UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-Q
              (X) COMBINED QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                    For the Quarter Ended September 30, 1999

                                       OR
                  ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                      For the Transition Period from _____ to _____

Commission             Registrant, State of Incorporation,  I.R.S. Employer
File Number            Address and Telephone Number         Identification No.
1-1443                 Central and South West Corporation   51-0007707
                       (A Delaware Corporation)
                       1616 Woodall Rodgers Freeway
                       Dallas, Texas 75202-1234
                       (214) 777-1000

0-346                  Central Power and Light Company      74-0550600
                       (A Texas Corporation)
                       539 North Carancahua Street
                       Corpus Christi, Texas 78401-2802
                       (512) 881-5300

0-343                  Public Service Company of Oklahoma   73-0410895
                       (An Oklahoma Corporation)
                       212 East 6th Street
                       Tulsa, Oklahoma 74119-1212
                       (918) 599-2000

1-3146                 Southwestern Electric Power Company  72-0323455
                       (A Delaware Corporation)
                       428 Travis Street
                       Shreveport, Louisiana 71156-0001
                       (318) 673-3000

0-340                  West Texas Utilities Company         75-0646790
                       (A Texas Corporation)
                       301 Cypress Street
                       Abilene, Texas 79601-5820
                       (915) 674-7000

      Indicate by check mark whether the  Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrants  were required to file such  reports),  and (2) have been subject to
such filing requirements for the past 90 days. Yes X No__

Common Stock Outstanding at November 5, 1999                   Shares
  Central and South West Corporation                          212,648,293
  Central Power and Light Company                               6,755,535
  Public Service Company of Oklahoma                            9,013,000
  Southwestern Electric Power Company                           7,536,640
  West Texas Utilities Company                                  5,488,560

      This  Combined  Form 10-Q is  separately  filed by Central  and South West
Corporation,  Central  Power  and  Light  Company,  Public  Service  Company  of
Oklahoma,  Southwestern Electric Power Company and West Texas Utilities Company.
Information  contained herein relating to any individual  Registrant is filed by
such Registrant on its own behalf. Each Registrant makes no representation as to
information relating to the other Registrants.


<PAGE>



               CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES

                    TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM 10-Q
                               SEPTEMBER 30, 1999



GLOSSARY OF TERMS..............................................................3


FORWARD-LOOKING INFORMATION....................................................5


PART I. - FINANCIAL INFORMATION................................................6


  ITEM 1.  FINANCIAL STATEMENTS................................................6
    CENTRAL AND SOUTH WEST CORPORATION.........................................6
    CENTRAL POWER AND LIGHT COMPANY...........................................16
    PUBLIC SERVICE COMPANY OF OKLAHOMA........................................24
    SOUTHWESTERN ELECTRIC POWER COMPANY.......................................32
    WEST TEXAS UTILITIES COMPANY..............................................40
    NOTES TO FINANCIAL STATEMENTS.............................................49

  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS.......................................................68

  ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........88

PART II. - OTHER INFORMATION..................................................90


  ITEM 1.  LEGAL PROCEEDINGS..................................................90

  ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K...................................90

SIGNATURES....................................................................91








                                       2
<PAGE>


GLOSSARY OF TERMS
The following abbreviations or acronyms used in this text are defined below:

Abbreviation or Acronym    Definition
AEP ....................American Electric Power Company, Inc.
AEP Merger .............Proposed merger between AEP and CSW in which CSW would
                        become a wholly-owned subsidiary of AEP
ALJ ....................Administrative Law Judge
Alpek ..................Alpek S.A. de C.V.
Altamira................CSW International cogeneration project in Altamira,
                        Tamaulipas, Mexico
Arkansas Commission ....Arkansas Public Service Commission
Btu ....................British thermal unit
C3 Communications ......C3 Communications, Inc., Austin, Texas (formerly CSW
                        Communications, Inc.)
Cajun ..................Cajun Electric Power Cooperative, Inc.
CLECO ..................Central Louisiana Electric Company, Inc.
Court of Appeals .......Court of Appeals, Third District of Texas, Austin, Texas
CPL ....................Central Power and Light Company, Corpus Christi, Texas
CPL 1997 Final Order ...Final orders received from the Texas Commission in CPL's
                        rate case Docket No., 14965, including both the order
                        received on September 10, 1997 and the revised order
                        received on October 16, 1997
CSW ....................Central and South West Corporation, Dallas, Texas
CSW Credit .............CSW Credit, Inc., Dallas, Texas
CSW Energy .............CSW Energy, Inc., Dallas, Texas
CSW International ......CSW International, Inc., Dallas, Texas
CSW Services ...........Central and South West Services, Inc., Dallas, Texas and
                        Tulsa, Oklahoma
CSW System .............CSW and its subsidiaries
DHMV ...................Dolet Hills Mining Venture
Diversified Electric ...CSW Energy and CSW International and their subsidiaries
ECOM ...................Excess cost over  market
EITF 97-4...............Emerging Issues Task Force Consensus 97-4, Deregulation
                        of the Pricing of Electricity - Issues Related to the
                        Application of SFAS Nos. 71 and 101.
EPA ....................United States Environmental Protection Agency
ERCOT ..................Electric Reliability Council of Texas
ESPS....................Electricity Supply Pension Scheme
Exchange Act ...........Securities Exchange Act of 1934, as amended
EWG ....................Exempt Wholesale Generator
FCC.....................Federal Communications Commission
FERC ...................Federal Energy Regulatory Commission
Frontera................A 500 MW merchant power plant located near the city of
                        Mission, Texas owned by CSW Energy
FUCO ...................Foreign utility company as defined in the Holding
                        Company Act
FMBs....................First Mortgage Bonds
Holding Company Act ....Public Utility Holding Company Act of 1935, as amended
IBEW ...................International Brotherhood of Electrical Workers
July 1999 SWEPCO Plan...The amended plan of reorganization for Cajun filed by
                        the Members Committee and SWEPCO on July 28, 1999 with
                        the U.S. Bankruptcy Court for the Middle District of
                        Louisiana
Legislative Joint Electric Utility
  Task Force............Task force created by the Oklahoma  Legislature to
                        study electric utility industry  restructuring issues in
                        the state of Oklahoma
LIFO ...................Last-in first-out (inventory accounting method)
Louisiana Commission ...Louisiana Public Service Commission
MD&A ...................Management's Discussion and Analysis of Financial
                        Condition and Results of Operations
MDEQ ...................Mississippi Department of Environmental Quality
MGP ....................Manufactured gas plant or coal gasification plant
Mississippi Power ......Mississippi Power Company
MMbtu ..................Million Btu
MW .....................Megawatt
MWH ....................Megawatt-hour
National Grid Group ....National Grid Group plc
National Power..........National Power plc
Northeastern Power
  Station...............Northeastern Power Station, Oologah, Oklahoma
NRC ....................Nuclear Regulatory Commission
Numanco.................Nuvest, Inc., Numanco, LLC and Numanco, Inc.

                                       3
<PAGE>


GLOSSARY OF TERMS (continued)
The following abbreviations or acronyms used in this text are defined below:

Abbreviation or Acronym       Definition
OFGEM...................The Office of Gas and Electricity Markets, United
                        Kingdom
Oklahoma Commission ....Corporation Commission of the State of Oklahoma
PCB ....................Polychlorinated biphenyl
PRP ....................Potentially responsible party
PSO ....................Public Service Company of Oklahoma, Tulsa, Oklahoma
Registrant(s) ..........CSW, CPL, PSO, SWEPCO and WTU
SEC ....................United States Securities and Exchange Commission
SEEBOARD ...............SEEBOARD Group plc, Crawley, West Sussex, United Kingdom
SEEBOARD USA............CSW's investment in SEEBOARD as consolidated and
                        converted pursuant to U.S. Generally Accepted Accounting
                        Principles
SFAS ...................Statement of Financial Accounting Standards
SFAS No. 34.............Capitalization of Interest Cost
SFAS No. 52 ............Foreign Currency Translation
SFAS No. 71 ............Accounting for the Effects of Certain Types of
                        Regulation
SFAS No. 101............Regulated Enterprises - Accounting for the
                        Discontinuance of Application of SFAS No. 71
SFAS No. 121............Accounting for the Impairment of Long-Lived Assets and
                        for Long-Lived Assets to be Disposed of
STP ....................South Texas Project nuclear electric generating station
SWEPCO .................Southwestern Electric Power Company, Shreveport,
                        Louisiana
Texas Commission .......Public Utility Commission of Texas
Texas Legislation.......Texas Senate Bill 7 relating to deregulation of electric
                        utility industry
Trust Preferred
  Securities............Collective term for securities issued by business trusts
                        of CPL, PSO and SWEPCO classified  on the balance  sheet
                        as Certain  Subsidiary (or  CPL/PSO/SWEPCO)-obligated,
                        mandatorily  redeemable preferred securities of
                        subsidiary trusts holding solely Junior Subordinated
                        Debentures of such Subsidiaries (or CPL/PSO/SWEPCO)
U.K. Electric...........SEEBOARD USA
U.S. Electric Operating Companies or
     U.S. Electric .....CPL, PSO, SWEPCO and WTU
UWUA....................Utility Workers Union of America
Vale ...................Empresa De Electricidade Vale Paranapanema S/A, a
                        Brazilian Electric Distribution Company
WTU ....................West Texas Utilities Company, Abilene, Texas
Yorkshire ..............Yorkshire Electricity Group plc, a regional electricity
                        company in the United Kingdom





                                       4



<PAGE>



FORWARD-LOOKING INFORMATION

This report made by CSW and certain of its subsidiaries contains forward-looking
statements  within the meaning of Section 21E of the Exchange Act.  Although CSW
and each of its  subsidiaries  believe  that  their  expectations  are  based on
reasonable  assumptions,  any such  statements may be influenced by factors that
could cause actual  outcomes and results to be materially  different  from those
projected.   Important  factors  that  could  cause  actual  results  to  differ
materially from those in the  forward-looking  statements  include,  but are not
limited to:

-        the impact of  general  economic  changes  in the United  States and in
         countries in which CSW either  currently  has made or in the future may
         make investments,
-        the  impact  of  the  proposed  AEP  Merger  including  any  regulatory
         conditions  imposed on the merger,  the inability to consummate the AEP
         Merger, or other merger and acquisition activity,
-        increased  competition  and the  restructuring  of the electric utility
         industry in the United States,
-        federal and state regulatory  developments and changes in law which may
         have a substantial adverse impact on the value of CSW System generating
         and other assets,
-        timing and adequacy of rate relief,
-        adverse changes in electric load and customer growth,
-        climatic changes or unexpected changes in weather patterns,
-        changing fuel prices,  generating plant and distribution facility
         performance,
-        decommissioning costs associated with nuclear generating  facilities,
-        costs associated with any year 2000 computer related failure(s) either
         within the CSW System or supplier failures that adversely affect the
         CSW System,
-        uncertainties in foreign operations and foreign laws affecting CSW's
         investments in those countries,
-        the effects of retail competition in the natural gas and electricity
         distribution and supply businesses in the United Kingdom,
-        the timing and success of efforts to develop domestic and international
         power projects, and
-        risks associated with hedging and other risk management techniques.

In the  non-utility  area,  the  previously  mentioned  factors  apply  and also
include, but are not limited to:

-        the   ability  to   compete   effectively   in  new  areas,   including
         telecommunications,  power  marketing and  brokering,  and other energy
         related services, and
-        evolving federal and state regulatory legislation and policies that may
         adversely  affect  those  industries  generally  or  the  CSW  System's
         business in areas in which it operates.


                                       5
<PAGE>







                                      CSW


                       CENTRAL AND SOUTH WEST CORPORATION


                        PART I. - FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.





                                       6

<PAGE>
CSW
Consolidated Statements of Income (unaudited)
Central and South West Corporation
--------------------------------------------------------------------------------

                                            Three Months Ended Nine Months Ended
                                              September 30,      September 30,
                                             ----------------   ----------------
                                              1999     1998     1999      1998
                                             -------  -------   ------   -------
                                            (millions, except per share amounts)
Operating Revenues
    U.S. Electric                            $1,170   $1,172   $2,758    $2,746
    United Kingdom                              354      352    1,192     1,288
    Other diversified                            94       57      212       148
                                             -------  -------   ------   -------
                                              1,618    1,581    4,162     4,182
Operating Expenses and Taxes
    U.S. Electric fuel                          386      388      908       939
    U.S. Electric purchased power                54       39      119        86
    United Kingdom cost of sales                211      224      747       879
    Other operating                             299      232      816       705
    Maintenance                                  42       41      144       114
    Depreciation and amortization               159      126      424       375
    Taxes, other than income                     39       44      152       145
    Income taxes                                 93      143      162       218
                                             -------  -------   ------   -------
                                              1,283    1,237    3,472     3,461
                                             -------  -------   ------   -------
Operating Income                                335      344      690       721
                                             -------  -------   ------   -------

Other Income and (Deductions)
    Other                                         9        5       33        33
    Non-operating income taxes                   (2)       3       (9)        2
                                             -------  -------   ------   -------
                                                  7        8       24        35
                                             -------  -------   ------   -------

Income Before Interest and Other Charges        342      352      714       756
                                             -------  -------   ------   -------

Interest and Other Charges
    Interest on long-term debt                   74       78      227       238
    Interest on short-term debt and other        29       33       83        92
    Distributions on Trust Preferred Securities   7        7       20        20
    Preferred dividend requirements of
     subsidiaries                                 2        1        6         6
   (Gain)/loss on reacquired preferred stock     --       --       --         1
                                             -------  -------   ------   -------
                                                112      119      336       357

Income Before Extraordinary Item                230      233      378       399

Extraordinary loss (net of tax of $5)            (8)      --       (8)       --
                                             -------  -------   ------   -------

Net Income for Common Stock                   $ 222    $ 233    $ 370     $ 399
                                             =======  =======   ======   =======

Average Common Shares Outstanding             212.6    212.5    212.6     212.3

Basic & Diluted Earnings per Share before
  Extraordinary Item                           1.08     1.10     1.78      1.88
Basic & Diluted Earnings per Share from
  Extraordinary Item                          (0.04)    0.00    (0.04)     0.00
                                             -------  -------   ------   -------
Basic and Diluted Earnings per Share         $ 1.04   $ 1.10    $ 1.74   $ 1.88
                                             =======  =======   ======   =======

Dividends Paid per Share of Common Stock     $0.435   $0.435    $1.305   $1.305
                                             =======  =======   ======   =======



       The accompanying notes to consolidated financial statements are an
                       integral part of these statements.

                                       7
<PAGE>
CSW
Consolidated Statements of Stockholders' Equity
Central and South West Corporation
(millions)
<TABLE>
<CAPTION>

                                                                          Accumulated
                                                     Additional           Other
                                            Common   Paid-in    Retained  Comprehensive
                                             Stock   Capital    Earnings  Income (Loss)   Total
                                            -------------------------------------------  ------
<S>                                         <C>      <C>        <C>       <C>             <C>

(audited)
Beginning Balance -- January 1, 1998          $743   $1,039     $1,751         $23       $3,556
   Sale of common stock                          1       10         --          --           11
   Common stock dividends                       --       --       (370)         --         (370)
   Other                                        --       --          2          --            2
                                                                                         -------
                                                                                          3,199

   Comprehensive Income:

      Foreign currency translation adjustment
       (net of tax of $2)                       --       --         --           7            7
      Unrealized loss on securities
       (net of tax of $8)                       --       --         --         (14)         (14)
      Adjustment for gain included in net
       income(net of tax of $4)                 --       --         --          (7)          (7)
      Minimum pension liability
       (net of tax of $0.6)                     --       --         --          (1)          (1)
      Net Income                                --       --        440          --          440
                                                                                         -------
         Total comprehensive income                                                         425

Ending Balance -- December 31, 1998           $744   $1,049     $1,823          $8       $3,624
                                            ===========================================  ======
(unaudited)
Beginning Balance -- January 1, 1999          $744   $1,049     $1,823          $8       $3,624
   Sale of common stock                         --        2         --          --            2
   Common stock dividends                       --       --       (277)         --         (277)
   Other                                        --       --         (1)         --           (1)
                                                                                         ------
                                                                                          3,348

   Comprehensive Income:
      Foreign currency translation adjustment
       (net of tax of $27)                      --       --         --         (50)         (50)
      Unrealized gain on securities
       (net of tax of $5)                       --       --         --           9            9
      Net Income                                --       --        370          --          370
                                                                                         ------
         Total comprehensive income                                                         329
                                            -------------------------------------------  ------
Ending Balance -- September 30, 1999          $744   $1,051     $1,915        ($33)      $3,677
                                            ===========================================  ======

</TABLE>


       The accompanying notes to consolidated financial statements are an
                       integral part of these statements.
                                       8
<PAGE>
CSW
Consolidated Balance Sheets
Central and South West Corporation

                                                       September 30 December 31,
                                                            1999        1998
                                                        (unaudited)  (audited)
                                                       ------------ ------------
                                                              (millions)

ASSETS
Fixed Assets
    Electric
        Production                                        $ 5,883       $ 5,887
        Transmission                                        1,636         1,594
        Distribution                                        4,843         4,681
        General                                             1,418         1,380
        Construction work in progress                         214           166
        Nuclear fuel                                          219           207
                                                       ------------ ------------
                                                           14,213        13,915
    Other diversified                                         452           333
                                                       ------------ ------------
                                                           14,665        14,248

  Less - Accumulated depreciation and amortization          5,941         5,652
                                                       ------------ ------------
                                                            8,724         8,596
                                                       ------------ ------------
Current Assets
    Cash and temporary cash investments                       160           157
    Accounts receivable                                     1,462         1,110
    Materials and supplies, at average cost                   145           191
    Electric utility fuel inventory                           112            90
    Under-recovered fuel costs                                 45             4
    Notes receivable                                          119           109
    Prepayments and other                                     126            90
                                                       ------------ ------------
                                                            2,169         1,751
                                                       ------------ ------------
Deferred Charges and Other Assets
    Regulatory assets                                       1,251         1,266
    Other non-utility investments                             406           432
    Securities available for sale                              62            66
    Goodwill                                                1,362         1,402
    Other                                                     457           384
                                                       ------------ ------------
                                                            3,538         3,550
                                                       ------------ ------------
                                                          $14,431       $13,897
                                                       ============ ============



       The accompanying notes to consolidated financial statements are an
                       integral part of these statements.

                                       9
<PAGE>
CSW
Consolidated Balance Sheets
Central and South West Corporation
<TABLE>
<CAPTION>

                                                   September 30,    December 31,
                                                     1999              1998
                                                   (unaudited)       (audited)
                                                   ------------     ------------
CAPITALIZATION AND LIABILITIES                                (millions)
<S>                                                <C>          <C> <C>          <C>

Capitalization
    Common stock:   $3.50 par value
        Authorized shares:   350.0 million
        Issued and outstanding shares:  212.6 million  $ 744             $ 744
    Paid-in capital                                    1,051             1,049
    Retained earnings                                  1,915             1,823
    Accumulated other comprehensive income/(loss)        (33)                8
                                                   ------------     ------------
          Total Common Stock Equity                    3,677     46%     3,624    45%
                                                   ------------ --- ------------ ---
    Preferred stock                                      176      2%       176     2%
                                                   ------------ --- ------------ ---
    Certain Subsidiary-obligated, mandatorily
       redeemable preferred securities of
       subsidiary trusts holding solely
       Junior Subordinated Debentures of such
       Subsidiaries                                      335      4%       335     4%
    Long-term debt                                     3,804     48%     3,938    49%
                                                   ------------ --- ------------ ---
          Total Capitalization                         7,992    100%     8,073   100%
                                                   ------------ --- ------------ ---

Current Liabilities
    Long-term debt and preferred stock due within
      twelve months                                      223               169
    Short-term debt                                    1,064               811
    Short-term debt - CSW Credit                         944               749
    Loan notes                                            30                32
    Accounts payable                                     501               624
    Accrued taxes                                        280               190
    Accrued interest                                     107                84
    Customer deposits                                     78                80
    Other                                                200               138
                                                   ------------     ------------
                                                       3,427             2,877
                                                   ------------     ------------
Deferred Credits
    Accumulated deferred income taxes                  2,406             2,410
    Investment tax credits                               257               267
    Other                                                349               270
                                                   ------------     ------------
                                                       3,012             2,947
                                                   ------------     ------------
                                                    $ 14,431          $ 13,897
                                                   ============     ============
</TABLE>


       The accompanying notes to consolidated financial statements are an
                       integral part of these statements.

                                       10
<PAGE>
CSW
Consolidated Statements of Cash Flows (unaudited)
Central and South West Corporation
--------------------------------------------------------------------------------

                                                               Nine Months Ended
                                                                 September 30,
                                                                ----------------
                                                                 1999     1998
                                                                -------  -------
OPERATING ACTIVITIES                                              (millions)
    Net Income for Common Stock                                  $ 370    $ 399
    Non-cash Items and Adjustments
        Depreciation and amortization                              444      436
        Deferred income taxes and investment tax credits           (17)     (19)
        Preferred stock dividends included in Net Income for
         Common Stock                                                6        6
        Loss on reacquired preferred stock                          --        1
        Extraordinary loss related to SFAS No. 71                    8       --
    Changes in Assets and Liabilities
        Accounts receivable                                       (352)    (486)
        Accounts payable                                           (17)      62
        Accrued taxes                                               97      211
        Fuel inventory                                             (22)     (19)
        Fuel recovery                                              (66)      73
        Other                                                        1      (40)
                                                                -------  -------
                                                                   452      624
                                                                -------  -------
INVESTING ACTIVITIES
    Construction expenditures                                     (439)    (339)
    CSW Energy/CSW International projects                         (103)    (143)
    Other                                                          (23)       1
                                                                -------  -------
                                                                  (565)    (481)
                                                                -------  -------
FINANCING ACTIVITIES
    Common stock sold                                                2        8
    Long-term debt sold                                             33        5
    Reacquisition/retirement of long-term debt                    (202)    (181)
    Reacquisition of preferred stock                                --      (28)
    Change in short-term debt                                      448      365
    Payment of dividends                                          (283)    (279)
    Other                                                          120       73
                                                                -------  -------
                                                                   118      (37)
                                                                -------  -------

Effect of exchange rate changes on cash and cash equivalents        (2)       2

Net Change in Cash and Cash Equivalents                              3      108
Cash and Cash Equivalents at Beginning of Period                   157       75
                                                                -------  -------
Cash and Cash Equivalents at End of Period                       $ 160    $ 183
                                                                =======  =======

SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized                       $ 289    $ 249
                                                                =======  =======
    Income taxes paid                                            $ 105     $ 49
                                                                =======  =======





       The accompanying notes to consolidated financial statements are an
                       integral part of these statements.
                                       11
<PAGE>


CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES RESULTS OF
OPERATIONS

      Set forth below is  information  concerning  the  consolidated  results of
operations of CSW for the three and nine month periods ended  September 30, 1999
and September 30, 1998. For information concerning the results of operations for
each of the U.S.  Electric  Operating  Companies,  see the discussion  under the
heading RESULTS OF OPERATIONS  following the financial statements of each of the
U.S. Electric Operating Companies.


COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1999 AND 1998


      CSW's net income for common stock decreased $11 million to $222 million in
the third quarter of 1999 compared to $233 million in 1998.  Earnings  decreased
due primarily to increased other operating expenses and higher  depreciation and
amortization.  Partially  offsetting  these  increased  expenses were  increased
operating  revenues  from CSW Energy and lower income tax  expense.  See NOTE 2.
LITIGATION AND REGULATORY PROCEEDINGS Electric Utility Restructuring Legislation
for information affecting earnings due to restructuring legislation in Texas and
Arkansas. Various factors affecting third quarter earnings are discussed below.

      In the  third quarter of 1999, the U.S. Electric  Operating  Companies and
U.K.  Electric contributed  the  following  percentages  to  CSW's  results  of
operations.

                                                          Corporate
                              U.S.       U.K.     Total   Items and
                            Electric   Electric  Electric   Other    Total
                           --------------------------------------------------
Operating Revenues            72%        22%       94%       6%       100%
Operating Income              84%        13%       97%       3%       100%
Income before
  Extraordinary Item          95%         9%       104%     (4)%      100%

      Operating  revenues  increased  $37 million or 2% in the third  quarter of
1999  compared  to the same  period a year ago due  primarily  to an increase in
other diversified revenue resulting from the Frontera plant beginning commercial
operations.  Although operating  revenues from U.S. Electric  operations for the
third quarter of 1999 were  virtually flat when compared to the third quarter of
1998,  there were large  changes in the  components of operating  revenue.  Fuel
related  revenues  increased $11 million due to higher  combined fuel expense as
discussed in the following paragraph and increased sales to wholesale customers.
Non-fuel related revenues decreased $14 million. Although non-fuel revenues from
wholesale  customers  increased  $21 million due to increased  demand,  non-fuel
revenue from retail customers decreased $17 million due to milder weather in the
third quarter of 1999. Also contributing to the decrease,  revenue from electric
service  rendered and not yet billed  decreased  $12 million,  and other non-MWH
revenue decreased $10 million due primarily to the charge to revenues to reflect
the  excess  earnings  provision  under  the  Texas  Legislation.  See  NOTE  2.
LITIGATION  AND  REGULATORY   PROCEEDINGS  -  Electric   Utility   Restructuring
Legislation.   Partially   offsetting  these  decreases  to  non-fuel   revenue,
transmission  related  revenues  increased $4 million  primarily from changes to
CSW's transmission coordination agreement. See NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS - Transmission Coordination Agreement.

      U.S.  Electric  fuel  expense  decreased $2 million or 1% during the third
quarter  of 1999  compared  to the same  period a year  ago due  primarily  to a
decrease of $30 million in the recovery of deferred fuel costs  resulting from a
significant  difference  in fuel  factors  used to  recover  fuel  expense  from
customers at PSO. The decrease was almost  entirely offset by an increase in the

                                       12
<PAGE>

average unit fuel cost to $1.93 per MMbtu from $1.70 per MMbtu. The increase was
due to higher spot market natural gas prices.  Purchased power expense increased
$15 million or 38% for the  comparison  periods due primarily to higher  economy
energy  purchases and the unscheduled  outage of a coal-fired  generating  power
plant.  United  Kingdom cost of sales  decreased  $13 million or 6% in the third
quarter  of 1999  compared  to the  same  period  a year  ago due  primarily  to
fluctuation in exchange rates.

      Other operating  expense increased $67 million or 29% in the third quarter
of 1999  compared  to the  same  period a year  ago.  Other  operating  expenses
increased $28 million at SEEBOARD primarily as a result of additional  operating
costs related to SEEBOARD's  Powerlink joint venture to operate and maintain the
electricity  assets for the London  Underground Rail System as well as increased
expenses associated with operating in the competitive  electricity market in the
United Kingdom.  CSW Energy's operating expenses also increased $27 million as a
result  of  increased   business  activity  at  several  of  its  plants.   Also
contributing  to  the  increase  in  other  operating   expense  were  increased
transmission  expenses at the U.S. Electric  operating  companies related to the
1999 transmission coordination agreement adjustments. See NOTE 2. LITIGATION AND
REGULATORY PROCEEDINGS - Transmission Coordination Agreement.

      Depreciation and amortization  expense increased $33 million or 26% in the
third  quarter of 1999  compared to the same period a year ago due  primarily to
the  recording  of  accelerated  capital  recovery  under  the  excess  earnings
provisions  of the Texas  Legislation.  See NOTE 2.  LITIGATION  AND  REGULATORY
PROCEEDINGS - Electric Utility Restructuring Legislation.

      Taxes,  other than income decreased $5 million or 11% in the third quarter
of 1999 due to decreased ad valorem tax expense partially offset by higher state
franchise taxes.

      Income  taxes  decreased  $50 million or 35% in the third  quarter of 1999
compared  to the  same  period  a year  ago due to  lower  taxable  income,  the
reclassification  of  income  tax  related  regulatory  assets  amortization  to
depreciation and amortization  expense  consistent with the Texas Legislation at
CPL,  and  prior  year  adjustments  to prior  year  income  taxes.  See NOTE 2.
LITIGATION  AND  REGULATORY   PROCEEDINGS  -  Electric   Utility   Restructuring
Legislation.

      Interest and other charges decreased $7 million or 6% in the third quarter
of 1999 compared to the same period a year ago due primarily to the maturity and
reacquisition  of long-term debt during 1998 and 1999 which was partially offset
by higher interest charges related to an increase in short-term borrowings.

      The  extraordinary  loss  resulted  from  legislation  passed in Texas and
Arkansas under which the electricity  generation portion of CPL's,  SWEPCO's and
WTU's  business in those states to no longer meet the criteria to apply SFAS No.
71. These  changes  resulted in an  extraordinary  loss,  which had a cumulative
effect of decreasing  net income by $8.0  million.  See NOTE 2.  LITIGATION  AND
REGULATORY PROCEEDINGS - Electric Utility Restructuring Legislation.


COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998


      Net income for common stock  decreased  $29 million to $370 million in the
first  nine  months of 1999 from $399  million  for the same  period in 1998 due
primarily  to  increased   operations  and   maintenance   expenses  and  higher
depreciation  and  amortization.  The decrease in earnings was offset in part by
higher non-fuel revenue for U.S. Electric  operations due primarily to increased
off-system  sales and customer usage and growth,  which were partially offset by
milder weather. Various factors affecting earnings are discussed below.

                                       13
<PAGE>

      In the  first nine  months of 1999,  the U.S. Electric Operating Companies
and U.K.  Electric contributed  the following  percentages  to  CSW's results of
operations.

