8-K/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 1, 2006

SOUTHERN UNION COMPANY

(Exact name of registrant as specified in its charter)

Delaware	1-6407	75-0571592
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

5444 Westheimer Road Houston, Texas (Address of principal executive offices) 77056-5306 (Zip Code)

Registrant's telephone number, including area code: (713) 989-2000

Check the appropriate box below if the Form 8-K/A filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ]	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ]	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 8.01. OTHER EVENTS

As previously reported, Southern Union Company (“Southern Union” or the “Company”) completed its acquisition of Sid Richardson Energy Services, Ltd. (“SRES”) and the related Richardson Energy Marketing, Ltd. (“REM”) on March 1, 2006.

In connection with the above-mentioned transaction, certain audited historical financial statements and related notes thereto of SRES (now known as Southern Union Gas Services, Ltd.) and REM (now known as Southern Union Gas Energy, Ltd.) as of December 31, 2005 and 2004 and for each of the years in the three-year period ended December 31, 2005 are attached as Exhibits 99.2 and 99.3, respectively, to this Current Report on Form 8-K/A. Additionally, certain unaudited supplemental historical operating information for Southern Union Gas Services, Ltd. and Southern Union Gas Energy, Ltd. for the quarter ended March 31, 2006 and each of the years in the three-year period ended December 31, 2005 is attached as Exhibit 99.4 to this Current Report on Form 8-K/A.

The unaudited pro forma combined condensed statements of operations attached hereto as Exhibit 99.5 to this Current Report on Form 8-K/A present the consolidated results of operations of Southern Union and its subsidiaries, after giving effect to the acquisition of SRES and REM as further described in Exhibit 99.5.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements.

The following financial statements, which were omitted from Southern Union’s Current Report on Form 8-K with respect to the event dated March 1, 2006 filed with the Securities and Exchange Commission (“Commission”) on March 6, 2006 in reliance upon Item 9.01(a)(4) of Form 8-K, are filed herewith:

(1)Audited historical consolidated financial statements and related notes of Southern Union Gas Services, Ltd. and subsidiaries (formerly Sid Richardson Energy Services, Ltd. and subsidiaries) as of December 31, 2005 and 2004 and for each of the years in the three-year period ended December 31, 2005 (Exhibit 99.2).

(2)Audited historical financial statements and related notes of Southern Union Gas Energy, Ltd. (formerly Richardson Energy Marketing, Ltd.) as of December 31, 2005 and 2004 and for each of the years in the three-year period ended December 31, 2005 (Exhibit 99.3).

(b) Pro Forma Financial Information.

The following pro forma financial information, which was omitted from Southern Union’s Current Report on Form 8-K with respect to the event dated March 1, 2006 filed with the Commission on March 6, 2006 in reliance upon Item 9.01(b)(2) of Form 8-K, is filed herewith:

(1)Unaudited pro forma combined condensed statements of operations of Southern Union and its subsidiaries for the twelve months ended December 31, 2005 and the three months ended March 31, 2006, and related Notes thereto (Exhibit 99.5).

(c) Exhibits.

23.1                 Consent of KPMG LLP.

23.2                  Consent of KPMG LLP.

99.1 Press Release issued by Southern Union dated March 2, 2006. (Filed as Exhibit 99.1 to Southern Union’s Current Report on Form 8-K filed on March 6, 2006 and incorporated herein by reference.)

99.2 Audited historical consolidated financial statements and related notes of Southern Union Gas Services, Ltd. and subsidiaries (formerly Sid Richardson Energy Services, Ltd. and subsidiaries) as of December 31, 2005 and 2004 and for each of the years in the three-year period ended December 31, 2005.

99.3                  Audited historical financial statements and related notes of Southern Union Gas Energy, Ltd. (formerly Richardson Energy Marketing, Ltd.) as of December 31, 2005 and 2004 and for each of the years in the three-year period ended December 31, 2005.

  99.4                  Unaudited supplemental historical combined operating information for Southern Union Gas Services, Ltd. and Southern Union Gas Energy, Ltd. for the quarter ended March 31, 2006 and each of the years in the three-year period ended December 31, 2005.

99.5 Unaudited pro forma combined condensed statements of operations of Southern Union and its subsidiaries for the twelve months ended December 31, 2005 and the three months ended March 31, 2006, and related Notes thereto.

This Current Report on Form 8-K/A includes forward-looking statements. Although Southern Union believes that its expectations are based on reasonable assumptions, it can give no assurance that such assumptions will materialize. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein are enumerated in Southern Union's Forms 10-K and 10-Q as filed with the Commission. The Company assumes no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by the Company, whether as a result of new information, future events, or otherwise.

SIGNATURES

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

	SOUTHERN UNION COMPANY
	(Registrant)
Date: May 17, 2006	By:	/s/ GEORGE E. ALDRICH
		George E. Aldrich
		Vice President and Controller

EXHIBIT INDEX

    Exhibit No.     Description

23.1 Consent of KPMG LLP.

23.2 Consent of KPMG LLP.

99.1 Press Release issued by Southern Union dated March 2, 2006. (Filed as Exhibit 99.1 to Southern Union’s Current Report on Form 8-K filed on March 6, 2006 and incorporated herein by reference.)

99.2 Audited historical consolidated financial statements and related notes of Southern Union Gas Services, Ltd. and subsidiaries (formerly Sid Richardson Energy Services, Ltd. and subsidiaries) as of December 31, 2005 and 2004 and for each of the years in the three-year period ended December 31, 2005.

99.3 Audited historical financial statements and related notes of Southern Union Gas Energy, Ltd. (formerly Richardson Energy Marketing, Ltd.) as of December 31, 2005 and 2004 and for each of the years in the three-year period ended December 31, 2005.

99.4Unaudited supplemental historical combined operating information for Southern Union Gas Services, Ltd. and Southern Union Gas Energy, Ltd. for the quarter ended March 31, 2006 and each of the years in the three-year period ended December 31, 2005.

99.5 Unaudited pro forma combined condensed statements of operations of Southern Union and its subsidiaries for the twelve months ended December 31, 2005 and the three months ended March 31, 2006, and related Notes thereto.

EX-23.1

Exhibit 23.1

Independent Auditors’ Consent

The Partners

Southern Union Gas Services, Ltd.:

We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-37261, 33-69596, 33-69598, 33-61558, 333-79443, 333-08994, 333-42635, 333-89971, 333-36146, 333-36150 and 333-112527) and Form S-3 (No. 333-113757) of Southern Union Company of our report dated March 31, 2006, with respect to the consolidated balance sheets of Southern Union Gas Services, Ltd. as of December 31, 2005 and 2004, and the related consolidated statements of operations, partners’ capital and cash flows for each of the years in the three-year period ended December 31, 2005, which report appears in this Form 8-K/A of Southern Union Company dated May 17, 2006.

/s/ KPMG LLP

Fort Worth, Texas

May 15, 2006

EX-23.2

Exhibit 23.2

Independent Auditors’ Consent

The Partners

Southern Union Gas Energy, Ltd.:

We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-37261, 33-69596, 33-69598, 33-61558, 333-79443, 333-08994, 333-42635, 333-89971, 333-36146, 333-36150 and 333-112527) and Form S-3 (No. 333-113757) of Southern Union Company of our report dated March 31, 2006, with respect to the balance sheets of Southern Union Gas Energy, Ltd. as of December 31, 2005 and 2004, and the related statements of operations, partners’ capital and cash flows for each of the years in the three-year period ended December 31, 2005, which report appears in this Form 8-K/A of Southern Union Company dated May 17, 2006.

/s/ KPMG LLP

Fort Worth, Texas

May 15, 2006

EX-99.2

Exhibit 99.2

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)

Consolidated Financial Statements

December 31, 2005 and 2004

(With Independent Auditors’ Report Thereon)

Independent Auditors’ Report

The Partners

Southern Union Gas Services, Ltd.:

We have audited the accompanying consolidated balance sheets of Southern Union Gas Services, Ltd. (formerly Sid Richardson Energy Services, Ltd.) and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of operations, changes in partners’ capital, and cash flows for each of the years in the three-year period ended December 31, 2005. These consolidated financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Southern Union Gas Services, Ltd. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three- year period ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Fort Worth, Texas

March 31, 2006

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES
(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)
Consolidated Balance Sheets
December 31, 2005 and 2004
Assets (Note 5)	2005		2004
Current assets:
Cash and cash equivalents (note 3(c))	$	36,724,768		31,980,011
Receivables:
Trade		7,591,565		530,870
Trade – affiliate (note 4)		89,436,075		54,817,311
Notes and accrued interest receivable		—		11,415
Notes and accrued interest receivable – affiliate (note 4)		—		13,960,012
Total receivables		97,027,640		69,319,608
Derivative financial instrument asset (note 3(f))		—		1,362,977
Deferred financing costs (note 5)		283,356		283,356
Prepaid expenses and other current assets		828,184		978,291
Total current assets		134,863,948		103,924,243
Property, plant, and equipment, net:
Land		12,787,081		12,787,081
Buildings		1,627,413		1,551,604
Natural gas plants and equipment		371,969,275		327,074,619
Transportation equipment		2,764,387		2,056,103
Construction in progress (note 3(i))		14,368,142		14,302,611
		403,516,298		357,772,018
Less accumulated depreciation		154,115,815		135,133,126
Net property, plant, and equipment		249,400,483		222,638,892
Deferred financing costs, net of accumulated
amortization of $319,191 and $105,839, respectively (note 5)		425,865		674,221
Other assets (note 7)		33,182		2,074,843
	$	384,723,478		329,312,199
Liabilities and Partners’ Capital
Current liabilities:
Bank overdrafts	$	10,752,488		7,121,454
Accounts payable – trade		6,352,324		2,171,440
Accounts payable – affiliates (note 4)		9,083,199		3,337,513
Notes and accrued interest payable – affiliate		229,147		—
Current portion of long-term debt (note 5)		15,000,000		15,000,000
Derivative financial instrument liability (note 3(f))		5,373,352		—
Due to gas producers		81,127,141		51,246,902
Accrued liabilities (notes 3(m), 5 and 10)		8,617,652		1,721,804
Total current liabilities		136,535,303		80,599,113
Long-term debt (note 5)		106,071,428		127,500,000
Other long-term liabilities (note 6)		9,896,876		7,583,909
Deferred tax liabilities, net (note 3(q))		1,234,917		935,663
Minority interest in subsidiaries (note 3(a))		2,514,637		2,091,200
Partners’ capital		128,470,317		110,602,314
Commitments and contingencies (notes 6, 8 and 10)
	$	384,723,478		329,312,199
See accompanying notes to consolidated financial statements.

2

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES
(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)
Consolidated Statements of Operations
Years ended December 31, 2005, 2004 and 2003
	2005			2004			2003
Revenues:
Sales - affiliate (note 4)	$	976,179,229			640,829,010			581,365,463
Sales - other		24,881,627			14,584,099			17,459,898
Total sales		1,001,060,856			655,413,109			598,825,361
Costs and expenses:
Purchased gas		724,307,423			517,993,027			477,239,365
Purchased gas - affiliate (note 4)		108,709,423			9,883,486			6,521,773
Depreciation and amortization		18,843,126			18,243,050			18,654,335
Operating and maintenance (notes 6 and 8)		52,839,252			41,254,855			43,252,315
General and administrative expenses, net (notes 4, 6, 8 and 9)		16,649,331			12,406,220			11,279,021
Income from operations		79,712,301			55,632,471			41,878,552
Other income (expense):
Interest income - affiliate (note 4)		164,868			266,934			283,316
Interest income (note 9)		835,069			4,903,000			198,958
Interest expense (note 5)		(6,055,415	)		(3,139,663	)		(3,249,841	)
Interest expense - affiliate		(5,430	)		(126	)		—
Gain (loss) on derivative instruments (note 3(f))		(7,186,329	)		1,362,977			—
Other, net (notes 5, 7 and 9)		1,039,608			9,286,893			(1,611,811	)
Other income (expense), net		(11,207,629	)		12,680,015			(4,379,378	)
Net income before provision for income taxes and
minority interest in subsidiaries' net income		68,504,672			68,312,486			37,499,174
Income tax expense (note 3(q))		(306,998	)		(82,193	)		(28,662	)
Minority interest in subsidiaries’ (net income) loss (note 3(a))		69,063			(142,728	)		(239,349	)
Net income	$	68,266,737			68,087,565			37,231,163
See accompanying notes to consolidated financial statements.

3

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES
(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)
Consolidated Statements of Changes in Partners’ Capital
Years ended December 31, 2005, 2004 and 2003
	General			Limited
	Partner			Partner			Total
Balance at December 31, 2002	$	1,631,965			147,450,569			149,082,534
Distributions		(153,180	)		(15,164,820	)		(15,318,000	)
Net income		372,312			36,858,851			37,231,163
Balance at December 31, 2003		1,851,097			169,144,600			170,995,697
Distributions		(1,284,809	)		(127,196,139	)		(128,480,948	)
Net income		680,876			67,406,689			68,087,565
Balance at December 31, 2004		1,247,164			109,355,150			110,602,314
Distributions		(503,987	)		(49,894,747	)		(50,398,734	)
Net income		682,667			67,584,070			68,266,737
Balance at December 31, 2005	$	1,425,844			127,044,473			128,470,317
See accompanying notes to consolidated financial statements.

