PANHANDLE EASTERN CORP /DE/
10-Q, 1995-05-11
NATURAL GAS TRANSMISSION
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===========================================================================

                    SECURITIES AND EXCHANGE COMMISSION
                    ----------------------------------

                         WASHINGTON, D.C.  20549
                         -----------------------

                            ------------------

                                FORM 10-Q

                            ------------------

                             QUARTERLY REPORT

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

                   For the Quarter Ended March 31, 1995
                        Commission File No. 1-8157

                            ------------------

                      PANHANDLE EASTERN CORPORATION
          (Exact name of registrant as specified in its charter)

                          A Delaware Corporation
                 (State of Incorporation or Organization)

                                74-2150460
                    (IRS Employer Identification No.)

     5400 Westheimer Court, P.O. Box 1642, Houston, Texas 77251-1642
       (Address of principal executive offices, including zip code)

                              (713) 627-5400
           (Registrant's telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

                           Yes:  X      No:    

Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:

                Class                      Outstanding at April 30, 1995
      --------------------------           -----------------------------
      Common Stock, $1 par value                    149,272,766


===========================================================================
<PAGE>
                        PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements - Unaudited
                Panhandle Eastern Corporation and Subsidiaries
                       CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
                                                       Three Months Ended  
                                                       March 31       
                                                       ------------------- 
Millions, except per share amounts              1995     1994   
- ----------------------------------            -------- -------- 
<S>                                                    <C>       <C>      
Operating Revenues 
 Sales of natural gas and petroleum products  $  811.7 $  742.6 
 Transportation and storage of natural gas                401.5     369.7 
 Other                                            18.9     35.4 
                                              -------- -------- 
   Total (Note 3)                              1,232.1  1,147.7 
                                              -------- -------- 

Costs and Expenses
 Natural gas and petroleum products purchased             759.6     694.2 
 Operating and maintenance                       141.3    133.9 
 General and administrative                       63.2     68.4 
 Depreciation and amortization                    68.8     65.2 
 Miscellaneous taxes                              22.5     22.1 
                                              -------- -------- 
   Total                                       1,055.4    983.8 
                                              -------- -------- 

Operating Income                                 176.7    163.9 
                                              -------- -------- 
Other Income and Deductions
 Equity in earnings of unconsolidated affiliates           23.6       1.9 
 Other income, net of deductions                  (0.7)     1.5 
                                              -------- -------- 
   Total                                          22.9      3.4 
                                              -------- -------- 
Gross Income                                     199.6    167.3 

Interest Expense                                  60.8     58.2 
                                              -------- -------- 
Income before Income Tax                         138.8    109.1 

Income Tax                                        54.7     44.3 
                                              -------- -------- 
NET INCOME                                    $   84.1 $   64.8 
                                              ======== ======== 
Average Common Shares Outstanding                149.2    148.1 
                                              ======== ======== 
Earnings per Common Share                     $   0.56 $   0.44 
                                              ======== ======== 
Dividends per Common Share                    $   0.21 $   0.21 
                                              ======== ======== 
</TABLE>
         See accompanying notes to consolidated financial statements,
         including Note 2 for the restatement resulting from a merger.


                                       2<PAGE>
<PAGE>
Item 1.  Financial Statements - Unaudited (Continued)

                Panhandle Eastern Corporation and Subsidiaries
                          CONSOLIDATED BALANCE SHEET
                                    ASSETS
<TABLE>
<CAPTION>
                                              March 31,            December 31,
Millions                                    1995                       1994    
- --------                                   ---------            ------------
<S>                                                 <C>                            <C>        
Current Assets
 Cash and cash equivalents             $    21.6     $    33.3 
 Accounts and notes receivable, net        307.9         368.6 
 Inventory and supplies                    116.2         124.1 
 Other (Notes 3 and 7)                     232.8         285.2 
                                       ---------     --------- 

   Total                                   678.5         811.2 
                                       ---------     --------- 

Investments
 Affiliates                                178.6         160.1 
 Other                                      76.9          72.7 
                                       ---------     --------- 

   Total                                   255.5         232.8 
                                       ---------     --------- 

Plant, Property and Equipment
 Original cost                           8,092.8       8,039.9 
 Accumulated depreciation and amortization            (3,108.1) (3,032.1)
                                       ---------     --------- 

   Net plant, property and equipment     4,984.7       5,007.8 
                                       ---------     --------- 

Deferred Charges
 Goodwill, net                             339.5         342.4 
 Prepaid pension                           243.8         239.8 
 Other (Notes 3 and 7)                     837.0         873.5 
                                       ---------     --------- 

   Total                                 1,420.3       1,455.7 
                                       ---------     --------- 


TOTAL ASSETS                           $ 7,339.0     $ 7,507.5 
                                       =========     ========= 
</TABLE>

         See accompanying notes to consolidated financial statements,
         including Note 2 for the restatement resulting from a merger.







