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 June 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 August 6, 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
                                  JUNE 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...........................................15
    PUBLIC SERVICE COMPANY OF OKLAHOMA........................................22
    SOUTHWESTERN ELECTRIC POWER COMPANY.......................................29
    WEST TEXAS UTILITIES COMPANY..............................................36
    NOTES TO FINANCIAL STATEMENTS.............................................44

  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS..............................................62

  ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........81

PART II. - OTHER INFORMATION..................................................83


  ITEM 1.  LEGAL PROCEEDINGS..................................................83

  ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K...................................83

SIGNATURES....................................................................84


                                       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 where 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
CWIP ...................Construction work in progress
DHMV ...................Dolet Hills Mining Venture
Diversified Electric ...CSW Energy and CSW International
ECOM ...................Excess cost over market
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
FASB....................Financial Accounting Standards Board
FCC.....................Federal Communications Commission
FERC ...................Federal Energy Regulatory Commission
FUCO ...................Foreign utility company as defined by 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
ISO ....................Independent system operator
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
Mirror CWIP ............Mirror construction work in progress
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.................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
Oklaunion...............Oklaunion Power Plant, Vernon, Texas
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 U.S.A..........CSW's investment in SEEBOARD consolidated and converted
                        to U.S. Generally Accepted Accounting Principles
SFAS ...................Statement of Financial Accounting Standards
SFAS No. 52 ............Foreign Currency Translation
SFAS No. 71 ............Accounting for the Effects of Certain Types of
                        Regulation
SFAS No. 133............Accounting for Derivative Instruments and Hedging
                        Activities
SFAS No. 137............Accounting for Derivative Instruments and Hedging
                        Activities - Deferral of the Effective Date of FASB
                        Statement No. 133 - an Amendment of FASB Statement
                        No. 133
STP ....................South Texas Project nuclear electric generating station
SWEPCO .................Southwestern Electric Power Company, Shreveport,
                        Louisiana
Texas Commission .......Public Utility Commission of Texas
TNRCC ..................Texas Natural Resource Conservation Commission
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 U.S.A.
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  including the July
         1999 SWEPCO Plan,
-        increased  competition and  electric  utility industry restructuring 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 Six Months Ended
                                                June 30,           June 30,
                                            -----------------  -----------------
                                             1999      1998     1999      1998
                                            -------   -------  --------  -------
                                            (millions, except per share amounts)
Operating Revenues
    U.S. Electric                            $ 892     $ 885    $1,589   $1,574
    United Kingdom                             362       403       837      935
    Other diversified                           65        56       118       92
                                            -------   -------  --------  -------
                                             1,319     1,344     2,544    2,601
Operating Expenses and Taxes
    U.S. Electric fuel                         292       315       522      551
    U.S. Electric purchased power               36        26        64       47
    United Kingdom cost of sales               214       270       536      654
    Other operating                            269       244       519      472
    Maintenance                                 61        40       102       74
    Depreciation and amortization              133       126       265      249
    Taxes, other than income                    56        55       113      101
    Income taxes                                52        54        69       76
                                            -------   -------  --------  -------
                                             1,113     1,130     2,190    2,224
                                            -------   -------  --------  -------
Operating Income                               206       214       354      377
                                            -------   -------  --------  -------

Other Income and (Deductions)
    Other                                       11        11        24       29
    Non-operating income taxes                  (3)        1        (7)      (2)
                                            -------   -------  --------  -------
                                                 8        12        17       27
                                            -------   -------  --------  -------

Income Before Interest and Other Charges       214       226       371      404
                                            -------   -------  --------  -------

Interest and Other Charges
    Interest on long-term debt                  75        80       153      160
    Interest on short-term debt and other       27        30        53       61
    Distributions on Trust Preferred
     Securities                                  7         7        13       13
    Preferred dividend requirements of
     subsidiarie                                 2         2         4        4
                                            -------   -------  --------  -------
                                               111       119       223      238

Net Income for Common Stock                  $ 103     $ 107     $ 148    $ 166
                                            =======   =======  ========  =======

Average Common Shares Outstanding            212.6     212.3     212.6    212.3

Basic and Diluted Earnings per Share        $ 0.49    $ 0.50    $ 0.70   $ 0.78
                                            =======   =======  ========  =======

Dividends Paid per Share of Common Stock    $0.435    $0.435    $0.870   $0.870
                                            =======   =======  ========  =======



       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 $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                        --        --        (186)        --          (186)
                                                                                           --------
                                                                                             3,440

   Comprehensive Income:
      Foreign currency translation adjustment
       (net of tax of $41)                       --        --          --        (76)          (76)
      Unrealized gain on securities (net
       of tax of $4)                             --        --          --          8             8
      Net Income                                 --        --         148         --           148
                                                                                           --------
         Total comprehensive income                                                             80
                                              ---------------------------------------      --------
Ending Balance -- June 30, 1999                $744    $1,051      $1,785       ($60)       $3,520
                                              =======================================      ========
</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

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

ASSETS
Fixed Assets
    Electric
        Production                                        $ 5,877     $ 5,887
        Transmission                                        1,613       1,594
        Distribution                                        4,711       4,681
        General                                             1,389       1,380
        Construction work in progress                         203         166
        Nuclear fuel                                          210         207
                                                         ---------   ---------
                                                           14,003      13,915
    Other diversified                                         399         333
                                                         ---------   ---------
                                                           14,402      14,248
  Less - Accumulated depreciation and amortization          5,773       5,652
                                                         ---------   ---------
                                                            8,629       8,596
                                                         ---------   ---------
Current Assets
    Cash and temporary cash investments                       128         157
    Accounts receivable                                     1,119       1,110
    Materials and supplies, at average cost                   209         191
    Electric utility fuel inventory                           117          90
    Under-recovered fuel costs                                  5           4
    Notes receivable                                          116         109
    Prepayments and other                                     108          90
                                                         ---------   ---------
                                                            1,802       1,751
                                                         ---------   ---------
Deferred Charges and Other Assets
    Deferred plant costs                                      494         497
    Mirror CWIP asset                                         250         257
    Other non-utility investments                             418         432
    Securities available for sale                              72          66
    Income tax related regulatory assets, net                 305         308
    Other regulatory assets                                   191         204
    Goodwill                                                1,315       1,402
    Other                                                     418         384
                                                         ---------   ---------
                                                            3,463       3,550
                                                         ---------   ---------
                                                         $ 13,894    $ 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

                                                 June 30,         December 31,
                                                   1999              1998
                                               (unaudited)         (audited)
                                                --------           --------
CAPITALIZATION AND LIABILITIES                            (millions)

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                             1,785             1,823
    Accumulated other comprehensive income/(loss)   (60)                8
                                                --------           --------
                                                  3,520    45%      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                                3,802    49%      3,938    49%
                                                --------  ----     -------- ----
          Total Capitalization                    7,833   100%      8,073   100%
                                                --------  ----     -------- ----

Current Liabilities
    Long-term debt and preferred stock due within
     twelve months                                  165               169
    Short-term debt                               1,088               811
    Short-term debt - CSW Credit                    818               749
    Loan notes                                       29                32
    Accounts payable                                474               624
    Accrued taxes                                   218               190
    Accrued interest                                 95                84
    Other                                           234               218
                                                --------           --------
                                                  3,121             2,877
                                                --------           --------
Deferred Credits
    Accumulated deferred income taxes             2,370             2,410
    Investment tax credits                          260               267
    Other                                           310               270
                                                --------           --------
                                                  2,940             2,947
                                                --------           --------
                                               $ 13,894          $ 13,897
                                                --------           --------


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

                                                           Six Months Ended
                                                              June 30,
                                                           ----------------
                                                            1999     1998
                                                           -------  -------
OPERATING ACTIVITIES                                          (millions)
    Net Income for Common Stock                             $ 148    $ 166
    Non-cash Items and Adjustments
        Depreciation and amortization                         278      256
        Deferred income taxes and investment tax credits      (20)      14
        Preferred stock dividends included in Net Income
         for Common Stock                                       4        4
        Loss on reacquired preferred stock                     --        1
    Changes in Assets and Liabilities
        Accounts receivable                                   (18)    (135)
        Accounts payable                                      (87)      61
        Accrued taxes                                          32       61
        Fuel inventory                                        (27)     (18)
        Fuel recovery                                           2       50
        Refund due customers                                   --      (64)
        Other                                                 (64)       7
                                                           -------  -------
                                                              248      403
                                                           -------  -------
INVESTING ACTIVITIES
    Construction expenditures                                (270)    (252)
    CSW Energy/CSW International projects                     (60)     (74)
    Other                                                     (35)      (9)
                                                           -------  -------
                                                             (365)    (335)
                                                           -------  -------
FINANCING ACTIVITIES
    Common stock sold                                           3        6
    Long-term debt sold                                        --        5
    Reacquisition/retirement of long-term debt               (127)     (89)
    Reacquisition of preferred stock                           --      (28)
    Change in short-term debt                                 347      346
    Payment of dividends                                     (189)    (186)
    Other                                                      58       26
                                                           -------  -------
                                                               92       80
                                                           -------  -------

Effect of exchange rate changes on cash and cash equivalents   (4)      (5)

Net Change in Cash and Cash Equivalents                       (29)     143
Cash and Cash Equivalents at Beginning of Period              157       75
                                                           =======  =======
Cash and Cash Equivalents at End of Period                  $ 128    $ 218
                                                           =======  =======

SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized                  $ 192    $ 210
                                                           =======  =======
    Income taxes paid                                        $ 72     $ 53
                                                           =======  =======


       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 six month  periods  ended June 30, 1999 and
June 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 JUNE 30, 1999 AND 1998

      CSW's net income for common stock  decreased to $103 million in the second
quarter of 1999 compared to $107 million in 1998. The earnings  decrease was due
primarily to increased operations and maintenance expenses.  Higher depreciation
and amortization, reflecting higher levels of depreciable plant also contributed
to the  decrease in  earnings.  The  decrease in earnings  was offset in part by
higher non-fuel  revenue due primarily to increased  non-MWH related revenue and
off-system  sales.   Various  factors  affecting  second  quarter  earnings  are
discussed below.

      In the second 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               68%        27%         95%       5%       100%
Operating Income                 78%        20%         98%       2%       100%
Net Income for Common Stock      93%        17%        110%      (10)%     100%


      Operating revenues decreased $25 million,  or 2%, in the second quarter of
1999 compared to the same period a year ago due primarily to lower revenues from
United Kingdom  operations  partially offset by an increase in other diversified
revenue.  U.K. Electric revenues  decreased $41 million in the second quarter of
1999  compared  to the same  period  last year due  primarily  to the absence of
revenues in 1999 from  SEEBOARD's  retail  business  that was sold in the second
quarter of 1998,  lower  sales  volumes in the  business  market  following  the
extension of  competition  to the small  business  and  domestic  markets in the
fourth quarter of 1998 and  unfavorable  British pound to U.S.  dollar  exchange
rate movements. Also contributing to the decline in operating revenues was lower
fuel related  revenues due to lower  combined fuel expense and purchased  power,
discussed  in the  following  paragraph.  Partially  offsetting  the decrease in
operating  revenues was an increase in other diversified  revenues of $9 million
for the comparison  periods due primarily to increased  business activity at CSW
Energy and CSW Credit.  Higher  non-fuel  revenue of $8 million due primarily to
increased  non-MWH  related  revenue and  off-system  sales  further  offset the
decrease in operating revenues.

      U.S. Electric fuel expense decreased $23 million, or 7%, during the second
quarter  of 1999  compared  to the same  period a year  ago due  primarily  to a
decrease in the average  unit fuel cost to $1.75 per MMbtu from $1.78 per MMbtu.
The decrease resulted from lower coal, lignite and nuclear fuel costs. Purchased
power expense  increased  $10 million,  or 38%, for the  comparison  periods due
primarily to the  refueling  and the 10-year  inspection of STP Unit 1 at CPL as
well as scheduled  maintenance at several other CSW System power plants.  United
Kingdom cost of sales  decreased $56 million,  or 21%, in the second  quarter of
1999 compared to the same period a year ago. The decrease was due primarily to a
lower level of sales of electricity and the absence in 1999 of SEEBOARD's retail
business.

                                       12
<PAGE>

      Other  operating  expense  increased  $25  million,  or 10%, in the second
quarter  of 1999  compared  to the  same  period  a year  ago due  primarily  to
increased  expenses of $14 million at SEEBOARD.  Expenses  increased at SEEBOARD
primarily  as a result of  additional  operating  costs  related  to  SEEBOARD's
Powerlink joint venture to operate the London Underground Rail System as well as
increased  expenses  associated  with operating in the  competitive  electricity
market in the United Kingdom. Maintenance expense increased $21 million, or 53%,
due  primarily  to the  10-year  inspection  of STP Unit 1 as well as  scheduled
maintenance at other CSW System power plants.

      Depreciation and amortization  expense increased $7 million, or 6%, in the
second  quarter  of 1999  compared  to the same  period a year ago due to higher
levels of depreciable plant.

