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


                                   FORM 10-Q/A
                                 Amendment No. 1


                         For the quarterly period ended

                                December 31, 2000


                           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.)



     504 Lavaca Street, Eighth Floor                         78701
              Austin, Texas                                (Zip Code)
 (Address of principal executive offices)


       Registrant's telephone number, including area code: (512) 477-5852


           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 T No

The number of shares of the registrant's Common Stock outstanding on February 8,
2001 was 50,972,091.




<PAGE>






                     SOUTHERN UNION COMPANY AND SUBSIDIARIES
                                   FORM 10-Q/A
                                December 31, 2000
                                      Index




PART I.  FINANCIAL INFORMATION                                        Page(s)

     Item 1.  Financial Statements

              Consolidated statements of operations - three, six and twelve
                  months ended December 31, 2000 and 1999              2-4

              Consolidated balance sheet - December 31, 2000 and 1999 and June
30, 2000 5-6

              Consolidated statement of stockholders' equity - six months ended
                  December 31, 2000 and twelve months ended June 30, 1999 7

         Consolidated statements of cash flows - three, six and twelve months
                  ended December 31, 2000 and 1999 8-10

              Notes to consolidated financial statements              11-21

     Item 2.  Management's Discussion and Analysis of Financial
                  Condition and Results                               22-30
                  of Operations

     Item 3.  Quantitative and Qualitative Disclosures about Market Risk  30

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) Reports on Form 8-K -- Announcement of completed
                      acquisitions of Valley Resources on September 20, 2000,
                      Providence Energy Corporation on September 28, 2000 and
                      Fall River Gas Company on September 28, 2000
                      (Filed on October 5, 2000)




<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS



                                                 Three Months Ended December 31,
                                                     2000            1999
                                                 ------------    -----------
                                                         (Restated)
                                            (thousands of dollars, except shares
                                                 and per share amounts)

Operating revenues ...........................   $    605,339    $    239,595
Cost of gas and other energy .................        433,925         145,113
                                                 ------------    ------------
     Operating margin ........................        171,414          94,482
Revenue-related taxes ........................         23,854          11,256
                                                 ------------    ------------
     Net operating margin ....................        147,560          83,226
Operating expenses:
     Operating, maintenance and general ......         62,151          34,194
     Depreciation and amortization ...........         23,738          13,500
     Taxes, other than on income and revenues           7,950           4,634
----------------------------------------------   ------------    ------------
          Total operating expenses ...........         93,839          52,328
----------------------------------------------   ------------    ------------
          Net operating revenues .............         53,721          30,898
                                                 ------------    ------------
Other income (expense):
     Interest ...............................        (30,303)        (13,299)
     Dividends on preferred securities of
       subsidiary trust .....................         (2,370)         (2,370)
     Other, net .............................         14,911          (3,336)
                                                 ------------    ------------
          Total other expenses, net .........        (17,762)        (19,005)
                                                ------------    ------------
          Earnings before income taxes ......         35,959          11,893
Federal and state income taxes ..............         16,641           4,761
                                                ------------    ------------
Net earnings available for common stock .....   $     19,318    $      7,132
                                                ============    ============
Net earnings per share:
     Basic ..................................   $        .39    $        .16
                                                ============    ============
     Diluted ................................   $        .37    $        .16
                                                ============    ============
Weighted average shares outstanding:
     Basic .................................     49,924,123      43,421,029
                                               ============    ============
     Diluted ...............................     52,749,286      45,383,264
                                               ============    ============

                             See accompanying notes.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>



                                                              Six Months Ended December 31,
                                                                 2000              1999
                                                             ------------     ------------
                                                                      (Restated)
                                                            (thousands of dollars, except
                                                             shares and per share amounts)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Operating revenues .......................................   $    749,808    $   324,381
Cost of gas and other energy .............................        518,458        184,390
----------------------------------------------------------   ------------    -----------
     Operating margin .....................................      231,350         139,991
Revenue-related taxes .....................................       28,933          15,220
                                                             ------------    ------------
     Net operating margin .................................      202,417         124,771
Operating expenses:
     Operating, maintenance and general ...................       99,169          59,458
     Depreciation and amortization ........................       39,704          24,348
     Taxes, other than on income and revenues .............       12,810           8,259
                                                            ------------    ------------
          Total operating expenses ........................      151,683          92,065
                                                            ------------    ------------
          Net operating revenues ..........................       50,734          32,706
                                                            ------------    ------------
Other income (expense):
     Interest .............................................      (46,609)        (21,663)
     Dividends on preferred securities of subsidiary trust        (4,740)         (4,740)
     Other, net ...........................................        9,397          (4,493)
                                                            ------------    ------------
          Total other expenses, net ......................       (41,952)        (30,896)
                                                            ------------    ------------
          Earnings before income taxes and cumulative effect of
              change in accounting principle .............         8,782           1,810
Federal and state income taxes ...........................         4,040             778
                                                            ------------    ------------
Earnings before cumulative effect of change in
   accounting principle ..................................        4,742            1,032
Cumulative effect of change in accounting principle,
  net of tax .............................................         602                --
                                                            ------------    ------------
Net earnings available for common stock ..................  $      5,344    $      1,032
                                                            ============    ============

Net earnings per share:
     Basic
          Before cumulative effect of change in
            accounting principle ........................   $        .10    $       .03
          Cumulative effect of change in accounting
            principle, net of tax .......................            .01             --
---------------------------------------------------------   ------------    -----------
                                                            $        .11    $       .03
=========================================================   ============    ===========
     Diluted
          Before cumulative effect of change in
            accounting principle .......................    $        .09    $       .03
          Cumulative effect of change in accounting
            principle, net of tax ......................             .01             --
---------------------------------------------------------   ------------    -----------
                                                            $        .10    $       .03
===========================================================   ============  ===========
Weighted average shares outstanding:
     Basic ................................................     49,255,805   37,944,658
===========================================================   ============  ===========
     Diluted ..............................................     51,889,835   39,831,493
===========================================================   ============  ============


</TABLE>




                             See accompanying notes.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>


                                                                          Twelve Months Ended December 31,
                                                                              2000               1999
                                                                          -------------     --------------
                                                                                   (Restated)
                                                                            (thousands of dollars, except
                                                                           shares and per share amounts)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Operating revenues ......................................................   $  1,257,131    $    677,933
Cost of gas and other energy ............................................        831,767         388,078
                                                                            ------------    ------------
     Operating margin ...................................................        425,364         289,855
Revenue-related taxes ...................................................         48,608          34,573
                                                                            ------------    ------------
     Net operating margin ...............................................        376,756         255,282

Operating expenses:
     Operating, maintenance and general .................................        176,298         116,030
     Depreciation and amortization ......................................         70,495          45,291
     Taxes, other than on income and revenues ...........................         21,820          15,768
                                                                            ------------    ------------
          Total operating expenses ......................................        268,613         177,089
                                                                            ------------    ------------
          Net operating revenues ........................................        108,143          78,193
                                                                            ------------    ------------
Other income (expense):
     Interest ...........................................................        (76,438)        (39,779)
     Dividends on preferred securities of subsidiary trust ..............         (9,480)         (9,480)
     Other, net .........................................................          4,183          (6,870)
                                                                             ------------    -----------
          Total other expenses, net .....................................        (81,735)        (56,129)
                                                                             ------------    -----------

          Earnings before income taxes and cumulative effect of
              change in accounting principle ............................         26,408          22,064

Federal and state income taxes ..........................................         12,853           8,913
                                                                            ------------    ------------

Earnings before cumulative effect of change in accounting principle .....         13,555          13,151

Cumulative effect of change in accounting principle, net of tax .........            602            --
                                                                            ------------    ------------
Net earnings available for common stock .................................   $     14,157    $     13,151
                                                                            ============    ============

Net earnings per share:
     Basic
          Before cumulative effect of change in accounting principle ....   $        .28    $        .37

          Cumulative effect of change in accounting principle, net of tax            .01             --
                                                                            ------------    ------------
                                                                            $        .29    $        .37

     Diluted
          Before cumulative effect of change in accounting principle ....   $         .27   $        .35

          Cumulative effect of change in accounting principle, net of tax             .01             --
                                                                             ------------   ------------
                                                                            $        .28    $        .35
                                                                            ============    ============


Weighted average shares outstanding:
     Basic ..............................................................    49,080,587      35,359,486
                                                                           ============    ============
     Diluted ............................................................    51,417,448      37,071,537
                                                                           ============    ============


</TABLE>


                             See accompanying notes.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

     ASSETS

<TABLE>
<CAPTION>


                                                                        December 31,             June 30,
                                                                  ------------------------
                                                                     2000         1999             2000
                                                                 -----------   -------------  -------------
                                                                          (Restated)              (Restated)
                                                                              (thousands of dollars)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Property, plant and equipment:
     Plant in service ........................................   $ 2,162,069    $ 1,529,005    $ 1,580,077
     Construction work in progress ...........................        30,611         33,414         30,192
                                                                 -----------    -----------    -----------
                                                                    2,192,680      1,562,419     1,610,269
     Less accumulated depreciation and amortization ..........      (746,779)      (489,223)      (509,947)
--------------------------------------------------------------   -----------    -----------    -----------
                                                                   1,445,901      1,073,196      1,100,322
     Additional purchase cost assigned  to utility plant, net        733,893        388,472        386,839
                                                                 -----------    -----------    -----------

     Net property, plant and equipment .......................     2,179,794      1,461,668      1,487,161
--------------------------------------------------------------   -----------    -----------    -----------
Current assets:
     Cash and cash equivalents ..............................         7,840           --           27,829
     Accounts receivable, billed and unbilled, net ..........       410,419        149,233         74,959
     Inventories, principally at average cost ...............       118,543         70,405         60,259
     Deferred gas purchase costs ............................        32,110           --               --
     Investment securities available for sale ...............       105,587           --          187,817
     Prepayments and other ..................................        14,296          7,141            877
                                                                -----------    -----------    -----------
          Total current assets ..............................       688,795        226,779       351,741
                                                                -----------    -----------    ----------
Deferred charges ............................................       209,594       133,022        145,006
Investment securities, at cost ..............................       20,081         12,160         10,489
Real estate .................................................        2,599         12,520          9,461
Other .......................................................       37,815         15,021         17,602
                                                               -----------    -----------    -----------
     Total assets ..........................................   $ 3,138,678    $ 1,861,170    $ 2,021,460
                                                               ===========    ===========    ===========


</TABLE>





                             See accompanying notes.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEET (Continued)

                      STOCKHOLDERS' EQUITY AND LIABILITIES
<TABLE>
<CAPTION>



                                                                     December 31,             June 30,
                                                              -------------------------
                                                                  2000         1999             2000
                                                              ----------     -----------    ------------
                                                                      (Restated)              (Restated)
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                                           (thousands of dollars)

Common stockholders' equity:
     Common stock, $1 par value; authorized 200,000,000
         shares; issued 51,982,168 shares .................   $    51,982    $    48,049    $    50,521
     Premium on capital stock .............................       626,251        592,097        599,835
     Less treasury stock, 1,010,077 shares at cost ........       (15,895)        (2,120)       (15,554)
     Less common stock held in trust ......................       (16,990)       (10,019)       (15,330)