                                                         Corporate
                             U.S.      U.K.      Total   Items and
                           Electric  Electric  Electric    Other    Total
                           -------------------------------------------------
Operating Revenues            66%       29%       95%       5%       100%
Operating Income              79%       19%       98%       2%       100%
Income before
  Extraordinary Item          91%       18%      109%      (9)%      100%

      Operating  revenues decreased $20 million in the first nine months of 1999
compared to the same period in 1998 due to lower  revenues  from United  Kingdom
operations.  U.K.  Electric  revenues  decreased  $96  million in the first nine
months of 1999  compared  to the same period a year ago due  primarily  to lower
sales  volumes  in the  business  market  and  the  loss of  domestic  customers
following  the  opening  of  the  electricity   market  to   competition.   Also
contributing  to the  decrease  in U.K.  Electric  revenues  were the absence of
revenues in 1999 from SEEBOARD's  retail business,  which was sold in June 1998,
and unfavorable British pound to U.S. dollar exchange rate movements,  partially
offset by revenues  from  SEEBOARD's  new  Powerlink  joint  venture.  Partially
offsetting  the  decrease  in  operating  revenues  was  an  increase  in  other
diversified  revenues of $64 million for the comparison periods due primarily to
increased business activity at CSW Energy. Also partially offsetting the decline
in  operating  revenues  was higher U.S.  Electric  fuel  revenues due to higher
combined  fuel expense as discussed in the  following  paragraph  and  increased
sales to  wholesale  customers.  Further  offsetting  the  decrease in operating
revenues  was  higher  non-fuel  revenues  of $4  million  at the U.S.  Electric
Operating  Companies  due primarily to increased  customer  usage and growth and
increased off-system sales.

      U.S.  Electric  fuel expense  decreased $31 million or 3% during the first
nine months of 1999  compared to the same period a year ago due  primarily  to a
$41 million decrease in the recovery of deferred fuel costs that resulted from a
significant  difference  in fuel  factors  used to  recover  fuel  expense  from
customers at PSO. The decrease in fuel expense was offset in part by an increase
in the average unit fuel cost to $1.78 per MMbtu in 1999 from $1.71 per MMbtu in
1998. The increase  resulted  primarily from higher natural gas and coal prices.
Purchased power expenses increased $33 million or 38% for the comparison periods
primarily at CPL and WTU. Purchased power expense increased at CPL due primarily
to the  refueling  and  10-year  inspection  of STP Unit 1 as well as  increased
short-term  economy energy  purchases.  Purchased power expense increased at WTU
due primarily to an unscheduled outage at a coal-fired  generating plant. United
Kingdom cost of sales  decreased $132 million or 15% in the first nine months of
1999 compared to the same period a year ago. The decrease was due primarily to a
lower  level of sales of  electricity,  the absence in 1999 of cost of sales for
SEEBOARD's  retail  business and a lower British pound to U.S.  dollar  exchange
rate compared to 1998.

      Other  operating  expense  increased $111 million or 16% in the first nine
months of 1999 compared to the same period a year ago due primarily to increased
expenses of $51 million at SEEBOARD.  Expenses increased at SEEBOARD as a result
of additional  operating costs related to SEEBOARD's  Powerlink joint venture to
operate and  maintain the  electricity  assets for the London  Underground  Rail
System  as  well  as  increased  expenses   associated  with  operating  in  the
competitive  electricity  market in the United Kingdom.  CSW Energy's  operating
expenses also increased $30 million as a result of increased  business  activity
at several of its plants.  Also  contributing to the increase in other operating
expense were  increased  transmission  expenses at the U.S.  Electric  operating
companies related to the 1999 transmission  coordination  agreement adjustments.
See NOTE 2.  LITIGATION AND REGULATORY  PROCEEDINGS - Transmission  Coordination
Agreement.  Maintenance  expense  increased  $30 million or 26% due primarily to
increased expenses associated with the 10-year inspection of STP Unit 1, as well
as scheduled maintenance at other CSW System power plants.

                                       14
<PAGE>

      Depreciation and amortization  expense increased $49 million or 13% in the
first  nine  months of 1999  compared  to the same  period a year ago due to the
recording  of  accelerated  capital  cost  recovery  under the  excess  earnings
provisions of the Texas  Legislation and to higher levels of depreciable  plant.
See  NOTE  2.   LITIGATION  AND  REGULATORY   PROCEEDINGS  -  Electric   Utility
Restructuring Legislation.

      Taxes,  other  than  income  increased  $7 million or 5% in the first nine
months of 1999  compared to the same period a year ago due  primarily  to higher
Texas state franchise taxes. Operating income taxes decreased $56 million or 26%
due  primarily  to lower  taxable  income,  the  reclassification  of income tax
related regulatory assets amortization to depreciation and amortization  expense
consistent  with the Texas  Legislation  at CPL, and prior year  adjustments  to
prior year income taxes.  See NOTE 2.  LITIGATION AND  REGULATORY  PROCEEDINGS -
Electric Utility Restructuring Legislation.

      Interest and other  charges  decreased $21 million or 6% in the first nine
months of 1999 compared to the same period a year ago.  This resulted  primarily
from lower  interest  expense  on  long-term  debt in the amount of $11  million
related to the maturity and  reacquisition of long-term debt. Also  contributing
to the decrease in Interest and other  charges was lower  Interest on short-term
debt  and  other of $9  million  due  primarily  to the  absence  in 1999 of the
interest  expense  related to the CPL 1998 bonded rate refund and lower interest
rates on short-term financing.

      The  extraordinary  loss  resulted  from  legislation  passed in Texas and
Arkansas under which the electricity  generation portion of CPL's,  SWEPCO's and
WTU's  business in those states to no longer meet the criteria to apply SFAS No.
71. These  changes  resulted in an  extraordinary  loss,  which had a cumulative
effect of decreasing  net income by $8.0  million.  See NOTE 2.  LITIGATION  AND
REGULATORY PROCEEDINGS - Electric Utility Restructuring Legislation.


                                       15
<PAGE>




                                       CPL



                         CENTRAL POWER AND LIGHT COMPANY


                        PART I. - FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.


                                       16
<PAGE>
CPL
Consolidated Statement of Income (unaudited)
Central Power and Light Company

                                      Three Months Ended      Nine Months Ended
                                         September 30,          September 30,
                                      ------------------     ------------------
                                       1999      1998        1999        1998
                                     --------  --------   ---------   ---------
                                                       (thousands)

Electric Operating Revenues          $495,653  $454,403  $1,161,714  $1,092,506
                                     --------  --------   ---------   ---------
Operating Expenses and Taxes
    Fuel                              138,020   121,129     312,333     302,406
    Purchased power                    24,229    12,198      53,624      28,733
    Other operating                    68,947    55,276     196,471     178,030
    Maintenance                        13,615    15,361      48,797      42,886
    Depreciation and amortization      68,160    42,903     154,531     126,892
    Taxes, other than income           14,899    14,664      61,194      55,719
    Income taxes                       40,062    64,369      80,382     104,541
                                     --------  --------   ---------   ---------
                                      367,932   325,900     907,332     839,207
                                     --------  --------   ---------   ---------
Operating Income                      127,721   128,503     254,382     253,299
                                     --------  --------   ---------   ---------
Other Income and (Deductions)
    Allowance for equity funds used
        during construction                (1)       59          (1)         51
    Other                                (539)   (3,141)     (1,919)       (592)
    Non-operating income taxes          2,620     1,964       6,147       3,055
                                     --------  --------   ---------   ---------
                                        2,080    (1,118)      4,227       2,514
                                     --------  --------   ---------   ---------
Income Before Interest Charges        129,801   127,385     258,609     255,813
                                     --------  --------   ---------   ---------
Interest Charges
    Interest on long-term debt         21,006    23,331      65,433      70,397
    Distributions on Trust Preferred
     Securities                         3,000     3,000       9,000       9,000
    Interest on short-term debt and
      other                             2,430     1,200      13,494      16,025
    Allowance for borrowed funds used
       during construction               (846)     (607)     (2,464)     (1,948)
                                     --------  --------   ---------   ---------
                                       25,590    26,924      85,463      93,474
                                     --------  --------   ---------   ---------
Net Income                            104,211   100,461     173,146     162,339
    Less:  Preferred stock dividends    1,979     1,320       5,527       4,929
                                     --------  --------   ---------   ---------
Net Income for Common Stock          $102,232   $99,141    $167,619    $157,410
                                     ========  ========   =========   =========


 The accompanying notes to consolidated financial statements as they relate to
                  CPL are an integral part of these statements.

                                       17
<PAGE>
CPL
Consolidated Balance Sheets
Central Power and Light Company

                                                 September 30,     December 31,
                                                     1999              1998
                                                 (unaudited)        (audited)
                                                 -------------     -------------
                                                           (thousands)

ASSETS
Electric Utility Plant
    Production                                     $3,150,632       $ 3,146,269
    Transmission                                      547,040           527,146
    Distribution                                    1,133,759         1,090,175
    General                                           298,247           298,352
    Construction work in progress                     100,626            67,300
    Nuclear fuel                                      218,571           206,949
                                                 -------------     -------------
                                                    5,448,875         5,336,191
                                                 -------------     -------------
  Less - Accumulated depreciation                   2,230,908         2,072,686
                                                 -------------     -------------
                                                    3,217,967         3,263,505
                                                 -------------     -------------
Current Assets
    Cash and temporary investments                     12,460             5,195
    Accounts receivable from affiliates                13,678             5,276
    Accounts receivable                                46,941            45,780
    Materials and supplies, at average cost            57,937            59,814
    Fuel inventory, at LIFO cost                       23,383            20,340
    Under-recovered fuel cost                          22,676                --
    Accumulated deferred income taxes                      --               713
    Prepayments and other                              10,269             2,952
                                                 -------------     -------------
                                                      187,344           140,070
                                                 -------------     -------------
Deferred Charges and Other Assets
    Regulatory assets                               1,184,066         1,099,631
    Nuclear decommissioning trust                      76,948            65,972
    Other                                             107,331           167,011
                                                 -------------     -------------
                                                    1,368,345         1,332,614
                                                 -------------     -------------
                                                   $4,773,656       $ 4,736,189
                                                 =============     =============



 The accompanying notes to consolidated financial statements as they relate to
                  CPL are an integral part of these statements.

                                       18
<PAGE>
CPL
Consolidated Balance Sheets
Central Power and Light Company
<TABLE>
<CAPTION>

                                                September 30,      December 31,
                                                   1999               1998
                                                 (unaudited)        (audited)
                                                ------------       ------------
CAPITALIZATION AND LIABILITIES                              (thousands)
<S>                                               <C>         <C>    <C>          <C>
Capitalization
    Common stock:  $25 par value
        Authorized:  12,000,000 shares
        Issued and outstanding: 6,755,535 shares  $168,888           $ 168,888
    Paid-in capital                                405,000             405,000
    Retained earnings                              795,651             739,031
                                                ------------       ------------
          Total Common Stock Equity              1,369,539     49%   1,312,919     46%
                                                ------------  ---- ------------   ----
    Preferred stock                                163,203      6%     163,204      6%

    CPL-obligated, mandatorily redeemable preferred
        securities of subsidiary trust holding
        solely Junior Subordinated Debentures
        of CPL                                     150,000      5%     150,000      5%
    Long-term debt                               1,101,136     40%   1,225,706     43%
                                                ------------  ---- ------------   ----
          Total Capitalization                   2,783,878    100%   2,851,829    100%
                                                ------------  ---- ------------   ----

Current Liabilities
    Long-term debt due within twelve months        125,000             125,000
    Advances from affiliates                       251,692             160,298
    Payables to affiliates                          19,027              38,331
    Accounts payable                                98,555              86,998
    Customer deposits                               11,621               9,272
    Accrued interest                                27,255              27,036
    Accrued taxes                                   74,789              46,855
    Accumulated deferred income taxes                3,973                  --
    Over-recovered fuel costs                           --               9,135
    Other                                           11,721               9,547
                                                ------------       ------------
                                                   623,633             512,472
                                                ------------       ------------
Deferred Credits
    Accumulated deferred income taxes            1,220,732           1,221,561
    Investment tax credits                         134,608             138,513
    Other                                           10,805              11,814
                                                ------------       ------------
                                                 1,366,145           1,371,888
                                                ------------       ------------
                                                $ 4,773,656         $ 4,736,189
                                                ============       ============
</TABLE>


  The accompanying notes to consolidated financial statements as they relate t
                  CPL are an integral part of these statements.

                                       19
<PAGE>

CPL
Consolidated Statements of Cash Flows (unaudited)
Central Power and Light Company

                                                         Nine Months Ended
                                                           September 30,
                                                     ------------------------
                                                       1999          1998
                                                     ---------      ---------
                                                            (thousands)

OPERATING ACTIVITIES
    Net Income                                        $173,146      $162,339
    Non-cash Items Included in Net Income
        Depreciation and amortization                  169,023       181,237
        Deferred income taxes and investment tax
          credits                                       (6,142)       (3,886)
        Refund due customers                                --       (63,713)
    Changes in Assets and Liabilities
        Accounts receivable                             (9,563)      (40,844)
        Fuel inventory                                  (3,043)       (4,279)
        Material and supplies                            1,877         6,822
        Accounts payable                                (8,041)           10
        Accrued taxes                                   27,935        85,068
        Fuel recovery                                  (31,811)       49,413
        Other                                          (23,337)      (29,735)
                                                     ---------      ---------
                                                       290,044       342,432
                                                     ---------      ---------
INVESTING ACTIVITIES
    Construction expenditures                         (138,506)      (84,348)
    Other                                                5,810        (6,400)
                                                     ---------      ---------
                                                      (132,696)      (90,748)
                                                     ---------      ---------
FINANCING ACTIVITIES
    Payment of dividends                              (116,476)     (172,684)
    Retirement of long-term debt                      (125,000)      (64,000)
    Redemption of preferred stock                           (1)           --
    Change in advances from affiliates                  91,394       (15,000)
                                                     ---------      ---------
                                                      (150,083)     (251,684)
                                                     ---------      ---------
Net Change in Cash and Cash Equivalents                  7,265            --
Cash and Cash Equivalents at Beginning of Year           5,195            --
                                                     ---------      ---------
Cash and Cash Equivalents at End of Period            $ 12,460          $ --
                                                     =========      =========
SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized (includes
      distributions on Trust Preferred Securities)    $ 75,012      $ 88,021
                                                     =========      =========
    Income taxes paid                                 $ 50,798      $ 19,364
                                                     =========      =========


 The accompanying notes to consolidated financial statements as they relate to
                  CPL are an integral part of these statements.

                                       20
<PAGE>


CENTRAL POWER AND LIGHT COMPANY
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1999 AND 1998


      CPL's net income for common stock for the third quarter of 1999 was $102.2
million,  which was $3.1 million higher than the comparable  period in 1998. The
increase was primarily the result of higher non-fuel  related revenues and lower
tax  expenses  which were  partially  offset by an increase  in other  operating
expenses and higher depreciation and amortization expenses.

      Electric  operating  revenues  for the third  quarter of 1999 were  $495.7
million,  which was $41.3  million or 9% higher  than the  comparable  period in
1998.  The increase was  attributable  to higher  fuel-related  revenue of $30.4
million due to higher  combined  fuel  expense and  purchased  power  expense as
discussed in the following  paragraph.  The $10.9  million  increase in non-fuel
related  revenue  was  primarily  the result of  changes  to CSW's  transmission
coordination  agreement of $21.0 million which were offset in part by a decrease
in  revenue  from  electric  services  rendered  and not yet billed as well as a
decrease in retail MWH sales attributable to milder weather in 1999. See NOTE 2.
LITIGATION AND REGULATORY PROCEEDINGS - Transmission Coordination Agreement.

      Fuel expense  during the third quarter of 1999 was $138.0  million,  which
was $16.9 million or 14% higher than the comparable  period in 1998. The average
unit fuel cost for the quarter  increased  from $1.60 per MMbtu in 1998 to $1.94
per MMbtu in 1999,  which was the result of higher spot  market  natural gas and
coal prices.  Purchased power expense during the third quarter of 1999 was $24.2
million,  which was $12.0  million or 99% higher than the  comparable  period in
1998. The increase was due primarily to an increase in short-term economy energy
purchases.

      Other operating expenses for the third quarter of 1999 were $68.9 million,
which was $13.7 million or 25% higher than the same period in 1998. The increase
was due  primarily  to  higher  outside  service  expenses,  as  well as  higher
transmission  expenses.  The  increase  in  transmission  expense was due to the
absence in 1999 of a  transmission  service  agreement  adjustment  made in 1998
related to the final order in Texas  Commission  Docket No.  17285.  See NOTE 2.
LITIGATION  AND  REGULATORY  PROCEEDINGS  - CPL and WTU  Complaint  Versus Texas
Utilities Electric Company (Docket No. 17285).

      Depreciation and amortization  expenses increased $25.3 million or 59% for
the third quarter of 1999 due primarily to the recording of accelerated  capital
recovery under the provisions of the Texas  Legislation.  See NOTE 2. LITIGATION
AND REGULATORY PROCEEDINGS Electric Utility Restructuring Legislation.

      Income tax expense  associated with utility operations were $40.1 million,
which was $24.3  million  lower  than the third  quarter  of 1998 as a result of
lower taxable  income for the third  quarter of 1999,  the  reclassification  of
income  tax  related   regulatory   assets   amortization  to  depreciation  and
amortization  expense  consistent  with the Texas  Legislation,  and prior  year
adjustments  to prior year income taxes.  See NOTE 2.  LITIGATION AND REGULATORY
PROCEEDINGS - Electric Utility Restructuring Legislation.

      Interest  charges  during the third  quarter  of 1999 were $25.6  million,
which was $1.3  million  or 5% lower  than the  comparable  period in 1998.  The

                                       21
<PAGE>

decrease was due primarily to the maturity and  reacquisition  of long-term debt
during  1998 and 1999  which was  partially  offset by higher  interest  charges
related to an increase in short-term borrowings.


COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998


      CPL's net income for common stock for the nine months ended  September 30,
1999  was  $167.6  million,  which  was  $10.2  million  or 6%  higher  than the
comparable  period in 1998. The increase  resulted from higher non-fuel  related
revenues  and lower  tax  expenses  partially  offset  by an  increase  in other
operating  expenses,  maintenance  expenses,  as well as higher depreciation and
amortization expenses.

      Electric  operating  revenues for the nine months ended September 30, 1999
were $1,161.7 million,  which was $69.2 million or 6% higher than the comparable
period in 1998. The increase was attributable to higher fuel-related  revenue of
$36.4 million due to higher combined fuel expense and purchased power expense as
discussed in the following  paragraph.  The $32.8  million  increase in non-fuel
related  revenue  was  primarily  the result of  changes  to CSW's  transmission
coordination  agreement of $21.0 million offset in part by revenue from electric
services  rendered and not yet billed.  See NOTE 2.  LITIGATION  AND  REGULATORY
PROCEEDINGS  -  Transmission  Coordination  Agreement.  Additionally,   non-fuel
related  revenues  increased  $14.5  million due  primarily  to a 3% increase in
retail MWH sales for higher customer demand.

      Fuel  expense  for the nine  months  ended  September  30, 1999 was $312.3
million, which was $9.9 million or 3% higher than the comparable period in 1998.
The average unit fuel cost for the nine months increased from $1.61 per MMbtu in
1998 to $1.69 per  MMbtu in 1999  which was the  result  of higher  spot  market
natural gas and coal prices.  Purchased  power expense for the nine months ended
September 30, 1999 was $53.6 million, which was $24.9 million or 87% higher than
the  comparable  period  in  1998.  The  increase  resulted   primarily  from  a
combination of several  scheduled  power plant outages for routine  maintenance,
including  STP Unit 1 for  refueling  and  10-year  inspection,  and  short-term
economy energy purchases.

      Other  operating  expense for the nine months ended September 30, 1999 was
$196.5 million, which was $18.4 million or 10% higher than the comparable period
in 1998. The increase was due primarily to higher outside  service  expense,  as
well as, higher transmission expenses. The increase in transmission expenses was
due to the absence in 1999 of a transmission  service agreement  adjustment made
in 1998 related to the final order in Texas  Commission  Docket No.  17285.  See
NOTE 2.  LITIGATION  AND REGULATORY  PROCEEDINGS - CPL AND WTU Complaint  versus
Texas Utilities Electric Company (Docket No. 17285).

      Maintenance expense for the nine months ended September 30, 1999 was $48.8
million,  which was $5.9  million or 14% higher  than the  comparable  period in
1998.  This was largely due to scheduled  power plant  repairs and  maintenance,
including the refueling and 10-year inspection of STP Unit 1.

      Depreciation and amortization  expenses increased $27.6 million or 22% for
the nine months  ended  September  30, 1999 due  primarily  to the  recording of
accelerated  capital  recovery  under the excess  earnings  provisions  of Texas
Legislation.  See NOTE 2.  LITIGATION  AND  REGULATORY  PROCEEDINGS  -  Electric
Utility Restructuring Legislation.

      Taxes, other than income for the nine months ended September 30, 1999 were
$61.2 million,  which was $5.5 million or 10% higher than the comparable  period
of 1998.  The  increase was  primarily  attributable  to higher state  franchise
taxes.

                                       22
<PAGE>

      Income tax expense  associated with utility  operations was $80.4 million,
which was $24.2  million  or 23% lower than the  comparable  period of 1998 as a
result of lower  taxable  income for 1999,  the  reclassification  of income tax
related regulatory assets amortization to depreciation and amortization  expense
consistent with the Texas Legislation,  and prior year adjustments to prior year
income  taxes.  See NOTE 2.  LITIGATION  AND  REGULATORY  PROCEEDINGS - Electric
Utility Restructuring Legislation.

      Interest  charges for the nine months ended  September 30, 1999 were $85.5
million,  which was $8.0 million or 9% lower than the comparable period of 1998.
The decrease was due  primarily to the  reacquisition  and maturity of long-term
debt during 1998 and 1999.  In  addition,  interest  charges in 1998 were higher
related to the one time 1998 bonded rate refund which were  partially  offset by
higher interest charges related to an increase in short-term borrowings in 1999.

                                       23
<PAGE>





                                       PSO



                       PUBLIC SERVICE COMPANY OF OKLAHOMA


                        PART I. - FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.


                                       24
<PAGE>
PSO
Consolidated Statements of Income (unaudited)
Public Service Company of Oklahoma

                                    Three Months Ended       Nine Months Ended
                                       September 30,           September 30,
                                   -------------------      -------------------
                                    1999        1998        1999         1998
                                   --------   --------      --------   --------
                                                   (thousands)

Electric Operating Revenues       $258,656    $279,833     $588,385    $623,110
                                   --------   --------      --------   --------
Operating Expenses and Taxes
    Fuel                            82,076     104,704     208,873      242,891
    Purchased power                 20,278      17,594      50,450       44,891
    Other operating                 35,533      20,102      88,083       75,478
    Maintenance                      8,768       8,014      30,695       23,899
    Depreciation and amortization   18,558      18,202      55,557       54,358
    Taxes, other than income         7,591       7,363      23,810       22,583
    Income taxes                    27,995      40,282      37,173       52,564
                                   --------   --------      --------   --------
                                   200,799     216,261     494,641      516,664
                                   --------   --------      --------   --------
Operating Income                    57,857      63,572      93,744      106,446
                                   --------   --------      --------   --------
Other Income and (Deductions)

    Allowance for equity funds used
        during construction            125         293         206          519
    Other                              157         242      (1,638)          24
    Non-operating income taxes       1,148          56       2,352          430
                                   --------   --------      --------   --------
                                     1,430         591         920          973
                                   --------   --------      --------   --------
Income Before Interest Charges      59,287      64,163      94,664      107,419
                                   --------   --------      --------   --------
Interest Charges
    Interest on long-term debt       6,809       7,287      20,031       22,524
    Distributions on Trust Preferred
      Securities                     1,500       1,500       4,500        4,500
    Interest on short-term debt and
     other                           1,072         736       3,749        3,200
    Allowance for borrowed funds
        used during construction      (488)       (281)     (1,072)        (943)
                                   --------   --------      --------   --------
                                     8,893       9,242      27,208       29,281
                                   --------   --------      --------   --------
Net Income                          50,394      54,921      67,456       78,138
  Less:  Preferred stock dividends      54          54         160          160
                                   --------   --------      --------   --------
Net Income for Common Stock       $ 50,340    $ 54,867    $ 67,296     $ 77,978
                                   ========   ========      ========   ========


 The accompanying notes to consolidated financial statements as they relate to
                  PSO are an integral part of these statements.

                                       25
<PAGE>
PSO
Consolidated Balance Sheets
Public Service Company of Oklahoma
--------------------------------------------------------------------------------
                                              September 30,        December 31,
                                                  1999                 1998
                                               (unaudited)          (audited)
                                             ----------------     --------------
                                                          (thousands)
ASSETS
Electric Utility Plant
    Production                                    $ 914,073           $ 913,083
    Transmission                                    390,500             378,719
    Distribution                                    877,664             855,277
    General                                         214,645             211,124
    Construction work in progress                    39,295              33,519
                                             ----------------     --------------
                                                  2,436,177           2,391,722
  Less - Accumulated depreciation                 1,104,846           1,082,081
                                             ----------------     --------------
                                                  1,331,331           1,309,641
                                             ----------------     --------------
Current Assets
    Cash                                              3,792               4,670
    Accounts receivable                              24,840              32,916
    Materials and supplies, at average cost          33,426              33,006
    Fuel inventory, at LIFO cost                     17,631              16,441
    Under-recovered fuel costs                        9,555                  --
    Accumulated deferred income taxes                22,003              11,789
    Prepayments and other                             6,783               2,881
                                             ----------------     --------------
                                                    118,030             101,703
                                             ----------------     --------------

Deferred Charges and Other Assets                    82,117              71,384
                                             ----------------     --------------
                                                $ 1,531,478         $ 1,482,728
                                             ================     ==============











  The accompanying notes to consolidated financial statements as they relate to
                  PSO are an integral part of these statements.

                                       26
<PAGE>
PSO
Consolidated Balance Sheets
Public Service Company of Oklahoma
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                            September 30,           December 31,
                                               1999                     1998
                                            (unaudited)              (audited)
                                            ------------             -----------
CAPITALIZATION AND LIABILITIES                          (thousands)
<S>                                       <C>               <C>        <C>         <C>

Capitalization
    Common stock:   $15 par value
        Authorized:   11,000,000 shares
        Issued 10,482,000 shares
           and outstanding 9,013,000 shares     $157,230                 $157,230
    Paid-in capital                              180,000                  180,000
    Retained earnings                            166,922                  144,626
                                             ------------              -----------
          Total Common Stock Equity              504,152         53%      481,856    51%
                                             ------------   ---------  -----------  -----

    Preferred stock                                5,286        -- %        5,287   -- %
    PSO-obligated, mandatorily redeemable
        preferred securities of subsidiary trust
        holding solely Junior Subordinated
        Debentures of PSO                         75,000          8%       75,000     8%
    Long-term debt                               374,440         39%      384,064    41%
                                              ------------   ---------  -----------  -----
          Total Capitalization                   958,878        100%      946,207   100%
                                             ------------   ---------  -----------  -----

Current Liabilities
    Long-term debt due within twelve months       10,000                       --
    Advances from affiliates                      20,392                   15,892
    Payables to affiliates                        23,201                   33,489
    Accounts payable                              46,444                   52,888
    Customer deposits                             17,671                   17,368
    Accrued interest                              10,184                    7,606
    Accrued taxes                                 38,858                   23,095
    Over-recovered fuel costs                         --                   15,240
    Other                                          9,376                    6,599
                                             ------------              -----------
                                                 176,126                  172,177
                                             ------------              -----------
Deferred Credits
    Accumulated deferred income taxes            304,273                  277,181
    Investment tax credits                        38,022                   39,365
    Income tax related regulatory
      liabilities, net                            31,438                   35,818
    Other                                         22,741                   11,980
                                             ------------              -----------
                                                 396,474                  364,344
                                             ------------              -----------
                                             $ 1,531,478               $1,482,728
                                             ============              ===========

</TABLE>



  The accompanying notes to consolidated financial statements as they relate to
                  PSO are an integral part of these statements.

                                       27
<PAGE>
PSO
Consolidated Statements of Cash Flows (unaudited)
Public Service Company of Oklahoma

                                                       Nine Months Ended
                                                          September 30,
                                                   ------------------------
                                                    1999            1998
                                                   --------        --------
                                                           (thousands)

OPERATING ACTIVITIES
    Net Income                                     $ 67,456        $ 78,138
    Non-cash Items Included in Net Income
        Depreciation and amortization                56,290          56,616
        Deferred income taxes and investment
         tax credits                                 11,155           7,864
    Changes in Assets and Liabilities
        Accounts receivable                          (1,479)           (564)
        Fuel inventory                               (1,190)         (2,050)
        Prepayments and other                        (3,902)          2,339
        Equity and other investments                 (5,802)         (2,146)
        Accounts payable                            (21,869)        (10,108)
        Payables to affiliates                      (10,288)        (23,633)
        Accrued taxes                                15,763          49,696
        Other deferred credits                       10,761           5,979
        Other                                           245           3,822
                                                   --------        --------
                                                    117,140         165,953
                                                   --------        --------
INVESTING ACTIVITIES
    Construction expenditures                       (73,204)        (45,004)
    Other                                            (3,711)         (4,966)
                                                   --------        --------
                                                    (76,915)        (49,970)
                                                   --------        --------
FINANCING ACTIVITIES
    Payment of dividends                            (45,159)        (42,159)
    Change in advances from affiliates                4,500          (4,874)
    Reacquisition of long-term debt                 (33,700)        (55,231)
    Issuance of long-term debt                       33,257              --
    Redemption of preferred stock                        (1)             --
                                                   --------        --------
                                                    (41,103)       (102,264)
                                                   --------        --------

Net Change in Cash and Cash Equivalents                (878)         13,719
Cash and Cash Equivalents at Beginning of Year        4,670           2,171
                                                   --------        --------
Cash and Cash Equivalents at End of Period          $ 3,792        $ 15,890
                                                   ========        ========
SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized (includes
        distributions on Trust Preferred
        Securities)                                $ 23,454        $ 26,713
                                                   ========        ========
    Income taxes paid                              $ 16,614        $  6,606
                                                   ========        ========


 The accompanying notes to consolidated financial statements as they relate to
                  PSO are an integral part of these statements.

