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


                                    FORM 10-Q


                         For the quarterly period ended

                                December 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 February 7,
2003 was 55,578,868.











<PAGE>

<TABLE>
<CAPTION>



                             SOUTHERN UNION COMPANY AND SUBSIDIARIES
                                            FORM 10-Q
                                        December 31, 2002
                                              Index
<S>     <C>    <C>    <C>    <C>    <C>    <C>

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

 Item 1.  Financial Statements

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

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

    Consolidated statement of stockholders' equity - six months ended December 31, 2002
      and twelve months ended June 30, 2002                                                  7

    Consolidated statements of cash flows - three, six and twelve months ended
      December 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         22-31
                  of Operations

Item 3.  Quantitative and Qualitative Disclosures about Market Risk                         30

Item 4.  Controls and Procedures                                                            31

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

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

Item 4.  Result of Votes of Security Holders                                               31

Item 6.  Exhibits and Reports on Form 8-K:

(a) Exhibits:
10       Employment agreement between David W. Stevens and Southern
           Union Company dated October 31, 2002

99.1     Certificate of the Chief Executive Officer pursuant to 18 U.S.C.ss.1350
           (Section 906 of the Sarbanes-Oxley Act of 2002)

99.2     Certificate of the Chief Financial Officer pursuant to 18 U.S.C.ss.1350
           (Section 906 of the Sarbanes-Oxley Act of 2002)

              (b) Reports on Form 8-K:

        Date Filed   Description of Filing
        12/23/02     Announcement that Southern Union Company was awarded over
                     $60 million in punitive damages by an Arizona Federal
                     District Court jury in its case against Arizona Corporation
                     Commissioner James C. Irvin.

        10/31/02     Announcement of operating performance for the quarter ended
                     September 30, 2002 and 2001 and filing, under Item 9,
                     summary statements of income of Southern Union Company for
                     the quarter ended September 30, 2002 and 2001 (unaudited)
                     and notes thereto.

        10/30/02     Announcement that Southern Union Company entered into a
                     definitive agreement with ONEOK, Inc. to sell its Southern
                     Union Gas Company Texas division and related assets.
</TABLE>

<PAGE>
                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>


                                                                Three Months Ended December 31,
                                                                     2002             2001
                                                                 -------------   ------------
                                                                 (thousands of dollars, except
                                                                  shares and per share amounts)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Operating revenues ...........................................   $    346,104    $    286,431
Cost of gas and other energy .................................       (215,505)       (172,818)
Revenue-related taxes ........................................        (12,568)         (9,627)
                                                                 ------------    ------------
     Operating margin ........................................        118,031         103,986

Operating expenses:
     Operating, maintenance and general ......................         42,249          43,030
     Depreciation and amortization ...........................         14,067          13,759
     Taxes, other than on income and revenues ................          6,213           6,420
                                                                 ------------    ------------
         Total operating expenses ............................         62,529          63,209
                                                                 ------------    ------------
         Net operating revenues ..............................         55,502          40,777
                                                                 ------------    ------------

Other income (expense):
     Interest ................................................        (20,742)        (21,736)
     Dividends on preferred securities of subsidiary trust ...         (2,370)         (2,370)
     Other, net ..............................................         (2,712)           (836)
                                                                 ------------    ------------
         Total other expenses, net ...........................        (25,824)        (24,942)
                                                                 ------------    ------------

Earnings from continuing operations before income taxes ......         29,678          15,835

Federal and state income taxes ...............................         11,159           6,017
                                                                 ------------    ------------

Net earnings from continuing operations ......................         18,519           9,818
                                                                 ------------    ------------

Discontinued operations:
     Earnings from discontinued operations before income taxes         17,468          16,021
     Federal and state income taxes ..........................          6,568           6,089
                                                                 ------------    ------------
Net earnings from discontinued operations ....................         10,900           9,932
                                                                 ------------    ------------

Net earnings available for common stock ......................   $     29,419    $     19,750
                                                                 ============    ============

Net earnings from continuing operations per share:
     Basic ...................................................   $        .34    $        .18
                                                                 ============    ============
     Diluted .................................................   $        .33    $        .17
                                                                 ============    ============

Net earnings available for common stock per share:
     Basic ...................................................   $        .54    $        .37
                                                                 ============    ============
     Diluted .................................................   $        .53    $        .35
                                                                 ============    ============
Weighted average shares outstanding:
     Basic ...................................................     54,206,735      53,323,421
                                                                 ============    ============
     Diluted .................................................     55,937,697      56,389,022
                                                                 ============    ============

</TABLE>



                             See accompanying notes.

<PAGE>

<TABLE>
<CAPTION>

                                             SOUTHERN UNION COMPANY AND SUBSIDIARIES

                                              CONSOLIDATED STATEMENT OF OPERATIONS



                                                                                           Six Months Ended December 31,
                                                                                             2002                 2001
                                                                                        ---------------      --------------
                                                                                           (thousands of dollars, except
                                                                                            shares and per share amounts)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Operating revenues..................................................................    $       445,814      $      407,010
Cost of gas and other energy........................................................           (257,565)           (233,447)
Revenue-related taxes...............................................................            (15,754)            (13,532)
                                                                                        ---------------      --------------
     Operating margin...............................................................            172,495             160,031

Operating expenses:
     Operating, maintenance and general.............................................             83,620              85,531
     Business restructuring charges.................................................                 --              30,553
     Depreciation and amortization..................................................             28,451              29,483
     Taxes, other than on income and revenues.......................................             12,711              13,121
                                                                                        ---------------      --------------
         Total operating expenses...................................................            124,782             158,688
                                                                                        ---------------      --------------
         Net operating revenues.....................................................             47,713               1,343
                                                                                        ---------------      --------------

Other income (expense):
     Interest ......................................................................            (41,743)            (48,721)
     Dividends on preferred securities of subsidiary trust..........................             (4,740)             (4,740)
     Other, net.....................................................................             13,726              22,640
                                                                                        ---------------      --------------
         Total other expenses, net..................................................            (32,757)            (30,821)
                                                                                        ---------------      --------------

Earnings (loss) from continuing operations before income taxes......................             14,956             (29,478)

Federal and state income taxes (benefit)............................................              5,623              (8,715)
                                                                                        ---------------      --------------

Net earnings (loss) from continuing operations......................................              9,333             (20,763)
                                                                                        ---------------      --------------

Discontinued operations:
     Earnings from discontinued operations before income taxes......................             21,781              14,353
     Federal and state income taxes.................................................              8,190               4,243
                                                                                        ---------------      --------------
Net earnings from discontinued operations...........................................             13,591              10,110
                                                                                        ---------------      --------------

Net earnings (loss) available for (attributable to) common stock....................    $        22,924      $      (10,653)
                                                                                        ===============      ==============

Net earnings (loss) from continuing operations per share:
     Basic..........................................................................    $           .17      $         (.38)
                                                                                        ===============      ==============
     Diluted........................................................................    $           .17      $         (.38)
                                                                                        ===============      ==============

Net earnings (loss) available for (attributable to) common stock per share:
     Basic..........................................................................    $           .42      $         (.20)
                                                                                        ===============      ==============
     Diluted........................................................................    $           .41      $         (.20)
                                                                                        ===============      ==============
Weighted average shares outstanding:
     Basic..........................................................................         54,010,349          54,187,335
                                                                                        ===============      ==============
     Diluted........................................................................         55,875,307          54,187,335
                                                                                        ===============      ==============


</TABLE>


                                                     See accompanying notes.

<PAGE>


                                 SOUTHERN UNION COMPANY AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENT OF OPERATIONS


<TABLE>
<CAPTION>

                                                                Twelve Months Ended December 31,
                                                                     2002             2001
                                                                 -------------   -------------
                                                                 (thousands of dollars, except
                                                                  shares and per share amounts)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Operating revenues ...........................................   $  1,018,954    $  1,324,447
Cost of gas and other energy .................................       (596,732)       (891,517)
Revenue-related taxes ........................................        (35,630)        (42,598)
                                                                 ------------    ------------
     Operating margin ........................................        386,592         390,332

Operating expenses:
     Operating, maintenance and general ......................        171,810         197,756
     Business restructuring charges ..........................         (1,394)         30,553
     Depreciation and amortization ...........................         56,722          67,251
     Taxes, other than on income and revenues ................         23,253          26,855
                                                                 ------------    ------------
         Total operating expenses ............................        250,391         322,415
                                                                 ------------    ------------
         Net operating revenues ..............................        136,201          67,917
                                                                 ------------    ------------

Other income (expense):
     Interest ................................................        (84,015)       (105,302)
     Dividends on preferred securities of subsidiary trust ...         (9,480)         (9,480)
     Other, net ..............................................          2,999          84,068
                                                                 ------------    ------------
         Total other expenses, net ...........................        (90,496)        (30,714)
                                                                 ------------    ------------

Earnings from continuing operations before income taxes ......         45,705          37,203

Federal and state income taxes ...............................         17,624          16,097
                                                                 ------------    ------------

Net earnings from continuing operations ......................         28,081          21,106
                                                                 ------------    ------------

Discontinued operations:
     Earnings from discontinued operations before income taxes         40,886          35,575
     Federal and state income taxes ..........................         15,766          15,393
                                                                 ------------    ------------
Net earnings from discontinued operations ....................         25,120          20,182
                                                                 ------------    ------------

Net earnings available for common stock ......................   $     53,201    $     41,288
                                                                 ============    ============

Net earnings from continuing operations per share:
     Basic ...................................................   $        .52    $        .39
                                                                 ============    ============
     Diluted .................................................   $        .50    $        .37
                                                                 ============    ============
Net earnings available for common stock per share:
     Basic ...................................................   $        .99    $        .76
                                                                 ============    ============
     Diluted .................................................   $        .95    $        .71
                                                                 ============    ============
Weighted average shares outstanding:
     Basic ...................................................     53,797,778      54,622,089
                                                                 ============    ============
     Diluted .................................................     56,002,239      57,807,411
                                                                 ============    ============


</TABLE>


                             See accompanying notes.

<PAGE>

<TABLE>
<CAPTION>

                                           SOUTHERN UNION COMPANY AND SUBSIDIARIES

                                                 CONSOLIDATED BALANCE SHEET

                                                           ASSETS



                                                               December 31,          June 30,
                                                          2002           2001          2002
                                                      -------------  -------------  ------------
                                                                  (thousands of dollars)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Property, plant and equipment:
     Plant in service .............................   $ 1,790,878    $ 1,737,387    $ 1,767,349
     Construction work in progress ................        17,709         16,740          6,535
                                                      -----------    -----------    -----------
                                                        1,808,587      1,754,127      1,773,884
     Less accumulated depreciation and amortization      (627,818)      (586,415)      (604,114)
                                                      -----------    -----------    -----------
        Net property, plant and equipment .......       1,180,769      1,167,712      1,169,770
                                                      -----------    -----------    -----------
Current assets:
     Cash and cash equivalents ....................          --             --             --
     Accounts receivable, billed and unbilled, net        223,555        162,687         95,036
     Inventories, principally at average cost .....       107,339        155,881        101,076
     Deferred gas purchase costs ..................        12,784         26,723          3,597
     Investment securities available for sale .....           630          7,201          1,163
     Prepayments and other ........................         9,836          9,802         13,527
     Assets held for sale .........................       446,851        447,352        395,446
                                                      -----------    -----------   ------------
          Total current assets ....................       800,995        809,646        609,845
                                                      -----------    -----------   ------------

Goodwill, net .....................................       642,921        642,921        642,921

Deferred charges ..................................       202,493        223,323        206,130

Investment securities, at cost ....................         9,786         19,226          9,786

Real estate .......................................          --            2,482          --

Other .............................................        41,317         41,983         41,612
                                                      -----------    -----------   ------------









  Total assets ....................................   $ 2,878,281    $ 2,907,293   $  2,680,064
                                                      ===========    ===========   ============





</TABLE>




                                             See accompanying notes.