4

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES
(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)
Consolidated Statements of Cash Flows
Years ended December 31, 2005, 2004 and 2003
	2005			2004			2003
Cash flows from operating activities:
Net income	$	68,266,737			68,087,565			37,231,163
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization		18,843,126			18,243,050			18,654,335
Amortization of deferred financing costs		248,356			649,924			1,008,569
Minority interest in subsidiaries’ net income (loss)		(69,063	)		142,728			239,349
(Gain) loss on sale of property, plant, and
equipment and other assets		(1,133,970	)		19,603			679,155
Unrealized (gain) loss on derivative instrument		6,736,329			(1,362,977	)		—
Deferred tax expense		299,254			74,428			19,694
Changes in assets and liabilities:
Trade receivables		(7,060,695	)		493,286			10,519
Trade receivables – affiliate		(34,618,764	)		34,573			(14,354,476	)
Accrued interest receivable – affiliate		84,760			(26,711	)		30,253
Prepaid expenses and other current assets, net		74,087			191,170			32,177
Other		(300,391	)		(63,527	)		5,884
Accounts payable – trade		4,180,884			(2,720,638	)		635,223
Accounts payable – affiliates		5,745,686			(2,082,975	)		2,226,430
Change in notes and accrued interest payable		2,487			—			—
Due to gas producers		29,880,239			4,428,426			12,003,317
Accrued liabilities		6,895,848			890,529			137,039
Other long-term liabilities		2,312,967			261,848			2,574,987
Net cash provided by operating activities		100,387,877			87,260,302			61,133,618
Cash flows from investing activities:
Change in notes and accrued interest receivable		11,415			2,648			(14,063	)
Advances on notes receivable – affiliate		(1,183,000	)		(3,840,225	)		(73,713,588	)
Receipts on notes receivable – affiliate		15,058,252			6,050,000			76,650,000
Purchases of property, plant, and equipment		(45,261,829	)		(20,042,410	)		(13,880,616	)
Proceeds from sale of property, plant, and
equipment and other assets		3,209,154			475,922			1,481,079
Net cash used in investing activities		(28,166,008	)		(17,354,065	)		(9,477,188	)
Cash flows from financing activities:
Payment of deferred financing costs		—			(1,063,416	)		(643,130	)
Bank overdraft		3,631,034			4,559,294			(1,058,940	)
Proceeds from note payable – affiliate		226,660			5,000,000			—
Payments on note payable – affiliate		—			(5,000,000	)		—
Proceeds on long-term debt		—			80,000,000			—
Payments on long-term debt		(21,428,572	)		(10,500,000	)		(22,700,000	)
Distributions to partners		(50,398,734	)		(128,480,948	)		(15,318,000	)
Distribution to minority interest in subsidiaries		—			(147,868	)		—
Contribution of minority interest in subsidiaries		492,500			170,000			1,050,000
Net cash used in financing activities		(67,477,112	)		(55,462,938	)		(38,670,070	)
Net change in cash and cash equivalents		4,744,757			14,443,299			12,986,360
Cash and cash equivalents at beginning of year		31,980,011			17,536,712			4,550,352
Cash and cash equivalents at end of year	$	36,724,768			31,980,011			17,536,712
Supplemental disclosure of cash flow information:
Cash paid for interest, net of interest capitalized, in 2005, 2004 and 2003 totaled $6,024,924, $2,606,335
and $2,698,471, respectively.
During 2003, the Partnership sold property and equipment in exchange for $1,000,000 of common stock
(other asset) and a $1,000,000 note receivable (other asset). See note 7.
See accompanying notes to consolidated financial statements.

5

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(1)   Organization and Description of Business

Sid Richardson Energy Services, Ltd. (the Partnership) was formed on March 1, 1993 as a Texas limited partnership under the name Sid Richardson Gasoline, Ltd. In March 2001, the Partnership changed its name to Sid Richardson Energy Services, Ltd.

The Partnership is engaged in the gathering, transmission, treating, processing and transporting of natural gas and natural gas liquids in Texas and New Mexico. The Partnership’s activities primarily include connecting the wells of natural gas producers to the Partnership’s gathering systems, treating natural gas to remove impurities to ensure that it meets pipeline quality specifications, processing natural gas for the removal of natural gas liquids, purchasing natural gas and natural gas liquids, and transporting natural gas and natural gas liquids to affiliates. Substantially all of the Partnership’s sales are made to Richardson Energy Marketing, Ltd. (REM), an affiliate under common control (note 3(d)).

(2)   Definitive Agreement to Sell Partnership Interests

On December 15, 2005, the owners of the Partnership executed a Purchase and Sale Agreement (the PSA) with wholly owned subsidiaries of Southern Union Company (SUC) to sell the partnership interests in the Partnership and its affiliate, REM, to SUC. After closing of the transaction, the Partnership will continue to operate as a direct or indirect subsidiary of SUC. The transaction closed on March 1, 2006 and the Partnership was renamed Southern Union Gas Services, Ltd. In connection with the sale, the Partnership paid the outstanding balance on its credit agreement (note 5) on February 9, 2006 and paid approximately $7,561,000 of accrued retention liabilities on February 28, 2006 (note 3(m)). The debt repayment was funded from available cash balances plus partner capital contributions received on February 9, 2006 totaling $100,000,000. Under the terms of the PSA, obligations related to the Partnership’s defined benefit plans were not transferred or otherwise acquired by SUC (see note 6).

(3)   Summary of Significant Accounting Policies and Practices

(a)   Basis of Presentation and Consolidation

The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. Net income or loss is credited or charged to the partners’ capital accounts in accordance with their respective percentage interest as stated in the partnership agreement. The Partnership is permitted to make distributions based on the availability of distributable funds as determined by the General Partner. The allocation of distributions is based on each partner’s interests pursuant to the partnership agreement, consistent with the allocation of net income or loss.

The accompanying consolidated financial statements include the Partnership, SRCG West Texas Gathering, Inc. (SRCG West Texas) and subsidiary; Leapartners, L.P., its 99% owned subsidiary partnership (Leapartners); Mi Vida Genpar, LLC; and Sid Richardson Pipeline, Ltd. and subsidiaries (collectively the Partnership).

6

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

During 2003, the Partnership contributed certain assets and a third party contributed cash to form a new subsidiary partnership (Grey Ranch). The Partnership exercises control over Grey Ranch and has therefore included the assets (including the assets contributed upon formation that are recorded at historical cost), liabilities, income and expenses of Grey Ranch in the accompanying consolidated financial statements.

In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46), which clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements. FIN 46 defines variable interest entities and how an enterprise should assess its interests in a variable interest entity to decide whether to consolidate that entity. In December 2003, the FASB issued a revision of FIN 46 (FIN 46R), primarily to clarify the required accounting for investments in variable interest entities. This standard replaces FIN 46. For the Partnership, application was required immediately for variable interest entities created after December 31, 2004 and for variable interest entities in which an interest is acquired after that date, and to all entities that are subject to FIN 46R by January 1, 2005. The interpretation requires certain minimum disclosures with respect to variable interest entities in which an enterprise holds significant variable interest but which it does not consolidate. FIN 46R may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year presented. The provisions of FIN 46R had no impact on the Partnership’s consolidated financial position, results of operations, or disclosures.

The net assets of the minority partnership interests in Leapartners and Grey Ranch and their respective share of income and expenses are included in Minority interest in subsidiaries and Minority interest in subsidiaries’ net (income) loss in the accompanying consolidated financial statements.

All significant intercompany balances and transactions have been eliminated in consolidation.

(b)   Use of Estimates

The Partnership has made certain estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting policies generally accepted in the United States of America. Although the Partnership believes the estimates are appropriate, actual results could differ from those estimates.

(c)   Cash and Cash Equivalents

The Partnership considers all highly liquid financial instruments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents include $36,708,818 and $31,363,128 of money market investments at December 31, 2005 and 2004, respectively.

7

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(d)   Significant Customers and Concentrations of Credit Risk

For the years ended December 31, 2005, 2004 and 2003, sales to REM, an affiliate under common control with the Partnership, accounted for 98%, 98% and 97% of total net sales, respectively.

Financial instruments, which potentially subject the Partnership to concentrations of credit risk, consist primarily of trade accounts receivable and derivative financial instruments. The Partnership’s primary customer is REM. Consequently, matters affecting the business and financial condition of REM, including its operations, management, customers, and vendors, have the potential to impact the Partnership’s credit exposure. The Partnership believes the risk is limited since REM’s customers represent a broad and diverse group of energy marketers and end users. In addition, the Partnership’s management continually monitors and reviews credit exposure to each of REM’s counterparties.

(e)   Allowance for Uncollectible Receivables

The Partnership records an allowance for uncollectible accounts based on several factors that include, but are not limited to, historical experience and current projected financial conditions of specific customers, current economic conditions and other information. As the financial condition of any party changes, circumstances develop, or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. No reserves were recorded as of December 31, 2005 and 2004.

(f)   Derivatives

The Partnership periodically manages its exposure to commodity price fluctuations using derivative financial instruments. The Partnership accounts for derivative financial instruments in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS No. 133). Derivative financial instruments subject the Partnership to off-financial statement risk. Derivative financial instruments involve not only the risk of dealing with counterparties and their ability to meet the terms of the contracts but also the risk associated with unmatched positions and market fluctuations. Notional, face or contract amounts often are used to express the volume of these transactions, but the amounts potentially subject to credit risk are much smaller.

Under SFAS No. 133, the Partnership is required to record derivative financial instruments at fair value. The fair value of derivative financial instruments is determined by commodity exchange prices, over-the-counter quotes, volatility, time value, counterparty credit and the potential impact on market prices of liquidating positions in an orderly manner over a reasonable period of time under current market conditions. Under SFAS No. 133, market value changes result in a change in the fair value of derivative financial instruments. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. If the derivative instrument does not qualify or is not designated as part of a hedging relationship, changes in fair value of the derivative are recognized in earnings as they occur. Commodity price volatility may have a significant impact on the gain or loss in any given period.

8

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

The Partnership periodically enters into certain commodity collar arrangements (commodity collars) in order to hedge against significant market value declines in commodity prices. Commodity collars are arrangements in which the counterparty agrees to be a put option seller and a call option buyer and the Partnership agrees to be the corresponding put option buyer and call option seller. Both the put option and call option are for the same quantity of a derivative commodity instrument.

On September 3, 2004, the Partnership entered into a natural gas commodity collar arrangement with JP Morgan Chase Bank. SRES is buyer of the put at a strike price of $4.00 and seller of the call at a strike price of $11.00. The notional quantity per delivery month of the collar is 37,500 MMBtu’s per day, for delivery months November 2004 through October 2006. The reference price is the Waha Index as determined by the publication “Inside FERC’s Gas Market Report” for the month corresponding to the relevant delivery date. For the month of November 2005, the published price of the Waha Index was $11.40, a difference of $0.40 above the call strike price. Under the terms of the collar, settlement of $450,000 was made to JP Morgan Chase. No other settlement has been made under this collar arrangement.

At December 31, 2005 and 2004, the Partnership had open commodity collars with a liability of $5,373,352 and an asset of $1,362,977, respectively. The Partnership has marked these derivatives to market in Gain (loss) on derivative instruments in the accompanying consolidated statements of operations as such instruments did not qualify for hedge accounting.

(g)   Contracts for Physical Purchases and Sales

The Partnership’s contracts for the physical purchase and sale of natural gas and natural gas liquids are derivatives under SFAS No. 133, since the underlying natural gas and natural gas liquids are commodities readily convertible to cash - thereby meeting the net settlement provision of SFAS No. 133. The contracts do not provide for a net settlement in cash, nor do they provide for any settlement mechanism other than the physical delivery of the underlying natural gas and natural gas liquids. Since the Partnership’s contracts for the physical purchase and sale of natural gas and natural gas liquids are based on a floating index price, no mark-to-market adjustment is required because there is no fair value.

(h)   Property, Plant and Equipment

Property, plant and equipment are recorded at cost. The Partnership charges repairs and maintenance against income when incurred and capitalizes renewals and betterments, which extend the useful life or expand the capacity of the assets. The Partnership calculates depreciation on the straight-line method over the following estimated useful lives: buildings - 20 to 35 years; natural gas plants and equipment - 10 to 25 years; transportation equipment - 3 years.

9

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(i)   Capitalization of Interest

The Partnership capitalizes interest on major projects during extended periods which are required to prepare the assets for their intended use. Such interest is allocated to property, plant and equipment and amortized over the estimated useful lives of the related assets. During 2005, 2004 and 2003, the Partnership capitalized $1,108,000, $202,000 and $87,000, respectively, of interest on construction in progress.

