8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 8-K

CURRENT REPORT

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

Date of Report (Date of earliest event reported): August 24, 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 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 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

On January 26, 2006, Southern Union Company (the “Company”) signed a definitive agreement to sell the assets of its PG Energy natural gas distribution division to UGI Corporation (“UGI”) for $580 million in cash, subject to certain working capital adjustments. On August 24, 2006, the Company and UGI entered into an amendment of the definitive agreement to provide for certain items, including the transfer of the pension assets and liabilities of the Company’s PG Energy operating division to UGI. As part of the transfer, the Company agreed to fund the pension plan up to the accumulated benefit obligation. The Company contributed approximately $15 million to the PG Energy pension plan to satisfy the accumulated benefit obligation.

On February 15, 2006, the Company signed a definitive agreement to sell the Rhode Island assets of its New England Gas Company natural gas distribution division to National Grid USA (“National Grid”) for $575 million in cash, less the assumption of approximately $77 million in debt and subject to certain working capital adjustments. On August 24, 2006, the Company entered into an amendment to the definitive agreement with National Grid and a Limited Settlement Agreement (the “Settlement Agreement”) with Narragansett Electric Company d/b/a National Grid, the Department of the Attorney General for the State of Rhode Island (the “Attorney General”) and the Rhode Island Department of Environmental Management (“RIDEM”).

The Company, as part of the Settlement Agreement, has agreed to conduct supplemental site investigations and to also implement interim remedial action plans acceptable to RIDEM on various properties in the Bay Street area of Tiverton, Rhode Island. The Attorney General and RIDEM have agreed not to appeal the Order of the Rhode Island Division of Public Utilities and Carriers approving the sale of the Rhode Island assets of the Company’s New England Gas Company natural gas distribution division to National Grid.

ITEM 1.02 TERMINATION OF A MATERIAL DEFINITIVE AGREEMENT

In connection with the Company’s sale of the assets of its PG Energy natural gas distribution division to UGI, the Company redeemed its outstanding 9.34% First Mortgage Bonds due 2019 in the amount of $15 million. In connection with the redemption, the Company made cash payments of $20.8 million, which included $15 million in principal and $5.8 million in premium related to the early redemption. The bonds were previously collateralized by certain real property assets of PG Energy that were conveyed to UGI.

ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS

On August 24, 2006, the Company completed the divestiture of the assets of its PG Energy natural gas distribution division to UGI for $580 million in cash, subject to certain working capital adjustments. Additionally, on August 24, 2006, the Company completed the divesture of the Rhode Island assets of its New England Gas Company natural gas distribution division to National Grid for $575 million in cash, less the assumption of approximately $77 million of debt and subject to certain working capital adjustments. The Company used the proceeds of the sales to retire approximately $1.1 billion of the $1.6 billion short-term bridge facility used to finance the Company’s March 1, 2006 acquisition of the former Sid Richardson Energy Services business, now known as Southern Union Gas Services.

ITEM 7.01 REGULATION FD DISCLOSURE

On August 25, 2006, the Company issued a press release to announce the completion of the divestiture of the assets of its PG Energy natural gas distribution division to UGI for $580 million in cash, subject to certain working capital adjustments and the divestiture of the Rhode Island assets of its New England Gas Company natural gas distribution division to National Grid for $575 million in cash, less the assumption of approximately $77 million of debt and subject to certain working capital adjustments.A copy of that release is filed herewith as Exhibit 99.1.

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ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

(b) Pro Forma Financial Information.

The following pro forma financial information is filed herewith:

(1)   Unaudited Pro Forma Combined Condensed Statement of Operations for the Six Months Ended June 30, 2006;

(2)   Unaudited Pro Forma Combined Condensed Statement of Operations for the Twelve Months Ended December 31, 2005; and

(3)   Unaudited Pro Forma Condensed Balance Sheet as of June 30, 2006.

(c) Exhibits.

Exhibit No.Description

10.1   10.2     10.3   99.1   99.2 First Amendment to the Purchase and Sale Agreement between Southern Union Company and UGI Corporation, dated as of August 24, 2006.   Limited Settlement Agreement between Southern Union Company, Narragansett Electric Company d/b/a National Grid, the Department of the Attorney General for the State of Rhode Island and the Rhode Island Department of Environmental Management, dated as of August 24, 2006.   First Amendment to the Purchase and Sale Agreement between Southern Union Company and National Grid USA, dated as of August 24, 2006.   Company’s August 25, 2006 Press Release.   Unaudited pro forma combined condensed statements of operations of Southern Union Company and its subsidiaries for the six months ended June 30, 2006 and twelve months ended December 31, 2005, unaudited pro forma condensed balance sheet of Southern Union Company and its subsidiaries as of June 30, 2006, and related notes thereto.

This 8-K 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 Securities and Exchange 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.

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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: August 30, 2006	By:	/s/ Robert M. Kerrigan, III
		Robert M. Kerrigan, III
		Vice President - Assistant General Counsel and Secretary

EXHIBIT INDEX

               Exhibit No.Description

10.1   10.2     10.3   99.1   99.2 First Amendment to the Purchase and Sale Agreement between Southern Union Company and UGI Corporation, dated as of August 24, 2006.   Limited Settlement Agreement between Southern Union Company, Narragansett Electric Company d/b/a National Grid, the Department of the Attorney General for the State of Rhode Island and the Rhode Island Department of Environmental Management, dated as of August 24, 2006.   First Amendment to the Purchase and Sale Agreement between Southern Union Company and National Grid USA, dated as of August 24, 2006.   Company’s August 25, 2006 Press Release.   Unaudited pro forma combined condensed statements of operations of Southern Union Company and its subsidiaries for the six months ended June 30, 2006 and twelve months ended December 31, 2005, unaudited pro forma condensed balance sheet of Southern Union Company and its subsidiaries as of June 30, 2006, and related notes thereto.  

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EX-10.1

[EXECUTION COPY]

FIRST AMENDMENT AGREEMENT

This First Amendment Agreement, dated as of August 24, 2006 (this “First Amendment Agreement” or this “Agreement”), amends the Employee Agreement, dated as of January 26, 2006 (the “Employee Agreement”), by and between SOUTHERN UNION COMPANY, a Delaware corporation (“Seller”), and UGI CORPORATION, a Pennsylvania corporation (“Buyer”), and the Purchase and Sale Agreement, dated as of January 26, 2006 (the “Sale Agreement”), between Seller and Buyer.

RECITALS

WHEREAS, the parties desire to make certain amendments to the Employee Agreement and the Sale Agreement to the extent and in the manner hereinafter set forth; and

WHEREAS, Section 10.1 of the Sale Agreement incorporates the terms and provisions of the Employee Agreement, and Section 13.12 of the Sale Agreement permits the amendment of the Sale Agreement only by an instrument in writing executed by Seller and Buyer.

NOW, THEREFORE, in consideration of the premises and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows:

1. Defined Terms.All capitalized terms used, but not defined, in this Agreement shall have the meanings ascribed or given to them under the terms of the Employee Agreement or the Sale Agreement.

2. Amendments to the Employee Agreement. The parties hereby agree to the following amendments to the Employee Agreement:

(a)Section 1.1.Section 1.1 of the Employee Agreement shall be amended to add the following definition:

“Unfunded ABO under Seller’s Pension Plan” shall mean the unfunded accumulated benefit obligation under Seller’s Pension Plan, determined by Seller’s actuaries in accordance with Statement of Financial Accounting Standard No. 87 as of the last day of the month preceding the Closing Date, based on (1) the most recently available January 1^st census data projected to such last day of the month preceding the Closing Date, (2) asset values determined as of such last day of the month preceding the Closing Date, and (3) the discount rate, determined using the Citigroup Pension Discount Curve, determined as of the end of the month preceding the Closing Date, as posted on the Society of Actuaries’ website; provided, however, that such determination by Seller’s actuaries shall be subject to confirmation of such calculation by Buyer’s actuaries.”

(b)Section 1.2.Section 1.2 of the Employee Agreement shall be amended to delete the reference to “Buyer’s Pension Plan,” which was defined in Section 3.1 of the Employee Agreement.

(c) Section 2.6.Section 2.6 of the Employee Agreement shall be amended to delete the final sentence of Section 2.6.