                                       28
<PAGE>


PUBLIC SERVICE COMPANY OF OKLAHOMA
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1999 AND 1998


      PSO's net income for common stock for the third  quarter of 1999 was $50.3
million,  which was $4.5 million or 8% lower than the comparable period in 1998.
The decrease resulted  primarily from lower non-fuel related revenues and higher
other operating expenses which was partially offset by lower tax expenses.

      Electric  operating  revenues during the third quarter of 1999 were $258.7
million,  which was $21.2 or 8% lower than the comparable  period in 1998.  Fuel
related revenues  decreased $19.0 million due to lower combined fuel expense and
purchased  power  expense as  discussed  in the  following  paragraph.  Non-fuel
related  revenues  decreased  $2.2  million due  primarily  to an 8% decrease in
residential  MWH sales  attributable  to milder weather in 1999. The decrease in
operating   revenues  was  partially   offset  by  an  increase  in  demand  for
non-affiliated wholesale energy.  Additionally there was a $3.2 million decrease
in non-MWH related  revenues for electric  service  rendered and not yet billed,
offset in part by a $3.7  million  increase  in  transmission  related  revenues
resulting from changes to CSW's transmission coordination agreement. See NOTE 2.
LITIGATION AND REGULATORY PROCEEDINGS - Transmission Coordination Agreement.

      Fuel expense during the third quarter of 1999 was $82.1 million, which was
$22.6 million or 22% lower than the comparable  period in 1998. This decline was
due primarily to a $30.4 million decrease in the recovery of deferred fuel costs
resulting  from a  significant  difference  in fuel factors used to recover fuel
expense  from  customers.  The  decrease  in fuel  expense was offset in part by
higher  average  unit fuel costs.  The average unit cost of fuel for the quarter
increased  from $1.82 per MMbtu in 1998 to $2.12 per MMbtu in 1999 due primarily
to higher spot market  natural gas prices.  Purchased  power expense  during the
third  quarter of 1999 was $20.3  million,  which was $2.7 million or 15% higher
than the  comparable  period in 1998 due  primarily  to an  increase  in economy
energy purchases.

      Other  operating  expense  during  the  third  quarter  of 1999 was  $35.5
million,  which was $15.4  million or 77% higher than the  comparable  period in
1998. The increase was due primarily to higher  transmission  expenses resulting
from a $5.9 million change in the CSW transmission  coordination agreement,  and
the absence in 1999 of $6.2 million  transmission  service agreement  adjustment
related to the final order in Texas  Commission  Docket No.  17285.  See NOTE 2.
LITIGATION AND REGULATORY PROCEEDINGS - Transmission  Coordination Agreement and
CPL and WTU Complaint versus Texas Utilities Electric Company (Docket No.
17285).

      Income tax expense  associated  with utility  operations  during the third
quarter of 1999 was $28.0 million, which was $12.3 million or 31% lower than the
comparable  period in 1998 due  primarily to lower  taxable  income in the third
quarter of 1999 and prior year adjustments to prior year income taxes.


                                       29
<PAGE>


COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998


      PSO's net income for common stock for the nine months ended  September 30,
1999 was $67.3 million, which was $10.7 million or 14% lower than the comparable
period in 1998. The decrease  resulted  primarily  from lower  non-fuel  related
revenues and higher other operating and  maintenance  expenses which were offset
in part by lower tax expense and interest charges.

      Electric  operating  revenues for the nine months ended September 30, 1999
were $588.4  million,  which was $34.7  million or 6% lower than the  comparable
period in 1998.  Fuel  related  revenues  decreased  $28.9  million for the nine
months of 1999 compared to 1998 due to lower combined fuel expense and purchased
power expense as discussed in the following paragraph. Non-fuel related revenues
decreased $5.8 million due primarily to a 6% decrease in  residential  MWH sales
attributable  to milder weather in 1999. The decrease in operating  revenues was
partially offset by an increase in demand for  non-affiliated  wholesale energy.
Additionally,  there was a $6.6 million decrease in non-MWH related revenues for
electric  service rendered and not yet billed which was offset in part by a $3.1
million  increase in  transmission  related  revenues  resulting from changes to
CSW's transmission coordination agreement. See NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS - Transmission Coordination Agreement.

      Fuel  expense  for the nine  months  ended  September  30, 1999 was $208.9
million,  which was $34.0  million  or 14% lower than the  comparable  period in
1998.  This decline  resulted  primarily  from a $41.3  million  decrease in the
recovery of deferred fuel costs due to a significant  difference in fuel factors
used to recover fuel expense  from  customers.  The decrease in fuel expense was
offset in part by higher average unit fuel costs.  The average unit cost of fuel
increased  from $1.80 per MMbtu in 1998 to $1.93 per MMbtu in 1999 due primarily
to higher spot market natural gas prices.  Purchased  power expense for the nine
months ended September 30, 1999 was $50.5 million, which was $5.6 million or 12%
higher  than the  comparable  period in 1998 due  primarily  to an  increase  in
economy energy and firm contract purchases.

      Other operating expenses for the nine months ended September 30, 1999 were
$88.1 million,  which was $12.6 million or 17% higher than the comparable period
in  1998.  The  increase  was due  primarily  to  higher  transmission  expenses
resulting  from a $5.9  million  change  in the  CSW  transmission  coordination
agreement,  and  the  absence  in 1999 of a $4.1  million  transmission  service
agreement  adjustment  related to the final order in Texas Commission Docket No.
17285.   See  NOTE  2.  LITIGATION  AND  REGULATORY   PROCEEDINGS   Transmission
Coordination Agreement and CPL and WTU Complaint versus Texas Utilities Electric
Company (Docket No. 17285).

      Maintenance expense for the nine months ended September 30, 1999 was $30.7
million, which was $6.8 million or 28% higher than the comparable period in 1998
due primarily to higher production and distribution  maintenance  expenses.  The
production  maintenance  expense  increase  related  to  scheduled  power  plant
maintenance  as well as the  restart  of a power  plant  generating  unit and an
unscheduled  outage.  The  distribution  maintenance  expense  increase  was due
primarily to an increase in tree trimming activities in 1999.

      Taxes,  other than income for the nine months ended September 30, 1999 was
$23.8 million, which was $1.2 million or 5% higher than the comparable period in
1998 as a  result  of  higher  ad  valorem  tax  expenses.  Income  tax  expense
associated with utility  operations for the nine months ended September 30, 1999
was $37.2  million,  which was $15.4  million or 29% lower  than the  comparable
period in 1998 due  primarily  to lower  taxable  income in 1999 and prior  year
adjustments to prior year income taxes.

                                       30
<PAGE>

      Interest  charges for the nine months ended  September 30, 1999 were $27.2
million,  which was $2.1 million or 7% lower than the comparable period in 1998.
This  decrease  was due  primarily to the  reacquisition  of $55 million of FMBs
during the third quarter of 1998.

                                       31
<PAGE>





                                     SWEPCO



                       SOUTHWESTERN ELECTRIC POWER COMPANY


                        PART I. - FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.



                                       32
<PAGE>
SWEPCO
Consolidated Statements of Income (unaudited)
Southwestern Electric Power Company

                                         Three Months Ended    Nine Months Ended
                                            September 30,        September 30,
                                       ---------------------   -----------------
                                           1999        1998     1999       1998
                                         --------- --------- --------  --------
                                                        (thousands)

Electric Operating Revenues              $312,035  $311,549  $751,987  $756,044
                                         --------- --------- --------  --------
Operating Expenses and Taxes
    Fuel                                  124,737   124,210   292,698   298,530
    Purchased power                        10,130    12,230    26,895    30,234
    Other operating                        41,623    36,168   104,694   100,490
    Maintenance                            15,598    12,341    49,860    35,770
    Depreciation and amortization          25,464    24,675    76,988    74,303
    Taxes, other than income                8,148    14,239    39,733    43,320
    Income taxes                           24,548    28,164    37,476    45,416
                                         --------- --------- --------  --------
                                          250,248   252,027   628,344   628,063
                                         --------- --------- --------  --------
Operating Income                           61,787    59,522   123,643   127,981
                                         --------- --------- --------  --------
Other Income and (Deductions)
    Allowance for equity funds used
        during construction                    (4)      219        38       925
    Other                                  (6,019)     (462)   (6,932)     (564)
    Non-operating income taxes              2,961       522     4,617     1,734
                                         --------- --------- --------  --------
                                           (3,062)      279    (2,277)    2,095
                                         --------- --------- --------  --------
Income Before Interest Charges             58,725    59,801   121,366   130,076
                                         --------- --------- --------  --------
Interest Charges
    Interest on long-term debt              9,598     9,808    29,201    29,426
    Distributions on Trust Preferred
      Securities                            2,166     2,166     6,497     6,497
    Interest on short-term debt and other   2,322     1,566     7,485     5,763
    Allowance for borrowed funds used
      during construction                   (515)      (369)   (1,254)   (1,066)
                                         --------- --------- --------  --------
                                           13,571    13,171    41,929    40,620
                                         --------- --------- --------  --------
Income Before Extraordinary Item           45,154    46,630    79,437    89,456
Extraordinary loss (net of tax of $1,621)  (3,011)       --    (3,011)       --
                                         --------- --------- --------  --------
Net Income                                 42,143    46,630    76,426    89,456
   Less: Preferred stock dividends             57        57       172       648
   Loss on reacquired preferred stock          --        --        --      (855)
                                         --------- --------- --------  --------
Net Income for Common Stock              $ 42,086  $ 46,573  $ 76,254  $ 87,953
                                         ========= ========= ========  ========



 The accompanying notes to consolidated financial statements as they relate to
                SWEPCO are an integral part of these statements.

                                       33
<PAGE>
SWEPCO
Consolidated Balance Sheets
Southwestern Electric Power Company
--------------------------------------------------------------------------
                                              September 30,     December 31,
                                                 1999             1998
                                              (unaudited)       (audited)
                                              ------------      ----------
                                                       (thousands)
ASSETS

  Electric Utility Plant
    Production                                $ 1,393,236      $1,397,924
    Transmission                                  480,520         474,035
    Distribution                                  945,639         916,293
    General                                       329,626         321,136
    Construction work in progress                  55,101          48,523
                                              ------------      ----------
                                                3,204,122       3,157,911
  Less - Accumulated depreciation               1,368,345       1,317,057
                                              ------------      ----------
                                                1,835,777       1,840,854
                                              ------------      ----------
Current Assets
    Cash                                            3,032           4,444
    Accounts receivable                            56,478          33,014
    Accounts receivable from affiliates            18,258           7,416
    Materials and supplies, at average cost        26,211          25,135
    Fuel inventory, at average cost                55,566          40,238
    Accumulated deferred income taxes               2,548           4,869
    Prepayments and other                          18,264          16,651
                                              ------------      ----------
                                                  180,357         131,767
                                              ------------      ----------

Deferred Charges and Other Assets                  94,964         108,770
                                              ------------      ----------
                                              $ 2,111,098       $2,081,391
                                              ============      ==========










 The accompanying notes to consolidated financial statements as they relate to
                SWEPCO are an integral part of these statements.

                                       34
<PAGE>
SWEPCO
Consolidated Balance Sheets
Southwestern Electric Power Company
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                              September 30,         December 31,
                                                 1999                   1998
                                              (unaudited)            (audited)
                                              -----------            -----------
CAPITALIZATION AND LIABILITIES                             (thousands)
<S>                                           <C>          <C>        <C>        <C>

Capitalization
    Common stock:  $18 par value
        Authorized:  7,600,000 shares
        Issued and outstanding:  7,536,640
         shares                                 $135,660               $ 135,660
    Paid-in capital                              245,000                 245,000
    Retained earnings                            295,846                 300,592
                                              -----------             -----------
        Total Common Stock Equity                676,506        53%      681,252    51%
                                              -----------  ---------  ----------- -----

    Preferred stock                                4,706        --%        4,707    --%
    SWEPCO-obligated, mandatorily redeemable
        preferred securities of subsidiary
        trust holding solely Junior
        Subordinated Debentures of SWEPCO        110,000         9%      110,000     8%
    Long-term debt                               496,114        38%      543,741    41%
                                              -----------  ---------   ----------- -----
          Total Capitalization                 1,287,326       100%    1,339,700   100%
                                              -----------  ---------   ----------- -----

Current Liabilities
    Long-term debt due within twelve months       47,807                  43,932
    Advances from affiliates                      88,075                  40,705
    Payables to affiliates                        40,643                  37,795
    Accounts payable                              64,820                  73,507
    Customer deposits                             13,860                  13,316
    Accrued interest                              12,816                  14,275
    Accrued taxes                                 58,600                  23,189
    Over-recovered fuel costs                      5,155                   5,378
    Other                                         14,716                  12,538
                                              -----------             -----------
                                                 346,492                 264,635
                                              -----------             -----------
Deferred Credits
    Accumulated deferred income taxes            381,765                 398,664
    Investment tax credits                        58,790                  62,213
    Other                                         36,725                  16,179
                                              -----------             -----------
                                                 477,280                 477,056
                                              -----------             -----------
                                              $2,111,098              $2,081,391
                                              ===========             ===========

</TABLE>





 The accompanying notes to consolidated financial statements as they relate to
                SWEPCO are an integral part of these statements.

                                       35
<PAGE>
SWEPCO
Consolidated Statements of Cash Flows (unaudited)
Southwestern Electric Power Company

                                                          Nine Months Ended
                                                             September 30,
                                                    ----------------------------
                                                       1999               1998
                                                    ---------          ---------
                                                             (thousands)

OPERATING ACTIVITIES
    Net Income                                      $ 76,426           $ 89,456
    Non-cash Items Included in Net Income
        Depreciation and amortization                 81,122             78,353
        Deferred income taxes and investment tax
         credits                                     (19,077)            (8,237)
        Extraordinary loss related to SFAS No. 71      3,011                 --
    Changes in Assets and Liabilities
        Accounts receivable                          (34,306)            (6,048)
        Fuel inventory                               (15,328)           (11,501)
        Accounts payable                              (8,624)            (2,403)
        Payables to affiliates                         2,848             (9,878)
        Accrued taxes                                 35,411             44,209
        Other deferred credits                        20,546              6,196
        Other                                         10,821              5,359
                                                    ---------          ---------
                                                     152,850            185,506
                                                    ---------          ---------
INVESTING ACTIVITIES
    Construction expenditures                        (73,127)           (55,690)
    Other                                             (3,545)            (4,456)
                                                    ---------          ---------
                                                     (76,672)           (60,146)
                                                    ---------          ---------
FINANCING ACTIVITIES
    Payment of dividends                             (81,172)           (79,126)
    Change in advances from affiliates                47,370            (13,258)
    Retirement of long-term debt                     (43,787)            (2,209)
    Redemption of preferred stock                         (1)           (27,988)
                                                    ---------          ---------
                                                     (77,590)          (122,581)
                                                    ---------          ---------
Net Change in Cash and Cash Equivalents               (1,412)             2,779
Cash and Cash Equivalents at Beginning of Year         4,444              2,298
                                                    ---------          ---------
Cash and Cash Equivalents at End of Period           $ 3,032            $ 5,077
                                                    =========          =========
SUPPLEMENTARY INFORMATION

    Interest paid less amounts capitalized (includes
      distributions on Trust Preferred Securities)  $ 40,056           $ 39,257
                                                    =========          =========
    Income taxes paid                               $ 32,812           $ 30,849
                                                    =========          =========


 The accompanying notes to consolidated financial statements as they relate to
                SWEPCO are an integral part of these statements.

                                       36
<PAGE>

SOUTHWESTERN ELECTRIC POWER COMPANY
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1999 AND 1998


      SWEPCO's  net income for  common  stock for the third  quarter of 1999 was
$42.1 million, which was $4.5 million or 10% lower than the comparable period in
1998.  The decrease  resulted  primarily  from  increased  other  operating  and
maintenance expenses,  the write-off of Cajun acquisition expense and the effect
of the extraordinary loss.

      Electric  operating  revenues for the third quarter of 1999 increased $0.5
million to $312.0  million  when  compared to the same period of 1998.  Revenues
were affected by increased  sales for resale to other utilities of $16.2 million
as a result of increased  demand.  Revenues also increased due to an unfavorable
$3.7 million  transmission  service agreement  adjustment in 1998 related to the
final order in Texas  Commission  Docket No. 17285.  See NOTE 2.  LITIGATION AND
REGULATORY  PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities  Electric
Company  (Docket No. 17285).  These increases in revenues were offset in part by
decreased  fuel related  revenues of $4.5 million,  decreased  non-fuel  related
retail  revenues of $5.9 million and an  unfavorable  adjustment of $9.0 million
adjustment related to changes to CSW's transmission  coordination agreement. See
NOTE 2.  LITIGATION  AND  REGULATORY  PROCEEDINGS  -  Transmission  Coordination
Agreement.  The decrease in fuel related revenues was due to lower combined fuel
expense and purchased  power  expense as discussed in the  following  paragraph.
Non-fuel  related  retail  revenues were affected by a 3% decrease in retail MWH
sales due primarily to a decrease in weather related customer demand.

      Fuel and purchased power expenses had a net decrease for the third quarter
of 1999 compared to the same period in 1998. Fuel expense increased  slightly to
$124.7 million resulting  primarily from an increase in average unit fuel costs.
Average  unit fuel  costs  increased  from  $1.68 per MMbtu in 1998 to $1.73 per
MMbtu in 1999 due to higher spot market  natural  gas prices.  Fuel  expense was
affected  by the  absence  in  1999  of a 1998  transmission  service  agreement
adjustment  related to the final order in Texas Commission Docket No. 17285. See
NOTE 2.  LITIGATION  AND REGULATORY  PROCEEDINGS - CPL and WTU Complaint  versus
Texas Utilities  Electric  Company (Docket No. 17285).  Purchased power expenses
for the third quarter of 1999 decreased $2.1 million or 17% compared to the same
period in 1998 due primarily to a decrease in economy energy purchases.

      Other operating expenses for the third quarter of 1999 were $41.6 million,
an  increase  of $5.5  million or 15%  compared  to the same period of 1998 as a
result of increased  transmission expenses. The increase in transmission expense
was due to the absence in 1999 of a transmission service agreement adjustment in
1998 related to the final order in Texas  Commission  Docket No. 17285. See NOTE
2.  LITIGATION AND REGULATORY  PROCEEDINGS - CPL and WTU Complaint  versus Texas
Utilities Electric company (Docket No. 17285).  Transmission  expenses were also
affected by changes related to CSW's transmission  coordination  agreement.  See
NOTE  2.  LITIGATION  AND  REGULATORY  PROCEEDINGS   Transmission   Coordination
Agreement.

      Maintenance  expenses  increased during the third quarter of 1999 to $15.6
million, which was $3.3 million or 26% higher than the comparable period in 1998
as a result of increased tree trimming maintenance activities.

                                       37
<PAGE>

      Taxes,  other than income for the third quarter of 1999 were $8.1 million,
a $6.1 million or 43% decrease  compared to $14.2  million for the third quarter
of 1998 due primarily to decreased ad valorem tax expense.

      Income tax expenses  associated with utility  operations  during the third
quarter of 1999 were $24.5 million, which was $3.6 million or 13% lower than the
comparable period in 1998 due to lower taxable income and prior year adjustments
to prior year income taxes.

      Other  income  and  deductions  decreased  as  a  result  of the after tax
write-off of Cajun acquisition expense of $3.7 million.  See NOTE 3. COMMITMENTS
AND CONTINGENT LIABILITIES - Withdrawal of SWEPCO Cajun Asset Proposal.

      The  extraordinary  loss  resulted  from  legislation  passed in Texas and
Arkansas under which the electricity  generation portion of SWEPCO's business in
those states no longer  meets the  criteria to apply SFAS No. 71. These  changes
resulted in an  extraordinary  loss, which decreased net income by $3.0 million.
See  NOTE  2.   LITIGATION  AND  REGULATORY   PROCEEDINGS  -  Electric   Utility
Restructuring Legislation.


COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998


      SWEPCO's net income for common  stock for the nine months ended  September
30,  1999 was  $76.3  million,  which was $11.7  million  or 13% lower  than the
comparable period in 1998. This decrease resulted primarily from increased other
operating and maintenance expenses,  the write-off of Cajun acquisition expenses
and the effect of the extraordinary loss.

      Electric  operating  revenues for the nine months ended September 30, 1999
were $752.0 million,  which was $4.1 million lower than the comparable period in
1998.  This decrease  resulted  from  decreased  fuel related  revenues of $13.3
million due to lower  combined  fuel  expense  and  purchased  power  expense as
discussed in the following  paragraph,  decreased  non-fuel  related revenues of
$7.5  million  and  a  $9.0  million   increase  related  to  changes  to  CSW's
transmission  coordination  agreement.  See NOTE 2.  LITIGATION  AND  REGULATORY
PROCEEDINGS -  Transmission  Coordination  Agreement.  Non-fuel  related  retail
revenues  were  affected by a 3% decrease in retail MWH sales due  primarily  to
decreased  weather-related  customer  demand.  These  reductions  were partially
offset by increased  sales for resale to other  utilities of $16.2  million as a
result  of  increased  demand  and  the  absence  in  1999  of  a  $3.7  million
transmission  service agreement adjustment in 1998 related to the final order in
Texas  Commission  Docket  No.  17285.  See NOTE 2.  LITIGATION  AND  REGULATORY
PROCEEDINGS  - CPL and WTU Complaint  versus Texas  Utilities  Electric  Company
(Docket No. 17285). Additionally,  the reductions in revenue were offset in part
by the  absence  in 1999 of a 1998  provision  for rate  refund of $2.6  million
primarily in connection with the annual determination of cost of service formula
rates for SWEPCO's wholesale  customers.  Also affecting revenues is the absence
in 1999 of a 1998 reduction in fuel revenues of $3.2 million in accordance  with
a Texas Commission order in SWEPCO's fuel reconciliation  regarding transmission
equalization expense recovery.

      Fuel and  purchased  power  expense  decreased  for the nine months  ended
September  30,  1999 when  compared  to the same  period in 1998.  Fuel  expense
decreased  $5.8  million or 2% due  primarily to a decrease in average unit fuel
costs for coal and lignite which were partially offset by increased  generation.
The change in average unit fuel costs  resulted  from lower spot market coal and
lignite  prices.  Fuel expense also decreased due in part to the absence in 1999
of a 1998 transmission  service agreement  adjustment related to the final order
in Texas  Commission  Docket No. 17285.  See NOTE 2.  LITIGATION  AND REGULATORY
PROCEEDINGS  - CPL and WTU Complaint  versus Texas  Utilities  Electric  Company

                                       38
<PAGE>

(Docket No. 17285). Purchased power expenses for the nine months ended September
30, 1999  decreased  $3.3 million or 11% compared to the same period of 1998 due
primarily to a decrease in economy energy purchases.

      Other operating expenses for the nine months ended September 30, 1999 were
$104.7 million, an increase of $4.2 million or 4% compared to the same period of
1998  as  a  result  of  increased   transmission   expenses.  The  increase  in
transmission  expenses was due to the absence in 1999 of a transmission  service
agreement  adjustment  in 1998  related to the final  order in Texas  Commission
Docket No. 17285.  See NOTE 2.  LITIGATION AND REGULATORY  PROCEEDINGS - CPL and
WTU Complaint versus Texas Utilities  Electric  Company (Docket No. 17285).  The
increase  in other  operating  expenses  was  partially  offset by  transmission
expenses related to changes in CSW's transmission  coordination  agreement.  See
NOTE 2.  LITIGATION  AND  REGULATORY  PROCEEDINGS  -  Transmission  Coordination
Agreement.

      Maintenance  expenses  for the nine months ended  September  30, 1999 were
$49.9 million, which was $14 million or 39% higher than the comparable period in
1998.   This  was  due  to  increased  power  station   maintenance,   increased
tree-trimming maintenance and increased overhead line maintenance.

      Taxes, other than income for the nine months ended September 30, 1999,were
$39.7 million, a decrease  of $3.6 million or 8% compared to  the same period in
1998.  This decrease was due to lower ad valorem taxes.

      Income tax expenses  associated  with utility  operations  during the nine
months ended  September 30, 1999 were $37.5  million,  which was $7.9 million or
18% lower than the  comparable  period in 1998 due to lower  taxable  income and
prior year adjustments to prior year income taxes.

      Other income and deductions decreased as a result of the write-off of the
Cajun acquisition expenses of $3.7 million, net of tax.  See NOTE 3. COMMITMENTS
AND CONTENGENT LIABILTIES - SWEPCO Cajun Asset Proposal.

      The  extraordinary  loss was a result of  legislation  passed in Texas and
Arkansas where the electricity  generation portion of SWEPCO's business in those
states no longer  meets the  criteria  to apply  SFAS No. 71.  These  accounting
changes  resulted in an  extraordinary  loss, which decreased net income by $3.0
million,  net of tax.  See  NOTE 2.  LITIGATION  AND  REGULATORY  PROCEEDINGS  -
Electric Utility Restructuring Legislation.


                                       39
<PAGE>




                                       WTU



                          WEST TEXAS UTILITIES COMPANY


                        PART I. - FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.


                                       40
<PAGE>
WTU
Statements of Income (unaudited)
West Texas Utilities Company

                                      Three Months Ended     Nine Months Ended
                                        September 30,          September 30,
                                    ---------------------  ---------------------
                                      1999        1998       1999       1998
                                    ---------   ---------  ---------  ----------
                                                     (thousands)

Electric Operating Revenues         $ 154,304   $ 147,343  $ 343,138  $ 335,644
                                    ---------   ---------  ---------  ----------
Operating Expenses and Taxes
    Fuel                              41,478      38,546      93,821     95,231
    Purchased power                   28,328      17,169      49,096     37,831
    Other operating                   24,652      19,637      64,824     62,496
    Maintenance                        4,284       4,911      14,744     11,816
    Depreciation and amortization     10,934      10,719      32,558     32,108
    Taxes, other than income           6,464       5,827      21,049     18,008
    Income taxes                      11,064      16,623      16,076     21,705
                                    ---------   ---------  ---------  ----------
                                     127,204     113,432     292,168    279,195
                                    ---------   ---------  ---------  ----------
Operating Income                      27,100      33,911      50,970     56,449
                                    ---------   ---------  ---------  ----------
Other Income and (Deductions)
    Allowance for equity funds used
     during construction                 138         193         234        421
    Other                                544         (22)        194      1,476
    Non-operating income taxes          (350)        259          76        282
                                    ---------   ---------  ---------  ----------
                                         332         430         504      2,179
                                    ---------   ---------  ---------  ----------
Income Before Interest Charges        27,432      34,341      51,474     58,628
                                    ---------   ---------  ---------  ----------
Interest Charges
    Interest on long-term debt         5,088       5,088      15,264     15,264
    Interest on short-term debt and
      other                            1,027       1,319       3,558      3,405
    Allowance for borrowed funds used
      during construction               (166)       (182)       (466)      (469)
                                    ---------   ---------  ---------  ----------
                                       5,949       6,225      18,356     18,200
                                    ---------   ---------  ---------  ----------
Income Before Extraordinary Item      21,483      28,116      33,118     40,428
Extraordinary loss (net of tax
  of $2,941)                          (5,461)         --      (5,461)        --
                                    ---------   ---------  ---------  ----------

Net Income                            16,022      28,116      27,657     40,428
    Less: Preferred stock dividends       26          26          78         78
                                    ---------   ---------  ---------  ----------
Net Income for Common Stock         $ 15,996    $ 28,090    $ 27,579   $ 40,350
                                    =========   =========  =========  ==========



      The accompanying notes to financial statements as they relate to WTU
                   are an integral part of these statements.

                                       41
<PAGE>
WTU
Balance Sheets
West Texas Utilities Company

                                                     September 30,  December 31,
                                                        1999           1998
                                                     (unaudited)     (audited)
                                                     -------------  ------------
                                                            (thousands)

ASSETS
  Electric Utility Plant
    Production                                         $ 425,231      $ 429,896
    Transmission                                         217,614        213,630
    Distribution                                         396,938        382,373
    General                                              112,851        108,878
    Construction work in progress                         19,243         11,805
                                                     -------------  ------------
                                                       1,171,877      1,146,582
                                                     -------------  ------------
  Less - Accumulated depreciation                        489,856        473,503
                                                     -------------  ------------
                                                         682,021        673,079
                                                     -------------  ------------
Current Assets
    Cash                                                   5,217          2,093
    Advances to affiliates                                12,751             --
    Accounts receivable from affiliates                    3,855          2,998
    Accounts receivable                                   27,075         28,691
    Materials and supplies, at average cost               13,564         14,191
    Fuel inventory, at LIFO cost                          15,191         13,186
    Accumulated deferred income taxes                         --            366
    Under-recovered fuel costs                            13,032          3,980
    Prepayments and other                                 10,664          5,988
                                                     -------------  ------------
                                                         101,349         71,493
                                                     -------------  ------------
Deferred Charges and Other Assets
    Deferred Oklaunion costs                               9,285         14,910
    Other                                                 66,851         60,330
                                                     -------------  ------------
                                                          76,136         75,240
                                                     -------------  ------------
                                                       $ 859,506      $ 819,812
                                                     =============  ============






      The accompanying notes to financial statements as they relate to WTU
                   are an integral part of these statements.