(j)   Impairment of Long-Lived Assets

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Partnership evaluates its long-lived assets for impairment when events or changes in circumstances indicate, in the Partnership’s judgment, that the carrying value of such asset may not be recoverable. The determination of whether impairment has occurred is based on the Partnership’s estimate of undiscounted future cash flows attributable to the assets as compared to the carrying value of the assets. If impairment has occurred, the amount of impairment recognized is determined by estimating the fair value of the assets and recording a provision for the amount by which the carrying value exceeds fair value. For assets identified to be held for sale, the carrying value of these assets is compared to the estimated fair value, less the cost to sell, to determine if impairment is required. An asset is no longer depreciated while it is held for sale. Until the assets are disposed of, an estimate of the fair value is re-evaluated when related events or circumstances change.

When determining whether impairment of one of the Partnership’s long-lived assets has occurred, the Partnership must estimate the undiscounted cash flows attributable to its assets or asset groups. Such an estimate of cash flows is based on assumptions regarding future natural gas liquids product and natural gas prices. Projections of future commodity prices are inherently subjective and contingent upon a number of factors, many of which are difficult to forecast. Any significant variance in any of these assumptions or factors could materially affect future cash flows. The Partnership has reviewed its long-lived assets for impairments and has not identified any such impairment.

(k)   Asset Retirement Obligations

SFAS No. 143, Accounting for Asset Retirement Obligations, (SFAS No. 143) was issued in June 2001. The Partnership adopted SFAS No. 143 beginning January 1, 2003. This statement requires entities to record the fair value of a liability for legal obligations associated with the retirement obligations of tangible long-lived assets in the period in which the obligation is incurred and can be reasonably estimated. When the liability is initially recorded, a corresponding increase in the carrying amount of the related long-lived asset is recorded. Over time, accretion of the liability is recognized each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss on settlement.

10

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional AssetRetirement Obligations, an interpretation of FASB No. 143 (FIN 47), which clarifies the accounting for conditional asset retirement obligations as used in SFAS No. 143. A conditional asset retirement obligation (ARO) is an unconditional legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. An entity is required to recognize a liability for the fair value of a conditional ARO under SFAS No. 143 if the fair value of the liability can be reasonably estimated. FIN 47 permits, but does not require, restatement of interim financial information. The provisions of FIN 47 are effective at December 31, 2005.

Under the implementation guidelines of SFAS No. 143 and FIN 47, the Partnership has reviewed its long-lived assets, rights-of-way, easements and lease arrangements for ARO liabilities, including any conditional ARO liabilities and identified any such liabilities. These liabilities include AROs related to rights-of-way and easements over property not owned by the Partnership, leases of land, and regulatory requirements associated with the removal and disposal of asbestos.

The Partnership’s rights under its rights-of-way and easements are renewable or perpetual and retirement action, if any, is required only upon nonrenewal or abandonment of the rights-of-way and easements. The Partnership currently expects to continue to use or renew all such rights-of-way and easement agreements for the foreseeable future. Accordingly, the Partnership is unable to reasonably estimate and record liabilities for its obligations because it does not believe that any of the applicable assets will be retired or abandoned in the foreseeable future. The Partnership will record ARO’s in the period in which the obligations may be reasonably estimated.

The Partnership has recorded approximately $900,000 of liabilities for ARO’s principally related to removal of equipment from leased land and removal and disposal of asbestos.

(l)   Deferred Financing Costs

Deferred financing costs are amortized on a straight-line basis over the term of the related obligations, which approximates the effective interest method. In the event the Partnership’s long-term debt is refinanced or restructured, any remaining related unamortized deferred financing costs are expensed.

(m)   Accrued Liabilities

Accrued liabilities at December 31, 2005 and 2004 primarily consist of amounts relating to accrued employee retention liabilities and other accrued employee benefits.

(n)   Contingencies and Environmental Costs

The Partnership records a liability for loss contingencies arising from claims, assessments, litigation, fines, and penalties in the consolidated financial statements when a loss is known or considered probable and the amount can be reasonably estimated. The Partnership reviews these estimates each accounting period as additional information is known and adjusts the loss accrual when appropriate. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in the consolidated financial statements.

11

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

Environmental expenditures are expensed or capitalized as appropriate, depending on the nature of the expenditures and their future economic benefit. Expenditures that relate to an existing condition caused by past operations that do not contribute to current or future revenue generation are expensed. Liabilities for these expenditures are recorded on an undiscounted basis (or discounted when the obligation can be settled at fixed and determinable amounts) when environmental assessments or clean-ups are probable and the costs can be reasonably estimated.

(o)   Fair Value of Financial Instruments

The Partnership has estimated the fair value of the Partnership’s financial instruments using available market information and valuation methodologies. Considerable judgment is required to develop the estimates of fair value. Estimates of fair value are not necessarily indicative of the amount the Partnership could realize upon the sale or refinancing of such financial instruments.

The carrying amounts of cash and cash equivalents, trade receivables, accounts payable, and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities. Derivative financial instruments are included in assets or liabilities at fair value. The carrying amounts of notes and accrued interest receivable - affiliates approximate their fair value as such instruments bore interest at a floating rate which is believed to be comparable to those rates currently offered on deposits under a centralized cash management program offered by third party financial institutions (note 4). The fair value of other assets approximates its carrying value as the underlying instruments either (i) bear interest at a rate which is believed to be comparable to those currently offered on similar subordinated instruments or (ii) are carried at values which are believed to approximate a market value for similar equity investments in private companies (note 7). The fair value of the Partnership’s long-term debt and accrued interest payable is believed to approximate its carrying value as such instruments bear interest at a floating rate which was comparable to rates currently offered to the Partnership for similar debt instruments of comparable maturities by the Partnership’s bankers.

(p)   Revenue Recognition

The Partnership recognizes revenue for natural gas and natural gas liquid product sales at the time the product is delivered and title is transferred. Gas gathering, processing and treating revenues, which are not significant to the accompanying consolidated financial statements, are recognized in the period in which services are provided.

(q)   Income Taxes

The Partnership is not a taxable entity for Federal income tax purposes. As such, the Partnership does not directly pay Federal income tax. The Partnership’s taxable income or loss, which may vary substantially from the net income or loss reported in the consolidated statements of operations, is includable in the Federal income tax return of each partner.

12

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

The Partnership’s wholly owned subsidiary, SRCG West Texas, files consolidated Federal and state income tax returns. SRCG West Texas accounts for income taxes in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes. This statement requires SRCG West Texas to recognize deferred tax assets and liabilities under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

During 2005, 2004 and 2003, SRCG West Texas recognized current tax expense of $7,744, $7,765 and $8,968, respectively, and deferred tax expense of $299,254, $74,428 and $19,694, respectively. A reconciliation of the provision for taxes for SRCG West Texas is as follows:

	2005			2004			2003
Expected Federal taxes at statutory rate (35%)	$	324,359			74,831		$	18,842
State income taxes, net		7,744			7,765			8,968
Other, net		(25,105	)		(403	)		852
Income tax expense	$	306,998			82,193		$	28,662

The principal components of SRCG West Texas’ net deferred tax liabilities at December 31, 2005 and 2004 are as follows:

	2005			2004
Deferred income tax assets:
Net operating loss carry forwards	$	—			467,589
Amounts accrued for financial reporting
purposes not yet deductible for tax purposes		179,254			79,520
Total deferred income tax assets		179,254			547,109
Deferred income tax liabilities:
Property, plant and equipment		(1,414,171	)		(1,482,772	)
Deferred tax liabilities, net	$	(1,234,917	)		(935,663	)

The ultimate realization of deferred tax assets is dependent upon the ability of SRCG West Texas to generate taxable income during the periods in which those temporary differences become deductible. The Partnership considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon projections of future taxable income, the Partnership believes it is more likely than not that SRCG West Texas will realize the benefits of these deductible differences. Therefore, no valuation allowance has been established. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income are reduced.

13

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(r)   Defined Benefit Plans

The Partnership has a defined benefit retirement plan covering substantially all of its employees and also has a nonqualified defined benefit plan covering certain key executives. The benefits under both plans are based upon years of service and compensation during the ten calendar years before employment ceases. The Partnership computes pension expense for the defined benefit retirement plan and costs associated with the nonqualified defined benefit plan in accordance with SFAS No. 87, Employers’ Accounting for Pensions.

(s)   Comprehensive Income

Comprehensive income includes net income and other comprehensive income (loss), which may include items such as unrealized holding gains and losses on available-for-sale securities, gains and losses on derivative financial instruments accounted for as a cash flow hedge, adjustments to minimum pension liabilities, or foreign currency translation adjustments. The Partnership did not have any items resulting in a difference between net income and other comprehensive income (loss) during the years ended December 31, 2005, 2004 and 2003.

(4)   Related Party Transactions

The Partnership sells substantially all of its gas and natural gas liquids to REM, an affiliate under common control. Such sales accounted for 98%, 98% and 97% of the Partnership’s total net sales during 2005, 2004 and 2003, respectively. During the Partnership’s normal business cycle, these amounts are recorded as sales and are reported as Sales - affiliate in the accompanying consolidated statements of operations. Amounts receivable from affiliates for sales of gas and natural gas liquids are included in Trade receivables - affiliate in the accompanying consolidated balance sheets.

The Partnership purchases a portion of natural gas and natural gas liquids from related parties. During the Partnership’s normal business cycle, these amounts are recorded as cost of sales and are reported as Purchased gas - affiliate in the accompanying consolidated statements of operations. Amounts owed to affiliates for purchases of natural gas liquids are included in Accounts payable - affiliates in the accompanying consolidated balance sheets.

Certain employees of REM also provide services to the Partnership. During 2005, 2004 and 2003, the Partnership was allocated $1,812,548, $1,317,236 and $965,348, respectively, for its portion of these employees’ salaries, benefits, pension expenses, and other related costs. Such allocations are reflected in General and administrative expenses, net in the accompanying consolidated statements of operations.

The Partnership shares certain common administrative services and facilities, including office space, with related parties. During 2005, 2004 and 2003, the Partnership reimbursed affiliates in the amount of approximately $4,545,559, $3,938,000 and $3,311,000, respectively, for its portion of these expenses. Such amounts are reflected in General and administrative expenses, net in the accompanying consolidated statements of operations.

14

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

The Partnership had unsecured notes receivable from an affiliate, due on demand and no later than dates ranging from April 15, 2008 to March 1, 2009, amounting to $0 and $13,875,252 at December 31, 2005 and 2004, respectively. Accrued interest associated with the notes amounted to $0 and $84,750 at December 31, 2005 and 2004, respectively. These notes bear interest at an agreed-upon variable rate of 2.6% at December 31, 2004. These notes receivable are related to a centralized cash management program managed by affiliates and are reflected in Notes and accrued interest receivable - affiliate in the accompanying consolidated balance sheets. Interest related to these notes is reflected in Interest income - affiliate in the accompanying consolidated statements of income. These notes and accrued interest receivable - affiliate were repaid in full during May 2005.

(5)   Long-Term Debt

At December 31, 2005 and 2004, the Partnership has a $150,000,000 amended and restated credit agreement with a group of banks. The credit agreement bears interest at an agreed-upon variable rate (6.1% and 4.3% at December 31, 2005 and 2004, respectively) and is secured by all assets of the Partnership. At December 31, 2005 and 2004, long-term debt under this credit agreement amounted to $106,071,428 and $127,500,000, with current installments of $15,000,000 each year. On February 9, 2006 the Partnership paid this debt in its entirety.

The Partnership had accrued interest of $40,778 and $290,195 related to the debt at December 31, 2005 and 2004, respectively, which is included in Accrued liabilities in the accompanying consolidated balance sheets. During 2005, 2004 and 2003, the Partnership incurred $0, $1,063,416 and $643,130 respectively, in deferred financing costs in connection with the credit agreements and certain amendments and is amortizing these costs over the term of such loans. Amortization of deferred financing costs amounted to $248,356, $249,120 and $553,809 during 2005, 2004 and 2003, respectively, and is included in Interest expense in the accompanying consolidated statements of operations. Total write-offs of unamortized deferred financing costs due to refinancing of related debt obligations was $0, $400,804, and $454,760 during 2005, 2004, and 2003, respectively, and is included in Other, net in the accompanying consolidated statements of operations.

The credit agreements contain certain financial covenants that require the maintenance of certain ratios. As of December 31, 2005 and 2004, the Partnership was in compliance with the covenants under the credit agreements.

(6)   Retirement Plans for Employees

Defined Benefit Plans

The Partnership participates in a single employer, as a member of a control group, defined benefit retirement plan (the Plan) which covers substantially all of its employees as well as certain employees of affiliates as defined by the Plan. The Plan is sponsored by the Partnership and certain affiliates and is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). In addition, the Partnership maintains a nonqualified defined benefit plan (the Restoration Plan) covering certain key executives.