(d)Section 3.1.Section 3.1 of the Employee Agreement shall be amended and restated in its entirety to read as follows:

Section 3.1Pension Plans. Seller has no defined benefit plan that covers the Employees and that is intended to be a qualified plan other than the Employees’ Retirement Plan of Southern Union Company Pennsylvania Division (“Seller’s Pension Plan”). No later than the Closing Date, Seller shall contribute, in cash, to Seller’s Pension Plan an amount equal to the Unfunded ABO under Seller’s Pension Plan, plus interest, at the discount rate as of the end of the month preceding the Closing Date used to determine the Unfunded ABO under Seller’s Pension Plan, for the period beginning on the last day of the month preceding the Closing Date until the Closing Date. Effective as of the Closing Date, Buyer shall assume sponsorship of, and all assets (held in trust), liabilities and obligations under, Seller’s Pension Plan, including liability for any contributions due after the Closing Date. Seller acknowledges and confirms to Buyer that, as a result of Seller’s contribution of an amount equal to the Unfunded ABO under Seller’s Pension Plan no later than the Closing Date, no further contributions with respect to Seller’s Pension Plan will be required for the 2005 plan year. Seller also acknowledges and confirms to Buyer that Seller has made, on a timely basis, the first two required quarterly contributions with respect to Seller’s Pension Plan for the 2006 plan year. On the Closing Date, or as soon as administratively feasible following the Closing Date, but in no event later than five business days after the Closing Date, the assets held in trust under Seller’s Pension Plan shall be transferred, in accordance with the letter agreement between the parties relating to such transfer of assets,to a trust designated by Buyer to fund Seller’s Pension Plan following the Closing Date. Seller and Buyer shall take all action necessary and appropriate to establish Buyer, effective as of the Closing Date, as successor to Seller as to all rights, assets (held in trust), duties, liabilities and obligations under or with respect to Seller’s Pension Plan. Buyer shall be responsible for the preparation and filing of any annual reports relating to plan years that include the Closing Date; provided, however, that Seller shall furnish Buyer with such information concerning Seller’s Pension Plan as is necessary to prepare such forms, specifically including an executed Schedule B attachment for the 2006 Form 5500, which Buyer may choose to use in connection with such filing. Seller shall be responsible for the preparation and filing of any annual reports relating to all plan years ending prior to the Closing Date.

3. Amendments to the Sale Agreement. The parties hereby agree to the following amendments to the Sale Agreement:

(a) Section 1.1. Section 1.1 of the Sale Agreement shall be amended by (i) amending clause (i) of the definition “Excluded Assets” by inserting at the beginning

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thereof the phrase “Except as otherwise provided in Section 6.9,” and (ii) deleting the figure “$67,500,000” appearing in the definition “Working Capital Target” and substituting therefor the figure “$68,100,000”.

(b) Section 2.2(c). Section 2.2(c) shall be amended to read in its entirety: “(c) obligations and liabilities of Buyer and its Affiliates under the Employee Agreement and all liabilities or obligations relating to the matter set forth on Schedule 2.2(c).

(c) Section 2.3. Section 2.3 shall be amended by deleting from clause (e) thereof the phrase “, and all liabilities or obligations relating to the matter set forth on Schedule 2.3(b)”.

(d) Schedule 2.3(b). Schedule 2.3(b) shall be redesignated as Schedule 2.2(c).

(e) Section 5.13.Section 5.13 of the Sale Agreement shall be amended and restated in its entirety to read as follows:

Section 5.13 Employee Benefit Matters.

(a) Schedule 5.13 lists (i) each “Employee Benefit Plan,” as such term is defined in Section 3(3) of ERISA, that is covered by any provision of ERISA and that is maintained by Seller for the benefit of the Employees and each other material fringe benefit plan, policy or arrangement currently maintained by Seller for the benefit of the Employees that provides for pension, deferred compensation, bonuses, severance, employee insurance coverage or similar employee benefits (collectively, the “Employee Plans”); and (ii) each collective bargaining, union or other employee association agreement, employment agreement and other material agreement, policy or arrangement maintained by Seller for the Employees. Seller has made available to Buyer copies of all documents setting forth the terms of such plans, policies, agreements and arrangements, or summaries of any such plans, policies, agreements and arrangements not otherwise in writing.

(b) Seller’s Pension Plan and Seller’s 401(k) Plan are the only Employee Plans that are intended to be qualified under Section 401(a) of the IRC.

(c) The Subsidiary does not employ any Employees or any other individuals and does not currently maintain any Employee Plan.

(d) To the Seller’s Knowledge, each Employee Benefit Plan maintained by Seller for the benefit of the Employees has been established and administered in all material respects in accordance with its terms and the applicable provisions of ERISA and the IRC.

(e)Seller has delivered to Buyer true, correct and complete copies of (i) all current documents governing Seller’s Pension Plan, and all amendments thereto, and to the extent that Seller has possession of same, any predecessor or prior versions of Seller’s Pension Plan, (ii) all reports filed on or after November 4, 1999 by Seller, a

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Benefits Affiliate or a Plan official with the United States Department of Labor, the IRS or any other federal or state regulatory agency with respect to Seller’s Pension Plan, (iii) all summary plan descriptions, notices and other reporting and disclosure material furnished to participants in Seller’s Pension Plan, (iv) all actuarial, accounting and financial reports, if any, prepared with respect to Seller’s Pension Plan on or after November 4, 1999, (v) all current manuals, procedures, guidelines, forms, files and data pertaining to the administration of Seller’s Pension Plan, (vi) all post-November 4, 1999 minutes, resolutions, determinations of any committee, person or other entity serving as plan administrator or otherwise acting in a fiduciary capacity with respect to the administration or management of Seller’s Pension Plan, and (vii) all currently effective IRS ruling or determination letters on Seller’s Pension Plan. The term “Benefits Affiliate” shall include (i) any corporation which is a member of a controlled group of corporations (as defined in section 414(b) of the IRC) which includes Seller, (ii) any trade or business (whether or not incorporated) which is under common control (as defined in section 414(c) of IRC) with Seller, (iii) any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in section 414(m) of the IRC) which includes Seller and (iv) any other entity required to be aggregated with Seller pursuant to the regulations issued under section 414(o) of the IRC.

(f)Seller’s Pension Plan and provisions thereof, any trusts created thereby and the operation of Seller’s Pension Plan are (and at all times have been) in compliance in all material respects with the terms of Seller’s Pension Plan and conform (and at all times have been in compliance with and conformed) in all material respects to the applicable provisions of the IRC, ERISA and all other applicable statutes and governmental rules and regulations.

(g) Seller’s Pension Plan has been determined by the IRS to be qualified in form under section 401(a) of the IRC and exempt from tax under section 501(a) of the IRC, and each such determination remains in effect and has not been revoked. To the Seller’s Knowledge, nothing has occurred with respect to the design or operation of Seller’s Pension Plan that could cause the loss of such qualification or exemption or the imposition of any liability, lien, penalty or tax under ERISA or the IRC. Any amendment to Seller’s Pension Plan to comply with current law and regulations that is required to be made on or before the Closing Date has been timely made.

(h) With respect to Seller’s Pension Plan, there has occurred no non-exempt “prohibited transaction” (within the meaning of section 4975 of the IRC or section 406 of ERISA) or breach of any fiduciary duty described in section 404 of ERISA that could result in any liability, direct or indirect, for Seller or a Benefits Affiliate or any shareholder, officer, director or employee of Seller or a Benefits Affiliate. Seller and its Benefits Affiliates have paid all amounts that Seller and its Benefits Affiliates are required to pay as contributions to Seller’s Pension Plan as of the Closing Date.

(i) Seller and its Benefits Affiliates have not incurred any liability for any excise, income or other taxes or penalties with respect to Seller’s Pension Plan, and to the Seller’s Knowledge, no event has occurred and no circumstance exists or has existed that could give rise to any such liability. There are no pending or, to the Knowledge of Seller,

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threatened claims by or on behalf of Seller’s Pension Plan, or by or on behalf of any participants in or beneficiaries of Seller’s Pension Plan or other persons, alleging any breach of fiduciary duty on the part of Seller or any Benefits Affiliate or any of their officers, directors or employees under ERISA or any applicable law, or except as set forth in Schedule 5.13(i), claiming benefit payments other than those made in the ordinary operation of Seller’s Pension Plan, nor is there any basis for any such claim. Seller’s Pension Plan is not presently under audit or examination (nor has notice been received of a potential audit or examination) by the IRS, the Department of Labor or any other governmental entity, and no matters are pending with respect to Seller’s Pension Plan under any IRS program. Seller has delivered to Buyer any memorandum pertaining to self-correction of any operational defects with regard to Seller’s Pension Plan.