     Directors deferred compensation ......................           899            712            808
     Accumulated other comprehensive income (loss) ........        62,983           (436)       115,175
     Retained earnings ....................................         5,344          1,032             --
-----------------------------------------------------------   -----------    -----------    -----------
     Total common stockholders' equity ....................       714,574        629,315        735,455


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 ...............     1,375,760        734,878        733,774
-----------------------------------------------------------   -----------    -----------    -----------
     Total capitalization .................................    2,190,334      1,464,193      1,569,229

Current liabilities:
     Long-term debt and capital lease obligation due within
          one year ........................................         5,173          1,971          2,193
     Notes payable ........................................       175,000         12,903              3
     Accounts payable .....................................       282,110         75,294         77,488
     Federal, state and local taxes .......................        27,761         12,467          7,359
     Accrued interest .....................................        21,290         16,278         15,922
     Customer deposits ....................................        20,952         17,834         17,255
     Deferred gas purchase costs ..........................          --           19,292         11,708
     Other ................................................        72,187         20,231         30,778
-----------------------------------------------------------   -----------    -----------    -----------
         Total current liabilities ........................       604,473        176,270        162,706
-----------------------------------------------------------   -----------    -----------    -----------


Deferred credits and other ................................       148,240         98,131        106,015
Accumulated deferred income taxes .........................       195,631        122,576        183,510

Commitments and contingencies .............................          --             --               --
                                                              -----------    -----------    -----------

     Total ................................................   $ 3,138,678    $ 1,861,170    $ 2,021,460
===========================================================   ===========    ===========    ===========


</TABLE>



                             See accompanying notes.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>


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


Balance July 1, 1999 ......................$  31,240  $  276,610   $      (794)   $  (4,927)   $    (436) $        --  $ 301,693

   Comprehensive income:
     Net earnings (restated) ..............      --           --          --           --           --          9,845      9,845
     Unrealized gain in investment
       securities, net of tax .............      --           --          --           --        115,175         --      115,175
     Minimum pension liability
       adjustment; net of tax .............      --           --          --           --            436         --          436
     Comprehensive income .................                                                                              125,456
   Purchase of common stock
     held in trust ........................      --           --          --         (9,864)      --             --       (9,864)
   5% stock dividend (restated) ...........   2,359        7,452        --           --           --         (9,845)         (34)
   Purchase of treasury stock .............      --           --       (14,425)        --         --             --      (14,425)
   Issuance of stock for acquisition ......  16,714      315,235        --           --           --             --      331,949
   Exercise of stock options ..............     208          538        (335)         269         --            --          680
                                          ---------    ---------   ---------    ---------    ---------    ---------    ---------
Balance June 30, 2000 ....................   50,521      599,835     (15,554)     (14,522)     115,175          --       735,455

   Comprehensive income:
     Net earnings (restated) .............       --           --          --           --          --         5,344        5,344
     Unrealized loss in investment
          securities, net of tax benefit .        --           --          --           --        (51,822)        --     (51,822)
     Cumulative effect of change
       in accounting principle ...........        --           --          --           --            826         --         826
     Unrealized loss on hedging
          activities .....................        --           --          --           --         (1,196)        --      (1,196)
     Comprehensive income (loss) .........                                                                                (46,848)
   Payment on note receivable ............        --            290        --           --           --           --          290
   Purchase of common stock
     held in trust .......................        --           --          --         (1,865)        --           --       (1,865)
   Issuance of stock for acquisition .....       1,371       25,505        --           --           --           --       26,876
   Exercise of stock options .............          90          621        (341)         296         --           --          666
                                             ---------    ---------   ---------    ---------    ---------    ---------    --------
Balance December 31, 2000 ...............   $  51,982    $ 626,251   $  (15,895)  $ (16,091)   $ 62,983     $   5,344      714,574
=========================================   =========    =========   =========    =========    =========    =========    =========

</TABLE>


                             See accompanying notes.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>


                                                                           Three Months Ended December 31,
                                                                                   2000         1999
                                                                                 ---------    ---------
                                                                                       (Restated)
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                                                 (thousands of dollars)
Cash flows used in operating activities:
   Net earnings ..............................................................   $  19,318    $   7,132
   Adjustments to reconcile net earnings to net cash flows used in
     operating activities:
       Depreciation and amortization .........................................      23,738       13,500
       Deferred income taxes .................................................      (4,235)       1,385
       Non-cash compensation expense .........................................       2,038         --
       Provision for bad debts ...............................................       5,231         (866)
       Financial derivative trading losses ...................................       5,849         --
       Gain on sale of investment securities .................................      (8,869)        --
       Gain on sale of real estate ...........................................     (13,532)        --
       Deferred interest expense .............................................        (380)          46
       Other .................................................................       1,186          442
       Changes in assets and liabilities, net of acquisitions:
         Accounts receivable, billed and unbilled ............................    (288,525)     (82,108)
         Accounts payable ....................................................     177,660       32,352
         Taxes and other liabilities .........................................      19,534       11,581
         Customer deposits ...................................................        (127)         292
         Deferred gas purchase costs .........................................      (8,261)       5,037
         Inventories .........................................................         954          817
         Other ...............................................................      (3,884)      (2,647)
                                                                                 ---------    ---------
     Net cash flows used in operating activities .............................     (72,305)     (13,037)
                                                                                 ---------    ---------
Cash flows used in investing activities:
   Additions to property, plant and equipment ................................     (39,795)     (22,404)
   Acquisition of operations, net of cash received ...........................       1,527      (35,831)
   Purchase of investment securities .........................................     (12,495)     (10,634)
   Notes receivable ..........................................................         290       (4,000)
   Decrease in customer advances .............................................        (545)          (1)
   Increase in deferred charges and credits ..................................       8,883        2,615
   Proceeds from sale of investment securities ...............................      11,372         --
   Proceeds from sale of real estate, net of closing costs ...................      20,638         --
   Other .....................................................................        (353)         (37)
                                                                                 ---------    ---------
     Net cash flows used in investing activities .............................     (10,478)     (70,292)
                                                                                 ---------    ---------
Cash flows from (used in) financing activities:
   Issuance of long-term debt ................................................      55,000      300,000
   Issuance cost of debt .....................................................        --         (6,498)
   Repayment of debt and capital lease obligation ............................      (7,174)    (137,413)
   Premium on early extinguishment of acquired debt ..........................        --           (719)
   Net borrowings (payments) under revolving credit facility .................      39,547      (71,200)
   Purchase of treasury stock ................................................        --         (1,326)
   Other .....................................................................         560         (111)
                                                                                 ---------    ---------
     Net cash flows from financing activities ................................      87,933       82,733
                                                                                 ---------    ---------

Increase (decrease) in cash and cash equivalents .............................       5,150         (596)
Cash and cash equivalents at beginning of period .............................       2,690          596
                                                                                 ---------    ---------

Cash and cash equivalents at end of period ...................................   $   7,840    $      -
                                                                                 =========    =========

Supplemental disclosures of cash flow information: Cash paid during the period
   for:
     Interest ................................................................   $  29,627    $   5,763
                                                                                 =========    =========
     Income taxes ............................................................   $      52    $      --
                                                                                 =========    =========


</TABLE>


                             See accompanying notes.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>


                                                                             Six Months Ended December 31,
                                                                                   2000         1999
                                                                                 ---------  -----------
                                                                                     (Restated)
                                                                                 (thousands of dollars)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Cash flows used in operating activities:
   Net earnings ..............................................................   $   5,344  $    1,032
   Adjustments to reconcile net earnings to net cash flows used in
     operating activities:
       Depreciation and amortization .........................................      39,704       24,348
       Deferred income taxes .................................................      (5,960)        (230)
       Non-cash compensation expense .........................................       2,455            -
       Provision for bad debts ...............................................       5,947         (346)
       Financial derivative trading losses ...................................       9,044            -
       Gain on sale of investment securities .................................      (8,869)           -
       Gain on sale of real estate ...........................................     (13,532)           -
       Deferred interest expense .............................................        (658)          79
       Cumulative effect of change in accounting principle ...................        (602)          --
       Other .................................................................       1,695          797
       Changes in assets and liabilities, net of acquisitions:
         Accounts receivable, billed and unbilled ............................    (293,923)     (72,744)
         Accounts payable ....................................................     164,448       20,870
         Taxes and other liabilities .........................................      18,478          (88)
         Customer deposits ...................................................        (484)         152
         Deferred gas purchase costs .........................................     (34,815)      (7,531)
         Inventories .........................................................     (43,588)     (10,054)
         Other ...............................................................     (11,604)           9
                                                                                 ---------    ---------
     Net cash flows used in operating activities .............................    (166,920)     (43,706)
                                                                                 ---------    ---------

Cash flows used in investing activities:
   Additions to property, plant and equipment ................................     (61,703)     (42,822)
   Acquisition of operations, net of cash received ...........................    (405,303)     (35,831)
   Purchase of investment securities .........................................     (12,495)     (12,047)
   Notes receivable ..........................................................         290       (4,000)
   Increase (decrease) in customer advances ..................................         (16)         834
   Increase (decrease) in deferred charges and credits .......................       8,475       (1,908)
   Proceeds from sale of investment securities ...............................      11,372         --
   Proceeds from sale of real estate, net of closing costs ...................      20,638         --
   Other .....................................................................        (575)         421
                                                                                 ---------    ---------

     Net cash flows used in investing activities .............................    (439,317)    (95,353)
                                                                                 ---------    ---------

Cash flows from (used in) financing activities:
   Issuance of long-term debt ................................................     535,000      300,000
   Issuance cost of debt .....................................................      (2,538)      (6,498)
   Repayment of debt and capital lease obligation ............................      (7,709)    (137,908)
   Premium on early extinguishment of acquired debt ..........................        --           (719)
   Net borrowings (payments) under revolving credit facility .................     174,997       (8,100)
   Purchase of treasury stock ................................................        --         (1,326)
   Change in cash overdrafts .................................................        --         (6,655)
   Payment of merger debt assumed ............................................    (114,171)        --
   Other .....................................................................         669          265
                                                                                 ---------    ---------

     Net cash flows from financing activities ................................     586,248     139,059
                                                                                 ---------    ---------

Change in cash and cash equivalents ..........................................     (19,989)        --
Cash and cash equivalents at beginning of period .............................      27,829         --
                                                                                 ---------    ---------
Cash and cash equivalents at end of period ...................................   $   7,840    $    --
                                                                                 =========    =========

Supplemental disclosures of cash flow information: Cash paid during the period
   for:
     Interest ................................................................   $  47,422    $  23,217
                                                                                 =========    =========
     Income taxes ............................................................   $      52    $       -
                                                                                 =========    =========