                                       3<PAGE>
<PAGE>
Item 1.  Financial Statements - Unaudited (Continued)

                Panhandle Eastern Corporation and Subsidiaries
                         CONSOLIDATED BALANCE SHEET 
                     LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                              March 31,            December 31,
Millions, except per share amounts          1995                       1994    
- ----------------------------------         ---------               ------------
<S>                                                 <C>                        <C>       
Current Liabilities
 Long-term debt due within one year     $    8.6      $    4.1 
 Notes payable                              97.9           -   
 Accounts payable                          269.2         349.4 
 Rate refund provisions (Note 3)            54.7          60.2 
 Accrued interest                           63.6          65.0 
 Taxes payable                              67.3          53.8 
 Other (Notes 3 and 7)                     375.0         413.6 
                                        --------      -------- 

   Total                                   936.3         946.1 
                                        --------      -------- 

Deferred Liabilities and Credits
 Deferred income tax (Note 4)            1,210.4       1,184.5 
 Deferred revenue - liquefied 
   natural gas project                      67.5          69.7 
 Other (Notes 3 and 7)                     845.3         908.3 
                                        --------      -------- 

   Total                                 2,123.2       2,162.5 
                                        --------      -------- 

Long-term Debt                           2,187.9       2,363.7 
                                        --------      -------- 

Commitments and Contingent Liabilities
 (Notes 3, 5, 7 and 8)

Common Stockholders' Equity
 Common stock, 149.2 million (1995) and 
   149.1 million (1994) shares issued and
   outstanding, $1 par value per share     149.2         149.1 
 Paid-in capital                         2,202.2       2,199.8 
 Retained earnings (deficit)              (259.8)       (313.7)
                                        --------      -------- 

   Total (Note 6)                        2,091.6       2,035.2 
                                        --------      -------- 


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY            $7,339.0  $7,507.5 
                                        ========      ======== 
</TABLE>
         See accompanying notes to consolidated financial statements,
         including Note 2 for the restatement resulting from a merger.



                                       4<PAGE>
<PAGE>
Item 1.  Financial Statements - Unaudited (Continued)
                Panhandle Eastern Corporation and Subsidiaries
                     CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                          Three Months Ended    
                                                       March 31         
                                                       --------------------  
Millions                                       1995     1994    
- --------                                      -------            -------  
<S>                                                     <C>                <C>      
Operating Activities
 Net income                                  $  84.1   $  64.8 
 Adjustments to reconcile net income to operating
   cash flows:
      Depreciation and amortization             68.8      65.2 
      Deferred income tax expense               30.9      25.9 
      Earnings of unconsolidated affiliates,
        net of distributions                   (20.7)     (0.2)
      Net pension benefit                       (5.9)     (4.9)
      Other non-cash items in net income         0.9      (5.0)
      Net change in operating assets 
        and liabilities                         15.7     (26.3)
                                             -------   ------- 
 Net Cash Flows Provided by Operating Activities         173.8     119.5 
                                             -------   ------- 
Investing Activities
 Additions to plant, property and equipment    (60.2)    (94.6)
 Net investment increases                       (0.1)     (3.8)
 Property retirements and other                 17.9       4.0 
                                             -------   ------- 
 Net Cash Flows Used in Investing Activities   (42.4)    (94.4)
                                             -------   ------- 

Financing Activities
 Retirement of debt                           (185.1)    (54.0)
 Issuance of debt                                -        54.0 
 Net increase (decrease) in notes payable       97.9     (18.4)
 Common stock issuance                           2.2       8.2 
 Dividends paid                                (30.2)    (25.7)
 Other                                         (27.9)      -   
                                             -------   ------- 
 Net Cash Flows Used in Financing Activities  (143.1)    (35.9)
                                             -------   ------- 

Net Change in Cash
 Decrease in cash and cash equivalents         (11.7)    (10.8)
 Cash and cash equivalents, beginning of period 33.3      77.6 
                                             -------   ------- 

 Cash and Cash Equivalents, End of Period    $  21.6   $  66.8 
                                             =======   ======= 
Supplemental Disclosures
 Cash paid for interest (net of amount capitalized)    $  58.8   $  50.2 
 Cash paid (received) for income tax            (0.4)     22.4 
</TABLE>
         See accompanying notes to consolidated financial statements,
         including Note 2 for the restatement resulting from a merger.

                                       5<PAGE>
<PAGE>
              PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 1. References

    Panhandle Eastern Corporation (PEC) and its subsidiaries (the Company)
    are involved in the interstate transportation and storage of natural
    gas, as well as the gathering, processing, marketing and intrastate
    transportation of natural gas, natural gas liquids (NGLs) and crude oil. 
    The interstate gas transmission operations of Texas Eastern Transmission
    Corporation (TETCO), Algonquin Gas Transmission Company (Algonquin),
    Panhandle Eastern Pipe Line Company (PEPL) and Trunkline Gas Company
    (Trunkline), and the liquefied natural gas (LNG) facilities of Trunkline
    LNG Company (Trunkline LNG), are subject to the rules, regulations and
    accounting procedures of the Federal Energy Regulatory Commission
    (FERC).  Certain amounts for the prior periods have been reclassified
    in the consolidated financial statements to conform to the current
    presentation.  

 2. Business Combination

    On December 15, 1994, a wholly-owned subsidiary of PEC merged with
    Associated Natural Gas Corporation (Associated), and as a result,
    Associated became a wholly-owned PEC subsidiary.  The merger was
    accounted for under the pooling of interests method of accounting for
    a business combination and, accordingly, PEC's 1994 consolidated
    financial statements, where applicable, were restated to include the
    accounts of Associated.  

 3. Natural Gas Revenues and Regulatory Matters 

    When rate cases are pending final FERC approval, a portion of revenues
    collected by each natural gas pipeline is subject to possible refunds. 
    The Company has established adequate reserves where required for such
    cases.  The following is a summary of pending rate cases before FERC and
    certain regulatory matters.  

    FERC Order 636 and Merchant Services

    During 1993, the Company's interstate natural gas pipelines began
    providing restructured services pursuant to FERC Order 636.  This order,
    which is on appeal to the courts, requires pipeline service
    restructuring that "unbundles" sales, transportation and storage
    services.  Order 636 provides for the use of the straight fixed-variable
    (SFV) rate design, which assigns return on equity, related taxes and
    other fixed costs to the reservation component of rates.  In addition,
    Order 636 allows pipelines to recover eligible costs resulting from
    implementation of the order (transition costs).  