<PAGE>

<TABLE>
<CAPTION>



                                           SOUTHERN UNION COMPANY AND SUBSIDIARIES

                                           CONSOLIDATED BALANCE SHEET (Continued)

                                            STOCKHOLDERS' EQUITY AND LIABILITIES


                                                                               December,              June 30,
                                                                         2002          2001            2002
                                                                     -------------  ------------   -----------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                                               (thousands of dollars)
Common stockholders' equity:
     Common stock, $1 par value; authorized 200,000,000
         shares; issued 58,593,309 shares ........................   $    58,593    $    54,686    $    58,055
     Premium on capital stock ....................................       710,287        678,039        707,912
     Less treasury stock, 3,125,993 shares at cost ...............       (57,673)       (51,068)       (57,673)
     Less common stock held in trust .............................       (18,329)       (18,194)       (17,821)
     Deferred compensation plans .................................        10,539          7,499          9,373
     Accumulated other comprehensive income (loss) ...............       (14,717)          (354)       (14,500)
     Retained earnings (deficit) .................................        22,924         (5,550)          --
                                                                     -----------    -----------    -----------

     Total common stockholders' equity ...........................       711,624        665,058        685,346

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 ......................     1,041,256        803,096      1,082,210
                                                                     -----------    -----------    -----------

         Total capitalization ....................................     1,852,880      1,568,154      1,867,556

Current liabilities:
     Long-term debt and capital lease obligation due within
         one year ................................................        67,190        526,642        108,203
     Notes payable ...............................................       290,000        214,950        131,800
     Accounts payable ............................................       128,979         94,064         71,532
     Federal, state and local taxes ..............................        29,261         31,438          9,212
     Accrued interest ............................................        16,600         16,073         17,019
     Accrued dividends on preferred securities of subsidiary trust          --             --            2,370
     Customer deposits ...........................................         6,894          7,598          7,572
     Other .......................................................        45,387         55,359         38,385
     Liabilities related to assets held for sale .................        80,217         68,856         65,920
                                                                     -----------    -----------    -----------
         Total current liabilities ...............................       664,528      1,014,980        452,013
                                                                     -----------    -----------    -----------

Deferred credits and other .......................................       145,459        130,544        143,843
Accumulated deferred income taxes ................................       215,414        193,615        216,652
                                                                     -----------    -----------    -----------
     Total stockholders' equity and liabilities ..................   $ 2,878,281    $ 2,907,293    $ 2,680,064
                                                                     ===========    ===========    ===========






</TABLE>





                                     See accompanying notes.

<PAGE>
<TABLE>
<CAPTION>
                                                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                                                  CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                                                                 Common       Accumulated
                                           Common        Premium     Treasury     Stock          Other
                                          Stock, $1     on Capital   Stock, at   Held in      Comprehen-      Retained
                                          Par Value       Stock        Cost       Trust       sive Income     Earnings    Total
                                          ---------     ----------   ---------   -------      -----------     --------    -----
                                                                     (thousands of dollars)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Balance July 1, 2001...................  $   54,553     $  676,324   $ (15,869) $(11,697)     $    13,443     $ 5,103    $721,857

   Comprehensive income:
     Net earnings .....................        --           --           --           --           --          19,624      19,624
     Unrealized loss in investment
       securities, net of tax benefit .        --           --           --           --         (18,249)        --       (18,249)
     Minimum pension liability
       adjustment, net of tax .........        --           --           --           --         (10,498)        --       (10,498)
     Unrealized gain on hedging
       activities, net of tax .........        --           --           --           --             804         --           804
                                                                                                                         ---------
     Comprehensive income (loss) ......                                                                                    (8,319)
                                                                                                                         ---------
   Payment on note receivable .........        --            202         --           --           --           --            202
   Purchase of treasury stock .........        --           --        (41,632)        --           --           --        (41,632)
   5% stock dividend ..................       2,618       22,091         --           --           --        (24,727)         (18)
   Stock compensation plan ............        --          1,248         --          1,257         --           --          2,505
   Sale of common stock held
     in trust .........................        --             26         --          1,945         --           --          1,971
   Exercise of stock options ..........         884        8,021         (172)          47         --           --          8,780
                                          ---------    ---------    ---------    ---------    ---------    ---------    ---------
Balance June 30, 2002 .................      58,055      707,912      (57,673)      (8,448)     (14,500)        --        685,346

   Comprehensive income:
     Net earnings .....................        --           --           --           --           --         22,924       22,924
     Unrealized loss in investment
       securities, net of tax benefit .        --           --           --           --           (346)        --           (346)
     Unrealized gain on hedging
       activities, net of tax .........        --           --           --           --            129         --            129
                                                                                                                        ---------
     Comprehensive income .............                                                                                    22,707
                                                                                                                        ---------
   Stock compensation plan ............        --            471         --            658         --           --          1,129
   Exercise of stock options ..........         538        1,904         --           --           --           --          2,442
                                          ---------    ---------    ---------    ---------    ---------    ---------    ---------
Balance December 31, 2002 .............   $  58,593    $ 710,287    $ (57,673)   $  (7,790)   $ (14,717)   $  22,924    $ 711,624
                                          =========    =========    =========    =========    =========    =========    =========

The Company's common stock is $1 par value. Therefore, the change in Common
Stock, $1 Par Value is equivalent to the change in the number of shares of
common stock outstanding.

















                                                             See accompanying notes.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                    SOUTHERN UNION COMPANY AND SUBSIDIARIES

                                                    CONSOLIDATED STATEMENT OF CASH FLOWS



                                                                             Three Months Ended December 31,
                                                                                  2002           2001
                                                                                ----------    ----------
                                                                                 (thousands of dollars)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Cash flows from (used in) operating activities:
   Net earnings ..............................................................   $  29,419    $  19,750
   Adjustments to reconcile net earnings to net cash flows from (used in)
     operating activities:
       Depreciation and amortization .........................................      14,067       13,759
       Deferred income taxes .................................................       1,249        1,546
       Provision for bad debts ...............................................       2,912        3,940
       Gain on sale of assets ................................................        --           (561)
       Loss on sale of assets ................................................        --          1,500
       Financial derivative trading gains ....................................        (151)      (1,976)
       Net cash provided by (used in) assets held for sale ...................     (25,502)     (16,445)
       Other .................................................................       1,013          636
         Changes in operating assets and liabilities, net of dispositions:
           Accounts receivable, billed and unbilled ..........................    (149,177)     (60,673)
           Accounts payable ..................................................      79,356       22,784
           Customer deposits .................................................          (2)         161
           Deferred gas purchase costs .......................................      11,645       32,762
           Inventories .......................................................      24,694        2,478
           Deferred charges and credits ......................................      (1,588)       1,696
           Prepaids and other current assets .................................       1,900       (1,307)
           Taxes and other current liabilities ...............................      19,974       14,944
                                                                                 ---------    ---------
     Net cash flows from (used in) operating activities ......................       9,809       34,994
                                                                                 ---------    ---------
Cash flows from (used in) investing activities:
   Additions to property, plant and equipment ................................     (18,206)     (26,683)
   Changes in assets and liabilities held for sale ...........................      (7,771)      (6,182)
   Notes receivable ..........................................................      (4,750)        --
   Proceeds from sale of subsidiaries and other assets .......................        --         12,586
   Customer advances .........................................................         391          324
   Other .....................................................................      (1,986)        (172)
                                                                                 ---------    ---------
     Net cash flows from (used in) investing activities ......................     (32,322)     (20,127)
                                                                                 ---------    ---------
Cash flows from (used in) financing activities:
   Issuance cost of debt .....................................................        (313)        (229)
   Repayment of debt and capital lease obligation ............................     (38,949)      (3,597)
   Net borrowings under revolving credit facilities ..........................      59,300       21,950
   Purchase of treasury stock ................................................        --        (33,012)
   Proceeds from exercise of stock options ...................................       1,490           21
                                                                                 ---------    ---------
     Net cash flows from (used in) financing activities ......................      21,528      (14,867)
                                                                                 ---------    ---------
Change in cash and cash equivalents ..........................................        (985)        --
Cash and cash equivalents at beginning of period .............................         985         --
                                                                                 ---------    ---------
Cash and cash equivalents at end of period ...................................   $    --      $    --
                                                                                 =========    =========

Supplemental disclosures of cash flow information: Cash paid during the period
   for:
     Interest ................................................................   $  22,337    $  28,094
                                                                                 =========    =========
     Income taxes ............................................................   $     282    $    --
                                                                                 =========    =========











                                                             See accompanying notes.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                                               SOUTHERN UNION COMPANY AND SUBSIDIARIES

                                                CONSOLIDATED STATEMENT OF CASH FLOWS



                                                                                Six Months Ended December 31,
                                                                                     2002           2001
                                                                                   ---------    ----------
                                                                                     (thousands of dollars)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Cash flows from (used in) operating activities:
   Net earnings (loss) .........................................................   $  22,924    $ (10,653)
   Adjustments to reconcile net earnings (loss) to net cash flows from (used in)
     operating activities:
       Depreciation and amortization ...........................................      28,451       29,483
       Deferred income taxes ...................................................      (1,120)       3,022
       Provision for bad debts .................................................       6,397        5,479
       Business restructuring charges ..........................................        --         27,247
       Gain on settlement of interest rate swaps ...............................        --        (17,166)
       Gain on sale of subsidiaries and other assets ...........................        --         (5,214)
       Loss on sale of subsidiaries ............................................        --          1,500
       Financial derivative trading gains ......................................        (302)      (2,333)
       Net cash provided by (used in) assets held for sale .....................     (23,698)     (10,672)
       Other ...................................................................       2,123          771
       Changes in operating assets and liabilities, net of dispositions:
           Accounts receivable, billed and unbilled ............................    (128,166)       8,310
           Accounts payable ....................................................      57,447        8,696
           Customer deposits ...................................................        (678)         (33)
           Deferred gas purchase costs .........................................      (9,187)      30,310
           Inventories .........................................................      (6,263)     (53,761)
           Deferred charges and credits ........................................       4,199        4,913
           Prepaids and other current assets ...................................       4,184          390
           Taxes and other liabilities .........................................      25,693       (3,331)
                                                                                   ---------    ---------
     Net cash flows from (used in) operating activities ........................     (17,996)      16,958
                                                                                   ---------    ---------
Cash flows from (used in) investing activities:
   Additions to property, plant and equipment ..................................     (38,106)     (46,286)
   Changes in assets and liabilities held for sale .............................     (13,410)     (10,943)
   Notes receivable ............................................................      (6,750)        --
   Proceeds from sale of subsidiaries and other assets .........................        --         38,635
   Customer advances ...........................................................         618         (283)
   Proceeds from settlement of interest rate swaps .............................        --         17,166
   Other .......................................................................      (1,664)        (307)
                                                                                   ---------    ---------
     Net cash flows from (used in) investing activities ........................     (59,312)      (2,018)
                                                                                   ---------    ---------
Cash flows from (used in) financing activities:
   Issuance of long-term debt ..................................................     311,087         --
   Issuance cost of debt .......................................................      (1,367)        (519)
   Repayment of debt and capital lease obligation ..............................    (393,054)      (5,805)
   Net (payments) borrowings under revolving credit facilities .................     158,200       24,350
   Purchase of treasury stock ..................................................        --        (34,711)
   Proceeds from exercise of stock options .....................................       2,442          526
                                                                                   ---------    ---------
     Net cash flows from (used in) financing activities ........................      77,308      (16,159)
                                                                                   ---------    ---------
Change in cash and cash equivalents ............................................        --         (1,219)
Cash and cash equivalents at beginning of period ...............................        --          1,219
                                                                                   ---------    ---------
Cash and cash equivalents at end of period .....................................   $    --      $    --
                                                                                   =========    =========

Supplemental disclosures of cash flow information: Cash paid during the period
   for:
     Interest ..................................................................   $  48,161    $  56,338
                                                                                   =========    =========
     Income taxes ..............................................................   $     491    $    --
                                                                                   =========    =========