</TABLE>


                             See accompanying notes.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>



                                                                              Twelve Months Ended December 31,
                                                                                   2000           1999
                                                                                ----------   ----------
                                                                                           (Restated)
                                                                                    (thousands of dollars)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Cash flows from (used in) operating activities:
   Net earnings ..............................................................   $  14,157   $   13,151
   Adjustments to reconcile net earnings to net cash flows from (used in)
     operating activities:
       Depreciation and amortization .........................................      70,495       45,291
       Deferred income taxes .................................................      (5,294)       8,896
       Provision for bad debts ...............................................      11,291        1,754
       Financial derivative trading losses ...................................      11,280         --
       Deferred interest expense .............................................      (1,049)         334
       Cumulative effect of change in accounting principle ...................        (602)        --
       Non-cash compensation expense .........................................       2,311         --
       Gain on sale of investment securities .................................      (8,869)        --
       Gain on sale of real estate ...........................................     (13,532)        --
       Other .................................................................       2,606        1,089
       Changes in assets and liabilities, net of acquisitions:
         Accounts receivable, billed and unbilled ............................    (225,009)     (23,771)
         Accounts payable ....................................................     166,180        4,159
         Taxes and other liabilities .........................................      12,930       (1,603)
         Customer deposits ...................................................      (4,043)        (828)
         Deferred gas purchase costs .........................................     (42,398)      11,011
         Inventories .........................................................     (33,443)      (2,994)
         Other ...............................................................      (9,703)        (132)
                                                                                 ---------    ---------
     Net cash flows from (used in)operating activities .......................     (52,692)      56,357
                                                                                 ---------    ---------
Cash flows used in investing activities:
   Additions to property, plant and equipment ................................    (119,327)     (81,004)
   Acquisition of operations, net of cash received ...........................    (407,838)     (35,831)
   Purchase of investment securities .........................................     (21,449)     (19,047)
   Notes receivable ..........................................................         290       (4,000)
   Increase in customer advances .............................................         500        1,265
   Increase (decrease) in deferred charges and credits .......................       6,726       (7,089)
   Proceeds from sale of subsidiary ..........................................      12,150         --
   Proceeds from sale of investment securities ...............................      11,372         --
   Proceeds from sale of real estate, net of closing costs ...................      20,638         --
   Other .....................................................................      (1,549)        (445)
                                                                                 ---------    ---------

     Net cash flows used in investing activities .............................    (498,487)    (146,151)
                                                                                 ---------    ---------
Cash flows from (used in) financing activities:
   Issuance of long-term debt ................................................     535,000      300,000
   Issuance cost of debt .....................................................      (3,332)      (6,498)
   Repayment of debt and capital lease obligation ............................      (8,592)    (157,706)
   Premium on early extinguishment of acquired debt ..........................        --           (719)
   Net borrowings (payments) under revolving credit facility .................     162,097      (37,100)
   Purchase of treasury stock ................................................     (13,099)      (1,326)
   Change in cash overdrafts .................................................        --         (6,853)
   Payment of merger debt assumed ............................................    (114,171)        --
   Other .....................................................................       1,116           (4)
                                                                                 ---------    ---------

     Net cash flows from financing activities ................................     559,019       89,794
                                                                                 ---------    ---------

Change in cash and cash equivalents ..........................................       7,840         --
Cash and cash equivalents at beginning of period .............................        --           --
                                                                                 ---------    ---------
Cash and cash equivalents at end of period ...................................   $   7,840    $    --
                                                                                 =========    =========

Supplemental disclosures of cash flow information: Cash paid during the period
   for:
     Interest ................................................................   $  81,940    $ 50,477
                                                                                 =========    ========

     Income taxes ............................................................   $   4,373    $ 2,118
                                                                                 =========    ========


</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/A for the fiscal year ended June 30, 2000. Certain
prior period amounts have been reclassified to conform with the current period
presentation.

The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments (including both normal recurring as well as
any non-recurring) necessary for a fair presentation of the results of
operations for such periods. Because of the seasonal nature of the Company's
operations, the results of operations and cash flows for any interim period are
not necessarily indicative of results for the full year. As further described
below, the Company acquired Providence Energy Corporation and Fall River Gas
Company on September 28, 2000, Valley Resources, Inc. on September 20, 2000 and
Pennsylvania Enterprises, Inc. on November 4, 1999. Accordingly, the operating
activities of the acquired operations are consolidated with the Company
beginning on the respective acquisition dates. Thus, the results of operations
of the Company for the periods subsequent to the acquisitions are not comparable
to those periods prior to the acquisitions nor are the fiscal 2001 results of
operations comparable with prior periods.

RESTATED FINANCIAL STATEMENTS

In March 2001, the Company discovered unauthorized financial derivative energy
trading activity by a non-regulated, wholly-owned subsidiary. During March 2001
and April 2001, all unauthorized trading activity was closed resulting in a
cumulative cash expense of $191,000, net of taxes. However, due to certain
accounting rules, such trading contracts must be recorded at fair value as of
each balance sheet date with gains and losses included in earnings. As a result,
a restatement of financial information for the fiscal year ended June 30, 2000
and the two subsequent quarters was required. This restatement resulted in
non-cash losses of $3,158,000 ($.06 per diluted share) and $4,884,000 ($.10 per
diluted share), net of taxes, for the three- and six-month periods ended
December 31, 2000, respectively, and cumulative non-cash losses of $6,092,000
($.11 per diluted share), net of taxes, for the twelve-month period ended
December 31, 2000, which is recorded in other, net.

ACQUISITIONS

On September 28, 2000, Southern Union completed the acquisition of Providence
Energy Corporation (ProvEnergy) for approximately $270,000,000 in cash plus the
assumption of approximately $90,000,000 in long-term debt. The ProvEnergy
natural gas distribution operations are Providence Gas and North Attleboro Gas,
which collectively serve approximately 176,000 natural gas customers. Providence
Gas serves natural gas customers in Providence and Newport, Rhode Island, and 23
other cities and towns in Rhode Island. North Attleboro Gas serves customers in
North Attleboro and Plainville, Massachusetts, towns adjacent to the
northeastern Rhode Island border. Subsidiaries of the Company acquired in the
ProvEnergy merger include ProvEnergy Oil Enterprises, Inc. ("ProvEnergy Oil"),
and ProvEnergy Power Company, LLC. ProvEnergy Oil operates a fuel oil
distribution business through its subsidiary, ProvEnergy Fuels, Inc. (ProvEnergy
Fuels). ProvEnergy Fuels serves over 15,000 residential and commercial customers
in Rhode Island and Massachusetts. ProvEnergy Power Company owns 50% of Capital
Center Energy Company, LLC., a joint venture formed between ProvEnergy and ERI
Services, Inc. to provide retail power.

On September 28, 2000, Southern Union completed the acquisition of Fall River
Gas Company (Fall River Gas) for approximately 1,400,000 shares of Southern
Union common stock and approximately $27,000,000 in cash plus assumption of
approximately $20,000,000 in long-term debt. Fall River Gas serves approximately
49,000 customers in the city of Fall River and the towns of Somerset, Swansea
and Westport, all located in southeastern Massachusetts. Also acquired in the
Fall River Gas merger was Fall River Gas Appliance Company, Inc., which rents
water heaters and conversion burners (primarily for residential use) in Fall
River Gas' service area.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



On September 20, 2000, Southern Union completed the acquisition of Valley
Resources, Inc. (Valley Resources) for approximately $125,000,000 in cash plus
the assumption of approximately $30,000,000 in long-term debt. Valley Resources
natural gas distribution operations are Valley Gas Company and Bristol and
Warren Gas Company, which collectively serve approximately 65,000 natural gas
customers. Valley Resources' three non-utility subsidiaries acquired in the
merger rent and sell appliances, offer service contract programs, sell liquid
propane in Rhode Island and nearby Massachusetts, and distribute as a wholesaler
franchised lines to plumbing and heating contractors. Also, acquired in the
acquisition was Valley Resources' 90% interest in Alternate Energy Corporation,
which sells, installs and designs natural gas conversion systems and facilities,
is an authorized representative of the ONSI Corporation fuel cell, holds patents
for a natural gas/diesel co-firing system and for a device to control the flow
of fuel on dual-fuel equipment.

The Company funded the cash portion of the above described acquisitions and any
related refinancings of assumed debt with a bank note (the Term Note). See Debt
and Capital Lease.

The assets of ProvEnergy, Fall River Gas and Valley Resources (hereafter
referred to as the Company's "New England Operations") have been included in the
consolidated balance sheet of the Company at December 31, 2000 and the results
of operations from the New England Operations have been included in the
statement of consolidated operations since their respective acquisition dates.
The New England Operations' primary business is the distribution of natural gas
through its public utility companies (collectively referred to as the "New
England Division"). The acquisitions were accounted for using the purchase
method. The additional purchase cost assigned to utility plant of approximately
$355,000,000 reflects the excess of the purchase price over the historical book
carrying value of the utility plant. Amortization of the additional purchase
cost assigned to utility plant is provided on a straight-line basis over forty
years. The final allocation of the purchase price of the New England Operations
acquisition is expected to be completed in the fourth quarter of fiscal year
2001. The Company plans to sell or dispose of certain non-core businesses
acquired in the New England Operations.

Prior to the consummation of the acquisition of the New England Operations, the
Company purchased shares of Providence Energy Corporation, Fall River Gas
Company and Valley Resources, Inc. common stock for $2,882,000. As all necessary
approvals for the merger had not been obtained when these shares were purchased,
these purchases were treated as investment securities prior to closing the
mergers.

On November 4, 1999, the Company acquired Pennsylvania Enterprises, Inc.
(hereafter referred to as the "Pennsylvania Operations") in a transaction valued
at approximately $500,000,000, including assumption of long-term debt of
approximately $115,000,000. The Company issued approximately 16,700,000 shares
(before adjustment for any subsequent stock dividend) of common stock and paid
approximately $36,000,000 in cash to complete the transaction. The Company
funded the cash portion of the acquisition of the Pennsylvania Operations and
related refinancings with the sale of $300,000,000 of 8.25% Senior Notes due
2029 completed on November 3, 1999 (8.25% Senior Notes). See Debt and Capital
Lease.

The Pennsylvania Operations are headquartered in Wilkes-Barre, Pennsylvania with
natural gas distribution being its primary business. The principal operating
division of the Pennsylvania Operations is the PG Energy division of the Company
which serves more than 156,000 gas customers in northeastern and central
Pennsylvania. Subsidiaries of the Company included in the Pennsylvania
Operations merger included PG Energy Services Inc., (Energy Services), Keystone
Pipeline Services, Inc. (Keystone, a wholly-owned subsidiary of PG Energy
Services Inc.), PEI Power Corporation, and Theta Land Corporation. Through
Energy Services the Company markets a diversified range of energy-related
products and services under the name of PG Energy PowerPlus and supplies propane
under the name of PG Energy Propane. Keystone provides pipeline and fiber optic
cable construction, installation, maintenance, and rehabilitation services. PEI
Power Corporation operates a cogeneration plant that generates steam and
electricity for resale. Theta Land Corporation, which owned and provided land
management and development services for more than 44,000 acres of land, was sold
for $12,150,000 in January 2000. No gain or loss was


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



recognized on this transaction. The Company plans to sell or dispose of both
Keystone and the propane operations of Energy Services, which are not material
to the Company. The Company has not yet sold these operations and there can be
no assurance that a sale on terms satisfactory to the Company will be completed.