6<PAGE>
                                  <PAGE>
    TETCO's final and nonappealable Order 636 settlement, implemented on
    August 1, 1994, provides for the recovery of certain transition costs
    through volumetric and reservation charges through 2002.  Pursuant to
    the settlement, TETCO will absorb a certain portion of the transition
    costs, the amount of which is dependent upon natural gas prices and
    deliverability levels.  In 1993, the Company established a provision to
    reflect the impact of the settlement.  PEPL's and Trunkline's transition
    cost recoveries, which are subject to certain challenges that are
    pending further FERC action, will occur over the next three years.  

    At March 31, 1995 and December 31, 1994, the Company's interstate
    pipelines had recorded approximately $45 million and $280 million
    (1995), and $35 million and $300 million (1994) of current and long-term
    regulatory assets, respectively, representing transition costs incurred
    or estimated to be incurred that will be recovered.  The Company had
    estimated current and long-term liabilities recorded of approximately
    $100 million each at March 31, 1995, and $125 million and $105 million,
    respectively, at December 31, 1994 related to Order 636 transition
    costs.  

    In the past, during the normal course of business, the Company's
    interstate pipelines entered into certain gas purchase contracts
    containing take-or-pay provisions, which may expose the Company to
    financial risk.  PEPL and Trunkline are currently collecting certain
    take-or-pay settlement costs through volumetric surcharges with interest
    over a period extending through 1997.  

    The U.S. Department of the Interior announced its intention to seek
    additional royalties from gas producers as a result of payments received
    by such producers in connection with past take-or-pay settlements, and
    buyouts and buydowns of gas sales contracts with natural gas pipelines. 
    The Company's pipelines, with respect to certain producer contract
    settlements, may be contractually required to reimburse or, in some
    instances, to indemnify producers against such royalty claims.  If the
    Company's pipelines ultimately have to reimburse or indemnify the
    producers, the Company's pipelines will file with FERC to recover a
    portion of these costs from pipeline customers.  The potential liability
    of the producers to the government and of the pipelines to the producers
    involves complex issues of law and fact which are likely to take a
    substantial period of time to resolve. 

    The Company believes the exposure associated with gas purchase contract
    commitments and the termination of the Company's pipeline merchant
    services is substantially mitigated by transition cost recoveries
    pursuant to TETCO's settlement, Order 636 and other mechanisms.  As a
    result, the Company believes that Order 636 transition cost issues and
    take-or-pay settlement matters will not have a material adverse effect
    on future consolidated results of operations or financial position.  









7<PAGE>
                                  <PAGE>
    Jurisdictional Transportation and Sales Rates

    PEPL - On April 1, 1992 and November 1, 1992, PEPL placed into effect,
    subject to refund, general rate increases incorporating the SFV rate
    design.  Hearings in these rate proceedings were completed in the first
    half of 1994 and initial decisions by the FERC Administrative Law Judge
    (ALJ) were received.  The cases are pending FERC review of the initial
    ALJ decisions.  

    Effective April 1, 1989, PEPL placed into effect, subject to refund,
    sales and transportation rates reflecting a restructuring of rates,
    including seasonal rate structures.  PEPL and others are appealing
    various FERC orders related to these rates.  On December 7, 1994, FERC
    approved a settlement agreement with a majority of the customers which
    resolves refund matters and terminates other actions for the period
    these rates were effective for the settling parties.  

    Trunkline - On September 1, 1994, Trunkline placed into effect, subject
    to refund, a general rate increase as a result of a filing made in
    accordance with terms of a rate case settlement in 1993.  An offer of
    settlement, supported by Trunkline's customers and certified as
    uncontested by the FERC ALJ, is pending FERC approval.

    Other - The Company's pipelines, pursuant to FERC requirements,
    requested FERC approval to record the impact of adopting Statement of
    Financial Accounting Standards (Accounting Standard) No. 109,
    "Accounting for Income Taxes," including the recognition of a portion
    of the impact as an increase to stockholders' equity.  The FERC
    accounting branch has denied approval of certain of these requests,
    pending future rate proceedings, and the Company's pipelines, where
    approval has been denied, have filed for rehearing.  The Company
    believes the ultimate resolution of this matter will not have a material
    adverse effect on consolidated financial position.  

 4. Income Tax

    The Company's investment tax credit (ITC) carryforward of $71.7 million
    at December 31, 1994, which is expected to be fully utilized, will begin
    to expire in 1996 and will be extinguished in 2002 if not utilized
    sooner.  The alternative minimum tax credit carryforward of
    $78.1 million at December 31, 1994 can be carried forward indefinitely. 

 5. Other Contingencies

    TEPPCO Partners, L.P. - TEPPCO Partners, L.P. is a master limited
    partnership (MLP) that owns and operates a petroleum products pipeline. 
    The Company has a 10.45% ownership interest in the MLP.  A subsidiary
    partnership of the MLP has $349.5 million in First Mortgage Notes
    outstanding with recourse to the general partner, a subsidiary of PEC. 
    These notes have annual principal payments due through 2010.  In the
    opinion of management, the probability that the subsidiary of PEC will
    be required to perform under this recourse provision is remote.  