(j) Neither Seller nor any Benefits Affiliate has made any plan or commitment, whether or not legally binding, to modify or change the terms of Seller’s Pension Plan. Seller’s Pension Plan may be amended or terminated without penalty by Buyer or its Benefits Affiliates at any time on or after the Closing, subject to any requirements under the collective bargaining agreements referred to in Section 2.2 of the Employee Agreement and subject to applicable legal requirements, specifically including the anti-cutback requirements under section 411(d)(6) of the IRC.

(k) The only representations and warranties given in respect of employee benefit matters are those contained in this Section 5.13 and none of the other representations and warranties contained in this Agreement shall be deemed to constitute, directly or indirectly, a representation or warranty in respect of employee benefit matters.

(f) Schedule 5.13. The attached revised Schedule 5.13 to the Sale Agreement is hereby substituted for the original Schedule 5.13 to the Sale Agreement. The original Schedule 5.13 incorrectly listed the Southern Union Company Severance Pay Plan as the Southern Union Company Severance Plan, and it failed to list collective bargaining agreements. The Schedules to the Sale Agreement are further amended by the addition of new Schedule 5.13(i) in the form attached hereto.

(g) Section 6.9. Section 6.9 of the Sale Agreement shall be amended in its entirety to read as follows:

Section 6.9. Insurance.

(a) At Buyer’s request and expense, Seller agrees to use commercially reasonable efforts to assert and diligently pursue all rights to insurance coverage under the Policies (other than with respect to Workman’s Compensation and punitive damage policies) and any other past insurance policies of Seller relating to the Business or the Assets (such insurance policies shall collectively be referred to herein as the “Insurance Policies”) with respect to claims arising from the Business or Assets relating to Assumed Liabilities, whether asserted prior to or after the Closing Date. Seller shall advise Buyer of material developments in respect of such claims and shall not settle or otherwise resolve any claims so asserted without the prior consent of Buyer, such consent not to be unreasonably withheld, provided, however, that Seller may settle claims or policies

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relating to the Business or the Assets relating to Assumed Liabilities (other than claims under or policies constituting AEGIS Policies, as defined in clause (b) below) without the prior consent of Buyer in connection with a settlement of policies of Seller relating to the Excluded Assets or Retained Liabilities, including Seller’s businesses other than the Business, subject to remittance by Seller to Buyer of an allocable portion of the proceeds of such settlement (net of Seller’s costs and expenses), as determined by the insurers with whom such claims are settled (or in the absence of such allocation by the insurers, by Seller in proportion to the claims attributable to the Assumed Liabilities to the totality of Seller’s claims to such insurers). Seller shall remit to Buyer all insurance proceeds obtained after Closing in respect of claims arising from the Business or Assets relating to Assumed Liabilities. Seller agrees to use commercially reasonable efforts to negotiate with each of its insurance companies in order to provide Buyer the benefit of the coverage under the policies for all claims arising prior to the Closing from the Business or Assets related to the Assumed Liabilities whether asserted before or after the Closing Date and to cooperate with Buyer with any efforts to obtain “tail” coverage, at Buyer’s sole cost, with respect to any “claims made policies.” Notwithstanding anything herein to the contrary, any recovery of insurance proceeds by Buyer shall be net of all Seller’s cost and expenses. Seller shall give access to Buyer to all of the non-privileged information relating to these matters and shall consult with Buyer on the progress thereof from time to time. Nothing set forth in this Section 6.9 shall limit Seller’s right to assert claims under any Insurance Policies in respect of Retained Liabilities.

(b) Upon Buyer’s request, except as otherwise provided herein, to the maximum extent permitted by the terms of the Insurance Policies listed on Part I of Schedule 6.9(b) (the “AEGIS Policies”), Seller shall transfer, assign, convey and deliver to Buyer all Seller’s rights, if any, under the AEGIS Policies solely to the extent of coverage arising from the Business or Assets relating to Assumed Liabilities. Anything in this Agreement to the contrary notwithstanding, this Section 6.9(b) shall not be construed to operate as an assignment of any rights under any such AEGIS Policy if an attempted assignment thereof, without the Consent of a third party thereto, would render such AEGIS Policy null and void or otherwise adversely affect the aggregate amount or terms of coverage available thereunder. In addition, Seller shall use commercially reasonable efforts to cause the insurer in respect of Policy No. X0012A1A06 (constituting one of the AEGIS Policies) to issue an endorsement substantially in the form attached hereto as Part II of Schedule 6.9(b), and Buyer acknowledges that issuance of such endorsement shall satisfy Seller’s obligations under the fourth sentence of Section 6.9(a) with respect to such AEGIS Policy. In the event that the insurer under the AEGIS Policies shall fail to pay a claim arising from the Business or Assets relating to the Assumed Liabilities, Seller agrees that, at Buyer’s request, Seller shall use commercially reasonable efforts to pursue such claim against the insurer, including through litigation, at the sole expense of Buyer. Seller shall advise Buyer of material developments in respect of such claims and shall not settle or otherwise resolve any such claim without the prior consent of Buyer, such consent not to be unreasonably withheld. Buyer hereby acknowledges that Seller has asserted, and there are currently outstanding, claims under certain of the AEGIS Policies in an aggregate amount equal to $2.3 million in respect of environmental costs and expenses incurred by Seller prior to the Closing (“Seller’s Environmental Claim”). Except as provided in this Section 6.9(b), Seller shall keep the

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AEGIS Policies in full force and effect, take no action with respect to the AEGIS Policies to terminate or reduce the coverage available thereunder and make all required payments thereunder. Notwithstanding anything herein to the contrary, Seller shall not be obligated, in respect of any policy period after the Closing Date, to continue to purchase insurance coverage from AEGIS. To the extent that the AEGIS Policies provide coverage for the benefit of both Buyer and Seller, both parties reserve the right to submit claims under those policies and to use commercially reasonably efforts to prosecute such claims provided the resolution of the claim does not reduce the amount of coverage available to the other party by more than the amount of proceeds recovered by such party.

(c) Except as provided in this Section 6.9(c), after the Closing, Buyer shall be responsible for, and neither Seller nor any of its Affiliates shall have any responsibility for, the payment of any deductible amounts, underlying limits or excess or excluded amounts attributable to the Insurance Policies, provided that Seller shall retain such responsibility for claims that relate to the Retained Liabilities and Seller’s Environmental Claim. Buyer acknowledges that certain of the Insurance Policies may require Seller or any of its Affiliates to provide an indemnity to the insurer for deductible amounts and to provide collateral to secure such indemnity obligations. Buyer shall enter into an indemnification agreement in form mutually acceptable to Buyer and Seller wherein Buyer agrees to indemnify and hold harmless Seller or any of its Affiliates (as applicable) for any and all of the costs of maintaining such collateral and for any charges made against such collateral or indemnification payments or for any expenses reasonably incurred by Seller in connection with claims arising or alleged to arise from the operations of the Business under or with respect to such Insurance Policies from and after the Closing Date. If there is a retrospective adjustment in respect of any of the Insurance Policies, Buyer shall pay to Seller its allocable portion of such adjustment.

(d) Seller makes no representation or warranty with respect to the applicability, validity or adequacy of any Insurance Policies, and Seller shall not be responsible to Buyer or any of its Affiliates for the failure of any insurer to pay under such Insurance Policy.

(e) Nothing in this Agreement is intended to provide or shall be construed as providing a benefit or release to any insurer or claims service organization of any obligation under any Insurance Policy. Nothing herein shall be construed as creating or permitting any insurer or claims service organization the right of subrogation against Seller or Buyer or any of their Affiliates in respect of payments made by one to the other under any Insurance Policy.

(h) Schedule 6.9. The Sale Agreement shall be amended by adding thereto new Schedules 6.9(a) and 6.9(b) in the forms attached hereto.

(i) Section 6.13. Section 6.13 of the Sale Agreement shall be amended by amending the second sentence thereof to read in its entirety as follows: “Seller shall deliver the Audited Financials to Buyer not later than five (5) Business Days after the Closing.”