The assets of the Pennsylvania Operations are included in the consolidated
balance sheet of the Company at December 31, 2000 and the results of operations
from the Pennsylvania Operations have been included in the statement of
consolidated operations since November 4, 1999. The acquisition was accounted
for using the purchase method. The additional purchase cost assigned to utility
plant of approximately $261,000,000 reflects the excess of the purchase price
over the historical book carrying value of the utility plant. Amortization of
the additional purchase cost assigned to utility plant is provided on a
straight-line basis over forty years.

Prior to the consummation of the acquisition of the Pennsylvania Operations, the
Company purchased 358,500 shares of Pennsylvania Enterprises, Inc. stock for
$11,887,000 during both the first and second quarters of the Company's fiscal
year 2000. As all necessary approvals for the merger had not been obtained,
these purchases were treated as investment securities.

Pro Forma Financial Information

The following unaudited pro forma financial information for the six-month
periods ended December 31, 2000 and 1999 is presented as though the following
events had occurred at the beginning of the earliest period presented: (i)
acquisition of the New England Operations and the Pennsylvania Operations; (ii)
the issuance of the Term Note and the sale of the 8.25% Senior Notes; and (iii)
the refinancing of certain short-term and long-term debt at the time of the
acquisitions. The pro forma financial information is not necessarily indicative
of the results which would have actually been obtained had the acquisition of
the New England Operations and Pennsylvania Operations, the issuance of the Term
Note, the sale of senior notes or the refinancings been completed as of the
assumed date for the periods presented or which may be obtained in the future.

                                               Six Months Ended December 31,
                                                   2000            1999
                                                 ------------------------
                                                         (Restated)

Operating revenues ...........................   $ 793,467  $     507,195
Income (loss) before extraordinary item ......     (16,273)       (29,307)

Net earnings (loss) available for common stock     (16,273)       (29,307)

Net earnings (loss) per common stock:
     Basic ...................................        (.32)          (.58)
     Diluted .................................        (.32)          (.58)

EARNINGS PER SHARE

Average shares outstanding, which excludes treasury stock, for basic earnings
per share were 49,924,123 and 43,421,029 for the three-month period ended
December 31, 2000 and 1999 respectively; 49,255,805 and 37,944,658 for the
six-month period ended December 31, 2000 and 1999, respectively; and 49,080,587
and 35,359,486 for the twelve-month period ended December 31, 2000 and 1999,
respectively. Diluted earnings per share includes average shares outstanding as
well as common stock equivalents from stock options and warrants. Common stock
equivalents were 1,813,679 and 1,540,243 for the three-month period ended
December 31, 2000 and 1999, respectively; 1,639,167 and 1,523,318 for the
six-month period ended December 31, 2000 and 1999, respectively; and 1,391,032
and 1,528,799 for the twelve-month period ended December 31, 2000 and 1999,
respectively. At December 31, 2000, 1,000,335 shares of common stock were held
by various rabbi trusts for certain of the Company's benefit plans and 193,669
shares were held in a rabbi trust for certain employees who deferred receipt of
Company shares for stock options exercised.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



INVESTMENT SECURITIES

At December 31, 2000, the Company held securities of Capstone Turbine
Corporation (Capstone). This investment is classified as "available for sale"
under the Statement of Financial Accounting Standards Board (FASB) Accounting
for Certain Investments in Debt and Equity Securities; accordingly, these
securities are stated at fair value, with unrealized gains and losses recorded
as a separate component of common stockholders' equity. Realized gains and
losses on sales of investments, as determined on a specific identification
basis, are included in the Consolidated Statement of Operations when realized.
In November, 2000, the Company sold approximately 9.5% of its holdings in
Capstone, realizing a before-tax gain of $8,869,000. As of December 31, 2000,
the Company's remaining investment in Capstone had a fair value of $105,587,000
and unrealized gain, net of tax, of $63,353,000. As of February 8, 2001, the
fair value of the Company's investment in Capstone was $129,646,000. Subject to
market conditions that are not detrimental to the Company, and as opportunities
arise following the completion of the applicable lock-up periods to which it was
subject, the Company expects to monetize its investment. The Company intends to
use the proceeds from such sales to reduce outstanding debt.

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/or
preferred stock in non-public companies whose stock is not traded on a
securities exchange. Realized gains and losses on sales of these investments, as
determined on a specific identification basis, are included in the Consolidated
Statement of Operations when incurred, and dividends are recognized as income
when received.

REAL ESTATE

On December 15, 2000, the Company sold its Austin, Texas headquarters building,
Lavaca Plaza. The property, purchased by the Company in 1991, netted pre-tax
cash proceeds of $20,638,000, resulting in a pre-tax gain of approximately
$13,532,000.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Accounting Policies of Derivatives and Hedging Activities The Company recognizes
derivatives on the consolidated balance sheet at their fair value. On the date
of the derivative contract, the Company designates the derivative as: (i) a
hedge of the fair value of a recognized asset or liability or of an unrecognized
firm commitment ("fair value" hedge); (ii) a hedge of a forecasted transaction
or of the variability of cash flows to be received or paid related to a
recognized asset or liability ("cash flow" hedge), or (iii) "held for trading"
("trading" instruments). Changes in the fair value of a derivative that
qualifies as a fair-value hedge, along with the gain or loss on the hedged asset
or liability that is attributable to the hedged risk (including gains or losses
on firm commitments), are recorded in earnings. Changes in the fair value of a
derivative that qualifies as a cash-flow hedge are recorded in other
comprehensive income, until earnings are affected by the variability of cash
flows. Lastly, changes in the fair value of derivative trading instruments are
reported in current-period earnings.

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

Derivative Activities The Company manages certain business risks through the
limited use of derivative instruments. Interest rate swaps are employed to hedge
the effect of changes in interest rates related to certain debt instruments and
commodity swaps and options to manage price risk associated with certain energy
contracts,


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



primarily heating oil. The Company was previously party to an interest rate swap
designed to reduce exposure to changes in the fair value of a fixed rate lease
commitment. This interest rate swap, designated as a fair value hedge, was
terminated in October 2000 resulting in a pre-tax gain of $182,000 which will be
amortized into earnings through December 2004. The Company also continues to be
obligated under two interest rate swaps created to hedge exposure to potential
volatility in interest payments on variable rate debt. As such, the Company
recorded a net-of-tax loss as an adjustment to accumulated other comprehensive
income of $351,000 for the quarter, and $622,000 year-to-date to recognize the
change in fair value of these two interest rate derivatives designated as cash
flow hedges. The Company initiated a new interest rate swap during the second
quarter to hedge exposure to variability in interest rate payments on a portion
of the short-term variable rate debt issued in conjunction with our New England
Operations. The Company recognized a $691,000 net-of-tax loss as an adjustment
to other comprehensive income to recognize the fair value of this swap
derivative. The Company expects to reclassify as earnings during the next twelve
months $546,000 net-of-tax in derivative losses from accumulated other
comprehensive income as the settlement of swap payments occur. The maximum term
over which the Company is hedging exposures to the variability of cash flows is
36 months.

The Company was also previously committed under two gas derivative contracts
related to certain non-regulated operations acquired in conjunction with the
acquisition of the Pennsylvania Operations. These two contracts were not
designated as hedging instruments and therefore did not qualify to receive hedge
accounting treatment under the Statement. During the quarter, these derivative
contracts expired and the Company recognized a pre-tax loss of $526,000 in
recording the expiration of these derivative contracts. This loss was offset by
a pre-tax gain of $494,000 arising from the monthly settlement of the two
derivative contracts that expired in November 2000.

In conjunction with the acquisition of Providence Energy Corporation, the
Company also acquired ProvEnergy Oil, a distributor of fuel oil to retail and
commercial customers. ProvEnergy Oil offers certain retail customers price caps
for winter heating oil and purchases heating oil call options as a hedge against
price fluctuations on the related anticipated commodity purchases. As of
December 31, 2000, the Company owned options representing 3.4 million gallons of
fuel oil at an average strike price of $.81 a gallon. These options are
reflected on the balance sheet as assets at their fair value of $195,000. The
instruments are designated as cash flow hedges and the change in fair value of
the effective portion of the hedging options was a net-of-tax gain of $117,000
recorded in other comprehensive income while the change in the ineffective
portion was a pre-tax charge of $288,000 recorded in earnings. The maximum term
over which the Company is hedging exposures to the variability of cash flows for
forecasted purchases of home heating oil is five months.

Trading Contracts The Company, through one of its non-regulated Pennsylvania
subsidiaries, is also a party to certain energy trading contracts for the
purchase and sale of energy commodities. These contracts are accounted for in
accordance with Emerging Issues Task Force Issue Accounting for Contracts
Involved in Energy Trading and Risk Management Activities which requires that
energy trading contracts be recorded at fair value as of each balance sheet date
with gains and losses included in earnings. During the second quarter ended
December 31, 2000, the Company received settlements of $660,000. At December 31,
2000 the trading asset was $352,000, which represents the fair market value of
the outstanding contracts.

As a result of the unauthorized financial derivative energy trading activity, an
open contract of a non-regulated, wholly-owned subsidiary was present at
December 31, 2000 for 10,000 MMBtu's of natural gas per day for the contract
period of January 2001 to December 2001 at a fixed price of $2.72 per MMBtu.
During March 2001 and April 2001, all unauthorized trading contracts were
closed, resulting in a cumulative cash expense of $191,000, net of tax to the
Company. For the quarter ending December 31, 2000, the Company recorded a
liability of $11,280,000 representing the fair market value of the contract and
a pre-tax non-cash loss of $5,849,000.




<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



PREFERRED SECURITIES OF SUBSIDIARY TRUST

On May 17, 1995, Southern Union Financing I (Subsidiary Trust), a consolidated
wholly-owned subsidiary of Southern Union, issued $100,000,000 of 9.48% Trust
Originated Preferred Securities (Preferred Securities). In connection with the
Subsidiary Trust's issuance of the Preferred Securities and the related purchase
by Southern Union of all of the Subsidiary Trust's common securities (Common
Securities), Southern Union issued to the Subsidiary Trust $103,092,800
principal amount of its 9.48% Subordinated Deferrable Interest Notes, due 2025
(Subordinated Notes).
The sole assets of the Subsidiary Trust are the Subordinated Notes. The interest
and other payment dates on the Subordinated Notes correspond to the distribution
and other payment dates on the Preferred Securities and the Common Securities.
Under certain circumstances, the Subordinated Notes may be distributed to
holders of the Preferred Securities and holders of the Common Securities in
liquidation of the Subsidiary Trust. The Subordinated Notes are redeemable at
the option of the Company 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, 2000 and 1999, 4,000,000 shares of Preferred
Securities were outstanding.

