approximately $422,000,000 in cash and 1,370,629 shares (before adjustment
for any subsequent stock dividend) of Southern Union common stock, as well as
the assumption of approximately $140,000,000 in long-term debt. The New England
Operations' primary business is the distribution of natural gas through the New
England Gas Company, which serves approximately 295,000 customers throughout
Rhode Island and southeastern Massachusetts.

Subsidiaries of the Company acquired in the ProvEnergy merger include ProvEnergy
Oil Enterprises, Inc. (ProvEnergy Oil), and ProvEnergy Power Company, LLC.
ProvEnergy Oil, sold for $15,776,000 in August 2001, operated a fuel oil
distribution business for residential and commercial customers in Rhode Island
and Massachusetts. ProvEnergy Power Company owns 50% of Capital Center Energy
Company, LLC, a joint venture formed between ProvEnergy and ERI Services, Inc.
to provide retail power. Acquired in the Fall River Gas merger was Fall River
Gas Appliance Company, Inc. which rents water heaters and conversion burners
(primarily for residential use) in Fall River Gas' service area. Valley
Resources' non-utility subsidiaries acquired in the merger were Valley Propane,
Inc. (Valley Propane), Morris Merchants, Inc. (Morris Merchants), Valley
Appliance Merchandising Company (VAMCO) and Alternate Energy Corporation (AEC).
Valley Propane, sold for $5,301,000 in September 2001, provided liquid propane
to customers in Rhode Island and nearby Massachusetts. Morris Merchants, sold
for $1,586,000 in October 2001, served as a manufacturers' representative agency
for franchised plumbing and heating contract supplies throughout New England.
VAMCO merchandises and rents natural gas burning appliances, offers appliance
service contract programs, sells water filtration systems and provides
construction management services for natural gas-related projects. AEC sells,
installs and designs natural gas conversion systems and facilities. No gain or
loss was recognized on any of these New England Operations' sales transactions.



--------------------------------------------------------------------------------

                                       11

<PAGE>




                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The Company funded the cash portion of the acquisition of the New England
Operations and any related refinancing of assumed debt with a bank note (the
Term Note). See Debt and Capital Lease. The assets of the New England Operations
have been included in the consolidated balance sheet of the Company at March 31,
2002 and the results of operations have been included in the statement of
consolidated operations since their respective acquisition dates. The
acquisitions were treated as a purchase with related goodwill of approximately
$355,000,000. Effective July 1, 2001, goodwill, which was previously amortized
on a straight-line basis over forty years, is now accounted for on an
impairment-only approach. See Goodwill.

Subsidiaries of the Company acquired in the November 4, 1999 acquisition of
Pennsylvania Enterprises, Inc. included PG Energy Services Inc. (Energy
Services), PEI Power Corporation, Keystone Pipeline Services, Inc. (Keystone, a
wholly-owned subsidiary of Energy Services), and Theta Land Corporation. Through
Energy Services, the Company offers the inspection, maintenance and servicing of
residential and small commercial gas-fired equipment. In July 2001, the
commercial and industrial natural gas marketing contracts of Energy Services
were sold for approximately $4,972,000, resulting in a pre-tax gain of
$4,653,000. In April 2002, the propane operations of Energy Services were sold
for approximately $2,300,000, resulting in a pre-tax gain of approximately
$1,200,000. Keystone, sold for $3,300,000 in June 2001 for a pre-tax gain of
$707,000, was engaged in the construction, maintenance, and rehabilitation of
natural gas distribution pipelines. Theta Land Corporation, which owned and
provided land management and development services for more than 44,000 acres of
land, was sold for $12,150,000 in January 2000. No gain or loss was recognized
on this transaction.

Pro Forma Financial Information

The following unaudited pro forma financial information for the nine-month
period ended March 31, 2001 is presented as though the following events had
occurred at the beginning of the period presented: (i) acquisition of the New
England Operations; (ii) the issuance of the Term Note; and (iii) the
refinancing of certain short-term and long-term debt at the time of the
acquisitions. The pro forma financial information is not necessarily indicative
of the results which would have actually been obtained had the acquisition of
the New England Operations, the issuance of the Term Note, or the refinancings
been completed as of the assumed date for the period presented or which may be
obtained in the future.

                                                               Nine Months Ended
                                                                     March 31,
                                                                       2001
                                                               -----------------

Operating revenues........................................        $ 1,708,121
Income before extraordinary item..........................             24,575
Net earnings available for common stock...................             24,575
Net earnings per common stock:
  Basic...................................................                .47
  Diluted.................................................                .44

EARNINGS PER SHARE

Average shares outstanding for basic earnings per share were 50,877,363 and
52,436,073 for the three-month period ended March 31, 2002 and 2001
respectively; 51,360,879 and 51,956,473 for the nine-month period ended
March 31, 2002 and 2001, respectively; and 51,625,601 and 51,710,551 for the
twelve-month period ended March 31, 2002 and


--------------------------------------------------------------------------------

                                       12

<PAGE>




                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



2001, respectively. Diluted earnings per share include average shares
outstanding as well as common stock equivalents from stock options and warrants.
Common stock equivalents were 1,528,087 and 1,980,555 for the three-month period
ended March 31, 2002 and 2001, respectively; 1,773,082 and 1,814,437 for the
nine-month period ended March 31, 2002 and 2001, respectively; and 1,787,384 and
1,677,622 for the twelve-month period ended March 31, 2002 and 2001,
respectively. At March 31, 2002, 1,170,405 shares of common stock were held by
various rabbi trusts for certain of the Company's benefit plans and 46,300
shares were held in a rabbi trust for certain employees who deferred receipt of
Company shares for stock options exercised.  From time to time, the Company's
benefit plans may purchase shares of Southern Union common stock subject to
regular restrictions.

During September and October of 2001, the Company repurchased 1,696,456 shares
of its common stock outstanding at prices ranging from $18.75 to $21.51 per
share. During April and May of 2002, the Company repurchased 419,460 shares of
its common stock outstanding at a price of $16.50 per share. Substantially all
of these repurchases occurred in private off-market large-block transactions.

BUSINESS RESTRUCTURING CHARGES

In August 2001, the Company implemented a corporate reorganization and
restructuring which was initially announced in July 2001 as part of a Cash Flow
Improvement Plan designed to increase annualized pre-tax cash flow from
operations by at least $50 million by the end of fiscal year 2002. Actions taken
included (i) the offering of voluntary Early Retirement Programs ("ERPs") in
certain of its operating divisions and (ii) a limited reduction in force ("RIF")
within its corporate offices. ERPs, providing for increased benefits for those
electing retirement, were offered to approximately 400 eligible employees across
the Company's operating divisions, with approximately 60% of such eligible
employees accepting. The RIF was limited solely to certain corporate employees
in the Company's Austin and Kansas City offices with forty-eight employees being
offered severance packages.

In connection with the corporate reorganization and restructuring efforts, the
Company recorded a one-time charge of $32,706,000 during the quarter ended
September 30, 2001. The charge included: $17.7 million of voluntary and accepted
ERP's, primarily through enhanced benefit plan obligations, and other employee
benefit plan obligations; $8.8 million of RIF within the corporate offices and
related employee separation benefits; and $6.2 million connected with various
business realignment and restructuring initiatives. The Company expects that
most of the restructuring actions will be completed by the end of fiscal year
2002.

During the quarter ended March 31, 2002, the Company paid approximately $1.2
million and nil in employee separation and other restructuring costs,
respectively. Since implementation of the plan, the Company has paid
approximately $4.3 million and $3 million in employee separation and other
restructuring costs, respectively. The balance sheet carries a remaining reserve
of approximately $7.8 million in estimated reorganization and restructuring
expenditures as of March 31, 2002.

GOODWILL

Effective July 1, 2001, the Company adopted Goodwill and Other Intangible Assets
which was issued by the FASB in June 2001. In accordance with this Statement,
the Company has ceased amortization of goodwill. 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.



--------------------------------------------------------------------------------

                                       13

<PAGE>




                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The following table reflects the Company's comparative net income before the
change in accounting principle and goodwill amortization under Goodwill and
Other Intangible Assets:

                                       Three Months Ended     Nine Months Ended
                                            March 31,              March 31,
                                       ------------------     ------------------
                                         2002      2001         2002      2001
                                       --------  --------     --------  --------

Reported net income before change
  in accounting principle...........   $ 43,788  $ 40,806     $ 33,135  $ 45,548
Goodwill amortization, net of taxes.         --     4,839           --    12,163
                                       --------  --------     --------  --------
Adjusted net income before change
  in accounting principle...........   $ 43,788  $ 45,645     $ 33,135  $ 57,711
                                       ========  ========     ========  ========

Basic earnings per share:
  Reported income before change in
    accounting principle............   $    .86  $    .78     $    .65  $    .88
  Goodwill amortization, net of
    taxes...........................         --       .09           --       .23
                                       --------  --------     --------  --------
  Adjusted net income before change
    in accounting principle.........   $    .86  $    .87     $    .65  $   1.11
                                       ========  ========     ========  ========

Diluted earnings per share:
  Reported income before change in
    accounting principle............   $    .82  $    .74     $    .61  $    .83
  Goodwill amortization, net of
    taxes...........................         --       .08           --       .22
                                       --------  --------     --------  --------
  Adjusted net income before change
    in accounting principle.........   $    .82  $    .82     $    .61  $   1.05
                                       ========  ========     ========  ========

The following displays changes in the carrying amount of goodwill for the
nine-month period ended March 31, 2002:

                                                                        Total
                                                                      ---------
Balance as of July 1, 2001.........................................   $ 724,620
Impairment losses..................................................      (3,358)
Sale of subsidiaries and other operations..........................      (7,873)
                                                                      ---------
Balance as of March 31, 2002.......................................   $ 713,389
                                                                      =========

In connection with the Company's Cash Flow Improvement Plan announced in July
2001, the Company began the divestiture of certain non-core assets. As a result
of prices of comparable businesses for various non-core properties, a goodwill
impairment loss of $3,358,000 was recognized in depreciation and amortization on
the consolidated statement of operations for the quarter ended September 30,
2001. As a result of the sale of the Carrizo Springs Pipeline and the Florida
Operations, goodwill of $7,873,000 was eliminated during the quarter ended
December 31, 2001. See Acquisitions and Divestitures in the Notes to the
Consolidated Financial Statements included herein.

