Paying Up

AMERICA'S TOLL ROADS, BETTER KNOWN for political patronage than for strong business and financial management, suddenly are hot assets. Already, foreign companies have paid rich prices for highways in Chicago and Indiana. And similar deals could be made over the next few years for the Ohio Turnpike, the Illinois Toll Highway, several toll roads around Houston, the Atlantic City Expressway and perhaps even the New Jersey Turnpike, America's best-known toll road, featured in the opening credits of The Sopranos. Private money potentially also could fund a multibillion-dollar toll bridge that would replace the aging and congested Tappan Zee span across the Hudson River, north of New York City.

The impetus toward privatization is partly financial and partly political. It's estimated that the nation might need to spend $92 billion annually just to maintain increasingly congested U.S. highways and bridges, let alone improve or expand them.

Gasoline taxes, the traditional method of funding highway repair and construction, are no longer sufficient for the job, and raising federal and state fuel levies has become political dynamite now that gasoline has jumped to $3 a gallon. If anything, lawmakers are looking to cut these taxes. The $1.8 billion purchase last year of the Chicago Skyway and the $3.8 billion deal last month for the Indiana Toll Road have opened the eyes of politicians, who didn't recognize that their toll roads could fetch such hefty sums. Both fetched a staggering 40 times trailing annual revenue and 60 times annual pre-tax cash flow. Just last week, the nine-mile Pocahontas Parkway, near Richmond, Va., was sold to Transurban, an Australian toll-road operator, for $611 million -- 60 times last year's toll revenue of about $10 million.

Making all this the more remarkable: The Pocahontas Parkway was struggling just a few years ago and the Chicago Skyway defaulted on debt in the early 1990s.

These deals highlight the financial firepower of large highway operators from overseas. Ironically, the largest private toll outfits are from Western Europe, hardly a bastion of free-market capitalism, while virtually all major toll roads in the U.S. are publicly owned.

America's toll roads and bridges have combined annual revenue exceeding $6 billion. They obviously won't all be sold, but based on the prices paid in Chicago, Indiana and Virginia, they could be worth over $200 billion. "This is just the beginning," says Philip Villaluz, a municipal-bond analyst at Merrill Lynch. "The shock value of these price tags is getting the attention of politicians across the country."

The lure for the investors is that, before maintenance costs are taken into account, the margins on toll roads can be 80% or more. But, ultimately, how well the investors do depends on the upfront cost of the roads, revenue growth and what they must pay in interest, maintenance costs and capital expenditures.

Two of Europe's biggest toll-highway operators, Spain's Abertis and Italy's Autostrade, recently announced a merger, creating a company with a $30 billion stock-market value. They now have the wherewithal to bid on what they believe will be 25 U.S. road privatizations in the next three years. Sensing a lucrative opportunity, Wall Street investment bankers, led by Goldman Sachs, have descended on state capitals, trying to convince toll authorities and legislators of the benefits of privatization.

Not only are existing toll roads being sold, but states are asking private companies to build new ones. In Texas, a group led by Spain's Cintra will construct the Trans-Texas Corridor, a 316-mile toll road from San Antonio to Dallas that's expected to cost $6 billion.

The buyers of the Chicago and Indiana highways, a partnership of Cintra and Australia's Macquarie Infrastructure Group, are betting that they will earn around 13% annually on their equity investments, through toll increases, higher traffic and better management over their leases' long lives -- 99 years in Chicago, 75 years in Indiana.

The upside for motorists is that the highways should be run better under experienced private operators, which recognize that if drivers are unhappy, they will seek alternative routes. The eight-mile Chicago Skyway didn't even have an electronic toll-collection system until the Cintra/Macquarie group took over, and the Indiana Toll Road still doesn't have one. Electronic tolls are very popular with drivers and account for about 60% of annual U.S. toll revenue.

"Private enterprise can do amazing things with an asset that has been poorly managed by the public sector," says Peter Samuel, who publishes TollRoadsNews, an online transportation Website. "The new owners in Chicago have done an amazing job." Traffic rose 5% and revenue increased 33% in 2005's final six months, boosted by a 50-cent toll hike to $2.50 for cars that took effect early in the year.

Toll authorities often are inefficient because profit maximization generally isn't a top priority. Patronage also can be a problem. The Pennsylvania Turnpike has been riddled with it, and it has been evident at the Illinois Toll Highway. "It used to be that whoever was the governor's top fundraiser got to run the tollway," says Jeff Schoenberg, a state senator from the Chicago suburbs who helped lead the effort to reform the tollway's management.