DEBT AND CAPITAL LEASE

                                          December 31,    June 30,
                                              2000         2000
                                           ----------   ----------
                                              (thousands of dollars)

7.60% Senior Notes due 2024 ............   $  364,515   $  364,515
8.25% Senior Notes due 2029 ............      300,000      300,000
8.375% First Mortgage Bonds, due 2002 ..       30,000       30,000
5.62% First Mortgage Bonds, due 2003 ...        4,800         --
10.25% First Mortgage Bonds, due 2008 ..        1,909         --
6.82% First Mortgage Bonds, due 2018 ...       15,000         --
9.34% First Mortgage Bonds, due 2019 ...       15,000       15,000
9.63% First Mortgage Bonds, due 2020 ...       10,000         --
9.44% First Mortgage Bonds, due 2020 ...        6,500         --
8.09% First Mortgage Bonds, due 2022 ...       12,500         --
8.46% First Mortgage Bonds, due 2022 ...       12,500         --
7.50% First Mortgage Bonds, due 2025 ...       15,000         --
7.99% First Mortgage Bonds, due 2026 ...        7,000         --
7.24% First Mortgage Bonds, due 2027 ...        6,000         --
6.50% First Mortgage Bonds, due 2029 ...       14,531         --
7.70% Debentures, due 2027 .............        6,839         --
Term Note, due 2002 ....................      529,000         --
Capital lease and other ................       29,839       26,452
                                           ----------   ----------
Total debt and capital lease ...........    1,380,933      735,967
    Less current portion ...............        5,173        2,193
                                           ----------   ----------
Total long-term debt and capital lease .   $1,375,760   $  733,774
========================================   ==========   ==========

Senior Notes On November 3, 1999, the Company completed the sale of $300,000,000
of 8.25% Senior Notes (8.25% Notes) due 2029. The net proceeds from the sale of
these 8.25% Notes were used to: (i) fund the acquisition of Pennsylvania
Enterprises, Inc.; (ii) repay approximately $109,900,000 of borrowings under the
revolving credit facility, and (iii) repay approximately $136,000,000 of long-
and short-term debt assumed in the acquisition.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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

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, 2000, the capital lease obligation outstanding was
$24,166,000 with a fixed rate of 5.79%. This system has significantly improved
meter reading accuracy and timeliness and provided electronic accessibility to
meters in residential customers' basements, thereby assisting in the reduction
of the number of estimated bills.

Credit Facilities On May 31, 2000, the Company restated and amended its
short-term and long-term credit facilities (together referred to as "Revolving
Credit Facilities"). The Company has available $90,000,000 under the short-term
facility, which expires May 30, 2001, and $135,000,000 under the long-term
facility, which expires on May 31, 2003. The Company has additional availability
under uncommitted line of credit facilities with various banks. Borrowings under
the Revolving Credit Facilities are available for Southern Union's working
capital, letter of credit requirements and other general corporate purposes. A
balance of $175,000,000 was outstanding under the Revolving Credit Facilities at
December 31, 2000.

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. As of December 31, 2000, a balance of $529,000,000 was
outstanding under this Term Note. The Term Note expires August 27, 2001 but may
be extended at the Company's option through August 26, 2002 for a 12.5 basis
point fee. No additional draws can be made on the Term Note.

UTILITY REGULATION AND RATES

Missouri On November 7, 2000, Missouri Gas Energy filed a $39,384,000 request
for a rate increase with the Missouri Public Service Commission (MPSC). Statutes
require that the MPSC reach a decision in the case within an eleven-month
period.

On August 21, 1998, Missouri Gas Energy was notified by the MPSC of its decision
to grant a $13,300,000 annual increase to revenue effective on September 2,
1998, which is primarily earned volumetrically. The MPSC rate order reflected a
10.93% return on common equity. The rate order, however, disallowed certain
previously recorded deferred costs requiring a non-cash write-off of $2,221,000.
The Company recorded this charge to earnings in its fiscal year ended June 30,
1998. On December 8, 1998, the MPSC denied rehearing requests made by all
parties other than Missouri Gas Energy and granted a portion of Missouri Gas
Energy's rehearing request. On October 10, 2000, the MPSC issued its decision on
rehearing Missouri Gas Energy's request which served to reduce the $13,300,000
annual revenue increase by $70,000. The MPSC's orders are subject to judicial
review and although certain parties have argued for a reduction in Missouri Gas
Energy's authorized base revenue increase on judicial review, Missouri Gas
Energy expects such arguments to be unsuccessful.

Rhode Island Effective October 1, 2000, the Rhode Island Public Utilities
Commission (RIPUC) approved a settlement agreement between Providence Gas, the
Rhode Island Division of Public Utilities and Carriers, the Energy Council of
Rhode Island, and The George Wiley Center. The settlement agreement recognizes
the need for an


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



increase in distribution system revenues of $4.5 million, recovered through an
adjustment to the throughput portion of the gas charge, and provides for a
21-month base rate freeze. In the settlement agreement, the RIPUC authorized
system improvement programs. Additionally, higher levels of support for low
income bill payment assistance was authorized as well as the continuation of the
utility's demand side management and weatherization assistance programs.

The settlement agreement also contains a weather mitigation clause and a
non-firm margin incentive mechanism (non-firm margin is margin earned from
interruptible customers with the ability to switch to alternative fuels). The
weather mitigation 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 to Providence Gas. Providence Gas will defer the
margin impact of weather that is greater than 2 percent colder-than-normal and
will recover the margin impact of weather that is greater than 2 percent
warmer-than-normal by making the corresponding adjustment to the deferred
revenue account (DRA). The non-firm margin incentive mechanism is designed to
encourage Providence Gas to promote the development of non-firm margins, which
will reduce the cost of service to all customers. Providence Gas will retain 25
percent of all non-firm margins earned in excess of $1.2 million.

Under the settlement agreement, Providence Gas may earn up to 10.7 percent but
not less than 7.0 percent using the average return on equity for the two 12
month periods of October 2000 through September 2001 and July 2001 through June
2002.

Pennsylvania On April 3, 2000, PG Energy filed an application with the
Pennsylvania Public Utility Commission (PPUC) seeking an increase in its base
rates designed to produce $17,900,000 in additional annual revenues. On December
7, 2000, the PPUC approved a settlement agreement that provides for a rate
increase designed to produce $10,800,000 of additional annual revenue. The new
rates became effective on January 1, 2001.

El Paso, Texas On October 18, 1999, Southern Union Gas filed a $1,696,000 rate
increase request for the El Paso service area with the City of El Paso. In
February 2000, the City of El Paso approved a $650,000 revenue increase, and an
improved rate design that collects a greater portion of the Company's revenue
stream from the monthly customer charge. Additionally, the City of El Paso
approved a new 30-year franchise for Southern Union Gas.

COMMITMENTS AND CONTINGENCIES

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

The Company is investigating the possibility that the Company or predecessor
companies may have been associated with Manufactured Gas Plant (MGP) sites in
its former service territories, principally in Arizona and New Mexico, and
present service territories in Texas, Missouri and its newly acquired service
territories in 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. Certain of 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 MGP site.
This site (comprised of two adjacent MGP operations previously owned by two
separate companies and


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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. A
1988 investigation of the site performed by an Environmental Protection Agency
(EPA) contractor determined that further remedial assessment was not required
under the Comprehensive Environmental Response Compensation and Liability Act of
1980 (CERCLA), as amended by the SUPERFUND Amendments and Reauthorization Act of
1986. The MDNR has stated that the reassessment of the Kansas City Coal Gas site
is part of a statewide effort to identify, evaluate, and prioritize the
potential hazards posed by all of Missouri's MGP sites. During July 1999, the
Company sent applications to MDNR submitting the two sites to the agency's
Voluntary Cleanup Program (VCP). The sites were accepted into the VCP on August
2, 1999 and MDNR subsequently approved the Company's proposed work plans for the
environmental assessment of the sites. The final environment reports were sent
to the state on March 6, 2000. In a letter dated June 21, 2000, MDNR responded
to the Station A environmental report submitted by the Company. In that letter,
MDNR stated that soil remediation will be necessary at the site (Station A) but
that further exploration and delineation of site contamination should be
performed before remedial methods can be determined. In response to MDNR's
request, the Company submitted a work plan for further investigation of the site
to the agency on September 18, 2000. MDNR has not responded to the Station B
environmental report submitted by the Company.

Independence, Missouri MGP Site The Company received a letter dated December 16,
1999 from MDNR notifying the Company of a Pre-Comprehensive Environmental
Response Compensation and Liability Information System (CERCLIS) Site Screening
investigation of a former MGP located at Pacific Avenue & South River Boulevard
in Independence, Missouri. The Company contacted the MDNR to inform the state
that, as this property is not owned by the Company, it cannot grant access to
the property for MDNR's investigation. MDNR proceeded to investigate the site in
cooperation with the site's current owner. In a letter dated May 17, 2000, MDNR
reported that the site is not recommended for CERCLIS entry and no further
CERCLA action is recommended. However, due to the presence of characteristic
waste, the site is eligible for the state's Registry of Confirmed Abandoned or
Uncontrollable Hazardous Waste Disposal Sites in Missouri.

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 December 31, 2000, 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, the Company is
now revising the remediation work plan. Because of the uncertainties associated
with the revision of the remediation work plan and the development of a remedial
solution for the entire site, the Company cannot offer any conclusions as to the
total future cost of remediation of the property at this time.

In November 1998, Providence Gas received a letter of responsibility from the
Department of Environmental Management (DEM) relating to possible contamination
on previously owned property at 170 Allens Avenue in Providence. The current
operator of the property has also received a letter of responsibility. A work
plan has been created and approved by DEM. An investigation has 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 is responsible for
approximately twenty percent (20%) of the costs related to the investigation.
Costs of testing at this site as of December 31, 2000 were approximately
$300,000. Until the results of the investigation are known, the Company cannot
offer any conclusions as to its responsibility.

Tiverton, Rhode Island Site Fall River Gas Company is a defendant in a civil
action seeking to recover anticipated remediation costs associated with
contamination found at property owned by the plaintiffs. This claim is based on
alleged dumping of material by Fall River Gas Company trucks at the site in the
1930s and 1940s.



<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Valley Resources Sites Valley Resources 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 Resources 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 Resources' 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, until March 21, 2001, it is soliciting comments on the
Decision. While this suit has been stayed, Valley Resources and Blackstone
(merged with Narragansett Electric Company in May 2000) have received letters of
responsibility from the Rhode Island DEM with respect to releases from two MGP
sites in Rhode Island. DEM issued letters of responsibility to Valley Resources
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 Resources entered into an agreement with Blackstone (now
Narragansett) in which Valley Resources 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.

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,
at the time it was acquired, Providence Gas had in place a regulatory plan that
created a mechanism for the recovery of environmental-related costs. This plan
provided for recovery of environmental investigation and remediation costs
incurred through September 30, 1997, as well as costs incurred during the
three-year term of the plan, are to be amortized over a 10-year period, at a
level authorized under the plan. A new plan, effective October 1, 2000 through
June 30, 2002, establishes an environmental fund for the recovery of evaluation,
remedial and clean-up costs arising out of the Company's MGPs and sites
associated with the operation and disposal activities from MGPs.

Although significant charges to earnings could be required prior to rate and
insurance recovery, management does not believe that environmental expenditures
for MGP sites will have a material adverse effect on the Company's financial
position, results of operations or cash flows.

The Company follows the provisions of an American Institute of Certified Public
Accountants Statement of Position, Environmental Remediation Liabilities, for
recognition, measurement, display and disclosure of environmental remediation
liabilities.