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(j) Section 6.15. The Sale Agreement shall be amended by inserting therein a new Section 6.15 to read in its entirety as follows:

Section 6.15. Further Assurances; Cooperation. From time to time after the Closing Date, without further consideration, Seller will execute and deliver such documents to Buyer as Buyer may reasonably request in order to more effectively consummate the sale and purchase of the Assets or to more effectively vest in Buyer good and indefeasible title to the Assets subject to the Permitted Encumbrances. Seller shall cooperate with Buyer, at Buyer’s expense, in Buyer’s efforts to cure or remove any Permitted Encumbrances that Buyer reasonably deems objectionable. From time to time after the Closing Date, without further consideration, Buyer will execute and deliver such documents to Seller as Seller may reasonably request in order to evidence Buyer’s assumption of the Assumed Liabilities.

(k) Section 12.3. Thefirst sentence of Section 12.3(b) shall be amended in its entirety to read as follows:

Except as provided below, the representations and warranties of Seller set forth in this Agreement shall survive the Closing until the first anniversary of the Closing Date; provided, however, that (i) the representations and warranties set forth in Section 5.2 (Authority Relative to this Agreement and Binding Effect), Section 5.5 (Title to Assets; Encumbrances), and Section 5.17 (Brokers) shall survive indefinitely, (ii) representations and warranties set forth in Section 5.9 (Taxes) shall survive for a period equal to the applicable statute of limitations for the taxable year for each Tax, and (iii) representations and warranties set forth in clauses (e) through (j) of Section 5.13 shall survive until the second anniversary of the Closing Date.

(l) Section 12.4. Section 12.4 shall be amended by adding at the end thereof the following sentence: “Buyer shall have no liability for any claim or Loss to the extent of insurance proceeds actually received by Seller in respect thereof under insurance maintained by or for the benefit of Seller or any Affiliate of Seller.”

4. No Other Modification. This First Amendment Agreement amends the Sale Agreement and the Employee Agreement only to the extent and in the manner herein set forth. In all other respects, the terms and conditions of the Sale Agreement and the Employee Agreement shall remain in full force and effect.

5. Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

[Remainder of this page intentionally left blank]

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first written above.

SOUTHERN UNION COMPANY

By: /s/ ROBERT M. KERRIGAN III

Name: Robert M. Kerrigan III

Title: Vice President - Assistant General

Counsel and Secretary

UGI CORPORATION

By: /s/ ROBERT H. KNAUSS

Name: Robert H. Knauss

Title: Vice President and General Counsel

[Signature page to First Amendment Agreement

between Southern Union Company and UGI Corporation]

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Schedule 6.9(b)

Part I

AEGIS Policies:

168

168A

168NJ

X0168A1A89

X0168A1A90

X0168A1A91

X0168A1A92

X0168A1A93

X0168A1A94

X0168A1A95

X0168A1A96

X0012A1A06

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Schedule 6.9(b)

Part II

Effective "Date of Sale"

["In consideration of the return premium of $xxxxxx it is herein agreed that this POLICY shall no longer provide coverage for CLAIMS arising out of the "assets sold to UGI" which occur on or after the date of  Closing .   In accordance with Definition P(3), CLAIMS arising out of the "assets sold to UGI" which occurred prior to the date of Closing will be covered by this POLICY subject to the terms and conditions herein."]

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EX-10.2

Limited Settlement Agreement

This Settlement Agreement is entered into this 24th day of August, 2006, between The Narragansett Electric Company d/b/a National Grid ("National Grid"), Southern Union Company ("Southern Union"), the Department of the Attorney General for the State of Rhode Island (the "Attorney General"), and the Rhode Island Department of Environmental Management ("RIDEM") (collectively the "Parties").

WHEREAS, the Parties to this Settlement Agreement participated in the Rhode Island Division of Public Utilities and Carriers (the "Division") proceeding concerning the Joint Petition of National Grid and Southern Union (the "Joint Petition") for the approval of the sale of Southern Union's Rhode Island gas distribution assets to National Grid (the "Division Proceeding"); and

WHEREAS, the Attorney General and RIDEM asked the Division to condition approval of the sale on the imposition of an escrowto secure the payment of a potential judgment on environmental contamination claims relating to the Bay Street Area of Tiverton, Rhode Island (the "Bay Street Area"); and

WHEREAS, Southern Union and National Grid opposed the imposition of an escrow; and

WHEREAS, the Division entered a Report and Order ("Order"), dated July 25, 2006, approving the Joint Petition without requiring as a condition of such approval the posting of an escrow; and

WHEREAS, as parties to the Division Proceeding, the Attorney General and RIDEM have the right to appeal from the Order; and

WHEREAS, certain of the Parties have ongoing disputes concerning, among other things, the responsibilities for claimed environmental contamination in the Bay Street Area, and believe this Settlement Agreement is in the best interests of the people of the State of Rhode Island.

NOW, THEREFORE, in consideration of the Recitals hereto and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

(1)National Grid and the Attorney General (acting on behalf of the State of Rhode Island) shall execute a letter agreement in the form annexed hereto as Exhibit A, which provides, in relevant part, that if a final, non-appealable money judgment is entered in favor of the State against Southern Union in connection with the alleged environmental contamination in the Bay Street Area, and the State cannot collect on such judgment, then National Grid will pay the

State up to $13,000,000 towards such unsatisfied judgment, all pursuant to the terms of Exhibit A.

(2)           (a) Southern Union will conduct supplemental site investigations (consistent with site investigations protocols previously accepted by RIDEM and conducted by Southern Union) on the following three properties [Lots 13-03, 16-01 and 16-02] if RIDEM determines that conditions pose an imminent hazard [as defined in the RIDEM Remediation Regulations in Section 3.31] on those properties;

(b) Southern Union will implement interim remedial action plans acceptable to RIDEM for the following six properties [Lots 13-03, 16-01, 16-02, 15-01, 17-03 and 21-04] if RIDEM determines that conditions pose an imminent hazard on those properties ;

(c) If RIDEM is able to secure appropriate access to the following properties [21-2A, 21-1, 15-2, 16-10, 7-3, & 22-01] which, to date, Southern Union has requested but been denied access, as described in the Supplemental and Phase 2 Site Investigation Report, Southern Union will conduct a site investigation consistent with the site investigations protocols previously accepted by RIDEM and conducted by Southern Union. The refusal of any property owner to grant access or permission hereunder, or the failure of RIDEM to gain access, to perform work shall not alter the rights, defenses and remedies of such property owner or of Southern Union. Furthermore, if any lot covered under this subsection is found to contain contaminants that are deemed to pose an imminent hazard by RIDEM as defined under the RIDEM Remediation Regulations, then such sites shall be subject to the requirements of 2(a & b);

(d) Southern Union shall not perform the work described in Paragraph 2 until it first obtains RIDEM’s written approval, and Southern Union shall perform its obligations under this Paragraph 2 within a reasonable time after receiving the necessary approvals, assents and access; and

(e) With respect to any particular property listed or described above in this Paragraph 2, Southern Union shall be relieved of its obligation to perform the task or tasks described in this Paragraph 2 should the property owner(s) of such property refuse access or permission, or if RIDEM fails to gain access, to perform the work.

(3)The Attorney General and RIDEM shall not appeal the Order and shall not take any further action or position with respect to the Order in any proceeding arising out of or relating to the Order.

(4)This Settlement Agreement and its provisions shall not constitute or be construed as an admission of liability or responsibility by any Party with

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respect to alleged environmental contamination in the Bay Street Area. This Settlement Agreement and its provisions shall not be construed as a waiver of any rights, remedies or defenses of any Party, except as expressly set forth herein.The parties acknowledge that nothing contained in this Settlement Agreement limits the State's rights or remedies to pursue any and all parties for any and all claims the State may have against them, including, but not limited to claims related to what is commonly referred to as the Bay Street Area of Tiverton, Rhode Island, except that the State and DEM shall give up their right to appeal or to have any further involvement in the PUC action referenced herein or any related appeal. The parties further acknowledge that nothing contained in this Settlement Agreement limits Southern Union's rights, remedies, claims or defenses, including its right to pursue any and all third parties for any and all claims.

(5)All prior discussions and agreements with respect to the subject matter hereof are merged in this Settlement Agreement which alone constitutes the entire agreement between the Parties as to its subject matter. This Settlement Agreement may not be amended, modified or terminated except by a written agreement signed by all Parties which specifically references this Settlement Agreement.

(6)This Settlement Agreement may be enforced in a court of law.