15

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

The following table sets forth the benefit obligations, fair value of plan assets, and funded status at December 31, 2005 and 2004:

	Plan benefits						Restoration plan benefits						Plan totals
	2005			2004			2005			2004			2005			2004
Projected benefit obligation	$	30,169,476			26,486,546			2,950,640			1,221,559			33,120,116			27,708,105
Fair value of plan assets		17,227,826			16,968,405			—			—			17,227,826			16,968,405
Funded status	$	(12,941,650	)		(9,518,141	)		(2,950,640	)		(1,221,559	)		(15,892,290	)		(10,739,700	)
Amounts recognized in the
consolidated balance sheets
consist of:
Other long-term liabilities	$	(7,897,130	)		(6,223,240	)		(1,123,606	)		(970,669	)		(9,020,736	)		(7,193,909	)

The accumulated benefit obligation for the Plan was $24,757,483 and $17,083,557 at December 31, 2005 and 2004, respectively. The accumulated benefit obligation for the Restoration Plan was $1,007,439 and $527,469 at December 31, 2005 and 2004, respectively.

Net periodic benefit cost for the years ended December 31, 2005, 2004 and 2003 was as follows:

	Plan benefits									Restoration plan benefits
	2005			2004			2003			2005			2004		2003
Service cost	$	1,443,761			2,033,249			1,822,820			86,884			119,373		53,868
Interest cost		1,522,976			1,545,505			1,434,000			70,240			76,590		35,821
Expected return on assets		(1,357,472	)		(1,147,684	)		(1,175,751	)		—			—		—
Recognized prior service cost		(484,317	)		—			—			(43,562	)		—		—
Recognized actuarial loss		548,941			185,069			49,514			56,435			33,939		(12,538	)
Net periodic
benefit cost	$	1,673,889			2,616,139			2,130,583			169,997			229,902		77,151
Net periodic benefit cost recognized
in the consolidated statements
of operations consists of:
Cost of sales	$	1,273,273			2,062,923			1,702,866			—			—		—
General and administrative
expenses, net		400,616			553,216			427,717			169,997			229,902		77,151
Total	$	1,673,889			2,616,139			2,130,583			169,997			229,902		77,151

16

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

	Plan totals
	2005			2004			2003
Service cost	$	1,530,645			2,152,622			1,876,688
Interest cost		1,593,216			1,622,095			1,469,821
Expected return on assets		(1,357,472	)		(1,147,684	)		(1,175,751	)
Recognized prior service cost		(527,879	)		—			—
Recognized actuarial loss		605,376			219,008			36,976
Net periodic benefit cost	$	1,843,886			2,846,041			2,207,734
Net periodic benefit cost recognized in the
consolidated statements of operations
consists of:
Cost of sales	$	1,273,273			2,062,923			1,702,866
General and administrative
expenses, net		570,613			783,118			504,868
Total	$	1,843,886			2,846,041			2,207,734

The Partnership contributed $0, $2,451,446 and $0 to the Plan during 2005, 2004, and 2003, respectively. The Plan paid $613,978, $1,154,635 and $2,490,604 in benefits to its participants during 2005, 2004 and 2003, respectively.

The Partnership paid $17,060, $22,747, and $22,747 in benefits to its participants of the Restoration Plan during 2005, 2004 and 2003, respectively.

Weighted average assumptions used to determine benefit obligations for the years ended December 31, 2005, 2004 and 2003 were as follows:

	Plan benefits									Restoration plan benefits
	2005			2004			2003			2005			2004			2003
Discount rate		5.50	%		5.75	%		6.25	%		5.50	%		5.75	%		6.25	%
Rate of compensation increase		5.00			5.00			5.50			5.00			5.00			5.50

Weighted average assumptions used to determine net benefit costs for the years ended December 31, 2005, 2004 and 2003 were as follows:

	Plan benefits									Restoration plan benefits
	2005			2004			2003			2005			2004			2003
Discount rate		5.75	%		6.25	%		6.75	%		5.75	%		6.25	%		6.75	%
Expected long-term rate of return
on plan assets		8.00			8.00			8.00			N/A			N/A			N/A
Rate of compensation increase		5.00			5.50			5.50			5.00			5.50			5.50

The Plan’s expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. The return is based exclusively on the Plan’s historical returns, without adjustments.

17

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

The Plan’s investment policy governs how assets are invested. The policy is designed to maximize overall return potential while minimizing the risk of loss. The policy permits designated investment managers to invest in mutual funds, equities, bonds and debt instruments to establish a diversified investment portfolio. Asset allocations are reviewed with investment managers at least annually and more often when it appears that market trends might materially change. The weighted average asset allocation of the Partnership’s Plan assets at December 31, 2005 and 2004 was as follows:

	Plan assets at December 31
	2005			2004
Asset category:
Equity securities		74	%		58	%
Debt securities		6			13
Other		20			29
Total		100	%		100	%

Based on the funded status of the Plans and anticipated benefit payments, the Partnership does not expect to make any contributions to the Plan during 2006.

The Plan and the Partnership on behalf of the Restoration Plan expect to pay the following benefits in future periods:

			Restoration
	Plan		plan		Total
Year ending December 31:
2006	$	1,475,429		13,505		1,488,934
2007		1,185,047		20,171		1,205,218
2008		1,420,788		29,578		1,450,366
2009		1,196,990		37,122		1,234,112
2010		1,466,275		50,287		1,516,562
2011 – 2015		12,621,165		3,289,964		15,911,129

The expected benefits are based on the same assumptions used to measure the Partnership’s benefit obligation at December 31 and include estimated future employee service. See note 4 for information regarding additional defined benefit plan cost allocations from REM.

On January 1, 2005, the Plan was amended to modify benefits for participants who did not meet certain age and service criteria as of that date. The amendments primarily reduced the benefit formula applicable to these participants, eliminated disability benefits previously provided under the Plan, and modified the payment options available for amounts earned under the Plan after December 31, 2004.

18

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

Defined Contribution Plan

The Partnership also has a 401(k) defined contribution plan to permit participant contributions on a pre-tax basis. This plan is also subject to the provisions of ERISA. The plan allows eligible employees to contribute up to the maximum IRS limits $14,000, $13,000 and $12,000 in 2005, 2004 and 2003, respectively. The Partnership matches the first 4% of the employee’s annual compensation on a dollar for dollar basis, up to a maximum of $5,000 per year per employee. Contributions made to this plan by the Partnership in 2005, 2004 and 2003 were approximately $467,000, $431,000 and $413,000, respectively, and are included in Operating and maintenance and General and administrative expenses, net in the accompanying consolidated statements of operations.

(7)   Sale of Property and Equipment and Other Assets

During 2003, the Partnership sold property and equipment with a net book value of $3,176,430. In exchange for the property and equipment, the Partnership received 10,000 shares of PetroSource Energy Company capital stock with an estimated fair value of $1,000,000 and a note receivable in the amount of $1,000,000. The note receivable bears interest at 6.0% and interest is payable on a quarterly basis beginning January 1, 2004 and continuing through October 1, 2004. Thereafter, quarterly payments of principal and accrued interest will be paid until October 1, 2011. The Partnership recognized a loss of $1,176,430 on this transaction which is included in Other, net in the accompanying consolidated statements of operations for the year ended December 31, 2003.

During 2004, the Partnership received $45,000 in additional capital stock in lieu of accrued interest. The capital stock and note receivable amounted to $2,045,000 at December 31, 2004, and is included in Other assets in the accompanying consolidated balance sheets.

On March 4, 2005, PetroSource Energy Company converted to a limited partnership. Accordingly, the Partnership’s capital stock was converted into partnership units (10,699.28 units). On November 21, 2005, a Partnership Interest and Note Purchase Agreement (Agreement) was entered into with Riata Energy, Inc. The Agreement was for the sale of the PetroSource Energy Company limited partnership units and the Subordinate Promissory Note. The sale was completed on December 22, 2005 and a gain of $1,143,352 was recorded in Other, net in the accompanying consolidated statements of operations.

(8)   Leases

The Partnership has operating leases primarily for pipeline capacity, compressors, land, office space and transportation equipment. The pipeline capacity and compressor leases contain renewal options. The Partnership is generally required to pay all costs such as maintenance, insurance and operating expenses associated with such leases. Rental expense for operating leases in 2005, 2004 and 2003 was approximately $1,266,000 $1,306,000 and $1,091,000, respectively, and is included in Operating and maintenance and General and administrative expenses, net in the accompanying consolidated statements of operations.

19

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) are approximately:

Year ended December 31:
2006	$	553,000
2007		517,000
2008		515,000
2009		486,000
2010		47,000

(9)   Litigation Settlement

During 2004, the Partnership received approximately $14,787,000 in connection with a litigation settlement with El Paso Natural Gas Company (El Paso). El Paso breached a noncompete agreement associated with certain New Mexico processing plants owned by the Partnership. Included in the settlement was approximately $9,771,000 of damages which are included in Other, net, approximately $4,549,000 of interest which is included in Interest income, and approximately $467,000 in reimbursed legal fees which are included as a reduction in General and administrative expenses, net in the accompanying consolidated statements of operations.

(10)   Commitments and Contingencies

Legal Proceedings

The Partnership, in the ordinary course of business, is subject to certain claims and litigation. The Partnership believes the outcome of such matters will not have a material effect on the consolidated balance sheets or the results of operations of the Partnership.

Guarantees

At December 31, 2005, a subsidiary of the Partnership’s ultimate owner, had issued approximately $3,300,000 in standby letters of credit to certain insurers in order to act as collateral for any deductible payments due under workers compensation, general liability, and auto liability policies covering the affiliate, the Partnership, and other affiliated entities. The Partnership and the other affiliated entities have agreed to reimburse the affiliate for those losses arising from their liabilities related to such deductible payments in the event the standby letters of credit are drawn upon by the insurers. If this situation occurs, the Partnership’s maximum obligation would be dependent upon the ability of these affiliates to perform under this agreement. In the unlikely event these affiliates are unable to perform, the Partnership may be required to fund the total amount of such standby letters of credit. The Partnership expects full performance by these affiliates and accordingly, there is no requirement to record a liability for this commitment.

20

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly SID RICHARDSON ENERGY SERVICES, LTD. AND SUBSIDIARIES)

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

Environmental Matters

The Partnership, in the ordinary course of business, is subject to certain environmental remediation assessments and clean-up efforts associated with operating its plants and equipment. The Partnership has identified several environmental remediation matters. The Partnership accounts for the estimated costs associated with these remediation efforts in accordance with AICPA Statement of Position 96-1, Environmental Remediation Liabilities. Accordingly, liabilities for these remediation efforts are recorded on an undiscounted basis when the environmental assessments or clean-ups are probable and the costs can be reasonably estimated.

The total estimated aggregate cost associated with such matters was $352,000 and $110,000 at December 31, 2005 and 2004, respectively, and is expected to be paid over the next three years. The aggregate undiscounted amount has been recorded in Accrued liabilities in the accompanying consolidated balance sheets since it represents the Partnership’s best estimate of these costs and the expected payments are not considered to be fixed and reliably determinable. The cost estimate is based on technology that is expected to be used and is currently available to complete the remediation efforts. The estimate of costs and their timing of payment could change as a result of (i) changes to planned remediation efforts required by regulatory agencies, (ii) changes in technology available to complete the remediation efforts, and (iii) unforeseen circumstances existing at the site.

21

EX-99.3

Exhibit 99.3

SOUTHERN UNION GAS ENERGY, LTD.

(formerly RICHARDSON ENERGY MARKETING, LTD.)

(a Texas Limited Partnership)

Financial Statements

December 31, 2005 and 2004

(With Independent Auditors’ Report Thereon)

Independent Auditors’ Report

The Partners

Southern Union Gas Energy, Ltd.:

We have audited the accompanying balance sheets of Southern Union Gas Energy, Ltd. (formerly Richardson Energy Marketing, Ltd.) as of December 31, 2005 and 2004, and the related statements of operations, changes in partners’ capital, and cash flows for each of the years in the three-year period ended December 31, 2005. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Southern Union Gas Energy, Ltd. as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Fort Worth, Texas

March 31, 2006

SOUTHERN UNION GAS ENERGY, LTD.
(formerly RICHARDSON ENERGY MARKETING, LTD.)
(a Texas Limited Partnership)
Balance Sheets
December 31, 2005 and 2004
Assets	2005		2004
Current assets:
Cash and cash equivalents	$	51,606		1,833,725
Receivables (note 3):
Trade		121,769,816		73,059,421
Trade – affiliates (note 7)		10,552,084		7,448,073
Due from brokers (note 5)		13,981,565		525,964
Derivative financial instruments assets (note 5)		1,651,744		587,215
Total receivables		147,955,209		81,620,673
Inventories (notes 3(f) and 7)		211,563		179,845
Prepaid expenses		11,852		16,941
Marketable securities (note 5)		—		500
Total current assets		148,230,230		83,651,684
Property, plant, and equipment, at cost:
Land		55,523		55,523
Leasehold improvements		107,321		107,321
Pipeline equipment		1,471,698		1,457,648
Office equipment		669,747		660,599
Transportation equipment		29,406		29,406
		2,333,695		2,310,497
Less accumulated depreciation		1,620,951		1,532,311
Net property, plant, and equipment		712,744		778,186
Other assets		—		25,000
	$	148,942,974		84,454,870
Liabilities and Partners’ Capital (Deficit)
Current liabilities:
Bank overdraft	$	867,614		531,917
Accounts payable – trade		33,734,646		19,872,954
Accounts payable – affiliates (note 7)		86,870,244		54,839,890
Notes and accrued interest payable – affiliates (note 7)		11,904,239		—
Derivative financial instruments liability (note 5)		2,568,488		352,502
Accrued liabilities		2,304,137		1,572,953
Total current liabilities		138,249,368		77,170,216
Other long-term liabilities (note 6)		8,318,870		8,963,799
Partners’ capital (deficit)		2,374,736		(1,679,145	)
Commitments and contingencies (notes 6, 8, and 9)
	$	148,942,974		84,454,870
See accompanying notes to financial statements.