Southwest Gas Litigation On February 1, 1999, Southern Union submitted a
proposal to the Board of Directors of Southwest Gas Corporation (Southwest) to
acquire all of Southwest's outstanding common stock for $32.00 per share.
Southwest then had a pending merger agreement with ONEOK, Inc. (ONEOK) at $28.50
per share. On February 22, 1999, Southern Union and Southwest both publicly
announced Southern Union's proposal, after the Southwest Board of Directors
determined that Southern Union's proposal was a Superior Proposal (as defined in
the Southwest merger agreement with ONEOK). At that time Southern Union entered
into a Confidentiality and Standstill Agreement with Southwest at Southwest's
insistence. On April 25, 1999, Southwest's Board of Directors rejected Southern
Union's $32.00 per share offer and accepted an amended offer of $30.00 per share
from ONEOK. On April 27, 1999, Southern Union increased its offer to $33.50 per
share and agreed to pay interest which, together with


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



dividends, would provide Southwest shareholders with a 6% annual rate of return
on its $33.50 offer, commencing February 15, 2000, until closing. Southern
Union's revised proposal was rejected by Southwest's Board of Directors. On
January 21, 2000, ONEOK announced that it was withdrawing from the Southwest
merger agreement.

There are several lawsuits pending that relate to activities surrounding
Southern Union's efforts to acquire Southwest. In addition, there is before the
U. S. Court of Appeals for the Tenth Circuit, an appeal by Southern Union of a
preliminary injunction entered by the U. S. District Court for the Northern
District of Oklahoma. Southern Union intends to vigorously pursue its claims
against Southwest, ONEOK, and certain individual defendants, and vigorously
defend itself against the claims by Southwest and ONEOK. With the exception of
ongoing legal fees associated with the aforementioned litigation, the Company
believes that the results of the above-noted Southwest litigation will not have
a materially adverse effect on the Company's financial condition, results of
operations or cash flows.

Regulatory In August 1998, a jury in Edinburg, Texas concluded deliberations on
the City of Edinburg's franchise fee lawsuit 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. Southern
Union purchased RGV from Valero in October 1993. The jury awarded the plaintiff
damages, against all defendants under several largely overlapping but mutually
exclusive claims, totaling approximately $13,000,000. The trial judge
subsequently reduced the award to approximately $700,000 against Southern Union
and $7,800,000 against Valero and Southern Union together. The trial court's
decision was appealed to the Thirteenth District of the Texas Court of Appeals
(Court of Appeals). In December 2000, the Court of Appeals reversed and modified
the trial court's judgment of approximately $8,500,000 and awarded the City of
Edinburg $585,000, plus pre-judgment interest of $190,000 against RGV and Valero
for breach of contract. The Court of Appeals upheld the award for attorneys'
fees of approximately $3,500,000 against Valero, RGV and Southern Union. The
Company will continue to pursue reversal of this judgment on appeal. The Company
believes it will ultimately prevail, and that the outcome of this matter will
not have a material adverse impact on the Company's results of operations,
financial position or cash flows. The Company also has entered into a
preliminary settlement agreement to settle a related class action lawsuit with a
majority of the cities served by the Company in Texas. The preliminary
settlement will not have a material adverse impact on the Company's results of
operations, financial position 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, and not to be material to the Company's
overall business or financial condition, results of operations or cash flows.

Commitments Due to the operation of purchase gas adjustment clauses, gas
purchase costs generally do not directly affect earnings of our regulated
utility operations. However, the Company's unregulated gas marketing operations
are subject to price risk related to fixed-price sales commitments that are not
matched with corresponding fixed-price purchase agreements. At December 31,
2000, Energy Services had fixed-price sales commitments with various customers
that provide for the delivery of approximately 468,000 Dekatherms of natural gas
through April 2001 at an average sales price per Dekatherm of $3.13. The Company
has exposure to the changes in natural gas prices related to fluctuating
commodity prices, which can impact the Company's financial position or results
of operations, either favorably or unfavorably. The impact of changing prices on
the Company's financial position at a point in time is not necessarily
indicative of the impact of price movements throughout the year.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

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



Overview Southern Union Company's (the "Company") core business is the
distribution of natural gas as a public utility through: Southern Union Gas,
Missouri Gas Energy (MGE); Atlantic Utilities, doing business as South Florida
Natural Gas (SFNG); PG Energy, acquired on November 4, 1999; and, effective with
the September 2000 acquisitions of Providence Energy Corporation, Valley
Resources, Inc. and Fall River Gas Company, collectively its New England
Division. In addition, subsidiaries of Southern Union support and expand natural
gas sales and capitalize on the Company's gas energy expertise. These
subsidiaries operate natural gas pipeline systems, generate electricity, market
natural gas and electricity to end-users and distribute propane and fuel oil.
Certain subsidiaries also own or hold interests in real estate and other assets,
which are primarily used in the Company's utility business.

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

Acquisitions On September 28, 2000, Southern Union completed the acquisition of
Providence Energy Corporation (ProvEnergy) for approximately $270,000,000 in
cash plus the assumption of $90,000,000 in long-term debt. The ProvEnergy
natural gas distribution operations are Providence Gas and North Attleboro Gas,
which collectively serve approximately 176,000 natural gas customers. Providence
Gas serves natural gas customers in Providence and Newport, Rhode Island, and 23
other cities and towns in Rhode Island. North Attleboro Gas serves customers in
North Attleboro and Plainville, Massachusetts, towns adjacent to the
northeastern Rhode Island border. Subsidiaries of the Company acquired in the
ProvEnergy merger include ProvEnergy Oil Enterprises, Inc. (ProvEnergy Oil), and
ProvEnergy Power Company, LLC. ProvEnergy Oil operates a fuel oil distribution
business through its subsidiary, ProvEnergy Fuels, Inc. (ProvEnergy Fuels).
ProvEnergy Fuels serves over 15,000 residential and commercial customers in
Rhode Island and Massachusetts. ProvEnergy Power Company owns 50% of Capital
Center Energy Company, LLC., a joint venture formed between ProvEnergy and ERI
Services, Inc. to provide retail power.

On September 28, 2000, Southern Union also completed the acquisition of Fall
River Gas Company (Fall River Gas) for approximately 1,400,000 shares of
Southern Union common stock and approximately $27,000,000 in cash plus
assumption of $20,000,000 in long-term debt. Fall River Gas serves approximately
49,000 customers in the city of Fall River and the towns of Somerset, Swansea
and Westport, all located in southeastern Massachusetts. Also acquired in the
Fall River Gas merger was Fall River Gas Appliance Company, Inc. which rents
water heaters and conversion burners in Fall River Gas' service area.

On September 20, 2000, Southern Union completed the acquisition of Valley
Resources, Inc. (Valley Resources) for approximately $125,000,000 in cash plus
the assumption of $30,000,000 in long-term debt. Valley Resources natural gas
distribution operations are Valley Gas Company and Bristol and Warren Gas
Company, which collectively serve approximately 65,000 natural gas customers.
Valley Resources' three non-utility subsidiaries acquired in the merger rent and
sell appliances, offer service contract programs, sell liquid propane in Rhode
Island and nearby Massachusetts, and distribute as a wholesaler franchised lines
to plumbing and heating contractors. Also acquired in the acquisition was Valley
Resources' 90% interest in Alternate Energy Corporation, which sells, installs
and designs natural gas conversion systems and facilities, is an authorized
representative of the ONSI Corporation fuel cell, holds patents for a natural
gas/diesel co-firing system and for a device to control the flow of fuel on
dual-fuel equipment.

Collectively, the operations from the above-mentioned acquisitions are referred
to as the "New England Operations." The Company plans to sell or dispose of
certain non-core businesses acquired in the New England Operations.

     On November 4, 1999, the Company acquired  Pennsylvania  Enterprises,  Inc.
(hereafter referred to as the "Pennsylvania Operations") in a transaction valued
at approximately $500,000,000, including assumption of


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

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



long-term debt of approximately $115,000,000. The Company issued approximately
16,700,000 shares (before adjustment for any subsequent stock dividend) of
common stock and paid approximately $36,000,000 in cash to complete the
transaction. The Pennsylvania Operations are headquartered in Wilkes-Barre,
Pennsylvania with natural gas distribution being its primary business. The
principal operating division of the Pennsylvania Operations is the PG Energy
division of the Company which serves more than 156,000 gas customers in
northeastern and central Pennsylvania. Subsidiaries of the Company included in
the Pennsylvania Operations include PG Energy Services Inc., (Energy Services);
Keystone Pipeline Services, Inc. (Keystone, a wholly-owned subsidiary of PG
Energy Services Inc.); and PEI Power Corporation. Through Energy Services the
Company markets a diversified range of energy-related products and services
under the name of PG Energy PowerPlus and supplies propane under the name of PG
Energy Propane. Keystone provides pipeline and fiber optic cable construction,
installation, maintenance, and rehabilitation services. PEI Power Corporation
operates a cogeneration plant that generates steam and electricity for resale.
The Company plans to sell or dispose of both Keystone and the propane operations
of Energy Services; these operations are not material to the Company. The
Company has not yet sold these operations and there can be no assurance that a
sale on terms satisfactory to the Company will be completed.

The operating activities of the acquired operations are consolidated with the
Company beginning on their respective acquisition dates. Thus, the results of
operations for the three-, six- and twelve-month periods ended December 31, 2000
are not indicative of results that would necessarily be achieved for a full year
since the majority of the Company's operating margin is earned during the winter
heating season. For these reasons, the results of operations of the Company for
the periods subsequent to the acquisitions are not comparable to those periods
prior to the acquisitions nor are the fiscal 2001 results of operations
comparable with prior periods.

Trading Losses In March 2001, the Company discovered unauthorized financial
derivative energy trading activity by a non-regulated, wholly-owned subsidiary.
During March 2001 and April 2001, all unauthorized trading activity was closed
resulting in a cumulative cash expense of $191,000, net of tax. However, due to
certain accounting rules, such trading contracts must be recorded at fair value
as of each balance sheet date with gains and losses included in earnings. As a
result, a restatement of financial information for the fiscal year ended June
30, 2000 and the two subsequent quarters was required. This restatement resulted
in non-cash losses of $3,158,000 and $4,884,000, net of taxes, for the three-
and six-month periods ended December 31, 2000, respectively, and cumulative
non-cash losses of $6,092,000, net of taxes, for the twelve-month period ended
December 31, 2000.

RESULTS OF OPERATIONS

Three Months Ended December 31, 2000 and 1999

The Company recorded net earnings available for common stock of $19,318,000 for
the three-month period ended December 31, 2000 compared with net earnings of
$7,132,000 for the same period in 1999. Earnings per diluted share were $.37 in
2000, compared to $.16 in 1999. Weighted average diluted shares outstanding
increased 16% in 2000 due to the issuance of 1,370,629 shares and 16,713,731
shares (before adjustment for any subsequent stock dividend) of the Company's
common stock on September 28, 2000 and November 4, 1999, respectively, in
connection with the acquisition of Fall River Gas and the Pennsylvania
Operations, respectively.