                                       42
<PAGE>
WTU
Balance Sheets
West Texas Utilities Company
<TABLE>
<CAPTION>

                                          September 30,        December 31,
                                              1999                1998
                                          (unaudited)           (audited)
                                          ------------         ------------
CAPITALIZATION AND LIABILITIES                         (thousands)
<S>                                       <C>           <C>    <C>             <C>

Capitalization
    Common stock:   $25 par value
        Authorized:  7,800,000 shares
        Issued and outstanding: 5,488,560
         shares                              $ 137,214           $ 137,214
    Paid-in capital                              2,236               2,236
    Retained earnings                          123,769             117,189
                                           ------------         ------------
         Total Common Stock Equity             263,219   50%       256,639      46%
                                           ------------ ----    ------------   ----

    Preferred stock                              2,482   --%         2,482      --%
    Long-term debt                             263,644   50%       303,519      54%
                                           ------------ ----    ------------   ----
         Total Capitalization                  529,345  100%       562,640     100%
                                           ------------ ----    ------------   ----
Current Liabilities
    Long-term debt due within twelve months     40,000                  --
    Advances from affiliates                        --               4,573
    Payables to affiliates                      16,584              19,917
    Accounts payable                            44,422              31,473
    Accrued taxes                               17,446              10,031
    Accrued interest                             7,955               4,125
    Customer deposits                            2,327               2,076
    Accumulated deferred income taxes              735                  --
    Other                                       12,323               1,721
                                          ------------         ------------
                                               141,792              73,916
                                          ------------         ------------
Deferred Credits
    Accumulated deferred income taxes          145,671             140,731
    Investment tax credits                      25,641              26,597
    Income tax related regulatory
     liabilities, net                           13,093              12,088
    Other                                        3,964               3,840
                                          ------------         ------------
                                               188,369             183,256
                                          ------------         ------------
                                             $ 859,506           $ 819,812
                                          ============         ============

</TABLE>






      The accompanying notes to financial statements as they relate to WTU
                   are an integral part of these statements.

                                       43
<PAGE>
WTU
Statements of Cash Flows (unaudited)
West Texas Utilities Company

                                                           Nine Months Ended
                                                              September 30,
                                                         -----------------------
                                                          1999           1998
                                                         ---------     ---------
                                                              (thousands)

OPERATING ACTIVITIES
    Net Income                                           $ 27,657      $ 40,428
    Non-cash Items Included in Net Income
        Depreciation and amortization                      32,558        32,890
        Deferred income taxes and investment tax credits    7,309        (7,377)
        Extraordinary loss related to SFAS No. 71           5,461            --
    Changes in Assets and Liabilities
        Accounts receivable                                   759       (32,177)
        Accounts payable                                   12,949          (313)
        Payables to affiliates                             (3,333)       (1,652)
        Accrued taxes                                       7,415        13,761
        Fuel recovery                                      (9,052)        1,371
        Other                                              (1,925)       (1,589)
                                                         ---------     ---------
                                                           79,798        45,342
                                                         ---------     ---------
INVESTING ACTIVITIES
    Construction expenditures                             (35,444)      (33,049)
    Other                                                  (2,828)        2,950
                                                         ---------     ---------
                                                          (38,272)      (30,099)
                                                         ---------     ---------
FINANCING ACTIVITIES
    Payment of dividends                                  (21,078)      (18,078)
    Change in advances from affiliates                     (4,573)           --
                                                         ---------     ---------
                                                          (25,651)      (18,078)
                                                         ---------     ---------
Net Change in Cash and Cash Equivalents                    15,875        (2,835)
Cash and Cash Equivalents at Beginning of Year              2,093        20,613
                                                         ---------     ---------
Cash and Cash Equivalents at End of Period               $ 17,968       $17,778
                                                         =========     =========

SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized               $ 10,067       $ 9,813
                                                         =========     =========
    Income taxes paid                                    $  1,749       $15,042
                                                         =========     =========




      The accompanying notes to financial statements as they relate to WTU
                   are an integral part of these statements.

                                       44
<PAGE>

WEST TEXAS UTILITIES COMPANY
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1999 AND 1998


      WTU's net income for common stock for the third  quarter of 1999 was $16.0
million,  which was $12.1  million  or 43% lower than the  comparable  period in
1998. The decrease was primarily the result of higher other  operating  expenses
and the effect of the extraordinary  loss and a charge against earnings relating
to the Texas  Legislation  partially  offset by increased  transmission  related
revenue and lower income tax expense.

      Electric  operating revenues for the quarter ended September 30, 1999 were
$154.3 million,  which was $7.0 million or 5% higher than the comparable  period
in 1998.  Fuel related  revenues  increased $5.4 million due to higher  combined
fuel  expense  and  purchased  power  expense  as  discussed  in  the  following
paragraph.  Non-fuel related revenues  increased $1.6 million due to an increase
in non-MWH related  revenues for service  rendered and not yet billed as well as
an  increase  in  transmission  related  revenues  including  changes  to  CSW's
transmission coordination agreement which were partially offset by the charge to
reflect the excess earnings provision under the Texas  Legislation.  See NOTE 2.
LITIGATION AND REGULATORY PROCEEDINGS - Transmission  Coordination Agreement and
Electric Utility Restructuring Legislation.

      Fuel expense during the third quarter of 1999 was $41.5 million, which was
$2.9 million or 8% higher than the  comparable  period in 1998. The average unit
fuel costs for the quarter  increased  from $1.81 per MMbtu in 1998 to $2.17 per
MMbtu in 1999 which was the result of higher  spot  market  natural  gas prices.
Purchased  power  expense  during the third  quarter of 1999 was $28.3  million,
which was $11.2  million or 65% higher  than the  comparable  period in 1998 due
primarily to an 8% decrease in generation. The decrease in generation was mainly
attributable to the unscheduled outage of a coal-fired generating power plant.

      Other operating expenses for the third quarter of 1999 were $24.7 million,
which was $5.0  million or 26%  higher  than the  comparable  period in 1998 due
primarily to higher transmission  expenses. The increase in transmission expense
was due  mainly  to the  absence  in 1999 of a  transmission  service  agreement
adjustment  made in 1998 related to the final order in Texas  Commission  Docket
No.  17285.  See NOTE 2.  LITIGATION  AND  REGULATORY  PROCEEDINGS - CPL and WTU
Complaint versus Texas Utilities Electric Company (Docket No. 17285).

      Income taxes for the third  quarter of 1999  decreased  to $11.1  million,
which was $5.6  million  or 33% lower  than the  comparable  period in 1998 as a
result of lower taxable income for 1999 and prior year adjustments to prior year
income taxes.

      The  extraordinary  loss resulted from  legislation  passed in Texas under
which the  electricity  generation  portion of WTU's business in Texas no longer
meets  the  criteria  to  apply  SFAS  No.  71.  These  changes  resulted  in an
extraordinary  loss which decreased net income by $5.5 million,  net of tax. See
NOTE 2. LITIGATION AND REGULATORY  PROCEEDINGS  Electric  Utility  Restructuring
Legislation.

                                       45
<PAGE>


COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998


      WTU's net income for common stock for the nine months ended  September 30,
1999 was $27.6 million, which was $12.8 million or 32% lower than the comparable
period in 1998.  The decrease was  primarily  the result of an increase in other
operating expense, maintenance expense and taxes, other than income as well as a
decrease  in other  income and  deductions  and the effect of the  extraordinary
loss. The decrease in earnings was partially offset by a reduction in income tax
expense and increased transmission related revenue.

      Electric  operating  revenues for the nine months ended September 30, 1999
were $343.1  million,  which was $7.5  million or 2% higher than the  comparable
period in 1998. Fuel related  revenues  increased $8.6 million due to higher net
fuel and purchased power expense as discussed  below.  Non-fuel related revenues
decreased  $1.1 million due to a decrease in electric  service  rendered and not
yet billed as well as a charge to reflect the excess  earnings  provision of the
Texas  Legislation  and a 4% decrease in residential  MWH sales due primarily to
decreased customer demand. The decrease in revenues was offset in part by higher
transmission   related  revenues   including   changes  to  CSW's   transmission
coordination agreement and a 13% increase in sales for resale to other utilities
as a  result  of  increased  demand.  See  NOTE  2.  LITIGATION  AND  REGULATORY
PROCEEDINGS  -  Transmission   Coordination   Agreement  and  Electric   Utility
Restructuring Legislation.

      Fuel  expense  for the nine  months  ended  September  30,  1999 was $93.8
million,  which was $1.4 million or 1% lower than the comparable  period in 1998
due primarily to a 4.6%  decrease in  generation.  Purchased  power for the nine
months ended  September 30, 1999 was $49.1  million,  which was $11.3 million or
30% higher than the  comparable  period in 1998 due primarily to an  unscheduled
outage at a coal-fired generating plant.

      Maintenance expense for the nine months ended September 30, 1999 was $14.7
million, which was $2.9 million or 25% higher than the comparable period in 1998
due primarily to increased power plant  maintenance,  overhead line  maintenance
and tree trimming maintenance.

      Other operating expenses for the nine months ended September 30, 1999 were
$64.8 million, which was $2.3 million or 4% higher than the comparable period in
1998 due to higher transmission  expenses.  The increase in transmission expense
was due to the absence in 1999 of a transmission  service  agreement  adjustment
made in 1998 related to the final order in Texas  Commission  Docket No.  17285.
See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - CPL and WTU Complaint versus
Texas Utilities Electric Company (Docket No. 17285).

      Taxes,  other than income,  for the nine months ended  September  30, 1999
were $21.0  million,  which was $3.0  million or 17% higher than the  comparable
period in 1998 primarily attributable to higher state franchise taxes.

      Income taxes associated with utility  operations for the nine months ended
September 30, 1999 were $16.1 million,  which was $5.6 million or 26% lower than
the  comparable  period in 1998 as a result of lower taxable income for 1999 and
prior year adjustments to prior year income taxes.

      Other income and deductions  for the nine months ended  September 30, 1999
decreased  $1.7 million from the  comparable  period in 1998. The decrease was a
result of a decline in interest  income from a lower balance of  under-recovered
fuel costs, as well as a decline in income from merchandise operations.

                                       46
<PAGE>

      The  extraordinary  loss resulted from  legislation  passed in Texas under
which the  electricity  generation  portion of WTU's business in Texas no longer
meets  the  criteria  to  apply  SFAS  No.  71.  These  changes  resulted  in an
extraordinary  loss which decreased net income by $5.5 million,  net of tax. See
NOTE 2. LITIGATION AND REGULATORY  PROCEEDINGS  Electric  Utility  Restructuring
Legislation.

                                       47
<PAGE>


INDEX TO APPLICABLE NOTES TO FINANCIAL STATEMENTS BY REGISTRANT

NOTE 1.  PRINCIPLES OF PREPARATION           CSW, CPL, PSO, SWEPCO, WTU

NOTE 2.  LITIGATION AND REGULATORY
         PROCEEDINGS                         CSW, CPL, PSO, SWEPCO, WTU

NOTE 3.  COMMITMENTS AND CONTINGENT
         LIABILITIES                         CSW, CPL, PSO, SWEPCO, WTU

NOTE 4.  COMMON STOCK AND DIVIDENDS          CSW, CPL, PSO, SWEPCO, WTU

NOTE 5.  PROPOSED AEP MERGER                 CSW, CPL, PSO, SWEPCO, WTU

NOTE 6.  BUSINESS SEGMENTS                   CSW

NOTE 7.  SOUTH AMERICAN INVESTMENTS          CSW

NOTE 8.  LONG-TERM DEBT                      CSW, CPL, PSO


                                       48
<PAGE>


NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1.    PRINCIPLES OF PREPARATION

      General
      The condensed  financial  statements of the Registrants have been prepared
by each  Registrant  pursuant to the rules and  regulations of the SEC.  Certain
information  and note  disclosures  normally  included in  financial  statements
prepared in accordance with generally accepted  accounting  principles have been
condensed  or omitted  pursuant  to such rules and  regulations,  although  each
Registrant  believes that the  disclosures  are adequate to make the information
presented not misleading. These condensed financial statements should be read in
conjunction  with  the  financial  statements  and  the  notes  included  in the
Registrants' Combined Annual Report on Form 10-K for the year ended December 31,
1998  and the  Registrants'  Combined  Quarterly  Reports  on Form  10-Q for the
quarters ended March 31, 1999 and June 30, 1999.

      The unaudited financial  information  reflects all adjustments of a normal
recurring  nature which are, in the opinion of  management  of each  Registrant,
necessary  for a fair  statement  of the results of  operations  for the interim
periods. Information for quarterly periods is affected by seasonal variations in
sales, rate changes, timing of fuel expense recovery and other factors.

      CPL Nuclear Decommissioning of STP
      At the end of  STP's  service  life,  decommissioning  is  expected  to be
accomplished using the  decontamination  method,  which is one of the techniques
accepted by the NRC. Using this method, the decontamination  activities occur as
soon as possible after the end of plant  operations.  Contaminated  equipment is
cleaned and removed to a permanent disposal location,  and the site is generally
returned to its original condition.

      CPL's decommissioning costs are accrued and paid to an external trust over
the expected service life of the STP units. The existing NRC operating  licenses
permit the  operation  of STP Unit 1 until 2027 and Unit 2 until 2028.  CPL pays
annual  decommissioning costs based on the estimated future cost to decommission
STP,  including  escalation  for  expected  inflation  to the  expected  time of
decommissioning.

      CPL estimates its portion of the costs of  decommissioning  STP to be $289
million in 1999 dollars based on a study  completed  this year.  CPL is accruing
and recovering  decommissioning costs through rates based on the service life of
STP using a rate of $8.2  million  per year.  The  funds  are  deposited  with a
trustee  under the terms of an  irrevocable  trust  and are  reflected  in CPL's
consolidated   balance   sheets  as   Nuclear   decommissioning   trust  with  a
corresponding amount accrued in Accumulated depreciation.  On CSW's consolidated
balance sheets the irrevocable  trust is included in Deferred  Charges and Other
Assets, Other, with a corresponding amount accrued in Accumulated  depreciation.
In CSW's and CPL's consolidated  statements of income, the income related to the
irrevocable  trust is recorded in Other Income and  Deductions,  Other. In CPL's
consolidated   statements  of  income  the  interest   expense  related  to  the
irrevocable trust is recorded in Interest  Charges,  Interest on short-term debt
and other.  In CSW's  consolidated  statements  of income the  interest  expense
related to the  irrevocable  trust is recorded in  Interest  and Other  Charges,
Interest on short-term  debt and other. On September 30, 1999, the nuclear trust
balance was $76.9 million.

      Regulatory Assets and Liabilities
      The financial  statements of the U.S.  Electric  Operating  Companies have
historically  reflected  regulatory assets and liabilities under cost-based rate
regulation  in  accordance  with  SFAS  No.  71.  Rate-regulated  companies  are
generally  required  to write off  regulatory  assets  and  liabilities  against

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<PAGE>

current earnings whenever changes in facts and  circumstances  cause SFAS No. 71
to no longer apply. As a result of legislation passed in Texas and Arkansas, the
electricity  generation  business in those jurisdictions for CPL, SWEPCO and WTU
no longer meet the criteria to apply SFAS No. 71.  Instead,  the  principles  of
SFAS No.  101,  as  interpreted  by EITF 97-4,  have been  applied.  See NOTE 2.
LITIGATION AND REGULATORY - Electric Utility Restructuring Legislation.

      Foreign Currency Translation
      The  financial  statements  of SEEBOARD  USA,  which are included in CSW's
consolidated  financial statements,  have been translated from British pounds to
U.S.  dollars in  accordance  with SFAS No. 52. All balance  sheet  accounts are
translated  at the  exchange  rate at the  end of the  period,  and  all  income
statement  items are  translated at the weighted  average  exchange rate for the
applicable  period.  All the  resulting  translation  adjustments  are  recorded
directly to Accumulated other comprehensive income on CSW's Consolidated Balance
Sheets.  Cash flow  statement  items are translated at a combination of average,
historical and current  exchange  rates.  The non-cash  impact of the changes in
exchange rates on cash and cash  equivalents,  resulting from the translation of
items at the different exchange rates, is shown on CSW's Consolidated Statements
of Cash Flows in Effect of exchange rate changes on cash and cash equivalents.

      One British pound equals the following U.S. dollar amounts:

                                         1999            1998
                                     -------------   --------------
          At September 30               $1.65            $1.70

          Weighted average for 3
          months ended September        $1.64            $1.65
          30

          Weighted average for 9
          months ended September        $1.62            $1.65
          30

      See NOTE 7. SOUTH AMERICAN  INVESTMENTS  for  information  regarding CSW's
investments in Brazil.

      Risk Management
      CSW has, at times,  been exposed to currency and interest rate risks which
reflect the floating  exchange rate that exists between the U.S.  dollar and the
British pound.  CSW utilizes  certain risk  management  tools,  including  cross
currency swaps, foreign currency futures and foreign currency options, to manage
adverse  changes in  exchange  rates and to  facilitate  financing  transactions
resulting from CSW's acquisition of SEEBOARD.

      SEEBOARD has entered into contracts for  differences to reduce exposure to
fluctuations  in the price of electricity  purchased  from the United  Kingdom's
electricity  power pool. This pool was  established  upon  privatization  of the
United Kingdom's  electric industry for the bulk trading of electricity  between
generators and suppliers.

            CSW  also  utilizes  a  variety  of  other  derivatives  instruments
including swaps,  forwards and options.  CSW accounts for these  transactions as
hedge  transactions and any gains or losses  associated with the risk management
tools  are  recognized  in the  financial  statements  at  the  time  the  hedge
transactions  are settled.  CSW  believes its credit risk in these  contracts is
negligible.

      Reclassifications
      Certain financial statement items for prior periods have been reclassified
to conform to the 1999 presentation.

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<PAGE>

2.    LITIGATION AND REGULATORY PROCEEDINGS

      See the  Registrants'  Combined  Annual  Report  on Form 10-K for the year
ended December 31, 1998 and the Registrants'  Combined Quarterly Reports on Form
10-Q for the  quarters  ended March 31,  1999 and June 30,  1999 for  additional
discussion of litigation and regulatory  proceedings.  Reference is also made to
NOTE 3.  COMMITMENTS  AND  CONTINGENT  LIABILITIES  and ITEM 2. MD&A - RATES AND
REGULATORY  MATTERS for  additional  discussion  of  litigation  and  regulatory
matters.

      Electric Utility Restructuring Legislation
      On June 18,  1999,  legislation  was  signed  into law in Texas  that will
restructure the electric utility industry in the state. The new law, among other
things:  gives Texas  customers of  investor-owned  utilities the opportunity to
choose  their  electric  provider  beginning  January 1, 2002;  provides for the
recovery of stranded  costs which are defined as the excess of net book value of
generation  assets  over the  defined  market  value of those  assets;  requires
reductions  in  nitrogen  oxide and sulfur  dioxide  emissions;  provides a rate
freeze until January 1, 2002 followed by a 6% rate reduction for residential and
small commercial  customers,  additional rate reduction for low income customers
and a number of customer  protections  and sets certain limits on capacity owned
and controlled by power generation  companies.  Rural electric  cooperatives and
municipal   electric  systems  can  choose  whether  to  participate  in  retail
competition.  Delivery of the electricity will continue to be the responsibility
of the local electric transmission and distribution utility company at regulated
prices.  Each  utility  must  unbundle  its  business  activities  into a retail
electric   provider,   a  power  generation   company  and  a  transmission  and
distribution utility. CPL, SWEPCO and WTU will file their business separation or
"unbundling" plans with the Texas Commission in January 2000.

      During 1999, legislation was also enacted in Arkansas that will ultimately
restructure  the  electric  utility  industry in that state.  SWEPCO will file a
business unbundling plan in Arkansas in the first quarter of 2000 as required by
the legislation.

      The financial  statements of the U.S.  Electric  Operating  Companies have
historically  reflected the effects of applying the requirements of SFAS No. 71.
Pursuant to those  requirements,  the U.S.  Electric  Operating  Companies  have
recorded  regulatory  assets  and  liabilities  (probable  future  revenues  and
refunds) to reflect the economic effect of cost-based regulation. When a company
determines  that its  operations or a segment of its  operations no longer meets
the criteria for applying SFAS No. 71, it is required to apply the  requirements
of SFAS No. 101. Pursuant to those requirements and further guidance provided in
EITF 97-4, a company is required to write off regulatory  assets and liabilities
related to deregulated  operations,  unless recovery of such amounts is provided
through rates to be collected in a continuing regulated portion of the company's
operations.  Additionally,  it is required to  determine if any plant assets are
impaired under SFAS No. 121.

      As a result  of the  scheduled  deregulation  of  generation  in Texas and
Arkansas,  CSW has concluded that it should  discontinue the application of SFAS
No. 71 for the Texas generation  portion of the business for CPL and WTU and the
Texas and  Arkansas  jurisdictional  portions  of the  generation  business  for
SWEPCO.  Consequently,  WTU recorded an extraordinary charge to earnings of $5.5
million and SWEPCO recorded an extraordinary  charge to earnings of $3.0 million
to reflect the effects of  discontinuing  the  application of SFAS No. 71 and to
write off net of regulatory assets that are not probable of recovery.

      The  discontinuance  of SFAS No. 71 for CPL did not result in a net charge
to earnings as such net  regulatory  assets,  pursuant to the  legislation,  are
expected to be recovered from  transmission and distribution  customers  through
rates that will continue to be regulated.

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<PAGE>

      Electric  utilities  under the Texas  Legislation  are  allowed to recover
generation-related  regulatory  assets and stranded costs that otherwise may not
be  recoverable  in the future  competitive  market.  All or a majority of those
costs can be refinanced through  securitization,  which is a financing structure
designed  to  provide  lower  financing  costs  than is  available  through  the
conventional  utility cost of capital model.  The  securitized  amounts are then
recovered through a non-bypassable transmission charge. On October 18, 1999, CPL
filed an application with the Texas Commission to securitize approximately $1.27
billion of its retail generation-related regulatory assets and approximately $47
million  in other  qualified  costs.  If  approval  is  received  from the Texas
Commission,  CPL  expects  to issue the  securitization  bonds in March or April
2000,  depending on market  conditions and the timing of an order from the Texas
Commission.  A second  phase of  securitization  relating  to  additional  plant
related  stranded costs should occur in 2001  depending upon market  conditions,
timing and Texas Commission  approvals.  A non-bypassable  charge may be used to
recover additional unsecuritized stranded cost amounts.

      Under the provisions of EITF 97-4, CPL's generation-related net regulatory
assets were  transferred to the  transmission  and  distribution  portion of the
business  and  will be  amortized  as they  are  recovered  through  charges  to
customers.  Management  currently  believes all  regulatory  and stranded  costs
related to generation  assets for CPL will be recovered as provided  under Texas
Legislation.  CPL believes it will have stranded costs related to its generation
assets in excess of the $1.27 billion of costs  contained in its  securitization
filing made with the Texas Commission on October 18, 1999. If future events were
to occur that made the  recovery of these assets no longer  probable,  CPL would
write off any  non-recoverable  portion of such  assets as a non-cash  charge to
earnings.  CPL's amount of regulatory assets and stranded costs are subject to a
final  determination  by the Texas  Commission  in 2004.  The Texas  Legislation
provides  that all such finally  determined  stranded  costs will be  recovered.
Since  SWEPCO  and  WTU  are  not  expected  to have  net  stranded  costs,  all
generation-related  non-recoverable  net regulatory  assets were written off and
reflected on the statement of income as an extraordinary item.

      Additionally,  CPL,  SWEPCO and WTU  performed  an  accounting  impairment
analysis  of  generation  assets  under SFAS No. 121 at  September  30, 1999 and
concluded  there  was no  impairment  of  generation  assets  at that  time.  An
impairment  analysis involves  estimating future net cash flows arising from the
use of an asset.  If the net cash flows  exceed the net book value of the asset,
then there is no impairment of the asset for accounting  purposes.  CPL,  SWEPCO
and WTU will continue to review their assets for potential  impairment if events
or changes in circumstances  indicate the carrying amount of an asset may not be
recoverable.

      The Texas Legislation also provides that each year during the 1999 through
2001 rate freeze period, utilities with stranded costs are required to apply any
earnings in excess of the most recently  approved cost of capital in a company's
last rate case (if issued on or after January 1, 1992) to reduce stranded costs.
As a result,  CPL  recorded a net charge to earnings of $4.6  million to reflect
the impact of this provision.  Utilities without stranded costs must either flow
such amounts back to  customers  or make capital  expenditures,  at no charge to
customers,  to improve transmission or distribution facilities or to improve air
quality. As a result, WTU recorded a charge to earnings of $6.4 million from the
effect of the earnings cap under the Texas  Legislation.  The charges were based
on estimates for the current year and are subject to final  determination by the
Texas Commission. Following CPL's discontinuation of SFAS No. 71, it is expected
that any future excess  earnings will only be applied to reduce  stranded  costs
for regulatory purposes.

      The  discontinuance  of SFAS No. 71 for CPL's and WTU's  Texas  generation
business and SWEPCO's Texas and Arkansas generation business requires that these
businesses  no longer defer costs or recognize  liabilities  strictly  resulting
from the  actions  of a  regulator.  For  example,  operations  and  maintenance
expenditures will be expensed as incurred regardless of regulatory treatment. In
addition,  the equity component of allowance for funds used during  construction
can no longer be accrued for generation-related  capital projects.  Instead, the

                                       52
<PAGE>

businesses will be required to follow the interest  capitalization rules in SFAS
No. 34.

      CSW  continues  to analyze  the impact of the  electric  utility  industry
restructuring  legislation on the U.S. Electric Operating  Companies.  The Texas
Commission has established numerous task forces, including  representatives from
CPL,  SWEPCO  and WTU,  to  address  various  issues  associated  with the Texas
Legislation and to provide guidance  regarding  implementation of restructuring.
Based on the overall framework and objective of the Texas Legislation  regarding
recovery  of stranded  costs and  regulatory  assets,  and  additional  guidance
obtained through participation in various task force workshop sessions,  certain
adjustments  were  recorded by CSW in the third quarter of 1999 to recognize the
estimated effect of the legislation.  CSW also recorded certain  adjustments for
the Arkansas  jurisdictional portion of SWEPCO's generation business as a result
of legislation enacted in Arkansas.

      As previously discussed,  as a result of the Texas Legislation,  CPL filed
its  application  for   securitization  on  October  18,  1999  with  the  Texas
Commission. CPL, SWEPCO and WTU expect to make additional filings with the Texas
Commission for business  separation plans in January 2000,  earnings cap reports
in March 2000, cost unbundling plans in April 2000 and the ECOM reports in April
2000.

      Also see ITEM 2. MD&A - RECENT  DEVELOPMENTS AND TRENDS,  Electric Utility
Restructuring Legislation for a discussion on restructuring legislation.

      CPL Rate Review - Docket No. 14965
      In  November  1995,  CPL filed  with the  Texas  Commission  a request  to
increase  its retail base rates by $71 million.  On October 16, 1997,  the Texas
Commission  issued the CPL 1997 Final Order which lowered the annual retail base
rates of CPL by approximately $19 million or 2.5% from CPL's rate level existing
prior to May 1996.  The Texas  Commission  also  included  a "glide  path"  rate
reduction methodology in the CPL 1997 Final Order pursuant to which CPL's annual
rates were reduced by $13 million on May 1, 1998 with an additional reduction of
$13 million on May 1, 1999.

      CPL  filed an  appeal of the CPL 1997  Final  Order to the State  District
Court of Travis County to raise  several  issues  related to the rate case.  The
primary  issues  include:  (i) the  classification  of $800  million of invested
capital in STP as ECOM which was assigned a lower return on equity than non-ECOM
property;  (ii) the Texas  Commission's  application  of the  "glide  path" rate
reduction  methodology applied on May 1, 1998 and May 1, 1999; and (iii) the $18
million of  disallowed  affiliate  expenses  from CSW  Services.  As part of the
appeal, CPL sought a temporary  injunction to prohibit the Texas Commission from
implementing the "glide path" rate reduction  methodology.  The court denied the
temporary  injunction,  and the "glide path" rate reductions were implemented in
May 1998 and May 1999. Hearings on the appeal were held during the third quarter
of 1998,  and a  judgment  was  issued  in  February  1999  affirming  the Texas
Commission  order,  except  for a  consolidated  tax  issue in the  amount of $6
million, which was remanded to the Texas Commission. CPL filed an appeal of this
most recent  order to the Court of Appeals and  management  is unable to predict
how the final resolution of these issues will ultimately  affect CSW's and CPL's
results of  operations  and  financial  condition.  On May 4, 1999,  AEP and CSW
announced that they had reached a stipulated  agreement with the General Counsel
of the Texas  Commission and other  intervenors in the state of Texas related to
the AEP/CSW merger case. The Texas  Commission  approved the AEP Merger in early
November  1999. If the AEP Merger is ultimately  consummated,  CSW will withdraw
its appeal  with  respect to the "glide  path"  rate  reduction  methodology  as
discussed  above as issue "(ii)" but will continue  seeking the appeal of issues
"(i) and (iii)" also discussed  above.  See NOTE 5. PROPOSED AEP MERGER and ITEM
2. MD&A - PROPOSED AEP MERGER for a discussion on the stipulated agreement.

                                       53
<PAGE>

      Also see ITEM 2. MD&A - RATES AND  REGULATORY  MATTERS,  CPL Rate Review -
Docket No. 14965 for a discussion of the CPL 1997 Final Order.

      CPL Fuel Proceeding
      On December 31, 1998,  CPL filed with the Texas  Commission an application
to reconcile fuel costs and to request authority to carry the reconciled balance
forward into the next reconciliation period. During the reconciliation period of
July 1, 1995 through June 30, 1998, CPL incurred $828.5 million of eligible fuel
and fuel-related expenses. The Texas jurisdictional  allocation of such fuel and
fuel-related expenses is $783.4 million.