                                                        See accompanying notes.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>



                                             SOUTHERN UNION COMPANY AND SUBSIDIARIES

                                              CONSOLIDATED STATEMENT OF CASH FLOWS


                                                                              Twelve Months Ended December 31,
                                                                                    2002         2001
                                                                                 ---------    ----------
                                                                                   (thousands of dollars)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Cash flows from (used in) operating activities:
   Net earnings ..............................................................   $  53,201    $  41,288
   Adjustments to reconcile net earnings to net cash flows from (used in)
     operating activities:
       Depreciation and amortization .........................................      56,722       67,251
       Deferred income taxes .................................................      24,255       36,760
       Provision for bad debts ...............................................      13,178       28,120
       Provision for investment impairment ...................................      10,380         --
       Business restructuring charges ........................................      (1,394)      27,247
       Gain on settlement of interest rate swaps .............................        --        (17,166)
       Gain on sale of subsidiaries and other assets .........................      (1,200)      (5,921)
       Loss on sale of subsidiaries ..........................................        --          1,500
       Financial derivative trading gains ....................................      (4,173)      (2,333)
       Gain on sale of investment securities .................................      (1,004)     (65,713)
       Net cash provided by (used in) assets held for sale ...................      38,780       18,003
       Other .................................................................       4,234         (473)
       Changes in operating assets and liabilities, net of dispositions:
           Accounts receivable, billed and unbilled ..........................     (64,545)     112,897
           Accounts payable ..................................................      36,732     (141,915)
           Customer deposits .................................................        (698)      (1,160)
           Deferred gas purchase costs .......................................      13,939       22,012
           Inventories .......................................................      48,542      (42,654)
           Deferred charges and credits ......................................      15,138      (16,313)
           Prepaids and other current assets .................................          59       (4,200)
           Taxes and other liabilities .......................................      (3,486)     (28,900)
                                                                                 ---------    ---------
     Net cash flows from (used in) operating activities ......................     238,660       28,330
                                                                                 ---------    ---------
Cash flows from (used in) investing activities:
   Additions to property, plant and equipment ................................     (59,526)     (96,755)
   Changes in assets and liabilities held for sale ...........................     (26,917)     (24,701)
   Acquisition of operations, net of cash received ...........................        --         (9,366)
   Purchase of investment securities .........................................        (803)        (135)
   Notes receivable ..........................................................      (9,500)        --
   Proceeds from sale of subsidiaries and other assets .......................       2,300       41,935
   Proceeds from sale of investment securities ...............................       1,213       74,389
   Customer advances .........................................................         498          680
   Proceeds from settlement of interest rate swaps ...........................        --         17,166
   Other .....................................................................      (3,784)       7,778
                                                                                 ---------    ---------
     Net cash flows from (used in) investing activities ......................     (96,519)      10,991
                                                                                 ---------    ---------
Cash flows from (used in) financing activities:
   Issuance of long-term debt ................................................     311,087         --
   Issuance cost of debt .....................................................      (1,768)      (1,452)
   Repayment of debt and capital lease obligation ............................    (532,380)     (51,195)
   Net (payments) borrowings under revolving credit facilities ...............      75,050       39,950
   Purchase of treasury stock ................................................      (6,922)     (34,711)
   Proceeds from exercise of stock options ...................................      10,771          247
   Other .....................................................................       2,021         --
                                                                                 ---------    ---------
     Net cash flows from (used in) financing activities ......................    (142,141)     (47,161)
                                                                                 ---------    ---------
Change in cash and cash equivalents ..........................................        --         (7,840)
Cash and cash equivalents at beginning of period .............................        --          7,840
                                                                                 ---------    ---------
Cash and cash equivalents at end of period ...................................   $    --      $    --
                                                                                 =========    =========

Supplemental disclosures of cash flow information: Cash paid (refunded)
   during the period for:
     Interest ................................................................   $  91,363    $ 116,700
                                                                                 =========    =========
     Income taxes ............................................................   $  (3,575)   $  21,000
                                                                                 =========    =========

</TABLE>

                                                See accompanying notes.


<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, 2002. 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. As of December 31, 2002 and
2001, the Company had a cash overdraft of $10,312,000 and $15,789,000,
respectively, which is reflected in accounts payable on the consolidated balance
sheet.

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. As further described below, the Company completed
the sale of its Southern Union Gas Company (Southern Union Gas) natural gas
operating division and related assets in January 2003. In accordance with the
Financial Accounting Standards Board (FASB) standard, Accounting for the
Impairment or Disposal of Long-Lived Assets, the assets and liabilities to be
sold as of December 31, 2002, have been segregated and reported as "held for
sale" in the consolidated balance sheet. In addition, the related results of
operations have been segregated and reported as "discontinued operations" in the
consolidated statement of operations and consolidated statement of cash flows
for all periods presented in this Quarterly Report on Form 10-Q. 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.

SIGNIFICANT ACCOUNTING POLICIES

Effective July 1, 2002, the Company adopted the FASB standard, Accounting for
Asset Retirement Obligations, which requires the fair value of a liability for
an asset retirement legal obligation to be recognized in the period in which it
is incurred and when the amount of the liability can be reasonably estimated.
When the liability is initially recorded, associated costs are capitalized by
increasing the carrying amount of the related long-lived asset. Over time, the
liability is accreted to its present value each period, and the capitalized cost
is depreciated over the useful life of the related asset. In certain rate
jurisdictions, the Company is permitted to include annual charges for cost of
removal in its regulated cost of service rates charged to customers. The
adoption of the Statement did not have a material impact on the Company's
financial position, results of operations or cash flows for all periods
presented.

Also effective July 1, 2002, the Company adopted the FASB standard, Accounting
for the Impairment or Disposal of Long-Lived Assets. The Statement provides new
guidance on the recognition of impairment losses on long-lived assets to be held
and used or to be disposed of and also broadens the definition of what
constitutes a discontinued operation and how the results of a discontinued
operation are to be measured and presented. Under the Statement, assets held for
sale that are a component of an entity will be included in discontinued
operations if the operations and cash flows will be or have been eliminated from
the ongoing operations of the entity and the entity will not have any
significant continuing involvement in the operations prospectively. The
Statement is not expected to materially change the methods the Company uses to
measure impairment losses on long-lived assets, but will result in additional
future dispositions being reported as discontinued operations than was
previously permitted.


In December 2002, the FASB issued Accounting for Stock-Based Compensation-
Transition and Disclosure. This statement amends the previous standard,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for an entity that voluntarily changes to a fair value based method
of accounting for stock-based employee compensation and amends disclosure
provisions of that standard to require prominent disclosure about the effects on
reported net income of an entity's accounting policy decisions with respect to
such compensation. The Company expects to continue to account for stock-based
compensation in accordance with Accounting Principles Board opinion, Accounting
for Stock Issued to Employees, and will provide the prominent disclosures
required in its annual and future interim financial statements.


PENDING ACQUISITIONS

On December 22, 2002, the Company along with AIG Highstar Capital, L.P. (AIG
Highstar), a private equity fund sponsored by American International Group, Inc.
(AIG), reached a definitive agreement with CMS Energy Corporation to acquire the
CMS Panhandle Companies (CMS Panhandle). The agreement calls for a newly formed
entity, Southern Union Panhandle Corporation, owned approximately 78% by
Southern Union and 22% by AIG Highstar to acquire CMS Panhandle for
approximately $662 million in cash and the assumption of $1.166 billion in debt.
The CMS Panhandle Companies include CMS Panhandle Eastern Pipe Line Company, CMS
Trunkline Gas Company, CMS Trunkline LNG Company, which operates an LNG terminal
complex at Lake Charles, La., and CMS Sea Robin Pipeline Company. The CMS
Panhandle Companies operate almost 11,000 miles of mainline natural gas pipeline
extending from the Gulf of Mexico to the Midwest and Canada. These pipelines
access the major natural gas supply regions of the Louisiana and Texas Gulf
Coasts as well as the Midcontinent and Rocky Mountains. The pipelines have a
combined peak day delivery capacity of 5.4 billion cubic feet per day, 88
billion cubic feet of underground storage capacity and 6.3 billion cubic feet of
above ground LNG storage facilities. The transaction has been approved by the
boards of directors of all companies and will close following clearance by the
Federal Trade Commission under the Hart-Scott-Rodino Act and certain state
regulatory approvals. This acquisition will be funded in part by proceeds
received from the January 2003 sale of Southern Union Gas and related assets
discussed below.

DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

Effective January 1, 2003, the Company completed the sale of its Southern Union
Gas natural gas operating division and related assets to ONEOK, Inc. for
approximately $420,000,000 in cash, resulting in a pre-tax gain of approximately
$75,000,000 that will be recorded during the third quarter ending March 31,
2003. In addition to Southern Union Gas, the sale involved the disposition of
Mercado Gas Services, Inc. (Mercado), SUPro Energy Company (SUPro), Southern
Transmission Company (STC), Southern Union Energy International, Inc. (SUEI),
Southern Union International Investments, Inc. (Investments) and Norteno
Pipeline Company (Norteno) (collectively, the Texas Operations). Southern Union
Gas distributes natural gas as a public utility to approximately 535,000
customers throughout Texas, including the cities of Austin, El Paso,
Brownsville, Galveston and Port Arthur. Mercado markets natural gas to
commercial and industrial customers. SUPro provides propane gas services to
approximately 4,000 customers located principally in Austin, El Paso and Alpine,
Texas as well as Las Cruces, New Mexico and surrounding communities. STC owns
and operates 118.8 miles of intrastate pipeline that serves commercial,
industrial and utility customers in central, south and coastal Texas. SUEI and
Investments participate in energy-related projects internationally. Energia
Estrella del Sur, S. A. de C. V., a wholly-owned Mexican subsidiary of SUEI and
Investments, has a 43% equity ownership in a natural gas distribution company,
along with other related operations, which currently serves 23,000 customers in
Piedras Negras, Mexico, across the border from Southern Union Gas' Eagle Pass,
Texas service area. Norteno owns and operates interstate pipelines that serve
the gas distribution properties of Southern Union Gas and the Public Service
Company of New Mexico. Norteno also transports gas through its interstate
network to the country of Mexico for Pemex Gas y Petroquimica Basica. The
Company plans to re-deploy substantially all the sales proceeds towards its
pending acquisition of CMS Panhandle.

The following table summarizes the major classes of the Texas Operations' assets
and liabilities that have been segregated and reported as "held for sale" in the
Company's consolidated balance sheet:
<TABLE>
<CAPTION>

                                                                    December 31,         June 30,
ASSETS:                                                          2002         2001        2002
                                                              ---------    ---------    ---------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Property, plant and equipment:
    Utility plant, at cost ................................   $ 516,203    $ 490,421    $ 504,015
    Accumulated depreciation and amortization .............    (221,573)    (209,203)    (217,425)
                                                              ---------    ---------    ---------
       Net property, plant and equipment ..................     294,630      281,218      286,590
Current assets ............................................      73,568       84,908       29,677
Goodwill, net .............................................      70,469       70,469       70,469
Deferred charges and other assets .........................       8,184       10,757        8,710
                                                              ---------    ---------    ---------
          Total assets held for sale ......................   $ 446,851    $ 447,352    $ 395,446
                                                              =========    =========    =========

LIABILITIES:
Current liabilities .......................................   $  61,277    $  50,172    $  43,874
Deferred credits and other liabilities ....................      18,940       18,684       22,046
                                                              ---------    ---------    ---------
          Total liabilities related to assets held for sale   $  80,217    $  68,856    $  65,920
                                                              =========    =========    =========

</TABLE>

<PAGE>


The following table summarizes the Texas Operations' results of operations that
have been segregated and reported as "discontinued operations" in the Company's
consolidated statement of operations:
<TABLE>
<CAPTION>

                                                 Three Months Ended     Six Months Ended    Twelve Months Ended
                                                     December 31,         December 31,          December 31,
                                                  2002        2001      2002       2001       2002       2001
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Operating revenues ..........................   $ 96,801   $ 90,010   $144,490   $143,400   $311,490   $408,968
                                                ========   ========   ========   ========   ========   ========

Net operating margin (a) ....................   $ 29,860   $ 31,954   $ 51,480   $ 50,859   $106,350   $107,403
                                                ========   ========   ========   ========   ========   ========

Net earnings from discontinued operations (b)   $ 10,900   $  9,932   $ 13,591   $ 10,110   $ 25,120   $ 20,182
                                                ========   ========   ========   ========   ========   ========
</TABLE>
-------------------------------------
(a)  Net operating margin consists of operating revenues less gas purchase costs
     and revenue-related taxes.
(b)  Net earnings from discontinued operations do not include any allocation of
     interest expense or other corporate costs, in accordance with generally
     accepted accounting principles. All outstanding debt of Southern Union
     Company and subsidiaries is maintained at the corporate level, and no debt
     was assumed by ONEOK, Inc. in the sale of the Texas Operations.