      Other income and deductions  decreased $4 million in the second quarter of
1999 compared to the second quarter of 1998 due primarily to the absence in 1999
of the $5 million gain from C3 Communications'  sale of an investment  available
for sale.

      Interest  and other  charges  decreased  $8 million,  or 7%, in the second
quarter of 1999  compared  to the same  period a year ago due  primarily  to the
reacquisition of FMBs.


COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998


      Net income for common  stock  decreased  to $148  million in the first six
months of 1999 from $166  million for the same period in 1998 due  primarily  to
increased operations and maintenance  expenses.  Higher taxes other than income,
which reflects increased franchise and ad valorem taxes, and higher depreciation
and  amortization,   reflecting   higher  levels  of  depreciable   plant,  also
contributed to the decrease in earnings.  The decrease in earnings was offset in
part by higher non-fuel  revenue for U.S.  Electric  operations due primarily to
increased  customer usage and growth and increased  off-system sales, which were
partially  offset by milder  weather.  Various  factors  affecting  earnings are
discussed below.

      In the first six 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               62%        33%         95%       5%       100%
Operating Income                 73%        25%         98%       2%       100%
Net Income for Common Stock      86%        30%        116%      (16)%     100%


      Operating revenues  decreased $57 million,  or 2%, in the first six months
of 1999  compared to the same period in 1998 due to lower  revenues  from United
Kingdom  operations.  U.K. Electric revenues  decreased $98 million in the first
six months of 1999  compared to the same period a year ago due  primarily to the
absence in 1999 of  regulatory  allowed  revenues in the first  quarter of 1998.
Also  contributing  to the decrease in United Kingdom  revenues were lower sales
volumes in the business market,  the absence of revenues in 1999 from SEEBOARD's
retail  business and  unfavorable  British  pound to U.S.  dollar  exchange rate
movements. Also contributing to the decline in operating revenues was lower fuel
revenues due to lower  combined fuel expense and purchased  power,  discussed in
the following paragraph. Partially offsetting the decrease in operating revenues
was an increase in other diversified  revenues of $26 million for the comparison
periods  due  primarily  to  increased  business  activity at CSW Energy and CSW

                                       13
<PAGE>

Credit.  Further  offsetting  the  decrease  in  operating  revenues  was higher
non-fuel  revenue  due  primarily  to  increased  customer  usage and growth and
increased off-system sales.

      U.S. Electric fuel expense decreased $29 million,  or 5%, during the first
six months of 1999  compared  to the same period a year ago due  primarily  to a
decrease in the average unit fuel cost to $1.66 per MMbtu in 1999 from $1.71 per
MMbtu in 1998.  The decrease  resulted  primarily  from lower natural gas, coal,
lignite and nuclear fuel prices. Purchased power expenses increased $17 million,
or 36%, 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 scheduled maintenance at other CSW System power plants.
Purchased power expense increased at WTU due primarily to scheduled  maintenance
at power plants. United Kingdom cost of sales decreased $118 million, or 18%, in
the  first  six  months  of 1999  compared  to the  same  period  a year ago 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 $47 million,  or 10%, in the first six
months of 1999 compared to the same period a year ago due primarily to increased
expenses of $23 million at SEEBOARD.  Expenses increased at SEEBOARD as a result
of additional  operating costs related to SEEBOARD's  Powerlink joint venture to
operate  the  London  Underground  Rail  System  as well as  increased  expenses
associated  with operating in the competitive  electricity  market in the United
Kingdom.  Maintenance  expense  increased $28 million,  or 38%, due primarily to
increased  expenses  from  the  10-year  inspection  of STP  Unit  1, as well as
scheduled maintenance at other CSW System power plants.

      Depreciation and amortization expense increased $16 million, or 6%, in the
first six months of 1999  compared  to the same  period a year ago due to higher
levels of depreciable plant.

      Taxes other than income  increased  $12 million,  or 12%, in the first six
months of 1999 compared to the same period a year ago due primarily to increased
ad valorem taxes  reflecting  higher  assessed  property  values and Texas state
franchise  taxes.  Operating  income  taxes  decreased  $7  million,  or 9%, due
primarily to lower taxable income.

      Interest and other charges decreased $15 million,  or 6%, in the first six
months of 1999 compared to the same period a year ago.  This resulted  primarily
from  lower  interest  on  long-term  debt  of $7  million  resulting  from  the
reacquisition  of FMBs.  Interest  on  short-term  debt and other  decreased  $8
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.


                                       14
<PAGE>




                                       CPL



                         CENTRAL POWER AND LIGHT COMPANY


                        PART I. - FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.


                                       15
<PAGE>
CPL
Consolidated Statement of Income (unaudited)
Central Power and Light Company
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                           Three Months Ended       Six Months Ended
                                                 June 30,               June 30,
                                           -------------------    --------------------
                                              1999      1998         1999        1998
                                            --------  --------     --------   --------
                                                            (thousands)
<S>                                        <C>       <C>          <C>        <C>


Electric Operating Revenues                $ 383,783 $ 363,651    $ 666,060  $ 638,104
                                            --------  --------     --------   --------
Operating Expenses and Taxes
    Fuel                                     106,397   108,330      174,312    181,277
    Purchased power                           16,247     7,976       29,394     16,534
    Other operating                           65,698    62,259      127,524    122,754
    Maintenance                               19,956    14,468       35,183     27,525
    Depreciation and amortization             43,257    42,276       86,370     83,989
    Taxes, other than income                  22,971    21,573       46,296     41,056
    Income taxes                              29,216    28,352       40,320     40,172
                                            --------  --------     --------   --------
                                             303,742   285,234      539,399  $ 513,307
                                            --------  --------     --------   --------
Operating Income                              80,041    78,417      126,661  $ 124,797
                                            --------  --------     --------   --------
Other Income and (Deductions)
    Allowance for equity funds used
        during construction                       --        (8)          --         (8)
    Other                                       (650)      723       (1,380)       (12)
    Non-operating income taxes                 1,849       707        3,527      1,091
                                            --------  --------     --------   --------
                                               1,199     1,422        2,147      1,071
                                            --------  --------     --------   --------
Income Before Interest Charges                81,240    79,839      128,808    125,868
                                            --------  --------     --------   --------
Interest Charges
    Interest on long-term debt                21,598    23,567       44,427     47,066
    Distributions on Trust Preferred
     Securities                                3,000     3,000        6,000      6,000
    Interest on short-term debt and other      6,001     5,436       11,064     12,265
    Allowance for borrowed funds used
       during construction                      (745)     (654)      (1,618)    (1,341)
                                            --------  --------     --------   --------
                                              29,854    31,349       59,873     63,990
                                            --------  --------     --------   --------
Net Income                                    51,386    48,490       68,935     61,878
    Less:  Preferred stock dividends           1,735     1,801        3,547      3,609
                                            --------  --------     --------   --------
Net Income for Common Stock                 $ 49,651  $ 46,689     $ 65,388   $ 58,269
                                            ========  ========     ========   ========

</TABLE>



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

                                       16
<PAGE>
CPL
Consolidated Balance Sheets
Central Power and Light Company
--------------------------------------------------------------------------------
                                                    June 30,        December 31,
                                                      1999              1998
                                                  (unaudited)        (audited)
                                                 ------------      -------------
                                                            (thousands)

ASSETS
Electric Utility Plant
    Production                                      $3,147,497       $ 3,146,269
    Transmission                                       538,693           527,146
    Distribution                                     1,115,599         1,090,175
    General                                            297,168           298,352
    Construction work in progress                       84,673            67,300
    Nuclear fuel                                       209,597           206,949
                                                   ------------    -------------
                                                     5,393,227         5,336,191
  Less - Accumulated depreciation                    2,145,236         2,072,686
                                                   ------------    -------------
                                                     3,247,991         3,263,505
                                                   ------------    -------------
Current Assets
    Cash and temporary investments                       9,341             5,195
    Accounts receivable                                 59,810            51,056
    Materials and supplies, at average cost             57,088            59,814
    Fuel inventory, at LIFO costs                       23,780            20,340
    Accumulated deferred income taxes                      995               713
    Prepayments and other                               11,692             2,952
                                                   ------------    -------------
                                                       162,706           140,070
                                                   ------------    -------------
Deferred Charges and Other Assets
    Deferred STP costs                                 481,281           482,447
    Mirror CWIP asset                                  250,019           256,702
    Income tax related regulatory assets, net          353,517           360,482
    Nuclear decommissioning trust                       76,187            65,972
    Other                                              161,874           167,011
                                                   ------------    -------------
                                                     1,322,878         1,332,614
                                                   ------------    -------------
                                                    $4,733,575       $ 4,736,189
                                                   ============    =============



   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
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                       June 30,          December 31,
                                                         1999               1998
                                                      (unaudited)        (audited)
                                                      -----------        -----------
                                                                (thousands)
<S>                                                   <C>          <C>   <C>           <C>

CAPITALIZATION AND LIABILITIES


Capitalization
    Common stock:  $25 par value
        Authorized shares:  12,000,000
        Issued and outstanding shares:  6,755,535      $ 168,888          $ 168,888
    Paid-in capital                                      405,000            405,000
    Retained earnings                                    730,419            739,031
                                                      -----------        -----------
                                                       1,304,307    48%   1,312,919     46%
                                                      -----------  ----  -----------   ----

    Preferred stock                                      163,204     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                                     1,101,056    41%   1,225,706     43%
                                                      -----------  ----  -----------   ----
          Total Capitalization                         2,718,567   100%   2,851,829    100%
                                                      -----------  ----  -----------   ----
Current Liabilities
    Long-term debt due within twelve months              125,000            125,000
    Advances from affiliates                             300,635            160,298
    Accounts payable                                      88,816             86,998
    Payables to affiliates                                28,354             38,331
    Customer deposits                                     11,152              9,272
    Accrued taxes                                         61,458             46,855
    Accrued interest                                      26,647             27,036
    Over-recovered fuel costs                             11,915              9,135
    Other                                                 11,024              9,547
                                                      -----------        -----------
                                                         665,001            512,472
                                                      -----------        -----------
Deferred Credits
    Accumulated deferred income taxes                  1,203,224          1,221,561
    Investment tax credits                               135,910            138,513
    Other                                                 10,873             11,814
                                                      -----------        -----------
                                                       1,350,007          1,371,888
                                                      -----------        -----------
                                                     $ 4,733,575        $ 4,736,189
                                                      ===========        ===========

</TABLE>


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

                                       18
<PAGE>
CPL
Consolidated Statements of Cash Flows (unaudited)
Central Power and Light Company

                                                          Six Months Ended
                                                               June 30,
                                                          1999         1998
                                                         ---------    --------
                                                             (thousands)
OPERATING ACTIVITIES
    Net Income                                           $ 68,935      $61,878
    Non-cash Items Included in Net Income
        Depreciation and amortization                      95,659       86,011
        Deferred income taxes and investment tax credit   (14,257)       5,376
        Refund due customers                                   --      (63,713)
    Changes in Assets and Liabilities
        Accounts receivable                                (8,754)       6,403
        Fuel inventory                                     (3,440)      (1,570)
        Material and supplies                               2,726        2,255
        Accounts payable                                   (8,508)      18,152
        Accrued taxes                                      14,603       12,978
        Fuel recovery                                       2,780       41,627
        Other                                              (2,289)       1,166
                                                         ---------    --------
                                                          147,455      170,563
                                                         ---------    --------
INVESTING ACTIVITIES
    Construction expenditures                             (78,524)     (63,530)
    Other                                                  (2,199)      (3,070)
                                                         ---------    --------
                                                          (80,723)     (66,600)
                                                         ---------    --------
FINANCING ACTIVITIES
    Retirement of long-term debt                         (125,000)     (28,000)
    Change in advances from affiliates                    140,337        2,615
    Payment of dividends                                  (77,923)     (72,683)
                                                         ---------    --------
                                                          (62,586)     (98,068)
                                                         ---------    --------

Net Change in Cash and Cash Equivalents                     4,146        5,895
Cash and Cash Equivalents at Beginning of Year              5,195           --
                                                         ---------    --------
Cash and Cash Equivalents at End of Period                $ 9,341      $ 5,895
                                                         =========    ========
SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized (includes
      distributions on Trust Preferred Securities)       $ 51,241      $52,700
                                                         =========    ========
    Income taxes paid                                    $ 29,987      $23,021
                                                         =========    ========


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


                                       19
<PAGE>



CENTRAL POWER AND LIGHT COMPANY
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED JUNE 30, 1999 AND 1998

      CPL's net income for common stock for the second quarter of 1999 was $49.7
million,  which was $3.0 million,  or 6%, higher than the  comparable  period in
1998. This resulted  primarily from increased  non-fuel  related  revenues which
were partially offset by higher maintenance  expenses,  other operating expenses
and taxes.

      Electric  operating revenues during the second quarter of 1999 were $383.8
million,  which was $20.1 million,  or 6%, higher than the comparable  period in
1998.  The  increase was  attributable  to higher  fuel-related  revenue of $5.3
million due to higher  combined fuel expense and purchased power as discussed in
the following paragraph,  and non-fuel revenue of $14.8 million as a result of a
6% MWH increase in customer demand.