Indiana Gov. Mitch Daniels, who championed the Indiana Toll Road sale, has been sharply critical of the state agency that had operated the highway. Once, he says, he asked how much it cost to collect a 15-cent toll. "This being government, nobody knew, and they finally came back to me and said it was 34 cents. My response was that we'd be better off on the honor system," says Daniels, a Republican who was a federal budget chief in the Bush administration.

FOR MOTORISTS, privatization's downside is higher tolls. Investors won't buy roads without being assured that they can raise tolls over the years. But Chicago and Indiana politicians, aware of a potential backlash from voters, negotiated contracts that allow toll increases only at pre-determined dates or based on measures of inflation or economic growth.

The Indiana Toll Road is scheduled to soon have its first toll increase in 21 years. Indiana tolls, on a per-mile basis, have been among the nation's lowest. Public authorities usually don't boost tolls unless a financial crisis looms or when road expansion or upkeep appears impossible without an increase.

MOTORISTS WON'T LIKE THE HIGHER TOLLS, but they probably will like the infrastructure projects that the road deals will help finance. Daniels called the transaction for the 50-year-old Indiana Toll Road a "Louisiana Purchase of our time" because the windfall will allow the Hoosier State to move forward with a host of highway and other projects "that would have remained on the drawing board for decades."

Politics plays a key role in determining which roads are privatized. The easiest to sell are those used heavily by out-of-state drivers, rather than local motorists. Two-thirds of the Indiana road's tolls are paid by out-of-state drivers, mostly truckers.

The Ohio Turnpike, New Jersey Turnpike and Atlantic City Expressway are good sale candidates because each has a high percentage of out-of-state users. The Garden State Parkway probably isn't as a good candidate because a high proportion of its users are New Jersey residents. Not surprisingly, tolls are much lower on the Parkway than the Turnpike.

Samuel argues that electronic-payment systems have made toll increases less painful for motorists because they no longer have to fumble for money and wait in long lines. The relatively modest charges appear monthly on credit-card statements amid many other items.

A New Jersey state legislator, Ray Lesniak, has called for the sale of a 49% interest in the New Jersey Turnpike Authority, which owns both the Turnpike and the Parkway. The state's transportation trust fund is running dry, and legislators are reluctant to raise Jersey's gasoline tax, even though it's one of the lowest in the country. "There's never a political will to raise tolls," says Lesniak, a Democrat. But he believes that state residents will accept higher tolls that accompany privatization if the increases don't surpass those in the cost of living. The Turnpike Authority may be too big and loom too large in New Jersey for an outright sale to fly politically, but such a deal could raise over $20 billion, netting $15 billion after debt pay-downs -- a windfall that the heavily indebted state could use. Samuel thinks the Turnpike could be sold off in pieces, starting with its congested southern portion, which carries a lot of interstate traffic and needs to be widened.

PERHAPS A BETTER candidate for sale is the Atlantic City Expressway, which runs for 44 miles from Philadelphia to Atlantic City, New Jersey's casino mecca, and is heavily traveled by out-of-state gamblers. "If there is a deal in the country that works, this is it," says state Sen. William Gormley, a powerful Republican. The A.C. Expressway had $74 million in revenue and about $31 million in operating profits in 2004, the most recent year for which data are available. Gormley thinks a sale could net as much as $4 billion.

The expressway is one of the few toll roads that has three lanes in one direction and two in most of the opposite direction. The rumor is that the casino industry felt it was more important for gamblers to have a quick trip going to Atlantic City than coming home.

New Jersey's new governor, Democrat Jon Corzine, has yet to take a strong stand on the privatization of any of the state's major toll highways. But, as a former chief executive of Goldman Sachs, he certainly understands the math.

The Illinois Tollway, which operates 274 miles of roads, had $583 million in revenue in the 12 months ended in September, making it comparable in size to the New Jersey Turnpike. It could fetch $20 billion, based on the price paid in Indiana. "The physical condition of the tollway is far superior to the Skyway and the Indiana Toll Road," says Schoenberg, the Illinois legislator. The Tollway already has an "open road" electronic toll-collection system that lets motorists drive through at highway speeds.

Elsewhere in the Midwest, Ken Blackwell, the Republican candidate for governor in Ohio, is advocating the sale of the 241-mile Ohio Turnpike, which has over $200 million in yearly revenue and boasts a high percentage of out-of-state users.

In New York, state lawmakers and transportation authorities are wrestling with what do with the 50-year-old Tappan Zee Bridge, which is near the end of its projected useful life. Refurbishing the toll bridge, the critical link between Rockland and Westchester counties, could cost $2 billion or more, and that would do little to improve its traffic capacity.