                                   8<PAGE>
<PAGE>
    Petrolane Incorporated (Petrolane) - In connection with the sale of
    Petrolane in 1989, Texas Eastern Corporation (TEC) agreed to indemnify
    Petrolane against certain obligations for guaranteed leases and
    environmental matters.  Certain of the lease obligations relate to
    Petrolane's divestiture of supermarket operations prior to its
    acquisition by TEC and as of December 31, 1994 totaled approximately
    $84.3 million over the remaining terms of the leases, which expire in
    2006.  In the opinion of management, the probability that TEC will be
    required to perform under this indemnity provision is remote.  

    Petrolane was named in a suit filed by the city of Fresno, California
    (the City) in the U.S. District Court for the Eastern District of
    California on February 18, 1993 seeking contribution from 22 parties for
    characterization and remediation (assessment and cleanup) costs related
    to the Fresno Sanitary Landfill (the Landfill).  The City, under a
    mandate from the U.S. Environmental Protection Agency (EPA), is
    obligated to characterize and remediate environmental contamination at
    the Landfill, which is on the National Priorities List.  One of
    Petrolane's former subsidiaries is alleged to have disposed of hazardous
    substances at the Landfill.  Since characterization of the Landfill has
    not been completed, the Company is unable at this time to estimate its
    share of cleanup costs or the timing of such costs, but expects that
    this matter will not have a material adverse effect on the Company's
    consolidated financial position or results of operations.  

    Northern Border Pipeline Company (Northern Border) - Under the terms of
    a settlement related to a transportation agreement between PEPL and
    Northern Border, PEPL guarantees payment to Northern Border under a
    transportation agreement by an affiliate of Pan-Alberta Gas Limited. 
    The transportation agreement requires estimated total payments of
    $184 million for the years 1995 through 2001.  In the opinion of
    management, the probability that PEPL will be required to perform under
    this guarantee is remote.  

 6. Stockholders' Equity

    Under the most restrictive covenants contained in the Company's debt
    agreements, $825.8 million of PEC's consolidated common stockholders'
    equity was available for the payment of dividends at March 31, 1995.  

 7. Environmental Matters 

    TETCO - TETCO is currently conducting PCB (polychlorinated biphenyl)
    characterization and cleanup programs at certain of its compressor
    station sites under conditions stipulated by a U.S. Consent Decree.  The
    programs include on- and off-site characterization, installation of
    on-site source control equipment and groundwater monitoring wells, and
    on- and off-site cleanup work.  TETCO expects to complete the programs
    at up to 89 sites in as many as 14 states by the year 2000.  

 





  
9<PAGE>
                                  <PAGE>
    In addition, TETCO has been conducting PCB remediation work at certain
    on- and off-site areas pursuant to separate agreements with the states
    of Pennsylvania and New Jersey.  These agreements generally impose
    cleanup levels that are more stringent than those required by the U.S.
    Consent Decree.  

    In 1987, the Commonwealth of Kentucky instituted suit in state court
    against TETCO, alleging improper disposal of PCBs at TETCO's three
    compressor station sites in Kentucky.  This suit, which is still
    pending, seeks penalties for violations of Kentucky environmental
    statutes.  The Company previously established a reserve for potential
    fines and penalties.  In 1991, TETCO and the Commonwealth executed a
    consent order in which TETCO agreed to perform site assessments at its
    sites in Kentucky, and this work has been substantially completed. 
    TETCO completed remediation of one of its Kentucky sites in 1994 and
    plans to remediate another site in 1995.  

    At March 31, 1995 and December 31, 1994, TETCO had current and long-term
    liabilities recorded of $56.4 million and $281.1 million (1995), and
    $56.4 million and $289.1 million (1994), respectively, for remaining
    estimated cleanup costs.  These cost estimates represent gross cleanup
    costs expected to be incurred by TETCO, have not been reduced by
    customer recoveries and do not include fines, penalties or third-party
    claims.  TETCO is recovering 57.5% of cleanup costs in rates pursuant
    to a stipulation and agreement approved by FERC in 1992.  At March 31,
    1995 and December 31, 1994, TETCO had current and long-term regulatory
    assets recorded of $19.3 million and $171.7 million (1995), and
    $18.6 million and $177.1 million (1994), respectively, representing
    costs to be recovered.

    TETCO, as well as certain other PEC subsidiaries in some of the cases,
    are defendants in several private plaintiff suits in various courts. 
    These suits seek relief for actual and punitive damages that allegedly
    resulted from the release of PCBs and other hazardous substances in
    violation of federal and state laws.  The Company is continuing to
    defend itself vigorously in these suits.  

    PEPL and Trunkline - The Company has identified environmental
    contamination at up to 53 sites on the PEPL and Trunkline systems and
    is undertaking remediation programs at these sites.  The contamination
    resulted from the past use of lubricants containing PCBs and the prior
    use of wastewater collection facilities and other on-site disposal
    areas.  Soil and sediment testing, to date, has detected no significant
    off-site contamination.  The Company has communicated with the EPA and
    appropriate state regulatory agencies on these matters.  The
    environmental cleanup programs are expected to continue until 2002.  

    At March 31, 1995 and December 31, 1994, the Company had liabilities
    recorded of $69.4 million and $70 million, respectively, relating to
    PEPL and Trunkline PCB, wastewater and disposal area cleanup programs
    and had regulatory assets recorded of $82.5 million and $82.4 million,
    respectively, representing costs to be recovered.  





10                                 
<PAGE>
    The federal and state cleanup programs are not expected to interrupt or
    diminish the Company's ability to deliver natural gas to customers.  The
    Company believes the ultimate resolution of matters relating to the
    cleanup programs will not have a material adverse effect on consolidated
    results of operations or financial position.  