      In  addition to  requesting  reconciliation  of its fuel and  fuel-related
expenses for the reconciliation  period, CPL requested  authority from the Texas
Commission to recover the reward earned during the  reconciliation  period under
the performance  standard adopted in the 1997 CPL Final Order for CPL's share of
STP. The Texas  Commission  adopted a three-year  average capacity factor of 83%
performance  standard for STP in that order.  During the reconciliation  period,
STP operated at a net capacity  factor of 93.1%,  resulting in a reward of $19.2
million.

      CPL requested  authority to recover the Texas portion of 50% of the reward
by including  1/36th of this amount in Texas retail  eligible  fuel expense each
month for the three-year  period following the Texas  Commission's  order in the
fuel  reconciliation  case. CPL further requested authority to apply the amounts
of the reward  recovered  through  Texas retail  eligible  fuel  expense  toward
additional  amortization of its STP deferred  accounting  regulatory  asset. The
remaining  50% of the reward  would be  "banked"  to be used  against  potential
future penalties or other disallowance of fuel costs.  Hearings were held before
an ALJ in June  1999.  In  July  1999,  all  parties  reached  a  settlement  in
principle.   The  settlement   resolves  all  disputed  issues  and  includes  a
disallowance  of $7.44 million  recorded in the third quarter of 1999 and no STP
performance  reward either now or in the future. The Texas Commission issued its
final order on September  23, 1999 in  accordance  with the  stipulation  of the
parties.

      CPL and WTU Complaint vs. Texas Utilities Electric Company (Docket No.
      17285)
      A joint complaint filed by CPL and WTU  with the Texas Commission asserted
that  since  January  1,  1997,  Texas  Utilities   Electric  Company  had  been
effectively  double charging for  transmission  service within ERCOT. A proposal
for decision in February 1998 recommended  approval of a proposal by CPL and WTU
to reduce by $15.5 million  annually their payments to Texas Utilities  Electric
Company.  The Texas Commission approved the proposal in September 1998. Although
Texas Utilities  Electric Company has appealed the Texas Commission final order,
it refunded  $26.6 million to CPL and WTU in November  1998.  Prior to the Texas
Commission's  September 1998 decision, the $15.5 million annual payment to Texas
Utilities  Electric  Company had been allocated to the U.S.  Electric  Operating
Companies.  As a result of this order,  the payment will continue to be recorded
on CPL's and WTU's books as a reduction of ERCOT transmission expense, and there
will be no future expenses recorded on the books of PSO and SWEPCO.

      Transmission Coordination Agreement
      The transmission  coordination  agreement  provides the means by which the
U.S. Electric  Operating  Companies plan, operate and maintain the four separate
transmission systems as a single unit. The agreement also establishes the method
by which the U.S. Electric Operating  Companies allocate revenues received under
open  access  transmission  tariffs.  In  August  1998,  the FERC  accepted  the
transmission  coordination  agreement  for  filing,  suspended  it for a nominal
period, and made it effective  retroactive to January 1, 1997, subject to refund
and  investigation.  In the fourth quarter of 1998, the U.S. Electric  Operating

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<PAGE>

Companies and supporting  intervenor  signatories  filed an uncontested offer of
settlement.  The FERC issued an order on June 18, 1999,  accepting  the offer of
settlement. The FERC further ordered that appropriate refunds be made to reflect
the terms of the  revised  transmission  coordination  agreement.  In the second
quarter  of 1999,  the FERC also  issued an order  accepting  the U.S.  Electric
Operating Companies' compliance filing of their open access transmission tariff.
The FERC  previously had ordered the  compliance  filing to review the method by
which certain open access  transmission  tariff customers were to be charged for
transmission  service.  As a result of that order,  certain changes were made in
the  transmission  coordination  agreement  related to the allocation of certain
open access transmission  tariff revenues.  Each U.S. Electric Operating Company
will be allocated  revenue in  proportion to the  company's  respective  revenue
requirement   for  the  service  it  provides  under  the  revised  open  access
transmission  tariff.  The  U.S.  Electric  Operating  Companies  requested  and
received  from the FERC a deferral  of their  refund  obligation  until the FERC
issues an order accepting the revised transmission coordination agreement.

      On  October  29,  1999,  CSW filed  with the FERC a  revised  transmission
coordination agreement. The revised transmission coordination agreement includes
changes to the original transmission  coordination agreement to ensure the above
mentioned allocation of revenues to each U.S. Electric Operating Company. In the
third quarter of 1999, each of the U.S. Electric  Operating  Companies  recorded
the estimated  impact of the  reallocation  of open access  transmission  tariff
revenues,  which  increased  CSW's income  before taxes by  approximately  $8.75
million.

      PSO PCB Cases
      PSO was named a defendant in petitions filed in state court in Oklahoma in
February and August 1996.  The  petitions  allege that the  plaintiffs  suffered
personal injury and fear future injury as a result of contamination by PCBs from
a  transformer  malfunction  that  occurred  in April  1982 at the Page  Belcher
Federal  Building in Tulsa,  Oklahoma.  Each of the plaintiffs  seeks actual and
punitive  damages in excess of $10,000.  Other claims arising from this incident
were settled and the suits dismissed.  During the third quarter of 1999, all but
12 of the cases were settled for a nominal  amount  covered by PSO's  insurance.
Management  believes  that PSO has  defenses  to the  remaining  complaints  and
intends to defend the suits vigorously.  Management  believes that the remaining
claims,  excluding claims for punitive  damages,  are also covered by insurance.
Management also believes that the ultimate  resolution of the remaining lawsuits
will not have a  material  effect on CSW's or PSO's  results  of  operations  or
financial condition.

      SWEPCO Louisiana Rate Review
      In December  1997,  the  Louisiana  Commission  announced  it would review
SWEPCO's rates and service.  The Louisiana  Commission has selected  consultants
and legal  counsel  to perform a review of  SWEPCO's  rates and  charges  and to
review SWEPCO's  quality of service.  The Louisiana  Commission's  legal counsel
issued a report in June 1999,  reflecting  Louisiana  revenues  in excess of $28
million.  SWEPCO  believes  the report  contained  significant  theoretical  and
mathematical errors and filed its rebuttal testimony on August 10, 1999.

      In October 1999, SWEPCO and the Staff of the Louisiana  Commission reached
an Agreement and Stipulation, which was filed on October 14, 1999. In support of
the  Agreement  and  Stipulation,  supplemental  testimony  was also filed.  The
provisions of the Agreement and Stipulation are:

-        SWEPCO's  Louisiana retail  jurisdictional  revenues are reduced by $11
         million, effective with the December 1999 billing cycle;
-        SWEPCO will be allowed to earn an 11.1% return on common equity;
-        SWEPCO will recover  certain  regulatory  assets  totaling  $7.1
         million;
-        SWEPCO will be subject to a two-year base rate freeze, which will be
         subject to force majeure provisions and;
-        Increased depreciation rates for transmission, distribution and general
         plant.

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<PAGE>

      Hearings were held before an ALJ on October 19, 1999. To meet the December
1999 implementation date contemplated in the Agreement and Stipulation, an order
from the Louisiana  Commission  must be received in November 1999. The Louisiana
Commission is scheduled to vote on the Agreement and Stipulation at its November
17, 1999 meeting.

      SWEPCO Arkansas Rate Review
      In June 1998,  the Arkansas  Commission  indicated that it would conduct a
review of SWEPCO's earnings.  The review began in July 1998. SWEPCO entered into
a settlement agreement with the general staff of the Arkansas Commission and the
Arkansas Attorney General's Office.  The settlement  agreement was filed on July
30,  1999  and  reduces  revenues  by  $5.4  million  or 3%.  Additionally,  the
Stipulation  and  Settlement  Agreement  provides for a 10.75%  return on common
equity,  an increase in  depreciation  rates,  and an agreement by SWEPCO not to
seek recovery of generation related stranded costs.

      On August 20, 1999, SWEPCO filed a Supplemental Stipulation and Settlement
Agreement,  which was reached with the one  remaining  party.  The  Supplemental
Stipulation  and  Settlement  Agreement  did not  alter  or  replace  any of the
original  monetary terms of the  Stipulation  and Settlement  Agreement filed on
July 30, 1999.

      On September 23, 1999, the Arkansas  Commission  issued an order approving
the Stipulation and Settlement  Agreement and the  Supplemental  Stipulation and
Settlement Agreement.  On October 25, 1999, SWEPCO filed compliance rate tariffs
with the Arkansas Commission,  which are consistent with the Arkansas Commission
order.  After a  review  of the  compliance  rate  tariffs  by the  Staff of the
Arkansas  Commission,   new  rates  will  be  implemented.   SWEPCO  anticipates
implementing the new rates with the December 1999 billing cycle.

      SWEPCO Interim Fuel Refund
      On August 24, 1999, SWEPCO filed an application at the Texas Commission to
make an interim refund of fuel cost  over-recoveries of $7.5 million received by
SWEPCO from its Texas retail jurisdictional customers. The application requested
that the refund be made in October  1999.  On September  20, 1999, a stipulation
between  all  parties  was filed  with the  Texas  Commission,  which  preserved
SWEPCO's  application to refund $7.5 million to SWEPCO's Texas retail customers.
An order granting interim approval to make the refund in October 1999 was issued
by the hearings  examiner on September 24, 1999.  SWEPCO began  implementing the
refund on customer  bills during the first  billing  cycle of October  1999.  On
October 21,  1999,  the Texas  Commission  issued a final  order which  affirmed
approval to refund the fuel cost over-recoveries.

      SWEPCO Lignite Mining Agreement Litigation
      SWEPCO and CLECO are each a 50% owner of Dolet Hills Power  Station Unit 1
and  jointly  own  lignite  reserves  in the Dolet  Hills  area of  northwestern
Louisiana.  In 1982,  SWEPCO and CLECO entered into a lignite  mining  agreement
with the DHMV,  a  partnership  for the mining and  delivery  of lignite  from a
portion of these reserves.

      On April 15,  1997,  SWEPCO  and CLECO sued DHMV and its  partners  in the
United States  District Court for the Western  District of Louisiana  seeking to
enforce various obligations of DHMV to SWEPCO and CLECO under the lignite mining
agreement,  including  provisions  relating  to the  quality  of  the  delivered
lignite,  pricing, and mine reclamation practices.  On June 15, 1997, DHMV filed
an answer denying the allegations in the suit and filed a counterclaim asserting
various  contract-related claims against SWEPCO and CLECO. SWEPCO and CLECO have
denied  the  allegations  contained  in the  counterclaims.  On January 8, 1999,
SWEPCO and CLECO  amended  the claims  against  DHMV in the lawsuit to include a

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<PAGE>

request that the lignite mining agreement be terminated. The trial date has been
reset to May 22, 2000 to allow settlement discussions.

      Although  SWEPCO  cannot  predict  the  ultimate  outcome of this  matter,
management  believes that the resolution of this matter will not have a material
effect on SWEPCO's results of operations or financial condition.

      WTU Fuel Factor and Interim Fuel Surcharge Filing
      In September 1999, WTU filed with the Texas  Commission an Application for
Authority to Implement an increase in fuel factors of $13.5  million or 12.2% on
an annual  basis.  Additionally,  WTU  proposed  to  implement  an interim  fuel
surcharge  of $6.5  million,  including  accumulated  interest  over a six-month
period to collect its under-recovered  fuel costs. WTU proposed to implement the
revised fuel factors with its December 1999 billing cycle.  On November 4, 1999,
the Texas Commission approved WTU's application. The order allows an increase in
fuel  factors of 12.2% on an annual  basis  beginning  in the billing  cycle for
December   1999  and  to   surcharge   customers  to  recover  $6.5  million  of
under-recovered  fuel costs and associated  interest for six months beginning in
the billing cycle for January 2000.

       Regulatory Draft Price Proposal for SEEBOARD
      On October 8, 1999,  OFGEM published its revised draft price proposals and
results from its current United Kingdom electricity  distribution  review. OFGEM
has  recommended  revenue  reductions in SEEBOARD's  distribution  business.  In
addition,  OFGEM has proposed the  reallocation of a further 12%, or $45 million
of  pre-tax  costs  out of  SEEBOARD's  distribution  business  into its  supply
business. If adopted,  these proposals would reduce SEEBOARD's net income in the
year 2000 by $40  million,  and by $60  million on an annual  basis  thereafter,
depending upon the level of further cost reductions that can be achieved.  CSW's
net income from  SEEBOARD  USA, its United  Kingdom  business  segment,  was $95
million for the twelve months ended September 30, 1999.

      SEEBOARD continues to analyze the revised draft  recommendations and their
potential  effects on earnings and to seek further  changes in OFGEM's  proposed
recommendations  to  mitigate  their  effect  on net  income.  SEEBOARD  is also
currently  analyzing  future  potential  cost  reductions  that would  partially
mitigate  the impact of these  proposals.  OFGEM is  expected  to  finalize  its
recommendations  in early December  1999,  which would take effect in April 2000
for five years.  SEEBOARD  cannot  predict  whether  the draft  price  proposals
ultimately will be adopted by OFGEM and, if they are adopted,  the final form of
the proposals.

      If OFGEM's  draft price  proposals  for SEEBOARD  ultimately  were adopted
without  change,  implementation  of the price  proposals  would have a material
adverse  effect on the future  results of operations of SEEBOARD USA and CSW. In
addition,  implementation  of the price  proposals  as drafted  could  adversely
affect the  financial  condition  of SEEBOARD  USA, but would not be expected to
adversely affect the financial condition of CSW.

      OFGEM has  published  draft price  proposals  for the  electricity  supply
businesses.  OFGEM has  recommended  that the price  cap for  charges  levied to
electricity  supply domestic and small business customers should be extended for
two years from April 2000. If adopted,  the proposals are expected to be broadly
neutral on the results of operations of SEEBOARD USA.

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3.     COMMITMENTS AND CONTINGENT LIABILITIES

       PSO Guarantee of Numanco Obligations
       In April 1999, PSO received an order from the SEC authorizing an increase
in its guarantee  authority  related to the outstanding  debt of Numanco,  a PSO
business venture. On November 3, 1999, PSO sold its investment in Numanco to CSW
Energy  Services,  Inc.,  another  CSW  subsidiary.  Prior to the  sale, PSO had
guaranteed  obligations  for  Numanco  in the  amount  of $29  million.  The PSO
guarantee  obligation was released upon the sale.  There are no other guarantees
in place for Numanco by any of the CSW companies.

      SWEPCO Henry W. Pirkey Power Plant
      In connection with the South  Hallsville  lignite-mining  contract for its
Henry W. Pirkey Power Plant, SWEPCO agreed, under certain conditions,  to assume
the obligations of the mining  contractor.  As of September 30, 1999, the amount
SWEPCO  may  have  to  assume  is  approximately  $68  million,   which  is  the
contractor's actual obligation outstanding at September 30, 1999.

      SWEPCO South Hallsville Lignite Mine
      As part of the process to receive a renewal of a Texas Railroad Commission
permit for lignite  mining at the South  Hallsville  lignite mine and  expansion
into the Marshall  South lignite  project  area,  SWEPCO agreed to guarantee the
costs  of mine  reclamation  up to $85  million  in the  event  the  work is not
completed by the third party miner.  At September 30, 1999,  the cost to reclaim
the mine is estimated to be approximately $36 million.

       Withdrawal of SWEPCO Cajun Asset Proposal
       Cajun filed a petition for reorganization  under Chapter 11 of the United
States  Bankruptcy Code on December 21, 1994 under the supervision of the United
States  Bankruptcy  Court for the Middle District of Louisiana.  Both SWEPCO and
Louisiana  Generating LLC had filed  competing plans of  reorganization  for the
non-nuclear assets of Cajun with the bankruptcy court.

      On August 26, 1999, SWEPCO,  together with the Cajun Members Committee and
Washington-St.  Tammany Electric Cooperative,  reached a settlement agreement to
withdraw  the  jointly  filed  July  1999  SWEPCO  Plan  to  acquire  all of the
non-nuclear assets of Cajun during a settlement conference ordered by the United
States District Court in Baton Rouge, Louisiana.

      SWEPCO had deferred  approximately  $13.0  million in costs related to the
Cajun  acquisition  on its  consolidated  balance  sheet.  Under the  settlement
agreement,  SWEPCO received $7.5 million on November 8, 1999. The after tax loss
reflected in the third quarter of 1999 was $3.7 million.

      SWEPCO Biloxi, Mississippi MGP Site
      SWEPCO was notified by Mississippi Power in 1994 that it may be a PRP at a
MGP site in Biloxi, Mississippi.  Since then, SWEPCO has worked with Mississippi
Power  investigating  the  extent of  contamination  at the site.  The  sampling
results  indicate  contamination  at  the  property  as  well  as  the  possible
contamination of an adjacent property.  After submitting a risk assessment,  the
MDEQ  requested  that a future  residential  exposure  scenario be evaluated for
comparison  with  commercial  and  industrial   exposure   scenarios.   However,
Mississippi  Power and  SWEPCO do not  believe  that  cleanup  to a  residential
scenario is appropriate  since the site has been an  industrial/commercial  site
for more than 100 years,  and  Mississippi  Power plans to continue this type of
usage. Mississippi Power and SWEPCO presented a report to the MDEQ demonstrating
that the ground water on the site is not potable and that cleanup to residential
standards is not necessary. Resolution of this issue is still pending.

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      Currently,  a feasibility  study is being  conducted to evaluate  remedial
strategies for the property.  The feasibility  study process will require public
input prior to a final decision and will result in a remediation  strategy and a
projection of the cost to remediate the property.

      SWEPCO has incurred costs of approximately $200,000 for its portion of the
cleanup of this site and based on  preliminary  estimates,  anticipates  that an
additional  $2 million  may be  incurred.  Accordingly,  SWEPCO  has  accrued an
additional $2 million for the cleanup of the site.

      SWEPCO Wilkes Power Plant Copper Limit Compliance
      The EPA has cited SWEPCO's Wilkes power plant in an  administrative  order
for  wastewater  permit  violations  related  to copper  level  limits.  Planned
compliance  activities,   including  activities  that  have  been  conducted  to
determine  the source of copper,  were  presented by SWEPCO to the EPA during an
administrative meeting, held on August 13, 1998. SWEPCO and the EPA negotiated a
$41,500 penalty pending final approval.

      SEEBOARD London Underground Commitment
      In 1998,  SEEBOARD,  through its subsidiary SEEBOARD  Powerlink,  signed a
$1.6 billion, 30 year contract as a joint venture partner to operate,  maintain,
finance  and renew the  high-voltage  power  distribution  network of the London
Underground transportation system. Power Asset Development Company, an associate
of  SEEBOARD,  has  committed  (pound)62  million  or  $102  million  for  costs
associated with its contract  related to the London  Underground  transportation
system.

      SEEBOARD Third Party Pension Litigation
      In the U.K.,  National Grid Group and National Power have been involved in
continuing  litigation  regarding their use of actuarial  surpluses set forth in
the  electricity  industry's  occupational  pension plan, the ESPS. A High Court
decision in favor of the National Grid Group and National Power was appealed. On
February  10,  1999,  the  U.K.  Court  of  Appeal  ruled  that  the  particular
arrangements  made by these  corporations to dispose of part of the surplus were
invalid due to  procedural  defects.  This  decision  was  confirmed  at a later
hearing of the U.K.  Court of Appeal held in May 1999,  although an  opportunity
for an appeal to be taken to the House of Lords,  the highest court of appeal in
the U.K., was granted.

      SEEBOARD  employees are members of the ESPS, and SEEBOARD has made similar
use of its actuarial surplus.  As a result of subsequent legal  clarification of
certain issues  arising from the hearing held in May 1999, the potential  impact
of the ruling on SEEBOARD has increased. The amount of the payments cancelled by
SEEBOARD,  both for past and future liabilities,  amounts, in the aggregate,  to
approximately $78 million, excluding interest.

      The U.K. Court of Appeal did not order the National Grid Group or National
Power  to  make  payment  into  the  ESPS,  and the  court  indicated  that  any
requirement  to make such payments would be extreme since the ESPS already is in
surplus.  In the event that the court finally decides a payment by SEEBOARD into
the ESPS is  necessary,  such a payment is likely to create  additional  pension
fund  surplus,  which the company  should then be able to utilize  over the next
several years to reduce pension expense.

      The National Grid Group has indicated its intention to appeal to the House
of Lords.  The final  outcome of this appeal  cannot  presently  be  determined.
Management is unable  currently to predict the amount of any payment that it may
be required to make to ESPS or the effect,  if any, of the  ultimate  outcome of
the appeal on CSW's results of operations and financial condition.

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<PAGE>


      Diversified Electric Loans and Commitments
      CSW Energy  began  construction  in August  1998 of a 500 MW power  plant,
known as Frontera,  in the Rio Grande Valley,  near the city of Mission,  Texas.
The  Frontera  project is being  built as a merchant  power  plant.  Frontera is
expected to supply power to the rapidly  growing Rio Grande Valley and to supply
customers throughout Texas. In addition to funds already spent, at September 30,
1999, CSW Energy has committed  costs of  approximately  $15 million,  including
development,  construction and financing costs. The natural  gas-fired  facility
began simple cycle operation of 330 MW in July 1999 and is scheduled to commence
combined cycle operation by early 2000.  Pursuant to AEP's and CSW's  stipulated
settlement  with several  intervenors  in the state of Texas  related to the AEP
Merger,  CSW Energy will sell 250 MW of Frontera after completion of the merger.
See NOTE 5. PROPOSED AEP MERGER and ITEM 2. MD&A, PROPOSED AEP MERGER.

      CSW Energy has entered into an agreement with Eastman  Chemical Company to
construct and operate a 440 MW cogeneration  facility in Longview,  Texas.  This
facility will be known as the Eastex Cogeneration  Project.  Construction of the
facility is  scheduled  to begin in the fourth  quarter of 1999,  with  expected
operation in 2001. Excess electricity generated by the plant will be sold by CSW
Energy in the  wholesale  electricity  market.  Since  Eastex will be built as a
qualifying facility,  CSW Energy will be required to sell 50% of the plant prior
to commercial operation.

      In October  1999,  GE Capital  Structured  Finance  Group's  purchased  50
percent of the equity ownership of Sweeny Cogeneration Limited Partnership.  CSW
Energy's  after-tax  earnings  from  the  proceeds  of the  transaction  will be
approximately  $33 million  and will be recorded in the fourth  quarter of 1999.
The agreement  between CSW Energy and GE Capital  Structured  Finance Group also
provides for additional payments subject to completion of a planned expansion of
the Sweeny cogeneration facility.

      CSW  International  and its 50% partner,  Scottish Power plc, have entered
into a joint venture to construct and operate the South Coast power  project,  a
400-MW combined cycle gas turbine power station in Shoreham, United Kingdom. CSW
International has guaranteed  approximately  (pound)19 million of the (pound)190
million   projected   construction   costs,  and  the  permanent   financing  is
unconditionally guaranteed by the project.  Construction of the project began in
March 1999, and commercial operation is expected to begin in 2000.

      CSW, CSW Energy and CSW International  have provided letters of credit and
guarantees on behalf of independent  power projects  totaling  approximately $29
million, $56 million, and $235 million, respectively, as of September 30, 1999.

4.     COMMON STOCK AND DIVIDENDS

      CSW's basic  earnings  per share of common stock for a period are computed
by dividing net income for common stock by the average  number of common  shares
outstanding  for the  period.  CSW's  dividends  per common  share  reflect  the
dividend paid for each period.

      At September  30,  1999,  approximately  $1.9 billion of CSW's  subsidiary
companies'  retained  earnings were  available for payment of cash  dividends to
CSW. The amount of retained  earnings  available for dividends  from each of the
U.S. Electric Operating Companies at September 30, 1999 was as follows:

CPL - $796 million  PSO - $167 million  SWEPCO - $296 million WTU - $124 million


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5.    PROPOSED AEP MERGER

      On December 22, 1997, CSW and AEP announced that their boards of directors
had  approved a  definitive  merger  agreement  for a tax-free,  stock-for-stock
transaction. The combined company would serve more than 4.6 million customers in
11 states and  approximately 4 million  customers  outside the United States. On
May 27, 1998, AEP shareholders approved the issuance of the additional shares of
stock  required  to complete  the  merger.  On May 28,  1998,  CSW  stockholders
approved the merger.

      Under the merger  agreement,  each common  share of CSW will be  converted
into 0.6 share of AEP common stock. CSW stockholders  will own approximately 40%
of the combined  company.  CSW plans to continue to pay  dividends on its common
stock  until the closing of the AEP Merger at  approximately  the same times and
rates per share as in 1998, subject to continuing  evaluation of CSW's financial
condition, earnings, prospects and other factors by the CSW board of directors.

      Under the merger agreement, there will be no changes required with respect
to the  public  debt  issues,  the  outstanding  preferred  stock  or the  Trust
Preferred Securities of CSW's subsidiaries.

      AEP and CSW anticipate net savings related to the merger of  approximately
$2  billion  over a  10-year  period  from the  elimination  of  duplication  in
corporate and administrative  programs,  greater  efficiencies in operations and
business processes, increased purchasing efficiencies and the combination of the
two work  forces.  AEP and CSW  continue to seek  opportunities  for  additional
savings.  At the same time, the companies expect to continue their commitment to
high  quality,  reliable  service.  Job  reductions  related  to the  merger are
expected  to be  approximately  1,050  out  of a  total  domestic  workforce  of
approximately  25,000.  The combined  company  expects to use a  combination  of
growth,  reduced  hiring  and  attrition  to  minimize  the  need  for  employee
separations.  Transition  teams of  employees  from  both  companies  will  make
organizational and staffing recommendations.

      The  electric  systems of AEP and CSW will  operate on an  integrated  and
coordinated  basis as required by the Holding  Company  Act. AEP and CSW project
fuel savings of  approximately  $98 million over a 10-year period resulting from
the coordinated operation of the combined company,  which will be passed through
to customers.

      The merger agreement  contains  covenants and agreements that restrict the
manner in which the parties may operate their  respective  businesses  until the
time of closing of the merger. In particular,  without the prior written consent
of AEP,  CSW may not  engage in a number of  activities  that  could  affect its
sources  and  uses of  funds.  Pending  closing  of the  merger,  CSW's  and its
subsidiaries'  strategic investment activity,  capital expenditures and non-fuel
operating  and  maintenance  expenditures  are limited to  specific  agreed upon
projects and in agreed upon amounts.  In addition,  prior to consummation of the
merger,  CSW and its  subsidiaries  are  restricted  from: (i) issuing shares of
common stock other than pursuant to employee benefit plans;  (ii) issuing shares
of  preferred  stock or  similar  securities  other than to  refinance  existing
obligations or to fund permitted investment or capital  expenditures;  and (iii)
incurring indebtedness other than pursuant to existing credit facilities, in the
ordinary  course  of  business,   or  to  fund  permitted  projects  or  capital
expenditures.  These  limitations do not preclude CSW and its subsidiaries  from
making investments and expenditures in amounts previously budgeted.

      Cook Nuclear Plant
      On June 25, 1999, AEP announced a  comprehensive  plan to restart the idle
Cook  nuclear  power  plant.  Unit 2 is  scheduled to return to service in April
2000, and Unit 1 is scheduled to return to service in September 2000. AEP stated
that its announcement  follows a comprehensive  systems  readiness review of all
operating  systems at Cook nuclear  power plant and a  cost/benefit  analysis of
whether  to  restart  the  plant  or shut it down  completely.  Plant  officials
originally shut down both units of the facility, located in Bridgman,  Michigan,

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in September 1997 because of questions raised during a design  inspection by the
NRC.  AEP  estimated  that  its  costs  to  restart  the idle  plant  should  be
approximately  $574  million  of  which  $280  million  has been  spent  through
September 1999.

      Merger Regulatory Approvals
      The merger is  conditioned,  among  other  things,  upon the  approval  of
several state and federal regulatory agencies.

      General
      Testimony submitted in the filings in Arkansas, Louisiana, Oklahoma, Texas
and at the FERC outlined the expected company-wide benefits of the merger to AEP
and CSW customers and shareholders.

      FERC
      On April 30, 1998,  AEP and CSW jointly  filed a request with the FERC for
approval of their proposed merger.

      On May 25, 1999, AEP and CSW announced they had reached a settlement  with
the FERC trial  staff  resolving  competition  and rate  issues  relating to the
proposed merger. On July 13, 1999, AEP and CSW reached an additional  settlement
with the FERC trial staff resolving  additional  issues. The settlement has been
submitted to the FERC for approval.

      Under the terms of the settlements, in June 1999 AEP filed with the FERC a
regional  transmission  organization  proposal  whereby  it  will  transfer  the
operation and control of AEP's bulk  transmission  facilities to an undetermined
independent  system  operator.  The  transmission  facilities  subject  to  this
commitment are located in Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia
and West Virginia.

      The settlements also cover rates for  transmission  services and ancillary
services  as  well  as  resolving  issues  related  to  the  system  integration
agreement,  the  transmission  reassignment  tariff and the system  transmission
integration  agreement.  The  settlements  confirm,  subject to FERC guidance on
certain  elements,  that the proposed  generation  divestiture  will satisfy the
market power  concerns of the FERC staff.  In their merger filing with the FERC,
AEP and CSW proposed  divesting  ownership of 300 MW of  generation  capacity at
PSO's  Northeastern  Power  Station  Units  3 and 4 in  Oklahoma  and  250 MW of
generation capacity at the Frontera power plant, a merchant plant constructed in
Texas by a CSW subsidiary.

      On June 28, 1999,  AEP and CSW filed a motion asking the FERC to waive the
requirement  for a  post-hearing  decision by the ALJ and  consideration  of the
matter by the FERC based on the hearing record and briefs. The FERC subsequently
issued  an  order  requiring  the ALJ to issue an  initial  decision  as soon as
possible,  but no later  than  November  24,  1999.  The FERC  order  also set a
procedural  schedule  that  should  allow the FERC to issue a final order in the
first quarter of 2000.