A new bridge could cost $4 billion to $12 billion, depending on its size and whether it carries a railway. The New York State Thruway Authority, which operates the bridge, could seek private money to build a new structure, in an arrangement like those for the roads.

It will take years to determine whether the Chicago, Indiana and Virginia deals are winners for the buyers. Given the high prices paid, a sizable payoff may not occur for a decade or two.

"I was very positively surprised by the bids, particularly the winning one," Indiana Gov. Mitch Daniels says. Daniels championed the sale of the 157-mile highway that spans the state's northern area.

Daniels spent a lot of time convincing legislators of the time value of money and the benefits of getting $3.8 billion immediately for the state. He thought the road, which isn't in great shape, is worth $2 billion at most -- a view supported by an independent accounting firm. The talk is that the next highest bid may have been $1 billion below the winning Cintra/Macquarie offer; results of the bidding are due to be released after the deal closes around June 30. Cintra and Macquarie have agreed to make up to $700 million in capital expenditures over the next nine years, including $200 million in the next three.

In Indiana, the annual interest tab on the $3.3 billion of debt raised by the Cintra/Macquarie group will run at about double the road's annual revenue. To make the deal work, no interest will be paid for several years, but instead will be added to the principal during that span. By then, the investors believe, revenue will have risen enough to allow paying down the combined sum.

The good news for the Cintra/Macquarie group is that it didn't have to guarantee the Chicago and Indiana debt; the lenders accepted the road lease as collateral. Moreover, the group already has cut its exposure to the Chicago Skyway by refinancing that debt, allowing it to remove about 40% of its equity investment. Financial Security Assurance, the financial-guarantee company, is now on the hook for $1.4 billion of debt, backed only by the Skyway lease.

The Indiana deal hasn't won a great reception from Australian investors. Macquarie Infrastructure Group (MIG AU) shares are flat this year. The group is managed by Macquarie Bank, Australia's largest investment bank.

An analyst at Goldman Sachs/JB Were, Alison Booth, has been critical of the deal. In a January research note, she said "it's difficult to see how this transaction is going to be value-accretive to MIG security holders." Her concern is that "increasing competition for new toll-road projects is resulting in monopolistic returns being competed away."

Stephen Allen, chief executive of the Macquarie Infrastructure, which also controls highways in Australia and Canada, says the firm paid a "fair price" for the highway and is in a "medium-risk, medium-return business."

Judging from the aggressive price fetched by the Pocahontas Parkway last week, there's no let-up in the demand for U.S. toll roads. With overseas companies writing big checks, state and local politicians may want to move quickly.

As Tony Soprano might advise: Take the money before they wise up.

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Southern Union Company Announces Sale of New England Gas Company Rhode Island Assets

$575 Million Cash Transaction Less Assumed Debt of $77 Million

Proceeds Will Help Fund Sid Richardson Energy Services Acquisition

HOUSTON--(BUSINESS WIRE)--Feb. 16, 2006--Southern Union Company (NYSE:SUG - News) today announced the sale of the Rhode Island assets of New England Gas Company to National Grid USA for $575 million less assumed debt of $77 million. Proceeds from the sale will be used to retire a portion of the bridge facility financing for the acquisition of Sid Richardson Energy Services, which is slated for an early March closing. The Company will retain New England Gas Company's North Attleboro and Fall River, Massachusetts operations.
"The sale of these assets is part of the continuing transformation of Southern Union Company from a utility to a leader in the natural gas transportation and services industry," said George L. Lindemann, Southern Union's chairman, president and CEO. In January, the Company announced that it had entered into a definitive agreement to sell the assets of its PG Energy natural gas distribution division in Pennsylvania to UGI Corporation for $580 million. "We are very pleased with today's announcement," added Eric D. Herschmann, senior executive vice president of Southern Union. "We believe this transaction, as well as our company's ongoing transformation, will further enhance value for our shareholders."
Both companies' boards of directors have approved the transaction, which is contingent upon state and federal regulatory approval and other closing conditions. The sale is expected to close by the third quarter of 2006. Under the terms of the agreements, all active employees of the Rhode Island operations will be offered employment with National Grid.
New England Gas Company, headquartered in Providence, Rhode Island, serves over 290,000 residential and commercial customers in Rhode Island and Massachusetts. Additional information is available at www.negasco.com.
National Grid (LSE:NG, NYSE:NGG), is an international energy delivery business with principal activities in the regulated electricity and natural gas industries. In the U.S., National Grid transmits and distributes electricity and natural gas to nearly 4 million customers across 29,000 square miles of Massachusetts, New Hampshire, New York and Rhode Island. In Rhode Island, National Grid delivers electricity to approximately 477,000 customers in 33 communities. Additional information is available at www.nationalgridus.com.
Merrill Lynch & Co. and Lehman Brothers served as financial advisors to Southern Union in this transaction.