(7)This Settlement Agreement may be signed in counterparts each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

The Narragansett Electric Company

d/b/a National Grid

/s/ RONALD T. GERWATOWSKI

By:  Ronald T. Gerwatowski 

Its:  Vice President 

Southern Union Company

/s/ WILLIE C. JOHNSON

By: Willie C. Johnson 

Its: Vice President

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Department of the Attorney General

for the State of Rhode Island

/s/ Gerald J. Coyne

By:  Gerald J. Coyne

Its:  Deputy Attorney General

Rhode Island Department of

Environmental Management

/s/  W. Michael Sullivan

By: W. Michael Sullivan

Its:  Director

EXHIBIT A

The Narragansett Electric Company

280 Melrose Street

Providence, RI 02901

August 24, 2006

Department of the Attorney General

of the State of Rhode Island

Providence, Rhode Island

Re: Tiverton Environmental Liabilities

Ladies and Gentlemen:

In the event that the State of Rhode Island obtains a money judgment in a court of competent jurisdiction against Southern Union Company, a Delaware corporation ("Southern Union"), in connection with the alleged environmental contamination in the "Bay Street Study Area" of Tiverton, Rhode Island as defined on Schedule A (the "Judgment"), the Judgment becomes final and non-appealable, and the State of Rhode Island cannot recover any amounts due to it in respect of such Judgment from Southern Union because of the occurrence of a Non-Payment Event (as defined below), The Narragansett Electric Company, a Rhode Island corporation ("Narragansett"), hereby promises to pay any such amounts owed (excluding any fines or penalties) to the State of Rhode Island by Southern Union; provided, however, that in no event shall Narragansett be obligated to pay, in the aggregate, more than the lesser of (a)

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$13.0 million or (b) $13.0 million less the aggregate amount previously paid by Southern Union in satisfaction of its obligations under the Judgment (other than payment of any fines or penalties). For the purposes of this letter agreement, "Non-Payment Event" means that Southern Union does not pay the Judgment within 60 days of receipt of a written demand, with written notice to Narragansett.

The State of Rhode Island shall provide Narragansett and Southern Union with ten (10) days prior written notice of its intent to demand payment under this letter agreement. All notices or demands on Narragansett and Southern Union under this letter agreement shall be deemed effective when received, shall be in writing and shall be delivered by hand, overnight courier or by certified or registered mail, or by facsimile transmission promptly confirmed by certified or registered mail, addressed to Narragansett at the address written above and addressed to Southern Union at the address listed below, or at such other address or fax number as Narragansett or Southern Union shall have notified the State of Rhode Island.

This letter agreement shall terminate upon the earlier of (a) payment in full by Southern Union of all amounts due under the Judgment or (b) the tenth anniversary of the date of this letter agreement. This letter agreement constitutes the entire agreement, and supersedes all prior written agreements and understandings, and all oral agreements, between Narragansett and the State of Rhode Island with respect to the subject matter hereof.

No amendment or waiver of any provision of this letter agreement shall be effective unless it is in writing and signed by Narragansett and the State of Rhode Island.

The following address shall be used for all notices hereunder to Southern Union: Southern Union Company, 5444 Westheimer Road, Houston, TX 77056 Attention: Julie H. Edwards, SVP and CFO.

[SIGNATURE PAGE FOLLOWS]

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Very truly yours,

THE NARRAGANSETT ELECTRIC COMPANY

By:/s/ MICHAEL F. RYAN

Name:  Michael F. Ryan

Title:  President

Agreed and Accepted:

Department of the Attorney General of the

State of Rhode Island

By: /s/ GERALD J. COYNE

Name:  Gerald J. Coyne

Title:   Deputy Attorney General

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EX-10.3

FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT

THIS FIRST AMENDMENT dated as of August 24, 2006 (this “Amendment”) to Purchase and Sale Agreement dated as of February 15, 2006 (the “Purchase Agreement”) made between Southern Union Company, a Delaware corporation (“Seller”), and National Grid USA, a Delaware corporation (“Buyer”).

RECITALS

WHEREAS, the parties desire to make certain amendments to the Purchase Agreement to the extent and in the manner hereinafter set forth;

NOW, THEREFORE, in consideration of the premises and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows:

1. Defined Terms. All capitalized terms used, but not defined, in this Amendment shall have the meanings ascribed or given to them under the terms of the Purchase Agreement.

2. Amendment to Schedule 1.1(b). The Purchase Agreement is hereby amended by adding to Schedule 1.1(b) the following: “IV. All access agreements relating to Retained Environmental Liabilities and V. The Privileged Communications.”

3. Amendment to Section 2.3. The Purchase Agreement is hereby amended by adding the following provision at the end of Section 2.3:

Nothing contained in this Agreement shall constitute or be construed as a waiver of Seller's attorney-client, work product and other privileges, including with respect to any Excluded Asset and any Retained Liability. Seller hereby retains all privileged communications with respect to any Excluded Asset and any Retained Liability (the "Privileged Communications"). Any transfer of Privileged Communications to Buyer hereunder is inadvertent, and Buyer shall immediately return any Privileged Communications to Seller upon its discovery that it is in possession of the same or upon demand by Seller.

4. Amendment to Section 12.1. The Purchase Agreement is hereby amended by amending Section 12.1 in its entirety to read as follows:

Section 12.1 Indemnification by Seller. From and after Closing and subject to the other provisions of this Article XII, Seller shall indemnify and hold harmless Buyer, its Representatives, Affiliates (which after the Closing shall include the Subsidiaries), successors and permitted assigns (collectively, the “Buyer Indemnitees”) from and against any and all Losses actually incurred by a Buyer Indemnitee, and resulting from:

(a) (i) any representations and warranties made by Seller in this Agreement or in any certificate furnished by or on behalf of Seller to Buyer pursuant to this Agreement not being true and correct when made, or (ii) any representations and warranties made by Seller in this Agreement not being true and correct as of the Closing Date, each of which representations and warranties will be deemed for purposes of this Section 12.1(a)(ii) to have been made by Seller as of the Closing Date, except that those representations and warranties that are made as of a specific date will be deemed for purposes of this Section 12.1(a)(ii) to have been made by Seller as of such date;

(b) any breach or default by Seller in the performance of its covenants, agreements, or obligations under this Agreement, the Employee Agreement or the Transition Services Agreement;

(c) the Retained Liabilities;

(d) the Excluded Assets; and

(e) satisfaction by The Narragansett Electric Company (“Narragansett”) of its payment obligations under that certain letter agreement dated August 24, 2006 made by Narragansett in favor of the State of Rhode Island, as in effect on the date hereof (the "Tiverton Letter Agreement"), a copy of which has previously been provided to Seller. Seller hereby acknowledges that nothing contained in the Tiverton Letter Agreement shall, for purposes of this Agreement, be deemed to limit or modify the definition of Retained Environmental Liabilities, and that the rights of the Buyer Indemnitees under this Section 12.1(e) shall be in addition to any other rights the Buyer Indemnitees have under this Agreement in respect of any Retained Environmental Liabilities.

5. Amendment to Section 12.3. Section 12.3 of the Purchase Agreement is hereby amended by adding the following subsection (h):

(h) Notwithstanding anything in this Agreement to the contrary, (i) the limitations set forth in Section 12.3(f) shall not apply to any indemnification obligation of Seller under Section 12.1(e) and (ii) for the avoidance of doubt, no indemnification payment under Section 12.1(e) shall be deemed to be subject to, or to otherwise affect, the limitations set forth in Sections 12.3(c), (d) or (e).

6. Amendment to Section 12.5. Section 12.5 of the Purchase Agreement is hereby amended by adding the following subsection (d):

(d) Notwithstanding the foregoing, the provisions of subsections (a), (b) and (c) of this Section 12.5 shall not apply to any claim for indemnification under Section 12.1(e). In the event that (i) a Judgment (as defined in the Tiverton Letter Agreement) becomes final and nonappealable and (ii) the State of Rhode Island

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provides written notice to Narragansett and Seller that the State of Rhode Island intends to demand payment from Narragansett under the Tiverton Letter Agreement (a "Tiverton Payment Notice"), Buyer shall deliver to Seller evidence, satisfactory to Seller, of Narragansett’s payment under such Tiverton Payment Notice in accordance with the terms of the Tiverton Letter Agreement, which evidence shall specify the amount of such payment (a “Narragansett Payment Notice”). Seller shall pay to Buyer or its designee, within three Business Days after Seller’s receipt of the Narragansett Payment Notice, by wire transfer of immediately available funds to an account specified by Buyer, an amount of cash equal to the amount specified in the Narragansett Payment Notice (but in no event more than the lesser of (x) $13 million and (y) the then-remaining amount of liability of Narragansett under the Tiverton Letter Agreement).

