AGREEMENT AS TO EXPENSES AND LIABILITIES



                  AGREEMENT  dated  as of  May  1,  1997,  between  Southwestern
Electric Power Company, a Delaware corporation ("SWEPCO"), and SWEPCO Capital I,
a Delaware business trust (the "Trust").

                  WHEREAS, the Trust intends to issue its Common Securities (the
"Common  Securities")  to,  and  receive  Debentures  (as  defined  in the Trust
Agreement) from, SWEPCO and to issue and sell 7.875% Trust Preferred Securities,
Series A (the "Preferred Securities") with such powers,  preferences and special
rights and  restrictions  as are set forth in the  Amended  and  Restated  Trust
Agreement  of the Trust dated as of May 1, 1997 as the same may be amended  from
time to time (the "Trust Agreement");

                  WHEREAS,  SWEPCO  will  directly  or indirectly own all of the
Common Securities of Trust and will issue the Debentures;

                  NOW,  THEREFORE,  in  consideration  of the  purchase  by each
holder of the Preferred  Securities,  which purchase  SWEPCO hereby agrees shall
benefit SWEPCO and which purchase SWEPCO  acknowledges  will be made in reliance
upon the  execution  and delivery of this  Agreement,  SWEPCO,  including in its
capacity  as holder of the  Common  Securities,  and the Trust  hereby  agree as
follows:

                                    ARTICLE I

                  Section 1.1.      Guarantee by SWEPCO.

                  Subject to the terms and conditions hereof, SWEPCO,  including
in its  capacity  as holder of the Common  Securities,  hereby  irrevocably  and
unconditionally  guarantees to each person or entity to whom the Trust is now or
hereafter  becomes  indebted or liable (the  "Beneficiaries")  the full payment,
when and as due, of any and all  Obligations  (as  hereinafter  defined) to such
Beneficiaries.  As used  herein,  "Obligations"  means any  costs,  expenses  or
liabilities of the Trust,  other than obligations of the Trust to pay to holders
of any Preferred  Securities or other similar interests in the Trust the amounts
due such holders pursuant to the terms of the Preferred Securities or such other
similar interests,  as the case may be. This Agreement is intended to be for the
benefit of, and to be  enforceable  by, all such  Beneficiaries,  whether or not
such Beneficiaries have received notice hereof.

                  Section 1.2.      Term of Agreement.

                  This Agreement  shall terminate and be of no further force and
effect upon the later of (a) the date on which full payment has been made of all
amounts  payable to all holders of all the  Preferred  Securities  (whether upon
redemption,  liquidation, exchange or otherwise) and (b) the date on which there
are no Beneficiaries  remaining;  provided,  however,  that this Agreement shall
continue to be effective or shall be  reinstated,  as the case may be, if at any
time any holder of Preferred  Securities or any Beneficiary must restore payment
of any sums paid under the Preferred Securities, under any Obligation, under the
Guarantee  Agreement dated the date hereof by SWEPCO and The Bank of New York as
guarantee  trustee  or under this  Agreement  for any  reason  whatsoever.  This
Agreement is continuing, irrevocable, unconditional and absolute.

                  Section 1.3.      Waiver of Notice.

                  SWEPCO hereby  waives  notice of acceptance of this  Agreement
and of any Obligation to which it applies or may apply, and SWEPCO hereby waives
presentment,  demand  for  payment,  protest,  notice of  nonpayment,  notice of
dishonor, notice of redemption and all other notices and demands.

                  Section 1.4.      No Impairment.

                  The  obligations,  covenants,  agreements and duties of SWEPCO
under this  Agreement  shall in no way be  affected or impaired by reason of the
happening from time to time of any of the following:

                  (a) the extension of time for the  payment by the Trust of all
or  any  portion  of  the  Obligations  or for  the  performance  of  any  other
obligation under, arising out of, or in connection with, the Obligations; 

                  (b) any failure,  omission, delay  or lack of diligence on the
part of the Beneficiaries to enforce,  assert or exercise any right,  privilege,
power or remedy conferred on the  Beneficiaries  with respect to the Obligations
or any action on the part of the Trust  granting  indulgence or extension of any
kind; or

                  (c) the  voluntary or  involuntary  liquidation,  dissolution,
sale of any collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors,  reorganization,  arrangement, composition or readjustment
of debt of,  or other  similar  proceedings  affecting,  the Trust or any of the
assets of the Trust.

There shall be no obligation of the  Beneficiaries  to give notice to, or obtain
the consent of, SWEPCO with respect to the happening of any of the foregoing.

                  Section 1.5.      Enforcement.

                  A  Beneficiary  may enforce this  Agreement  directly  against
SWEPCO  and  SWEPCO  waives  any right or remedy to  require  that any action be
brought  against  the Trust or any other  person  or  entity  before  proceeding
against SWEPCO.

                                   ARTICLE II

                  Section 2.1.      Binding Effect.

                  All  guarantees  and  agreements  contained in this  Agreement
shall bind the successors,  assigns, receivers,  trustees and representatives of
SWEPCO and shall inure to the benefit of the Beneficiaries.

                  Section 2.2.      Amendment.

                  So long as there  remains  any  Beneficiary  or any  Preferred
Securities of any series are  outstanding,  this Agreement shall not be modified
or amended in any manner  adverse to such  Beneficiary  or to the holders of the
Preferred Securities.

                  Section 2.3.      Notices.

                  Any  notice,   request  or  other  communication  required  or
permitted to be given hereunder shall be given in writing by delivering the same
against receipt therefor by facsimile transmission (confirmed by mail), telex or
by registered or certified mail, addressed as follows (and if so given, shall be
deemed given when mailed or upon receipt of an answer-back, if sent by telex):

                  SWEPCO Capital I
                  c/o The Bank of New York
                  101 Barclay Street
                  New York, NY 10286
                  Facsimile No:  (212) 815-5915
                  Attention: Corporate Trust Trustee Administration

                  Southwestern Electric Power Company
                  c/o Central and South West Corporation
                  1616 Woodall Rodgers Freeway
                  Dallas, Texas 75202
                  Facsimile No: (214) 777-1223
                  Attention:  Director, Finance

                  Section 2.4 This agreement  shall be governed by and construed
and  interpreted  in accordance  with the laws of the State of New York (without
regard to conflict of laws principles).


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                  THIS  AGREEMENT is executed as of the day and year first above
written.

                                            SOUTHWESTERN ELECTRIC POWER COMPANY


                                            By:
                                                Name:    Wendy G. Hargus
                                                Title:   Treasurer


                                            SWEPCO CAPITAL I



                                            By:
                                                Name: Wendy G. Hargus
                                                Title:    Administrative Trustee