INVESTMENT SECURITIES

At March 31, 2002, the Company held securities of Capstone Turbine Corporation
(Capstone). This investment is classified as "available for sale" under the
Financial Accounting Standards Board Standard Accounting for Certain Investments
in Debt and Equity Securities. As of March 31, 2002, the Company's investment in
Capstone had a fair value of $4,339,000 and unrealized gains, net of tax,
related to this investment were $2,532,000. The Company has classified this
investment as current, as it plans to monetize its investment in the near future
and use the proceeds to reduce outstanding debt.

--------------------------------------------------------------------------------

                                       14

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



All other securities owned by the Company are accounted for under the cost
method. The Company's other investments in securities consist primarily of
preferred stock in non-public companies whose value is not readily determinable.

The Company reviews its portfolio of investment securities on a quarterly basis
to determine whether a decline in value is other than temporary. Factors that
are considered in assessing whether a decline in value is other than temporary
include, but are not limited to: earnings trends and asset quality; near term
prospects and financial condition of the issuer; financial condition and
prospects of the issuer's region and industry; and Southern Union's intent and
ability to retain the investment. If Southern Union determines that the decline
in value of an investment security is other than temporary, the Company will
record a charge on its consolidated statement of operations to reduce the
carrying value of the security to its estimated fair value.

OTHER INCOME

During the quarter ended September 30, 2001, the Company negotiated three
interest rate swaps that were not designated as hedges and did not meet the
criteria for hedge accounting. The first swap, effective July 5, 2001, carried a
notional amount of $100,000,000 and termination of June 30, 2005. The remaining
swaps, effective July 23, 2001 and August 1, 2001, carried notional amounts of
$300,000,000 and $200,000,000, respectively, with terminations of November 15,
2004 and February 1, 2005, respectively. On September 19, 2001, these interest
rate swaps were settled, resulting in a pre-tax gain and cash flow of
$17,166,000.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Derivative Instruments and Hedging Activities The Company utilizes derivative
instruments on a limited basis to manage certain business risks. Interest rate
swaps are employed to hedge the effect of changes in interest rates related to
certain debt instruments and commodity swaps and options to manage price risk
associated with certain energy contracts.

In accordance with adoption of the FASB Standard, Accounting for Derivative
Instruments and Hedging Activities on July 1, 2000, the Company recorded a
net-of-tax cumulative-effect gain of $602,000 in earnings to recognize the fair
value of the gas derivative contracts at PG Energy Services Inc., a wholly-owned
subsidiary, that were not designated as hedges. The Company also recorded
$826,000 in accumulated other comprehensive income which recognizes the fair
value of two interest rate swap derivatives that were designated as cash flow
hedges.

Cash Flow Hedges The Company manages exposure against volatility in interest
payments on variable rate debt through interest rate swaps. As of March 31,
2002, $954,000 in after-tax comprehensive income generated through the
expiration of two interest rate swaps was partially offset by the fair value of
the Company's remaining obligation under one interest rate swap which resulted
in $119,000 of unrealized losses, net of tax. During the nine-month period ended
March 31, 2002, the Company recorded net settlement payments of $1,227,000 on
these derivatives through interest expense. The Company expects to reclassify as
interest expense $332,000 in derivative losses, net of taxes, from accumulated
other comprehensive income as the settlement of swap payments occur over the
next twelve months. The maximum term over which the Company is hedging exposures
to the variability of cash flows is 20 months.

Trading Contracts In March 2001, the Company discovered unauthorized financial
derivative energy trading activity by a non-regulated, wholly-owned subsidiary.
All unauthorized trading activity was subsequently closed in March and April of
2001 resulting in a cumulative cash expense of $191,000, net of taxes. During
the nine-month period ended March 31, 2002, the Company recorded expiration of
contracts resulting from this trading activity through other income, generating
pre-tax earnings of $6,109,000. The majority of the remaining deferred liability
of $1,467,000 at March 31, 2002 related to these derivative instruments will be
recognized as income in the consolidated statement of operations over the next
four years based on the related contracts.

--------------------------------------------------------------------------------

                                       15

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Beginning in May 2001, the Company acquired natural gas commodity swap
derivatives and collar transactions in order to mitigate price volatility of
natural gas passed through to utility customers. The cost of the derivative
products and the settlement of the respective obligations are recorded through
the gas purchase adjustment clause as authorized by the applicable regulatory
authority and therefore do not impact earnings. As of March 31, 2002, the fair
value of the contracts, which expire at various times through May 2002, are
included in the consolidated financial statements as a liability and a matching
adjustment to deferred cost of gas of $16,000.

PREFERRED SECURITIES OF SUBSIDIARY TRUST

On May 17, 1995, Southern Union Financing I (Subsidiary Trust), a consolidated
wholly-owned subsidiary of Southern Union, issued $100,000,000 of 9.48% Trust
Originated Preferred Securities (Preferred Securities). In connection with the
Subsidiary Trust's issuance of the Preferred Securities and the related purchase
by Southern Union of all of the Subsidiary Trust's common securities (Common
Securities), Southern Union issued to the Subsidiary Trust $103,092,800
principal amount of its 9.48% Subordinated Deferrable Interest Notes, due 2025
(Subordinated Notes). The sole assets of the Subsidiary Trust are the
Subordinated Notes. The interest and other payment dates on the Subordinated
Notes correspond to the distribution and other payment dates on the Preferred
Securities and the Common Securities. Under certain circumstances, the
Subordinated Notes may be distributed to holders of the Preferred Securities and
holders of the Common Securities in liquidation of the Subsidiary Trust. The
Subordinated Notes are redeemable at the option of the Company on or after
May 17, 2000, at a redemption price of $25 per Subordinated Note plus accrued
and unpaid interest. The Preferred Securities and the Common Securities will be
redeemed on a pro rata basis to the same extent as the Subordinated Notes are
repaid, at $25 per Preferred Security and Common Security plus accumulated and
unpaid distributions. Southern Union's obligations under the Subordinated Notes
and related agreements, taken together, constitute a full and unconditional
guarantee by Southern Union of payments due on the Preferred Securities. As of
March 31, 2002 and 2001, 4,000,000 shares of Preferred Securities were
outstanding.

DEBT AND CAPITAL LEASE

                                                        March 31,      June 30,
                                                           2002          2001
                                                        ----------    ----------

7.60% Senior Notes due 2024.......................      $  362,515    $  364,515
8.25% Senior Notes due 2029.......................         300,000       300,000
Term Note, due 2002...............................         410,000       485,000
5.62% to 10.25% First Mortgage Bonds, due 2002
  to 2029.........................................         147,916       150,815
7.70% Debentures, due 2027........................           6,801         6,806
Capital lease and other...........................          24,337        28,408
                                                        ----------    ----------
Total debt and capital lease......................       1,251,569     1,335,544
    Less current portion..........................         451,852         5,913
                                                        ----------    ----------
Total long-term debt and capital lease............      $  799,717    $1,329,631
                                                        ==========    ==========

Assumed Debt In connection with the acquisition of the Pennsylvania Operations,
the Company assumed $45,000,000 of First Mortgage Bonds bearing interest between
8.375% and 9.34%. In connection with the acquisition of ProvEnergy, the Company
assumed $86,916,000 of First Mortgage Bonds bearing interest between 5.62% and
10.25%. In connection with the acquisition of Fall River Gas, the Company
assumed $19,500,000 of First Mortgage Bonds bearing interest between 7.24% and
9.44%. In connection with the acquisition of Valley Resources, the Company
assumed $6,905,000 of 7.70% Debentures.


--------------------------------------------------------------------------------

                                       16

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Capital Lease The Company completed the installation of an Automated Meter
Reading (AMR) system at Missouri Gas Energy during the first quarter of fiscal
year 1999. The installation of the AMR system involved an investment of
approximately $30,000,000 which is accounted for as a capital lease obligation.
As of March 31, 2002, the capital lease obligation outstanding was $21,694,000
with a fixed rate of 5.79%.

Credit Facilities On May 29, 2001, the Company restated and amended its
short-term and long-term credit facilities (together referred to as "Revolving
Credit Facilities"). The Company has available $150,000,000 under the short-term
facility, which expires May 28, 2002, and $225,000,000 under the long-term
facility, which expires on May 29, 2004. The Company has additional availability
under uncommitted line of credit facilities with various banks. Borrowings under
the Revolving Credit Facilities are available for Southern Union's working
capital, letter of credit requirements and other general corporate purposes. A
balance of $132,300,000 was outstanding under the facilities at March 31, 2002.