7. Representations and Warranties. Each of the parties to this Amendment hereby represents and warrants to the other that (i) it has full organizational power and authority to execute and deliver this Amendment and to consummate the transactions contemplated hereby, (ii) the execution and delivery of this Amendment by such party have been duly and validly authorized by all necessary corporate action on the part of such party and (iii) this Amendment has been duly and validly executed and delivered by such party and constitutes a valid and binding obligation of such party, enforceable against such party in accordance with its terms, except that such enforceability (x) may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to the enforcement of creditors' rights generally and (y) is subject to general principles of equity and the discretion of the court before which any proceedings seeking injunctive relief or specific performance may be brought.

8. No Other Modification. This Amendment amends the Purchase Agreement only to the extent and in the manner herein set forth. All references in the Purchase Agreement to the Purchase Agreement shall mean the Purchase Agreement as amended by this Amendment. In all other respects, the terms and conditions of the Purchase Agreement shall remain in full force and effect.

9. Governing Law. The validity, performance and enforcement of this Amendment shall be governed by the laws of the State of New York without giving effect to the principles of conflicts of law of such state.

10. Counterparts. This Amendment may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.

11. Headings. The headings contained in this Amendment are for reference purposes only and shall not affect in any way the meaning or interpretation of this Amendment.

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IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by their duly authorized officers as of the date first above written.

SOUTHERN UNION COMPANY

By: /s/ WILLIE C. JOHNSON

Name: Willie C. Johnson

Title: Vice President

NATIONAL GRID USA

By: /s/ MICHAEL E. JESANIS

Name: Michael E. Jesanis

Title: President and Chief Executive Officer

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EX-99.1

06-16

For further information:

Media: John P. Barnett, Director of External Affairs

713-989-7556

Investors: John F. Walsh, Director of Investor Relations

800-321-7423

SOUTHERN UNION COMPLETES $1.15 BILLION SALES OF PG ENERGY AND RHODE ISLAND ASSETS OF NEW ENGLAND GAS COMPANY

HOUSTON, August 25, 2006 - Southern Union Company (NYSE:SUG) today announced it has completed the previously announced sales of the assets of its PG Energy natural gas distribution division in Pennsylvania and the Rhode Island assets of New England Gas Company.

Southern Union sold the PG Energy assets to UGI Corporation (NYSE:UGI) for $580 million and the Rhode Island assets of New England Gas Company to National Grid USA (NYSE:NGG) for $575 million less assumed debt of $77 million.

“The sales of PG Energy and the Rhode Island assets of New England Gas further demonstrate our strategy of repositioning our portfolio to focus on assets that will provide long-term growth opportunities for the company and its shareholders,” said George L. Lindemann, Southern Union’s chairman, president and CEO.

“We’re proud to have brought these two complex transactions, totaling more than $1 billion in proceeds, to a simultaneous close within the time period to effect a like-kind exchange,” added Senior Executive Vice President Eric D. Herschmann.

Southern Union retains and continues to operate New England Gas Company’s North Attleboro and Fall River, Mass., operations serving approximately 50,000 customers.

Proceeds from the sales will be used to retire a portion of the bridge facility used to finance the March 1 acquisition of the former Sid Richardson Energy Services, now known as Southern Union Gas Services.

About Southern Union Company

Southern Union Company, headquartered in Houston, is one of the nation’s leading diversified natural gas companies, engaged primarily in the transportation, storage, gathering, processing and distribution of natural gas. The company owns and operates the nation’s second largest natural gas pipeline system with more than 22,000 miles of gathering and transportation pipelines and North America’s largest liquefied natural gas import terminal.

Through Panhandle Energy, Southern Union’s interstate pipeline interests operate approximately 18,000 miles of interstate pipelines that transport natural gas from the San Juan, Anadarko and Permian Basins, the Rockies, the Gulf of Mexico, Mobile Bay, South Texas and the Panhandle regions of Texas and Oklahoma to major markets in the Southeast, West, Midwest and Great Lakes region.

Southern Union Gas Services, with approximately 4,800 miles of pipelines, is engaged in the gathering, transmission, treating, processing and redelivery of natural gas and natural gas liquids in Texas and New Mexico.

Through its local distribution companies, Missouri Gas Energy and New England Gas Company, Southern Union also serves more than half a million natural gas end-user customers in Missouri and Massachusetts.

For further information, visit www.sug.com.

Forward-Looking Information:

This news release 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 Securities and Exchange 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.

# # #

EX-99.2

EXHIBIT 99.2

SOUTHERN UNION COMPANY AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

On August 24, 2006, Southern Union Company (“Southern Union” or the “Company”) completed the previously announced sale of the assets of its PG Energy natural gas distribution division (“PG Energy”) for cash proceeds of approximately $580 million, or $556.1 million after consideration of estimated working capital adjustments (the “PGE Disposition”).  Additionally, on August 24, 2006, the Company completed the previously announced sale of the assets of the Rhode Island operations of its New England Gas Company natural gas distribution division (“Rhode Island Division”) to National Grid USA for cash proceeds of approximately $575 million, or $489.9 million after consideration of estimated working capital adjustments and less debt assumed (“the Rhode Island Division Disposition”). 

The operating results of PG Energy and the Rhode Island Division have previously been reported by the Company within discontinued operations. Accordingly, the historical earnings from continuing operations within the accompanying unaudited proforma combined condensed statements of operations for the six months ended June 30, 2006 and the twelve months ended December 31, 2005 do not require adjustments to eliminate the results of PG Energy and the Rhode Island Division. On March 1, 2006, the Company acquired Sid Richardson Energy Services, Ltd. and subsidiaries ("SRES") and Richardson Energy Marketing, Ltd. ("REM") for approximately $1.6 billion in cash (the “Acquisition”) that was funded under a bridge loan facility (the “Bridge Loan”). Under the terms of the Bridge Loan, the Company is required to apply 100 percent of net cash proceeds from asset dispositions against the Bridge Loan. The following unaudited pro forma combined condensed financial statements present the financial information of Southern Union for the periods indicated after giving effect for the interrelated Acquisition, PGE Disposition and Rhode Island Division Disposition.

The unaudited consolidated condensed Southern Union balance sheet as of June 30, 2006 included in the Company’s June 30, 2006 Form 10-Q filing has been adjusted as if the dispositions had occurred on that date. The unaudited pro forma combined condensed statements of operations for the six months ended June 30, 2006 and twelve months ended December 31, 2005 assume that the Acquisition, PGE Disposition and Rhode Island Division Disposition occurred on January 1, 2005.

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

The unaudited pro forma combined condensed financial statements do not contain any adjustments to reflect cost savings or other synergies anticipated as a result of the Acquisition or PGE Disposition and Rhode Island Division Disposition.

Southern Union Company and Subsidiaries

Unaudited Pro Forma Combined Condensed Statement of Operations

For the Six Months Ended June 30, 2006

(In thousands of dollars, except shares and per share amounts)

				Proforma Adjustments
	Southern			SRES
	Union			REM
	Unaudited			Unaudited								Proforma
	Historical			Historical (A)			Other (B)					Combined
Operating revenues:
Gas distribution	$	386,521		$	-		$	-				$	386,521
Gathering and processing		278,734			230,549			-					509,283
Gas transportation and storage		432,325			-			-					432,325
Other		1,941			-			-					1,941
Total operating revenues		1,099,521			230,549			-					1,330,070
Operating expenses:
Cost of gas and other energy		636,899			220,674			(476	)	(D	)		857,097
Revenue—related taxes		20,373			-			-					20,373
Operating, maintenance and general		177,135			5,340			-					182,475
Depreciation and amortization		69,521			3,127			9,478		(E	)		78,999
								(3,127	)	(E	)
Taxes, other than on income and revenues		22,954			-			476		(D	)		23,430
Total operating expenses		926,882			229,141			6,351					1,162,374
Operating income		172,639			1,408			(6,351	)				167,696
Other income (expenses):
Interest		(105,199	)		(356	)		(13,730	)	(F	)		(87,579	)
								(2,600	)	(F	)
								5,177		(F	)
								675		(G	)
								28,454		(I	)
Earnings from unconsolidated investments		27,399			-			-					27,399
Other, net		38,643			109			-					38,752
Total other expenses, net		(39,157	)		(247	)		17,976					(21,428	)
Earnings from continuing operations before
income taxes		133,482			1,161			11,625					146,268
Federal and state income taxes (benefit)		43,742			(148	)		4,328		(H	)		47,922
Net earnings from continuing operations		89,740			1,309			7,297					98,346
Preferred stock dividends		(8,682	)		-			-					(8,682	)
Net earnings available for common stockholders
from continuing operations	$	81,058		$	1,309		$	7,297				$	89,664
Net earnings available for common stockholders
from continuing operations per share:
Basic	$	0.72										$	0.80
Diluted	$	0.70										$	0.78
Weighted average shares outstanding:
Basic		111,807,253											111,807,253
Diluted		114,993,178											114,993,178