      Purchased  power  expense  during  the  second  quarter  of 1999 was $16.2
million,  which was $8.3 million,  or 104%, higher than the comparable period in
1998. The increase was due primarily to a reduction in generation created by the
refueling and 10-year inspection of STP Unit 1 as well as scheduled  maintenance
on several other CPL power plants.  As a result,  fuel expense during the second
quarter of 1999 was $106.4  million,  which was $1.9 million,  or 2%, lower than
the comparable period in 1998 due to these factors.

      Other  operating  expense  during  the  second  quarter  of 1999 was $65.7
million, which was $3.4 million, or 6%, higher than the same period in 1998. The
increase  was due  primarily  to  higher  outside  services  expense  which  was
partially offset by lower  transmission  expenses resulting from 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  during the second  quarter of 1999 was $20  million,
which was $5.5 million,  or 38%, higher than the comparable period in 1998. This
was largely due to the scheduled power plant repairs and maintenance,  including
the refueling and 10-year inspection of STP Unit 1.

      Taxes,  other  than  income  during  the  second  quarter  of 1999 was $23
million,  which were $1.4 million,  or 6%, higher than the comparable  period in
1998.  The  increase  was  attributable  to higher  ad  valorem  taxes  based on
projected increases in property values and increased state franchise taxes.

      Interest  charges  during  the second  quarter of 1999 was $29.9  million,
which was $1.5 million,  or 5%, lower than the  comparable  period in 1998.  The
decrease was due primarily to the reacquisition of FMBs.


COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998


      CPL's net income for common  stock for the six months  ended June 30, 1999
was $65.4 million,  which was $7.1 million,  or 12%,  higher than the comparable
period in 1998. This resulted from increased  non-fuel related revenue which was
partially offset by higher maintenance expenses and taxes, other than income.

                                       20
<PAGE>

      Electric  operating  revenues  for the six months ended June 30, 1999 were
$666.1  million,  which was $28.0  million,  or 4%,  higher than the  comparable
period in 1998. This increase was attributable to higher fuel-related revenue of
$6.1  million  due to  higher  combined  fuel  expense  and  purchased  power as
discussed in the  following  paragraph,  and non-fuel  revenue of $21.8  million
resulting from an 8% MWH increase in customer demand.

      Purchased  power  expense for the six months ended June 30, 1999 was $29.4
million,  which is $12.9 million,  or 78%, 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 refueling and
10-year  inspection,  and an 8% increase in customer demand.  As a result,  fuel
expense for the six months ended June 30, 1999 was $174.3 million,  which was $7
million, or 4%, lower than the comparable period in 1998.

      Other operating expense for the six months ended June 30, 1999 were $127.5
million,  which was $4.8 million,  or 4%, higher than the  comparable  period in
1998.  The  increase  was due  primarily  to higher  outside  services  expense,
partially offset by lower  transmission  expenses resulting from 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 six  months  ended  June 30,  1999 was $35.2
million,  which was $7.7 million,  or 28%, higher than the comparable  period in
1998. This was largely due to the scheduled power plant repairs and maintenance,
including the refueling and 10-year inspection of STP Unit 1.

      Taxes, other than income for the six months ended June 30, 1999 were $46.3
million,  which was $5.2 million,  or 13%, higher than the comparable  period of
1998.  The  increase  was  attributable  to higher  ad  valorem  taxes  based on
projected increases in property values and increased state franchise taxes.

      Interest  charges  for the six  months  ended  June 30,  1999  were  $59.9
million,  which was $4.1  million,  or 6%, lower than the  comparable  period of
1998. The decrease was due primarily to the  reacquisition and maturity of FMBs.
In addition,  interest  charges in 1998 were higher related to the one time 1998
bonded rate refund.

                                       21
<PAGE>





                                       PSO



                       PUBLIC SERVICE COMPANY OF OKLAHOMA


                        PART I. - FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.


                                       22
<PAGE>
PSO
Consolidated Statements of Income (unaudited)
Public Service Company of Oklahoma
<TABLE>
<CAPTION>

                                             Three Months Ended       Six Months Ended
                                                  June 30,                June 30,
                                             --------------------     -------------------
                                              1999        1998        1999        1998
                                             --------    --------    --------    --------
                                                              (thousands)
<S>                                          <C>         <C>         <C>         <C>


Electric Operating Revenues                  $178,699    $191,866    $329,729    $343,277
                                             --------    --------    --------    --------
Operating Expenses and Taxes
    Fuel                                       64,916      76,667     126,797     138,187
    Purchased power                            16,128      13,700      30,172      27,297
    Other operating                            26,837      28,229      52,550      55,376
    Maintenance                                12,720       8,312      21,927      15,885
    Depreciation and amortization              18,544      18,061      36,999      36,156
    Taxes, other than income                    8,160       8,576      16,219      15,220
    Income taxes                                8,035      10,250       9,178      12,282
                                             --------    --------    --------    --------
                                              155,340     163,795     293,842     300,403
                                             --------    --------    --------    --------

Operating Income                               23,359      28,071      35,887      42,874
                                             --------    --------    --------    --------
Other Income and (Deductions)
    Allowance for equity funds used
        during construction                        --          71          81         226
    Other                                        (484)        398      (1,795)       (218)
    Non-operating income taxes                    495        (129)      1,204         374
                                             --------    --------    --------    --------
                                                   11         340        (510)        382
                                             --------    --------    --------    --------

Income Before Interest Charges                 23,370      28,411      35,377      43,256
                                             --------    --------    --------    --------
Interest Charges
    Interest on long-term debt                  6,612       7,619      13,222      15,237
    Distributions on Trust Preferred
      Securities                                1,500       1,500       3,000       3,000
    Interest on short-term debt and other       1,508       1,234       2,677       2,464
    Allowance for borrowed funds
        used during construction                 (392)       (330)       (584)       (662)
                                             --------    --------    --------    --------
                                                9,228      10,023      18,315      20,039
                                             --------    --------    --------    --------

Net Income                                     14,142      18,388      17,062      23,217
  Less:  Preferred stock dividends                 53          53         106         106
                                             --------    --------    --------    --------
Net Income for Common Stock                  $ 14,089    $ 18,335    $ 16,956    $ 23,111
                                             ========    ========    ========    ========
</TABLE>


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

                                       23
<PAGE>
PSO
Consolidated Balance Sheets
Public Service Company of Oklahoma
--------------------------------------------------------------------------------
                                               June 30,           December 31,
                                                 1999                 1998
                                              (unaudited)          (audited)
                                            ----------------     ---------------
                                                          (thousands)
ASSETS
Electric Utility Plant
    Production                                    $ 911,160           $ 913,083
    Transmission                                    380,804             378,719
    Distribution                                    864,687             855,277
    General                                         211,232             211,124
    Construction work in progress                    47,146              33,519
                                            ----------------     ---------------
                                                  2,415,029           2,391,722
  Less - Accumulated depreciation                 1,093,278           1,082,081
                                            ----------------     ---------------
                                                  1,321,751           1,309,641
                                            ----------------     ---------------
Current Assets
    Cash                                              3,229               4,670
    Accounts receivable                              29,933              32,916
    Materials and supplies, at average cost          33,025              33,006
    Fuel inventory, at LIFO cost                     18,708              16,441
    Accumulated deferred income taxes                 9,228              11,789
    Prepayments and other                             4,984               2,881
                                            ----------------     ---------------
                                                     99,107             101,703
                                            ----------------     ---------------

Deferred Charges and Other Assets                    76,808              71,384
                                            ----------------     ---------------
                                                $ 1,497,666         $ 1,482,728
                                            ================     ===============






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

                                       24
<PAGE>
PSO
Consolidated Balance Sheets
Public Service Company of Oklahoma
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                      June 30,              December 31,
                                                        1999                   1998
                                                     (unaudited)             (audited)
                                                     ------------           ------------
                                                                 (thousands)
<S>                                                  <C>            <C>     <C>          <C>

CAPITALIZATION AND LIABILITIES
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                                    131,583                144,626
                                                     ------------           ------------
                                                         468,813     51%        481,856    51%
                                                     ------------   -----   ------------ ------

    Preferred stock                                        5,286      1%          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                                       374,224     40%        384,064    41%
                                                     ------------   -----   ------------ ------
          Total Capitalization                           923,323    100%        946,207   100%
                                                     ------------   -----   ------------ ------

Current Liabilities
    Long-term debt due within twelve months               10,000                     --
    Advances from affiliates                              53,273                 15,892
    Payables to affiliates                                28,846                 33,489
    Accounts payable                                      49,909                 52,888
    Customer deposits                                     17,265                 17,368
    Accrued taxes                                         15,621                 23,095
    Accrued interest                                       7,427                  7,606
    Over-recovered fuel costs                             14,988                 15,240
    Other                                                  7,756                  6,599
                                                     ------------           ------------
                                                         205,085                172,177
                                                     ------------           ------------
Deferred Credits
    Accumulated deferred income taxes                    279,521                277,181
    Investment tax credits                                38,469                 39,365
    Income tax related regulatory liabilities, net        34,497                 35,818
    Other                                                 16,771                 11,980
                                                     ------------           ------------
                                                         369,258                364,344
                                                     ------------           ------------
                                                     $ 1,497,666             $1,482,728
                                                     ============           ============

</TABLE>




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

                                       25
<PAGE>
PSO
Consolidated Statements of Cash Flows (unaudited)
Public Service Company of Oklahoma
--------------------------------------------------------------------------------
                                                           Six Months Ended
                                                               June 30,
                                                      --------------------------
                                                         1999           1998
                                                      ----------       ---------
                                                              (thousands)

OPERATING ACTIVITIES
    Net Income                                         $ 17,062        $ 23,217
    Non-cash Items Included in Net Income
        Depreciation and amortization                    37,488          37,698
        Deferred income taxes and investment tax credit   2,684          10,592
    Changes in Assets and Liabilities
        Accounts receivable                               2,983         (10,763)
        Fuels inventory                                  (2,267)         (3,535)
        Prepayments and other                            (2,103)          1,742
        Equity and other investments                     (4,831)         (1,741)
        Accounts payable                                 (3,924)         (1,572)
        Payables to affiliates                           (4,643)         (4,378)
        Accrued taxes                                    (7,474)           (292)
        Other deferred credits                            4,791             272
        Other                                               197           2,864
                                                      ----------       ---------
                                                         39,963          54,104
                                                      ----------       ---------
INVESTING ACTIVITIES
    Construction expenditures                           (47,911)        (27,574)
    Other                                                  (768)         (3,074)
                                                      ----------       ---------
                                                        (48,679)        (30,648)

FINANCING ACTIVITIES
    Change in advances from affiliates                   37,381          (1,134)
    Payment of dividends                                (30,106)        (18,106)
                                                      ----------       ---------
                                                          7,275         (19,240)
                                                      ----------       ---------

Net Change in Cash and Cash Equivalents                  (1,441)          4,216
Cash and Cash Equivalents at Beginning of Year            4,670           2,171
                                                      ----------       ---------
Cash and Cash Equivalents at End of Period              $ 3,229         $ 6,387
                                                      ==========       =========

SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized (includes
        distributions on Trust Preferred Securities)   $ 17,649        $ 19,348
                                                      ==========       =========
    Income taxes paid                                  $ 13,603         $ 7,524
                                                      ==========       =========



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

                                       26
<PAGE>

PSO
PUBLIC SERVICE COMPANY OF OKLAHOMA
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED JUNE 30, 1999 AND 1998


      PSO's net income for common stock for the second quarter of 1999 was $14.1
million,  which was $4.2 million,  or 23%, lower than the  comparable  period in
1998. The decrease  resulted  primarily from lower non-fuel related revenues and
higher  maintenance  expenses,  which were  partially  offset by lower  interest
charges.

      Electric  operating revenues during the second quarter of 1999 were $178.7
million,  which was $13.2 million,  or 7%, lower than the  comparable  period in
1998.  Non-fuel  related  revenues  decreased $6.6 million due primarily to a 3%
decrease  in  retail  MWH  sales   attributable   to  milder  weather  in  1999.
Fuel-related  revenues decreased $6.6 million due to lower combined fuel expense
and purchased power as discussed in the following paragraph.

      Fuel expense during the second  quarter of 1999 was $64.9  million,  which
was $11.8  million,  or 15%,  lower  than the  comparable  period in 1998.  This
decline  was due  primarily  to an $11.6  million  decrease  in the  recovery of
deferred fuel costs  resulting  from a  significant  difference in fuel factors.
Purchased  power expense  during the second  quarter of 1999 was $16.1  million,
which was $2.4 million,  or 18%,  higher than the comparable  period in 1998 due
primarily to an increase in firm contract purchases.

      Maintenance  expense  during the second quarter of 1999 was $12.7 million,
which was $4.4 million,  or 53%,  higher than the comparable  period in 1998 due
primarily  to higher  production  and  distribution  maintenance  expenses.  The
increase in production maintenance expenses related primarily 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  resulted
primarily from an increase in tree trimming activities in 1999.

