The fair value of each stock option and SAR award is estimated on the date of grant using a Black-Scholes option pricing model. The Company's expected volatilities are based on historical volatility of the Company's common stock. To the extent that volatility of the Company's common stock price increases in the future, the estimates of the fair value of stock options and SARs granted in the future could increase, thereby increasing stock-based compensation expense in future periods. Additionally, the expected dividend yield is considered for each grant on the date of grant. The Company's uses the simplified method in determining the expected term of stock options and SARs granted, which results in the use of the average midpoint between vesting of the awards and their contractual term for such estimate. The Company utilizes the simplified method primarily because it has experienced several acquisitions and divestitures during the contractual period for the current awards outstanding, resulting in a change in the employee mix and an acceleration of certain stock option and SAR exercise activity. Additionally, the Company has not experienced a full life cycle of exercise activity for employees associated with certain of its acquisitions. Because of the impact of these significant structural changes in the Company's business operations and the resulting variations in employee exercise activity, the historical patterns of such exercise activity is not believed to be indicative of future behavior. In the future, as information regarding post-vesting termination becomes more accessible, the Company may change the method of deriving the expected term. This change could impact the fair value of stock options and SARs granted in the future. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.

The following table represents the Black-Scholes estimated ranges under the Company's plans for stock options and SARs awards granted in the periods presented:

	Years ended December 31,
	2011	2010	2009

Expected volatility	32.83% to 35.60%	32.79% to 34.98%	32.22% to 33.69%
Expected dividend yield	2.45%	2.45% to 2.47%	2.37% to 2.45%
Risk-free interest rate	1.58% to 2.41%	1.78% to 2.40%	2.34% to 2.72%
Expected life	4.75 to 6 years	4.75 to 6 years	4.75 to 6 years

The following table provides information on stock options granted, exercised, forfeited, outstanding and exercisable under the Third Amended and Restated 2003 Stock and Incentive Plan (Third Amended 2003 Plan) and the 1992 Long-Term Stock Incentive Plan (1992 Plan) for the periods presented:

The following table summarizes information about stock options outstanding under the Third Amended 2003 Plan at December 31, 2011.



		Options Outstanding				Options Exercisable


Range of Exercise Prices		Number of Options	Weighted-Average Remaining Contractual Life		Weighted-Average Exercise Price	Number of Options		Weighted-Average Exercise Price

Third Amended 2003 Plan:
	12.55 - 15.00	792,934	6.96years	$	12.55	792,934	$	12.55
	15.01 - 20.00	205,573	4.78years		16.90	205,573		16.90
	20.01 - 25.00	1,726,790	7.00years		23.28	1,127,284		23.04
	25.01 - 28.49	868,949	6.47years		28.23	352,209		27.85
		3,594,246	6.73years	$	21.75	2,478,000	$	19.86

The following table provides information on SARs granted, exercised, forfeited, outstanding and exercisable under the Third Amended 2003 Plan for the periods presented.

		Third Amended 2003 Plan
			Weighted-Average
		SARs	Exercise Price

Outstanding December 31, 2008		1,200,552	$	18.02
	Granted	417,647		21.64
	Exercised	(50,174)		12.55
	Forfeited	(74,894)		18.82
Outstanding December 31, 2009		1,493,131	$	19.18
	Granted	376,795		24.67
	Exercised	(47,322)		12.64
	Forfeited	(38,648)		19.93
Outstanding December 31, 2010		1,783,956	$	20.50
	Granted	4,276		28.10
	Exercised	(77,477)		15.33
	Forfeited	(47,415)		25.33
Outstanding December 31, 2011		1,663,340	$	20.63

Exercisable December 31, 2009		494,775	$	22.06
Exercisable December 31, 2010		900,965		20.53
Exercisable December 31, 2011		1,278,950		19.71

The SARs that have been awarded vest in equal installments on the first three anniversaries of the grant date. Each SAR entitles the holder to shares of Southern Union's common stock equal to the fair market value of Southern Union's common stock on the applicable exercise date in excess of the grant date price for each SAR.

The following table summarizes information about SARs outstanding under the Third Amended 2003 Plan at December 31, 2011.