 8. Litigation

    In connection with a rupture and fire that occurred on TETCO's 36-inch
    natural gas pipeline on March 23, 1994 in Edison, New Jersey, numerous
    lawsuits have been filed against TETCO and other defendants in the
    Superior Court of New Jersey, Middlesex County, on behalf of hundreds
    of individuals seeking compensatory damages for personal injuries and
    property losses, as well as punitive damages.  The property insurers of
    an apartment complex adjacent to the asphalt plant where the rupture
    occurred also have filed suit against TETCO and other defendants in
    Superior Court seeking to recover approximately $10 million for amounts
    paid under the pertinent policies of insurance.  TETCO also has been
    contacted by hundreds of additional individuals or their attorneys with
    claims against TETCO.  In addition, Quality Materials, Inc., the owner
    of the asphalt plant, has filed suit in the U.S. District Court for the
    District of New Jersey against TETCO seeking to recover unspecified
    property damages, lost income and punitive damages.  TETCO has filed a
    counterclaim against Quality Materials, Inc.  Discovery is ongoing.

    The findings of an investigation of the incident by the Company and the
    National Transportation Safety Board (NTSB) indicate third-party damage
    to be the cause of the rupture.  Additionally, an NTSB report found that
    TETCO's pipeline operations met or exceeded federal safety regulations. 
    The Company expects the resolution of these matters will not have a
    material adverse effect on consolidated results of operations or
    financial position.  

    The Company is also involved in various other legal actions and claims
    arising in the normal course of business.  Based upon its current
    assessment of the facts and the law, management does not believe that
    the outcome of any such action or claim will have a material adverse
    effect upon the consolidated financial position of the Company. 
    However, these actions and claims in the aggregate seek substantial
    damages against the Company and are subject to the uncertainties
    inherent in any litigation.  

 9. Fair Presentation

    The information as furnished reflects all normal recurring adjustments
    that are, in the opinion of management, necessary for a fair
    presentation of the Company's financial position as of March 31, 1995,
    and results of operations and cash flows for the three months ended
    March 31, 1995 and 1994.  








11<PAGE>
                                 <PAGE>
Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations

The following information is provided to facilitate increased understanding
of the 1995 and 1994 interim consolidated financial statements and
accompanying notes presented in Item 1.  The discussion of the Company's
"Operating Environment and Outlook" addresses key trends and future plans.
Material period-to-period variances in the consolidated statement of income
are discussed under "Results of Operations." The "Capital Resources, Liquidity
and Financial Position" section analyzes cash flows and financial position. 
Throughout these discussions, management addresses items that are reasonably
likely to materially affect future liquidity or earnings.  

OPERATING ENVIRONMENT AND OUTLOOK

The changing environment resulting from the restructuring of the natural gas
industry has spurred some industry consolidations and additional growth
opportunities for the Company, particularly in the market and supply services
group.  The Company has expanded business opportunities and enhanced
operations in supply-area operations, including processing and storage.  The
Company plans to continue to pursue strategic opportunities that emerge via
additional joint ventures, major projects and acquisitions in both the natural
gas transmission and market and supply services groups.  

In the natural gas transmission group, all traditional pipeline sales services
ceased during the fourth quarter of 1994 when Trunkline's unbundled sales
contracts expired.  Pipeline earnings have generally become more evenly
distributed throughout the year as a result of the SFV rate design required
by Order 636.  The Company's pipelines continue to offer selective discounting
to maximize revenues from existing capacity.  

The Company continues to advance interstate natural gas pipeline
market-expansion projects and new services requested by customers.  In
addition, Trunkline is holding an open season to determine customer need for
underutilized capacity in one of its three parallel lines.  At the same time,
Trunkline and four petroleum industry companies have announced a study to
evaluate the economic feasibility of converting the line to crude oil service. 
Also being studied is the possibility of utilizing part of the Trunkline LNG
terminal for receipt of crude oil.  Results of the study and a decision on the
pipeline's utilization are expected this summer.  

RESULTS OF OPERATIONS

Consolidated net income for the three months ended March 31, 1995 was
$84.1 million, or $0.56 per share on 149.2 million average common shares
outstanding, compared with $64.8 million, or $0.44 per share on 148.1 million
average common shares outstanding, for the same period in 1994.  

Operating Income Analysis

Consolidated operating income increased to $176.7 million in the first three
months of 1995 compared with $163.9 million for the same period in 1994. 
These results primarily reflect increases in the Company's natural gas
transmission and market and supply services groups, partially offset by
reduced LNG ship charters.  


12<PAGE>
                                 <PAGE>
              Consolidated Operating Income (Loss) by Business Group
    <TABLE>
    <CAPTION>
                                                 Three Months Ended March 31  
                                               -------------------------------
    Millions                      1995     1994    % Change
    --------                     ------   ------   --------
    <S>                          <C>           <C>        <C> 
    Natural Gas Transmission
       TETCO                     $ 78.8   $ 58.8      34 
       Algonquin                   21.7     14.7      48 
       PEPL                        35.6     46.9     (24)
       Trunkline                   14.6     18.9     (23)
       Other                        1.4      1.3       8 
                                 ------   ------    ---- 
       Total                      152.1    140.6       8 
                                 ------   ------    ---- 

    Market and Supply Services
       Field Services              18.3      8.1     126 
       Gas Services                 6.7      9.6     (30)
       ATTCO                        2.2      1.3      69 
                                 ------   ------    ---- 
       Total                       27.2     19.0      43 
                                 ------   ------    ---- 
    Parent and Other               (2.6)     4.3    (160)
                                 ------   ------    ---- 
    Consolidated Operating Income$176.7   $163.9       8 
                                 ======   ======    ==== 