DIVESTITURES

In April 2002, PG Energy Services Inc. ("Energy Services"), a wholly-owned
subsidiary of Southern Union, sold its propane operations for $2,300,000,
resulting in a pre-tax gain of $1,200,000.

In December 2001, Southern Transmission Company, a wholly-owned 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 (collectively, the
Florida Operations), for $10,000,000, resulting in a pre-tax loss of $1,500,000.

In October 2001, Morris Merchants, a wholly-owned subsidiary of Southern Union
which served as a manufacturers' representative agency for franchised plumbing
and heating contract supplies throughout New England, was sold for $1,586,000.
In September 2001, Valley Propane, a wholly-owned subsidiary of the Company
which sold liquid propane to residential, commercial and industrial customers,
was sold for $5,301,000. In August 2001, ProvEnergy Oil, a wholly-owned
subsidiary of Southern Union which operated a fuel oil distribution business
through its subsidiary, ProvEnergy Fuels, Inc. for residential and commercial
customers, was sold for $15,776,000. No financial gain or loss was recognized on
any of these sales transactions.

In July 2001, Energy Services sold its commercial and industrial natural gas
marketing contracts for $4,972,000, resulting in a pre-tax gain of $4,653,000.

In June 2001, Keystone Pipeline Services, Inc., a wholly-owned subsidiary of
Energy Services which engaged in the construction, maintenance, and
rehabilitation of natural gas distribution pipelines, was sold for $3,300,000,
resulting in a pre-tax gain of $707,000.


<PAGE>


EARNINGS PER SHARE

The following table summarizes the Company's basic and diluted earnings per
share calculations for the three-, six- and twelve-month periods ending December
31:
<TABLE>
<CAPTION>

                                                     Three Months Ended         Six Months Ended       Twelve Months Ended
                                                         December 31,              December 31,             December 31,
                                                   ----------------------    ----------------------    ----------------------
                                                       2002        2001         2002        2001          2002        2001
                                                   ----------  -----------   ----------  ----------    ----------   ---------
<S>                                                <C>         <C>           <C>        <C>           <C>          <C>
Net earnings (loss) from continuing operations .   $   18,519  $     9,818   $    9,333 $   (20,763)  $    28,081  $   21,106
Net earnings from discontinued operations.......       10,900        9,932       13,591      10,110        25,120      20,182
                                                   ----------  -----------   ---------- -----------   -----------  ----------


Net earnings (loss) available for common stock..   $   29,419  $    19,750   $   22,924 $   (10,653)  $    53,201  $   41,288
                                                   ==========  ===========   ========== ===========   ===========  ==========

Weighted average shares outstanding - basic.....   54,206,735   53,323,421   54,010,349  54,187,335    53,797,778  54,622,089
                                                  ===========  ===========   ========== ===========   ===========  ==========
Weighted average shares outstanding - diluted...   55,937,697   56,389,022   55,875,307  54,187,335    56,002,239  57,807,411
                                                  ===========  ===========   ========== ===========   ===========  ==========

Basic earnings per share:
   Net earnings (loss) from continuing operations $      0.34  $      0.18   $     0.17 $    (0.38)   $      0.52 $      0.39
   Net earnings from discontinued operations....         0.20         0.19         0.25       0.18           0.47        0.37
                                                   ----------  -----------   ---------- ----------    ----------- -----------
   Net earnings (loss) available for common stock $      0.54  $      0.37   $     0.42 $    (0.20)   $      0.99 $      0.76
                                                  ===========  ===========   ========== ==========    =========== ===========

Diluted earnings per share:
   Net earnings (loss) from continuing operations $      0.33  $      0.17   $    0.17  $    (0.38)   $      0.50 $      0.37
   Net earnings from discontinued operations....         0.20         0.18        0.24        0.18           0.45        0.34
                                                  -----------  -----------   ---------  ----------    ----------- -----------
   Net earnings (loss) available for common stock $      0.53  $      0.35   $    0.41  $    (0.20)   $      0.95 $      0.71
                                                  ===========  ===========   =========  ==========    =========== ===========

</TABLE>


Diluted earnings per share include average shares outstanding as well as common
stock equivalents from stock options and warrants. Common stock equivalents were
519,777 and 1,807,455 for the three-month period ended December 31, 2002 and
2001, respectively; 678,689 and 1,978,504 for the six-month period ended
December 31, 2002 and 2001, respectively; and 1,004,935 and 1,992,308 for the
twelve-month period ended December 31, 2002 and 2001, respectively. Stock
options to purchase 2,278,092, 2,278,092 and 1,658,070 shares of common stock
were outstanding during the three-, six- and twelve-month periods ended December
31, 2002, respectively, but were not included in the computation of diluted
earnings per share because the options' exercise price was greater than the
average market price of the common shares during the respective period. There
were no "antidilutive" options outstanding for the same periods in 2001. At
December 31, 2002, 1,225,061 shares of common stock were held by various rabbi
trusts for certain of the Company's benefit plans and 48,615 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.


GOODWILL

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

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 $1,417,000 was recognized in depreciation and amortization
from continuing operations and an impairment loss of $1,941,000 was recognized
in discontinued operations 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 $7,872,000 was eliminated
during the quarter ended December 31, 2001. As a result of the sale of the Texas
Operations in January 2003, goodwill of $70,469,000 was classified as "held for
sale" at December 31, 2002 and will be eliminated during the third quarter ended
March 31, 2003.


<PAGE>


DEFERRED CHARGES AND CREDITS
                                       December 31,  June 30,
                                            2002       2002
                                          --------   --------
Deferred Charges
   Pensions ...........................   $ 52,288   $ 52,481
   Income taxes .......................     24,661     24,000
   Unamortized debt expense ...........     33,831     33,897
   Retirement costs other than pensions     31,412     33,032
   Service Line Replacement Program ...     20,149     21,360
   Environmental ......................     14,365     16,646
   Other ..............................     25,787     24,714
                                          --------   --------
      Total Deferred Charges ..........   $202,493   $206,130
                                          ========   ========

As of December 31, 2002 and June 30, 2002, the Company's deferred charges
include regulatory assets in the aggregate amount of $79,771,000 and
$91,116,000, respectively, of which $53,659,000 and $66,301,000, respectively,
is being recovered through current rates. As of December 31, 2002 and June 30,
2002, the remaining recovery period associated with these assets ranges from 1
to 223 months and from 7 months to 230 months, respectively. None of these
regulatory assets, which primarily relate to pensions, retirement costs other
than pensions, income taxes, Year 2000 costs, Missouri Gas Energy's Service Line
Replacement program and environmental remediation costs, are included in rate
base. The Company records regulatory assets in accordance with the FASB
standard, Accounting for the Effects of Certain Types of Regulation.


                                        December 31, June 30,
                                           2002       2002
                                         --------   --------
Deferred Credits
  Pensions ...........................   $ 41,354   $ 45,642
  Retirement costs other than pensions     32,527     37,669
  Customer advances for construction .     11,737     11,119
  Environmental ......................     14,268      7,206
  Investment tax credit ..............      5,742      6,082
  Self-insurance .....................      6,520      6,208
  Other ..............................     33,311     29,917
                                         --------   --------
    Total Deferred Credits ...........   $145,459   $143,843
                                         ========   ========

The Company's deferred credits include regulatory liabilities in the aggregate
amount of $14,078,000 and $6,389,000, respectively, at December 31, 2002, and
June 30, 2002. These regulatory liabilities primarily relate to retirement
benefits other than pensions, environmental insurance recoveries and income
taxes. The Company records regulatory liabilities in accordance with the FASB
standard, Accounting for the Effects of Certain Types of Regulation.

INVESTMENT SECURITIES

At December 31, 2002, the Company held securities of Capstone Turbine
Corporation (Capstone). This investment is classified as "available for sale"
under the FASB standard Accounting for Certain Investments in Debt and Equity
Securities. As of December 31, 2002, the Company's investment in Capstone had a
fair value of $630,000 and unrealized gains, net of tax, related to this
investment were $257,000. 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.

<PAGE>


All other securities owned by the Company are accounted for under the cost
method. The Company's other investments in securities consist of common and
preferred stock in non-public companies whose value is not readily determinable.
Various Southern Union executive management, Board of Directors and employees
also have an equity ownership in certain of these investments.

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, including the availability and
terms of any additional financing requirements; financial condition and
prospects of the issuer's region and industry, customers and markets 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

On August 6, 2002, Southwest Gas Corporation ("Southwest") agreed to pay
Southern Union $17,500,000 to settle the Company's claims of fraud and bad faith
breach of contract related to Southern Union's attempts to purchase Southwest.
The settlement resulted in a pre-tax gain and cash flow of $17,500,000 for the
quarter ended September 30, 2002.

During the quarter ended September 30, 2001, the Company settled three interest
rate swaps that were not designated as hedges and did not meet the criteria for
hedge accounting, 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.

Cash Flow Hedges The Company is party to an interest rate swap created to manage
exposure against volatility in interest payments on variable rate debt and which
qualifies for hedge accounting. As of December 31, 2002, the derivative
liability related to this designated cash flow hedge had a fair value of
$321,000 and is classified under other current liabilities in the consolidated
financial statements. For the six-month period ended December 31, 2002, the
Company recorded net settlement payments of $316,000 on this swap through
interest expense, and unrealized gains of $129,000, net of taxes, through
accumulated other comprehensive income. Hedge ineffectiveness, which is recorded
in interest expense, was immaterial. No component of the swaps' gain or loss was
excluded from the assessment of hedge effectiveness. As of December 31, 2002,
the Company expects to reclassify as interest expense $186,000 in derivative
losses, net of taxes, from accumulated other comprehensive income as the
settlement of swap payments occur over the next eleven months. The maximum
length of time over which the Company is hedging its exposure to the payment of
variable interest rates is 11 months.

Trading and Non-Hedging Activities 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. For the six-month period ended December 31, 2002, the
Company recorded $302,000 through other income relating to the expiration of
contracts resulting from this trading activity. The majority of the remaining
deferred liability of $1,415,000 at December 31, 2002 related to these
derivative instruments will be recognized as income in the consolidated
statement of operations over the next 30 months based on the related contracts.


<PAGE>



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. Since
May 17, 2000, the Subordinated Notes have been redeemable at the option of the
Company, 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
December 31, 2002 and 2001, 4,000,000 shares of Preferred Securities were
outstanding.


DEBT AND CAPITAL LEASE

                                                          December 31,  June 30,
                                                            2002         2002
                                                         ----------   ----------


7.60% Senior Notes, due 2024 .........................   $  359,765   $  362,515
8.25% Senior Notes, due 2029 .........................      300,000      300,000
Term Note, due 2002 ..................................         --        350,000
Term Note, due 2005 ..................................      311,087         --
5.62% to 10.25% First Mortgage Bonds, due 2003 to 2029      115,911      147,888
7.70% Debentures, due 2027 ...........................        6,756        6,776
Capital lease and other ..............................       14,927       23,234
                                                         ----------   ----------
Total debt and capital lease .........................    1,108,446    1,190,413
    Less current portion .............................       67,190      108,203
                                                         ----------   ----------
Total long-term debt and capital lease ...............   $1,041,256   $1,082,210
                                                         ==========   ==========

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 December 31, 2002, the capital lease obligation outstanding was
$14,396,000 with a fixed rate of 5.79%.