Term Note On August 28, 2000 the Company entered into the Term Note to fund (i)
the cash portion of the consideration to be paid to the Fall River Gas
stockholders; (ii) the all cash consideration to be paid to the ProvEnergy and
Valley Resources stockholders; (iii) repayment of approximately $50,000,000 of
long- and short-term debt assumed in the mergers; and (iv) related acquisition
costs. The Term Note, which initially expired on August 27, 2001, has been
extended through August 26, 2002 for a fee. No additional draws can be made on
the Term Note. Prior to maturity, the Company will refinance some portion or all
of the Term Note. Sources of future or alternative financing that the Company
may consider include commercial and investment banks, institutional lenders,
institutional investors and public securities markets. The availability and
terms of any such financing sources will depend upon various factors and
conditions such as the Company's combined cash flow and earnings, the Company's
resulting capital structure, and conditions in financial markets at the time of
such offerings.

UTILITY REGULATION AND RATES

Missouri On July 5, 2001, the Missouri Public Service Commission (MPSC) issued
an order approving a unanimous settlement of Missouri Gas Energy's rate request.
The settlement provides for an annual $9,892,000 base rate increase, as well as
$1,081,000 in added revenue from new and revised service charges. The majority
of the rate increase will be recovered through increased monthly fixed charges
to gas sales service customers. New rates became effective August 6, 2001, two
months before the statutory deadline for resolving the case. The approved
settlement resulted in the dismissal of all pending judicial reviews of prior
rate cases. The settlement provides for the development of a two-year
experimental low-income program that will help certain customers in the Joplin
area pay their natural gas bills.

New England Gas Company On November 1, 2001, the New England Gas Company of
Southern Union Company submitted a comprehensive filing with the Rhode Island
Public Utilities Commission (RIPUC) to implement a "One State; One Rate"
simplified and uniform rate structure. Such filing reflects the consolidated
operations of the various gas distribution operations in Rhode Island and
fulfills the terms of a settlement agreement associated with the merger of the
Companies in Docket Nos. D-00-2 and D-00-3. The proposed rates would increase
annual operating revenues by $7,200,000 or 3%, with individual customer impacts
varying as a result of the rate schedule consolidation and restructuring.

After extensive discovery and negotiation, the New England Gas Company and the
Rhode Island Division of Public Utilities and Carriers reached a Settlement
Agreement which was filed with the RIPUC on April 29, 2002. The Settlement
Agreement will result in a $3,900,000 decrease in base revenues for Rhode Island
operations, a unified rate structure and an integration/merger savings
mechanism. The Settlement Agreement also allows the Company to retain $2,049,000
of merger savings and to share incremental earnings with customers when the
Company's return on equity exceeds 11.25%. The Settlement Agreement is subject
to approval by the RIPUC. The RIPUC held hearings on the Settlement Agreement in
May 2002 and a decision is due by June 10, 2002. The Company can not predict the
outcome of the RIPUC's review.

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                                       17

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Pennsylvania On April 3, 2000, PG Energy filed an application with the
Pennsylvania Public Utility Commission (PPUC) seeking an increase in its base
rates. On December 7, 2000, the PPUC approved a settlement agreement that
provided for a rate increase designed to produce $10,800,000 of additional
annual revenue. The new rates became effective on January 1, 2001.

North Texas Southern Union Gas received annual rate increases in Jacksboro,
Weatherford and Mineral Wells, Texas in May 2000, September 2000 and May 2001,
respectively, totaling $600,000. In addition, the Company received approval of
an improved rate design that collects a greater portion of the Company's revenue
stream from the monthly customers' charge and implementation of a Weather
Normalization Adjustment Clause.

COMMITMENTS AND CONTINGENCIES

Environmental The Company is subject to federal, state and local laws and
regulations relating to the protection of the environment. These evolving laws
and regulations may require expenditures over a long period of time to control
environmental impacts. The Company has established procedures for the on-going
evaluation of its operations to identify potential environmental exposures and
assure compliance with regulatory policies and procedures.

The Company is investigating the possibility that the Company or predecessor
companies may have been associated with Manufactured Gas Plant (MGP) sites in
its former service territories, principally in Arizona and New Mexico, and
present service territories in Texas, Missouri, Pennsylvania, Massachusetts and
Rhode Island. At the present time, the Company is aware of certain MGP sites in
these areas and is investigating those and certain other locations.

While the Company's evaluation of these Texas, Missouri, Arizona, New Mexico,
Pennsylvania, Massachusetts and Rhode Island MGP sites is in its preliminary
stages, it is likely that some compliance costs may be identified and become
subject to reasonable quantification. Within the Company's service territories,
certain MGP sites are currently the subject of governmental actions. These sites
are as follows:

Kansas City, Missouri MGP Sites In a letter dated May 10, 1999, the Missouri
Department of Natural Resources (MDNR) sent notice of a planned Site
Inspection/Removal Site Evaluation of the Kansas City Coal Gas Former
Manufactured Gas Plant site. This site (comprised of two adjacent MGP operations
previously owned by two separate companies and hereafter referred to as Station
A and Station B) is located at East 1st Street and Campbell in Kansas City,
Missouri and is owned by Missouri Gas Energy (MGE). A 1988 investigation of the
site performed by an Environmental Protection Agency (EPA) contractor determined
that further remedial assessment was not required under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as
amended by the SUPERFUND Amendments and Reauthorization Act of 1986. The MDNR
has stated that the reassessment of the Kansas City Coal Gas site is part of a
statewide effort to identify, evaluate, and prioritize the potential hazards
posed by all of Missouri's MGP sites. During July 1999, the Company sent
applications to MDNR submitting the two sites to the agency's Voluntary Cleanup
Program (VCP). The sites were accepted into the VCP on August 2, 1999 and MGE
subsequently performed environmental assessments at the sites and submitted
assessment results to MDNR on March 6, 2000. In a letter dated June 21, 2000,
MDNR responded to the Station A environmental report submitted by the Company.
In that letter, MDNR stated that soil remediation will be necessary at the site
(Station A) but that further exploration and delineation of site contamination
should be performed before remedial methods can be determined. MGE performed
additional assessment work in accordance with MDNR's request. In a letter dated
May 7, 2001, MDNR responded to the Station B environmental report. That letter
suggested that some soils would need to be remediated, but that certain areas on
Station B require further investigation to determine whether significant
contamination exists. In a letter dated April 5, 2002, RIDEM stated that MGE had
moved at a "reasonable pace with respect to investigation of the Station A and
Station B" sites. This letter also encouraged the Company to proceed with the
development of a remediation plan for Station A.



--------------------------------------------------------------------------------

                                       18

<PAGE>


                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



North of the Kansas City, Missouri Station A and B MGP sites, the City of Kansas
City Port Authority ("Port Authority") is developing a parcel of land adjacent
to the Missouri River and known as the "Riverfront Development." In the course
of developing this property, the Port Authority entered the Riverfront
Development into the Missouri Voluntary Cleanup Program. In a letter dated April
23, 2001, MDNR invited representatives of MGE, the Port Authority and Honeywell
International Inc. (the alleged successor to Barrett Manufacturing Company, a
tar manufacturer formerly located on a portion of the Riverfront Development) to
a technical meeting to discuss the investigation, cleanup, closure and
redevelopment of the Riverfront Development and MGE's properties. That meeting
was held on May 16, 2001. On July 18, 2001, representatives of MGE and the Port
Authority met to discuss MGE's proposal for a limited assessment and remediation
of a portion of the Port Authority property allegedly impacted by the historic
MGP. That proposal was set forth in a letter from MGE to the Port Authority
dated July 31, 2001. In a letter dated July 27, 2001, Honeywell International
Inc. proposed to the Port Authority that Honeywell perform a similar assessment
on the portion of the Riverfront Development formerly occupied by Barrett
Manufacturing Company. In a letter addressed to MGE and dated August 3, 2001,
the Port Authority set forth its demand that MGE assume responsibility for the
remediation of soil and groundwater at the Riverfront Development, and in a
letter dated August 15, 2001, the Port Authority granted a conditional
acceptance of MGE's proposal for MGE's limited assessment of the Riverfront
Development. In September and October 2001, Honeywell and MGE each performed
assessments of its proposed portion of the Port Authority property. Results of
these assessments were provided to the Port Authority in November of 2001 and to
the MDNR in April 2002.

Providence, Rhode Island Sites During 1995, Providence Gas began an
environmental evaluation of its primary gas distribution facility located at 642
Allens Avenue in Providence, Rhode Island. Environmental studies were completed
and a subsequent remediation work plan was developed at an approximate cost of
$4.5 million. Providence Gas began a soil remediation project on a 4.2 acre
portion of the site ("Phase 1") in July 1999 under the terms of a remedial
action work plan established in 1999 ("1999 RAWP"). Work under the 1999 RAWP was
suspended in March 2001 pending the negotiation of modifications to the 1999
RAWP with the Rhode Island Department of Environmental Management ("RIDEM"). As
of March 31, 2002, approximately $8,900,000 had been expended on soil
remediation at the site. Based on the results of the environmental studies and
the site information learned during the performance of work under the
remediation work plan, the Company submitted a revised remedial action work plan
("Revised RAWP") for the site to RIDEM on July 24, 2001. RIDEM did not accept
the Revised RAWP, and in a letter dated December 13, 2001, the agency directed
the Company to complete Phase 1 under the terms of the 1999 RAWP within a
nine-month period during 2002. RIDEM subsequently authorized certain specific
modifications to the 1999 RAWP ("RAWP Modifications") that had been submitted by
the Company on January 15, 2002. On April 17, 2002, RIDEM issued a Temporary
Remedial Action Permit for the Phase 1 remediation at the site. At the
completion of a competitive bidding process, a contractor was selected by the
Company, and work on Phase 1 of the site remediation was initiated on April 17,
2002. The Company has reserved $5.8 million for completion of this phase.