    </TABLE>
      

























                                   13<PAGE>
<PAGE>
                            Operating Data
    <TABLE>
    <CAPTION>
                                                Three Months Ended March 31 
                                               ----------------------------
                                   1995     1994   % Change
                                   ----     ----   --------
    <S>                            <C>      <C>      <C>   
    Natural Gas Pipeline
      Volumes, Billion Cubic Feet (Bcf)
       Market Area 
        TETCO                      333      330         1  
        Algonquin                  100       96         4  
        PEPL                       191      192        (1) 
        Trunkline                   96      130       (26) 
        Eliminations               (17)     (23)      (26) 
                                   ---      ---       ---  
          Total                    703      725        (3) 
                                   ---      ---       ---  

       Supply Area 
        TETCO                       21       32       (34) 
        PEPL                        10       10         -  
        Trunkline                   31       35       (11) 
                                   ---      ---       ---  
          Total                     62       77       (19) 
                                   ---      ---       ---  
       Total Volumes               765      802        (5) 
                                   ===      ===       ===  

    Market and Supply Services
       Field Services
        Natural gas gathered/processed, 
          Bcf/d(1)                 1.7      1.6         6  
        Natural gas marketed, Bcf/d0.5      0.2       150  
        Natural gas liquids 
          production, MBbl/d(2)   53.2     48.8         9  
        Helium production, MMcf/d(3)        2.0        2.1  (5) 
       Gas Services
        Natural gas marketed, Bcf/d3.6      2.7        33  
       ATTCO
        Crude oil pipeline
          volumes, MBbl/d         79.8     34.8       129  
        Natural gas liquids pipeline
          volumes, MBbl/d         15.5      9.6        61  

    National Methanol Company
       Methanol sales, thousand
         metric tons               111      163       (32) 
       MTBE sales, thousand 
         metric tons               174       -          -  
    
    ----------
    (1) Billion cubic feet per day.
    (2) Thousand barrels per day.
    (3) Million cubic feet per day.  
    </TABLE>
                                      14<PAGE>
<PAGE>
Natural Gas Transmission

Operating income from the natural gas transmission group increased
$11.5 million, or 8%, to $152.1 million in the first quarter of 1995 compared
with the same period in 1994.  This improvement occurred despite mild winter
season temperatures in 1995, which contributed to an overall decline in
transportation volumes.  

TETCO - Operating income for TETCO increased $20 million comparing the first
three months of 1995 with the same period in 1994.  Transportation revenue
increased $26.3 million, or 15%, reflecting new projects placed into service
in November 1994 and the recovery of transition costs which were offset by a
corresponding increase in operating expenses.  Excluding transition costs,
operating expenses declined due to a $5 million charge to income in the 1994
first quarter related to the Edison, New Jersey pipeline rupture.  

Algonquin - Algonquin's operating income increased $3 million in the first
three months of 1995 compared with the same period in 1994, excluding a
$4 million increase to operating revenues recorded in the first quarter of
1995 related to the favorable resolution of a regulatory issue. 
Transportation revenue, exclusive of the settlement, increased $3.2 million,
or 9%, reflecting revenues from new market-expansion projects placed into
service in November 1994.  

PEPL - PEPL's operating income decreased $3.5 million comparing the first
three months of 1995 with the same period in 1994, excluding a $7.8 million
provision reversal recorded in 1994 for the resolution of gas supply matters. 
Revenues declined $1.6 million due to warmer weather and operating expenses
increased $9.7 million, primarily resulting from the provision reversal.  

Trunkline - Operating income for Trunkline decreased $4.3 million comparing
the first quarters of 1995 and 1994.  Transportation and storage revenue
declines reflected decreased volumes and margins attributable to warmer
weather in the 1995 first quarter.  Sales revenue and associated gas purchased
costs declined as a result of the elimination of Trunkline's merchant function
in late 1994.  

Market and Supply Services

Operating income for the market and supply services group increased
$8.2 million, or 43%, comparing the first quarter of 1995 with the same period
in 1994.  The increase for Field Services was primarily attributable to higher
gas processing margins at the Company's National Helium Corporation plant due
to lower gas and higher NGL prices.  Mild weather, which reduced gas prices
and margins on marketed volumes, contributed to a 30% decrease in operating
income for Gas Services.  Higher crude oil volumes and trading margins
increased operating income for Associated Transport and Trading Company.  










                                  15
<PAGE>
Other Operating Income - Operating income for the LNG Project decreased
$6.1 million comparing the 1995 and 1994 first quarters, primarily resulting
from lower LNG tanker charter revenues.  

Other Income and Deductions - The increase of $19.5 million in net other
income in the first three months of 1995 compared with the same period in 1994
was the result of higher earnings from investments in affiliates.  Equity in
earnings from National Methanol Company increased $12.6 million from
$1.9 million in the first quarter of 1994, reflecting higher methanol margins
and MTBE (methyl tertiary butyl ether) sales in the 1995 first quarter.  

Interest Expense - Interest expense in the first three months of 1995
increased $2.6 million compared with the same period in 1994.  This increase
reflects higher average balances of short-term notes payable as well as
slightly higher average long-term debt balances outstanding in 1995.  

Accounting Standards

Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," issued in March 1995,
will be implemented by the Company in the first quarter of 1996.  This
standard addresses the accounting for the recognition and measurement of
impairment losses for long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used.  This standard also
addresses the accounting for long-lived assets and certain identifiable
intangibles to be disposed of.  