See Notes to Unaudited Pro Forma Combined Condensed Financial Statements

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Southern Union Company and Subsidiaries

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)

				Proforma Adjustments
	Southern			SRES
	Union			REM								Proforma
	Historical			Historical (A)			Other (B)					Combined
Operating revenues:
Gas distribution	$	752,699		$	-		$	-					$	752,699
Gathering and processing					2,451,254			(1,082,080	)	(C	)			1,369,174
Gas transportation and storage		505,233			-			-						505,233
Other		8,950			-			-						8,950
Total operating revenues		1,266,882			2,451,254			(1,082,080	)					2,636,056
Operating expenses:
Cost of gas and other energy		529,450			2,276,153			(1,082,080	)	(C	)			1,721,020
								(2,503	)	(D	)
Revenue—related taxes		40,080			-			-						40,080
Operating, maintenance and general		302,025			73,149			-						375,174
Depreciation and amortization		92,562			18,843			56,858		(E	)			149,420
								(18,843	)	(E	)
Taxes, other than on income and revenues		33,648			-			2,503		(D	)			36,151
Total operating expenses		997,765			2,368,145			(1,044,065	)					2,321,845
Operating income		269,117			83,109			(38,015	)					314,211
Other income (expenses):
Interest		(128,470	)		(4,373	)		(84,960	)	(F	)			(161,374	)
								(5,200	)	(F	)
								6,083		(G	)
								55,546		(I	)
Earnings from unconsolidated investments		70,742						-						70,742
Other, net		(8,241	)		(6,109	)		-						(14,350	)
Total other expenses, net		(65,969	)		(10,482	)		(28,531	)					(104,982	)
Earnings from continuing operations before income taxes		203,148			72,627			(66,546	)					209,229
Federal and state income taxes (benefit)		50,052			307			(24,775	)	(H	)			25,584
Net earnings from continuing operations		153,096			72,320			(41,771	)					183,645
Preferred stock dividends		(17,365	)		-			-						(17,365	)
Net earnings available for common stockholders
from continuing operations	$	135,731		$	72,320		$	(41,771	)				$	166,280
Net earnings available for common stockholders
from continuing operations per share:
Basic	$	1.24											$	1.52
Diluted	$	1.20											$	1.47
Weighted average shares outstanding:
Basic		109,395,418												109,395,418
Diluted		112,794,210												112,794,210

See Notes to Unaudited Pro Forma Combined Condensed Financial Statements

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Southern Union Company and Subsidiaries

Unaudited Pro Forma Condensed Balance Sheet

As of June 30, 2006

(In thousands of dollars)

		ASSETS
		Southern Union
		Unaudited			Proforma					Proforma
		Historical			Adjustments					Combined
Property, plant and equipment:
Plant in service	$	4,859,229		$	-				$	4,859,229
Construction work in progress		158,389			-					158,389
		5,017,618			-					5,017,618
Less accumulated depreciation and amortization		(545,141	)		-					(545,141	)
Net property, plant and equipment		4,472,477			-					4,472,477
Current assets:
Cash and cash equivalents		37,198			1,046,063		(J	)		-
					(1,046,063	)	(K	)
					(16,688	)	(L	)
					(20,510	)	(M	)
Accounts receivable, net of allowances		239,520			-					239,520
Accounts receivable – affiliates		11,775			-					11,775
Inventories		216,935			-					216,935
Gas imbalances - receivable		76,810			-					76,810
Prepayments and other assets		73,617			(94	)	(L	)		73,523
Assets held for sale		1,251,051			(1,251,051	)	(J	)		-
Total current assets		1,906,906			(1,288,343	)				618,563
Goodwill		90,208			-					90,208
Deferred charges:
Regulatory assets		57,509			-					57,509
Deferred charges		92,683			(28,157	)	(N	)		60,684
					(3,532	)	(J	)
					(310	)	(L	)
Total deferred charges		150,192			(31,999	)				118,193
Unconsolidated investments		709,953			-					709,953
Other		43,141			-					43,141
Total assets	$	7,372,877		$	(1,320,342	)			$	6,052,535

See Notes to Unaudited Pro Forma Combined Condensed Financial Statements

4

Southern Union Company and Subsidiaries

Unaudited Pro Forma Condensed Balance Sheet

As of June 30, 2006

(In thousands of dollars)

STOCKHOLDERS' EQUITY AND LIABILITIES
	Southern Union
	Unaudited			Proforma					Proforma
	Historical			Adjustments					Combined
Stockholders’ equity:
Common stock, $1 par value; authorized 200,000,000 shares;
issued 113,084,025 shares at June 30, 2006	$	113,084		$	-				$	113,084
Preferred stock, no par value; authorized 6,000,000 shares;					-
issued 920,000 shares at June 30, 2006		230,000			-					230,000
Premium on capital stock		1,687,693			-					1,687,693
Less treasury stock, at cost		(27,566	)		-					(27,566	)
Less common stock held in trust		(10,610	)		-					(10,610	)
Deferred compensation plans		10,674			-					10,674
Accumulated other comprehensive loss		(54,096	)		25,864		(L	)		(28,232	)
Retained earnings (accumulated deficit)		-			(164,119	)	(N	)		(164,119	)
Total stockholders' equity		1,949,179			(138,255	)				1,810,924
Long-term debt and capital lease obligation		1,522,694			(15,000	)	(M	)		1,507,694
Total capitalization		3,471,873			(153,255	)				3,318,618
Current liabilities:
Long-term debt and capital lease obligation
due within one year		576,164			-					576,164
Notes payable		1,851,000			(1,046,063	)	(K	)		805,863
					926		(M	)
Accounts payable and accrued liabilities		202,411			-					202,411
Federal, state and local taxes payable		38,695			17,922		(N	)		56,617
Accrued interest		41,324			(665	)	(M	)		40,659
Customer deposits		14,268			-					14,268
Deferred gas purchases		13,697			-					13,697
Gas imbalances - payable		113,538			-					113,538
Other		126,679			(4,382	)	(L	)		122,297
Liabilities related to assets held for sale		204,633			(204,633	)	(J	)		-
Total current liabilities		3,182,409			(1,236,895	)				1,945,514
Deferred credits:
Regulatory liabilities		7,142			-					7,142
Deferred credits		291,221			(45,801	)	(L	)		241,055
					(4,365	)	(N	)
Total deferred credits		298,363			(50,166	)				248,197
Accumulated deferred income taxes		420,232			16,571		(L	)		540,206
					103,403		(N	)
Commitments and contingencies
Total stockholders' equity and liabilities	$	7,372,877		$	(1,320,342	)			$	6,052,535

See Notes to Unaudited Pro Forma Combined Condensed Financial Statements

5

SOUTHERN UNION COMPANY AND SUBSIDIARIES

NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

Adjustments to the Unaudited Pro Forma Combined Condensed Statements of Operations:
(A)	Reflects the historical SRES and REM results of operations amounts for the two month period ended February 28, 2006 and twelve month period ended December 31, 2005.
(B)	Reflects proforma adjustments related to the Acquisition, PGE Disposition and Rhode Island Division Disposition.
(C)	Reflects the elimination of historical affiliate sales and cost of sales transactions between SRES and REM.
(D)	Reflects the reclassification of historical amounts relating to SRES and REM Taxes, other than on income to conform to Southern Union's presentation.
(E)	Reflects the elimination of historical depreciation and amortization expense of SRES and REM 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 $1.57 billion. The estimated fair value of the assets has been adjusted to reflect the results of a third-party appraisal.