Credit Facilities On June 10, 2002, the Company entered into an amended
short-term credit facility in the amount of $150,000,000 (the "Short-Term
Facility"), that matures on June 9, 2003. Also on June 10, 2002, the Company
amended the terms and conditions of its $225,000,000 long-term credit facility
(the "Long-Term Facility"), which expires on May 29, 2004. The Company has
additional availability under uncommitted line of credit facilities (Uncommitted
Facilities) with various banks. Borrowings under the facilities are available
for Southern Union's working capital, letter of credit requirements and other
general corporate purposes. The Short-Term Facility and the Long-Term Facility
(together, the "Facilities") are subject to a commitment fee based on the rating
of the Senior Notes. As of December 31, 2002, the commitment fees were an
annualized 0.14% on the Facilities. The interest rate on borrowings on the
Facilities is calculated based upon a formula using the LIBOR or prime interest
rates. A balance of $290,000,000 was outstanding under the Facilities at
December 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) all related
acquisition costs. On July 16, 2002, the Company repaid the Term Note with the
proceeds from the issuance of a $311,087,000 Term Note dated July 15, 2002 (the
"2002 Term Note") and borrowings under the Company's lines of credit. The 2002
Term Note is held by a syndicate of banks and requires semi-annual principal
repayments on February 15th and August 15th of each year, with payments of
$25,000,000 each being due February 15, 2003, August 15, 2003, February 15,
2004, and August 15, 2004 and payments of $35,000,000 each being due February
15, 2005 and August 15, 2005. The remaining principal amount of $141,087,000 is
due August 26, 2005. The 2002 Term Note carries a variable interest rate that is
tied to either the LIBOR or prime rates at the Company's option. No additional
draws can be made on the Term Note.






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 also 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.

Rhode Island On May 24, 2002, the Rhode Island Public Utilities Commission
(RIPUC) approved a settlement agreement between the New England Gas Company and
the RIPUC. The settlement agreement resulted in a $3,900,000 decrease in base
revenues effective July 1, 2002 for New England Gas Company's Rhode Island
operations, a unified rate structure ("One State; One Rate") and an
integration/merger savings mechanism. The settlement agreement also allows New
England Gas Company to retain $2,049,000 of merger savings and to share
incremental earnings with customers when the division's Rhode Island operations
return on equity exceeds 11.25%. Included in the settlement agreement was a
conversion to therm billing and the approval of a reconciling Distribution
Adjustment Clause (DAC). The DAC allows New England Gas Company to continue its
low income assistance and weatherization programs, to recover environmental
response costs over a 10-year period, puts into place a new weather
normalization clause and allows for the sharing of nonfirm margins (non-firm
margin is margin earned from interruptible customers with the ability to switch
to alternative fuels). The weather normalization clause is designed to mitigate
the impact of weather volatility on customer billings, which will assist
customers in paying bills and stabilize the revenue stream. New England Gas
Company will defer the margin impact of weather that is greater than 2%
colder-than-normal and will recover the margin impact of weather that is greater
than 2% warmer-than-normal. The non-firm margin incentive mechanism allows New
England Gas Company to retain 25% of all non-firm margins earned in excess of
$1,600,000.

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 Texas, Arizona and New Mexico,
and present service territories in 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 ("MGP") 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"). 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, and MGE
subsequently performed environmental assessments of Stations A and B and
submitted the results of these assessments to MDNR. On September 6, 2002, MGE
submitted a work plan for the remediation of Station A to MDNR. Following MDNR's
approval of the Station A work plan, the Company selected a qualified
remediation contractor in a competitive bidding process. The Company anticipates
beginning remediation of Station A in the first calendar quarter of 2003.

In August 2001, MGE received a demand from the Port Authority for MGE to assume
responsibility for remediation of soil and groundwater at property owned by the
Port Authority adjacent to MGE's Stations A and B. The Port Authority intends to
develop its property adjacent to MGE as a commercial and residential area (the
"Riverfront Redevelopment Site"), and seeks to have MGE and other parties who
may be responsible remediate contamination on the Port Authority property
allegedly resulting from the historic manufactured gas plant operations.
Honeywell International Inc. has also been identified as a potentially
responsible party, as the alleged successor to a tar manufacturing operation
formerly located on a portion of the Port Authority property known as the
Riverfront Development. MGE and other parties owning property in the area have
performed assessments in 2001 and early 2002 of their own and of the alleged
contaminated portions of the Port Authority property.

In a letter dated July 24, 2002, the Port Authority demanded that the Company
assume full financial responsibility for the design and implementation of a
remedial action plan on the Riverfront Redevelopment Site allowing the Port
Authority to obtain an "unrestricted" clearance for redevelopment of the site.
The Port Authority provided MGE with several proposed remedial options and
preliminary cost estimates for those options. MGE currently disputes the Port
Authority's estimates and proposals, and believes that the cost of remediation
of the Port Authority property could be significantly lower, pending further
investigation, analysis and determination of appropriate soil and groundwater
remedial standards. Accordingly, the Company sent the Port Authority a letter
dated August 27, 2002, containing an alternative proposal for the remediation of
a portion of the Port Authority's property. MGE's own estimate of the cost to
perform its alternative proposal and obtain a "no further action" letter from
MDNR for the portion of the Riverfront Redevelopment Site for which it is
potentially responsible is less than $2 million. MGE continues to work with the
Port Authority and MDNR toward resolution of the appropriate scope of
investigation and remediation at the Riverfront Redevelopment Site.

Providence, Rhode Island Sites During 1995, Providence Gas began an
environmental evaluation at its primary gas distribution facility located at 642
Allens Avenue in Providence, Rhode Island. Environmental studies and a
subsequent remediation work plan were completed at an approximate cost of $4.5
million. Providence Gas also began a soil remediation project on a portion of
the site in July 1999. As of June 30, 2001, approximately $8.9 million had been
expended on soil remediation under the remediation work plan. Based on the
results of the environmental investigation and the site information learned
during the performance of work under the remediation work plan, on January 15,
2002, the Company requested and subsequently received authorization from RIDEM
to make certain specific modifications to the 1999 Remedial Action Work Plan. On
April 17, 2002, RIDEM issued a Temporary Remedial Action Permit for Phase 1
remediation at the site. A contractor was selected by the Company in a
competitive bidding process. Work on Phase 1 of the site remediation was
initiated on April 17, 2002, and was completed on October 10, 2002. The
approximate cost of the environmental work conducted since April 17, 2002 is $4
million. Remediation of the remaining 37.5 acres of the site (known as the
"Phase 2" remediation project) is not scheduled at this time.

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 operator of the property at that time, Cargill,
Inc., 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 September 30, 2002 were approximately $300,000. Until RIDEM
provides its final response to the investigation, and the Company knows it's
ultimate responsibility respective to other potentially responsible parties with
respect to the site, the Company cannot offer any conclusions as to its ultimate
financial responsibility with respect to the site.

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 a settlement 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.

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.

Pennsylvania Sites PG Energy recently received inquiries from the Pennsylvania
Department of Environmental Protection ("PADEP") pertaining to three former
manufactured gas plant sites. PG Energy has participated in another Pennsylvania
Utility's assessment of one site for the purpose of evaluating any environmental
threat from the former gas manufacture operations at this site. In addition, PG
Energy has met with PADEP representatives concerning two other sites and is
currently performing environmental assessment work at one of the sites.

To the extent that potential costs associated with former MGPs are quantified,
the Company expects to provide any appropriate accruals and seek recovery for
such remediation costs through all appropriate means, including in rates charged
to customers, insurance and regulatory relief. 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 Missouri Gas Energy. In addition,
the New England Division has reached agreement with its Rhode Island rate
regulators on a regulatory plan that creates a mechanism for the recovery of
environmental costs over a 10-year period. This plan, effective July 1, 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.

In certain of the Company's jurisdictions the Company is allowed to recover
environmental remediation expenditures through rates. Although significant
charges to earnings could be required prior to rate recovery for jurisdictions
that do not have rate recovery mechanisms, 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.

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 to approximately
$8,500,000. 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; these
issues were settled in December 2002 for a non-material amount. In August 2002,
the Supreme Court of Texas granted the Company's petition for review. Oral
arguments were made to the Court on November 20, 2002. Effective January 1,
2003, all potential remaining liability for this case was assigned to ONEOK as
part of the sale of the Company's Texas Operations to ONEOK.

On May 31, 2002, the staff of the MPSC recommended that the Commission disallow
approximately $15 million in gas costs incurred during the period July 1, 2000
through June 30, 2001. Missouri Gas Energy filed its response in opposition to
the Staff's recommendation on July 11, 2002, vigorously disputing the Commission
staff's assertions. Missouri Gas Energy intends to vigorously defend itself in
this proceeding. On November 4, 2002, the Commission adopted a procedural
schedule setting the matter for hearing in May of 2003.

On November 27, 2001, August 1, 2000 and August 12, 1999, the staff of the MPSC
recommended that the Commission disallow approximately $5.9 million, $5.9
million and $4.3 million, respectively, in gas costs incurred during the period
July 1, 1999 through June 30, 2000, July 1, 1998 through June 30, 1999, and July
1, 1997 through June 30, 1998, respectively. The basis of these proposed
disallowances appears to be the same as was rejected by the Commission through
an order dated March 12, 2002, applicable to the period July 1, 1996 through
June 30, 1997. MGE intends to vigorously defend itself in these proceedings. On
November 4, 2002, the Commission adopted a procedural schedule calling for a
hearing in this matter some time after May of 2003.

Southwest Gas Litigation Several actions were commenced by persons involved in
competing efforts to acquire Southwest Gas Corporation (Southwest) during 1999.
All of these actions eventually were transferred to the District of Arizona (the
Court), consolidated and lodged with Judge Roslyn Silver. As a result of summary
judgments granted, there are no claims remaining against Southern Union.
Southern Union's claims against Southwest were settled on August 6, 2002, by
Southwest's payment to Southern Union of $17,500,000. Southern Union's claims
against ONEOK, Inc. and the individual defendants associated with ONEOK were
settled on January 3, 2003, following the closing of Southern Union's sale of
the Texas assets to ONEOK, by ONEOK's payment to Southern Union of $5,000,000.
Southern Union's claims against Jack Rose, former aide to Arizona Corporation
Commissioner James Irvin, were settled by Mr. Rose's payment to Southern Union
of $75,000, which the Company donated to charity. The trial of Southern Union's
claims against the sole-remaining defendant, Arizona Corporation Commissioner
James Irvin, was concluded on December 18, 2002, with a jury award to Southern
Union of nearly $400,000 in actual damages and $60,000,000 in punitive damages
against Commissioner Irvin. The Court is currently in the process of considering
Commissioner Irvin's post-trial motions for relief.

With the exception of ongoing legal fees associated with the aforementioned
litigation, the Company believes that the results of the above-noted Southwest
litigation and any related appeals will not have a materially adverse effect on
the Company's financial condition, results of operations or cash flows.

Other 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, Management does not consider these actions to
be material to Southern Union's overall business or financial condition, results
of operations or cash flows.

<PAGE>


                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

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



Overview Currently, the Company's core business is the distribution of natural
gas as a public utility through its Missouri Gas Energy, PG Energy, and New
England Gas Company divisions. Upon the completion of the acquisition of CMS
Panhandle Companies, Southern Union will own approximately a 78% interest in
various natural gas transportation pipelines and liquefied natural gas (LNG)
facilities. This acquisition will be funded in part by proceeds received from
the January 2003 sale of Southern Union Gas and related assets as discussed
below.

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.