      Income tax expense  associated with utility  operations  during the second
quarter of 1999 was $8.0 million, which was $2.2 million, or 22%, lower than the
comparable  period in 1998.  This was the result of lower taxable  income in the
second quarter of 1999.

      Interest  charges  during  the second  quarter of 1999 were $9.2  million,
which was $0.8 million,  or 8%, 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.


COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998


      PSO's net income for common  stock for the six months  ended June 30, 1999
was $17.0  million,  which was $6.2 million,  or 27%,  lower than the comparable
period in 1998. The decrease  resulted  primarily  from lower  non-fuel  related
revenues  and higher  maintenance  expenses,  which were offset in part by lower
other operating expenses and interest charges.

      Electric  operating  revenues  for the six months ended June 30, 1999 were
$329.7 million, which was $13.5 million, or 4%, lower than the comparable period
in 1998.  Non-fuel related revenues decreased $3.7 million due primarily to a 4%

                                       27
<PAGE>

decrease in residential  MWH sales  attributable to milder weather in 1999. Fuel
related  revenues  decreased  $9.9  million  for the  first  six  months of 1999
compared  to 1998 due to lower  combined  fuel  expense and  purchased  power as
discussed in the following paragraph.

      Fuel  expense for the six months  ended June 30, 1999 was $126.8  million,
which was $11.4 million,  or 8%, lower than the comparable  period in 1998. This
decline  resulted  primarily  from an $11.0 million  decrease in the recovery of
deferred fuel costs due to a significant  difference in fuel factors.  Purchased
power  expense for the six months ended June 30, 1999 was $30.2  million,  which
was  $2.9  million,  or 11%,  higher  than  the  comparable  period  in 1998 due
primarily to an increase in firm contract purchases.

      Other operating expenses for the six months ended June 30, 1999 were $52.6
million,  which was $2.8  million,  or 5%, lower than the  comparable  period in
1998. This decrease was due primarily to lower transmission, customer accounting
and administrative  expenses.  Transmission expenses declined due to the absence
in 1999 of certain transmission  wheeling charges.  Customer accounting expenses
were  lower  due to a  decrease  in bad debt  charges.  Administrative  expenses
declined as a result of lower employee related expenses.

      Maintenance  expenses  for the six months  ended  June 30,  1999 was $21.9
million,  which was $6.0 million,  or 38%, higher than the comparable  period in
1998 due primarily to higher production and distribution  maintenance  expenses.
The  production  maintenance  increase  was  related to  scheduled  power  plant
maintenance  as well as the  restart  of a power  plant  generating  unit and an
unscheduled outage. The distribution  maintenance  increase was due primarily to
an increase in tree trimming activities in 1999.

      Income tax expense  associated with utility  operations for the six months
ended June 30, 1999 was $9.2 million, which was $3.1 million, or 25%, lower than
the comparable period in 1998 due primarily to lower taxable income in 1999.

      Interest  charges  for the six  months  ended  June 30,  1999  were  $18.3
million,  which was $1.7  million,  or 9%, 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.


                                       28
<PAGE>


                                     SWEPCO


                       SOUTHWESTERN ELECTRIC POWER COMPANY


                        PART I. - FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.



                                       29
<PAGE>

SWEPCO
Consolidated Statements of Income (unaudited)
Southwestern Electric Power Company
--------------------------------------------------------------------------------
                                      Three Months Ended      Six Months Ended
                                            June 30,               June 30,
                                    ---------------------   -------------------
                                       1999        1998        1999      1998
                                    ----------  ---------   --------- ---------
                                                     (thousands)

Electric Operating Revenues         $ 242,888   $ 246,936   $ 439,952 $ 444,495
                                    ----------  ---------   --------- ---------
Operating Expenses and Taxes
    Fuel                               91,690      98,087     167,961   174,320
    Purchased power                    10,573      11,664      16,766    18,003
    Other operating                    32,890      33,228      63,071    64,322
    Maintenance                        22,018      13,160      34,262    23,429
    Depreciation and amortization      25,319      24,826      51,524    49,629
    Taxes, other than income           15,791      15,558      31,584    29,080
    Income taxes                        9,120      11,087      12,928    17,253
                                    ----------  ---------   --------- ---------
                                      207,401     207,610     378,096   376,036
                                    ----------  ---------   --------- ---------

Operating Income                       35,487      39,326      61,856    68,459
                                    ----------  ---------   --------- ---------
Other Income and (Deductions)
    Allowance for equity funds used
        during construction                (5)         44          42       706
    Other                                (459)        197        (913)     (102)
    Non-operating income taxes            973         343       1,656     1,212
                                    ----------  ---------   --------- ---------
                                          509         584         785     1,816
                                    ----------  ---------   --------- ---------

Income Before Interest Charges         35,996      39,910      62,641    70,275
                                    ----------  ---------   --------- ---------
Interest Charges
    Interest on long-term debt          9,802       9,808      19,604    19,617
    Distributions on Trust Preferred
     Securities                         2,165       2,166       4,331     4,331
    Interest on short-term debt and
     other                              2,772       2,478       5,162     4,197
    Allowance for borrowed funds used
     during construction                 (372)       (437)       (739)     (697)
                                    ----------  ---------   --------- ---------
                                       14,367      14,015      28,358    27,448
                                    ----------  ---------   --------- ---------

Net Income                             21,629      25,895      34,283    42,827
   Less: Preferred stock dividends         57          57         115       591
   Loss on reacquired preferred stock      --        (856)         --      (855)
                                    ----------  ---------   --------- ---------
Net Income for Common Stock          $ 21,572    $ 24,982    $ 34,168  $ 41,381
                                    ==========  =========   ========= =========





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


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

  Electric Utility Plant
    Production                                    $ 1,391,946        $1,397,924
    Transmission                                      477,668           474,035
    Distribution                                      933,433           916,293
    General                                           330,468           321,136
    Construction work in progress                      50,062            48,523
                                                  ------------      ------------
                                                    3,183,577         3,157,911
  Less - Accumulated depreciation                   1,350,847         1,317,057
                                                  ------------      ------------
                                                    1,832,730         1,840,854
                                                  ------------      ------------
Current Assets
    Cash                                                3,783             4,444
    Accounts receivable                                59,620            40,430
    Materials and supplies, at average cost            25,275            25,135
    Fuel inventory, at average cost                    60,785            40,238
    Accumulated deferred income taxes                   2,773             4,869
    Prepayments and other                              16,242            16,651
                                                  ------------      ------------
                                                      168,478           131,767
                                                  ------------      ------------

Deferred Charges and Other Assets                     115,177           113,701
                                                  ------------      ------------
                                                  $ 2,116,385        $2,086,322
                                                  ============      ============









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

                                       31
<PAGE>
SWEPCO
Consolidated Balance Sheets
Southwestern Electric Power Company
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                     June 30,              December 31,
                                                       1999                   1998
                                                    (unaudited)            (audited)
                                                    -----------            -----------
                                                                 (thousands)
<S>                                                 <C>          <C>       <C>         <C>

CAPITALIZATION AND LIABILITIES
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                                  280,760                300,592
                                                    -----------            -----------
        Total Common Stock Equity                      661,420      52%       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                                     496,104      39%       543,741   41%
                                                    -----------  -------   ----------- -----
          Total Capitalization                       1,272,230     100%     1,339,700  100%
                                                    -----------  -------   ----------- -----

Current Liabilities
    Long-term debt due within twelve months             89,959                 43,932
    Advances from affiliates                            87,354                 40,705
    Accounts payable                                    71,680                 73,507
    Payables to affiliates                              31,205                 37,795
    Customer deposits                                   13,777                 13,316
    Accrued taxes                                       40,803                 23,189
    Accrued interest                                    14,218                 14,275
    Over-recovered fuel costs                            5,797                  5,378
    Other                                               13,126                 12,538
                                                    -----------            -----------
                                                       367,919                264,635
                                                    -----------            -----------
Deferred Credits
    Accumulated deferred income taxes                  391,961                398,664
    Investment tax credits                              59,931                 62,213
    Income tax related regulatory liabilities, net       2,848                  4,931
    Other                                               21,496                 16,179
                                                    -----------            -----------
                                                       476,236                481,987
                                                    -----------            -----------
                                                    $2,116,385             $ 2,086,322
                                                    ===========            ===========

</TABLE>







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

                                       32
<PAGE>
SWEPCO
Consolidated Statements of Cash Flows (unaudited)
Southwestern Electric Power Company
--------------------------------------------------------------------------------
                                                             Six Months Ended
                                                                 June 30,
                                                        ------------------------
                                                           1999           1998
                                                        ---------      ---------
                                                               (thousands)

OPERATING ACTIVITIES
    Net Income                                          $ 34,283       $ 42,827
    Non-cash Items Included in Net Income
        Depreciation and amortization                     54,337         52,156
        Deferred income taxes and investment tax credits  (8,972)        (3,163)
    Changes in Assets and Liabilities
        Accounts receivable                              (19,190)        (5,561)
        Fuel inventory                                   (20,547)       (11,160)
        Accounts payable                                  (1,413)       (10,201)
        Payables to affiliates                            (6,590)        (1,620)
        Accrued taxes                                     17,614         17,248
        Other deferred credits                             5,317          1,412
        Other                                                186         (4,625)
                                                        ---------      ---------
                                                          55,025         77,313
                                                        ---------      ---------
INVESTING ACTIVITIES
    Construction expenditures                            (45,250)       (41,869)
    Other                                                 (1,335)        (2,466)
                                                        ---------      ---------
                                                         (46,585)       (44,335)
                                                        ---------      ---------
FINANCING ACTIVITIES
    Redemption of preferred stock                             (1)       (27,988)
    Retirement of long-term debt                          (1,635)        (1,079)
    Change in advances from affiliates                    46,649         35,047
    Payment of dividends                                 (54,114)       (29,067)
                                                        ---------      ---------
                                                          (9,101)       (23,087)
                                                        ---------      ---------

Net Change in Cash and Cash Equivalents                     (661)         9,891
Cash and Cash Equivalents at Beginning of Year             4,444          2,298
                                                        ---------      ---------
Cash and Cash Equivalents at End of Period               $ 3,783       $ 12,189
                                                        =========      =========
SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized (includes
      distributions on Trust Preferred Securities)      $ 26,152       $ 25,660
                                                        =========      =========
    Income taxes paid                                   $ 18,031       $ 16,781
                                                        =========      =========




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

                                       33
<PAGE>



SOUTHWESTERN ELECTRIC POWER COMPANY
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED JUNE 30, 1999 AND 1998


      SWEPCO's  net income for common  stock for the second  quarter of 1999 was
$21.6 million,  which was $3.4 million, or 14%, lower than the comparable period
in 1998.  The  decrease  resulted  primarily  from  decreased  non-fuel  related
revenues and increased maintenance expenses.

      Electric  operating  revenues  for the second  quarter of 1999 were $242.9
million,  which was $4 million, or 2%, lower than the comparable period in 1998.
The decrease  resulted  from lower fuel related  revenues of $4.8 million due to
lower  combined fuel expense and  purchased  power as discussed in the following
paragraph,  and decreased  non-fuel related  revenues of $2.8 million.  Non-fuel
related  revenues  were  affected  by a 4%  decrease  in  retail  MWH  sales due
primarily to decreased  weather related customer  demand.  These reductions were
partially  offset by a provision for rate refund of $3.6 million recorded in the
second quarter of 1998.  The provision for rate refund  resulted from the annual
determination of cost of service formula rates for SWEPCO's wholesale customers.

      Fuel and purchased power expense  decreased for the second quarter of 1999
compared to the same period in 1998. Fuel expense decreased $6.4 million, or 7%,
due primarily to a decrease in average unit fuel costs.  Average unit fuel costs
declined  from  $1.83  per MMbtu in 1998 to $1.70 per MMbtu in 1999 due to lower
spot market natural gas and coal prices. Purchased power expenses for the second
quarter of 1999  decreased $1.1 million,  or 9%,  compared to the same period in
1998 due primarily to a decrease in economy energy purchases.

      Maintenance  expenses increased during the second quarter of 1999 to $22.0
million,  which was $8.9 million,  or 67%, higher than the comparable  period in
1998. The increase in maintenance  expense resulted from increased power station
maintenance, tree trimming and overhead lines maintenance.

      Income tax expenses  associated with utility  operations during the second
quarter of 1999 were $9.1 million,  which was $2 million, or 18%, lower than the
comparable  period in 1998 due to lower taxable income for the second quarter of
1999.


COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998


      SWEPCO's  net income for  common  stock for the six months  ended June 30,
1999  was  $34.2  million,  which  was  $7.2  million,  or 17%,  lower  than the
comparable  period in 1998.  This decrease  resulted  primarily  from  decreased
non-fuel related revenues and increased maintenance expenses.