In November 1998, Providence Gas received a letter of responsibility from the
RIDEM relating to possible contamination on previously owned property at 170
Allens Avenue in Providence. The current operator of the property has also
received a letter of responsibility. A work plan had been created and approved
by RIDEM. An investigation was then begun to determine the extent of
contamination, as well as the extent of the Company's responsibility. Providence
Gas entered into a cost-sharing agreement with the current operator of the
property, under which Providence Gas was responsible for approximately twenty
percent (20%) of the costs related to the investigation. Costs of testing at
this site as of March 31, 2002, were approximately $300,000. Until the results
of the investigation are known, the Company cannot offer any conclusions as to
its responsibility.

Tiverton, Rhode Island Site Fall River Gas Company was a defendant in a civil
action seeking to recover anticipated remediation costs associated with
contamination found at property owned by the plaintiffs. This claim was based on
alleged dumping of material by Fall River Gas Company trucks at the site in the
1930s and 1940s. In an agreement effective December 3, 2001, the Company agreed
to perform all assessment, remediation and monitoring activities at the site
sufficient to obtain a final letter of compliance from the Rhode Island
Department of Environmental Management.


--------------------------------------------------------------------------------

                                       19

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Valley Gas Company Sites Valley Gas Company is a party to an action in which
Blackstone Valley Electric Company ("Blackstone") brought suit for contribution
to its expenses of cleanup of a site on Mendon Road in Attleboro, Massachusetts,
to which coal manufacturing waste was transported from a former MGP site in
Pawtucket, Rhode Island (the "Blackstone Litigation"). Blackstone Valley
                                                       -----------------
Electric Company v. Stone & Webster, Inc., Stone & Webster Engineering
----------------------------------------------------------------------
Corporation, Stone & Webster Management Consultants, Inc. and Valley Gas
------------------------------------------------------------------------
Company, C. A. No. 94-10178JLT, United States District Court, District of
-------
Massachusetts. Valley Gas Company takes the position in that litigation that it
is indemnified for any cleanup expenses by Blackstone pursuant to a 1961
agreement signed at the time of Valley Gas Company's creation. This suit was
stayed in 1995 pending the issuance of rulemaking at the United States EPA
(Commonwealth of Massachusetts v. Blackstone Valley Electric Company, 67 F.3d
--------------------------------------------------------------------
981 (1995)). In January 2001, the EPA issued a Preliminary Administrative
Decision on this issue and announced that it was soliciting comments on the
Decision. While the public comment period has now closed, the EPA has yet to
reissue its decision. While this suit has been stayed, Valley Gas Company and
Blackstone (merged with Narragansett Electric Company in May 2000) have received
letters of responsibility from the RIDEM with respect to releases from two MGP
sites in Rhode Island. RIDEM issued letters of responsibility to Valley Gas
Company and Blackstone in September 1995 for the Tidewater MGP in Pawtucket,
Rhode Island, and in February 1997 for the Hamlet Avenue MGP in Woonsocket,
Rhode Island. Valley Gas Company entered into an agreement with Blackstone (now
Narragansett) in which Valley Gas Company and Blackstone agreed to share equally
the expenses for the costs associated with the Tidewater site subject to
reallocation upon final determination of the legal issues that exist between the
companies with respect to responsibility for expenses for the Tidewater site and
otherwise. No such agreement has been reached with respect to the Hamlet site.

Other Environmental  To the extent that potential costs associated with former
MPGs are quantified, the Company shall provide any appropriate accruals and seek
recovery for such remediation costs through all appropriate means, including
recovery of claims against other potentially responsible parties, insurance and
regulatory relief.  During fiscal year 2002, the Company entered into agrements
with several of its historical insurance carriers in settlement of certain
environmental claims.  Of these settlement proceeds, $2,591,000 was recorded to
income as it represented reimbursement for amounts previously expensed by the
Company.  The $6.1 million balance of the settlement proceeds is deferred
pending future environmental assessments and remediation efforts as well as any
future rate filings.

At the time of the closing of the acquisition of the Company's Missouri service
territories, the Company entered into an Environmental Liability Agreement that
provides that Western Resources retains financial responsibility for certain
liabilities under environmental laws that may exist or arise with respect to
MGE. In addition, at the time it was acquired, Providence Gas had in place a
regulatory plan that created a mechanism for the recovery of
environmental-related costs. This plan provided that recovery of environmental
investigation and remediation costs incurred through September 30, 1997, as well
as costs incurred during the three-year term of the plan, are to be amortized
over a 10-year period, at a level authorized under the plan. A plan, effective
October 1, 2000 through June 30, 2002, establishes an environmental fund for the
recovery of evaluation, remedial and clean-up costs arising out of the Company's
MGPs and sites associated with the operation and disposal activities from MGPs.

Although significant charges to earnings could be required prior to rate
recovery, management does not believe that environmental expenditures for MGP
sites will have a material adverse effect on the Company's financial position,
results of operations or cash flows. The Company follows the provisions of an
American Institute of Certified Public Accountants Statement of Position,
Environmental Remediation Liabilities, for recognition, measurement, display and
disclosure of environmental remediation liabilities.


--------------------------------------------------------------------------------

                                       20

<PAGE>




                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Southwest Gas Litigation On February 1, 1999, Southern Union submitted a
proposal to the Board of Directors of Southwest Gas Corporation (Southwest) to
acquire all of Southwest's outstanding common stock for $32.00 per share.
Southwest at that time had a pending merger agreement with ONEOK, Inc. (ONEOK)
at $28.50 per share, executed on December 14, 1998. On February 22, 1999,
Southern Union and Southwest both publicly announced Southern Union's proposal,
after the Southwest Board of Directors determined that Southern Union's proposal
was a Superior Proposal (as defined in the Southwest merger agreement with
ONEOK). At that time, Southern Union entered into a Confidentiality and
Standstill Agreement with Southwest at Southwest's insistence. On April 25,
1999, Southwest's Board of Directors rejected Southern Union's $32.00 per share
offer and accepted an amended offer of $30.00 per share from ONEOK. On April 27,
1999, Southern Union increased its offer to $33.50 per share and agreed to pay
interest which, together with dividends, would provide Southwest shareholders
with a 6% annual rate of return on its $33.50 offer, commencing February 15,
2000, until closing. Southern Union's revised proposal was rejected by
Southwest's Board of Directors. On January 21, 2000, ONEOK announced that it was
withdrawing from the Southwest merger agreement.

There are several lawsuits pending that relate to activities surrounding
Southern Union's efforts to acquire Southwest. Southern Union intends to
vigorously pursue its claims against Southwest, ONEOK, and certain individual
defendants. As a result of summary judgments granted, there are no claims
remaining against Southern Union and Southern Union's damage claims have been
limited to its out-of-pocket losses and punitive damages. With the exception of
ongoing legal fees associated with the aforementioned litigation, the Company
believes that the results of the above-noted Southwest Gas litigation will not
have a materially adverse effect on the Company's financial condition, results
of operations or cash flows.

Regulatory In August 1998, the City of Edinburg obtained a jury verdict totaling
approximately $13,000,000 jointly and severally against PG&E Gas Transmission
-Texas Corporation (formerly Valero Energy Corporation (Valero)), and a number
of its subsidiaries, as well as former Valero subsidiary Rio Grande Valley Gas
Company (RGV) and RGV's successor company, Southern Union Company for the
alleged underpayment of franchise fees. (Southern Union purchased RGV from
Valero in 1993.) The trial court reduced the jury award. Subsequently, the Texas
(13th District) Court of Appeals further reduced the award to $4,085,000. The
Court of Appeals also remanded a portion of the case to the trial court with
instructions to retry certain issues. The Company continues to pursue reversal
on appeal. The Company believes that the outcome of the matter will not have a
material adverse impact on the Company's results of operations, financial
position or cash flows.

Other Legal Southern Union and its subsidiaries are parties to other legal
proceedings that management considers to be normal actions to which an
enterprise of its size and nature might be subject, and not to be material to
the Company's overall business or financial condition, results of operations or
cash flows.



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                                       21

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Overview The Company's core business is the distribution of natural gas as a
public utility through: Southern Union Gas, Missouri Gas Energy, PG Energy, and
the New England Gas Company (effective with the September 2000 acquisitions of
Providence Energy Corporation, Valley Resources, Inc. and Fall River Gas
Company). In addition, subsidiaries of Southern Union exist to support and
expand natural gas sales and to capitalize on the Company's gas energy
expertise. These subsidiaries operate natural gas pipeline systems, generate
electricity, market natural gas to end-users and distribute propane. Certain
subsidiaries also own or hold interests in real estate and other assets, which
are primarily used in the Company's utility business.