About Southern Union Company
Southern Union Company is engaged primarily in the transportation, storage and distribution of natural gas.
Through Panhandle Energy, the company owns and operates 100% of Panhandle Eastern Pipe Line Company, Trunkline Gas Company, Sea Robin Pipeline Company, Southwest Gas Storage Company and Trunkline LNG Company - one of North America's largest liquefied natural gas import terminals. Through CCE Holdings, LLC, Southern Union also owns a 50% interest in and operates the CrossCountry Energy pipelines, which include 100% of Transwestern Pipeline Company and 50% of Citrus Corp. Citrus Corp. owns 100% of the Florida Gas Transmission pipeline system. Southern Union's 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.
Through its local distribution companies, Missouri Gas Energy, PG Energy and New England Gas Company, Southern Union also serves approximately one million natural gas end-user customers in Missouri, Pennsylvania, Rhode Island 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.

Contact:
Southern Union Company
Media
Gina Taylor, 713-989-7557
or
Investors
John F. Walsh, 800-321-7423
www.southernunionco.com

SOUTHERN UNION COMPANY AGREES TO SELL PG ENERGY

$580 million cash transaction

Proceeds will help fund Sid Richardson Energy Services acquisition

Southern Union headquarters will move to Houston

HOUSTON, January 27, 2006 — Southern Union Company (NYSE: SUG) today announced that it has entered into a definitive agreement to sell the assets of its PG Energy natural gas distribution division in Pennsylvania to UGI Corporation for $580 million.
Proceeds from the sale will be used to retire a portion of the acquisition debt to be incurred in connection with Southern Union’s previously announced $1.6 billion purchase of Sid Richardson Energy Services Company which is slated for an early March closing.
“PG Energy is a well-managed natural gas distribution company with a significant presence in northeastern and central Pennsylvania. The sale of PG Energy in conjunction with the acquisition of Sid Richardson Energy Services will allow Southern Union to continue to grow as one of the country’s leading energy companies,” said George L. Lindemann, Southern Union’s chairman, president and CEO. “Because Southern Union will no longer have a large employee base in Pennsylvania, we will be consolidating our corporate operations and activities in Houston.”
Both companies’ boards of directors have approved the transaction, which is subject to antitrust clearance, approval by the Pennsylvania Public Utilities Commission and other customary closing conditions. The sale is expected to close in the third quarter of 2006.
“This agreement is a significant step for Southern Union and is consistent with the company’s mission to create value for its shareholders,” said Eric D. Herschmann, senior executive vice president of Southern Union.
PG Energy, headquartered in Wilkes-Barre, Pa., is a natural gas distribution company serving approximately 158,000 customers in 13 counties throughout northeastern and central Pennsylvania.
UGI Corporation (NYSE:UGI), based in Valley Forge, Pa., is a holding company with propane marketing, utility and energy marketing subsidiaries. Through subsidiaries, UGI owns 44% of AmeriGas Partners, LP (NYSE: APU), the nation’s largest retail propane marketer, and owns Antargaz, one of the largest LPG distributors in France. Comprehensive information about UGI Corporation is available on the Internet at http://www.ugicorp.com.

About Southern Union Company
Southern Union Company is engaged primarily in the transportation, storage and distribution of natural gas.
Through Panhandle Energy, the company owns and operates 100% of Panhandle Eastern Pipe Line Company, Trunkline Gas Company, Sea Robin Pipeline Company, Southwest Gas Storage Company and Trunkline LNG Company – one of North America’s largest liquefied natural gas import terminals. Through CCE Holdings, LLC, Southern Union also owns a 50% interest in and operates the CrossCountry Energy pipelines, which include 100% of Transwestern Pipeline Company and 50% of Citrus Corp. Citrus Corp. owns 100% of the Florida Gas Transmission pipeline system. Southern Union’s 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.
Through its local distribution companies, Missouri Gas Energy, PG Energy and New England Gas Company, Southern Union also serves approximately one million natural gas end-user customers in Missouri, Pennsylvania, Rhode Island 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.