      Electric  operating  revenues  for the six months ended June 30, 1999 were
$440.0 million,  which was $4.5 million, or 1%, lower than the comparable period
in 1998.  This  decrease was due  primarily to decreased  fuel  revenues of $5.4
million due to lower  combined fuel expense and purchased  power as discussed in
the  following  paragraph,  and  decreased  non-fuel  related  revenues  of $2.7
million.  Non-fuel related 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 a  provision  for a rate  refund of $3.6

                                       34
<PAGE>

million  recorded in the second  quarter of 1998.  The provision for rate refund
resulted  from the annual  determination  of cost of service  formula  rates for
SWEPCO's wholesale customers.

      Fuel and purchased  power expense  decreased for the six months ended June
30, 1999 when compared to the same period in 1998.  Fuel expense  decreased $6.4
million,  or 4%, due  primarily  to a decrease  in average  unit fuel costs from
$1.70  per  MMbtu  in 1998 to $1.66  per  MMbtu in  1999,  partially  offset  by
increased natural gas generation. The change in average unit fuel costs resulted
lower spot market natural gas and coal prices.  Purchased power expenses for the
six months ended June 30, 1999  decreased $1.2 million,  or 7%,  compared to the
same period of 1998 due primarily to a decrease in economy energy purchases.

      Maintenance  expenses  for the six months  ended June 30,  1999 were $34.3
million,  which was $10.8 million,  or 46%, higher than the comparable period in
1998.   This  was  due  to  increased  power  station   maintenance,   increased
tree-trimming maintenance and increased overhead lines maintenance.

      Taxes,  other than income for the  six-month  period  ended June 30, 1999,
were $31.6  million,  an increase of $2.5  million,  or 9%, over the  comparable
period in 1998.  This  increase was due to increased ad valorem taxes based upon
projected  increases in property  values and increased  state  franchise  taxes.
Income tax expenses  for the six months ended June 30, 1999 were $12.9  million,
which is $4.3 million,  or 25%, lower than the  comparable  period of 1998, as a
result of lower taxable income.


                                       35
<PAGE>




                                       WTU



                          WEST TEXAS UTILITIES COMPANY


                        PART I. - FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.


                                       36
<PAGE>
WTU
Statements of Income (unaudited)
West Texas Utilities Company
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                          Three Months Ended       Six Months Ended
                                                June 30,                June 30,
                                        ----------------------   ---------------------
                                           1999        1998        1999        1998
                                        ----------   ---------   ---------   ---------
                                                          (thousands)
<S>                                     <C>          <C>         <C>         <C>

Electric Operating Revenues             $ 107,782    $104,353    $188,834    $188,301
                                        ----------   ---------   ---------   ---------
Operating Expenses and Taxes
    Fuel                                   29,208      31,454      52,343      56,684
    Purchased power                        12,474      12,754      20,768      20,663
    Other operating                        20,039      20,474      40,172      42,861
    Maintenance                             6,282       3,720      10,460       6,906
    Depreciation and amortization          10,850      10,719      21,624      21,389
    Taxes, other than income                7,097       6,626      14,585      12,180
    Income taxes                            5,259       4,137       5,012       5,081
                                        ----------   ---------   ---------   ---------
                                           91,209      89,884     164,964     165,764
                                        ----------   ---------   ---------   ---------
Operating Income                           16,573      14,469      23,870      22,537
                                        ----------   ---------   ---------   ---------
Other Income and (Deductions)

    Allowance for equity funds used
        during construction                    --          97          96         229
    Other                                    (152)        719        (350)      1,498
    Non-operating income taxes                207         (68)        426          23
                                        ----------   ---------   ---------   ---------
                                               55         748         172       1,750
                                        ----------   ---------   ---------   ---------
Income Before Interest Charges             16,628      15,217      24,042      24,287
                                        ----------   ---------   ---------   ---------
Interest Charges
    Interest on long-term debt              5,088       5,088      10,176      10,176
    Interest on short-term debt and other   1,369       1,085       2,531       2,088
    Allowance for borrowed funds used
        during construction                  (157)       (177)       (300)       (288)
                                        ----------   ---------   ---------   ---------
                                            6,300       5,996      12,407      11,976
                                        ----------   ---------   ---------   ---------

Net Income                                 10,328       9,221      11,635      12,311
    Less: Preferred stock dividends            26          26          52          52
                                        ----------   ---------   ---------   ---------
Net Income for Common Stock              $ 10,302     $ 9,195    $ 11,583    $ 12,259
                                        ==========   =========   =========   =========

</TABLE>




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

37
<PAGE>
WTU
Balance Sheets
West Texas Utilities Company
--------------------------------------------------------------------------------

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

  Electric Utility Plant
    Production                                        $ 426,209       $ 429,896
    Transmission                                        215,965         213,630
    Distribution                                        390,144         382,373
    General                                             112,335         108,878
    Construction work in progress                        20,095          11,805
                                                    ------------   -------------
                                                      1,164,748       1,146,582
  Less - Accumulated depreciation                       483,047         473,503
                                                    ------------   -------------
                                                        681,701         673,079
                                                    ------------   -------------
Current Assets
    Cash                                                  8,397           2,093
    Accounts receivable                                  22,109          31,689
    Materials and supplies, at average cost              14,077          14,191
    Fuel inventory, at LIFO cost                         14,022          13,186
    Accumulated deferred income taxes                        --             366
    Under-recovered fuel costs                            5,022           3,980
    Prepayments and other                                 7,734           5,988
                                                    ------------   -------------
                                                         71,361          71,493
                                                    ------------   -------------
Deferred Charges and Other Assets
    Deferred Oklaunion costs                             13,046          14,910
    Other                                                58,566          60,330
                                                    ------------   -------------
                                                         71,612          75,240
                                                    ------------   -------------
                                                      $ 824,674       $ 819,812
                                                    ============   =============







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

                                       38
<PAGE>
WTU
Balance Sheets
West Texas Utilities Company
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                   June 30,            December 31,
                                                     1999                 1998
                                                  (unaudited)          (audited)
                                                  ------------         ----------
                                                              (thousands)
<S>                                               <C>          <C>     <C>          <C>

CAPITALIZATION AND LIABILITIES

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                                 114,772            117,189
                                                  ------------         ----------
                                                      254,222     49%    256,639       46%
                                                  ------------ ------- ----------   -------

    Preferred stock                                     2,482     --%      2,482       --%
    Long-term debt                                    263,603     51%    303,519       54%
                                                  ------------ ------- ----------   -------
          Total Capitalization                        520,307    100%    562,640      100%
                                                  ------------ ------- ----------   -------

Current Liabilities
     Long-term debt due within twelve months           40,000                 --
     Advances from affiliates                           9,109              4,573
     Payables to affiliates                            18,893             19,917
     Accounts payable                                  36,981             31,473
     Accrued taxes                                      8,842             10,031
     Accumulated deferred income taxes                     17                 --
     Accrued interest                                   4,230              4,125
     Other                                              3,713              3,797
                                                  ------------         ----------
                                                      121,785             73,916
                                                  ------------         ----------
Deferred Credits
    Accumulated deferred income taxes                 141,057            140,731
    Investment tax credits                             25,960             26,597
    Income tax related regulatory liabilities, net     11,433             12,088
    Other                                               4,132              3,840
                                                  ------------         ----------
                                                      182,582            183,256
                                                  ------------         ----------
                                                    $ 824,674          $ 819,812
                                                  ============         ==========
</TABLE>







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


39

<PAGE>
WTU
Statements of Cash Flows (unaudited)
West Texas Utilities Company
--------------------------------------------------------------------------------
                                                             Six Months Ended
                                                                 June 30,
                                                            --------------------
                                                             1999       1998
                                                            ---------  ---------
                                                                (thousands)

OPERATING ACTIVITIES
    Net Income                                              $ 11,635   $ 12,311
    Non-cash Items Included in Net Income
        Depreciation and amortization                         22,086     21,919
        Deferred income taxes and investment tax credits        (583)    (4,484)
    Changes in Assets and Liabilities
        Accounts receivable                                    9,580    (13,180)
        Accounts payable                                       5,459      5,452
        Payables to affiliates                                (1,024)    (8,427)
        Accrued taxes                                         (1,189)     1,643
        Fuel recovery                                         (1,042)      (244)
        Other                                                 (1,280)       757
                                                            ---------  ---------
                                                              43,642     15,747
                                                            ---------  ---------
INVESTING ACTIVITIES
    Construction expenditures                                (25,226)   (22,864)
    Other                                                     (2,596)    (3,029)
                                                            ---------  ---------
                                                             (27,822)   (25,893)
                                                            ---------  ---------
FINANCING ACTIVITIES
    Payment of dividends                                     (14,052)    (8,052)
    Change in advances from affiliates                         4,536      1,690
                                                            ---------  ---------
                                                              (9,516)    (6,362)
                                                            ---------  ---------

Net Change in Cash and Cash Equivalents                        6,304    (16,508)
Cash and Cash Equivalents at Beginning of Year                 2,093     20,613
                                                            ---------  ---------
Cash and Cash Equivalents at End of Period                   $ 8,397    $ 4,105
                                                            =========  =========
SUPPLEMENTARY INFORMATION

    Interest paid less amounts capitalized                   $ 9,022    $ 8,714
                                                            =========  =========
    Income taxes paid                                        $ 4,589    $ 5,540
                                                            =========  =========





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

40

<PAGE>



WEST TEXAS UTILITIES COMPANY
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED JUNE 30, 1999 AND 1998


      WTU's net income for common stock for the second quarter in 1999 was $10.3
million,  which was $1.1 million,  or 12%, higher than the comparable  period in
1998. The increase was due primarily to increased electric operating revenues as
a  result  of  higher  off-system  sales,   partially  offset  by  increases  in
maintenance expense and income taxes.

      Electric operating revenues during the second quarter were $107.8 million,
which was $3.4 million,  or 3%, higher than the  comparable  period in 1998. The
increase  during  the  quarter  was a result of  higher  off-system  sales.  The
increase  was  offset by a decline  in  residential  sales as a result of milder
weather  conditions and a decline in industrial sales due primarily to curtailed
oilfield-related activity.

      Fuel expense during the second  quarter of 1999 was $29.2  million,  which
was $2.2 million, or 7%, lower than the comparable period in 1998, due primarily
to a change  in the  fuel  mix.  Generation  shifted  from  more  expensive  gas
generation to less expensive coal generation.

      Maintenance  expense  during the second  quarter of 1999 was $6.3 million,
which was $2.6 million,  or 69%, higher than the comparable  period in 1998, due
to regularly scheduled generating plant maintenance,  overhead lines maintenance
and an unscheduled generating plant outage.

      Income tax expense  associated with utility  operations  during the second
quarter of 1999 was $5.3 million,  which was $1.1 million,  or 27%,  higher than
the  comparable  period in 1998,  due to higher  taxable  income  for the second
quarter of 1999.

      Other income and  deductions  decreased 93% in the second quarter of 1999,
or $0.7  million.  compared  to the second  quarter of 1998 partly due to a $0.4
million loss on  disposition  of property.  Interest  income also  declined $0.3
million due to a decline in the balance of under-recovered fuel costs.


COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998


      WTU's net income for common  stock for the six months  ended June 30, 1999
was $11.6  million,  which was $0.7  million,  or 6%, lower than the  comparable
period in 1998.  The decrease  resulted  primarily  from  increased  maintenance
expenses, interest expenses, and taxes, other than income as well as a reduction
in the amount of other income and deductions  partially offset by a reduction of
other operating expense.

      Electric  operating  revenues  for the six months ended June 30, 1999 were
$188.8  million,  which was $0.5 million  higher than the  comparable  period in
1998. The increase resulted primarily from higher sales to wholesale  customers.
The increase was offset by a decline in residential  sales as a result of milder
weather conditions and a decline in industrial sales that occurred due primarily
to curtailed oilfield-related activity.

      Fuel  expense  for the six  months  ended  June 30,  1999  decreased  $4.3
million,  or 8%, from the  comparable  period in 1998.  WTU's  average unit fuel
costs  declined  from  $1.89  per  MMbtu in 1998 to $1.80 per MMbtu in 1999 as a
result of a decline in the spot market price of natural gas.

                                       41
<PAGE>


      Other operating expenses for the six months ended June 30, 1999 were $40.2
million,  which was $2.7  million,  or 6%, lower than the  comparable  period in
1998. The decrease was due to lower transmission expenses (See NOTE 2 LITIGATION
AND  REGULATORY  PROCEEDINGS  - CPL and WTU  complaint  Versus  Texas  Utilities
Electric Company - Docket 17285) and administrative expenses.

      Maintenance  expenses  for the six months  ended June 30,  1999 were $10.5
million,  which was $3.6 million,  or 51%, higher than the comparable  period in
1998.  The  increase was the result of scheduled  generating  plant  maintenance
activities,  overhead lines maintenance activities and an unscheduled generating
plant outage.

      Taxes,  other than  income,  for the six months  ended June 30,  1999 were
$14.6 million, which was $2.4 million, or 20%, higher than the comparable period
in 1998,  due to increased ad valorem  taxes based on higher  assessed  property
values and higher state franchise taxes.