Several of these business activities are subject to regulation by federal, state
or local authorities where the Company operates. Thus, the Company's financial
condition and results of operations have been and will continue to be dependent
upon the receipt of adequate and timely adjustments in rates. In addition, the
Company's business is affected by seasonal weather impacts, competitive factors
within the energy industry and economic development and residential growth in
its service areas.

Acquisitions and Divestitures In December 2001, a subsidiary of the Company sold
its 43-mile Carrizo Springs Pipeline for $1,000,000, resulting in a pre-tax gain
of $561,000. Also in December 2001, the Company sold South Florida Natural Gas,
a natural gas division of Southern Union, and Atlantic Gas Corporation, a
Florida propane subsidiary of the Company, for $10,000,000, resulting in a
pre-tax loss of $1,500,000.

On September 28, 2000, Southern Union completed the acquisitions of Providence
Energy Corporation (ProvEnergy) and Fall River Gas Company (Fall River Gas), and
on September 20, 2000, Southern Union completed the acquisition of Valley
Resources, Inc. (Valley Resources). Collectively, these operations (hereafter
referred to as the Company's New England Operations) were acquired for
approximately $422,000,000 in cash and 1,370,629 shares (before adjustment for
any subsequent stock dividend) of Southern Union common stock, as well as the
assumption of approximately $140,000,000 in long-term debt. The New England
Operations' primary business is the distribution of natural gas through the New
England Gas Company, which serves approximately 295,000 customers throughout
Rhode Island and southeastern Massachusetts.

Subsidiaries of the Company acquired in the ProvEnergy merger include ProvEnergy
Oil Enterprises, Inc. (ProvEnergy Oil) and ProvEnergy Power Company, LLC.
ProvEnergy Oil, sold for $15,776,000 in August 2001, operated a fuel oil
distribution business for residential and commercial customers in Rhode Island
and Massachusetts. ProvEnergy Power Company owns 50% of Capital Center Energy
Company, LLC, a joint venture formed between ProvEnergy and ERI Services, Inc.
to provide retail power. Acquired in the Fall River Gas merger was Fall River
Gas Appliance Company, Inc., which rents water heaters and conversion burners
(primarily for residential use) in Fall River Gas' service area. Valley
Resources' non-utility subsidiaries acquired in the merger were Valley Propane,
Inc. (Valley Propane), Morris Merchants, Inc. (Morris Merchants), Valley
Appliance Merchandising Company (VAMCO) and Alternate Energy Corporation (AEC).
Valley Propane, sold for $5,301,000 in September 2001, provided liquid propane
to customers in Rhode Island and nearby Massachusetts. Morris Merchants, sold
for $1,586,000 in October 2001, served as a manufacturers' representative agency
for franchised plumbing and heating contract supplies throughout New England.
VAMCO merchandises and rents natural gas burning appliances, offers appliance
service contract programs, sells water filtration systems and provides
construction management services for natural gas-related projects. AEC sells,
installs and designs natural gas conversion systems and facilities. No gain or
loss was recognized on any of these New England Operations' sales transactions.

Subsidiaries of the Company acquired in the November 4, 1999 acquisition of
Pennsylvania Enterprises, Inc. included PG Energy Services Inc. (Energy
Services), PEI Power Corporation, Keystone Pipeline Services, Inc. (Keystone, a
wholly-owned subsidiary of Energy Services), and Theta Land Corporation. Through
Energy Services, the Company offers the inspection, maintenance and servicing of
residential and small commercial gas-fired equipment. In July 2001, the
commercial and industrial natural gas marketing contracts of Energy Services
were sold for approximately $4,972,000, resulting in a pre-tax gain of
$4,653,000. In April 2002, the propane operations of Energy Services were sold
for approximately $2,300,000, resulting in a pre-tax gain of approximately
$1,200,000. Keystone, sold for

--------------------------------------------------------------------------------

                                       22

<PAGE>




                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



$3,300,000 in June 2001 for a pre-tax gain of $707,000, was engaged in the
construction, maintenance, and rehabilitation of natural gas distribution
pipelines. Theta Land Corporation, which owned and provided land management and
development services for more than 44,000 acres of land, was sold for
$12,150,000 in January 2000. No gain or loss was recognized on this transaction.

The operating activities of the acquired operations are consolidated with the
Company beginning on their respective acquisition dates. As a result of
acquisitions, the divestiture of non-core business assets and the seasonal
nature of gas utility operations, the results of operations for the three-,
nine- and twelve-month periods ended March 31, 2002 are not indicative of
results that would necessarily be achieved for a full year. The majority of the
Company's operating margin is earned during the winter heating season.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2002 and 2001

The Company recorded net earnings available for common stock of $43,788,000 for
the three-month period ended March 31, 2002 compared with net earnings of
$40,806,000 for the same period in 2001. Earnings per diluted share were $.82 in
2002, compared to $.74 in 2001. Weighted average diluted shares outstanding
decreased 3% in 2002 due to the repurchase of 1,696,456 shares of the Company's
common stock in September and October 2001.

Operating revenues were $528,298,000 for the three-month period ended March 31,
2002, compared with $914,653,000 in 2001. Gas purchase and other energy costs
for the three-month period ended March 31, 2002 were $331,853,000, compared with
$685,404,000 in 2001. The Company's operating revenues are affected by the level
of sales volumes and by the pass-through of increases or decreases in the
Company's gas purchase costs through its purchased gas adjustment clauses.
Additionally, revenues are affected by increases or decreases in gross receipts
taxes (revenue-related taxes) which are levied on sales revenue as collected
from customers and remitted to the various taxing authorities. The decrease in
both operating revenues and gas purchase costs between periods was primarily due
to a 12% decrease in gas sales volume to 68,052 MMcf in 2002 from 77,671 MMcf in
2001 and by a 41% decrease in the average cost of gas from $8.17 per Mcf in 2001
to $4.86 per Mcf in 2002. Changes in the average cost of gas resulted from
seasonal impacts on demands for natural gas and the ensuing competitive pricing
within the industry. The decrease in gas sales volumes is primarily due to the
warmer-than-normal weather in 2002 as compared to 2001 in all of the Company's
service territories.

Weather in Southern Union Gas service territories was 97% of a 30-year measure
for the three-month period ended March 31, 2002, compared with 102% in 2001.
About half of the customers served by Southern Union Gas are weather normalized.
Missouri Gas Energy's service territories experienced weather that was 90% of a
30-year measure in 2002, compared with 100% in 2001. Weather for the PG Energy
service territories was 84% of a 30-year measure for the three-month period
ended March 31, 2002, compared with 98% in 2001. The New England Gas Company
service territories experienced weather that was 85% of a 30-year measure in
2002, compared with 100% in 2001.

Operating margin (operating revenues less gas purchase and other energy costs
and revenue-related taxes) decreased $19,538,000 for the three-month period
ended March 31, 2002 compared with the same period in 2001. Operating margin
decreased principally as a result of the warmer-than-normal weather, previously
discussed. This decrease was partially offset by the timing of a $10,973,000
annual revenue increase granted to Missouri Gas Energy effective August 6, 2001.

Operating expenses, which include operating, maintenance and general expenses,
depreciation and amortization, and taxes other than on income and revenues, were
$79,953,000 for the three-month period ended March 31, 2002, a decrease of
$22,908,000, compared with $102,861,000 in 2001. Operating expenses were
impacted by a reduction in bad debt expense of $7,393,000 due to a decrease in
customer receivables as a result of lower gas prices as previously discussed,
and the elimination of goodwill amortization resulting from the Company's
adoption of Goodwill

--------------------------------------------------------------------------------

                                       23

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



and Other Intangible Assets effective July 1, 2001.  In accordance with this
Standard, the Company has ceased the amoritzation of goodwill, which generated
$4,969,000 of expense during the quarter ending March 31, 2001, and currently
accounts for goodwill on an impairment-only approach.  See Goodwill in the Notes
to the Consolidated Financial Statements included herein.  Additionally, in
connection with the Company's Cash Flow Improvement Plan announced in July 2001
and discussed below, the Company realized savings of approximately $4,000,000
during the three-month period ended March 31, 2002 primarily due to the
acceptance of voluntary Early Retirement Programs ("ERPs") in certain of its
operating divisions and a limited reduction in force ("RIF") within its
corporate offices.  In connection with the Cash Flow Improvement Plan, the
Company divested of certain non-core assets in fiscal year 2002 which
contributed $4,600,000 more in operating expenses in 2001 as compared with 2002.
Southern Union has begun to recover certain amounts from various insurance
carriers for past and future environmental expenditures.  To the extent that
such related past expenditures had been expensed by the Company, a portion of
these recoveries are recorded as a reduction to operating expenses.  During the
quarter ended March 31, 2002, the Company recognized a reduction in operating
expenses of $575,000 for past environmental expenditures.  See Commitments and
Contingencies in the Notes to the Consolidated Financial Statements included
herein.  Operating expenses for the three-month period ended March 31, 2001 were
impacted by the reversal of $2,216,000 in non-cash compensation expense
associated with shares of common stock held in a trust for one of  the Company's
benefit plans.  The Company amended this plan during the third quarter of fiscal
year 2001 which eliminated any future expense, or income volatility, associated
with the accounting treatment for such benefit plan.