2

SOUTHERN UNION GAS ENERGY, LTD.
(formerly RICHARDSON ENERGY MARKETING, LTD.)
(a Texas Limited Partnership)
Statements of Operations
Years ended December 31, 2005, 2004 and 2003
	2005			2004			2003
Natural gas liquids and natural gas sales (notes 5 and 7)	$	1,450,192,984			831,381,456			787,001,948
Cost of sales		435,589,310			178,447,642			186,640,133
Cost of sales – affiliate (note 7)		1,011,185,855			647,477,845			598,564,464
(Gain) loss on derivative financial instruments, net (note 5)		(3,638,851	)		1,341,449			(2,579,489	)
General and administrative expenses (notes 6 and 7)		3,659,917			3,658,185			3,596,230
Operating income		3,396,753			456,335			780,610
Other income (expense):
Interest income		710,466			399,938			165,242
Interest expense – affiliates (note 7)		(22,138	)		(242	)		(129,240	)
Other, net		(31,200	)		(10,033	)		3,610
Other income, net		657,128			389,663			39,612
Net income	$	4,053,881			845,998			820,222
See accompanying notes to financial statements.

3

SOUTHERN UNION GAS ENERGY, LTD.
(formerly RICHARDSON ENERGY MARKETING, LTD.)
(a Texas Limited Partnership)
Statements of Changes in Partners’ Capital (Deficit)
Years ended December 31, 2005, 2004 and 2003
	General		Limited
	Partner		Partner			Total
Balance at December 31, 2002	$	111,605		(3,456,970	)		(3,345,365	)
Net income		8,202		812,020			820,222
Balance at December 31, 2003		119,807		(2,644,950	)		(2,525,143	)
Net income		8,460		837,538			845,998
Balance at December 31, 2004		128,267		(1,807,412	)		(1,679,145	)
Net income		40,539		4,013,342			4,053,881
Balance at December 31, 2005	$	168,806		2,205,930			2,374,736
See accompanying notes to financial statements.

4

SOUTHERN UNION GAS ENERGY, LTD.
(formerly RICHARDSON ENERGY MARKETING, LTD.)
(a Texas Limited Partnership)
Statements of Cash Flows
Years ended December 31, 2005, 2004 and 2003
	2005			2004			2003
Cash flows from operating activities:
Net income	$	4,053,881			845,998			820,222
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation		88,640			94,981			97,737
Bad debt expense		4,002			12,807			1,250
Unrealized (gain) loss on derivative instruments, net		1,151,457			(150,211	)		(288,336	)
Changes in assets and liabilities:
Trade receivables		(48,714,397	)		(7,956,693	)		(2,375,792	)
Trade receivables – affiliates		(3,104,011	)		(757,776	)		(247,358	)
Due from brokers		(13,455,601	)		670,745			(1,046,244	)
Accrued interest receivable – affiliates		—			—			14,097
Inventories		(31,718	)		(55,945	)		(39,290	)
Prepaid expenses		5,089			(8,866	)		(816	)
Other assets		25,000			397,800			112,200
Accounts payable – trade		13,861,692			3,710,113			(9,284,002	)
Accounts payable – affiliates		32,030,354			(44,056	)		14,287,863
Accrued liabilities		731,184			73,908			692,647
Accrued interest payable – affiliates		4,239			—			(43,356	)
Other long-term liabilities		(644,929	)		111,309			102,780
Net cash provided by (used in) operating activities		(13,995,118	)		(3,055,886	)		2,803,602
Cash flows from investing activities:
Advances on note receivable – affiliates		(3,500,000	)		—			(58,268,422	)
Receipts on note receivable – affiliates		3,500,000			—			62,753,900
Purchases of property, plant and equipment		(23,198	)		(43,192	)		(55,495	)
Disposals of property, plant and equipment		—			28,295			11,091
Purchases of marketable securities		—			(8,281	)		(253,306	)
Proceeds from sale of marketable securities		500			44,600			115,900
Net cash provided by (used in) investing activities		(22,698	)		21,422			4,303,668
Cash flows from financing activities:
Change in bank overdraft		335,697			(614,780	)		506,097
Proceeds from note payable – affiliates		61,100,000			32,702,336			80,710,427
Payments on note payable – affiliates		(49,200,000	)		(32,702,336	)		(89,808,664	)
Net cash provided by (used in) financing activities		12,235,697			(614,780	)		(8,592,140	)
Net change in cash and cash equivalents		(1,782,119	)		(3,649,244	)		(1,484,870	)
Cash and cash equivalents at beginning of year		1,833,725			5,482,969			6,967,839
Cash and cash equivalents at end of year	$	51,606			1,833,725			5,482,969
Supplemental disclosure of cash flow information:
Cash paid for interest in 2005, 2004, and 2003 totaled $4,239, $242, and $172,596, respectively.
See accompanying notes to financial statements.

5

SOUTHERN UNION GAS ENERGY, LTD.

(formerly RICHARDSON ENERGY MARKETING, LTD.

(a Texas Limited Partnership)

Notes to Financial Statements

December 31, 2005 and 2004

(1)   Organization and Description of Business

Richardson Energy Marketing, Ltd. (the Partnership), a Texas limited partnership formed on March 1, 1993, sells natural gas and natural gas liquids to a variety of customers including power generation companies, utilities, energy marketers, and industrial users located primarily in the southwestern United States. The Partnership seeks to manage commodity price risk through a risk management program and credit risk by selling to reliable and creditworthy customers. The Partnership purchases a significant portion of its natural gas and natural gas liquids from affiliates, including Sid Richardson Energy Services, Ltd. and subsidiaries (SRES), an affiliate under common control.

(2)   Definitive Agreement to Sell Partnership Interests

On December 15, 2005, the owners of the Partnership executed a Purchase and Sale Agreement (the PSA) with wholly owned subsidiaries of Southern Union Company (SUC) to sell the partnership interests in the Partnership and its affiliate, SRES, to SUC. After closing of the transaction, the Partnership will continue to operate as a direct or indirect subsidiary of SUC. The transaction closed on March 1, 2006. In connection with the sale, the Partnership paid approximately $689,000 of accrued retention liabilities. Under the terms of the PSA, obligations related to the Partnership’s defined benefit plans were not transferred or otherwise acquired by SUC (see note 6). In connection with the sale, the Partnership paid the outstanding balance of its note with affiliates. The debt repayment was funded from available cash balances.

(3)   Summary of Significant Accounting Policies and Practices

(a)   Basis of Presentation

The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. Net income or loss is credited or charged to the partners’ capital accounts in accordance with their respective percentage interest as stated in the partnership agreement. The Partnership is permitted to make distributions based on the availability of distributable funds as determined by the General Partner. The allocation of distributions is based on each partner’s interests pursuant to the partnership agreement, consistent with the allocation of net income or loss.

(b)   Use of Estimates

The Partnership has made certain estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting policies generally accepted in the United States of America. Although the Partnership believes the estimates are appropriate, actual results could differ from those estimates.

(c)   Cash and Cash Equivalents

The Partnership considers investments in highly liquid financial instruments with an original maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents include $51,606 and $910,004 of money market investments at December 31, 2005 and 2004, respectively.

6

SOUTHERN UNION GAS ENERGY, LTD.

(formerly RICHARDSON ENERGY MARKETING, LTD.

(a Texas Limited Partnership)

Notes to Financial Statements

December 31, 2005 and 2004

(d)   Significant Suppliers and Concentrations of Credit Risk

SRES, an affiliate under common control, is the supplier of a significant portion of the Partnership’s inventories of natural gas and natural gas liquids.

Financial instruments, which potentially subject the Partnership to concentrations of credit risk, consist primarily of cash and cash equivalents, accounts receivable and derivative financial instruments. The Partnership invests cash and cash equivalents in money market accounts with high-quality institutions. The Partnership derives its revenues and accounts receivables from customers primarily in the natural gas and utilities industries. Since these customers could be similarly affected by changes in the economy, industries and other conditions, the industry concentrations could potentially affect the Partnership’s overall exposure to credit risk - either positively or negatively. However, the exposure to credit risk is mitigated by the creditworthiness of the Partnership’s customer base. The Partnership’s accounts receivable primarily consist of mid to large domestic customers with credit ratings of investment grade or better. The Partnership screens the list of derivative financial instrument counterparties by evaluating the ability of each counterparty to perform under the terms of the derivatives agreement. The Partnership maintains trading relationships with counterparties that include U.S. broker-dealers and other financial institutions.

(e)   Allowance for Uncollectible Receivables

The Partnership extends credit to customers and other parties in the normal course of business. The Partnership has established various procedures to manage its credit exposure, including initial credit approvals, credit limits and rights of offset. The Partnership also uses prepayments and guarantees to limit credit risk to ensure that management’s established credit criteria are met. The Partnership records an allowance for uncollectible receivables based on several factors that include, but are not limited to, historical experience and current and projected financial conditions of specific customers, current economic circumstances and other information. As the financial condition of any party changes, circumstances develop or additional information becomes available, adjustments to the allowance for uncollectible receivables may be required. During the years ended December 31, 2005, 2004 and 2003, the Partnership recorded an allowance for and wrote off uncollectible receivables of $4,002, $12,807 and $1,250, respectively. No allowance for uncollectible receivables was recorded as of December 31, 2005 and 2004.

(f)   Inventories

Inventories consist primarily of natural gas liquids and are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method (FIFO).

(g)   Property, Plant and Equipment

Property, plant and equipment are recorded at cost. The Partnership charges repairs and maintenance against income when incurred and capitalizes renewals and betterments, which extend the useful life or expand the capacity of the assets. The Partnership calculates depreciation on the straight-line method over the following estimated useful lives: pipeline equipment - 25 years; leasehold improvements - amortized over the shorter of the lease term or estimated useful life of the asset - 10 years; office equipment - 10 years; transportation equipment - 3 years.

7

SOUTHERN UNION GAS ENERGY, LTD.

(formerly RICHARDSON ENERGY MARKETING, LTD.

(a Texas Limited Partnership)

Notes to Financial Statements

December 31, 2005 and 2004

(h)   Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standard (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Partnership evaluates its long-lived assets for impairment when events or changes in circumstances indicate, in the Partnership’s judgment, that the carrying value of such asset may not be recoverable. The determination of whether impairment has occurred is based on the Partnership’s estimate of undiscounted future cash flows attributable to the assets as compared to the carrying value of the assets. If impairment has occurred, the amount of impairment recognized is determined by estimating the fair value of the assets and recording a provision for the amount by which the carrying value exceeds fair value. For assets identified as held for sale, the carrying value of these assets is compared to the estimated fair value, less the cost to sell, to determine if an impairment has occurred. An asset is no longer depreciated while it is held for sale. Until the assets are disposed of, an estimate of the fair value is re-evaluated when related events or circumstances change.

When determining whether impairment of one of the Partnership’s long-lived assets has occurred, the Partnership must estimate the undiscounted cash flows attributable to its assets or asset groups. Such an estimate of cash flows is based on assumptions regarding future prices for natural gas liquids product and natural gas. Projections of future commodity prices are inherently subjective and contingent upon a number of factors, many of which are difficult to forecast. Any significant variance in any of these assumptions or factors could materially affect future cash flows. The Partnership has reviewed its long-lived assets for impairments and has not identified any such impairments.

(i)   Asset Retirement Obligations

SFAS No. 143, Accounting for Asset Retirement Obligations, (SFAS No. 143) was issued in June 2001. The Partnership adopted SFAS No. 143 beginning January 1, 2003. This statement requires entities to record the fair value of a liability for legal obligations associated with the retirement obligations of tangible long-lived assets in the period in which the obligation is incurred and can be reasonably estimated. When the liability is initially recorded, a corresponding increase in the carrying amount of the related long-lived asset is recorded. Over time, accretion of the liability is recognized each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss on settlement.

In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143 (FIN 47), which clarifies the accounting for conditional asset retirement obligations as used in SFAS No. 143. A conditional asset retirement obligation (ARO) is an unconditional legal obligation to perform as asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of an entity. An entity is required to recognize a liability for the fair value of a conditional ARO under SFAS No. 143 if the fair value of the liability can be reasonably estimated. FIN 47 permits, but does not require, restatement of interim financial information. The provisions of FIN 47 are effective at December 31, 2005.

8

SOUTHERN UNION GAS ENERGY, LTD.