Discontinued Operations and Assets Held For Sale Effective January 1, 2003, the
Company completed the sale of its Southern Union Gas natural gas operating
division and related assets to ONEOK, Inc. for approximately $420,000,000 in
cash, resulting in a pre-tax gain of approximately $75,000,000 that will be
recorded during the third quarter ending March 31, 2003. In addition to Southern
Union Gas, the sale involved the disposition of Mercado Gas Services, Inc.
(Mercado), SUPro Energy Company (SUPro), Southern Transmission Company (STC),
Southern Union Energy International, Inc. (SUEI), Southern Union International
Investments, Inc. (Investments) and Norteno Pipeline Company (Norteno)
(collectively, the Texas Operations). Southern Union Gas distributes natural gas
as a public utility to approximately 535,000 customers throughout Texas,
including the cities of Austin, El Paso, Brownsville, Galveston and Port Arthur.
Mercado markets natural gas to commercial and industrial customers. SUPro
provides propane gas services to approximately 4,000 customers located
principally in Austin, El Paso and Alpine, Texas as well as Las Cruces, New
Mexico and surrounding communities. STC owns and operates 118.8 miles of
intrastate pipeline that serves commercial, industrial and utility customers in
central, south and coastal Texas. SUEI and Investments participate in
energy-related projects internationally. Energia Estrella del Sur, S. A. de C.
V., a wholly-owned Mexican subsidiary of SUEI and Investments, has a 43% equity
ownership in a natural gas distribution company, along with other related
operations, which currently serves 23,000 customers in Piedras Negras, Mexico,
across the border from Southern Union Gas' Eagle Pass, Texas service area.
Norteno owns and operates interstate pipelines that serve the gas distribution
properties of Southern Union Gas and the Public Service Company of New Mexico.
Norteno also transports gas through its interstate network to the country of
Mexico for Pemex Gas y Petroquimica Basica. The Company plans to re-deploy
substantially all the sales proceeds towards its pending acquisition of CMS
Panhandle. The Company anticipates that the proceeds from the sale will qualify
as part of a like-kind exchange of property covered by Section 1031 of the
Internal Revenue Code thereby enabling the Company to achieve certain tax
savings.


Divestitures In April 2002, PG Energy Services Inc. ("Energy Services"), a
wholly-owned subsidiary of Southern Union, sold its propane operations for
$2,300,000, resulting in a pre-tax gain of $1,200,000.

In December 2001, Southern Transmission Company, a wholly-owned 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 (collectively, the
Florida Operations), for $10,000,000, resulting in a pre-tax loss of $1,500,000.

In October 2001, Morris Merchants, a wholly-owned subsidiary of Southern Union
which served as a manufacturers' representative agency for franchised plumbing
and heating contract supplies throughout New England, was sold for $1,586,000.
In September 2001, Valley Propane, a wholly-owned subsidiary of the Company
which sold liquid propane to residential, commercial and industrial customers,
was sold for $5,301,000. In August 2001, ProvEnergy Oil, a wholly-owned
subsidiary of Southern Union which operated a fuel oil distribution business
through its subsidiary, ProvEnergy Fuels, Inc. for residential and commercial
customers, was sold for $15,776,000. No financial gain or loss was recognized on
any of these sales transactions.

In July 2001, Energy Services sold its commercial and industrial natural gas
marketing contracts for $4,972,000, resulting in a pre-tax gain of $4,653,000.

In June 2001, Keystone Pipeline Services, Inc., a wholly-owned subsidiary of
Energy Services which engaged in the construction, maintenance, and
rehabilitation of natural gas distribution pipelines, was sold for $3,300,000,
resulting in a pre-tax gain of $707,000.

As a result of the divestiture of non-core business assets and the seasonal
nature of gas utility operations, the results of operations for the three-, six-
and twelve-month periods ended December 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 December 31, 2002 and 2001

The Company recorded net earnings available for common stock of $29,419,000 for
the three-month period ended December 31, 2002 compared with net earnings of
$19,750,000 for the same period in 2001. Earnings per diluted share were $.53 in
2002 compared with $.35 in 2001.

Continuing Operations Net earnings from continuing operations were $18,519,000
for the three-month period ended December 31, 2002 compared with $9,818,000 for
the same period in 2001. Earnings from continuing operations per diluted share
were $.33 in 2002 compared with $.17 in 2001.

Operating revenues were $346,104,000 for the three-month period ended December
31, 2002, compared with $286,431,000 in 2001. Gas purchase and other energy
costs for the three-month period ended December 31, 2002 were $215,505,000,
compared with $172,818,000 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 increase in both operating revenues and gas purchase costs
between periods was primarily due to a 30% increase in gas sales volumes to
38,549 MMcf in 2002 from 29,684 MMcf in 2001, which was partially offset by a 4%
decrease in the average cost of gas from $5.82 per Mcf in 2001 to $5.59 per Mcf
in 2002. The increase in gas sales volumes is primarily due to near-normal
weather in 2002 as compared with warmer-than-normal weather in 2001, in all of
the Company's service territories. The decrease in the average cost of gas was
due to the ability to inject lower cost gas into storage during the summer of
2002 thereby lowering the overall cost of gas used during the winter. Current
average spot market prices throughout the Company's distribution system have
increased from 2001 to 2002.

Weather in Missouri Gas Energy's service territories was 102% of a 30-year
measure for the three-month period ended December 31, 2002, compared with 77% in
2001. PG Energy's service territories experienced weather that was 106% of a
30-year measure in 2002, compared with 82% in 2001. Weather for the New England
Gas Company service territories was 103% of a 30-year measure for the
three-month period ended December 31, 2002, compared with 86% in 2001.

Operating margin (operating revenues less gas purchase and other energy costs
and revenue-related taxes) increased $14,045,000 for the three-month period
ended December 31, 2002 compared with the same period in 2001. Operating margin
increased principally as a result of colder-than-normal weather in 2002 as
compared with warmer-than-normal weather in 2001, previously discussed.

Operating expenses, which include operating, maintenance and general expenses,
depreciation and amortization, and taxes other than on income and revenues, were
$62,529,000 for the three-month period ended December 31, 2002, a decrease of
$680,000, compared with $63,209,000 in 2001. Operating expenses for the quarter
ended December 31, 2002 continue to be impacted by the Company's Cash Flow
Improvement Plan announced in July 2001 and discussed below. This Plan was
designed to improve pre-tax cash flow and control operating costs. Savings from
this Plan were partially offset by increased pension and other postretirement
benefits costs, primarily due to volatility in the stock markets.

Interest expense was $20,742,000 for the three-month period ended December 31,
2002, compared with $21,736,000 in 2001. Interest expense primarily decreased
due to a $221,292,000 reduction in long-term debt principal since December 31,
2001 which was partially offset by a $75,050,000 increase in notes payable
outstanding since December 31, 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. A portion of the Term Note was refinanced on July 16,
2002. See Debt and Capital Lease in the Notes to the Consolidated Financial
Statements included herein. The average effective interest rate for the
three-month period ending December 31, 2002 increased to 6.0% as compared to
5.7% in 2001 primarily due to the reduction in lower-cost bank debt as a
percentage of total debt.

Other expense for the three-month period ended December 31, 2002 was $2,712,000
compared with other expense of $836,000 in 2001. Other expense for the
three-month period ended December 31, 2002 includes $2,838,000 of legal costs
related to the Southwest litigation and $1,298,000 of selling costs related to
the Texas Operations' disposition. These items were partially offset by $669,000
of income generated from the sale and/or rental of gas-fired equipment and
appliances by various operating subsidiaries and $79,000 of interest and
dividend income. Other expense for the three-month period ended December 31,
2001 includes $3,300,000 of Southwest litigation costs and a $1,500,000 loss on
the sale of 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). These items were partially offset by the
recognition of $1,976,000 of previously recorded deferred income related to
financial derivative energy trading activity of a former subsidiary, $666,000 of
income generated from the sale and/or rental of gas-fired equipment and
appliances, a $561,000 gain on the sale of other assets and $284,000 of interest
and dividend income.

The consolidated federal and state effective income tax rate was 38% for the
three-month periods ended December 31, 2002 and 2001.


Discontinued Operations Net earnings from discontinued operations were
$10,900,000 for the three-month period ended December 31, 2002 compared with
$9,932,000 for the same period in 2001. Earnings from discontinued operations
per diluted share were $.20 in 2002 compared with $.18 in 2001. The increase in
earnings from discontinued operations was impacted by a $3,579,000 pre-tax
reduction in depreciation expense which was partially offset by a $2,094,000
decrease in operating margin. In accordance with the FASB standard, Accounting
for the Impairment or Disposal of Long-Lived Assets, once the assets of the
Texas Operations were deemed to be "held for sale" in October 2002, depreciation
of such asset ceased. Operating margin decreased due to a reduction in gas sales
volumes from 14,507 MMcf in 2001 to 14,193 MMcf in 2002, as well as certain lost
and unaccounted for cost of gas adjustments made during the three-month period
ending December 31, 2002.


Six Months Ended December 31, 2002 and 2001

The Company recorded net earnings available for common stock of $22,924,000 for
the six-month period ended December 31, 2002 compared with a net loss
attributable to common stock of $10,653,000 in 2001. Net earnings per diluted
share were $.41 in 2002 compared with a net loss per common share, based on
weighted average shares outstanding during the period, of $.20 in 2001.

Continuing Operations Net earnings from continuing operations were $9,333,000
for the six-month period ended December 31, 2002 compared with a loss of
$20,763,000 for the same period in 2001. Earnings from continuing operations per
diluted share were $.17 in 2002 compared with a loss per common share of $.38 in
2001.

Operating revenues were $445,814,000 for the six-month period ended December 31,
2002, compared with $407,010,000 in 2001. Gas purchase and other energy costs
for the six-month period ended December 31, 2002 were $257,565,000, compared
with $233,447,000 in 2001. The increase in both operating revenues and gas
purchase costs between periods was primarily due to a 22% increase in sales
volume from 37,886 MMcf in 2001 to 46,039 MMcf in 2002, which was partially
offset by an 8% decrease in the average cost of gas from $6.09 per Mcf in 2001
to $5.59 per Mcf in 2002. The increase in gas sales volumes is primarily due to
colder weather in 2002 as compared with 2001 in all of the Company's service
territories. The decrease in the average cost of gas was due to the ability to
inject lower cost gas into storage during the summer of 2002 thereby lowering
the overall cost of gas used during the winter.  Current average spot market
prices throughout the Company's distribution system have increased from 2001
to 2002.

Weather in Missouri Gas Energy's service territories was 99% of a 30-year
measure for the six-month period ended December 31, 2002, compared with 77% in
2001. PG Energy's service territories experienced weather that was 103% of a
30-year measure in 2002, compared with 85% in 2001. Weather for the New England
Gas Company service territories was 99% of a 30-year measure for the six-month
period ended December 31, 2002, compared with 87% in 2001.

Operating margin increased $12,464,000 for the six-month period ended December
31, 2002 compared with the same period in 2001. Operating margin increased
principally as a result of near-normal weather in 2002 as compared with
warmer-than-normal weather in 2001, previously discussed.

Operating expenses, excluding business restructuring charges, were $124,782,000
for the six-month period ended December 31, 2002, a decrease of $3,353,000,
compared with operating expenses of $128,135,000 in 2001. In connection with the
Company's Cash Flow Improvement Plan announced in July 2001 and discussed below,
the Company offered Early Retirement Programs ("ERPs") in certain of its
operating divisions and a limited reduction in force ("RIF") within its
corporate offices and began the divesture of certain non-core assets which
contributed savings of $2,712,000 in operating expenses during the six-month
period ended December 31, 2002, as compared with 2001. The Company also realized
an increase in environmental insurance recoveries of $1,768,000 in 2002 as
compared with 2001. Additionally, the Company recognized a goodwill impairment
loss of $1,417,000 in depreciation and amortization expense in 2001, based on
prices of comparable businesses for various non-core properties. These items
were partially offset by increased pension and other postretirement benefit
costs, primarily due to volatility in the stock markets, during the six-month
period ended December 31, 2002.