Interest expense was $21,920,000 for the three-month period ended March 31,
2002, compared to $29,163,000 in 2001. Interest expense decreased due to a
$122,466,000 reduction in long-term debt principal since March 31, 2001 and a
$79,300,000 reduction in notes payable outstanding since March 31, 2001.
Additionally, the effective interest rate on the current debt structure has been
reduced to 6.4% at March 31, 2002 as compared to 7.8% in 2001. Principal was
primarily reduced on the bank note (the Term Note) entered into by the Company
on August 28, 2000 for the acquisition of the New England Operations. The
Company entered into the Term Note to (i) fund the cash consideration paid to
stockholders of Fall River Gas, ProvEnergy and Valley Resources, (ii) refinance
and repay long- and short-term debt assumed in the New England Operations, and
(iii) acquisition costs of the New England Operations. See Debt and Capital
Lease in the Notes to the Consolidated Financial Statements included herein.

Other income for the three-month period ended March 31, 2002 was $3,293,000
compared to $14,364,000 in 2001. Other income for the three-month period ended
March 31, 2002, includes the recognition of $3,776,000 in previously recorded
deferred income related to financial derivative energy trading activity of a
wholly-owned subsidiary. This was partially offset by $1,200,000 of legal costs
associated with ongoing litigation from the unsuccessful acquisition of
Southwest Gas Corporation (Southwest). Other income for the three-month period
ended March 31, 2001 primarily consisted of realized gains on the sale of a
portion of Southern Union's investment holdings in Capstone Turbine Corporation
of $12,494,000, the recognition of $3,360,000 in non-cash trading gains and
$1,680,000 of interest and dividend income. These items were partially offset by
$3,568,000 of costs associated with the aforementioned unsuccessful acquisition
and related litigation.

The consolidated federal and state effective income tax rate was 42% and 46% for
the three months ended March 31, 2002 and 2001, respectively. The decline in the
effective tax rate is due to the Company's adoption of Goodwill and Other
Intangible Assets, previously discussed, which eliminates the amortization of
goodwill, in which the majority was non-tax deductible.


--------------------------------------------------------------------------------

                                       24

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Nine Months Ended March 31, 2002 and 2001

The Company recorded net earnings available for common stock of $33,135,000 for
the nine-month period ended March 31, 2002 compared with net earnings of
$46,150,000 in 2001. Earnings per diluted share were $.61 in 2002 compared to
$.84 in 2001. The nine-month period ended March 31, 2002 net earnings were
impacted by a pre-tax charge for business restructuring of $32,706,000 ($.33 per
share).

Operating revenues were $1,078,708,000 for the nine-month period ended March 31,
2002, compared with $1,664,461,000 in 2001. Gas purchase and other energy costs
for the nine-month period ended March 31, 2002 were $651,791,000, compared with
$1,203,862,000 in 2001. The decrease in both operating revenues and gas purchase
costs between periods was primarily due to a 17% decrease in sales volume from
154,432 MMcf in 2001 to 127,830 MMcf in 2002 and by a 28% decrease in the
average cost of gas from $7.06 per Mcf in 2001 to $5.06 per Mcf in 2002. Changes
in the average cost of gas resulted from seasonal impacts on demands for natural
gas and the ensuing competitive pricing within the industry. The decrease in gas
sales volumes is primarily due to the warmer-than-normal weather in 2002 as
compared to 2001 in all of the Company's service territories.

Weather in Southern Union Gas service territories was 94% of a 30-year measure
for the nine-month period ended March 31, 2002, compared with 113% in 2001.
About half of the customers served by Southern Union Gas are weather normalized.
Missouri Gas Energy's service territories experienced weather that was 84% of a
30-year measure in 2002, compared with 110% in 2001. Weather for the PG Energy
service territories was 84% of a 30-year measure for the nine-month period ended
March 31, 2002, compared with 107% in 2001. The New England Gas Company service
territories experienced weather that was 86% of a 30-year measure in 2002,
compared with 104% for the nine-month period ended March 31, 2001.

Operating margin decreased $11,065,000 for the nine-month period ended March 31,
2002 compared with the same period in 2001, principally as a result of the
warmer-than-normal weather, previously discussed. This decrease was partially
offset by the timing of a $10,973,000 annual revenue increase granted to
Missouri Gas Energy effective August 6, 2001, a $10,800,000 annual revenue
increase granted to PG Energy effective on January 1, 2001, and the acquisition
of the New England Operations in September 2000.

Operating expenses, excluding business restructuring charges, were $242,638,000
for the nine-month period ended March 31, 2002, a decrease of $11,906,000
compared with $254,544,000 in 2001. Operating expenses decreased as a result of
the elimination of goodwill amortization resulting from the Company's adoption
of Goodwill and Other Intangible Assets, previously discussed, which generated
$12,552,000 of expense during the nine-month period ended March 31, 2001.
Operating expenses for the nine-month period ended March 31, 2002 were also
impacted by $7,866,000 in reduced bad debt expense due to a decrease in customer
receivables, realized savings of approximately $6,500,000 from the Cash Flow
Improvement Plan, reduced operating expenses of $6,400,000 from the sale of
non-core assets and $2,591,000 of environmental insurance recoveries, all
previously discussed. These items were partially offset by $21,249,000 of
increased operating expenses for the nine-month period ended March 31, 2002, due
to the timing of the acquisition of the New England Operations. Additionally, in
connection with the previously mentioned Cash Flow Improvement Plan, the Company
began the divestiture of certain non-core subsidiaries and assets. As a result
of prices of comparable businesses for various non-core properties, a goodwill
impairment loss of $3,358,000 was recognized in depreciation and amortization on
the consolidated statement of operations during the nine-month period ended
March 31, 2002. See Goodwill in the Notes to the Consolidated Financial
Statements included herein.


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                                       25

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Business reorganization and restructuring initiatives were commenced in August
2001 as part of a previously announced Cash Flow Improvement Plan designed to
increase annualized pre-tax cash flow from operations by at least $50 million by
the end of fiscal year 2002. Actions taken by the Company included (i) the
offering of voluntary Early Retirement Programs ("ERPs") in certain of its
operating divisions and (ii) a limited reduction in force ("RIF") within its
corporate offices. ERPs, providing for increased benefits for those electing
retirement, were offered to approximately 400 eligible employees across the
Company's operating divisions, with approximately 60% of such eligible employees
accepting. The RIF was limited solely to certain corporate employees in the
Company's Austin and Kansas City offices with forty-eight employees being
offered severance packages. As a result of actions associated with the business
reorganization and restructuring, the Company expects an annual cost savings in
a range of $30 million to $35 million. In connection with the corporate
reorganization and restructuring efforts, the Company recorded a one-time charge
of $32,706,000 during the quarter ended September 30, 2001. The charge included:
$17.7 million of voluntary and accepted ERP's, primarily through enhanced
benefit plan obligations, and other employee benefit plan obligations; $8.8
million of RIF within the corporate offices and related employee separation
benefits; and $6.2 million connected with various business realignment and
restructuring initiatives. The Company expects that most of the restructuring
actions will be completed by the end of fiscal year 2002. See Business
Restructuring Charges in the Notes to the Consolidated Financial Statements
included herein.

Interest expense was $70,992,000 for the nine-month period ended March 31, 2002,
compared to $75,772,000 in 2001. Interest expense decreased primarily due to
both the reduction in the principal and variable interest rate on the previously
mentioned Term Note entered into by the Company on August 28, 2000 for the
acquisition of the New England Operations. This was partially offset by the
assumption by the Company of $113,321,000 in long-term debt of the New England
Operations which was not refinanced or extinguished with the Term Note. See Debt
and Capital Lease in the Notes to the Consolidated Financial Statements included
herein.

Other income for the nine-month period ended March 31, 2002 was $26,482,000
compared to $23,761,000 in 2001. Other income for the nine-month period ended
March 31, 2002, includes gains of $17,166,000 generated through the settlement
of several interest rate swaps, the recognition of $6,109,000 in previously
recorded deferred income related to financial derivative energy trading activity
of a wholly-owned subsidiary, a gain of $4,653,000 realized through the sale of
marketing contracts held by PG Energy Services Inc., income of $1,787,000
generated from the sale and/or rental of gas-fired equipment and appliances by
various operating subsidiaries, power generation and sales income of $1,228,000
from PEI Power Corporation, $658,000 in interest and dividend income, and a
$561,000 gain on the sale of a 43-mile pipeline also by a subsidiary of the
Company. These items were partially offset by $6,106,000 of legal costs
associated with Southwest, and a $1,500,000 loss on the sale of the Florida
Operations in December 2001. Other income for the nine-month period ended
March 31, 2001 primarily consisted of realized gains on the sale of investment
securities of $21,363,000, a $13,532,000 gain on the sale of non-core real
estate, and $3,385,000 of interest and dividend income. This was partially
offset by $5,684,000 of non-cash trading losses and $8,466,000 of costs
associated with Southwest.

The effective federal and state income tax rate is 45% and 46% for the nine
months ended March 31, 2002 and 2001, respectively. The decline in the effective
tax rate is due to the Company's adoption of Goodwill and Other Intangible
Assets, previously discussed, which was partially offset by the sale of various
non-core assets that contained non-tax deductible goodwill.

The Company adopted the Statement of Financial Accounting Standards Board (FASB)
Accounting for Derivative Instruments and Hedging Activities on July 1, 2000. In
accordance with the transition provisions of the Statement, the Company recorded
a net-of-tax cumulative-effect-type gain of $602,000 in earnings for the
nine-month period ended March 31, 2001, to recognize the fair value of the
derivative instruments that do not qualify for hedge accounting treatment under
the Statement.