The Company is unable at this time to estimate the effect, if any, that
adoption of Accounting Standard No. 121 will have on future consolidated
results of operations or financial position.  

CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL POSITION

Operating Cash Flow
<TABLE>
<CAPTION>
                                               Three Months Ended    
                                               March 31         
                                               -------------------   
Millions                                              1995    1994    
- --------                                             ------  ------   
<S>                                      <C>       <C>      
Net Cash Flows Provided by 
  Operating Activities                   $173.8    $119.5   
                                         ------    ------   
</TABLE>

Historical Analysis - Operating cash flows increased $54.3 million comparing
the three-month period in 1995 to the same period in 1994.  This increase
reflects higher 1995 earnings and decreased taxes paid, partially offset by
increased net cash outflows related to transition cost payments and
recoveries.





                                   16<PAGE>
<PAGE>
Order 636 Transition Costs - With implementation of Order 636 and the
elimination of pipeline merchant services, the Company's natural gas pipelines
are incurring certain costs related to the transition, primarily TETCO's gas
purchase contract commitments.  At March 31, 1995, the Company's gross
commitments under gas purchase contracts that do not contain market-sensitive
pricing provisions were approximately $135 million, $100 million, $80 million,
$65 million and $40 million for the years 1995 through 1999, respectively,
with no significant amounts thereafter. These estimates reflect significant
assumptions regarding deliverability and escalation clauses.  

TETCO's final and nonappealable Order 636 settlement, implemented on August 1,
1994, provides for the recovery of certain transition costs through volumetric
and reservation charges through 2002.  Pursuant to the settlement, TETCO will
absorb a certain portion of the transition costs, the amount of which is
dependent upon natural gas prices and deliverability levels.  In 1993, the
Company established a provision to reflect the impact of the settlement. 
PEPL's and Trunkline's transition cost recoveries, which are subject to
certain challenges pending before FERC, will occur over the next three years. 
See Note 3 of the Notes to Consolidated Financial Statements.  

During the next two to three years, above-market gas purchase contract
payments by the pipelines are expected to exceed transition cost collections
from customers.  Net cash receipts related to transition costs are expected
to occur in periods thereafter.  Cash requirements related to transition costs
will be funded by cash from operations and/or available credit facilities.  

The Company believes the exposure associated with gas purchase contract
commitments and the termination of the Company's pipeline merchant services
are substantially mitigated by transition cost recovery pursuant to TETCO's
settlement, Order 636 and other mechanisms.  

Environmental Matters - The Company believes it will be able to fund the
TETCO, PEPL and Trunkline PCB and other cleanup program costs from recoveries
and other cash flows.  See Note 7 of the Notes to Consolidated Financial
Statements.  Also, as discussed in Note 5 of the Notes to Consolidated
Financial Statements, the Company is unable at this time to estimate its share
or the timing of cleanup costs related to the Fresno Sanitary Landfill.  

Litigation - In connection with a rupture and fire that occurred on TETCO's
36-inch natural gas pipeline on March 23, 1994 in Edison, New Jersey, numerous
lawsuits have been filed against TETCO and other defendants in the Superior
Court of New Jersey, Middlesex County, on behalf of hundreds of individuals
seeking compensatory damages for personal injuries and property losses, as
well as punitive damages.  The property insurers of an apartment complex
adjacent to the asphalt plant where the rupture occurred also have filed suit
against TETCO and other defendants in Superior Court seeking to recover
approximately $10 million for amounts paid under the pertinent policies of
insurance.  TETCO has also been contacted by hundreds of additional
individuals or their attorneys with claims against TETCO.  In addition,
Quality Materials, Inc., the owner of the asphalt plant, has filed suit in the
U.S. District Court for the District of New Jersey against TETCO seeking to
recover unspecified property damages, lost income and punitive damages.  TETCO
has filed a counterclaim against Quality Materials, Inc.  Discovery is
ongoing.


                                   17<PAGE>
<PAGE>
The findings of an investigation of the incident by the Company and the NTSB
indicate third-party damage to be the cause of the rupture.  Additionally, an
NTSB report found that TETCO's pipeline operations met or exceeded federal
safety regulations.  

Other - The Company expects to generate sufficient future taxable income from
operations to fully utilize deferred tax assets, net of valuation allowance,
including the ITC carryforward.  However, if needed, the Company could
implement tax-planning strategies to accelerate approximately $140 million of
taxable income prior to expiration of the ITC.  

On September 1, 1994, Trunkline placed into effect, subject to refund,  a
general rate increase as a result of a filing made in accordance with terms
of a rate case settlement in 1993.  An offer of settlement, supported by
Trunkline's customers and certified as uncontested by the FERC ALJ, is pending
FERC approval.  

See Notes 3 and 5 of the Notes to Consolidated Financial Statements for a
discussion of certain other regulatory proceedings and other contingencies.

The Company believes the regulatory, environmental and legal issues discussed
above will not have a material adverse effect on consolidated results of
operations, financial position or liquidity.  During the next 12 months, cash
requirements for operations are expected to be funded by cash from operations,
debt issuances, periodic sales of trade receivables with limited recourse
and/or available credit facilities.  