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 ERPs in certain of its operating
divisions and (ii) a limited 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 where forty-eight employees were offered severance packages. In
connection with the corporate reorganization and restructuring efforts, the
Company recorded a one-time charge of $30,553,000 during the quarter ended
September 30, 2001. This charge was reduced by $1,394,000 during the quarter
ended June 30, 2002, as a result of the Company's ability to negotiate more
favorable terms on certain of its restructuring liabilities. The charge
included: $16.4 million of voluntary and accepted ERP's, primarily through
enhanced benefit plan obligations, and other employee benefit plan obligations;
$6.8 million of RIF within the corporate offices and related employee separation
benefits; and $6.0 million connected with various business realignment and
restructuring initiatives. All restructuring actions were completed as of June
30, 2002.

Interest expense was $41,743,000 for the six-month period ended December 31,
2002 compared with $48,721,000 in 2001. Interest expense decreased primarily due
to the reduction in the principal on the previously mentioned Term Note. See
Debt and Capital Lease in the Notes to the Consolidated Financial Statements
included herein.

Other income for the six-month period ended December 31, 2002 was $13,726,000
compared with $22,640,000 in 2001. Other income for the six-month period ended
December 31, 2002 includes a gain of $17,500,000 on the settlement of the
Southwest litigation, income of $1,242,000 generated from the sale and/or rental
of gas-fired equipment and appliances and $345,000 of interest and dividend
income. These items were partially offset by $4,969,000 of legal costs related
to the Southwest litigation and $1,298,000 of selling costs related to the Texas
Operations' disposition. Other income for the six-month period ended December
31, 2001 includes gains of $17,166,000 generated through the settlement of
several interest rate swaps, a gain of $4,653,000 realized through the sale of
marketing contracts held by PG Energy Services Inc., the recognition of
$2,333,000 in previously recorded deferred income related to financial
derivative energy trading activity of a former subsidiary, $1,402,000 of income
generated from the sale and/or rental of gas-fired equipment and appliances,
$884,000 of interest and dividend income and a $561,000 gain on the sale of
other assets. These items were partially offset by $4,906,000 of Southwest
litigation costs and a $1,500,000 loss on the sale of the Florida Operations.

The consolidated federal and state effective income tax rate was 38% and 30% for
the six-month period ended December 31, 2002 and 2001, respectively. The
increase in the effective tax rate is a result of the level of pre-tax earnings.

Discontinued Operations Net earnings from discontinued operations were
$13,591,000 for the six-month period ended December 31, 2002 compared with
$10,110,000 for the same period in 2001. Earnings from discontinued operations
per diluted share were $.24 in 2002 compared with $.18 in 2001. The increase in
earnings from discontinued operations was impacted by a $3,579,000 pre-tax
reduction in depreciation expense, previously discussed. Additionally, the Texas
Operations recorded a one-time charge of $2,153,000 during the quarter ended
September 30, 2001 in connection with the previously discussed reorganization
and restructuring efforts under the Cash Flow Improvement Plan. The Texas
Operations also recognized a goodwill impairment loss of $1,941,000 in 2001,
based on prices of comparable businesses for certain non-core properties.

Twelve Months Ended December 31, 2002 and 2001

The Company recorded net earnings available for common stock of $53,201,000 for
the twelve-month period ended December 31, 2002 compared with net earnings of
$41,288,000 in 2001. Earnings per diluted share were $.95 in 2002 compared with
$.71 in 2001.

Continuing Operations Net earnings from continuing operations were $28,081,000
for the twelve-month period ended December 31, 2002 compared with $21,106,000
for the same period in 2001. Earnings from continuing operations per diluted
share were $.50 in 2002 compared with $.37 in 2001.

Operating revenues were $1,018,954,000 for the twelve-month period ended
December 31, 2002, compared with $1,324,447,000 in 2001. Gas purchase and other
energy costs for the twelve-month period ended December 31, 2002 were
$596,732,000, compared with $891,517,000 in 2001. The decrease in both operating
revenues and gas purchase costs between periods was primarily due to a 26%
decrease in the average cost of gas from $7.37 per Mcf in 2001 to $5.43 per Mcf
in 2002. The decrease in the average cost of gas is due to decreases in average
spot market prices throughout the Company's distribution system as a result of
seasonal impacts on demands for natural gas as well as the current competitive
pricing occurring within the entire energy industry. Sales volume slightly
decreased from 109,950 MMcf in 2001 to 109,573 MMcf in 2002, as weather was
fairly consistent in both twelve-month periods.

Weather in Missouri Gas Energy's service territories was 93% of a 30-year
measure for the twelve-month period ended December 31, 2002, compared with 91%
in 2001. PG Energy's service territories experienced weather that was 93% of a
30-year measure in both 2002 and 2001. Weather for the New England Gas Company
service territories was 93% of a 30-year measure for the twelve-month period
ended December 31, 2002, compared with 96% in 2001.

Operating margin decreased $3,740,000 for the twelve-month period ended December
31, 2002 compared with the same period in 2001. The decrease in operating margin
is primarily due to a net margin decrease of $9,245,000 in operating margin
between periods due to the sale of the Florida Operations and various non-core
subsidiaries in New England. 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, excluding business restructuring charges, which were
previously discussed, were $251,785,000 for the twelve-month period ended
December 31, 2002, a decrease of $40,077,000, compared with operating expenses
of $291,862,000 in 2001. Operating expenses for the twelve-month period ended
December 31, 2002 were positively impacted by a reduction in bad debt expense of
$14,942,000 due to a decrease in delinquent customer receivables as a result of
lower gas prices, realized savings of approximately $9,500,000 from the Cash
Flow Improvement Plan, reduced operating expenses of $6,914,000 from the sale of
non-core assets, an increase in environmental insurance recoveries of $2,343,000
in 2002, the recognition of the previously discussed goodwill impairment of
$1,417,000 for the twelve-month period ended December 31, 2001, and the
elimination of goodwill amortization resulting from the Company's adoption of
Goodwill and Other Intangible Assets effective July 1, 2001. In accordance with
this Statement, the Company has ceased the amortization of goodwill, which
generated $8,643,000 of expense during the twelve-months ended December 31,
2001, and currently accounts for goodwill on an impairment-only basis. See
Goodwill in the Notes to the Consolidated Financial Statements included herein.
Additionally, taxes other than on income, which consists of property, payroll
and state franchise taxes, decreased by $3,602,000 for the twelve-month period
ended December 31, 2002, primarily due to a reduction in employees resulting
from the Company's reorganization and restructuring initiatives as well as from
the sale of non-core subsidiaries and assets. These items were partially offset
by increased pension and other postretirement benefits costs, previously
discussed.

Interest expense was $84,015,000 for the twelve-month period ended December 31,
2002 compared with $105,302,000 in 2001. Interest expense decreased primarily
due to the reduction in the principal on the previously mentioned Term Note. See
Debt and Capital Lease in the Notes to the Consolidated Financial Statements
included herein.

Other income for the twelve-month period ended December 31, 2002 was $2,999,000
compared to $84,068,000 in 2001. Other income for the twelve-month period ended
December 31, 2002 includes a gain of $17,500,000 on the settlement of the
Southwest litigation, the recognition of $4,173,000 in previously recorded
deferred income related to financial derivative energy trading activity of a
former subsidiary and income of $2,195,000 generated from the sale and/or rental
of gas-fired equipment and appliances. These items were partially offset by a
non-cash charge of $10,380,000 to reserve for the impairment of the Company's
investment in a technology company, $9,162,000 of legal costs related to the
Southwest litigation and $1,298,000 of selling costs related to the Texas
Operations' disposition. Other income for the twelve-month period ended December
31, 2001, includes realized gains on the sale of investment securities of
$65,713,000, gains of $17,166,000 generated through the settlement of several
interest rate swaps, interest and dividend income of $4,907,000, a gain of
$4,653,000 realized through the sale of marketing contracts held by PG Energy
Services Inc., income of $2,625,000 generated from the sale and/or rental of
gas-fired equipment and appliances and the recognition of $2,333,000 of
previously recorded deferred income related to financial derivative energy
trading activity of a former subsidiary. These items were partially offset by
$12,863,000 of Southwest litigation costs and a $1,500,000 loss on the sale of
the Florida Operations.

The consolidated federal and state effective income tax rate was 39% and 43% for
the six-month period ended December 31, 2002 and 2001, respectively. The decline
in the effective tax rate is a result of non-tax deductible amortization and
write-off of goodwill, along with the level of pre-tax earnings.


Discontinued Operations Net earnings from discontinued operations were
$25,120,000 for the twelve-month period ended December 31, 2002 compared with
$20,182,000 for the same period in 2001. Earnings from discontinued operations
per diluted share were $.45 in 2002 compared with $.34 in 2001. The increase in
earnings from discontinued operations was impacted by a $3,579,000 pre-tax
reduction in depreciation expense, previously discussed. Additionally, the Texas
Operations were also impacted by the previously discussed one-time charge of
$2,153,000 during the quarter ended September 30, 2001 in connection with the
reorganization and restructuring efforts under the Cash Flow Improvement Plan, a
goodwill impairment loss of $1,941,000 in 2001 and the elimination of $1,237,000
in goodwill amortization resulting from the Company's adoption of Goodwill and
Other Intangible Assets effective July 1, 2001. These items were partially
offset by the recognition of $3,359,000 of income related to financial
derivative energy trading activity of a former subsidiary for the twelve-month
period ended December 31, 2001.







<PAGE>


The following table sets forth certain information regarding the Company's gas
utility operations for the three- and twelve-month periods ended December 31,
2002 and 2001:
<TABLE>
<CAPTION>
                                                                  Three Months                Twelve Months
                                                                Ended December 31,          Ended December 31,
                                                               2002         2001            2002          2001
                                                            ---------    -----------     ----------   ------------

<S>     <C>    <C>    <C>    <C>    <C>    <C>
Average number of gas sales customers served:
     Residential ......................................       838,892        836,542        838,950        836,617
     Commercial .......................................       100,279         94,304         97,830         95,084
     Industrial and irrigation ........................           778          3,973          2,415          4,044
     Public authorities and other .....................           521            351            446            351
                                                          -----------    -----------    -----------    -----------
          Total average customers served ..............       940,470        935,170        939,641        936,096
                                                          ===========    ===========    ===========    ===========

Gas sales in millions of cubic feet (MMcf)
     Residential ......................................        19,589         13,991         75,514         78,327
     Commercial .......................................         7,890          5,590         29,698         31,413
     Industrial and irrigation ........................           865            786          3,552          3,975
     Public authorities and other .....................           115             47            237            292
                                                          -----------    -----------    -----------    -----------
          Gas sales billed ............................        28,459         20,414        109,001        114,007
     Net change in unbilled gas sales .................        10,090          9,270            572         (4,057)
                                                          -----------    -----------    -----------    -----------
          Total gas sales .............................        38,549         29,684        109,573        109,950
                                                          ===========    ===========    ===========    ===========

Gas sales revenues (thousands of dollars):
     Residential ......................................   $   182,019    $   155,046    $   697,587    $   866,642
     Commercial .......................................        65,283         53,773        243,014        321,535
     Industrial and irrigation ........................         5,787          7,086         26,329         36,259
     Public authorities and other .....................           657            425          1,732          2,155
                                                          -----------    -----------    -----------    -----------
          Gas revenues billed .........................       253,746        216,330        968,662      1,226,591
     Net change in unbilled gas sales revenues ........        77,813         57,986            106        (37,688)
                                                          -----------    -----------    -----------    -----------
          Total gas sales revenues ....................   $   331,559    $   274,316    $   968,768    $ 1,188,903
                                                          ===========    ===========    ===========    ===========

Gas sales revenue per thousand cubic feet (Mcf) billed:
     Residential ......................................   $      9.29    $     11.08    $      9.24    $     11.06
     Commercial .......................................          8.27           9.62           8.18          10.24
     Industrial and irrigation ........................          6.69           9.02           7.41           9.12
     Public authorities and other .....................          5.71           9.04           7.31           7.38

Weather:
     Degree days:
          Missouri Gas Energy service territories .....         1,995          1,504          4,862          4,645
          PG Energy service territories ...............         2,325          1,800          5,803          5,848
          New England Gas Company service territories .         2,034          1,695          5,326          5,519
     Percent of normal based on 30-year measure:
          Missouri Gas Energy service territories .....           102%            77%            93%            91%
          PG Energy service territories ...............           106%            82%            93%            93%
          New England Gas Company service territories .           103%            86%            93%            96%

Gas transported in millions of cubic feet (MMcf) ......        18,236         17,505         65,683         64,399
Gas transportation revenues (thousands of dollars) ....   $    11,040    $    10,208    $    37,748    $    34,875
</TABLE>

The above information does not include the Company's Texas Operations, which
were sold effective January 1, 2003 and are reported as discontinued operations
in the consolidated statement of operations for all periods ended December 31,
2002 and 2001. 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.