(formerly RICHARDSON ENERGY MARKETING, LTD.

(a Texas Limited Partnership)

Notes to Financial Statements

December 31, 2005 and 2004

Under the implementation guidelines of SFAS No. 143 and FIN 47, the Partnership has reviewed its long-lived assets for ARO liabilities, including conditional ARO liabilities, and identified any such liabilities. These liabilities consist of AROs related to rights-of-way and easements over property not owned by the Partnership.

The Partnership’s rights under its rights-of-way and easements are renewable or perpetual and retirement action, if any, is required only upon non renewal or abandonment of the rights-of-way and easements. The Partnership currently expects to continue to use or renew all such rights-of-way and easement agreements for the foreseeable future. Accordingly, the Partnership is unable to reasonably estimate and record liabilities for its obligations because it does not believe that the assets will be retired or abandoned in the foreseeable future. The Partnership will record AROs in the period in which the obligation may be reasonably estimated.

(j)   Gas Imbalances

Quantities of natural gas over or under delivered related to gas balancing agreements are recorded monthly as receivables, using weighted average prices or payables based on current fair value. These imbalances are settled with deliveries of natural gas in future periods, usually within one month. The Partnership had imbalance payables of $2,560,789 and $493,743 at December 31, 2005 and 2004, respectively, which are carried at the fair value of these imbalances. The Partnership had imbalance receivables of $961,670 and $1,494,488 at December 31, 2005 and 2004, respectively, which are carried at the lower of cost or market value. Imbalance receivables are included in Trade receivables and imbalance payables are included in Accounts payable - trade on the accompanying balance sheets.

(k)   Revenue and Cost of Sales Recognition

Revenue and the related cost of sales for natural gas and natural gas liquids are recognized in the period when the physical product is delivered to the customer at the contractually agreed-upon price and title is transferred. Cost of sales primarily includes the cost of purchased natural gas and natural gas liquids and related transportation expenses.

The Partnership accounts for sale and purchase arrangements on a gross basis in the accompanying statements of operations as Natural gas liquids and natural gas sales and Cost of sales, respectively. Contractual arrangements establish the purchase of natural gas and natural gas liquids at specified locations and the sale at different locations on the same or other specified dates. Both purchase and sale transactions require physical delivery of the natural gas and natural gas liquids. The transfer of ownership is evidenced by the purchaser’s assumption of title, price risk, credit risk, counterparty nonperformance risk, environmental risk, and transportation scheduling (see note 3 (n)).

(l)   Income Taxes

The Partnership is not a taxable entity for Federal income tax purposes. As such, the Partnership does not directly pay Federal income tax. The Partnership’s taxable income or loss, which may vary substantially from the net income or loss reported in the statements of operations, is includable in the Federal income tax return of each partner. Consequently, no income taxes have been reflected in the accompanying financial statements.

9

SOUTHERN UNION GAS ENERGY, LTD.

(formerly RICHARDSON ENERGY MARKETING, LTD.

(a Texas Limited Partnership)

Notes to Financial Statements

December 31, 2005 and 2004

(m)   Derivative Financial Instruments

The Partnership markets natural gas and natural gas liquids and manages associated risks using derivative financial instruments. The Partnership accounts for derivative financial instruments in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS No. 133). Derivative financial instruments subject the Partnership to off-financial statement risk. Derivative financial instruments involve not only the risk of dealing with counterparties and their ability to meet the terms of the contracts but also the risk associated with unmatched positions and market fluctuations. Notional, face or contract amounts often are used to express the volume of these transactions, but the amounts potentially subject to credit risk are much smaller.

Under SFAS No. 133, the Partnership is required to record derivative financial instruments at fair value. The fair value of derivative financial instruments is determined by commodity exchange prices, over-the-counter quotes, volatility, time value, counterparty credit and the potential impact on market prices of liquidating positions in an orderly manner over a reasonable period of time under current market conditions. The majority of the Partnership’s fair values are based on actual market prices. Under SFAS No. 133, market value changes result in a change in the fair value of derivative financial instruments. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. If the derivative instrument does not qualify or is not designated as part of a hedging relationship, changes in fair value of the derivative are recognized in earnings as they occur. Commodity price volatility may have a significant impact on the gain or loss in any given period.

To minimize the risk of price fluctuations in natural gas and natural gas liquids, the Partnership uses various derivative financial instruments to manage risks associated with anticipated purchases and sales of natural gas and natural gas liquids. In order to account for these derivative financial instruments as hedges, SFAS No. 133 requires an entity to formally document all relationships between hedging instruments and hedged items, as well as risk management objectives, strategies for undertaking various hedge transactions and methods for assessing and testing hedge effectiveness and ineffectiveness. Specific assets, liabilities, firm commitments or forecasted transactions must be designated as hedged items. The effectiveness of hedging relationships, both at the inception of the hedge and on an ongoing basis, must be assessed. Since the Partnerships’ accounting records historically have been prepared on the accrual basis of accounting in accordance with practices permitted for income tax purposes, the Partnership has not met the documentation requirements of SFAS No. 133. Therefore, changes in fair value for these derivative financial instruments are recognized in earnings as they occur and are reported net in Gain (loss) on derivative financial instruments, net in the accompanying statements of operations, and in Derivative financial instrument assets or liabilities in the accompanying balance sheets.

10

SOUTHERN UNION GAS ENERGY, LTD.

(formerly RICHARDSON ENERGY MARKETING, LTD.

(a Texas Limited Partnership)

Notes to Financial Statements

December 31, 2005 and 2004

The Partnership also trades various derivative financial instruments to take advantage of pricing anomalies among derivative financial instruments related to natural gas and natural gas liquids. Changes in fair value for these derivative financial instruments are recognized in earnings as they occur and are reported net in Gain (loss) on derivative financial instruments, net in the accompanying statements of operations and in Derivative financial instrument assets or liabilities in the accompanying balance sheets.

(n)   Contracts for Physical Purchases and Sales

The Partnership’s contracts for the physical purchase and sale of natural gas and natural gas liquids are derivatives under SFAS No. 133, since the underlying natural gas and natural gas liquids are commodities readily convertible to cash - thereby meeting the net settlement provision of SFAS No. 133. The contracts do not provide for a net settlement in cash, nor do they provide for any settlement mechanism other than the physical delivery of the underlying natural gas and natural gas liquids. The Partnership’s open contracts for the physical purchase and sale of natural gas and natural gas liquids are reported at fair value. The Partnership recorded mark-to-market adjustments for these contracts of ($867,690), $753,931 and ($63,596) for the years ended December 31, 2005, 2004 and 2003, respectively, and reported such adjustments in Natural gas liquids and natural gas sales in the accompanying statements of operations.

The Partnership considered the following EITF conclusions in determining whether to present revenues and cost of sales related to settled contracts on a gross or net basis in the accompanying statements of operations: EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent; EITF Issue No. 02-03, Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities; andEITF Issue No. 03-11, Reporting Realized Gains and Losses on Derivative Instruments That Are Subject to FASB Statement No. 133 and Not ‘Held for Trading Purposes’ as Defined in EITF Issue No 02-3 (EITF 03-11). EITF 03-11 provides that it is a matter of judgment in the context of relevant facts and circumstances of whether realized gains and losses on physically settled derivative contracts not “held for trading purposes” should be reported in the statements of operations on a gross or net basis.

The Partnership has determined that these contracts are not held for trading purposes since title, price risk, credit risk, counterparty nonperformance risk, environmental risk, and transportation scheduling pass from seller to buyer when the natural gas and natural gas liquids are physically delivered. The Partnership assumes these risks when it purchases natural gas and natural gas liquids and transfers these risks to buyers when it sells the natural gas and natural gas liquids in the context of the ordinary business cycle of the Partnership. Revenues and cost of sales are therefore reported on a gross basis for settled contracts in the accompanying statements of operations.

(o)   Comprehensive Income

Comprehensive income includes net income (loss) and other comprehensive income (loss), which may include items such as unrealized holding gains and losses on available-for-sale securities, gains and losses on derivative financial instruments accounted for as a cash flow hedge, adjustments to minimum pension liabilities, or foreign currency translation adjustments. The Partnership did not have any items resulting in a difference between net income (loss) and other comprehensive income (loss) during the years ended December 31, 2005, 2004 and 2003.

11

SOUTHERN UNION GAS ENERGY, LTD.

(formerly RICHARDSON ENERGY MARKETING, LTD.

(a Texas Limited Partnership)

Notes to Financial Statements

December 31, 2005 and 2004

(p)   Defined Benefit Plans

The Partnership has a defined benefit retirement plan covering substantially all of its employees and also has a nonqualified defined benefit plan covering certain key executives. The benefits under both plans are based upon years of service and compensation during the ten calendar years before employment ceases. The Partnership computes pension expense for the defined benefit retirement plan and costs associated with the nonqualified defined benefit plan in accordance with SFAS No. 87, Employers’ Accounting for Pensions.

(q)   Contingencies and Environmental Costs

The Partnership records a liability for loss contingencies arising from claims, assessments, litigation, fines, and penalties in the financial statements when a loss is known or considered probable and the amount can be reasonably estimated. The Partnership reviews these estimates each accounting period as additional information is known and adjusts the loss accrual when appropriate. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in the financial statements.

Environmental expenditures are expensed or capitalized as appropriate, depending on the nature of the expenditures and their future economic benefit. Expenditures that relate to an existing condition caused by past operations that do not contribute to current or future revenue generation are expensed. Liabilities for these expenditures are recorded on an undiscounted basis (or discounted when the obligation can be settled at fixed and determinable amounts) when environmental assessments or clean-ups are probable and the costs can be reasonably estimated. For years ended December 31, 2005, 2004 and 2003, such expenditures were not significant.

(4)   Fair Value of Financial Instruments

The Partnership has estimated the fair value of the Partnership’s financial instruments using available market information and valuation methodologies. Considerable judgment is required to develop the estimates of fair value. Estimates of fair value are not necessarily indicative of the amount the Partnership could realize upon the sale or refinancing of such financial instruments.

The carrying amounts of the Partnership’s cash and cash equivalents, receivables, and payables approximate fair value due to the short-term maturities of these assets and liabilities. Derivative financial instruments are included in assets or liabilities at fair value.

The carrying amounts of notes and accrued interest payable - affiliates approximate their fair value as such instruments bear interest at a floating rate which is believed to be comparable to those rates currently offered on deposits under a centralized cash management program offered by third party financial institutions.

12

SOUTHERN UNION GAS ENERGY, LTD.

(formerly RICHARDSON ENERGY MARKETING, LTD.

(a Texas Limited Partnership)

Notes to Financial Statements

December 31, 2005 and 2004

(5)   Derivative Financial Instruments

The Partnership uses derivative financial instruments both to manage commodity price risk and to take advantage of pricing anomalies among derivative financial instruments related to natural gas and natural gas liquids. All transactions in derivative financial instruments are governed by written risk management guidelines that have been approved by senior management - including the appointment of a senior risk compliance officer to oversee compliance with the guidelines. The Partnership conducts credit reviews on all counterparties and requires collateral as necessary. The Partnership’s swap agreements generally allow for offset of positive and negative exposures. The Partnership is subject to margin deposit requirements for over-the-counter (OTC) agreements with non-bank counterparties and for New York Mercantile Exchange (NYMEX) positions.

The use of derivative financial instruments may expose the Partnership to the risk of financial loss in certain circumstances, including instances when the Partnership’s equity volumes are less than expected; the Partnership’s customers fail to purchase or deliver the contracted quantities of natural gas or natural gas liquids; or the Partnership’s OTC counterparties fail to perform. To the extent that the Partnership engages in risk management activities, it may be prevented from realizing the benefits of favorable price changes in the physical market. However, the Partnership is similarly insulated against decreases in prices.

The Partnership uses the following derivative instruments:

·   The Partnership uses a combination of fixed price forward contracts, exchange-traded futures and options, fixed for floating index swaps, basis swaps and OTC options to manage commodity price risk. These derivative financial instruments allow the Partnership to preserve value and protect margins because changes in the value of the derivative financial instruments offset corresponding changes in the physical market.

·   The Partnership also uses derivative financial instruments to reduce basis risk. Basis is the difference in price between the physical commodity and the price of the futures contract used to manage risk. Basis risk is the risk that an adverse change in the futures market will not be completely offset by an equal and opposite change in the cash price of the physical commodity. For natural gas, basis risk exists primarily due to price differentials between cash market delivery locations and futures contract delivery locations.

·   The Partnership enters into futures transactions traded on the NYMEX and through OTC swaps and options with various counterparties, consisting primarily of financial institutions and other natural gas companies. The counterparties to derivative contracts include Cinergy Marketing and Trading, Merrill Lynch, BP Corporation, Sempra Energy Trading, TXU Portfolio Management, Coral Energy Resources and Tenaska Marketing Ventures. Future transactions are traded with Smith Barney Citigroup and Prudential Financial.

13

SOUTHERN UNION GAS ENERGY, LTD.

(formerly RICHARDSON ENERGY MARKETING, LTD.