      AEP and CSW have  reached  settlements  with the Missouri  Public  Service
Commission and various  wholesale  customers and  intervenors in the FERC merger
proceeding.

      Hearings at the FERC concluded on July 19, 1999.

      Arkansas
      On June 12,  1998,  AEP and CSW jointly  filed a request with the Arkansas
Commission for approval of the proposed merger.  The Arkansas  Commission issued
an order  approving  the merger on August 13,  1998,  subject to approval of the
associated regulatory plan. On December 17, 1998, the Arkansas Commission issued
a final order granting conditional approval of a stipulated agreement related to
a proposed merger regulatory plan. The stipulated  agreement calls for SWEPCO to

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reduce  rates  through  a net  merger  savings  rider  for its  Arkansas  retail
customers by $6 million over the five-year  period  following  completion of the
merger.  The Arkansas  Commission  order notes the  possibility  of decisions in
other jurisdictions  adversely affecting provisions of the stipulated agreement.
Consequently,  the  Arkansas  Commission  conditioned  its  final  order  on its
consideration   of   approval   of  the  merger  in  other   state  and  federal
jurisdictions.

      Louisiana
      On May 15, 1998,  AEP and CSW jointly  filed a request with the  Louisiana
Commission for approval of the proposed merger and for a finding that the merger
is in the public interest.

      On  September  27, 1999,  the  Louisiana  Commission  issued a final order
granting  conditional  approval  of the pending  merger  between AEP and CSW. In
granting  approval,   the  Louisiana   Commission  also  approved  a  stipulated
settlement with the Louisiana Commission staff. Under the stipulated settlement,
AEP and CSW have  agreed  to share  with  SWEPCO's  Louisiana  customers  merger
savings  created as a result of the merger  over the eight years  following  its
completion.  A savings mechanism will be implemented to calculate merger savings
annually.  AEP and CSW estimate that the customer rate credits in Louisiana will
total more than $18 million  during that  eight-year  period.  During the second
year  following  completion  of the  merger,  customers  will begin  receiving a
monthly rate credit for 50% of calculated  merger  savings.  This credit will be
updated  annually  and  continue  for the  remainder  of the  eight-year  period
following the merger's completion.

      Oklahoma
      On August 14, 1998,  AEP and CSW jointly filed a request with the Oklahoma
Commission for approval of their proposed merger.

      An amended  application was filed with the Oklahoma Commission on February
25, 1999. On May 11, 1999, the Oklahoma  Commission approved the proposed merger
between  AEP and CSW.  The  approval  follows a partial  settlement  between the
Oklahoma  Commission  Utility Division Staff, the Oklahoma  Commission  Consumer
Services Division, the Office of the Attorney General for Oklahoma, PSO, AEP and
CSW.  The  Oklahoma  Commission  order was  appealed by the  Municipal  Electric
Systems of Oklahoma, Inc. and the Oklahoma Association of Electric Cooperatives.
On October 13, 1999,  the Oklahoma  Supreme  Court  dismissed  the appeal of the
Oklahoma Association of Electric Cooperatives.  The Municipal Electric System of
Oklahoma,  Inc.  withdrew  its appeal and the Oklahoma  Association  of Electric
Cooperatives  filed a motion to dismiss  its appeal of the  Oklahoma  Commission
order approving the merger.

      Under the  partial  settlement  agreement,  AEP and CSW  would:  (i) share
merger savings with Oklahoma  customers as well as AEP  shareholders,  effective
with the merger closing;  (ii) not increase Oklahoma base rates prior to January
1, 2003;  (iii) file by December 31, 2001 with the FERC an application to join a
regional  transmission  organization;  and (iv) establish  additional quality of
service  standards  for PSO's retail  customers.  Oklahoma's  share of the $50.2
million in  guaranteed  net merger  savings  over the first five years after the
merger  is  consummated  would  be  split  between  Oklahoma  customers  and AEP
shareholders, with customers receiving approximately 55% of the savings.

      The Oklahoma  Commission has withdrawn its opposition to the merger at the
FERC.

      Texas
      On April 30,  1998,  AEP and CSW  jointly  filed a request  with the Texas
Commission for a finding that the merger is in the public interest.

      On May 4, 1999, AEP and CSW announced a proposed  settlement  with several
intervenor  groups for the proposed  merger  between AEP and CSW. The settlement
would result in combined rate  reductions  totaling $221 million over a six-year

                                       63
<PAGE>

period for Texas customers of the three CSW Texas electric  operating  companies
(CPL,  SWEPCO and WTU) if the  merger is  completed  as  planned  and issues are
resolved  associated  with  CPL,  SWEPCO  and WTU rate  and fuel  reconciliation
proceedings.

      The  settlement  was  reached  with  the  General  Counsel  of  the  Texas
Commission,  the State of Texas, the Texas Industrial Energy Consumers,  the Low
Income  Intervenors,  the  Office of  Public  Utility  Counsel  of Texas and the
steering committee of the Cities of McAllen, Corpus Christi, Victoria,  Abilene,
Big Lake,  Vernon and Paducah.  The  settlement  expands  upon a previous  Texas
settlement  announced on November 12,  1998,  with the Office of Public  Utility
Counsel of Texas and the  cities'  steering  committee.  That  prior  settlement
agreement provided for Texas retail rate reductions of $180 million over the six
years following  completion of the merger. The new settlement agreement proposes
additional rate reductions totaling $41 million for a total of $221 million. The
settlement also calls for the divestiture of a total of 1,604 MW of existing and
proposed generating capacity within Texas.

      The first  rate-reduction  rider  provides for $84.4 million in net-merger
savings.  The amounts are to be credited  to Texas  customers'  bills  through a
net-merger-savings  rate-reduction  rider over six years following completion of
the merger.

      Additional  rate-reduction  riders will be  implemented  to resolve issues
associated with CPL, WTU and SWEPCO rate and fuel reconciliation proceedings and
court appeals in Texas. The settlement  provides for an additional  reduction of
$136.6  million,  which  will  be  implemented  over  the  six  years  following
completion of the merger.

      Hearings  on the merger in Texas  began  August 9, 1999 and  concluded  on
August 10, 1999. As the hearings  began,  settlements  were reached with all but
one of the parties in the case. The settling parties are all wholesale  electric
customers  of  the  three  CSW  Texas  electric  operating  companies,  and  the
settlements  call for the  withdrawal  of their  opposition to the merger in all
regulatory approval proceedings.  On October 1, 1999, an ALJ for the Texas State
Office of  Administrative  Hearings issued a proposal for decision  recommending
that the Texas Commission approve the pending merger between AEP and CSW. In the
proposal for decision, the ALJ determined that, consistent with the terms of the
proposed settlement,  the merger is in the public interest. On November 2, 1999,
the Texas Commission approved the proposed merger with AEP.

      NRC
      On June 19, 1998, CPL filed a license  transfer  application  with the NRC
requesting  the NRC's  consent  to the  indirect  transfer  of  control of CPL's
interests in the NRC licenses issued for STP from CSW to AEP. CPL would continue
to own its  25.2%  interest  in STP,  and  CPL's  name  would  remain on the NRC
operating  license.  On November 5, 1998, the NRC approved the license  transfer
application  with a condition  that the merger must be completed by December 31,
1999. CPL will request an extension of the license  transfer with the NRC in the
fourth quarter of 1999.

      Other Federal
      On October 13, 1998, AEP and CSW jointly filed an application with the SEC
for  approval  of the  proposed  merger.  The SEC  merger  filing is  similar to
requests currently pending before other  jurisdictions and outlines the expected
combined   company  benefits  of  the  merger  to  AEP  and  CSW  customers  and
shareholders.  Since  then,  AEP and CSW have filed  several  amendments  to the
application.  Several parties have filed petitions  opposing the proposed merger
at the SEC.  On July 23,  1999,  AEP and CSW  filed a brief in  response  to the
intervenor  petitions at the SEC.  AEP and CSW will file a further  amendment to
the application in the fourth quarter of 1999.

                                       64
<PAGE>

      On July 29, 1999,  applications  were made with the FCC to  authorize  the
transfer of control of licenses of several CSW  entities to AEP. The granting of
such  authority  is  expected  by the end of 1999  and  will be  effective  upon
completion of the proposed merger.

      On July 26,  1999,  AEP and CSW  submitted  filings to the  Department  of
Justice  under the  Hart-Scott-Rodino  Antitrust  Improvements  Act of 1976.  On
August 26, 1999, AEP and CSW received a request for additional  information from
the Department of Justice.  AEP and CSW plan to file the additional  information
with the Department of Justice in the fourth quarter of 1999.

      United Kingdom
      CSW  has a 100%  interest  in  SEEBOARD  and  AEP  has a 50%  interest  in
Yorkshire.  The proposed merger of CSW into AEP would result in common ownership
of the  United  Kingdom  entities.  Although  the  merger of CSW into AEP is not
subject  to  approval  of United  Kingdom  regulatory  authorities,  the  common
ownership of the United Kingdom entities could be referred by the United Kingdom
Secretary  of State for Trade and Industry  for an  investigation  by the United
Kingdom Competition Commission. CSW is unable to predict the ultimate outcome of
any such regulatory proceeding.

      AEP
      On April 20,  1999,  AEP reached a  settlement  with the  Indiana  Utility
Regulatory  Commission staff addressing  matters  pertinent to Indiana regarding
the proposed  merger.  The Indiana Utility  Regulatory  Commission  approved the
settlement  on  April  26,  1999.  The  settlement  agreement  resulted  from an
investigation  of the  proposed  merger  between  AEP and CSW  initiated  by the
Indiana Utility Regulatory Commission.

      On April 21, 1999,  AEP and CSW announced  that they had reached  separate
settlements  with six wholesale  customers  that address  issues  related to the
proposed merger.

      On April 28, 1999,  AEP and CSW announced  that they ratified a settlement
agreement with local unions of the IBEW  representing  employees of AEP and CSW.
The  settlement  agreement  covered issues related to the pending merger between
AEP and CSW. As part of the  settlement,  the IBEW local  unions have  withdrawn
their opposition to the merger.

      On May 26, 1999,  AEP and CSW announced that they had reached a settlement
agreement  with the  Kentucky  Attorney  General and several  AEP  customers  in
Kentucky  addressing  matters pertinent to Kentucky regarding the pending merger
between AEP and CSW. The Kentucky  Public  Service  Commission  has approved the
settlement.

      On August  6,  1999,  AEP  announced  that it had  ratified  a  settlement
agreement  with local  unions of the UWUA  representing  employees  of AEP.  The
settlement agreement covered issues raised in the pending merger between AEP and
CSW.  As part of the  settlement,  the UWUA  local  unions  will not  oppose the
merger.

      On October  21,  1999,  the Public  Utility  Commission  of Ohio  issued a
decision  stating  that it will notify the FERC that it is no longer  opposed to
AEP's proposed merger with CSW and that it will no longer seek conditions to the
merger.

                                       65
<PAGE>


      Completion of the Merger
      AEP and CSW have  targeted  consummation  of the AEP  Merger in the second
quarter  of 2000.  The  merger is  conditioned,  among  other  things,  upon the
approval of several state and federal regulatory agencies.  The transaction must
satisfy many  conditions,  including the condition that it must be accounted for
as a pooling of interests.  The parties may not waive some of these  conditions.
AEP and CSW continue the process of seeking regulatory approvals,  but there can
be no assurance as to when, on what terms or whether the required approvals will
be received or whether there will be any  regulatory  proceedings  in the United
Kingdom.  After  December 31, 1999,  either CSW or AEP may  terminate the merger
agreement  if all of the  conditions  to its  obligation  to close have not been
satisfied,  provided  that either party may extend the merger  agreement,  under
certain circumstances, through June 30, 2000. There can be no assurance that the
AEP Merger will be consummated.

      Merger Costs
      As of September 30, 1999,  CSW had deferred $38.6 million in costs related
to the AEP Merger on its  consolidated  balance sheet,  which will be charged to
expense if AEP and CSW are not successful in completing their proposed merger.

6.    BUSINESS SEGMENTS

      CSW's  business  segments  include  the U.S.  Electric  and U.K.  Electric
segments. The U.S. Electric segment is comprised of CSW's four domestic electric
operating  companies,  CPL, PSO,  SWEPCO and WTU. The U.K.  Electric  segment is
comprised of CSW's foreign  electric  operating  company, SEEBOARD USA. The U.S.
Electric  segment's  primary  business  is  the  generation,   transmission  and
distribution of electricity. The U.K. Electric segment's primary business is the
supply and distribution of electricity. Financial data for each business segment
for the  three-month  and nine-month  periods ended September 30, 1999 and 1998,
respectively, covered is set forth below.


                                     U.S.        U.K.    Other and      CSW
                                   Electric   Electric  Reconciling Consolidated
                                  ----------------------------------------------
                                                    (millions)
Three months ended September 30,
1999
   Operating Revenues               $1,170        $354         $94      $1,618
   Income/(Loss) before
     Extraordinary Item                221          19         (10)        230

Three months ended September 30,
1998
   Operating Revenues               $1,172        $352         $57      $1,581
   Income/(Loss) before
     Extraordinary Item                230          31         (28)        233


                                     U.S.        U.K.    Other and      CSW
                                   Electric   Electric  Reconciling Consolidated
                                  ----------------------------------------------
                                                    (millions)
Nine months ended September 30, 1999
   Operating Revenues               $2,758      $1,192        $212      $4,162
   Income/(Loss) before
     Extraordinary Item                353          63         (38)        378
Total Assets at September 30, 1999   8,999       3,089       2,343      14,431
Total Assets at December 31, 1998    8,994       3,032       1,871      13,897

Nine months ended September 30, 1998
   Operating Revenues               $2,746      $1,288        $148      $4,182
   Income/(Loss) before
     Extraordinary Item                370          85         (56)        399
Total Assets at September 30, 1998   9,117       3,136       2,008      14,261
Total Assets at December 31, 1997    9,186       2,931       1,499      13,616

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<PAGE>


7.    SOUTH AMERICAN INVESTMENTS

      Through  September 30, 1999, CSW  International had purchased a 36% equity
interest in Vale for $80 million.  CSW International  also extended $100 million
of debt to Vale.  CSW  International  anticipates  converting $69 million of the
debt to equity by the end of 1999 with the  remainder to be  converted  over the
next two  years.  Currently,  CSW  International  accounts  for its $80  million
investment in Vale on the equity method of  accounting,  and the $100 million of
debt as a loan.

      In mid-January  1999, amid market  instability,  the Brazilian  government
abandoned its policy of pegging the Brazilian  Real in a broad range against the
dollar.  This action resulted in a 45% devaluation of the Brazilian  currency by
the end of September 1999.  Vale is unfavorably  affected by the devaluation due
primarily to the revaluation of foreign denominated debt.

      CSW International has a put option, which, if exercised,  requires Vale to
purchase  its shares  from CSW  International  at a minimum  price  equal to the
purchase price paid for the shares by CSW International.  As a result of the put
option arrangement, management has concluded that CSW International's investment
carrying  amount will not be reduced  below the put option value unless there is
deemed to be a permanent impairment. Pursuant to the put option arrangement, CSW
International will not recognize its proportionate  share of any future earnings
until its proportionate share of any losses of Vale are recognized. At September
30, 1999, CSW International had deferred losses, after tax, of approximately $23
million related to its Vale investment.  CSW International  views its investment
in Vale as a  long-term  investment,  which  has  significant  long-term  value.
Management  will  continue  to closely  evaluate  the  changes in the  Brazilian
economy and its impact on CSW International's investment in Vale.

      As of September 30, 1999, CSW  International  had invested $110 million in
stock of a Chilean electric company.  The investment is classified as securities
available  for sale and  accounted  for by the cost method.  Based on the market
value of the shares and foreign  exchange rates,  the value of the investment at
September 30, 1999 was $62 million.  The reduction in the carrying value of this
investment   has  been  reflected  in  Other   Comprehensive   Income  in  CSW's
Consolidated Statements of Stockholders' Equity. Management views its investment
in Chile  as a  long-term  investment  strategy  and  believes  this  investment
continues  to have  significant  long-term  value  and  that it is  recoverable.
Management  will continue to closely  evaluate the changes in the South American
economy and its impact on CSW International's investment in the Chilean electric
company.

8.    LONG-TERM DEBT

      In November 1999,  Matagorda County Navigation District No. 1 (Texas) will
sell for the  benefit of CPL  $111.7  million  of 4.90%  Series  1999A and $50.0
million of 4.95% Series 1999B  unsecured tax exempt  pollution  control  revenue
refunding bonds. The bonds mature in 2030 but will be subject to remarketing and
an interest rate reset in two years.  The proceeds will be used to refund $111.7
million aggregate principal amount of outstanding  Matagorda 7-1/2% Series 1984A
bonds  due  December  15,  2014 and $50.0  million  aggregate  principal  amount
of outstanding 7-1/2% Matagorda Series 1990 bonds due March 21, 2020.

      In July 1999,  the Oklahoma  Development  Finance  Authority  sold for the
benefit of PSO $33.7 million of 4-7/8%  unsecured tax exempt  pollution  control
revenue  refunding  bonds. The bonds mature in fifteen years but will be subject
to  remarketing  and an interest rate reset in five years.  In late August 1999,
the proceeds were used to refund $33.7  million  aggregate  principal  amount of
outstanding Oklahoma Environmental Finance Authority (PSO Project) 5.9% Series A
bonds due December 1, 2007.


                                       67

<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

      Reference  is made to  Management's  Discussion  and Analysis of Financial
Condition and Results of Operations included in the Registrants' Combined Annual
Report on Form 10-K for the year ended  December  31, 1998 and the  Registrants'
Combined  Quarterly  Reports on Form 10-Q for the quarters  ended March 31, 1999
and  June  30,  1999.  Reference  is also  made to each  Registrant's  unaudited
Financial  Statements and related Notes to Financial Statements included in this
document.  The information  should be read in conjunction with, and is essential
to understanding, the following discussion and analysis.


RESULTS OF OPERATIONS

      Reference  is  made  to  ITEM  1.  FINANCIAL  STATEMENTS  for  each of the
Registrants'  RESULTS OF  OPERATIONS  for the three month and nine month periods
ended September 30, 1999.


LIQUIDITY AND CAPITAL RESOURCES

      Overview of CSW Operating, Investing, and Financing Activities
      Net cash inflows from operating activities decreased $172  million to $452
million for the nine month period ended  September 30, 1999 compared to the same
period last year due primarily to decreased fuel recoveries from customers. Also
contributing  to the  decrease  in cash flows from  operating  activities  was a
decrease in accrued  taxes for the  comparison  periods due  primarily  to lower
pre-tax income and a larger refund received in 1998. Further contributing to the
decrease in cash flows from  operating  activities  were  increased  payments on
accounts payable. Partially offsetting the decrease in cash flows from operating
activities was a lower change in accounts receivable balance in 1999 compared to
1998 resulting from more favorable collections.  Further offsetting the decrease
in cash flows from operating activities was the absence in 1999 of a refund paid
to CPL customers in the first six months of 1998.

      Net cash outflows from investing  activities increased $84 million to $565
million  during the first nine months of 1999 compared to the same period a year
ago.  The  increase in net cash  outflows  from  investing  activities  resulted
primarily from higher levels of spending in 1999 for CSW Energy  projects,  U.S.
Electric  Operating  Companies'  construction  expenditures and U.K.  Electric's
construction  expenditures.  Also  contributing  to the  increase  in  net  cash
outflows  from   investing   activities  was  the  assumption  in  1998  by  CSW
International's  Altamira partner, Alpek, of a 50% obligation related to a power
plant project,  which was not present in 1999. Partially offsetting the increase
in cash outflows from investing activities was the absence in 1999 of additional
CSW International  loans to Vale and lower construction  expenditures in 1999 at
C3 Communications.

      Net cash inflows from financing  activities increased $155 million to $118
million for the first nine  months of 1999  compared to the same period in 1998.
The increase was due  primarily to the absence in 1999 of the repayment of a $60
million  variable  rate  bank loan at CSW  Services  and the  redemption  of $28
million of preferred stock at SWEPCO.  Also contributing to the increase in cash
flows  from  financing  activities  was a lower  change in  short-term  debt due
primarily to lower interest rates and the absence in 1999 of the CPL 1998 bonded
rate refund.  Partially offsetting the increase in net cash inflows was a higher
level of long-term maturities and reacquisitions in 1999 compared to 1998.

      Construction Expenditures
      CSW's construction expenditures, including allowance for funds used during
construction, totaled $549 million for the nine months ended September 30, 1999.
Such  expenditures  for the  U.S.  Electric  Operating  Companies  totaled  $141

                                       68
<PAGE>

million, $74 million, $74 million and $36 million, for CPL, PSO, SWEPCO and WTU,
respectively. Construction expenditures at the U.S. Electric Operating Companies
were due primarily to  improvements  to existing  production,  transmission  and
distribution facilities.  The improvements are required to meet the needs of new
customers and the changing  requirements of existing customers.  CSW anticipates
that  substantially all funds required for construction for the remainder of the
year will be provided from internal sources.

      Other Financing Issues
      The CSW  System  uses  short-term  debt to meet  fluctuations  in  working
capital  requirements  and other interim  capital needs.  CSW has  established a
system  money  pool to  coordinate  short-term  borrowings  for  certain  of its
subsidiaries,  primarily the U.S. Electric Operating Companies. In addition, CSW
also incurs borrowings for other subsidiaries that are not included in the money
pool. As of September 30, 1999,  CSW had revolving  credit  facilities  totaling
$1.4 billion to back up its  commercial  paper  program.  On June 25, 1999,  CSW
Credit closed its third amended and restated secured revolving credit agreement.
The $1.2 billion facility will expire on June 23, 2000.

      On April 2, 1999,  C3  Communications  announced a major  expansion  of C3
Networks, its long haul fiber network division. C3 Networks plans to invest over
$26  million in  existing  routes  and new  construction  in 1999,  of which $13
million was spent through  September 30, 1999. C3 Networks  delivers  networking
and services in Texas and Louisiana and plans to expand the network to Oklahoma.

      In November 1999,  Matagorda County Navigation District No. 1 (Texas) will
sell for the  benefit of CPL  $111.7  million  of 4.90%  Series  1999A and $50.0
million of 4.95% Series 1999B  unsecured tax exempt  pollution  control  revenue
refunding bonds. The bonds mature in 2030 but will be subject to remarketing and
an interest rate reset in two years.  The proceeds will be used to refund $111.7
million aggregate principal amount of outstanding  Matagorda 7-1/2% Series 1984A
bonds  due  December  15,  2014 and $50.0  million  aggregate  principal  amount
of outstanding 7-1/2% Matagorda Series 1990 bonds due March 21, 2020.

      In July 1999,  the Oklahoma  Development  Finance  Authority  sold for the
benefit of PSO $33.7 million of 4-7/8% unsecured  tax-exempt  pollution  control
revenue  refunding  bonds. The bonds mature in fifteen years but will be subject
to  remarketing  and an interest rate reset in five years.  In August 1999,  the
proceeds  were  used  to  refund  $33.7  million   aggregate   principal  amount
outstanding  of Oklahoma  Environmental  Finance  Authority  (PSO  Project) 5.9%
Series A bonds due December 1, 2007.

      The  foregoing  discussion  of liquidity  and capital  resources  contains
forward-looking  information  within the meaning of Section 21E of the  Exchange
Act. Actual results may differ materially from such projected information due to
changes in the underlying assumptions. See FORWARD-LOOKING INFORMATION.


PROPOSED AEP MERGER

      On December 22, 1997, CSW and AEP announced that their boards of directors
had  approved a  definitive  merger  agreement  for a tax-free,  stock-for-stock
transaction. The combined company would serve more than 4.6 million customers in
11 states and  approximately 4 million  customers  outside the United States. On
May 27, 1998, AEP shareholders approved the issuance of the additional shares of
stock  required  to complete  the  merger.  On May 28,  1998,  CSW  stockholders
approved the merger.

      Under the merger  agreement,  each common  share of CSW will be  converted
into 0.6 share of AEP common stock. CSW stockholders  will own approximately 40%
of the combined  company.  CSW plans to continue to pay  dividends on its common
stock  until the closing of the AEP Merger at  approximately  the same times and

                                       69
<PAGE>

rates per share as in 1998, subject to continuing  evaluation of CSW's financial
condition, earnings, prospects and other factors by the CSW Board of Directors.

      Under the merger agreement, there will be no changes required with respect
to the  public  debt  issues,  the  outstanding  preferred  stock  or the  Trust
Preferred Securities of CSW's subsidiaries.

      AEP and CSW anticipate net savings related to the merger of  approximately
$2  billion  over a  10-year  period  from the  elimination  of  duplication  in
corporate and administrative  programs,  greater  efficiencies in operations and
business processes, increased purchasing efficiencies and the combination of the
two work  forces.  AEP and CSW  continue to seek  opportunities  for  additional
savings.  At the same time, the companies expect to continue their commitment to
high  quality,  reliable  service.  Job  reductions  related  to the  merger are
expected  to be  approximately  1,050  out  of a  total  domestic  workforce  of
approximately  25,000.  The combined  company  expects to use a  combination  of
growth,  reduced  hiring  and  attrition  to  minimize  the  need  for  employee
separations.  Transition  teams of  employees  from  both  companies  will  make
organizational and staffing recommendations.

      The  electric  systems of AEP and CSW will  operate on an  integrated  and
coordinated  basis as required by the Holding  Company  Act. AEP and CSW project
fuel savings of  approximately  $98 million over a 10-year period resulting from
the coordinated operation of the combined company,  which will be passed through
to customers.

      The merger agreement  contains  covenants and agreements that restrict the
manner in which the parties may operate their  respective  businesses  until the
time of closing of the merger. In particular,  without the prior written consent
of AEP,  CSW may not  engage in a number of  activities  that  could  affect its
sources  and  uses of  funds.  Pending  closing  of the  merger,  CSW's  and its
subsidiaries'  strategic investment activity,  capital expenditures and non-fuel
operating  and  maintenance  expenditures  are limited to  specific  agreed upon
projects and in agreed upon amounts.  In addition,  prior to consummation of the
merger,  CSW and its  subsidiaries  are  restricted  from: (i) issuing shares of
common stock other than pursuant to employee benefit plans;  (ii) issuing shares
of  preferred  stock or  similar  securities  other than to  refinance  existing
obligations or to fund permitted investment or capital  expenditures;  and (iii)
incurring indebtedness other than pursuant to existing credit facilities, in the
ordinary  course  of  business,   or  to  fund  permitted  projects  or  capital
expenditures.  These  limitations do not preclude CSW and its subsidiaries  from
making investments and expenditures in amounts previously budgeted.

      Cook Nuclear Plant
      On June 25, 1999, AEP announced a  comprehensive  plan to restart the idle
Cook  nuclear  power  plant.  Unit 2 is  scheduled to return to service in April
2000, and Unit 1 is scheduled to return to service in September 2000. AEP stated
that its announcement  follows a comprehensive  systems  readiness review of all
operating  systems at Cook nuclear  power plant and a  cost/benefit  analysis of
whether  to  restart  the  plant  or shut it down  completely.  Plant  officials
originally shut down both units of the facility, located in Bridgman,  Michigan,
in September 1997 because of questions raised during a design  inspection by the
NRC.  AEP  estimated  that  its  costs  to  restart  the idle  plant  should  be
approximately  $574  million  of  which  $280  million  has been  spent  through
September 1999.

      Merger Regulatory Approvals
      The merger is  conditioned,  among  other  things,  upon the  approval  of
several state and federal regulatory agencies.

      General
      Testimony submitted in the filings in Arkansas, Louisiana, Oklahoma, Texas
and at the FERC outlined the expected company-wide benefits of the merger to AEP
and CSW customers and shareholders.

                                       70
<PAGE>

      FERC
      On April 30, 1998,  AEP and CSW jointly  filed a request with the FERC for
approval of their proposed merger.

      On May 25, 1999, AEP and CSW announced they had reached a settlement  with
the FERC trial  staff  resolving  competition  and rate  issues  relating to the
proposed merger. On July 13, 1999, AEP and CSW reached an additional  settlement
with the FERC trial staff resolving  additional  issues. The settlement has been
submitted to the FERC for approval.

      Under the terms of the settlements, in June 1999 AEP filed with the FERC a
regional  transmission  organization  proposal  whereby  it  will  transfer  the
operation and control of AEP's bulk  transmission  facilities to an undetermined
independent  system  operator.  The  transmission  facilities  subject  to  this
commitment are located in Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia
and West Virginia.

      The settlements also cover rates for  transmission  services and ancillary
services  as  well  as  resolving  issues  related  to  the  system  integration
agreement,  the  transmission  reassignment  tariff and the system  transmission
integration  agreement.  The  settlements  confirm,  subject to FERC guidance on
certain  elements,  that the proposed  generation  divestiture  will satisfy the
market power  concerns of the FERC staff.  In their merger filing with the FERC,
AEP and CSW proposed  divesting  ownership of 300 MW of  generation  capacity at
PSO's  Northeastern  Power  Station  Units  3 and 4 in  Oklahoma  and  250 MW of
generation  capacity  at the  Frontera  power  plant,  a  merchant  plant  being
constructed in Texas by a CSW subsidiary.

      On June 28, 1999,  AEP and CSW filed a motion asking the FERC to waive the
requirement  for a  post-hearing  decision by the ALJ and  consideration  of the
matter by the FERC based on the hearing record and briefs. The FERC subsequently
issued  an  order  requiring  the ALJ to issue an  initial  decision  as soon as
possible,  but no later  than  November  24,  1999.  The FERC  order  also set a
procedural  schedule  that  should  allow the FERC to issue a final order in the
first quarter of 2000.

      AEP and CSW have  reached  settlements  with the Missouri  Public  Service
Commission and various  wholesale  customers and  intervenors in the FERC merger
proceeding.