<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 June 10, 2002, the Company entered into an amended short-term credit facility
in the amount of $150,000,000 (the "Short-Term Facility"), that matures on June
9, 2003. Also on June 10, 2002, the Company amended the terms and conditions of
its $225,000,000 long-term credit facility (the "Long-Term Facility"), which
expires on May 29, 2004. The Company has additional availability under
uncommitted line of credit facilities (Uncommitted Facilities) with various
banks. Borrowings under the facilities are available for Southern Union's
working capital, letter of credit requirements and other general corporate
purposes. The Short-Term Facility and the Long-Term Facility (together, the
"Facilities") are subject to a commitment fee based on the rating of the Senior
Notes. As of December 31, 2002, the commitment fees were an annualized 0.13% on
the Facilities. The interest rate on borrowings on the Facilities is calculated
based upon a formula using the LIBOR or prime interest rates. A balance of
$290,000,000 was outstanding under the Facilities at December 31, 2002 and
$245,000,000 at February 7, 2003.

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) all related acquisition
costs. On July 16, 2002, the Company repaid the Term Note with the proceeds from
the issuance of a $311,087,000 Term Note dated July 15, 2002 (the "2002 Term
Note") and borrowings under the Company's lines of credit. No additional draws
can be made on the Term Note.

The principal source of funds during the three-month period ended December 31,
2002 included $59,300,000 in net borrowings under revolving credit facilities.
This provided funds of $38,949,000 for the repayment of debt and capital lease
obligations and $18,206,000 for on-going property, plant and equipment
additions.

The principal source of funds during the six-month period ended December 31,
2002 were $311,087,000 from the issuance of long-term debt and $158,200,000 in
net borrowings under revolving credit facilities. This provided funds of
$393,054,000 for the repayment of debt and capital lease obligations and
$38,106,000 for on-going property, plant and equipment additions; as well as
seasonal working capital needs of the Company.


The effective interest rate under the Company's current debt structure is 6.59%
(including interest and the amortization of debt issuance costs and redemption
premiums on refinanced debt).

The Company retains its borrowing availability under the 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 January 7, 2003, the Company filed a shelf registration for $800,000,000 of
debt securities, common stock, and preferred stock . Upon the Securities and
Exchange Commission declaring this shelf registration effective, Southern Union
may sell such securities up to such amounts from time to time, at prices
determined at the time of any such offering. The Company currently has
regulatory approval to issue up to $88,900,000 of these securities for certain
uses, and is currently seeking regulatory approval to issue additional amounts.



<PAGE>


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,
2002.

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, 2002, 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

Pending Acquisitions On December 22, 2002, the Company along with AIG Highstar
Capital, L.P. (AIG Highstar), a private equity fund sponsored by American
International Group, Inc. (AIG), reached a definitive agreement with CMS Energy
Corporation to acquire the CMS Panhandle Companies (CMS Panhandle). The
agreement calls for a newly formed entity, Southern Union Panhandle Corporation,
owned approximately 78% by Southern Union and 22% by AIG Highstar to acquire CMS
Panhandle for approximately $662 million in cash and the assumption of $1.166
billion in debt. The CMS Panhandle Companies include CMS Panhandle Eastern Pipe
Line Company, CMS Trunkline Gas Company, CMS Trunkline LNG Company, which
operates an LNG terminal complex at Lake Charles, La., and CMS Sea Robin
Pipeline Company. The CMS Panhandle Companies operate almost 11,000 miles of
mainline natural gas pipeline extending from the Gulf of Mexico to the Midwest
and Canada. These pipelines access the major natural gas supply regions of the
Louisiana and Texas Gulf Coasts as well as the Midcontinent and Rocky Mountains.
The pipelines have a combined peak day delivery capacity of 5.4 billion cubic
feet per day, 88 billion cubic feet of underground storage capacity and 6.3
billion cubic feet of above ground LNG storage facilities. The transaction has
been approved by the boards of directors of all companies and will close
following clearance by the Federal Trade Commission under the Hart-Scott-Rodino
Act and certain state regulatory approvals. Southern Union's portion of this
acquisition will be funded in part by proceeds received from the January 2003
sale of Southern Union Gas and related assets, previously discussed.

Management Agreement On November 20, 2002, EnergyWorx, a wholly-owned subsidiary
of Southern Union Company entered into a management services agreement with
Southern Star Central Corporation (Southern Star), a wholly-owned subsidiary of
AIG Highstar Capital, L.P. The assets under management by EnergyWorx consist
primarily of the Southern Star Central Gas Pipeline which Southern Star
purchased from Williams Gas Pipeline on November 15, 2002. These assets include
an interstate natural gas pipeline with a transport capacity of 2.3 Bcf per day
which traverses seven states and storage fields providing a seasonal storage
capacity of 43 Bcf. Southern Star reimburses EnergyWorx for its expenses and
provides EnergWorx with the opportunity to earn certain performance related fees
upon the achievement of certain performance goals.


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,
including the availability and terms of any additional financing requirements;
financial condition and prospects of the issuer's region and industry, customers
and markets 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.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Management's Discussion and Analysis of Results of Operations and Financial
Condition 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 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; ability to access
capital markets on reasonable terms; the possibility of war or terrorism
attacks; 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.




<PAGE>


                     SOUTHERN UNION COMPANY AND SUBSIDIARIES



CONTROLS AND PROCEDURES

We performed an evaluation within the 90-day period prior to the filing of this
quarterly report under the supervision and with the participation of our
management, including our Chief Executive Officer ("CEO") and Chief Financial
Officer ("CFO"), and with the participation of personnel from our Legal,
Internal Audit, Risk Management and Financial Reporting Departments, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on that evaluation, our CEO and CFO concluded that our
disclosure controls and procedures were effective as of December 31, 2002 and
have communicated that determination to the Audit Committee of our Board of
Directors. There have been no significant changes in our internal controls or
other factors that could significantly affect internal controls subsequent to
December 31, 2002.



<PAGE>






RESULTS OF VOTES OF SECURITY HOLDERS

Southern Union held its Annual Meeting of Stockholders on November 5, 2002. The
following matter was submitted for a vote by Southern Union's security holders:
the election of three persons to serve as the Class III directors until the 2005
Annual Meeting of Stockholders or until their successors are duly elected and
qualified.

The number of votes cast for, abstaining or withheld for each nominee for
director at the Annual Meeting of Stockholders, were:
<TABLE>
<CAPTION>

                                                               For       Abstaining       Withheld

<S>     <C>    <C>    <C>    <C>    <C>    <C>
Election of nominees as Class III Directors:
     George L. Lindemann                                   43,196,511         --          2,381,740
     David Brodsky                                         43,702,564         --            875,686
     Thomas F. Karam                                       43,178,413         --          2,399,837


</TABLE>


<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       February 14, 2003            By   DAVID J. KVAPIL
     ------------------------------          --------------------------------
                                             David J. Kvapil
                                             Executive Vice President
                                             and Chief Financial Officer


<PAGE>









                                  CERTIFICATION

I, George L. Lindemann, certify that:

(1)        I have reviewed this quarterly report on Form 10-Q of Southern Union
           Company;

(2)        Based on my knowledge, this quarterly report does not contain any
           untrue statement of a material fact or omit to state a material fact
           necessary to make the statements made, in light of the circumstances
           under which such statements were made, not misleading with respect to
           the period covered by this quarterly report;

(3)        Based on my knowledge, the financial statements, and other financial
           information included in this quarterly report, fairly present in all
           material respects the financial condition, results of operations and
           cash flows of the registrant as of, and for, the periods presented in
           this quarterly report;

(4)        The registrant's other certifying officer and I are responsible for
           establishing and maintaining disclosure controls and procedures (as
           defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
           and we have:

      (a)  designed such disclosure controls and procedures to ensure that
           material information relating to the registrant, including its
           consolidated subsidiaries, is made known to us by others within those
           entities, particularly during the period in which this quarterly
           report is being prepared;

      (b)  evaluated the effectiveness of the registrant's disclosure controls
           and procedures as of a date within 90 days prior to the filing date
           of this quarterly report (the "Evaluation Date"); and

      (c)  presented in this quarterly report our conclusions about the
           effectiveness of the disclosure controls and procedures based on our
           evaluation as of the Evaluation Date;

(5)        The registrant's other certifying officer and I have disclosed, based
           on our most recent evaluation, to the registrant's auditors and the
           Audit Committee of the Company's Board of Directors:

      (a)  all significant deficiencies in the design or operation of internal
           controls which could adversely affect the registrant's ability to
           record, process, summarize and report financial data and have
           identified for the registrant's auditors any material weaknesses in
           internal controls; and

      (b)  any fraud, whether or not material, that involves management or other
           employees who have a significant role in the registrant's internal
           controls; and

(6)        The registrant's other certifying officer and I have indicated in
           this quarterly report whether or not there were significant changes
           in internal controls or in other factors that could significantly
           affect internal controls subsequent to the date of our most recent
           evaluation, including any corrective actions with regard to
           significant deficiencies and material weaknesses.




GEORGE L. LINDEMANN
----------------------------------------------------------
George L. Lindemann
Chairman of the Board and
Chief Executive Officer
February 14, 2003

<PAGE>


                                  CERTIFICATION

I, David J. Kvapil, certify that:

(1)       I have reviewed this quarterly report on Form 10-Q of Southern Union
          Company;

(2)       Based on my knowledge, this quarterly report does not contain any
          untrue statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this quarterly report;

(3)       Based on my knowledge, the financial statements, and other financial
          information included in this quarterly report, fairly present in all
          material respects the financial condition, results of operations and
          cash flows of the registrant as of, and for, the periods presented in
          this quarterly report;

(4)       The registrant's other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
          and we have:

     (a)  designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this quarterly
          report is being prepared;

     (b)  evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     (c)  presented in this quarterly report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

(5)       The registrant's other certifying officer and I have disclosed, based
          on our most recent evaluation, to the registrant's auditors and the
          Audit Committee of the Company's Board of Directors:

     (a)  all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     (b)  any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

(6)       The registrant's other certifying officer and I have indicated in this
          quarterly report whether or not there were significant changes in
          internal controls or in other factors that could significantly affect
          internal controls subsequent to the date of our most recent
          evaluation, including any corrective actions with regard to
          significant deficiencies and material weaknesses.




DAVID J. KVAPIL
----------------------------------------------------------
David J. Kvapil
Executive Vice President and
Chief Financial Officer
February 14, 2003


<PAGE>





                                                                   Exhibit 99.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Form 10-Q of Southern Union Company (the
"Company") for the quarter ended December 31, 2002, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, George L.
Lindemann, Chairman of the Board and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that the Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended,
and the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.



GEORGE L. LINDEMANN
----------------------------------------------------------
George L. Lindemann
Chairman of the Board and
Chief Executive Officer
February 14, 2003







<PAGE>

                                                                   Exhibit 99.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Form 10-Q of Southern Union Company (the
"Company") for the quarter ended December 31, 2002, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, David J. Kvapil,
Executive Vice President and Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that the Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended,
and the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.




DAVID J. KVAPIL
----------------------------------------------------------
David J. Kvapil
Executive Vice President and
Chief Financial Officer
February 14, 2003