(a Texas Limited Partnership)

Notes to Financial Statements

December 31, 2005 and 2004

·   The Partnership conducts a credit review of OTC counterparties and has agreements with many of these parties that contain collateral requirements. The Partnership generally uses standardized swap agreements that allow for offset of positive and negative OTC exposures. OTC exposure is marked-to-market daily for the credit review process. The Partnership’s exposure to OTC credit risk is reduced by its ability to require a margin deposit from its counterparties based upon the mark-to-market value of their net exposure. The Partnership is also subject to margin deposit requirements under these same agreements and under margin deposit requirements for its NYMEX transactions. The Partnership had posted $3,088,051 and $366,525 in margin deposit requirements for its NYMEX and OTC transactions with various brokers, at December 31, 2005 and 2004, respectively. Such deposits are reported in Due from brokers in the accompanying balance sheets.

The following table summarizes information about the derivative instruments as reported in the accompanying balance sheets and statements of operations:

	December 31,			December 31,
	2005			2004
Derivative assets:
Due from brokers	$	13,981,565			525,964
Marketable securities		—			500
Derivative financial instruments asset		1,651,744			587,215
Derivative liabilities:
Derivative financial instruments liability		(2,568,488	)		(352,502	)

	December 31,			December 31,			December 31,
	2005			2004			2003
Natural gas liquids and natural gas sales - forward
physical contracts	$	(867,690	)		753,931			(63,596	)
Gain (loss) on derivative financial instruments, net		3,638,851			(1,341,449	)		2,579,489
Net derivative gains (losses)	$	2,771,161			(587,518	)		2,515,893

(6)   Retirement Plans for Employees

Defined Benefit Plans

The Partnership participates in a single employer, as a member of a control group, defined benefit retirement plan (the Plan) which covers substantially all of its employees as well as certain employees of affiliates as defined by the Plan. The Plan is sponsored by the Partnership and certain affiliates and is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). In addition, the Partnership maintains a nonqualified defined benefit plan (the Restoration Plan) covering certain key executives.

14

SOUTHERN UNION GAS ENERGY, LTD.

(formerly RICHARDSON ENERGY MARKETING, LTD.

(a Texas Limited Partnership)

Notes to Financial Statements

December 31, 2005 and 2004

The following table sets forth the benefit obligations, fair value of plan assets, and funded status at December 31, 2005 and 2004:

	Plan benefits						Restoration plan benefits
	2005			2004			2005			2004
Projected benefit obligation	$	4,682,528			6,874,925			4,696,957			4,576,787
Fair value of plan assets		2,994,538			4,600,864			—			—
Funded status	$	(1,687,990	)		(2,274,061	)		(4,696,957	)		(4,576,787	)
Amounts recognized in the
balance sheets consist of:
Other long-term liabilities	$	(2,219,110	)		(1,539,272	)		(6,099,760	)		(7,424,527	)

	Total plan benefits
	2005			2004
Projected benefit obligation	$	9,379,485			11,451,712
Fair value of plan assets		2,994,538			4,600,864
Funded status	$	(6,384,947	)		(6,850,848	)
Amounts recognized in the balance sheets consist of:
Other long-term liabilities	$	(8,318,870	)		(8,963,799	)

The accumulated benefit obligation for the Plan was $4,053,952 and $4,809,019 at December 31, 2005 and 2004, respectively. The accumulated benefit obligation for the Restoration Plan was $3,587,957 and $3,811,468 at December 31, 2005 and 2004, respectively.

Net periodic benefit cost for the years ended December 31, 2005, 2004 and 2003 was as follows:

	Plan benefits									Restoration plan benefits
	2005			2004			2003			2005			2004			2003
Service cost	$	302,211			515,959			370,009			155,299			244,245			134,016
Interest cost		297,108			413,046			325,283			222,263			319,172			293,669
Expected return on assets		(231,443	)		(301,163	)		(263,342	)		—			—			—
Recognized prior service cost		(56,302	)		—			—			(84,688	)		—			—
Recognized actuarial loss		45,870			84,678			15,638			(130,334	)		(189,851	)		(307,504	)
Recognized settlement (gain) loss		322,394			—			—			(310,980	)		—			—
Net periodic benefit
cost	$	679,838			712,520			447,588			(148,440	)		373,566			120,181

15

SOUTHERN UNION GAS ENERGY, LTD.

(formerly RICHARDSON ENERGY MARKETING, LTD.

(a Texas Limited Partnership)

Notes to Financial Statements

December 31, 2005 and 2004

	Total plan benefits
	2005			2004			2003
Service cost	$	457,510			760,204			504,025
Interest cost		519,371			732,218			618,952
Expected return on assets		(231,443	)		(301,163	)		(263,342	)
Recognized prior service cost		(140,990	)		—			—
Recognized actuarial loss		(84,464	)		(105,173	)		(291,866	)
Recognized settlement (gain) loss		11,414			—			—
Net periodic benefit cost	$	531,398			1,086,086			567,769

The Partnership contributed $0, $509,788, and $0 to the Plan during 2005, 2004 and 2003, respectively. The Plan paid $31,121 in benefits each year to its participants during 2005, 2004 and 2003, respectively.

The Partnership paid $464,989 in benefits each year to participants of the Restoration Plan during 2005, 2004 and 2003, respectively.

The Partnership paid $1,707,831 in settlements to participants in the Benefits Plan and $711,338 to participants in the Restoration Plan during 2005.

Weighted-average assumptions used to determine benefit obligations for the years ended December 31, 2005, 2004 and 2003 were as follows:

	Plan benefits									Restoration plan benefits
	2005			2004			2003			2005			2004			2003
Discount rate		5.50	%		5.75	%		6.25	%		5.50	%		5.75	%		6.25	%
Rate of compensation increase		5.00			5.00			5.50			5.00			5.00			5.50

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31, 2005, 2004 and 2003 were as follows:

	Plan benefits									Restoration plan benefits
	2005			2004			2003			2005			2004			2003
Discount rate		5.75	%		6.25	%		6.75	%		5.75	%		6.25	%		6.75	%
Expected long-term rate of return
on plan assets		8.00			8.00			8.00			N/A			N/A			N/A
Rate of compensation increase		5.00			5.50			5.50			5.00			5.50			5.50

The Plan’s expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. The return is based exclusively on the Plan’s historical returns, without adjustments.

16

SOUTHERN UNION GAS ENERGY, LTD.

(formerly RICHARDSON ENERGY MARKETING, LTD.

(a Texas Limited Partnership)

Notes to Financial Statements

December 31, 2005 and 2004

The Plan’s investment policy governs how assets are invested. The policy is designed to maximize overall return potential while minimizing the risk of loss. The policy permits designated investment managers to invest in mutual funds, equities, bonds and debt instruments to establish a diversified investment portfolio. Asset allocations are reviewed with investment managers at least annually and more often when it appears that market trends might materially change. The weighted-average asset allocation of the Partnership’s Plan assets at December 31, 2005 and 2004 was as follows:

	Plan assets
	2005			2004
Asset category:
Equity securities		74	%		58
Debt securities		6			13
Other		20			29
Total		100	%		100	%

Based on the funded status of the Plans and anticipated benefit payments, the Partnership does not expect to make any contributions to the Plan during 2006.

The Plan and the Partnership on behalf of the Restoration Plan expect to pay the following benefits in future periods:

			Restoration
	Plan		plan
Year ending December 31:
2006	$	66,885		473,177
2007		80,984		474,827
2008		98,440		477,900
2009		524,281		532,116
2010		876,279		571,046
2011 – 2015		2,524,671		1,658,339

The expected benefits are based on the same assumptions used to measure the Partnership’s benefit obligation at each year end and include estimated future employee service. See note 7 for information regarding additional defined benefit plan cost allocations from REM.

On January 1, 2005, the Plan was amended to modify benefits for participants who did not meet certain age and service criteria as of that date. The amendments primarily reduced the benefit formula applicable to these participants, eliminated disability benefits previously provided under the Plan, and modified the payment options available for amounts earned under the Plan after December 31, 2004.

17

SOUTHERN UNION GAS ENERGY, LTD.

(formerly RICHARDSON ENERGY MARKETING, LTD.

(a Texas Limited Partnership)

Notes to Financial Statements

December 31, 2005 and 2004

Defined Contribution Plan

The Partnership also has a 401(k) defined contribution plan to permit participant contributions on a pre-tax basis. This plan is also subject to the provisions of ERISA. The plan allows eligible employees to contribute up to the maximum IRS limits $14,000, $13,000 and $12,000 in 2005, 2004 and 2003, respectively. The Partnership matches the first 4% of the employee’s annual compensation on a dollar for dollar basis, up to a maximum of $5,000 per year per employee. Contributions made to this plan by the Partnership in 2005, 2004 and 2003 were approximately $68,000, $85,000 and $82,000, respectively, and are included in General and administrative expenses in the accompanying statements of operations.

(7)   Related Party Transactions

The Partnership purchases natural gas and natural gas liquids from SRES and other affiliates at quoted market prices at the point of delivery. The Partnership uses affiliate-owned facilities to process, treat and transport a portion of its natural gas. During the Partnership’s normal business cycle, these amounts become a component of cost of sales and are reported in Cost of sales- affiliate in the accompanying statements of operations, and unsold amounts become part of Inventories in the accompanying balance sheets. Amounts owed to affiliates for purchases of natural gas and natural gas liquids are included in Accounts payable - affiliates in the accompanying balance sheets.

The Partnership also sells natural gas to certain affiliates at quoted market prices at the point of delivery. During 2005, 2004 and 2003, the Partnership’s sales to affiliates amounted to approximately $142,004,000, $31,056,000 and $30,279,000, respectively. Revenues from sales to affiliates are reported in Natural gas liquids and natural gas sales in the accompanying statements of operations and the corresponding receivables are reported in Trade receivables - affiliates in the accompanying balance sheets.

The Partnership shares certain common administrative services, facilities and office space with affiliates. During 2005, 2004 and 2003, affiliates allocated approximately $171,000, $156,000 and $155,000, respectively, to the Partnership for its portion of these expenses. These allocations are reflected as an increase in General and administrative expenses in the accompanying statements of operations. Employees of the Partnership also provide services to other affiliates. During 2005, 2004 and 2003, the Partnership allocated $4,832,374, $3,273,423 and $2,876,537, respectively, to affiliates for their portion of these employees’ salaries, benefits, pension expenses, and other related costs. Such allocations are reflected as a reduction of General and administrative expenses in the accompanying statements of operations.

During 2005, 2004 and 2003, the Partnership borrowed and repaid $3,500,000, $2,000,119 and $65,557,514, respectively, under a note agreement with an affiliate. The note bore interest at an agreed-upon variable rate and matured on demand or February 2005. Related interest expense is included in Interest expense - affiliates in the accompanying statements of operations. There were no amounts outstanding under this agreement at December 31, 2005 and 2004.

The Partnership has an unsecured revolving promissory note payable to an affiliate. The note payable is due on demand or June 7, 2006 and bears interest at an agreed-upon variable rate. Interest is due quarterly. The Partnership borrowed $61,100,000, $30,702,217 and $15,152,912 and repaid $49,200,000, $30,702,217 and $24,251,149 under this note payable during 2005, 2004 and 2003, respectively. At December 31, 2005, the amount outstanding under this note payable was $11,904,239 and is reflected in Notes and accrued interest payable - affiliates, in the accompanying balance sheet. Related interest expense is included in Interest expense - affiliates in the accompanying statements of operations.

18

SOUTHERN UNION GAS ENERGY, LTD.

(formerly RICHARDSON ENERGY MARKETING, LTD.

(a Texas Limited Partnership)

Notes to Financial Statements

December 31, 2005 and 2004

(8)   Leases

The Partnership has an operating lease for office space that expires in 2007. The lease contains a renewal option for an additional two year term and requires the Partnership to pay for its portion of the property’s operating expenses. Rental expense related to this operating lease in 2005, 2004 and 2003 was approximately $28,000, $40,000 and $41,000, respectively, and is included in General and administrative expenses in the accompanying statements of operations.

The following table summarizes the remaining non-cancelable future payments under operating leases for leased office space with initial or remaining non-cancelable lease terms in excess of one year:

2006	$	28,169
2007		16,432
	$	44,601

(9)   Commitments and Contingencies

The Partnership, in the normal course of business, is subject to certain claims and litigation. The Partnership believes the outcome of such matters will not have a material effect on financial position or results of operations.

19

EX-99.4

Exhibit 99.4

SOUTHERN UNION COMPANY

UNAUDITED SUPPLEMENTAL HISTORICAL COMBINED

OPERATING INFORMATION FOR:

SOUTHERN UNION GAS SERVICES, LTD. AND SUBSIDIARIES

(formerly Sid Richardson Energy Services, Ltd. and Subsidiaries)

AND

SOUTHERN UNION GAS ENERGY, LTD.

(formerly Richardson Energy Marketing, Ltd.)