      Hearings at the FERC concluded July 19, 1999.

      Arkansas
      On June 12,  1998,  AEP and CSW jointly  filed a request with the Arkansas
Commission for approval of the proposed merger.  The Arkansas  Commission issued
an order  approving  the merger on August 13,  1998,  subject to approval of the
associated regulatory plan. On December 17, 1998, the Arkansas Commission issued
a final order granting conditional approval of a stipulated agreement related to
a proposed merger regulatory plan. The stipulated  agreement calls for SWEPCO to
reduce  rates  through  a net  merger  savings  rider  for its  Arkansas  retail
customers by $6 million over the five-year  period  following  completion of the
merger.  The Arkansas  Commission  order notes the  possibility  of decisions in
other jurisdictions  adversely affecting provisions of the stipulated agreement.
Consequently,  the  Arkansas  Commission  conditioned  its  final  order  on its
consideration   of   approval   of  the  merger  in  other   state  and  federal
jurisdictions.

      Louisiana
      On May 15, 1998,  AEP and CSW jointly  filed a request with the  Louisiana
Commission for approval of the proposed merger and for a finding that the merger
is in the public interest.

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      On  September  27, 1999,  the  Louisiana  Commission  issued a final order
granting  conditional  approval  of the pending  merger  between AEP and CSW. In
granting  approval,   the  Louisiana   Commission  also  approved  a  stipulated
settlement with the Louisiana Commission staff. Under the stipulated settlement,
AEP and CSW have  agreed  to share  with  SWEPCO's  Louisiana  customers  merger
savings  created as a result of the merger  over the eight years  following  its
completion.  A savings mechanism will be implemented to calculate merger savings
annually.  AEP and CSW estimate that the customer rate credits in Louisiana will
total more than $18 million  during that  eight-year  period.  During the second
year  following  completion  of the  merger,  customers  will begin  receiving a
monthly rate credit for 50% of calculated  merger  savings.  This credit will be
updated  annually  and  continue  for the  remainder  of the  eight-year  period
following the merger's completion.

      Oklahoma
      On August 14, 1998,  AEP and CSW jointly filed a request with the Oklahoma
Commission for approval of their proposed merger.

      An amended  application was filed with the Oklahoma Commission on February
25, 1999. On May 11, 1999, the Oklahoma  Commission approved the proposed merger
between  AEP and CSW.  The  approval  follows a partial  settlement  between the
Oklahoma  Commission  Utility Division Staff, the Oklahoma  Commission  Consumer
Services Division, the Office of the Attorney General for Oklahoma, PSO, AEP and
CSW.  The  Oklahoma  Commission  order was  appealed by the  Municipal  Electric
Systems of Oklahoma, Inc. and the Oklahoma Association of Electric Cooperatives.
On October 13, 1999,  the Oklahoma  Supreme  Court  dismissed  the appeal of the
Oklahoma  Association  of Electric  Cooperatives.  The Oklahoma  Association  of
Electric  Cooperatives  filed a motion to  dismiss  its  appeal of the  Oklahoma
Commission order approving the merger.

      Under the  partial  settlement  agreement,  AEP and CSW  would:  (i) share
merger savings with Oklahoma  customers as well as AEP  shareholders,  effective
with the merger closing;  (ii) not increase Oklahoma base rates prior to January
1, 2003;  (iii) file by December 31, 2001 with the FERC an application to join a
regional  transmission  organization;  and (iv) establish  additional quality of
service  standards  for PSO's retail  customers.  Oklahoma's  share of the $50.2
million in  guaranteed  net merger  savings  over the first five years after the
merger  is  consummated  would  be  split  between  Oklahoma  customers  and AEP
shareholders, with customers receiving approximately 55% of the savings.

      The Oklahoma  Commission has withdrawn its opposition to the merger at the
FERC.

      Texas
      On April 30,  1998,  AEP and CSW  jointly  filed a request  with the Texas
Commission for a finding that the merger is in the public interest.

      On May 4, 1999, AEP and CSW announced a proposed  settlement  with several
intervenor  groups for the proposed  merger  between AEP and CSW. The settlement
would result in combined rate  reductions  totaling $221 million over a six-year
period for Texas customers of the three CSW Texas electric  operating  companies
(CPL,  SWEPCO and WTU) if the  merger is  completed  as  planned  and issues are
resolved  associated  with  CPL,  SWEPCO  and WTU rate  and fuel  reconciliation
proceedings.

      The  settlement  was  reached  with  the  General  Counsel  of  the  Texas
Commission,  the State of Texas, the Texas Industrial Energy Consumers,  the Low
Income  Intervenors,  the  Office of  Public  Utility  Counsel  of Texas and the
steering committee of the cities of McAllen, Corpus Christi, Victoria,  Abilene,
Big Lake,  Vernon and Paducah.  The  settlement  expands  upon a previous  Texas
settlement  announced on November 12,  1998,  with the Office of Public  Utility
Counsel of Texas and the  cities'  steering  committee.  That  prior  settlement
agreement provided for Texas retail rate reductions of $180 million over the six

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<PAGE>

years following  completion of the merger. The new settlement agreement proposes
additional rate reductions totaling $41 million for a total of $221 million. The
settlement also calls for the divestiture of a total of 1,604 MW of existing and
proposed generating capacity within Texas.

      The first  rate-reduction  rider  provides for $84.4 million in net-merger
savings.  The amounts are to be credited  to Texas  customers'  bills  through a
net-merger-savings  rate-reduction  rider over six years following completion of
the merger.

      Additional  rate-reduction  riders will be  implemented  to resolve issues
associated with CPL, WTU and SWEPCO rate and fuel reconciliation proceedings and
court appeals in Texas. The settlement  provides for an additional  reduction of
$136.6  million,  which  will  be  implemented  over  the  six  years  following
completion of the merger.

      Hearings  on the merger in Texas  began  August 9, 1999 and  concluded  on
August 10, 1999. As the hearings  began,  settlements  were reached with all but
one of the parties in the case. The settling parties are all wholesale  electric
customers  of  the  three  CSW  Texas  electric  operating  companies,  and  the
settlements  call for the  withdrawal  of their  opposition to the merger in all
regulatory approval proceedings.  On October 1, 1999, an ALJ for the Texas State
Office of  Administrative  Hearings issued a proposal for decision  recommending
that the Texas Commission approve the pending merger between AEP and CSW. In the
proposal for decision, the ALJ determined that, consistent with the terms of the
proposed settlement,  the merger is in the public interest. On November 2, 1999,
the Texas Commission approved the proposed merger with AEP.

      NRC
      On June 19, 1998, CPL filed a license  transfer  application  with the NRC
requesting  the NRC's  consent  to the  indirect  transfer  of  control of CPL's
interests in the NRC licenses issued for STP from CSW to AEP. CPL would continue
to own its  25.2%  interest  in STP,  and  CPL's  name  would  remain on the NRC
operating  license.  On November 5, 1998, the NRC approved the license  transfer
application  with a condition  that the merger must be completed by December 31,
1999.  CPL will request an extension for a license  transfer with the NRC in the
fourth quarter of 1999.

      Other Federal
      On October 13, 1998, AEP and CSW jointly filed an application with the SEC
for  approval  of the  proposed  merger.  The SEC  merger  filing is  similar to
requests currently pending before other  jurisdictions and outlines the expected
combined   company  benefits  of  the  merger  to  AEP  and  CSW  customers  and
shareholders.  AEP and CSW have filed  several  amendments  to the  application.
Several parties have filed petitions opposing the proposed merger at the SEC. On
July 23, 1999, AEP and CSW filed a brief in response to the intervenor petitions
at the SEC. AEP and CSW will file an amendment to the  application in the fourth
quarter of 1999.

      On July 29, 1999,  applications  were made with the FCC to  authorize  the
transfer of control of licenses of several CSW  entities to AEP. The granting of
such  authority  is  expected  by the end of 1999  and  will be  effective  upon
completion of the proposed merger.

      On July 26,  1999,  AEP and CSW  submitted  filings to the  Department  of
Justice  under the  Hart-Scott-Rodino  Antitrust  Improvements  Act of 1976.  On
August 26, 1999, AEP and CSW received a request for additional  information from
the Department of Justice.  AEP and CSW plan to file the additional  information
with the Department of Justice in the fourth quarter of 1999.

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<PAGE>

      United Kingdom
      CSW  has a 100%  interest  in  SEEBOARD  and  AEP  has a 50%  interest  in
Yorkshire.  The proposed merger of CSW into AEP would result in common ownership
of the  United  Kingdom  entities.  Although  the  merger of CSW into AEP is not
subject  to  approval  of United  Kingdom  regulatory  authorities,  the  common
ownership of the United Kingdom entities could be referred by the United Kingdom
Secretary  of State for Trade and Industry  for an  investigation  by the United
Kingdom Competition Commission. CSW is unable to predict the ultimate outcome of
any such regulatory proceeding.

      AEP
      On April 20,  1999,  AEP reached a  settlement  with the  Indiana  Utility
Regulatory  Commission staff addressing  matters  pertinent to Indiana regarding
the proposed  merger.  The Indiana Utility  Regulatory  Commission  approved the
settlement  on  April  26,  1999.  The  settlement  agreement  resulted  from an
investigation  of the  proposed  merger  between  AEP and CSW  initiated  by the
Indiana Utility Regulatory Commission.

      On April 21, 1999,  AEP and CSW announced  that they had reached  separate
settlements  with six wholesale  customers  that address  issues  related to the
proposed merger.

      On April 28, 1999,  AEP and CSW announced  that they ratified a settlement
agreement with local unions of the IBEW  representing  employees of AEP and CSW.
The  settlement  agreement  covered issues related to the pending merger between
AEP and CSW. As part of the  settlement,  the IBEW local  unions have  withdrawn
their opposition to the merger.

      On May 26, 1999,  AEP and CSW  announced  that it had reached a settlement
agreement  with the  Kentucky  Attorney  General and several  AEP  customers  in
Kentucky  addressing  matters pertinent to Kentucky regarding the pending merger
between AEP and CSW. The Kentucky  Public  Service  Commission  has approved the
settlement.

      On August 6, 1999, AEP announced that they ratified a settlement agreement
with local unions of the UWUA  representing  employees  of AEP.  The  settlement
agreement  covered  issues raised in the pending  merger between AEP and CSW. As
part of the settlement, the UWUA local unions will not oppose the merger.

      On October  21,  1999,  the Public  Utility  Commission  of Ohio  issued a
decision  stating  that it will notify the FERC that it is no longer  opposed to
AEP's proposed merger with CSW and that it will no longer seek conditions on the
merger.

      Completion of the Merger
      AEP and CSW have targeted  consummation  of the AEP Merger to occur in the
second quarter of 2000. The merger is conditioned,  among other things, upon the
approval of several state and federal regulatory agencies.  The transaction must
satisfy many  conditions,  including the condition that it must be accounted for
as a pooling of interests.  The parties may not waive some of these  conditions.
AEP and CSW have  initiated  the process of seeking  regulatory  approvals,  but
there can be no  assurance  as to when,  on what terms or whether  the  required
approvals will be received or whether there will be any  regulatory  proceedings
in the United Kingdom.  After December 31, 1999, either CSW or AEP may terminate
the merger  agreement if all of the  conditions to its  obligation to close have
not been satisfied,  provided that either party may extend the merger agreement,
under certain  circumstances,  through June 30, 2000.  There can be no assurance
that the AEP Merger will be consummated.

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<PAGE>

      Merger Costs
      As of September 30, 1999,  CSW had deferred $38.6 million in costs related
to the AEP Merger on its  consolidated  balance sheet,  which will be charged to
expense if AEP and CSW are not successful in completing their proposed merger.


RECENT DEVELOPMENTS AND TRENDS

      Industry restructuring and legislative initiatives in the U.S. Congress
      Several bills have been introduced in the 106th U.S.Congress which provide
for the restructuring and/or deregulating of the electric utility industry. Most
of the bills seek to clarify state  authority to mandate retail  choice,  repeal
the Holding  Company Act,  repeal  prospectively  the Public Utility  Regulatory
Policies Act of 1978, expand FERC authority over public power entities,  address
transmission  reliability,  and other issues. Recently, HR 2944 "The Electricity
Competition and Reliability Act" was reported by the House Commerce Subcommittee
on Energy and Power on October 27, 1999. Among other provisions, if enacted, the
legislation would repeal the Holding Company Act twelve months after the bill is
signed into law and  clarifies  that states have the  authority  to order retail
competition  without a federal mandate.  Management  cannot predict the ultimate
outcome of any legislative initiatives.

      Industry  Restructuring  Legislation  in Texas,  Louisiana,  Oklahoma  and
      Arkansas
      Several initiatives to restructure the electric utility industry and enact
retail  competition  have been  undertaken  in the four states in which the U.S.
Electric  Operating  Companies  operate.  Legislation was enacted in Oklahoma in
1997 and  1998,  and in Texas  and  Arkansas  in 1999.  CSW will  make  business
unbundling  plan filings in Texas and  Arkansas in the first  quarter of 2000 as
required by the  legislation.  Legislative  activity in Louisiana  has, to date,
stopped short of any such definitive action.

      Oklahoma
      In  1997,  the  Oklahoma  Legislature  passed  restructuring   legislation
providing  for retail  access by July 1,  2002.  That  legislation  called for a
number  of  studies  to be  completed  on a  variety  of  restructuring  issues,
including  independent  system  operator  issues,  technical  issues,  financial
issues,  transition issues and consumer issues.  The study on independent system
operator issues was completed in January 1998.

      In  1998,  the  Oklahoma   Legislature   passed  Senate  Bill  888,  which
accelerated  the schedule for  completion  of the  remaining  studies to October
1999. Those studies were conducted under the direction of the Legislative  Joint
Electric  Utility  Task Force,  rather than by the  Oklahoma  Commission  as the
previous  legislation  required.  The task force organized the study effort into
several  working groups,  which were directed to evaluate  assigned  issues.  On
October 1, 1999, the task force completed its report to the Oklahoma Legislature
based on the work performed by these working groups.  The report  primarily is a
compilation of the positions taken by the various parties  participating  in the
working  groups.  The  information  in the report is  expected to be used in the
development  of  additional  industry  legislation  during the 2000  legislative
session.  Management  is unable to predict the ultimate  impact of the report or
the effects of any 2000  industry  restructuring  legislation  on the results of
operations and financial condition of CSW and PSO.

      Louisiana
      In 1998, a special  legislative  committee created by the Louisiana Senate
studied  the  impact  of  retail  competition  on the  state  of  Louisiana.  No
legislation  has been  enacted as a result of that effort.  In addition,  during
1998  and  1999,  the  Louisiana  Commission  conducted  a  proceeding  to study
restructuring  and  retail  competition.  Since the  Louisiana  Commission  is a
constitutionally  created body, it can implement  industry  restructuring on its
own without additional  legislation.  Parties submitted  comments,  and hearings

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<PAGE>

were held on a number of specific  restructuring topics. Also, as a part of that
proceeding,  utilities  filed rate  unbundling  information  with the  Louisiana
Commission staff.

      As a result of that  proceeding,  the Louisiana  Commission staff released
its report on industry  restructuring,  including its recommendations  regarding
retail competition in Louisiana.  In its report, the Louisiana  Commission staff
recommended that electric industry restructuring should not proceed at this time
because it is not in the public  interest.  However,  the  Louisiana  Commission
staff  proposed  a  restructuring  plan  as an  alternative,  in the  event  the
Louisiana  Commission  decides  to  move  forward  with  the  electric  industry
restructuring and retail  competition.  The Louisiana  Commission voted to begin
additional study and analysis of the issues  associated with  restructuring  and
has adopted a procedural schedule that will result in a final restructuring plan
by January 1, 2001.

      Other
      Management   cannot  predict  the  ultimate  outcome  of  the  initiatives
concerning  restructuring and retail competition in Arkansas,  Louisiana,  Texas
and Oklahoma,  or their ultimate impact on the results of operations,  financial
condition,  or  competitive  position  of CSW and the  U.S.  Electric  Operating
Companies.

      The foregoing discussion  constitutes  forward-looking  information within
the  meaning of Section  21E of the  Exchange  Act.  Actual  results  may differ
materially from such projected information. See FORWARD -LOOKING INFORMATION.

      SEEBOARD Third Party Pension Litigation
      In the U.K.,  National Grid Group and National Power have been involved in
continuing  litigation  regarding their use of actuarial  surpluses set forth in
the  electricity  industry's  occupational  pension plan, the ESPS. A High Court
decision in favor of the National Grid Group and National Power was appealed. On
February  10,  1999,  the  U.K.  Court  of  Appeal  ruled  that  the  particular
arrangements  made by these  corporations to dispose of part of the surplus were
invalid due to  procedural  defects.  This  decision  was  confirmed  at a later
hearing of the U.K.  Court of Appeal held in May 1999,  although an  opportunity
for an appeal to be taken to the House of Lords,  the highest court of appeal in
the U.K., was granted.

      SEEBOARD  employees are members of the ESPS, and SEEBOARD has made similar
use of its actuarial surplus.  As a result of subsequent legal  clarification of
certain issues  arising from the hearing held in May 1999, the potential  impact
of the ruling on SEEBOARD has increased. The amount of the payments cancelled by
SEEBOARD,  both for past and future liabilities,  amounts, in the aggregate,  to
approximately $78 million, excluding interest.

      The U.K. Court of Appeal did not order the National Grid Group or National
Power  to  make  payment  into  the  ESPS,  and the  court  indicated  that  any
requirement  to make such payments would be extreme since the ESPS already is in
surplus.  In the event that the court finally decides a payment by SEEBOARD into
the ESPS is  necessary,  such a payment is likely to create  additional  pension
fund  surplus,  which the company  should then be able to utilize  over the next
several years to reduce pension expense.

      The National Grid Group has indicated its intention to appeal to the House
of Lords.  The final  outcome of this appeal  cannot  presently  be  determined.
Management is unable  currently to predict the amount of any payment that it may
be required to make to ESPS or the effect,  if any, of the  ultimate  outcome of
the appeal on CSW's results of operations and financial condition.

      The foregoing discussion  constitutes  forward-looking  information within
the  meaning of Section  21E of the  Exchange  Act.  Actual  results  may differ
materially from such projected information. See FORWARD -LOOKING INFORMATION.

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RATES AND REGULATORY MATTERS

      Electric Utility Restructuring Legislation
      On June 18,  1999,  legislation  was  signed  into law in Texas  that will
restructure the electric utility industry in the state. The new law, among other
things:  gives Texas  customers of  investor-owned  utilities the opportunity to
choose  their  electric  provider  beginning  January 1, 2002;  provides for the
recovery of stranded  costs which are defined as the excess of net book value of
generation  assets  over the  defined  market  value of those  assets;  requires
reductions  in  nitrogen  oxide and sulfur  dioxide  emissions;  provides a rate
freeze until January 1, 2002 followed by a 6% rate reduction for residential and
small commercial  customers,  additional rate reduction for low income customers
and a number of customer  protections  and sets certain limits on capacity owned
and controlled by power generation  companies.  Rural electric  cooperatives and
municipal   electric  systems  can  choose  whether  to  participate  in  retail
competition.  Delivery of the electricity will continue to be the responsibility
of the local electric transmission and distribution utility company at regulated
prices.  Each  utility  must  unbundle  its  business  activities  into a retail
electric   provider,   a  power  generation   company  and  a  transmission  and
distribution utility. CPL, SWEPCO and WTU will file their business separation or
"unbundling" plans with the Texas Commission in January 2000.

      During 1999, legislation was also enacted in Arkansas that will ultimately
restructure  the  electric  utility  industry in that state.  SWEPCO will file a
business unbundling plan in Arkansas in the first quarter of 2000 as required by
the legislation.

      The financial  statements of the U.S.  Electric  Operating  Companies have
historically  reflected the effects of applying the requirements of SFAS No. 71.
Pursuant to those  requirements,  the U.S.  Electric  Operating  Companies  have
recorded  regulatory  assets  and  liabilities  (probable  future  revenues  and
refunds) to reflect the economic effect of cost-based regulation. When a company
determines  that its  operations or a segment of its  operations no longer meets
the criteria for applying SFAS No. 71, it is required to apply the  requirements
of SFAS No. 101. Pursuant to those requirements and further guidance provided in
EITF 97-4, a company is required to write off regulatory  assets and liabilities
related to deregulated  operations,  unless recovery of such amounts is provided
through rates to be collected in a continuing regulated portion of the company's
operations.  Additionally,  it is required to  determine if any plant assets are
impaired under SFAS No. 121.

      As a result  of the  scheduled  deregulation  of  generation  in Texas and
Arkansas,  CSW has concluded that it should  discontinue the application of SFAS
No. 71 for the Texas generation  portion of the business for CPL and WTU and the
Texas and  Arkansas  jurisdictional  portions  of the  generation  business  for
SWEPCO.  Consequently,  WTU recorded an extraordinary charge to earnings of $5.5
million and SWEPCO recorded an extraordinary  charge to earnings of $3.0 million
to reflect the effects of  discontinuing  the  application of SFAS No. 71 and to
write off net of regulatory assets that are not probable of recovery.

      The  discontinuance  of SFAS No. 71 for CPL did not result in a net charge
to earnings as such net  regulatory  assets,  pursuant to the  legislation,  are
expected to be recovered from  transmission and distribution  customers  through
rates that will continue to be regulated.

      Electric  utilities  under the Texas  Legislation  are  allowed to recover
generation-related  regulatory  assets and stranded costs that otherwise may not
be  recoverable  in the future  competitive  market.  All or a majority of those
costs can be refinanced through securitization, which is a financing designed to
provide lower financing costs than is available through the conventional utility
cost of capital model.  The  securitized  amounts are then  recovered  through a
non-bypassable  charge.  On October 18, 1999, CPL filed an application  with the
Texas  Commission  to  securitize  approximately  $1.27  billion  of its  retail

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<PAGE>

generation-related  regulatory  assets and  approximately  $47  million in other
qualified costs. If approval is received from the Texas Commission,  CPL expects
to issue the  securitization  bonds in March or April 2000,  depending on market
conditions and the timing of an order from the Texas Commission.  A second phase
of  securitization  relating to additional  plant related  stranded costs should
occur in 2001  depending  upon market  conditions,  timing and Texas  Commission
approvals.   A  non-bypassable   charge  may  be  used  to  recover   additional
unsecuritized stranded cost amounts.

      Under the provisions of EITF 97-4, CPL's generation-related net regulatory
assets were  transferred to the  transmission  and  distribution  portion of the
business  and  will be  amortized  as they  are  recovered  through  charges  to
customers.  Management  currently  believes all  regulatory  and stranded  costs
related to generation  assets for CPL will be recovered as provided  under Texas
Legislation.  CPL believes it will have stranded costs related to its generation
assets in excess of the $1.27 billion of costs  contained in its  securitization
filing made with the Texas Commission on October 18, 1999. If future events were
to occur that made the  recovery of these assets no longer  probable,  CPL would
write off any  non-recoverable  portion of such  assets as a non-cash  charge to
earnings.  CPL's amount of regulatory assets and stranded costs are subject to a
final  determination  by the Texas  Commission  in 2004.  The Texas  Legislation
provides  that all such finally  determined  stranded  costs will be  recovered.
Since  SWEPCO  and  WTU  are  not  expected  to have  net  stranded  costs,  all
generation-related  non-recoverable  net regulatory  assets were written off and
reflected on the statement of income as an extraordinary item.

      Additionally,  CPL,  SWEPCO and WTU  performed  an  accounting  impairment
analysis  of  generation  assets  under SFAS No. 121 at  September  30, 1999 and
concluded  there  was no  impairment  of  generation  assets  at this  time.  An
impairment  analysis involves  estimating future net cash flows arising from the
use of an asset.  If the net cash flows  exceed the net book value of the asset,
then there is no impairment of the asset for accounting  purposes.  CPL,  SWEPCO
and WTU will continue to review their assets for potential  impairment if events
or changes in circumstances  indicate the carrying amount of an asset may not be
recoverable.

      The Texas Legislation also provides that each year during the 1999 through
2001 rate freeze period, utilities with stranded costs are required to apply any
earnings in excess of the most recently  approved cost of capital in a company's
last rate case (if issued on or after January 1, 1992) to reduce stranded costs.
As a result,  CPL  recorded a net charge to earnings of $4.6  million to reflect
the impact of this provision.  Utilities without stranded costs must either flow
such amounts back to  customers  or make capital  expenditures,  at no charge to
customers,  to improve transmission or distribution facilities or to improve air
quality. As a result, WTU recorded a charge to earnings of $6.4 million from the
effect of the earnings cap under the Texas  Legislation.  The charges were based
on estimates for the current year and are subject to final  determination by the
Texas Commission. Following CPL's discontinuation of SFAS No. 71, it is expected
that any future excess  earnings will only be applied to reduce  stranded  costs
for regulatory purposes.

      The  discontinuance  of SFAS No. 71 for CPL's and WTU's  Texas  generation
business and SWEPCO's Texas and Arkansas generation business requires that these
businesses  no longer defer costs or recognize  liabilities  strictly  resulting
from the  actions  of a  regulator.  For  example,  operations  and  maintenance
expenditures will be expensed as incurred regardless of regulatory treatment. In
addition,  the equity component of allowance for funds used during  construction
can no longer be accrued for generation-related  capital projects.  Instead, the
businesses will be required to follow the interest  capitalization rules in SFAS
No. 34.

      CSW  continues  to analyze  the impact of the  electric  utility  industry
restructuring  legislation on the U.S. Electric Operating  Companies.  The Texas
Commission has established numerous task forces, including  representatives from
CPL,  SWEPCO  and WTU,  to  address  various  issues  associated  with the Texas
Legislation and to provide guidance  regarding  implementation of restructuring.
Based on the overall framework and objective of the Texas Legislation  regarding

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<PAGE>

recovery  of stranded  costs and  regulatory  assets,  and  additional  guidance
obtained through participation in various task force workshop sessions,  certain
adjustments  were  recorded by CSW in the third quarter of 1999 to recognize the
estimated effect of the legislation.  CSW also recorded certain  adjustments for
the Arkansas  jurisdictional portion of SWEPCO's generation business as a result
of legislation enacted in Arkansas.

      As previously discussed,  as a result of the Texas Legislation,  CPL filed
its  application  for   securitization  on  October  18,  1999  with  the  Texas
Commission. CPL, SWEPCO and WTU expect to make additional filings with the Texas
Commission for business  separation plans in January 2000,  earnings cap reports
in March 2000, cost unbundling plans in April 2000 and the ECOM reports in April
2000.

      The foregoing discussion  constitutes  forward-looking  information within
the  meaning of Section  21E of the  Exchange  Act.  Actual  results  may differ
materially from such projected information. See FORWARD -LOOKING INFORMATION.

      Also see ITEM 2.  MD&A -  RECENT  DEVELOPMENTS  AND  TRENDS,  Texas  for a
discussion on legislation.

      CPL Rate Review - Docket No. 14965
      In  November  1995,  CPL filed  with the  Texas  Commission  a request  to
increase  its retail base rates by $71 million.  On October 16, 1997,  the Texas
Commission issued the CPL 1997 Final Order. The CPL 1997 Final Order lowered the
annual retail base rates of CPL by approximately  $19 million or 2.5% from CPL's
rate level  existing  prior to May 1996.  The Texas  Commission  also included a
"glide path" rate reduction  methodology in the CPL 1997 Final Order pursuant to
which CPL's  annual  rates would be reduced by $13 million on May 1, 1998 and an
additional $13 million on May 1, 1999.

      CPL  filed an  appeal of the CPL 1997  Final  Order to the State  District
Court of Travis County to raise  several  issues  related to the rate case.  The
primary  issues  include:  (i) the  classification  of $800  million of invested
capital in STP as ECOM which was assigned a lower return on equity than non-ECOM
property;  (ii) the Texas  Commission's  application  of the  "glide  path" rate
reduction  methodology applied on May 1, 1998 and May 1, 1999; and (iii) the $18
million of  disallowed  affiliate  expenses  from CSW  Services.  As part of the
appeal, CPL sought a temporary  injunction to prohibit the Texas Commission from
implementing the "glide path" rate reduction  methodology.  The court denied the
temporary  injunction,  and the "glide path" rate reductions were implemented in
May 1998 and May 1999. Hearings on the appeal were held during the third quarter
of 1998,  and a  judgment  was  issued  in  February  1999  affirming  the Texas
Commission  order,  except  for a  consolidated  tax  issue in the  amount of $6
million, which was remanded to the Texas Commission. CPL filed an appeal of this
most recent  order to the Court of Appeals and  management  is unable to predict
how the final resolution of these issues will ultimately  affect CSW's and CPL's
results of  operations  and  financial  condition.  On May 4, 1999,  AEP and CSW
announced that they had reached a stipulated  agreement with the General Counsel
of the Texas  Commission and other  intervenors in the state of Texas related to
the AEP/CSW merger case. The Texas  Commission  approved the AEP Merger in early
November  1999. If the AEP Merger is ultimately  consummated,  CSW will withdraw
its appeal  with  respect to the "glide  path"  rate  reduction  methodology  as
discussed  above as issue "(ii)" but will continue  seeking the appeal of issues
"(i) and (iii)" also discussed above..  See NOTE 5. PROPOSED AEP MERGER and ITEM
2. MD&A - PROPOSED AEP MERGER for a discussion on the stipulated agreement.

      Also see ITEM 1 - NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS,  CPL Rate
Review Docket No. 14965 for a discussion of the CPL 1997 Final Order.