--------------------------------------------------------------------------------

                                       26

<PAGE>




                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Twelve Months Ended March 31, 2002 and 2001

The Company recorded net earnings available for common stock of $44,270,000 for
the twelve-month period ended March 31, 2002 compared with net earnings of
$35,448,000 in 2001. Earnings per diluted share were $.81 in 2002 compared with
earnings per diluted share of $.65 in 2001.

Operating revenues were $1,347,060,000 for the twelve-month period ended
March 31, 2002, compared with operating revenues of $1,826,995,000 in 2001. Gas
purchase and other energy costs for the twelve-month period ended March 31, 2002
were $822,678,000, compared with $1,299,378,000 in 2001. The decrease in both
operating revenues and gas purchase costs between periods was primarily due to a
13% net decrease in sales volume from 172,986 MMcf in 2001 to 150,563 MMcf in
2002 and by an 23% decrease in the average cost of gas from $6.75 per Mcf in
2001 to $5.22 per Mcf in 2002. Changes in the average cost of gas resulted from
seasonal impacts on demands for natural gas and the ensuing competitive pricing
within the industry. The net decrease in gas sales volumes is primarily due to
the warmer-than-normal weather in 2002 as compared to 2001 in all of the
Company's service territories, which was partially offset by an increase in gas
sales volumes from the New England Operations due to the timing of the acquisi
tion.

Weather in Southern Union Gas service territories was 93% of a 30-year measure
for the twelve-month period ended March 31, 2002, compared with 111% in 2001.
About half of the customers served by Southern Union Gas are weather normalized.
Missouri Gas Energy's service territories experienced weather that was 82% of a
30-year measure in 2002, compared with 108% in 2001. Weather for the PG Energy
service territories was 86% of a 30-year measure for the twelve-month period
ended March 31, 2002, compared with 106% in 2001. The New England Gas Company
service territories experienced weather that was 86% of a 30-year measure in
2002, compared with 107% in 2001.

Operating margin increased $18,657,000 for the twelve-month period ended
March 31, 2002 compared with the same period in 2001, principally as a result of
the acquisition of the New England Operations which contributed a net increase
of $30,471,000. The timing of a $10,973,000 annual revenue increase granted to
Missouri Gas Energy effective August 6, 2001 and the $10,800,000 annual revenue
increase granted to PG Energy effective on January 1, 2001 also impacted
operating margin. These items were partially offset by the warmer-than-normal
weather, previously discussed.

Operating expenses, excluding business restructuring charges, which were
previously discussed, were $344,490,000 for the twelve-month period ended
March 31, 2002, compared with operating expenses of $311,575,000 in 2001. An
increase of $48,200,000 was the result of the timing of the acquisition of the
New England Operations. Also impacting operating expenses for the twelve-month
period ended March 31, 2002 was a goodwill impairment loss of $3,358,000,
previously discussed, and $2,162,000 of increased bad debt expense. These items
were partially offset by the elimination of goodwill amortization resulting from
the Company's adoption of Goodwill and Other Intangible Assets, also previously
discussed, which generated a net increase in expense of $10,335,000 during the
twelve-month period ended March 31, 2001, as compared to the same period in
2002. See Goodwill in the Notes to the Consolidated Financial Statements
included herein. The increase in operating expense between periods was also
partially offse by savings of $6,500,000 realized through the Cash Flow
Improvement Plan, reduced operating expenses of $6,400,000 from the sale of
non-core assets and $2,591,000 of environmental insurance recoveries, all
previously discussed.

Interest expense was $98,739,000 for the twelve-month period ended March 31,
2002 compared to $90,661,000 in 2001. Interest expense increased primarily due
to the previously mentioned Term Note entered into by the Company for the
acquisition of the New England Operations, as well as the assumption by the
Company of long-term debt of the New England Operations, also previously
discussed. The increase was partially offset by the lower variable interest rate
and the repayment of principal related to the Term Note during the twelve-month
period ended March 31, 2002. See Debt and Capital Lease in the Notes to the
Consolidated Financial Statements included herein.


--------------------------------------------------------------------------------

                                       27

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Other income for the twelve-month period ended March 31, 2002 was $79,537,000
compared to $19,580,000 for the twelve-month period ended March 31, 2001. Other
income for the twelve-month period ended March 31, 2002, includes realized gains
on the sale of investment securities of $53,219,000, gains of $17,166,000
generated through the settlement of several interest rate swaps, the recognition
of $6,109,000 in previously recorded deferred income related to financial
derivative energy trading activity of a wholly-owned subsidiary, a gain of
$4,653,000 realized through the sale of marketing contracts held by PG Energy
Services Inc., income of $2,659,000 generated from sale and/or rental of
gas-fired equipment and appliances by various operating subsidiaries, power
generation and sales income of $2,071,000 from PEI Power Corporation, $936,000
in interest and dividend income, and a $561,000 gain on the sale of a 43-mile
pipeline also by a subsidiary of the Company. These items were partially offset
by $10,495,000 of legal costs associated with Southwest and a $1,500,000 loss on
the sale of the Florida Operations, both previously discussed. Other income for
the twelve-month period ended March 31, 2001 primarily consisted of realized
gains on the sale of investment securities of $21,363,000, a $13,532,000 gain on
the sale of non-core real estate, and $5,002,000 in interest and dividend
income. These items were partially offset by $12,165,000 of costs associated
with Southwest and $7,921,000 of non-cash trading losses.

The Company's consolidated federal and state effective income tax rate was 39%
and 48% for the twelve-month period ended March 31, 2002 and 2001, respectively.
The decline in the effective tax rate is due to the Company's adoption of
Goodwill and Other Intangible Assets, previously discussed.




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                                       28

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following table sets forth certain information regarding the Company's gas
utility operations for the three- and twelve-month periods ended March 31, 2002
and 2001:

                                     Three Months            Twelve Months
                                    Ended March 31,         Ended March 31,
                                ----------------------   ----------------------
                                   2002        2001         2002        2001
                                ----------  ----------   ----------  ----------

Average number of gas sales
  customers served:
    Residential...............   1,346,493   1,341,714    1,330,592   1,195,591
    Commercial................     133,019     132,319      128,736     117,247
    Industrial and irrigation.       4,178       4,372        4,213       2,553
    Public authorities and
      other...................       3,292       3,177        3,270       3,157
    Pipeline and marketing....         352         356          350         331
                                ----------  ----------   ----------  ----------
      Total average customers
        served................   1,487,334   1,481,938    1,467,161   1,318,879
                                ==========  ==========   ==========  ==========

Gas sales in millions of cubic
  feet (MMcf)
    Residential...............      47,542      56,833       91,050     102,539
    Commercial................      17,795      22,191       36,571      42,035
    Industrial and irrigation.       1,130       1,871        3,798       4,195
    Public authorities and
      other...................       1,480       1,450        3,769       3,119
    Pipeline and marketing....       5,226       5,113       15,531      16,712
                                ----------  ----------   ----------  ----------
      Gas sales billed........      73,173      87,458      150,719     168,600
    Net change in unbilled
      gas sales...............      (5,121)     (9,787)        (156)      4,386
                                ----------  ----------   ----------  ----------
        Total gas sales.......      68,052      77,671      150,563     172,986
                                ==========  ==========   ==========  ==========

Gas sales revenues (thousands
  of dollars):
    Residential...............  $  381,139  $  596,129   $  876,856  $1,009,451
    Commercial................     133,122     224,916      310,747     378,704
    Industrial and irrigation.       9,716      17,562       33,154      34,045
    Public authorities and
      other...................       7,557      13,937       20,632      25,092
    Pipeline and marketing....      14,920      29,126       55,704      73,963
                                ----------  ----------   ----------  ----------
      Gas revenues billed.....     546,454     881,670    1,297,093   1,521,255
    Net change in unbilled gas
      sales revenues..........     (33,028)    (47,269)     (40,898)     76,772
                                ----------  ----------   ----------  ----------
        Total gas sales
          revenues............  $  513,426  $  834,401   $1,256,195  $1,598,027
                                ==========  ==========   ==========  ==========

Gas sales revenue per thousand
  cubic feet (Mcf) billed:
    Residential...............  $     8.02  $    10.49   $     9.63  $     9.85
    Commercial................        7.48       10.14         8.50        9.01
    Industrial and irrigation.        8.60        9.39         8.73        8.12
    Public authorities and
      other...................        5.11        9.61         5.47        8.04
    Pipeline and marketing....        2.86        5.70         3.59        4.43

Weather:
  Degree days:
    Southern Union Gas service
      territories.............       1,208       1,259        1,977       2,372
    Missouri Gas Energy
      service territories.....       2,439       2,809        4,266       5,643
    PG Energy service
      territories.............       2,592       3,120        5,320       6,651
    New England Gas Company
      service territories.....       2,547       2,980        5,087       5,174
  Percent of normal based on
    30-year measure:
    Southern Union Gas service
      territories.............         97%        102%          93%        111%
    Missouri Gas Energy
      service territories.....         90%        100%          82%        108%
    PG Energy service
      territories.............         84%         98%          86%        106%
    New England Gas Company
      service territories.....         85%        100%          86%        107%

Gas transported in millions
  of cubic feet (MMcf)........      27,770      26,822       89,643      91,264
Gas transportation revenues
  (thousands of dollars)......  $   15,464  $   17,606   $   45,166  $   47,624



The above information does not include the Company's 43% equity ownership in a
natural gas distribution company serving 23,000 customers in Piedras Negras,
Mexico. Information for Fall River Gas and ProvEnergy, acquired September 28,
2000, and Valley Resources, acquired September 20, 2000, is included since
October 1, 2000. The 30-year measure of weather is used above 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.