	SARs Outstanding				SARs Exercisable
Range of Exercise Prices	Number of SARs	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price		Number of SARs	Weighted-Average Exercise Price



12.55 - 17.50	568,685	6.96years	$	12.55	568,685	$	12.55
17.51 - 25.00	745,401	8.44years		23.17	365,287		22.68
25.01 - 28.48	349,254	5.71years		28.35	344,978		28.36
	1,663,340	7.36years	$	20.63	1,278,950	$	19.71

The weighted-average remaining contractual life of options and SARs outstanding under the Third Amended 2003 Plan at December 31, 2011 was 6.93 years. The weighted-average remaining contractual life of options and SARs exercisable under the Third Amended 2003 Plan at December 31, 2011 was 6.56 years. The aggregate intrinsic value of total options and SARs outstanding and exercisable at December 31, 2011 was $108.9 million and $83.8 million, respectively.

As of December 31, 2011, there was $6.8 million of total unrecognized compensation cost related to non-vested stock options and SARs compensation arrangements granted under the stock option plans. That cost is expected to be recognized over a weighted-average contractual period of 1.56 years. The total fair value of options and SARs vested as of December 31, 2011 was $21.5 million. Compensation expense recognized related to stock options and SARs totaled $6.9 million ($4.4 million, net of tax), $6.3 million ($4 million, net of tax) and $5.4 million ($3.5 million, net of tax) for the years ended December 31, 2011, 2010 and 2009, respectively. Cash received from the exercise of stock options was $1.8 million for the year ended December 31, 2011.

The intrinsic value of options and SARs exercised during the year ended December 31, 2011 was approximately $2.4 million. The Company realized an additional tax benefit of approximately $487,000 for the excess amount of deductions related to stock options and SARs over the historical book compensation expense multiplied by the statutory tax rate in effect, which has been reported as an increase in financing cash flows in the Consolidated Statement of Cash Flows.

The Company's Third Amended 2003 Plan also provides for grants of restricted stock equity units, which are settled in shares of the Company's common stock, and restricted stock liability units, which are settled in cash. The restrictions associated with a grant of restricted stock equity units under the Third Amended 2003 Plan generally expire equally over a period of three years. Restrictions on certain grants made to non-employee directors and senior executives of the Company expire over a shorter time period, in certain cases less than one year, and may be subject to accelerated expiration over a shorter term if certain criteria are met. The restrictions associated with a grant of restricted stock liability units expire equally over a period of three years and are payable in cash at the vesting date.

The following table provides information on restricted stock equity awards granted, released and forfeited for the periods presented.

		Number of
		Restricted Stock		Weighted-Average
		Equity Units		Grant Date
		Outstanding		Fair Value

Restricted shares at December 31, 2008		363,185	$	18.94
	Granted	165,567		20.24
	Released	(146,990)		19.90
	Forfeited	(2,788)		18.98
Restricted shares at December 31, 2009		378,974	$	19.14
	Granted	111,457		23.71
	Released	(148,218)		17.63
	Forfeited	(1,000)		25.15
Restricted shares at December 31, 2010		341,213	$	21.27
	Granted	7,000		28.04
	Released	(162,362)		17.96
	Forfeited	-		-
Restricted shares at December 31, 2011		185,851	$	24.41

The following table provides information on restricted stock liability awards granted, released and forfeited for the periods presented.

		Number of	Weighted-Average
		Restricted Stock Liability	Grant Date
		Units Outstanding	Fair Value

Restricted units at December 31, 2008		548,639	$	17.31
	Granted	268,027		21.06
	Released	(204,937)		19.38
	Forfeited	(48,079)		16.87
Restricted units at December 31, 2009		563,650	$	18.38
	Granted	175,043		24.67
	Released	(237,219)		18.82
	Forfeited	(54,344)		18.77
Restricted units at December 31, 2010		447,130	$	20.56
	Granted	270,835		42.01
	Released	(239,714)		18.53
	Forfeited	(17,394)		18.86
Restricted units at December 31, 2011		460,857	$	34.29

As of December 31, 2011, there was $21.3 million of total unrecognized compensation cost related to non-expired, restricted stock equity units and restricted stock liability units compensation arrangements granted under the restricted stock plans. That cost is expected to be recognized over a weighted-average contractual period of 2.2 years. The total fair value of restricted stock equity and liability units that were released during the year ended December 31, 2011 was $12.9 million. Compensation expense recognized related to restricted stock equity and liability units totaled $13.8 million ($8.7 million, net of tax), $8.8 million ($5.5 million, net of tax) and $6.8 million ($4.3 million, net of tax) for the years ended December 31, 2011, 2010 and 2009, respectively.

The Company settled the restricted stock liability units released in 2011, 2010 and 2009 with cash payments of $10 million, $5.8 million and $4.4 million, respectively.