Investing Cash Flow

<TABLE>
<CAPTION>
                                                       Three Months Ended     
                                                       March 31          
                                              --       ---------------------   
Millions                                             1995       1994  
- --------                                             -----      ----- 
<S>                                      <C>          <C>   
Net Cash Flows Used in Investing Activities            $42.4         $94.4 
                                                -----           ----- 
</TABLE>

Capital Expenditures - Capital expenditures totaled $60.2 million in the first
three months of 1995, compared with $94.6 million for the same period in 1994. 
Capital expenditures for 1995 are expected to approximate $450 million, with
approximately 60% for the natural gas transmission group and 40% for the
market and supply services group.  Expenditures for market-expansion projects
will total approximately $260 million in 1995, including costs to place in
service additional firm transportation for the Company's natural gas
transmission group.   Also included are costs for the purchase/construction
of additional facilities which will enable the Company's market and supply
services group to provide expanded services for natural gas producers and
other customers in the Gulf Coast region.  Capital expenditures are being
funded by cash from operations, debt issuances and/or available credit
facilities.  



                                   18<PAGE>
<PAGE>
The Company has submitted plans to the appropriate state and/or federal
agencies in order to fully comply with the Clean Air Act Amendments of 1990
(the Amendments).  While regulatory review of these plans is currently
underway, the Company estimates that capital expenditures necessary to comply
with the requirements of the Amendments and associated regulations are
approximately $50 million, with an estimated $20 million to be spent in 1995. 
Management believes any expenditures necessary will be eligible for recovery
in rates.  

Financing Cash Flow

<TABLE>
<CAPTION>
                                                       Three Months Ended    
                                                       March 31         
                                               -        --------------------   
Millions                                               1995     1994  
- --------                                              ------    ----- 
<S>                                       <C>         <C>   
Net Cash Flows Used in Financing Activities            $143.1        $35.9 
                                                 ------         ----- 
</TABLE>

Debt and Credit Facilities - In April 1995, PEC issued $100 million of 30-year
debentures bearing interest at 8 5/8%.  PEC has a variable-rate, bank credit
agreement that permits PEC to borrow up to $600 million.  PEPL and TETCO also
have variable-rate, bank credit agreements that permit these subsidiaries to
borrow up to $200 million on a combined basis.  At March 31, 1995, there were
no amounts outstanding under any of these agreements.  

Stockholders Equity - The board of directors increased the quarterly dividend
on common stock from $0.21 to $0.225 per common share effective with the 1995
second quarter.  

Financing Requirements - Dividends and debt repayments for the next 12 months,
along with operating and investing requirements, are expected to be funded by
cash from operations, debt issuances and/or available credit facilities.  PEC
filed a shelf registration statement with the Securities and Exchange
Commission (SEC) on April 25, 1995, which was declared effective May 1, 1995,
for the issuance of up to $200 million in unsecured debt securities.  Pursuant
to this registration statement, PEC intends to issue $100 million of 10-year
notes bearing interest at 7.25% on May 17, 1995.  As of the date of this
report, TETCO and PEPL each have effective shelf registration statements with
the SEC for the issuance of $100 million each of unsecured debt securities. 













                                   19<PAGE>
<PAGE>
                       PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

See Notes 3, 5, 7 and 8 of the Notes to Consolidated Financial Statements in
Part I of this Report, which are incorporated herein by reference.  See also
Item 3 of PEC's Annual Report on Form 10-K for the year ended
December 31, 1994.  

Item 6.  Exhibits and Reports on Form 8-K 

(a)  Exhibits - 

   Exhibit Number         Description
        27          Financial Data Schedule

The total amount of securities of the Registrant or its subsidiaries
authorized under any instrument with respect to long-term debt not filed as
an Exhibit does not exceed 10% of the total assets of the Registrant and its
subsidiaries on a consolidated basis.  The Registrant agrees, upon request of
the Securities and Exchange Commission, to furnish copies of any or all of
such instruments.  

(b)  Reports on Form 8-K - A Current Report on Form 8-K was filed on March 3,
     1995 under Item 7, "Financial Statements and Exhibits" to file
     consolidated financial statements and related schedules of PEC as of
     September 30, 1994 (restated for the merger with Associated Natural Gas
     Corporation) and December 31, 1994.  





























                                      20<PAGE>
<PAGE>
                                SIGNATURES


   Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned duly authorized officer and chief financial officer.  




                                PANHANDLE EASTERN CORPORATION
                                        (Registrant)


                                 /s/ James B. Hipple                          

                           --------------------------------------
                           James B. Hipple, Senior Vice President
                             and Chief Financial Officer



Date:  May 11, 1995


































                                      21

<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Panhandle Eastern Corporation Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000351696
<NAME> PANHANDLE EASTERN CORPORATION
<MULTIPLIER> 1,000
       
<S>                                        <C>
<PERIOD-TYPE>                              3-MOS
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-END>                               MAR-31-1995
<CASH>                                          21,600
<SECURITIES>                                         0
<RECEIVABLES>                                  307,900
<ALLOWANCES>                                         0
<INVENTORY>                                    116,200
<CURRENT-ASSETS>                               678,500
<PP&E>                                       8,092,800
<DEPRECIATION>                               3,108,100
<TOTAL-ASSETS>                               7,339,000
<CURRENT-LIABILITIES>                          936,300
<BONDS>                                      2,187,900
<COMMON>                                       149,200
                                0
                                          0
<OTHER-SE>                                   1,942,400
<TOTAL-LIABILITY-AND-EQUITY>                 7,339,000
<SALES>                                        811,700
<TOTAL-REVENUES>                             1,232,100
<CGS>                                          759,600
<TOTAL-COSTS>                                  900,900
<OTHER-EXPENSES>                                91,300
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              60,800
<INCOME-PRETAX>                                138,800
<INCOME-TAX>                                    54,700
<INCOME-CONTINUING>                             84,100
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    84,100
<EPS-PRIMARY>                                     0.56
<EPS-DILUTED>                                     0.56
        

</TABLE>


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