The following table provides unaudited supplemental combined historical operating information for Southern Union Gas Services, Ltd. and subsidiaries and Southern Union Gas Energy, Ltd. for the quarter ended March 31, 2006 and each of the years in the three-year period ended December 31, 2005:

	Quarter Ended
	March 31,	Year Ended December 31,
Operating Information:	2006	2005	2004	2003
Volumes:
Average natural gas processed volumes (MMbtu/day)	420,649	393,719	370,483	375,307
Average liquids processed volumes (gallons/day)	1,361,706	1,280,828	1,244,392	1,212,337
Prices:
Average Waha natural gas daily price ($/MMbtu)	$ 6.64	$ 7.58	$ 5.37	$ 5.17
Average natural gas liquids daily price ($/gallon)	$ 0.83	$ 0.84	$ 0.66	$ 0.50

EX-99.5

Exhibit 99.5

SOUTHERN UNION COMPANY AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS

The following unaudited pro forma combined condensed statements of operations present the combined financial data of Southern Union Company and subsidiaries (“Southern Union” or the “Company”), Sid Richardson Energy Services, Ltd. and subsidiaries (“SRES”) and Richardson Energy Marketing, Ltd. (“REM”) after giving effect to Southern Union’s acquisition of SRES and REM for $1,600,000,000 in cash (the “Acquisition”). The Company completed the Acquisition on March 1, 2006.

The unaudited pro forma combined condensed statements of operations for the twelve months ended December 31, 2005 and the three months ended March 31, 2006 give effect to the Acquisition as if it had occurred on January 1, 2005. Because the unaudited consolidated condensed balance sheet as of March 31, 2006 presented in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006 includes the effect of the Acquisition and related assets and liabilities acquired, no pro forma consolidated condensed balance sheet has been presented in this Current Report on Form 8-K/A.

The Acquisition was funded under a bridge loan facility in the amount of $1.6 billion (“Bridge Loan”) that was entered into on March 1, 2006 between the Company and its wholly-owned subsidiary, Enhanced Service Systems, Inc., as borrowers, and a group of banks and lenders. The Bridge Loan is available for a maximum period of 364 days at interest rates tied to either LIBOR or the prime rate plus a spread based upon the credit ratings of the Company’s senior unsecured debt. Under the terms of the Bridge Loan, the Company is required to apply 100% of the net cash proceeds from asset dispositions and from the issuance of equity and/or debt, other than from the refinancing of debt, to repayment of the Bridge Loan. Accordingly, the Company expects to retire the Bridge Loan with the net proceeds from: (i) the sales of its PG Energy operating division and the Rhode Island operations of its New England Gas Company operating division with estimated proceeds of $1.1 billion (the “LDC Sales”); and (ii) as appropriate, permanent debt and/or equity financing. The unaudited pro forma combined condensed statements of operations give effect to Southern Union's funding of the acquisition through the Bridge Loan. Due to the uncertainty as to the timing of the completion of the LDC Sales and the ultimate amount of permanent debt and/or equity financing, the unaudited pro forma combined condensed statements of operations give effect to the Bridge Loan as if it were outstanding for all periods presented. To the extent the Company is successful at closing the LDC Sales and issuing permanent equity financing, ongoing interest expense associated with the Acquisition financing will be significantly less than the amounts estimated in the following unaudited pro forma combined condensed statements of operations.

The excess of the Acquisition’s purchase price over the book value of the net assets acquired is primarily attributable to property, plant and equipment, including certain amortizable intangibles, based on the estimated fair values of the assets acquired. The estimates of the fair values of the assets are preliminary and will be revised to reflect the results of independent appraisals, which have not been completed. The unaudited pro forma combined condensed statements of operations give effect to the Company’s preliminary estimate of the step-up in basis of the acquired assets and liabilities.

The unaudited pro forma combined condensed statements of operations are based upon currently available information and certain assumptions that the Company believes are reasonable under the circumstances. Assumptions underlying the pro forma adjustments are described in the accompanying notes and should be read in conjunction with the unaudited pro forma combined condensed statements of operations. The unaudited pro forma combined condensed statements of operations are furnished for informational purposes only and do not purport to represent the Company’s results of operations had the Acquisition actually occurred on the date indicated or for any future period.

The unaudited pro forma combined condensed statements of operations do not contain any adjustments to reflect cost savings or other synergies anticipated as a result of the Acquisition.

Southern Union Company
Unaudited Pro Forma Combined Condensed Statement of Operations
For the Twelve Months Ended December 31, 2005
(In thousands of dollars, except shares and per share amounts)
							Southern
							Union			Sid
							Historical			Richardson			Richardson
	Southern			(H)			Recast for			Energy			Energy
	Union			Discontinued			Discontinued			Services			Marketing			Pro Forma
Operating revenues:	Historical			Operations			Operations			Historical			Historical			Adjustments					Combined
Gas distribution	$	1,503,272		$	(750,573	)	$	752,699		$	-		$	-		$	-				$	752,699
Gathering and processing		-			-			-			1,001,061			1,450,193			(1,082,080	)	(A	)		1,369,174
Gas transportation and storage		505,233			-			505,233			-			-			-					505,233
Other		10,925			(1,975	)		8,950			-			-			-					8,950
Total operating revenues		2,019,430			(752,548	)		1,266,882			1,001,061			1,450,193			(1,082,080	)				2,636,056
Operating expenses:
Cost of gas and other energy		1,040,956			(511,506	)		529,450			833,017			1,443,136			(1,082,080	)	(A	)		1,721,020
																	(2,503	)	(B	)
Revenue—related taxes		51,857			(11,777	)		40,080			-			-			-					40,080
Operating, maintenance and general		417,663			(115,638	)		302,025			69,489			3,660			-					375,174
Depreciation and amortization		126,393			(33,831	)		92,562			18,843			-			66,905		(C	)		159,467
																	(18,843	)	(C	)
Goodwill impairment		175,000			(175,000	)		-			-			-			-					-
Taxes, other than on income and revenues		44,517			(10,869	)		33,648			-			-			2,503		(B	)		36,151
Total operating expenses		1,856,386			(858,621	)		997,765			921,349			1,446,796			(1,034,018	)				2,331,892
Operating income		163,044			106,073			269,117			79,712			3,397			(48,062	)				304,164
Other income (expenses):
Interest		(135,157	)		6,688			(128,469	)		(5,061	)		688			(92,760	)	(D	)		(218,988	)
																	531		(E	)
																	6,083		(F	)
Earnings from unconsolidated investments		70,742			-			70,742			-			-			-					70,742
Other, net		(7,069	)		(1,172	)		(8,241	)		(6,078	)		(31	)		-					(14,350	)
Total other income (expenses), net		(71,484	)		5,516			(65,968	)		(11,139	)		657			(86,146	)				(162,596	)
Earnings from continuing operations
before income taxes		91,560			111,589			203,149			68,573			4,054			(134,208	)				141,568
Federal and state income taxes		70,877			(28,326	)		42,551			307			-			(46,973	)	(G	)		(4,115	)
Net earnings from continuing operations		20,683			139,915			160,598			68,266			4,054			(87,235	)				145,683
Preferred stock dividends		(17,365	)		-			(17,365	)		-			-			-					(17,365	)
Net earnings available for common stockholders
from continuing operations	$	3,318		$	139,915		$	143,233		$	68,266		$	4,054		$	(87,235	)			$	128,318
Net earnings available for common stockholders
from continuing operations per share:
Basic							$	1.31													$	1.17
Diluted							$	1.27													$	1.14
Weighted average shares outstanding:
Basic								109,395,418														109,395,418
Diluted								112,794,210														112,794,210

Southern Union Company
Unaudited Pro Forma Combined Condensed Statement of Operations
For the Three Months Ended March 31, 2006
(In thousands of dollars, except shares and per share amounts)
				SRES and REM
				Unaudited
	Southern			January 1, 2006
	Union			to
	Company			February 28, 2006			Pro Forma
Operating revenues:	Historical			Historical			Adjustments					Combined
Gas distribution	$	298,229		$	-		$	-				$	298,229
Gathering and processing		103,231			230,549			-					333,780
Gas transportation and storage		144,643			-			-					144,643
Other		1,063			-			-					1,063
Total operating revenues		547,166			230,549			-					777,715
Operating expenses:
Cost of gas and other energy		306,602			220,674			(476	)	(B	)		526,800
Revenue—related taxes		16,217			-			-					16,217
Operating, maintenance and general		78,777			5,340			-					84,117
Depreciation and amortization		30,865			3,127			16,726		(C	)		50,718
								(8,702	)	(C	)		(8,702	)
Taxes, other than on income and revenues		11,858			-			476		(B	)		12,334
Total operating expenses		444,319			229,141			8,024					681,484
Operating income		102,847			1,408			(8,024	)				96,231
Other income (expenses):
Interest		(42,221	)		(356	)		(22,875	)	(D	)		(56,144	)
								8,500		(D	)
								133		(E	)
								675		(F	)
Earnings from unconsolidated investments		11,566			-			-					11,566
Other, net		37,093			109			-					37,202
Total other income (expenses), net		6,438			(247	)		(13,567	)				(7,376	)
Earnings from continuing operations before income taxes		109,285			1,161			(21,591	)				88,855
Federal and state income taxes		35,867			(148	)		(7,557	)	(G	)		28,162
Net earnings from continuing operations		73,418			1,309			(14,034	)				60,693
Preferred stock dividends		(4,341	)		-			-					(4,341	)
Net earnings available for common stockholders
from continuing operations	$	69,077		$	1,309		$	(14,034	)			$	56,352
Net earnings available for common stockholders
from continuing operations per share:
Basic	$	0.62										$	0.50
Diluted	$	0.60										$	0.49
Weighted average shares outstanding:
Basic		111,668,336											111,668,336
Diluted		114,673,501											114,673,501

SOUTHERN UNION COMPANY AND SUBSIDIARIES

NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS

Adjustments to the Unaudited Pro Forma Combined Condensed Statements of Operations:

(A) Reflects the elimination of historical affiliate sales and cost of sales transactions between SRES and REM.

(B)	Reflects the reclassification of historical amounts relating to SRES and REM taxes, other than on income and revenues, to conform to Southern
	Union's presentation.
(C)	Reflects the elimination of historical depreciation and amortization expense and the adjustment for depreciation and amortization expense related to
	the stepped-up basis of Property, Plant and Equipment (“PP&E”) and definite-lived intangibles (“Intangibles”) of $1.572 billion. The estimate of the fair value of the assets acquired is preliminary and will be revised to reflect the results of independent appraisals, which have not been completed.

	12 Months		3 Months
	Ended		Ended
	December 31, 2005		March 31, 2006
Estimated new book value of PP&E and Intangibles	$	1,572,274,000	$	1,572,274,000
Estimated average future useful life (in years)		23.5		23.5
Estimated annual depreciation and amortization expense		66,905,277		66,905,277
Adjust to quarterly expense (3 months/12 months)		-		25.00	%
Estimated pro forma depreciation and amortization expense	$	66,905,277	$	16,726,319
Eliminate historical depreciation expense	$	18,843,000	$	8,702,000

(D)

Reflects interest expense related to Southern Union's Bridge Loan of $1.6 billion. The interest rate used in the following calculation is 5.31%, based

on a spread of 57.5 basis points over the one-month USD LIBOR quote in accordance with the Bridge Loan agreement, as of March 31, 2006. Additionally, in connection with this borrowing, Southern Union incurred approximately $7.8 million of direct costs. These issuance costs were capitalized and are amortized as an adjustment to interest expense for pro forma purposes over the term of the Bridge Loan which is 364 days. For every 1/8 percent change in the interest rate assumed for the Bridge Loan, interest expense for the twelve months ended December 31, 2005 and the three months ended March 31, 2006 would change by approximately $2,000,000 and $500,000, respectively.

	12 Months			3 Months
	Ended			Ended
	December 31, 2005			March 31, 2006
Principal	$	1,600,000,000		$	1,600,000,000
Estimated interest rate		5.31	%		5.31	%
Estimated annual interest expense on Bridge Loan		84,960,000			84,960,000
Annual amortization of Bridge Loan issuance costs		7,800,000			7,800,000
Estimated annual Bridge Loan expense		92,760,000			92,760,000
Adjust to quarterly rate (90 days/365 days)		-			24.66	%
Estimated pro forma Bridge Loan expense	$	92,760,000		$	22,874,616
Eliminate historical (March 2006) Bridge Loan expense				$	8,500,000

(E)	Reflects the reduction in interest expense associated with the repayment of amounts outstanding on the Southern Union credit facilities from the
	estimated $10 million working capital purchase price adjustment calculated at the close of the Acquisition and reflected in the adjusted purchase price. The interest expense adjustment is calculated using the credit facility rate of 5.31% as of March 31, 2006.
(F)	Reflects the elimination of historical interest expense associated with SRES borrowings that were not assumed by Southern Union in the
	Acquisition.
(G)	Reflects the income tax consequences of the pro forma adjustments at Southern Union’s statutory federal tax rate of 35%.
(H)	Reflects the elimination of Southern Union’s historical operations related to the LDC Sales. The Company began classifying these operations as
	discontinued operations in its consolidated statement of operations for the quarter ended March 31, 2006.