Operating revenues were $605,339,000 for the three-month period ended December
31, 2000, compared with $239,595,000 in 1999. Gas purchase and other energy
costs for the three-month period ended December 31, 2000 were $433,925,000,
compared with $145,113,000 in 1999. 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


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

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



periods was primarily due to a 75% increase in gas sales volume to 63,031 MMcf
in 2000 from 36,098 MMcf in 1999 and by a 73% increase in the average cost of
gas from $3.61 per Mcf in 1999 to $6.23 per Mcf in 2000. Changes in the average
cost of gas resulted from seasonal impacts on demands for natural gas. The New
England Operations contributed $138,711,000 to the overall increase in operating
revenues, $87,737,000 in gas purchase and other energy costs and 10,900 MMcf of
the increase in gas sales volume. The Pennsylvania Operations generated a net
increase of $45,093,000 in operating revenues, $41,122,000 in gas purchase and
other energy costs, and 3,183 MMcf of the increase in gas sales volume. The
remaining increases in both operating revenues and gas purchase and other energy
costs was primarily due to the previously mentioned increase in the average cost
of gas as well as a 12,842 MMcf increase in sales volume in the Texas and
Missouri service territories as a result of the colder-than-normal weather in
these territories in 2000 as compared to the unusually mild temperatures in
1999.

Weather in MGE's service territories was 123% of a 30-year measure for the
three-month period ended December 31, 2000, compared with 78% in 1999. Southern
Union Gas service territories experienced weather which was 131% of a 30-year
measure in 2000, compared with 86% in 1999. About half of the customers served
by Southern Union Gas are weather normalized. Additionally, with the February
2000 revenue increase in El Paso, Texas, the new rate design collects a greater
portion of the Company's revenue stream from the monthly customer charge instead
of being earned volumetrically. Weather for the PG Energy service territories
was 113% of a 30-year measure for the three-month period ended December 31,
2000, compared with 89% of a 30-year measure for the two-month period ended
December 31, 1999. Weather in the New England division service territories was
110% of a 30-year measure for the three-month period ended December 31, 2000.

Net operating margin (operating margin less revenue-related taxes) increased
$64,334,000 for the three-month period ended December 31, 2000 compared with the
same period in 1999. Growth in net operating margin is primarily due to the
colder-than-normal weather, previously discussed; the acquisition of the New
England Operations which generated $47,665,000 in net operating margin; and the
Pennsylvania Operations, which contributed a net increase of $5,237,000.

Operating expenses, which include operating, maintenance and general expenses,
depreciation and amortization, and taxes other than on income and revenues, were
$93,839,000 for the three-month period ended December 31, 2000, an increase of
$41,511,000, compared with $52,328,000 in 1999. An increase of $31,797,000 and
$3,987,000 was the result of the acquisition of the New England Operations and
the Pennsylvania Operations, respectively. Also impacting operating expenses was
an increase in bad debt expense in the Texas and Missouri service territories of
$2,800,000 due to an increase in customer receivables as a result of higher gas
prices as previously discussed. Additionally, a $7.32 increase in the Company's
common stock price during the three-month period ended December 31, 2000
resulted in $2,038,000 of non-cash compensation expense associated with shares
of common stock held in a trust for one of the Company's benefit plans. The
Company will amend this plan during the third quarter of fiscal year 2001 to
eliminate future expense, or income volitility, associated with the accounting
treatment for such benefit plan.

Interest expense was $30,303,000 for the three-month period ended December 31,
2000, compared with $13,299,000 in 1999. Interest expense increased primarily
due to a $535,000,000 bank note (the Term Note) entered into by the Company on
August 28, 2000 for the acquisition of the New England Operations and the
issuance of $300,000,000 of 8.25% Senior Notes on November 3, 1999 (8.25% Senior
Notes) for the acquisition of the Pennsylvania 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. In addition, the Company issued 8.25%
Senior Notes to fund the acquisition of Pennsylvania Enterprises, Inc. and to
extinguish $136,000,000 in existing debt of the Pennsylvania Operations. The
Company also assumed $158,321,000 in long-term debt of the New England and
Pennsylvania Operations which was not refinanced or extinguished with the Term
Note or the


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

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



8.25% Senior Notes. As a result of the previously discussed high cost of gas in
2000, the Company incurred additional interest expense of $2,191,000 under its
short-term credit facilities during the three-month period ended December 31,
2000 compared with the same period in 1999. Southern Union is required to make
payments to natural gas suppliers in advance of the receipt of cash payments
from the Company's customers. See "Debt and Capital Lease" in the Notes to the
Consolidated Financial Statements included herein.

Other income for the three-month period ended December 31, 2000 was $14,911,000
compared with other expense of $3,336,000 in 1999. Other income for the
three-month period ended December 31, 2000, includes a $13,532,000 gain on the
sale of non-core real estate, realized gains on the sale of investment
securities of $8,869,000 and $1,652,000 of interest and dividend income. This
was partially offset by $5,849,000 of non-cash trading losses and $2,857,000 of
legal costs associated with ongoing litigation associated with the unsuccessful
acquisition of Southwest Gas Corporation (Southwest). Other expense for the
three-month period ended December 31, 1999 primarily consisted of $4,000,000 of
legal costs associated with the aforementioned ongoing litigation which was
partially offset by $442,000 in net rental income from Lavaca Realty Company
("Lavaca Realty").

The effective federal and state income tax rate is 46% and 40% for the three
months ended December 31, 2000 and 1999, respectively. The increase in the
effective federal and state income tax rate is a result of non-tax deductible
amortization of additional purchase cost recorded at the acquisitions of both
the New England Operations and Pennsylvania Operations.

Six Months Ended December 31, 2000 and 1999

The Company recorded net earnings available for common stock of $5,344,000 for
the six-month period ended December 31, 2000 compared with net earnings of
$1,032,000 for the same period in 1999. Net earnings per diluted share were $.10
in 2000 compared to $.03 in 1999. Weighted average diluted shares outstanding
increased 30% in 2000 due to the issuance of the Company's common stock in
connection with the acquisition of Fall River Gas and the Pennsylvania
Operations, previously discussed.

Operating revenues were $749,808,000 for the six-month period ended December 31,
2000, compared with $324,381,000 in 1999. Gas purchase and other energy costs
for the six-month period ended December 31, 2000 were $518,458,000, compared
with $184,390,000 in 1999. The increase in both operating revenues and gas
purchase costs between periods was primarily due to a 60% increase in gas sales
volume to 76,762 MMcf in 2000 from 48,125 MMcf in 1999 and by a 69% increase in
the average cost of gas from $3.51 per Mcf in 1999 to $5.93 per Mcf in 2000 due
to increases in average gas prices. The New England Operations contributed
$141,179,000 to the overall increase in operating revenues, $89,110,000 in gas
purchase and other energy costs and 10,900 MMcf of the increase in gas sales
volume. The Pennsylvania Operations generated a net increase of $82,388,000 in
operating revenues, $66,880,000 in gas purchase and other energy costs, and
4,749 MMcf of the increase in gas sales volume. The remaining increase in
operating revenues, gas purchase and other energy costs, and gas sales volume
resulted principally from the colder-than-normal weather in the Texas and
Missouri service territories in 2000 as compared to the unusually mild
temperatures in 1999.

MGE's service territories experienced weather which was 123% of a 30-year
measure for the six-month period ended December 31, 2000 compared with 80% in
1999. Weather for Southern Union Gas service territories was 131% of a 30-year
measure in 2000, compared with 85% in 1999. About half of the customers served
by Southern Union Gas are weather normalized. Additionally, with the February
2000 revenue increase in El Paso, Texas, the new rate design collects a greater
portion of the Company's revenue stream from the monthly customer charge instead
of being earned volumetrically. Weather in the PG Energy service territories was
119% of a 30-year measure for the six-month period ended December 31, 2000,
compared with 89% of a 30-year measure for the two-month period ended December
31, 1999.


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

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



Net operating margin increased $77,646,000 for the six-month period ended
December 31, 2000 compared with the same period in 1999. Growth in net operating
margin is primarily due to the acquisition of the New England Operations which
generated $48,713,000 in net operating margin and the Pennsylvania Operations
which contributed a net increase of $16,597,000. The remaining increase is due
to the colder-than-normal weather in the Missouri and Texas service territories,
previously discussed.

Operating expenses were $151,683,000 for the six-month period ended December 31,
2000, an increase of $59,618,000, compared with $92,065,000 in 1999. Increases
of $33,118,000 and $17,492,000 were the result of the acquisitions of the New
England Operations and the Pennsylvania Operations, respectively. Also
contributing to the increase was an increase in bad debt expense in the Texas
and Missouri service territories of $3,281,000 due to an increase in customer
receivables as a result of higher gas prices and $2,455,000 in non-cash
compensation expense from one of the Company's benefit plans, both previously
discussed.

Interest expense was $46,609,000 for the six-month period ended December 31,
2000, compared with $21,663,000 in 1999. Interest expense increased primarily
due to the Term Note entered into by the Company for the acquisition of the New
England Operations, the 8.25% Senior Notes issued by the Company for the
acquisition of the Pennsylvania Operations and the assumption of debt by the
Company from the New England Operations and Pennsylvania Operations, all
previously discussed. See "Debt and Capital Lease" in the Notes to the Financial
Statements included herein.

Other income for the six-month period ended December 31, 2000 was $9,397,000
compared with other expense of $4,493,000 in 1999. Other income for the
six-month period ended December 31, 2000 includes a $13,532,000 gain on the sale
of non-core real estate, realized gains on the sale of investment securities of
$8,869,000 and $2,325,000 of interest and dividend income. This was partially
offset by $9,044,000 of non-cash trading losses and $4,898,000 of legal costs
associated with ongoing litigation from the unsuccessful acquisition of
Southwest. Other expense for the six-month period ended December 31, 1999
primarily consisted of $5,250,000 of legal costs associated with the
aforementioned ongoing litigation which was partially offset by $664,000 in
rental income from Lavaca Realty.

The Company's consolidated federal and state effective income tax rate was 46%
and 43% for the six months ended December 31, 2000 and 1999, respectively. The
increase in the effective federal and state income tax rate is a result of
non-tax deductible amortization of additional purchase cost associated with the
acquisition of the New England Operations and Pennsylvania Operations.

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

Twelve Months Ended December 31, 2000 and 1999

The Company recorded net earnings available for common stock of $14,157,000 for
the twelve-month period ended December 31, 2000, compared with net earnings of
$13,151,000 in 1999. Earnings per diluted share were $.28 in 2000 compared with
earnings per diluted share of $.35 in 1999. Weighted average diluted shares
outstanding increased 39% due to the issuance of the Company's common stock in
connection with the acquisition of Fall River Gas and the Pennsylvania
Operations, previously discussed.

Operating revenues were $1,257,131,000 for the twelve-month period ended
December 31, 2000, compared with $677,933,000 in 1999. Gas purchase and other
energy costs for the twelve-month period ended December 31, 2000


<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

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



were $831,767,000, compared with $388,078,000 in 1999. The increase in both
operating revenues and gas purchase costs between periods was primarily due to a
34% increase in gas sales volume to 148,418 MMcf in 2000 from 110,711 MMcf in
1999 and by a 46% increase in the average cost of gas from $3.36 per Mcf in 1999
to $4.89 per Mcf in 2000 due to increases in average gas prices. The
Pennsylvania Operations generated a net increase of $223,901,000 in operating
revenues, $159,763,000 in gas purchase and other energy costs and 18,908 MMcf of
the increase in gas sales volume. The New England Operations contributed
$141,179,000 to the overall increase in operating revenues and $89,110,000 in
gas purchase and other energy costs and 10,900 MMcf of the increase in gas sales
volume. The remaining increases in operating revenues, gas purchase and other
energy costs, and gas sales volume resulted principally from the colder weather
in the Texas and Missouri service territories in 2000 as compared to 1999.