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                                       29

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



FINANCIAL CONDITION

The Company's gas utility operations are seasonal in nature with a significant
percentage of the annual revenues and earnings occurring in the traditional
heating-load months. This seasonality results in a high level of cash flow needs
immediately preceding the peak winter heating season months, due to the required
payments to natural gas suppliers in advance of the receipt of cash payments
from the Company's customers. The Company has historically used internally
generated funds and its credit facilities to provide funding for its seasonal
working capital, continuing construction and maintenance programs and
operational requirements.

On May 29, 2001, the Company renewed and amended its short-term and long-term
credit facilities (together referred to as "Revolving Credit Facilities"). The
Company has available $150,000,000 under the short-term facility, which expires
May 28, 2002, and $225,000,000 under the long-term facility, which expires on
May 29, 2004. The Company is currently negotiating with its lenders to renew its
$150,000,000 short-term facility for an additional 364-day period, or until
May 27, 2003.  The Company has additional availability under uncommitted line of
credit facilities with various banks. Borrowings under the Revolving Credit
Facilities are available for Southern Union's working capital, letter of credit
requirements and other general corporate purposes. A balance of $132,300,000 was
outstanding under the Revolving Credit Facilities at March 31, 2002 and
$99,900,000 at May 14, 2002.

On August 28, 2000 the Company entered into the Term Note to fund (i) the cash
portion of the consideration to be paid to the Fall River Gas stockholders; (ii)
the all cash consideration to be paid to the ProvEnergy and Valley Resources
stockholders; (iii) repayment of approximately $50,000,000 of long- and
short-term debt assumed in the mergers; and (iv) related acquisition costs. As
of March 31, 2002, a balance of $410,000,000 was outstanding on this Term Note
and, as of May 14, 2002, the balance outstanding was $350,000,000. No additional
draws can be made on the Term Note. Prior to maturity, the Company plans to
refinance some portion or all of the Term Note. Sources of future or alternative
financing that the Company may consider include commercial and investment banks,
institutional lenders, institutional investors and public securities markets.
The availability and terms of any such financing sources will depend upon
various factors and conditions such as the Company's combined cash flow and
earnings, the Company's resulting capital structure, and conditions in financial
markets at the time of such offerings.

The principal source of funds during the three-month period ended March 31, 2002
was $192,759,000 in cash flow from operations. The principal uses of funds
during this period included $82,650,000 for the repayment of borrowings under
the Company's Revolving Credit Facilities, $78,169,000 for the retirement of
long-term debt and $21,042,000 for on-going property, plant and equipment
additions.

The principal sources of funds during the nine-month period ended March 31, 2002
were $203,390,000 in cash flow from operations, proceeds of $33,663,000 from the
sale of various subsidiaries, and proceeds of $17,166,000 generated from the
settlement of interest rate swaps. The principal uses of funds during this
period included $83,974,000 for the retirement of long-term debt, $78,189,000
for on-going property, plant and equipment additions, $58,300,000 for the
repayment of borrowings under the Company's Revolving Credit Facilities, and
$34,711,000 for the repurchase of Company common stock.

The effective interest rate under the Company's current debt structure is 6.40%
(including interest and the amortization of debt issuance costs and redemption
premiums on refinanced debt).

The Company retains its borrowing availability under its Revolving Credit
Facilities, as discussed above. Borrowings under these credit facilities will
continue to be used, as needed, to provide funding for the seasonal working
capital needs of the Company. Internally-generated funds from operations will be
used principally for the Company's ongoing construction and maintenance programs
and operational needs and may also be used periodically to reduce outstanding
debt.


On December 6, 2001 and October 19, 2001, the Company filed shelf registrations
of $200,000,000 and $400,000,000, respectively.  Under these shelf
registrations, Southern Union may sell a combination of senior debt securities,
subordinated debt securities and preferred securities of financing trusts from
time to time, at prices determined at the time of any offering.


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                                       30

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There are no material changes in market risks faced by the Company from those
reported in the Company's Annual Report on Form 10-K for the year ended June 30,
2001.

The information contained in Item 3 updates, and should be read in conjunction
with, information set forth in Part II, Item 7 in the Company's Annual Report on
Form 10-K for the year ended June 30, 2001, in addition to the interim
consolidated financial statements, accompanying notes, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
presented in Items 1 and 2 of this Quarterly Report on Form 10-Q.

OTHER MATTERS

Employees  During the quarter ended March 31, 2002, New England Gas Company and
one of five bargaining units representing New England Gas Company employees
(comprising approximately 8% of Southern Union's total workforce) were unable to
reach agreement on the renewal of a contract that expired in January 2002. This
has resulted in a work stoppage in the area previously serviced by Providence
Gas Company. Currently, both parties continue to negotiate in good faith and
have reached tentative agreements on most issues. The work stoppage did not have
a significant impact on the Company's financial statements for the quarter ended
March 31, 2002, and the Company believes the outcome of the matter will not have
a material adverse impact on the Company's results of operations, financial
condition or cash flows.

In March 2002, New England Gas Company and two other bargaining units
representing New England Gas Company employees successfully reached new
four-year contract agreements in advance of contract expiration dates; these two
contracts became effective April 1, 2002 and May 1, 2002, respectively. New
England Gas Company and its remaining two bargaining units are preparing for
upcoming negotiations, as both contracts expire at the end of May 2002.

Investment Securities  The Company reviews its portfolio of investment
securities on a quarterly basis to determine whether a decline in value is
other than temporary.  Factors that are considered in assessing whether a
decline in value is other than temporary include, but are not limited to:
earnings trends and asset quality; near term prospects and financial condition
of the issuer; financial condition and prospects of the issuer's region and
industry; and Southern Union's intent and ability to retain the investment.  If
Southern Union determines that the decline in value of an investment security is
other than temporary, the Company will record a charge on its consolidated
statement of operations to reduce the carrying value of the security to its
estimated fair value.

ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued Accounting for Asset Retirement Obligations, which
addresses financial accounting and reporting for obligations and the related
costs associated with the retirement of tangible long-lived assets. Accounting
for Asset Retirement Obligations is effective for all fiscal years beginning
after June 15, 2002. The Statement's purpose is to develop consistent financial
treatment of asset retirement obligations and the associated costs, improve
disclosure regarding the impact of retirement obligations on future cash
outflows, leverage and liquidity, and provide more information related to gross
investment in long-lived assets. The Company is currently evaluating the effect
this Statement will have on the earnings and financial condition of the Company.

In August 2001, the FASB issued Accounting for the Impairment or Disposal of
Long-Lived Assets, which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and broadens the presentation of
discontinued operations to include more disposal transactions. Accounting for
the Impairment or Disposal of Long-Lived Assets is effective for all fiscal
years beginning after December 15, 2001. The Statement's purpose is to develop a
single accounting model for long-lived assets to be disposed of by sale and
enhance disclosure regarding the effects of a disposal transaction on ongoing
operations. The Company is currently evaluating the effect this Statement will
have on the earnings and financial condition of the Company.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-Q may contain forward-looking
statements that are based on current expectations, estimates and projections
about the industry in which the Company operates, management's beliefs and
assumptions made by management. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not

--------------------------------------------------------------------------------

                                       31

<PAGE>


                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



guarantees of future performance and involve certain risks, uncertainties and
assumptions, which are difficult to predict and many of which are outside the
Company's control. Therefore, actual outcomes and results may differ materially
from what is expressed or forecasted in such forward-looking statements. The
Company undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
Readers are cautioned not to put undue reliance on such forward-looking
statements. Stockholders may review the Company's reports filed in the future
with the Securities and Exchange Commission for more current descriptions of
developments that could cause actual results to differ materially from such
forward-looking statements.

Factors that could cause or contribute to actual results differing materially
from such forward-looking statements include the following: cost of gas; gas
sales volumes; weather conditions in the Company's service territories; the
achievement of operating efficiencies and the purchases and implementation of
new technologies for attaining such efficiencies; impact of relations with labor
unions of bargaining-unit employees; the receipt of timely and adequate rate
relief; the outcome of pending and future litigation; governmental regulations
and proceedings affecting or involving the Company; unanticipated environmental
liabilities; changes in business strategy; the risk that the businesses acquired
and any other businesses or investments that Southern Union has acquired or may
acquire may not be successfully integrated with the businesses of Southern
Union; the impairment or sale of investment securities; and the nature and
impact of any extraordinary transactions such as any acquisition or divestiture
of a business unit or any assets. These are representative of the factors that
could affect the outcome of the forward-looking statements. In addition, such
statements could be affected by general industry and market conditions, and
general economic conditions, including interest rate fluctuations, federal,
state and local laws and regulations affecting the retail gas industry or the
energy industry generally, and other factors.



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                                       32

<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES



Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




                                             SOUTHERN UNION COMPANY
                                ------------------------------------------------
                                                 (Registrant)






Date      May 15, 2002          By   DAVID J. KVAPIL
     ----------------------        ---------------------------------------------
                                     David J. Kvapil
                                     Executive Vice President and Chief
                                       Financial Officer

















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<PAGE>