      Other  income  and  deductions  for the six  months  ended  June 30,  1999
decreased $1.6 million from the  comparable  period in 1998. The decrease is the
result of a $0.6  million in interest  income  associated  with the  outstanding
balance of under-recovered fuel costs. In addition,  there was a decline of $0.6
million  in  income  from  merchandise  operations  and a $0.4  million  loss on
disposition of property.

      Interest expense for the six months ended June 30, 1999 was $12.4 million,
which was $0.4 million,  or 4%, higher than the  comparable  period in 1998. The
increase in interest  expense was  associated  with higher  levels of short-term
debt.


                                       42
<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


                                       43
<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 Report on Form 10-Q for the quarter
ended March 31, 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
its decommissioning  costs on an annual level cost based on the estimated future
cost to decommission  STP,  including  escalation for expected  inflation to the
expected time of decommissioning net of expected earnings on the trust fund.

      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 at 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 June 30, 1999, the nuclear trust balance was $76.2
million.

      Foreign Currency Translation
      The financial  statements of SEEBOARD U.S.A.,  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

                                       44
<PAGE>

statement  items are translated at the 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 June 30                  $1.58            $1.67

            Average for 3 months
              ended June 30             $1.60            $1.65

            Average for 6 months
              ended June 30             $1.61            $1.65

      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  derivative  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.


                                       45
<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 Report on Form
10-Q  for the  quarter  ended  March  31,  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,  CPL Rate  Review - Docket  No.  14965  for  additional  discussion  of
litigation and regulatory matters.

      Texas Legislation
      In June 1999, legislation was enacted that will ultimately restructure the
electric  utility  industry  in Texas.  The new law  gives  Texas  customers  of
investor-owned  utilities  the  opportunity  to choose their  electric  provider
beginning on January 1, 2002. CSW is currently analyzing the impact of the Texas
electric utility industry restructuring  legislation and expects to complete its
analysis  of the  legislation  during  the  third  quarter  of 1999.  The  Texas
Commission has established numerous task forces, including  representatives from
CPL, SWEPCO and WTU, to address various issues associated with the restructuring
legislation  and to provide further  guidance  regarding  implementation  of the
restructuring.  Based on the overall  framework and objective of the legislation
regarding  recovery of stranded costs and regulatory  assets,  no adjustments to
earnings  were  recorded  in the  second  quarter  of  1999  and no  significant
adjustments to earnings are anticipated.

      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
additional information 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 with
an additional reduction on $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 challenge the resolution of several issues in 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.  Although  CPL filed an
appeal of this most recent order to the Court of Appeals,  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. If the  stipulated  agreement is approved by

                                       46
<PAGE>

the Texas  Commission,  and the AEP Merger is ultimately  consummated,  CSW will
withdraw its appeal with respect to the "glide path" rate reduction methodology.
See NOTE 5.  PROPOSED  AEP  MERGER  and ITEM 2. MD&A -  PROPOSED  AEP MERGER for
additional information on the stipulated agreement.

      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 Docket No. 14965 for CPL's share of STP. In
Docket No. 14965,  the Texas  Commission  adopted a three-year  average capacity
factor of 83% performance  standard for STP. During the  reconciliation  period,
STP operated at a net capacity  factor of 93.1%,  resulting in a reward of $19.2
million.

      CPL proposed  that it be authorized 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 this case.  CPL further  requested  that it be  authorized 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  includes a disallowance  of $7.44 million and no STP
performance  standard going forward. CPL will recognize such amounts at the time
Texas  Commission  approval is obtained.  The  settlement  resolves all disputed
issues. The settlement documents are expected to be executed in August 1999.

      CPL Municipal Franchise Fee Litigation
      In May 1996,  the City of San Juan,  Texas filed a class action in Hidalgo
County,  Texas  District  Court on behalf of all cities  served by CPL  alleging
underpayment  of municipal  franchise  fees. The  plaintiffs'  petition  asserts
various  contract and tort claims against CPL and requests certain audit rights.
Although the plaintiffs' pleading seeks unspecified damages and attorneys' fees;
plaintiffs' attorneys have asserted in public statements that CPL's liability in
this matter  could  exceed  $100  million  plus  punitive  damages.  CPL filed a
counterclaim  for any  overpayment of franchise fees it may have made as well as
its attorneys' fees. CPL also filed a motion to transfer venue to Nueces County,
Texas, and a plea to the jurisdiction and pleas in abatement  asserting that the
Texas  Commission  has primary  jurisdiction  over the  claims.  In May 1996 and
December 1996,  respectively,  the Cities of Pharr, Texas and San Benito,  Texas
filed individual  suits making claims virtually  identical to those filed by the
City of San Juan. In January 1997,  CPL filed an original  petition at the Texas
Commission  requesting the Texas Commission  declare its jurisdiction over CPL's
collection and payment of municipal franchise fees.

      In April 1997, the Texas Commission issued a declaratory order in which it
declined  to assert  jurisdiction  over the claims of the City of San Juan.  CPL
appealed the Texas  Commission's  decision to the Travis County,  Texas District
Court,  which affirmed the Texas  Commission  ruling on February 19, 1999. After
the Texas Commission's  order, the Hidalgo County District Court overruled CPL's

                                       47
<PAGE>

plea to the jurisdiction and plea in abatement. In July 1997, the Hidalgo County
District  Court  entered an order  certifying  the case as a class  action.  CPL
appealed this order to the Corpus  Christi Court of Appeals.  In February  1998,
the Corpus Christi Court of Appeals  affirmed the trial court's order certifying
the class.  CPL appealed the Corpus Christi Court of Appeals ruling to the Texas
Supreme  Court,  which  declined to hear the case.  In August 1998,  the Hidalgo
County   District  Court  ordered  the  case  to  mediation  and  suspended  all
proceedings pending the completion of the mediation. The mediation was completed
in December 1998 without a resolution.

      On January 5, 1999, a class notice was mailed to each of the cities served
by CPL.  Over 90 of the 128  cities  declined  to  participate  in the  lawsuit.
However, CPL has pledged that if any final, non-appealable court decision in the
litigation  awards a judgement  against CPL for  underpayment of franchise fees,
CPL will extend the  principles  of that  decision to the cities that decline to
participate in the litigation.  The plaintiffs have filed a motion to extend the
time for the cities to decide whether to participate in the lawsuit.

      Although  CPL  believes  that it has  substantial  defenses to the cities'
claims and intends to defend  itself  against the cities'  claims and pursue its
counterclaims  vigorously,  CPL  currently  cannot  predict  the  outcome of the
municipal  franchise fee  litigation or its ultimate  impact on CPL's results of
operations or financial position.

      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 CPL and WTU proposed
reduction  of $15.5  million  annually of 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  to ERCOT  transmission  expense with no
future expenses 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  will  operate,  plan and maintain the four
separate transmission systems as a single unit. The agreement also establishes a
process for the U.S. Electric Operating  Companies to 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
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 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
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, the transmission  coordination agreement's current process
to  allocate  open  access   transmission   tariff  revenues   required  certain
corrections  to  ensure  that  each  U.S.  Electric  Operating  Company  will be
allocated revenue in proportion to each 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 to make refunds under the  transmission  coordination  agreement  until
such  time as the  FERC  issues  an order  accepting  the  revised  transmission

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coordination  agreement.  Management  believes  that  the  revised  transmission
coordination  agreement  will not have a  material  effect  on CSW's or the U.S.
Electric Operating Companies' results of operations or financial condition.

      PSO PCB Cases
      PSO has been  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. The first trial date has been set for
September  1999.  Other claims  arising from this incident have been settled and
the suits dismissed.  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 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 Fuel Proceeding
      In May 1997,  SWEPCO filed with the Texas  Commission  an  application  to
reconcile   fuel  costs  and  implement  a  12-month   surcharge  of  fuel  cost
under-recoveries.  Because  of the  uncertainty  as to when a  surcharge  may be
implemented,  SWEPCO did not  propose a  surcharge  period or a total  surcharge
amount,  which  would  include  interest  through the entire  surcharge  period.
However,  SWEPCO indicated that it had under-recovered Texas jurisdictional fuel
costs of approximately $16.8 million,  including interest through December 1996.
Included in the $16.8 million  balance are fuel related  litigation  expenses of
$5.0 million and an interest return of $2.0 million on the  unamortized  balance
of a fuel contract termination payment.

      On  December  8,  1997,  SWEPCO and the other  parties to the  proceedings
before  the Texas  Commission  filed a  settlement  on all  issues  except as to
whether  transmission  equalization  payments should be included in fuel or base
revenues.  The  settlement  resulted in a decrease of the  under-recovered  fuel
costs, and the resulting  surcharge  recovery,  by $6.0 million.  The settlement
also  provides  that  SWEPCO's  fuel  and   fuel-related   expenses  during  the
reconciliation  period were  reasonable  and necessary and  recoverable  as fuel
expense.  Also, the settlement  provides that SWEPCO's actions in litigating and
renegotiating  certain  fuel  contracts,  together  with the  prices,  terms and
conditions of the renegotiated contracts were prudent.

      On April 8, 1998,  the ALJ issued a proposal  for decision  regarding  the
only  outstanding  issue,   recommending  that  SWEPCO  be  allowed  to  include
transmission equalization expense in eligible fuel expense. On May 19, 1998, the
Texas  Commission  reversed  the  ALJ  and  ordered  an  earnings  reduction  of
approximately  $1.8 million,  recorded in the second quarter of 1998. On June 8,
1998,  SWEPCO  filed a motion for  rehearing  on the  transmission  equalization
issue,  which was denied through operation of law. After the Texas  Commission's
order  on May 19,  1998,  SWEPCO  had  still  under-recovered  its fuel and fuel
related expenses. On July 1, 1998, the Texas Commission issued an order allowing
SWEPCO to surcharge its Texas retail  customers $6.9 million of  under-recovered
fuel and fuel related expenses and associated  interest.  The surcharge began in
July 1998 and ended in June  1999.  SWEPCO  has filed an appeal  regarding  this
matter in the State District Court of Travis County, Texas. Management is unable
to predict the ultimate outcome of this litigation.  However,  SWEPCO has agreed
to withdraw the appeal if the  stipulated  AEP merger  settlement is approved by
the  Texas  Commission  and  the  merger  is  consummated.  See AEP  MERGER  for
additional information on the stipulated agreement.

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<PAGE>

      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
request that the lignite mining agreement be terminated. This federal court suit
is set for trial beginning in January 2000.

      SWEPCO intends to vigorously  prosecute the claims against DHMV and defend
against  the  counterclaims  which DHMV has  asserted.  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 Reconciliation
      During the  reconciliation  period of July 1, 1994  through June 30, 1997,
WTU  incurred  approximately  $422  million in  eligible  fuel and  fuel-related
expenses  to  generate  and  purchase  electricity.   The  Texas  jurisdictional
allocation of the fuel and fuel-related expenses was approximately $295 million.
On December 31, 1997,  WTU filed with the Texas  Commission  an  application  to
reconcile  fuel  costs  and  carry the  reconciled  balance.  WTU did not seek a
surcharge of the reconciled balance.

      On June 11, 1998,  WTU amended its  application to reconcile fuel costs to
remove a credit  from the  calculation  of  eligible  fuel in the  amount  of $3
million related to transmission  equalization payments.  This amendment resulted
from the Texas Commission's ruling concerning transmission equalization payments
in the SWEPCO fuel reconciliation proceeding described above.

      On October 14, 1998, the general  counsel of the Texas  Commission and WTU
agreed  to  a  non-unanimous  stipulation  regarding  WTU's  eligible  fuel  and
fuel-related  expenses.  On April 29, 1999, the Texas Commission  issued a final
order  approving  recovery  of  all  eligible  fuel  and  fuel-related  expenses
requested  by WTU except for  $70,000,  or  approximately  0.02%,  of the amount
requested.

      Regulatory Draft Price Proposal for SEEBOARD
      On  August 12, 1999, OFGEM published its draft price proposals and results
from its current  United  Kingdom  electricity  distribution  review.  OFGEM has
recommended revenue reductions in SEEBOARD's  distribution business. If adopted,
these  proposals  would  reduce net income for  SEEBOARD in the year 2000 by $40
million  to $50  million,  and $60  million to $75  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 $107
million  for the twelve  months  ended June 30,  1999.  In  addition,  OFGEM has
proposed the re-allocation of a further 13%, or $45 million of pre-tax costs out
of  SEEBOARD's  distribution  business into its supply  business,  the impact of
which is expected to be broadly earnings neutral.

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<PAGE>

      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 November 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.


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.  PSO has guaranteed  obligations for Numanco in the amount of
$29 million.

      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 June 30, 1999, the amount SWEPCO
may have to assume  is  approximately  $68  million,  which is the  contractor's
actual obligation outstanding at June 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 June 30, 1999,  the cost to reclaim the
mine is estimated to be approximately $36 million.

      SWEPCO Cajun Asset Purchase Proposal
      Cajun filed a petition for  reorganization  under Chapter 11 of the United
States Bankruptcy Code on December 21, 1994 and is currently operating under the
supervision  of the United States  Bankruptcy  Court for the Middle  District of
Louisiana.