 MGE's service territories experienced weather which was 96% of the 30-year
measure for the twelve-month period ended December 31, 2000 compared with 84% in
1999. Weather for Southern Union Gas service territories was 88% of a 30-year
measure compared with 74% in 1999. About half of the customers served by
Southern Union Gas are weather normalized. Weather for the PG Energy service
territories was 103% of a 30-year measure for the twelve-month period ended
December 31, 2000.

Net operating margin increased $121,474,000 for the twelve-month period ended
December 31, 2000 compared with the same period in 1999. Growth in net operating
margin is primarily due to the Pennsylvania Operations which contributed a net
increase of $64,443,000 and to the acquisition of the New England Operations
which generated $48,713,000. The remaining increase is due to the colder weather
in the Missouri and Texas service territories, previously discussed.

Operating expenses were $268,613,000 for the twelve-month period ended December
31, 2000, an increase of $91,524,000, compared with $177,089,000 in 1999.
Increases of $48,547,000 and $33,118,000 were the result of the acquisitions of
the Pennsylvania Operations and the New England Operations, respectively. Also
impacting operating expenses for the twelve-month period ended December 31, 2000
were increases in employee benefit costs and bad debt expense and inventory
write-downs associated with a propane operation.

Interest expense was $76,438,000 for the twelve-month period ended December 31,
2000, compared with $39,779,000 in 1999. Interest expense increased primarily
due to the Term Note entered into by the Company for the acquisition of the New
England Operations, the 8.25% Senior Notes issued by the Company for the
acquisition of the Pennsylvania Operations and the assumption of debt by the
Company from the New England Operations and Pennsylvania Operations, all
previously discussed. 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, 2000 was $4,183,000
compared with other expense of $6,870,000 in 1999. Other income for the
twelve-month period ended December 31, 2000 includes a $13,532,000 gain on the
sale of non-core real estate and realized gains on the sale of investment
securities of $8,869,000. This was partially offset by $11,280,000 of non-cash
trading losses and $11,261,000 of legal costs associated with ongoing litigation
from the unsuccessful acquisition of Southwest. Other expense for the
twelve-month period ended December 31, 1999 primarily consisted of $9,090,000 of
costs associated with unsuccessful acquisition activities and related litigation
which was partially offset by $1,466,000 in net rental income from Lavaca
Realty.

The Company's consolidated federal and state effective income tax rate was 49%
and 40% for the twelve-month period ended December 31, 2000 and 1999,
respectively. The increase in the effective federal and state income tax rate is
a result of non-tax deductible amortization of additional purchase cost
associated with the acquisition of the New England Operations and Pennsylvania
Operations.



<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

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



The following table sets forth certain information regarding the Company's gas
utility operations for the three- and twelve-month periods ended December 31,
2000 and 1999:
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                  Three Months             Twelve Months
                                                              Ended December 31,        Ended December 31,
                                                             2000          1999           2000         1999
                                                          ----------    ----------    ---------    ----------

Average number of gas sales customers served:
     Residential ......................................    1,328,725     1,002,663     1,125,688       926,997
     Commercial .......................................      127,758        98,717       111,069        91,751
     Industrial and irrigation ........................        4,282           686         1,651           604
     Public authorities and other .....................        3,129         3,072         3,161         2,915
     Pipeline and marketing ...........................          367           229           298           235
                                                          ----------    ----------    ----------    ----------
          Total average customers served ..............    1,464,261     1,105,367     1,241,867     1,022,502
                                                          ==========    ==========    ==========    ==========


Gas sales in millions of cubic feet (MMcf)
     Residential ......................................       27,250        15,248        82,273        60,756
     Commercial .......................................       10,908         6,483        34,311        26,871
     Industrial and irrigation ........................        1,372           343         2,827         1,412
     Public authorities and other .....................          957           720         2,863         2,431
     Pipeline and marketing ...........................        4,394         4,334        17,143        17,518
                                                           ---------    ----------    ----------    ----------
          Gas sales billed ............................       44,881        27,128       139,417       108,988
     Net change in unbilled gas sales .................       18,150         8,970         9,001         1,723
                                                           ---------    ----------    ----------    ----------
          Total gas sales .............................       63,031        36,098       148,418       110,711
                                                           =========    ==========    ==========    ==========
Gas sales revenues (thousands of dollars):
     Residential ......................................   $  252,896    $  107,949    $  639,076    $  397,902
     Commercial .......................................       93,476        38,619       238,108       151,662
     Industrial and irrigation ........................       10,760         1,963        19,291         7,022
     Public authorities and other .....................        7,031         3,315        16,618         9,905
     Pipeline and marketing ...........................       17,750        10,944        58,957        42,778
                                                          ----------    ----------    ----------    ----------

          Gas revenues billed .........................      381,913       162,790       972,050       609,269
     Net change in unbilled gas sales revenues ........      140,152        48,586        95,230        13,082
                                                          ----------    ----------    ----------    ----------

          Total gas sales revenues ....................  $   522,065    $  211,376    $1,067,280    $  622,351
                                                          ==========    ==========    ==========    ==========

Gas sales margin (thousands of dollars) ...............  $   105,968    $   70,087    $  293,475    $  216,435
                                                          ==========    ==========    ==========    ==========


Gas sales revenue per thousand cubic feet (Mcf) billed:
     Residential ......................................   $     9.28    $     7.08    $     7.77    $     6.55
     Commercial .......................................         8.57          5.96          6.94          5.64
     Industrial and irrigation ........................         7.84          5.73          6.82          4.97
     Public authorities and other .....................         7.35          4.61          5.80          4.07
     Pipeline and marketing ...........................         4.04          2.53          3.44          2.44

Weather:
     Degree days:
          Southern Union Gas service territories ......        1,087           714         1,891         1,573
          Missouri Gas Energy service territories .....        2,405         1,510         5,045         4,418
          PG Energy service territories ...............        2,508         1,595         6,460         1,595
          New England service territories .............        2,194          --           2,194          --
     30-year measure:
          Southern Union Gas service territories ......          131%           86%           88%           74%
          Missouri Gas Energy service territories .....          123%           78%           96%           84%
          PG Energy service territories ...............          113%           89%          103%           89%
          New England service territories .............          110%         --             110%         --

Gas transported in millions of cubic feet (MMcf) ......       28,354        19,516        90,180        61,013
Gas transportation revenues (thousands of dollars) ....   $   14,612    $    8,685    $   42,193    $   25,896

</TABLE>


The above information does not include the Company's 43% equity ownership in a
natural gas distribution company serving 22,000 customers in Piedras Negras,
Mexico. Information for Fall River Gas and ProvEnergy, acquired September 28,
2000, and Valley Resources, acquired September 20, 2000, is included since
October 1, 2000. The 30-year measure 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, resulting from the
required payments to natural gas suppliers in advance of the receipt of cash
payments from the Company's customers. The Company has historically used
internally generated funds and its credit facilities to provide funding for its
seasonal working capital, continuing construction and maintenance programs and
operational requirements.

On May 31, 2000, the Company restated and amended its short-term and long-term
credit facilities (together referred to as "Revolving Credit Facilities"). The
Company has available $90,000,000 under the short-term facility, which expires
May 30, 2001, and $135,000,000 under the long-term facility, which expires on
May 31, 2003. The Company has additional availability under uncommitted line of
credit facilities with various banks. Borrowings under the Revolving Credit
Facilities are available for Southern Union's working capital, letter of credit
requirements and other general corporate purposes. A balance of $175,000,000 was
outstanding under the Revolving Credit Facilities at December 31, 2000.

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 New England mergers, and (iv) related
acquisition costs. As of December 31, 2000, a balance of $529,000,000 was
outstanding on this Term Note. The Term Note expires August 27, 2001 but may be
extended at the Company's option through August 26, 2002 for a 12.5 basis point
fee. No additional draws can be made on the Term Note.

Concurrent with the closing of the Pennsylvania Enterprises, Inc. merger on
November 4, 1999, the Company issued $300,000,000 of 8.25% Senior Notes due 2029
which were used to: (i) fund the cash portion of the consideration to be paid to
the Pennsylvania Enterprises, Inc. shareholders; (ii) refinance and repay
certain debt of Pennsylvania Enterprises, Inc., and (iii) repay outstanding
borrowings under the Company's then existing various credit facilities. These
senior notes are senior unsecured obligations and rank equally in right of
payment with each other and with the Company's other unsecured and
unsubordinated obligations, including the 7.60% Senior Notes due 2024.

The principal sources of funds during the three-month period ended December 31,
2000 were $55,000,000 borrowed under the Term Note, $39,547,000 borrowed under
the Company's Revolving Credit Facilities, proceeds from the sale of real estate
of $20,638,000 and proceeds from the sale of investment securities of
$11,372,000. The principal uses of funds during this period included $39,795,000
for on-going property, plant and equipment additions; $12,495,000 for the
purchase of investment securities; $7,174,000 for the retirement of long-term
debt; as well as seasonal working capital needs of the Company.

The principal sources of funds during the six-month period ended December 31,
2000 were $535,000,000 borrowed under the Term Note, $175,000,000 borrowed under
the Company's Revolving Credit Facilities, proceeds from the sale of real estate
of $20,638,000 and proceeds from the sale of investment securities of
$11,372,000. This provided funds of $405,303,000 for acquisition and related
expenses of the New England Operations; $114,171,000 for the retirement of
merger debt assumed from the New England Operations; $61,703,000 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 7.92%
(including interest and the amortization of debt issuance costs and redemption
premiums on refinanced debt).




<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES

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



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

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/A for the year ended June
30, 2000.

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/A for the year ended June 30, 2000, 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/A.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-Q/A 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;
availability of cash flow; 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; 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.

OTHER

On February 10, 2001, James H. Dodge resigned from the Board of Directors of the
Company.



<PAGE>



                     SOUTHERN UNION COMPANY AND SUBSIDIARIES



RESULTS OF VOTES OF SECURITY HOLDERS

Southern Union held an Annual Meeting of Stockholders on November 14, 2000. The
following matter was submitted for a vote by Southern Union's security holders:
the election of four persons to serve as the Class I directors until the 2003
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, and for any proposal voted on at the Annual Meeting of Stockholders,
were:

                                              For         Abstain     Withheld

Election of nominees as Class I Directors:
     John E. Brennan......................  43,218,694       --       538,260
     Frank W. Denius......................  43,238,170       --       518,784
     Roger J. Pearson.....................  43,430,695       --       326,259
     Ronald W. Simms......................  43,412,176       --       344,778






<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 April 25, 2001         By   RONALD J. ENDRES
     --------------              ------------------------------------
                                 Ronald J. Endres
                                 Executive Vice President and Chief
                                 Financial Officer




Date April 25, 2001         By   DAVID J. KVAPIL
     --------------              -------------------------------------
                                 David J. Kvapil
                                 Senior Vice President and Corporate Controller
                                 (Principal Accounting Officer)



<PAGE>