For further information:
Media: John P. Barnett, Director of External Affairs
713-989-7556
Investors: John F. Walsh, Director of Investor Relations
1-800-321-7423

SOUTHERN UNION COMPANY TO ACQUIRE SID RICHARDSON ENERGY SERVICES FOR $1.6 BILLION

Transaction Adds Nearly 5,000 Miles of Natural Gas Pipelines In Permian Basin

SCRANTON, PA., December 16, 2005 — Southern Union Company (NYSE: SUG) today announced that a wholly-owned subsidiary has signed a definitive agreement to acquire Sid Richardson Energy Services Company, a privately held natural gas gathering and processing company, and the related Richardson Energy Marketing for $1.6 billion in cash.
Headquartered in Fort Worth, Texas, Sid Richardson Energy Services has approximately 4,600 miles of natural gas and natural gas liquids pipelines in the Permian Basin. The company’s fully integrated North and South systems are connected by a high-pressure pipeline. Additionally, the company has four active cryogenic plants and six active natural gas treating plants.
"We are thrilled to add the expansive pipeline network of Sid Richardson Energy Services to the Southern Union family of companies," said George L. Lindemann, Southern Union's Chairman and CEO. “Over the past several years, we have transformed Southern Union into one of the leading interstate energy pipeline operators in the nation. With the addition of the Sid Richardson business, we will now have more than 22,000 miles of gathering and transportation pipelines stretching from the Gulf of Mexico to the Southwest, Midwest and Canada. The Sid Richardson gathering and processing business reflects our continued commitment to the natural gas business and is a logical complement to our existing transportation and LNG businesses. We are confident that these robust assets will drive additional earnings and cash flow growth in the years to come. Further, in today’s strong natural gas market, we’ve taken steps through our hedging program to lock in substantial future revenues.”
The transaction, which has been approved by the Boards of both companies, is expected to be accretive to Southern Union’s 2006 earnings. The transaction is subject to antitrust clearance and other customary closing conditions, and is expected to close in the first quarter of 2006.
Commenting on the planned financing of the acquisition, Southern Union’s Chief Financial Officer, Julie Edwards, said, “We plan to fund this purchase with a combination of equity and debt as appropriate to preserve the health of our balance sheet. We may be required to utilize bridge financing while we evaluate alternative sources of equity and are confident that we will have the appropriate capital structure in place within several months.”
The acquisition discussed in today’s announcement represents another step in Southern Union’s ongoing transformation into a higher return business with significant growth opportunities. With the closing of this acquisition, the Company will have made acquisitions totaling approximately $6 billion in the natural gas gathering, processing and transportation businesses. In June 2003, Southern Union acquired the CMS Panhandle Companies, which added more than 10,000 miles of mainline natural gas pipelines across North America. In November 2004, the Company acquired CrossCountry Energy, LLC from Enron Corp. through a joint venture, adding about 7,500 miles of pipeline. Southern Union’s interstate pipelines operate in 17 states.
Southern Union will host a live investor call and webcast today at 3 p.m. EST to discuss the acquisition. To access the call, dial 800-510-9661 (international callers dial 617-614-3452) and enter passcode 15443036. A replay of the call will be available for one week after the event by dialing 888-286-8010 (international callers dial 617-801-6888) and entering passcode 96442779.
The investor call is being webcast by Thomson/CCBN and may be accessed through Southern Union’s web site at www.southernunionco.com or through CCBN’s individual investor center at www.companyboardroom.com. Institutional investors may access the call via CCBN’s password-protected event management site – StreetEvents – at www.streetevents.com.
Fleischman & Walsh, LLP and Kasowitz, Benson, Torres & Friedman LLP acted as Southern Union’s legal counsel. Merrill Lynch & Co. has assisted Southern Union in its evaluation of the Sid Richardson business.

About Southern Union Company
Southern Union Company is engaged primarily in the transportation, storage and distribution of natural gas.
Through Panhandle Energy, the company owns and operates 100% of Panhandle Eastern Pipe Line Company, Trunkline Gas Company, Sea Robin Pipeline Company, Southwest Gas Storage Company and Trunkline LNG Company – one of North America’s largest liquefied natural gas import terminals. Through CCE Holdings, LLC, Southern Union also owns a 50% interest in and operates the CrossCountry Energy pipelines, which include 100% of Transwestern Pipeline Company and 50% of Citrus Corp. Citrus Corp. owns 100% of the Florida Gas Transmission pipeline system. Southern Union’s 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.
Through its local distribution companies, Missouri Gas Energy, PG Energy and New England Gas Company, Southern Union also serves approximately one million natural gas end-user customers in Missouri, Pennsylvania, Rhode Island and Massachusetts.
For further information, visit www.southernunionco.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.

For further information:
Media: John P. Barnett, Director of External Affairs
713-989-7556
Investors: John F. Walsh, Director of Investor Relations
1-800-321-7423