	12 Months Ended		2 Months Ended
	December 31, 2005		February 28, 2006
	(In thousands)
			(1)
Estimated new book value of PP&E and Intangibles	$	1,566,445	$	1,566,445
Estimated average future useful life (in years)		27.55		27.55
Estimated annual depreciation and amortization expense		56,858		56,858
Adjustment factor for the 2006 period (2 months/12 months)		-		16.67	%
Estimated pro forma depreciation and amortization expense	$	56,858	$	9,478
Eliminate historical depreciation expense prior to the Acquisition	$	18,843	$	3,127

		(1) As the Acquisition was completed on March 1, 2006, the Company's historical results of operations included in its June 30, 2006 Form 10-Q already include depreciation and amoritization expense for the four month period ended June 30, 2006 resulting from the Acquisition.
(F)	Reflects the inclusion of interest expense and the amortization of related loan issuance costs associated with Southern Union's $1.6 billion Bridge Loan used to finance the Acquisition. The interest rate used in the following calculation is 5.31 percent, based on a spread of 57.5 basis points over the one-month USD LIBOR quote in accordance with the terms of the Bridge Loan, 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 eighteen month period included in the pro forma presentation rather than the Bridge Loan's actual 364 day term. For every 1/8 percent change in the interest rate assumed for the Bridge Loan, the monthly interest expense would change by approximately $167,000.

6

		12 Months Ended			2 Months Ended
		December 31, 2005			February 28, 2006
		(In thousands)
					(1)
Principal Bridge Loan balance outstanding	$	1,600,000		$	1,600,000
Estimated interest rate on the Bridge Loan		5.31	%		5.31	%
Estimated interest expense on the Bridge Loan		84,960			84,960
Adjustment factor for the 2006 period (59 days/365 days)		-			16.16	%
Estimated pro forma Bridge Loan interest expense	$	84,960		$	13,730

(1) As the Acquisition was completed on March 1, 2006, the Company's historical results of operations included in its June 30, 2006 Form 10-Q already include Bridge Loan

interest expense for the four month period ended June 30, 2006 resulting from the Acquisition.

		12 Months Ended			6 Months Ended
		December 31, 2005			June 30, 2006
		(In thousands)
Bridge Loan issuance costs	$	7,800		$	7,800
Amortization adjustment factor for 18 month period		66.67	%		33.33	%
Estimated pro forma Bridge Loan issuance cost amortization	$	5,200		$	2,600
Eliminate historical Bridge Loan issuance cost amortization				$	5,177

(G)	Reflects the elimination of historical interest expense associated with SRES borrowings that were not assumed by Southern Union in the Acquisition.
(H)	Reflects the income tax consequences of the pro forma adjustments at Southern Union's estimated statutory federal and state tax rate of 37.23 percent.
(I)	Reflects the reduction in interest expense associated with the repayment of amounts outstanding on the Bridge Loan from the estimated net proceeds of $1.046 billion received from the PGE Disposition and Rhode Island Division Disposition. The interest expense adjustment for the period prior to the Acquisition is calculated using the credit facility rate of 5.31 percent as of March 31, 2006. The interest expense adjustment for the four month period ended June 30, 2006 is calculated using the 5.57 percent historical average rate applicable to the Bridge Loan for the same four month period.

		12 Months Ended			6 Months Ended
		December 31, 2005			June 30, 2006
		(In thousands)
Estimated net sales proceeds from PGE Disposition	$	556,134		$	556,134
Estimated net sales proceeds from Rhode Island Division Disposition		489,929			489,929
Total estimated net sales proceeds		1,046,063			1,046,063
Estimated Bridge Loan interest rate prior to March 1, 2006		5.31	%		5.31	%
Estimated Bridge Loan interest rate for the four month period ended June 30, 2006		-			5.57	%
Estimated interest expense for the 2005 period		55,546
Estimated interest expense for the two month period ended February 28, 2006					8,979
Estimated interest expense for the four month period ended June 30, 2006					19,475
Estimated proforma interest expense adjustment	$	55,546		$	28,454

7

Adjustments to the Unaudited Proforma Condensed Balance Sheet:

(J) Reflects net proceeds received from the PGE Disposition and the Rhode Island Division Disposition and the elimination of the PG Energy and Rhode Island Division balances as of June 30, 2006 included in Assets held for sale and Liabilities related to assets held for sale balances. Also reflected is a true up to the estimated loss on sale of approximately $3.9 million related to these two divisions which is included as a component of the adjustment to Retained earnings (accumulated deficit) described in Note (N) which is primarily comprised of a $3.5 million write-off of debt issuance costs associated with the Rhode Island Division’s debt that was assumed in the disposition.

		Rhode Island Division			PG Energy			Total
		(In thousands)
Sales price	$	575,000		$	580,000		$	1,155,000
Estimated working capital adjustment		(6,809	)		(23,866	)		(30,675	)
Debt assumed		(76,595	)		-			(76,595	)
Unpaid interest on debt assumed		(1,667	)		-			(1,667	)
Estimated net cash proceeds	$	489,929		$	556,134		$	1,046,063

(K)	Reflects a cash payment of $1.0 billion to repay a portion of the Bridge Loan from the proceeds received from the PGE Disposition and the Rhode Island Division Disposition. The Company is required to apply the net sales proceeds against the Bridge Loan.
(L)	Reflects the elimination of the pension-related assets and liabilities including balances recorded in Accumulated other comprehensive loss, and the related deferred tax balances for both the PG Energy pension plan and the Rhode Island Division pension plan, that were assumed by UGI Corporation and National Grid. Additionally, resulting from the August 24, 2006 definitive agreement between Southern Union and UGI Corporation, Southern Union agreed to transfer PG Energy’s pension obligation to UGI Corporation. Southern Union provided additional funding of approximately $15.1 million for the unfunded pension liability. The pro forma adjustments also reflect the impact of $1.6 million of additional funding made in July 2006. This adjustment reflects the aforementioned cash payments and a $9.3 million charge associated with the settlement of the PG Energy pension plan which is included as a component of the adjustment to Retained earnings (accumulated deficit) described in Note (N).
(M)	Reflects a cash payment of $21.4 million to retire mortgage bonds with principal, premium and accrued interest payable amounts totaling $15.0 million, $5.8 million and $665,000, respectively. Such mortgage bonds were collateralized by certain PG Energy assets that were sold. Such retirement was funded with cash on hand of $20.5 million and borrowings of $926,000 under the Company’s revolving credit facility. The $5.8 million premium amount is included as a component of the adjustment to Retained earnings (accumulated deficit) described in Note (N).
(N)	Reflects the estimated adjustments to the balance sheet as of June 30, 2006 as a result of the like-kind exchange discussed below and the estimated income tax expense associated with the PGE Disposition and the Rhode Island Division Disposition previously disclosed in ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Net Earnings from Discontinued Operations in the Company’s Form 8-K filed with the SEC on July 17, 2006. The Company anticipates the PGE Disposition and Rhode Island Division Disposition will qualify as part of a like-kind exchange of property covered by Section 1031 of the Internal Revenue Code thereby enabling the Company to achieve certain tax deferrals. The adjustments assume no goodwill for tax purposes was allocated to assets sold and a like-kind efficiency of approximately 90 percent. If it is subsequently determined that a portion of the value of the assets sold will be assigned to tax goodwill, an estimated shift of $3.7 million of income tax from deferred to currently payable will occur for every $10 million increment of goodwill. For every 5 percent change in like-kind efficiency, a corresponding shift of approximately $13.3 million of income tax from deferred to current payable would occur. Retained earnings (accumulated deficit) has been reduced by approximately $145.1 million primarily due to (i) the tax expense associated with the $376.2 million of book basis goodwill for which no tax basis had been previously assigned and (ii) the tax expense associated with the tax gain on the assets sold. This adjustment to Retained earnings (accumulated deficit), combined with the other adjustments described in the Notes referenced below, results in a total adjustment to Retained earnings (accumulated deficit) of $164.1 million as follows:

		(In thousands)
Tax expense associated with dispositions	$	145,117
Premium paid related to mortgage bonds (Note M)		5,771
Settlement of PG Energy pension plan (Note L)		9,344
Additional loss associated with dispositions (Note J)		3,887
	$	164,119