       Both SWEPCO and Louisiana  Generating LLC raised their offers for Cajun's
non-nuclear  assets as the bankruptcy court  confirmation  hearings concluded on
June 25, 1999. A ruling in the case is expected sometime after the July 30, 1999
deadline for final legal briefs.

       On June 22, 1999,  SWEPCO  increased its base bid to $990.5 million (from
the previous bid of $940.5 million).  On June 24, 1999, Louisiana Generating LLC
raised its base bid to $995 million  (from its  previous  bid of $960  million).
Subsequently,  on July 28,  1999,  SWEPCO  increased  its  base bid from  $990.5
million to $1.0255  billion.  The July 1999 SWEPCO Plan  replaces  all  previous
plans filed by SWEPCO.  The SWEPCO and  Louisiana  Generating  LLC bids have the
same interest  adjustment  mechanism.  Under the July 1999 SWEPCO Plan, a SWEPCO
affiliate would acquire all the  non-nuclear  assets of Cajun. On July 30, 1999,
Louisiana  Generating  LLC filed an objection to SWEPCO's  latest bid,  claiming
that no further bids were permitted after the confirmation hearings concluded on
June 25, 1999.  In order to be confirmed by the  bankruptcy  court,  a plan must

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<PAGE>

meet  more than a dozen  specific  criteria  of the U.S.  Bankruptcy  Code.  The
trustee for the Cajun  Electric  estate,  who formally  sponsored  the Louisiana
Generating LLC bid for the past three years,  withdrew as plan proponent on June
22, 1999.

      Consummation of the July 1999 SWEPCO Plan is conditioned upon confirmation
by the  bankruptcy  court,  and the  receipt by SWEPCO and CSW of all  requisite
state and federal regulatory approvals in addition to their respective boards of
directors approvals. If the July 1999 SWEPCO Plan is ultimately confirmed by the
bankruptcy  court,  SWEPCO  expects to finance the $1.0255  billion  required to
consummate the acquisition of Cajun's  non-nuclear  assets through a combination
of external non-recourse borrowings and internally generated funds. There can be
no assurance  that the  bankruptcy  court will confirm the July 1999 SWEPCO Plan
or, if it is confirmed, that federal and state regulators will approve it. As of
June 30, 1999,  SWEPCO had deferred  $12.7 million in costs related to the Cajun
acquisition on its  consolidated  balance sheet,  which would be expensed if the
July 1999 SWEPCO Plan is not ultimately successful.

      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,  demonstrating that cleanup to
residential standards is not necessary.
Resolution of this issue is still pending.

      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 along
with a projection of cost to remediate the property.

      The State of Mississippi has passed Brownfield legislation, which provides
for  levels  of  cleanup  standards.   Although  regulations  implementing  this
legislation  are not expected to be finalized until the summer of 1999, the MDEQ
has indicated  that it will work with SWEPCO in the interim to allow the cleanup
project to move forward.

      SWEPCO has incurred  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.  Negotiations continue between
SWEPCO  and the EPA.  Although  the EPA has issued an  administrative  order and
imposed a penalty in the range of $40  thousand to $50  thousand,  the amount of
the ultimate penalty has not been determined by the EPA.

      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

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of  SEEBOARD,  has  committed  (pound)73  million,  or $115  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 $70 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.

      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.

      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 June 30,
1999, CSW Energy had committed  costs of  approximately  $20 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 the end of  1999.  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
for additional information 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.

      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

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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, $11 million, and $233 million, respectively, as of June 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 June 30, 1999,  approximately  $1.3 billion of CSW  subsidiary  company
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 June 30, 1999 is as follows:

CPL - $730 million  PSO - $132 million  SWEPCO - $281 million WTU - $115 million


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.  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.

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<PAGE>

      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 Announcement
      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 it already had incurred $192 million.

      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.  The transmission
facilities  subject  to  this  commitment  are  located  in  Indiana,  Kentucky,
Michigan, Ohio, Tennessee, Virginia and West Virginia.

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<PAGE>

      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
CSW'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 three CPL wholesale customers 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.

      On July 29, 1999, the Louisiana Commission granted 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.  The
settlement also includes:

-     A base rate  ceiling set at current  rate levels for a five year period
      subject to certain conditions;

-     Sharing of the benefits for off-system sales;

                                       56
<PAGE>

-     Establishment of conditions for affiliate transactions with other AEP and
      CSW subsidiaries;

-     Provisions to ensure continued quality of service; and

-     Provisions to hold SWEPCO's  Louisiana  customers harmless from adverse
      effects of the merger, if any.

      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 and AEP
and CSW. The Oklahoma Commission order is currently the subject of appeals filed
by the Municipal Electric Systems of Oklahoma, Inc. and the Oklahoma Association
of Electric Cooperatives.

      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 settlement is approved by the Texas Commission, 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.

                                       57
<PAGE>

      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 CSW's Texas U.S. Electric Operating Companies,  and the settlements
call for the  withdrawal  of their  opposition  to the merger in all  regulatory
approval proceedings. A final order is expected in the fourth quarter of 1999 or
early 2000.

      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 since
the merger will not close by year-end.

      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.  In November 1998 and March 1999, AEP and CSW filed  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.

      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 completion of the proposed merger.

      On July 25,  1999  AEP and CSW  submitted  filings  to the  Department  of
Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

      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

                                       58
<PAGE>

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 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.

      Completion of the Merger
      AEP and CSW have  targeted  consummation  of the AEP  Merger  in the first
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.

      Merger Costs
      As of June 30, 1999,  CSW had deferred  $34.5  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 U.S.A. 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  six-month  periods  of 1999 and  1998,  respectively,
covered is set forth below.

                                       59
<PAGE>




                                    U.S.      U.K.     Other and       CSW
                                  Electric  Electric  Reconciling  Consolidated
                                 -----------------------------------------------
                                                    (millions)
Three months ended June 30, 1999
   Operating Revenues                $892       $362        $65       $1,319
   Income/(Loss) from Continuing
     Operations                        97         17        (11)         103

Three months ended June 30, 1998
   Operating Revenues                $885       $403        $56       $1,344
   Income/(Loss) from Continuing
     Operations                       102         20        (15)         107


                                    U.S.      U.K.      Other and       CSW
                                  Electric  Electric   Reconciling  Consolidated
                                 -----------------------------------------------
                                                    (millions)
Six months ended June 30, 1999
   Operating Revenues               $1,589        $837      $118       $2,544
   Income/(Loss) from Continuing
     Operations                        132          44       (28)         148
Total Assets at June 30, 1999        9,008       2,856     2,030       13,894
Total Assets at December 31, 1998    8,994       3,032     1,871       13,897

Six months ended June 30, 1998
   Operating Revenues               $1,574        $935       $92       $2,601
   Income/(Loss) from Continuing
     Operations                        140          53       (27)         166
Total Assets at June 30, 1998        9,105       2,997     1,840       13,942
Total Assets at December 31, 1997    9,186       2,931     1,499       13,616


7.    SOUTH AMERICAN INVESTMENTS

      Through  June 30,  1999,  CSW  International  had  purchased  a 36% equity
interest in Vale for $80 million.  CSW International also issued $100 million of
debt to  Vale,  convertible  to  equity  by the end of 1999.  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 48% devaluation of the Brazilian  currency by
the end of June 1999. Vale is unfavorably affected by the devaluation  primarily
due 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 June 30, 1999, CSW International had deferred
losses,  after tax, of approximately $19 million.  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 June 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
June 30, 1999 was $72  million.  The  reduction  in the  carrying  value of this
investment   has  been  reflected  in  Other   Comprehensive   Income  in  CSW's

                                       60
<PAGE>

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

      During the second quarter of 1999,  CPL  reacquired  $125 million of FMBs.
CPL used  short-term  borrowings  and  internally  generated  cash to fund  this
redemption.

      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  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  will be used to refund $33.7  million  aggregate  principal  amount of
outstanding PSO 5.9% Series A bonds due December 1, 2007.


                                       61
<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  Report on Form 10-Q for the quarter  ended March 31,  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 six month  periods
ended June 30, 1999.


LIQUIDITY AND CAPITAL RESOURCES

      Overview of CSW Operating, Investing, and Financing Activities
      Net cash inflows from operating  activities decreased $155 million to $248
million for the six month period ended June 30, 1999 compared to the same period
last year.  The  decrease was due  primarily  to increased  payments on accounts
payable.  Also  contributing  to the  decrease  in  cash  flows  from  operating
activities were decreased fuel recoveries from customers.  Partially  offsetting
the  decrease  in cash  flows from  operating  activities  was a lower  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 $30 million to $365
million  during the first six 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  and
U.S. Electric Operating Companies' construction expenditures.  Also contributing
to the increase in net cash outflows from  investing  activities was the absence
in 1999 of CSW  International's  Altamira  partner,  Alpek,  which assumed a 50%
obligation related to the power plant project. Partially offsetting the increase
in cash  outflows  from  investing  activities  was the absence in 1999 of a CSW
International loan to Vale.

      Net cash inflows from  financing  activities  increased $12 million to $92
million  for the first six 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.  Partially  offsetting the increase in net
cash inflows was a higher level of FMB reacquisitions in 1999 compared to 1998.

      Construction Expenditures
      CSW's construction expenditures, including allowance for funds used during
construction,  totaled $331 million for the six months ended June 30, 1999. Such
expenditures for the U.S. Electric Operating Companies totaled $80 million,  $49
million,   $46  million  and  $26  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.


                                       62
<PAGE>

      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 June 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
$50  million  in  existing  routes and new  construction  in 1999.  C3  Networks
delivers  networking and services in Texas and Louisiana and plans to expand the
network to Oklahoma and Louisiana.

      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  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  will  be used to  refund  $33.7  million  aggregate  principal  amount
outstanding of PSO's 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.

      During the second quarter of 1999,  CPL  reacquired  $125 million of FMBs.
CPL used  short-term  borrowings  and  internally  generated  cash to fund  this
reacquisition.


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.  At the same time,  the companies  expect to continue their
commitment to high quality,  reliable  service.  Job  reductions  related to the

                                       63
<PAGE>

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 Announcement
      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 it already had incurred $192 million.

      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.


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<PAGE>

      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.  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
CSW'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 three CPL wholesale customers 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.

      On July 29, 1999, the Louisiana Commission granted 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

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<PAGE>

merger  savings.  This  credit will be updated  annually  and  continue  for the
remainder  of the  eight-year  period  following  the merger's  completion.  The
settlement also includes:

-     A base rate  ceiling set at current  rate levels for a five year period
      subject to certain conditions;

-     Sharing of the benefits for off-system sales;

-     Establishment of conditions for affiliate transactions with other AEP and
      CSW subsidiaries;

-     Provisions to ensure continued quality of service; and

-     Provisions to hold SWEPCO's  Louisiana  customers harmless from adverse
      effects of the merger, if any.

      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 and AEP
and CSW. The Oklahoma Commission order is currently the subject of appeals filed
by the Municipal Electric Systems of Oklahoma, Inc. and the Oklahoma Association
of Electric Cooperatives.

      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 settlement is approved by the Texas Commission, 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

                                       66
<PAGE>

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 CSW's Texas U.S. Electric Operating Companies,  and the settlements
call for the  withdrawal  of their  opposition  to the merger in all  regulatory
approval proceedings. A final order is expected in the fourth quarter of 1999 or
early 2000.

      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 since
the merger will not close by year-end.

      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.  In November 1998 and March 1999, AEP and CSW filed  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.

      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 completion of the proposed merger.

      On July 25,  1999  AEP and CSW  submitted  filings  to the  Department  of
Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

      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.


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<PAGE>

      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 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.

      Completion of the Merger
      AEP and CSW have  targeted  consummation  of the AEP  Merger  in the first
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.

      Merger Costs
      As of June 30, 1999,  CSW had deferred  $34.5  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.

      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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<PAGE>


OTHER MERGER AND ACQUISITION ACTIVITY

      SWEPCO Cajun Asset Purchase Proposal
      Cajun filed a petition for  reorganization  under Chapter 11 of the United
States Bankruptcy Code on December 21, 1994 and is currently operating under the
supervision  of the United States  Bankruptcy  Court for the Middle  District of
Louisiana.

       Both SWEPCO and Louisiana  Generating LLC raised their offers for Cajun's
non-nuclear  assets as the bankruptcy court  confirmation  hearings concluded on
June 25, 1999. A ruling in the case is expected sometime after the July 30, 1999
deadline for final legal briefs.

       On June 22, 1999,  SWEPCO  increased its base bid to $990.5 million (from
the previous bid of $940.5 million).  On June 24, 1999, Louisiana Generating LLC
raised its base bid to $995 million  (from its  previous  bid of $960  million).
Subsequently,  on July 28,  1999,  SWEPCO  increased  its  base bid from  $990.5
million to $1.0255  billion.  The July 1999 SWEPCO Plan  replaces  all  previous
plans filed by SWEPCO.  The SWEPCO and  Louisiana  Generating  LLC bids have the
same interest  adjustment  mechanism.  Under the July 1999 SWEPCO Plan, a SWEPCO
affiliate would acquire all the  non-nuclear  assets of Cajun. On July 30, 1999,
Louisiana  Generating  LLC filed an objection to SWEPCO's  latest bid,  claiming
that no further bids were permitted after the confirmation hearings concluded on
June 25, 1999.  In order to be confirmed by the  bankruptcy  court,  a plan must
meet  more than a dozen  specific  criteria  of the U.S.  Bankruptcy  Code.  The
trustee for the Cajun  Electric  estate,  who formally  sponsored  the Louisiana
Generating LLC bid for the past three years,  withdrew as plan proponent on June
22, 1999.