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      SWEPCO Louisiana Rate Review
      In December  1997,  the  Louisiana  Commission  announced  it would review
SWEPCO's rates and service.  The Louisiana  Commission has selected  consultants
and legal  counsel  to perform a review of  SWEPCO's  rates and  charges  and to
review SWEPCO's  quality of service.  The Louisiana  Commission's  legal counsel
issued a report in June  1999,  reflecting  a  Louisiana  revenue  excess of $28
million.  SWEPCO  believed  the report  contained  significant  theoretical  and
mathematical errors and filed its rebuttal testimony on August 10, 1999.

      In October 1999, SWEPCO and the Staff of the Louisiana  Commission reached
an Agreement and Stipulation, which was filed on October 14, 1999. In support of
the  Agreement  and  Stipulation,  supplemental  testimony  was also filed.  The
provisions of the Agreement and Stipulation are:

-        SWEPCO's  Louisiana retail  jurisdictional  revenues are reduced by $11
         million, effective with the December 1999 billing cycle;
-        SWEPCO will be allowed to earn an 11.1% return on common equity;
-        SWEPCO will recover certain regulatory assets  totaling  $7.1  million;
-        SWEPCO will be subject to a two-year base rate freeze, which will be
         subject to force majeure provisions and;
-        Increased depreciation rates for transmission, distribution and general
         plant.

      Hearings were held before an ALJ on October 19, 1999. To meet the December
1999 implementation date contemplated in the Agreement and Stipulation, an order
from the Louisiana  Commission  must be received in November 1999. The Louisiana
Commission is scheduled to vote on the Agreement and Stipulation at its November
17, 1999 meeting.

      SWEPCO Arkansas Rate Review
      In June 1998,  the Arkansas  Commission  indicated that it would conduct a
review of SWEPCO's earnings.  The review began in July 1998. SWEPCO entered into
a settlement with the general staff of the Arkansas  Commission and the Arkansas
Attorney General's Office. The settlement was filed on July 30, 1999 and reduces
revenues  $5.4  million or 3%.  Additionally,  the  Stipulation  and  Settlement
Agreement  provides  for a 10.75%  return  on  common  equity,  an  increase  in
depreciation  rates,  and an  agreement  by  SWEPCO  not  to  seek  recovery  of
generation related stranded costs.

      On August 20, 1999, SWEPCO filed a Supplemental Stipulation and Settlement
Agreement,  which was reached with the one  remaining  party.  The  Supplemental
Stipulation  and  Settlement  Agreement  did not  alter  or  replace  any of the
original  monetary terms of the  Stipulation  and Settlement  Agreement filed on
July 30, 1999.

      On September 23, 1999, the Arkansas  Commission  issued an order approving
the Stipulation and Settlement  Agreement and the  Supplemental  Stipulation and
Settlement Agreement.  On October 25, 1999, SWEPCO filed compliance rate tariffs
with the Arkansas Commission,  which are consistent with the Arkansas Commission
order.  After review of the compliance rate tariffs by the Staff of the Arkansas
Commission,  new rates will be implemented.  SWEPCO anticipates implementing the
new rates with the December 1999 billing cycle.

       Regulatory Draft Price Proposal for SEEBOARD
      On October 8, 1999,  OFGEM published its revised draft price proposals and
results from its current United Kingdom electricity  distribution  review. OFGEM
has  recommended  revenue  reductions in SEEBOARD's  distribution  business.  In
addition,  OFGEM has proposed the  reallocation of a further 12%, or $45 million

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of  pre-tax  costs  out of  SEEBOARD's  distribution  business  into its  supply
business.  If adopted,  these  proposals would reduce net income for SEEBOARD in
the year 2000 by $40 million,  and by $60 million on an annual basis,  dependent
upon the level of further cost reductions that can be achieved. CSW's net income
from SEEBOARD USA, its United Kingdom business segment,  was $95 million for the
twelve months ended September 30, 1999.

      SEEBOARD  continues  to  analyze  the  draft   recommendations  and  their
potential effects on earnings and to seek a reduction in the severity of OFGEM's
proposed recommendations.  SEEBOARD is also currently analyzing future potential
cost reductions that can partially mitigate the impact of these proposals. OFGEM
is expected to finalize its  recommendations in early December 1999, which would
take effect in April 2000 for five years.  SEEBOARD  cannot predict  whether the
draft  price  proposals  ultimately  will be adopted  by OFGEM and,  if they are
adopted, the final form of the proposals.

      If OFGEM's  draft price  proposals  for SEEBOARD  ultimately  were adopted
without  change,  implementation  of the price  proposals  would have a material
adverse  effect on the future  results of operations of SEEBOARD USA and CSW. In
addition,  implementation  of the price  proposals  as drafted  could  adversely
affect the  financial  condition  of SEEBOARD  USA, but would not be expected to
adversely affect the financial condition of CSW.

      OFGEM has  published  draft price  proposals  for the  electricity  supply
businesses.  OFGEM has  recommended  that the price  cap for  charges  levied to
electricity  supply domestic and small business customers should be extended for
two years from April 2000.  If adopted,  the  proposals  are  expected to have a
broadly neutral effect on the results of SEEBOARD USA.

      The foregoing discussion  constitutes  forward-looking  information within
the  meaning of Section  21E of the  Exchange  Act.  Actual  results  may differ
materially from such projected information. See FORWARD -LOOKING INFORMATION.

      Other
      Reference  is made to NOTE 2 LITIGATION  AND  REGULATORY  PROCEEDINGS  for
information regarding fuel proceedings at CPL, SWEPCO and WTU.


ENVIRONMENTAL

      Clean Air Provisions of the Texas Legislation
      The Texas  Legislation  requires that  grandfathered  electric  generating
facilities  be  permitted,  reduce  emission  levels 50% and  provide for a cost
recovery  mechanism for companies with stranded  costs.  Final  regulations  are
expected  by  January  1,  2000.  The total  costs to comply  with the  expected
regulations for CPL, SWEPCO and WTU are expected to range from $3 million to $10
million.  Expenditures  at the high end of the  range are  estimated  to be $4.2
million for CPL, $4.8 million for SWEPCO and $1.0 million for WTU.  Expenditures
have begun to meet the requirements of the legislation.  Although CPL could seek
recovery of these  costs,  there is no  mechanism  for SWEPCO and WTU to recover
these costs under the Texas Legislation.

      Proposed Regional Control Strategy Regulations
      The Texas Natural Resource Conservation  Commission is expected to release
for comment  proposed  regulations  that, if adopted as proposed,  would require
reductions in nitrogen oxide emissions for existing permited electric generating
facilities  in the East Texas Region in addition to the Clean Air  Provisions of
the Texas Legislation  discussed above. The final regulations could be issued in
April 2000 with an  implementation  date of May 2003.  The current  estimate for

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compliance  with the proposed  rules could be as much as $38 million for CPL and
$151 million for SWEPCO in capital  project  costs and as much as $3 million for
CPL and $11 million for SWEPCO in additional annual operating costs.

      The foregoing discussion  constitutes  forward-looking  information within
the  meaning of Section  21E of the  Exchange  Act.  Actual  results  may differ
materially from such projected information. See FORWARD -LOOKING INFORMATION.


DIVERSIFIED ELECTRIC

      CSW Energy
      CSW Energy  presently  owns  interests in seven  operating  power projects
totaling 1,308 MW which are located in Colorado,  Florida and Texas.  CSW Energy
began  construction  in August 1998 of a 500 MW merchant  power plant,  known as
Frontera, in the Rio Grande Valley, near the city of Mission, Texas. The natural
gas-fired  facility  began simple cycle  operation of 330 MW in July 1999 and is
scheduled to commence  combined cycle operation by the end of 1999.  Pursuant to
AEP's and CSW's  stipulated  agreement with several  intervenors in the state of
Texas  related to the AEP Merger,  CSW Energy will sell 250 MW of Frontera  upon
completion  of the  merger.  See  ITEM  1. - NOTE 5.  PROPOSED  AEP  MERGER  and
MD&A-PROPOSED AEP MERGER for a discussion including timing of the sale.

      CSW Energy has entered into an agreement with Eastman  Chemical Company to
construct and operate a 440 MW cogeneration  facility in Longview,  Texas.  This
facility will be known as the Eastex Cogeneration  Project.  Construction of the
facility is  scheduled  to begin in the fourth  quarter of 1999,  with  expected
operation in 2001. Excess electricity generated by the plant will be sold by CSW
Energy in the  wholesale  electricity  market.  Since  Eastex will be built as a
qualifying facility,  CSW Energy will be required to sell 50% of the plant prior
to commercial operation.

      In addition to these  projects,  CSW Energy has other  projects in various
stages of development.

      In October  1999,  GE Capital  Structured  Finance  Group    purchased  50
percent of the equity ownership of Sweeny Cogeneration Limited Partnership.  CSW
Energy's  after-tax  earnings  from  the  proceeds  of the  transaction  will be
approximately  $33 million  and will be recorded in the fourth  quarter of 1999.
The agreement  between CSW Energy and GE Capital  Structured  Finance Group also
provides for additional payments subject to completion of a planned expansion of
the Sweeny cogeneration facility.

      The preceding discussion contains  forward-looking  information within the
meaning of Section 21E of the Exchange Act. Actual results may differ materially
from such projected information. See FORWARD-LOOKING INFORMATION.

      CSW International
      CSW International was organized to pursue investment opportunities in EWGs
and FUCOs and currently  holds  investments  in the United  Kingdom,  Mexico and
South America.

      CSW  International  and its 50% partner,  Scottish Power plc, have entered
into a joint venture to construct and operate the South Coast power  project,  a
400-MW combined cycle gas turbine power station in Shoreham, United Kingdom. CSW
International has guaranteed  approximately  (pound)19 million of the (pound)190
million construction  financing,  and the permanent financing is unconditionally
guaranteed by the project.  Construction  of the project began in March 1999 and
commercial operation is expected to begin in 2000.

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      Through  June 30,  1999,  CSW  International  had  purchased  a 36% equity
interest in Vale for $80 million.  CSW International  also extended $100 million
of debt to Vale.  CSW  International  anticipates  converting $69 million of the
$100 million to equity by the end of 1999,  with the remaining $31 million to be
converted over the next two years. Currently, CSW International accounts for its
$80 million investment in Vale on the equity method of accounting,  and the $100
million of debt as a loan.

      In mid-January  1999, amid market  instability,  the Brazilian  government
abandoned its policy of pegging the Brazilian  Real in a broad range against the
dollar.  This action resulted in a 60% devaluation of the Brazilian  currency by
the end of September 1999.  Vale is unfavorably  affected by the devaluation due
primarily to the revaluation of foreign denominated debt.

      CSW International has a put option, which, if exercised,  requires Vale to
purchase CSW International shares at a minimum price equal to the purchase price
for Vale. As a result of the put option  arrangement,  management  has concluded
that CSW  International's  investment  carrying amount will not be reduced below
the put  option  value  unless  there is  deemed to be a  permanent  impairment.
Pursuant to the put option arrangement, CSW International will not recognize its
proportionate  share of any future earnings until its proportionate share of any
losses of Vale are  recognized.  At September 30, 1999,  CSW  International  had
deferred  losses,  after tax, of  approximately  $23 million related to its Vale
investment.  CSW  International  views  its  investment  in Vale as a  long-term
investment,  which has significant long-term value.  Management will continue to
closely  evaluate  the  changes in the  Brazilian  economy and its impact on CSW
International's investment in Vale.

      As of September 30, 1999, CSW  International  had invested $110 million in
stock of a Chilean electric company.  The investment is classified as securities
available  for sale and  accounted  for by the cost method.  Based on the market
value of the shares and foreign  exchange rates,  the value of the investment at
September 30, 1999 is $62 million.  The reduction in the carrying  value of this
investment   has  been  reflected  in  Other   Comprehensive   Income  in  CSW's
Consolidated Statements of Stockholders' Equity. Management views its investment
in Chile  as a  long-term  investment  strategy  and  believes  this  investment
continues  to have  significant  long-term  value  and  that it is  recoverable.
Management  will continue to closely  evaluate the changes in the South American
economy and its impact on CSW International's investment in the Chilean electric
company.

      In addition to these  projects,  CSW  International  has other projects in
various stages of development.

      The preceding discussion contains  forward-looking  information within the
meaning of Section 21E of the Exchange Act. Actual results may differ materially
from such projected information. See FORWARD-LOOKING INFORMATION.


OTHER MATTERS

      Year 2000
      On a  system-wide  basis,  CSW  initiated  a year 2000  project to prepare
internal  computer systems and applications for the year 2000. These systems and
applications  include  management  information  systems  that  support  business
operations such as customer billing, payroll,  inventory and maintenance.  Other
systems with  computer-based  controls  such as  telecommunications,  elevators,
building environmental management,  metering, plant, transmission,  distribution
and substations are included in this project as well.

      CSW considers year 2000  readiness a top priority.  The formal project was
initiated  in late 1996 at which time an executive  sponsor and project  manager
were named and a centralized  project management office was formed. More than 30
readiness teams were initiated and they have completed the readiness  activities

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for critical systems. Those teams represent the equivalent of about 90 full-time
employee  positions  working  on year 2000  readiness.  The teams  used a formal
approach that included inventory,  assessment,  remediation,  testing of systems
and development of contingency plans. Formal progress  checkpoints continue on a
biweekly basis. An executive  oversight council comprised of the functional vice
presidents  continues to convene  monthly to review progress and address issues.
The project  executive  sponsor  provides  updates to top management on a weekly
basis and at every Board of Directors' Audit Committee meeting.

      CSW  completed a  comprehensive  review of its year 2000  project in 1998.
External  consultants  assisted in the review.  The review covered assessment of
the project plans and processes to ensure that any risks to CSW associated  with
the year 2000 would be prudently managed. Several changes were incorporated into
the year 2000 project as a result of the 1998 review findings.  After completing
the year 2000  readiness  processes  on all critical  systems in June 1999,  the
internal audit and project management teams reviewed the remediation and testing
process,   continuing  readiness  processes,  and  the  contingency  plans.  The
post-review  was  conducted to  determine  if year 2000  related  risks had been
mitigated.  The review findings  indicated that risk had been  mitigated,  solid
processes were in place to maintain  readiness,  and the contingency plans would
minimize the impact of any year 2000 computer problems.

      State of Readiness
      Key  milestones  for the CSW  system-wide  year  2000  program,  excluding
SEEBOARD and Vale, are listed below:

-  Readiness  teams  completed  a detailed  inventory and assessment of critical
   control  systems   in  the  third  quarter  of  1998.   The  systems  include
   switchboards, elevators,  environmental controls, vehicles, metering systems,
   and embedded logic or  real time control systems in support of generation and
   delivery  of  electricity.   The findings  indicate  that  less  than  15% of
   installed  controls have  microprocessors,  very few have date logic and over
   90% of  those with date logic already process new millennium dates correctly.
   The  need for  additional  functionality  in the early 1990's resulted in the
   modernization of  several  electric  operation  systems that  has reduced the
   conversion  requirements.  On June 2, 1999, CSW announced  that it  completed
   year 2000  readiness  activities  within its  critical  power  production and
   delivery systems at the U.S. Electric Operating Companies.

-  Readiness teams completed  inventory and assessment of business  applications
   and  vendor-supplied  software in the first quarter of 1997.  Only 25% of the
   business  application  programs  were  determined to require  remediation  by
   December 1999.

-  Readiness teams completed plans for modification and certification testing of
   business application software in the third quarter of 1997.

-  Readiness teams established and initiated remediation plans and schedules for
   business  applications  in the fourth  quarter of 1997.  As of June 30, 1999,
   these teams had converted and certified all business critical applications of
   the U.S. Electric Operating Companies and shared services organizations.

      SEEBOARD  completed an inventory of date dependent assets  including,  but
not limited to,  embedded chip  technology,  software,  hardware,  applications,
telecommunications,  access and security  systems in the third  quarter of 1998.
SEEBOARD  completed  an  assessment  of all  critical  systems in January  1999.
SEEBOARD completed  remediation and testing of mission critical distribution and
safety systems in March 1999.  SEEBOARD completed the remediation and testing of
all critical path systems in August 1999.

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      Vale completed an inventory of date dependent  assets and critical systems
in the fourth quarter of 1998. As of June 30, 1999,  Vale had also completed the
remediation and testing of all critical systems. Vale also completed contingency
plans for its critical systems in the third quarter of 1999.

      Cost to Address Year 2000 Issues
      A combination of internal and external  resources perform the work related
to the year 2000 project.  CSW's budget includes the funds for year 2000 project
expenditures.  The costs related to the project are expensed as incurred.  As of
September 30, 1999,  cost incurred to date for the year 2000 project  amounts to
$27 million,  including $17 million in the first nine months of 1999.  Remaining
activities are expected to cost an additional $9 million over the next 6 months.
Redeployment of existing labor resources  accounts for  approximately 40% of the
project cost.  Outside contract labor makes up approximately  35% of the project
cost.  Computer hardware and software purchases account for the remaining 25% of
the project cost.

      In the first  quarter  of 1999,  a  software  version  upgrade  to provide
contract management features to the materials management  information system was
deferred  until  calendar  year 2000 in order to minimize  risk.  The  financial
impact of this deferral is minimal,  as minor enhancements to the current design
have provided an alternative,  interim solution for the needed functionality. No
other planned CSW computer information system projects have been affected by the
year 2000 project,  but that may change as the year 2000  approaches  and change
freezes are implemented to further minimize risk.  Accordingly,  no estimate has
been  made for the  financial  impact of any  future  projects  foregone  due to
resources allocated to the year 2000 project.

      Risk of Year 2000 Issues
      The greatest financial risk to the CSW domestic operation would be a total
inability to generate and deliver  electricity.  Many primary systems and backup
systems would have to fail in order for that total inability to occur.

      On May 31, 1999, CSW completed year 2000 readiness  activities  within its
critical power  production and delivery systems at its U.S.  Electric  Operating
Companies and no year 2000 issues were found that would have caused power plants
to fail.  Risk of power  plant  failure is limited  because  50% of power  plant
controls do not operate with date sensitive logic.  Additionally,  the year 2000
issues,  which  were  identified  in the  plants,  are  generally  minor  issues
typically affecting reporting systems.

      The vast majority of the transmission and distribution  system consists of
wires,  poles,  transformers,  switches  and fuses for which year 2000 is not an
issue.  Fewer  than  15%  of  control  systems  that  operate  transmission  and
distribution  equipment are micro-processor  based, and of those, 95% were found
to process  year 2000 dates  correctly.  The standard  residential  meter is not
affected;  however,  about 10% of industrial  and large  commercial  meters have
microprocessors. Most of those microprocessors process dates correctly and those
that did not have been modified and certified year 2000 ready.

      The systems that  required  the  greatest  amount of work are the software
applications  that  support  business  functions  such as  customer  billing and
accounting.  CSW completed all year 2000 readiness  activities on these critical
business support systems on June 30, 1999.

      If CSW's domestic operations encountered a total inability to generate and
deliver electricity,  CSW estimates that it would lose approximately 24 hours of
revenues  and would incur  additional  costs to restart  power plants in a worst
case scenario.

      The  greatest  risk to  SEEBOARD  is  that it is part of a large  supplier
chain.  While  SEEBOARD is confident of its ability to ensure that there will be
no year 2000 impact to the  distribution  network,  it is reliant  upon both the
generators  and the National  Grid in the U.K.  However,  the risk is considered
minimal.

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      To date at  SEEBOARD,  the year 2000 testing on embedded  chip  technology
revealed a less than 2% failure rate.

      Contingency Plans
      Contingency plans have been in place in CSW's domestic electric  operation
for years to address  problems  resulting  from  weather.  These plans have been
updated to include year 2000 issues. Contingency planning is engineered into the
transmission and  distribution  systems as it is designed with the capability to
bypass  failed  equipment.  A margin of power  generation  reserve above what is
needed is normally maintained. This reserve is a customary operating contingency
plan that allows CSW to operate  normally  even when a power plant  unexpectedly
quits operating.  Backup supplies of fuels are normally  maintained at CSW power
plants.  Natural  gas plants  have fuel oil as a backup and  multiple  pipelines
provide  redundant  supplies.  At coal plants  about 40-45 days of extra coal is
kept on hand.

      The North American Electric  Reliability  Council has coordinated with all
national  power  regions to assess the risks and to  develop  contingency  plans
within the national electric delivery system. During the fourth quarter of 1998,
CSW developed first drafts of the contingency plans to address year 2000 issues.
These  contingency  plans  were  completed  in the second  quarter of 1999.  CSW
participated in an industry-wide drill focused on sustaining reliable operations
with a simulated partial loss of voice and data communications on April 9, 1999.
The drill results clearly  demonstrated  CSW's ability to  successfully  sustain
reliable  operations  while using  backup or  alternative  communication  means.
Additionally, CSW participated in an industry-wide drill to test its operational
preparedness  in the  third  quarter  of 1999.  This  drill was a  rehearsal  of
December  31, 1999 and January 1, 2000  operations  and  further  validated  the
contingency plans and communication and coordination processes. Another drill is
planned for the  mid-November  1999 time frame to help ensure the  communication
and  coordination   processes  are  effective  before   transition  to  the  new
millennium.

      The CSW supply chain has contacted over 6,000 suppliers to determine their
organization readiness and over 70% responded.  Approximately 250 of those 6,000
are  mission  critical  suppliers,  of which  100%  have  responded  that  their
organizations  are either ready for the year 2000 or will be before December 31,
1999. Contingency plans have been developed to cover the possible failure of any
critical  suppliers  that  may  not  achieve  their  readiness  goals  on  time.
Additionally, mission critical inventories will be increased.

      Like CSW's U.S. operations,  SEEBOARD also has contingency plans that have
been in place for years to address problems resulting from weather.  These plans
are covered  effectively  within the  distribution and customer service business
areas  and are being  updated  to  include  year 2000  scenarios.  Each  service
provider  group within  SEEBOARD has  presented  its plans for coverage over the
millennium  period to the rest of the  organization.  The  business  contingency
planners  appointed within each business are now incorporating  this information
in the business  continuity plans. These plans are continually being reviewed by
SEEBOARD's  year 2000 central  team.  SEEBOARD is working  with other  utilities
through interest groups and the national grid on interface contingency plans and
testing.  In addition to contingency  plans,  business areas are identifying key
tasks that will be  performed  during the  year-end  roll-over  period to ensure
continuity of business.

      In view of a pending merger,  the CSW and AEP year 2000 project management
teams engage in frequent  communication  to share best practices and to exchange
information on progress, obstacles and issues relative to the year 2000 efforts.
Under the present schedule, it does not appear that the merger will occur before
the  transition to year 2000 is complete.  There are no plans to  consolidate or
convert existing computer systems before the AEP Merger closes.

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<PAGE>

      Portions of the preceding discussion contains forward-looking  information
within the meaning of Section 21E of the Exchange Act. Actual results may differ
materially  from such  projected  information  due to changes in the  underlying
assumptions. See FORWARD-LOOKING INFORMATION.



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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


      In 1997,  CSW's Board of Directors  adopted a risk  management  resolution
authorizing CSW to engage in currency, interest rate and energy spot and forward
transactions and related  derivative  transactions on behalf of CSW with foreign
and domestic  parties as deemed  appropriate  by executive  officers of CSW. The
risk  management  program  is  necessary  to meet the  growing  demands of CSW's
customers for competitive  prices and price stability,  to enable CSW to compete
in a deregulated  power industry,  to manage the risks  associated with domestic
and  foreign   investments  and  to  take  advantage  of  strategic   investment
opportunities.

      The U.S. Electric Operating Companies experience commodity price exposures
related to the purchase of fuel supplies for the generation of  electricity  and
for the sale and  purchase  of energy.  Contracts  that  provide  for the future
delivery of these  commodities  may contain  spot and  forward  pricing,  volume
and/or  derivative  terms  designed to manage price  exposure for the benefit of
customers and to take advantage of strategic opportunities.

      In response  to the  development  of a more  competitive  electric  energy
market, CSW has received  regulatory approval which authorizes the U.S. Electric
Operating  Companies to conduct a pilot program involving power sales agreements
at tariffed  rates with a fixed fuel cost.  To offset the  commodity  price risk
associated  with these  contracts,  CSW has entered  into  natural gas swaps and
futures  contracts.  These  agreements  cover  natural  gas  deliveries  through
December 31, 2000.  Natural gas volumes purchased to perform these contracts for
which CSW has secured  swap  agreements  represents  approximately  1% of annual
natural gas purchases.

      The table  below  provides  information  about  CSW's  contracts  that are
sensitive  to changes in  commodity  prices.  The swaps  hedge  commodity  price
exposure  through the year 2000. Cash outflows on the swap agreements  should be
offset by increased  margins on  electricity  sales to customers  under tariffed
rates with fixed fuel costs. The electricity  forward  contracts hedge a portion
of CSW's  energy  requirements  through  2000.  The average  contract  price for
forward  power  purchases  is $33 per MWH,  and the average  contract  price for
forward power sales is $70 per MWH. Also, the average contract price for forward
fuel purchases is $2.90 per MMbtu.

      Contractual commitments at September 30, 1999 are as follows:

                          Net Notional      Fair Value of       Fair Value of
    Products                Amount            Assets            Liabilities
    ----------------------------------------------------------------------------
                                                      (thousands)
    Swaps               7,440,000 MMbtu        $1,539                 $--
    Forwards: Purchases 2,730,000 MMbtu            --                 297
              Purchases     252,000 MWH           159                  --
              Sales          86,400 MWH           268                  --
    Futures:  Purchases   190,000 MMbtu            40                  --
              Sales       100,000 MMbtu            --                   4

      CSW has, at times,  been exposed to currency and interest rate risks which
reflect the floating  exchange rate that exists between the U.S.  dollar and the
British pound.  CSW has utilized certain risk management tools to manage adverse
changes in exchange  rates and to facilitate  financing  transactions  resulting
from CSW's acquisition of SEEBOARD.  At September 30, 1999, CSW had positions in
two  cross  currency  swap  contracts,  which  were used to  eliminate  currency
fluctuations  in  respect  of the $400  million  of debt.  The  following  table
presents  information  relating to these contracts.  The market value represents
the foreign exchange/interest rate terms inherent in the cross currency swaps at

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current  market  pricing.  CSW expects to hold these  contracts to maturity.  At
exchange  rates on September 30, 1999,  this  liability is included in long-term
debt on the balance sheet at a carrying value of approximately $425 million.

                                              Expected        Expected Cash
                                            Cash Inflows        Outflows
Contract                  Maturity Date    (Maturity Value)   (Market Value)
------------------------------------------------------------------------------
Cross currency swaps      August 1, 2001     $200 million     $215.3 million
Cross currency swaps      August 1, 2006     $200 million     $228.2 million

      For  information  related to  currency risk in South America see ITEM 1. -
NOTE 7. SOUTH AMERICAN INVESTMENTS.

      The preceding discussion  constitutes  forward-looking  information within
the  meaning of Section  21E of the  Exchange  Act.  Actual  results  may differ
materially from such projected information. See FORWARD-LOOKING INFORMATION.


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PART II. - OTHER INFORMATION

      For background and earlier  developments  relating to PART II information,
reference is made to the  Registrants'  Combined  Annual Report on Form 10-K for
the year ended December 31, 1998 and Combined  Quarterly Report on Form 10-Q for
the quarters ended March 31, 1999 and June 30, 1999.


ITEM 1.  LEGAL PROCEEDINGS.

      Other Legal Claims and Proceedings
      The CSW  System is party to various  other  legal  claims and  proceedings
arising in the normal course of business. Management does not expect disposition
of these matters to have a material adverse effect on the  Registrants'  results
of  operations  or financial  condition.  See PART I. - NOTE 2.  LITIGATION  AND
REGULATORY PROCEEDINGS and NOTE 3.
COMMITMENTS AND CONTINGENT LIABILITIES.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

(a) EXHIBITS:

(12)  Computation  of Ratio of Earnings to Fixed  Charges
      CPL - (Exhibit 12.1), filed herewith.
      PSO - (Exhibit 12.2),  filed herewith.
      SWEPCO - (Exhibit 12.3), filed herewith.
      WTU - (Exhibit 12.4), filed herewith.

(27)  Financial  Data  Schedules
      CSW - (Exhibit 27.1), filed herewith.
      CPL - (Exhibit 27.2), filed herewith.
      PSO - (Exhibit 27.3), filed herewith.
      SWEPCO - (Exhibit 27.4), filed herewith.
      WTU - (Exhibit 27.5), filed herewith.

(b) REPORTS FILED ON FORM 8-K:
CSW and SWEPCO
Date of earliest event reported:  August 27, 1999
Date of report:  September 1, 1999
Item 5. Other Events and Item 7 Financial  Statements  and  Exhibits,  reporting
SWEPCO's  withdrawal  of its joint plan to  acquire  the  non-nuclear  assets of
Cajun.

CSW
Date of earliest event reported:  October 8, 1999
Date of report:  October 18, 1999
Item 5. Other Events and Item 7 Financial Statements and Exhibits,  news release
related to the sale of 50% equity  interest  in the Sweeny  electric  generating
plant.


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SIGNATURES

      Pursuant to the requirements of the Securities  Exchange Act of 1934, each
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned  thereunto  duly  authorized.  The  signature  for each  undersigned
Registrant  shall be deemed to relate only to matters  having  reference to such
Registrant or its subsidiaries.

                       CENTRAL AND SOUTH WEST CORPORATION

Date: November 15, 1999              /s/ Lawrence B. Connors
                                     ------------------------
                                     Lawrence B. Connors
                                     Controller and Chief Accounting Officer
                                     (Principal Accounting Officer)



                      CENTRAL POWER AND LIGHT COMPANY
                     PUBLIC SERVICE COMPANY OF OKLAHOMA
                   SOUTHWESTERN ELECTRIC POWER COMPANY
                         WEST TEXAS UTILITIES COMPANY

Date: November 15, 1999              /s/ R. Russell Davis
                                     ------------------------
                                     R. Russell Davis
                                     Controller and Chief Accounting Officer
                                     (Principal Accounting Officer)


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