      Consummation of the July 1999 SWEPCO Plan is conditioned upon confirmation
by the  bankruptcy  court,  and the  receipt by SWEPCO and CSW of all  requisite
state and federal regulatory approvals in addition to their respective boards of
directors approvals. If the July 1999 SWEPCO Plan is ultimately confirmed by the
bankruptcy  court,  SWEPCO  expects to finance the $1.0255  billion  required to
consummate the acquisition of Cajun's  non-nuclear  assets through a combination
of external non-recourse borrowings and internally generated funds. There can be
no assurance  that the  bankruptcy  court will confirm the July 1999 SWEPCO Plan
or, if it is confirmed, that federal and state regulators will approve it. As of
June 30, 1999,  SWEPCO had deferred  $12.7 million in costs related to the Cajun
acquisition on its  consolidated  balance sheet,  which would be expensed if the
July 1999 SWEPCO Plan is not ultimately successful.

      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.


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 the FERC  authority  over public power
entities, address transmission reliability, and other issues. No legislation has
been reported out of any committee at this time.  Management  cannot predict the
ultimate outcome of any legislative initiatives.

      Holding Company Act
      Holding Company Act  repeal  legislation  has  been  introduced again this
Congress  in both the U.S.  Senate and the U.S.  House of  Representatives.  The
Senate Bill (S. 313) has been reported out of the U.S. Senate Banking  committee

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<PAGE>

and awaits final  consideration  by the full U.S.  Senate.  The House Bill (H.R.
2363) is being  considered  by the U.S.  House  Commerce  Committee.  Management
cannot  predict  the  ultimate   outcome  of  these,  or  similar,   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.  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 are to be 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 has  organized the study effort
into  several  working  groups,  which have been  directed to evaluate  assigned
issues. The Task Force will develop its report to the Oklahoma Legislature based
on the work  performed by these  working  groups.  The Task Force's final report
will be provided to the Oklahoma  Legislature by October 1, 1999.  Management is
unable to predict the outcome of these studies or their  ultimate  impact on the
results of operations and financial condition of CSW and PSO.

      Arkansas
      In April 1999, the Arkansas  Legislature passed, and the Arkansas Governor
signed,  legislation for electric utility restructuring in Arkansas.  Some major
provisions of that legislation include:

-  Retail competition begins January 1, 2002. The Arkansas  Commission can delay
   implementation, but not beyond June 30, 2003.

-  Companies with  transmission  lines must submit those facilities to operation
   by a transmission organization approved by FERC.

-  A one-year rate freeze after  restructuring  will be implemented  for default
   service  customers of companies that do not apply for stranded cost recovery.
   A three-year  rate freeze will be  implemented  for  companies  with stranded
   costs.

-  The  Arkansas  Commission  is given broad  authority  to address market power
   issues.

      Texas
      On June 18,  1999,  legislation  was  signed  into law in Texas  that will
restructure the electric utility industry in that state. The new law gives Texas
customers of  investor-owned  utilities the opportunity to choose their electric
provider  beginning January 1, 2002. The legislation also provides a rate freeze
until  that date  followed  by a 6% rate  reduction  for  residential  and small
commercial customers,  additional rate reductions for low income customers and a
number of  customer  protections.  Rural  electric  cooperatives  and  municipal
electric systems can choose whether to participate in retail competition.

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<PAGE>

      Some of the key provisions of the legislation include:

-  Beginning  January 1,  2002,  retail  customers  of  investor-owned  electric
   companies will  be able to  choose their  electric  provider.  The affiliated
   retail electric provider of  the utility that serves the customer on December
   31, 2001  will  continue  to  serve the  customer unless the customer chooses
   another retail electric provider.  Delivery  of the electricity will continue
   to be the responsibility  of the local electric  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.

-  Retail  electric  cooperatives  and  municipal  electric  systems  can choose
   whether to participate in retail competition.

-  Investor-owned utilities must freeze their rates effective September 1, 1999,
   through the start of competition on January 1, 2002. Investor-owned utilities
   at January  1, 2002 will lower  rates for  residential  and small  commercial
   customers  by 6%. This  reduced  rate is known as the "Price to Beat,"  which
   will be available to those customers for five years.

-  The  legislation  establishes a system benefit fund for  low-income  customer
   assistance,  customer  education and to offset  reductions in school property
   tax  revenues.  The fund will be funded  through a charge on retail  electric
   providers that can be set by the Texas Commission at up to 65 cents per MWH.

-  Electric  utilities  are  allowed  to recover  all of their net,  verifiable,
   non-mitigable  stranded  costs that  otherwise may not be  recoverable in the
   future competitive market. A majority of those regulatory assets and stranded
   costs can be recovered through  securitization,  which is a financing process
   to recover  regulatory assets and stranded costs through the use of debt that
   lowers the carrying cost of assets compared to conventional utility financing
   methods.

-  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 (if issued on or after January 1, 1992) to
   reduce stranded costs. Utilities without stranded costs must either flow such
   amounts  back  to  customers   or  make  capital   expenditures   to  improve
   transmission or distribution facilities or to improve air quality.

-  Investor-owned utilities will be required to auction entitlements to at least
   15 percent of their  generating  capacity  for five years or until 40% of the
   residential and small commercial  consumption of electricity in the utility's
   service area is provided by nonaffiliated retail electric providers.

-  Grandfathered power plants, those built or started prior to implementation of
   the Texas Clean Air Act of 1972,  must  reduce  emissions  of Nitrogen  Oxide
   (NOx) by 50% and Sulfur Dioxide (SO2) by 25 percent by May 2003. The law also
   requires an  additional  2,000 MW of renewable  power  generation in Texas by
   2009 from retail electric providers, municipally owned utilities and electric
   cooperatives.

-  A  legislative  oversight  committee  will  be  established  to  monitor  the
   implementation  and effectiveness of electric utility  restructuring and make
   recommendations for any necessary further legislative action.

      The Texas  Commission  has  established  numerous  task  forces to address
various issues associated with the restructuring  legislation and to provide for
further guidance regarding implementation of the restructuring.

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<PAGE>

      CSW expects to complete its analysis of the Texas legislation in the third
quarter  of 1999 and its  impact on CPL,  SWEPCO and WTU,  its  regulated  Texas
electric utilities.

      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.  Parties submitted comments,  and hearings
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  Staff 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.

      Management   cannot  predict  the  ultimate  outcome  of  the  initiatives
concerning  restructuring  and retail  competition  in Arkansas,  Louisiana  and
Oklahoma,  or their  ultimate  impact on the  results of  operations,  financial
condition, or competitive position of CSW, PSO and SWEPCO.

      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 $70 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.

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<PAGE>

      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.


RATES AND REGULATORY MATTERS

      Texas Legislation
      In June 1999, legislation was enacted that will ultimately restructure the
electric  utility  industry  in Texas.  The new law  gives  Texas  customers  of
investor-owned  utilities  the  opportunity  to choose their  electric  provider
beginning on January 1, 2002. CSW is currently analyzing the impact of the Texas
electric utility industry restructuring  legislation and expects to complete its
analysis  of the  legislation  during the third  quarter  of 1999.  Based on the
overall  framework  and  objective  of the  legislation  regarding  recovery  of
stranded costs and regulatory  assets,  no adjustments to earnings were recorded
in the second  quarter of 1999 and no  significant  adjustments  to earnings are
anticipated.   The  Texas  Commission  has  established  numerous  task  forces,
including  representatives  from CPL,  SWEPCO and WTU, to address various issues
associated with the  restructuring  legislation and to provide further  guidance
regarding implementation of the restructuring.

      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
additional information 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 challenge the resolution of several issues in 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.  Although  CPL filed an
appeal of this most recent order to the Court of Appeals,  management  is unable

                                       73
<PAGE>

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. If the  stipulated  agreement is approved by
the Texas  Commission  and the AEP Merger is  ultimately  consummated,  CSW will
withdraw its appeal with respect to the "glide path" rate reduction methodology.
See NOTE 5.  PROPOSED  AEP  MERGER  and ITEM 2. MD&A -  PROPOSED  AEP MERGER for
additional information 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.

      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  believes  the  report  contains  significant  theoretical  and
mathematical  errors  and filed its  rebuttal  testimony  on  August  10,  1999.
Hearings are scheduled to begin in September 1999. Management cannot predict the
outcome of this review.

      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 has 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 base rates $5.3 million,  or 5%. SWEPCO  continues  discussions with
the other remaining party. Management cannot predict the outcome of this review.

       Regulatory Draft Price Proposal for SEEBOARD
       On August 12, 1999, OFGEM published its draft price proposals and results
from its current  United  Kingdom  electricity  distribution  review.  OFGEM has
recommended revenue reductions in SEEBOARD's  distribution business. If adopted,
these  proposals  would  reduce net income for  SEEBOARD in the year 2000 by $40
million  to $50  million,  and $60  million to $75  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 $107
million  for the twelve  months  ended June 30,  1999.  In  addition,  OFGEM has
proposed the re-allocation of a further 13%, or $45 million of pre-tax costs out
of  SEEBOARD's  distribution  business into its supply  business,  the impact of
which is expected to be broadly earnings neutral.

      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 November 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.


                                       74
<PAGE>

      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.


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  additional  information  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.

      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.

      Through  June 30,  1999,  CSW  International  had  purchased  a 36% equity
interest, in Vale for $80 million. CSW International also issued $100 million of
debt to  Vale,  convertible  to  equity  by the end of 1999.  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.

                                       75
<PAGE>

      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 48% devaluation of the Brazilian  currency by
the end of June 1999. Vale is unfavorably affected by the devaluation  primarily
due 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 June 30, 1999, CSW International had deferred
losses,  after tax, of approximately $19 million.  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 June 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
June 30, 1999 was $72  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.

      Year 2000  readiness is a top  priority  for CSW.  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
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.

                                       76
<PAGE>

      CSW has  completed  a review of its year 2000  project  in 1998.  External
consultants  assisted in the review. The purpose of the review was to assess the
project  plans  and  processes  to  ensure  that  the  significant  risks to CSW
associated  with the year  2000 are  prudently  managed.  Several  changes  were
incorporated into the year 2000 project as a result of the 1998 review findings.
Internal reviews of the remediation and testing processes,  continuing readiness
processes,  and  contingency  plans are being  conducted in the third quarter of
1999.

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

-  A detailed inventory and assessment of critical systems was completed in the
   third quarter of 1998. This includes 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 it had completed year 2000 readiness activities within its critical
   power  production and delivery  systems at its four U.S.  Electric  Operating
   Companies.

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

-  Plans for  modification  and  certification  testing of business  application
   software were completed in the third quarter of 1997.

-  Remediation plans and schedules for business applications were established in
   the fourth quarter of 1997, and conversion and certification  activities were
   initiated.  As of June 30, 1999, all business  critical  applications  of the
   U.S.  Electric  Operating  Companies and shared services  organizations  were
   converted and certified.

      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.
Remediation and testing of mission critical distribution and safety systems were
completed in March 1999.  The  remediation of all other critical path systems is
on schedule for completion in July 1999. Final  verification of those systems is
scheduled for completion in the third quarter of 1999. The most recent survey in
June 1999 by the U.K.  Office of the Gas and  Electric  Markets  indicates a 96%
completion in relation to electric operations in the electricity industry.

      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.  Only  non-critical  items and
some  contingency  remains.  The  target completion for those items is September
30, 1999.

      Cost to Address Year 2000 Issues
      Work  related to the year 2000 project is being  performed  using a mix of
internal and external  resources.  The funds for year 2000 project  expenditures
are included in CSW's  budget.  The costs related to the project are expensed as
incurred.  As of June 30, 1999,  historical  cost  incurred to date for the year

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<PAGE>

2000 project is approximately $20 million,  $10 million of which was incurred in
the first six  months of 1999.  Remaining  activities  are  expected  to cost an
additional $14 million to $16 million over the next 9 months.  Approximately 36%
of  the  projected  cost  is  for  redeployment  of  existing  labor  resources.
Approximately  30% of the  projected  cost is for outside  contract  labor.  The
remaining  34% of the  projected  cost is for  computer  hardware  and  software
purchases.

      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 deferment 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.

      Currently, no cost estimate exists related to CSW's year 2000 risk.

      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.

      To date at SEEBOARD, the year 2000 testing on embedded chip technology has
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

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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  will  participate  in an  industry-wide  drill  to test  its
operational  preparedness  in the third  quarter  of 1999.  This drill will be a
rehearsal of December 31, 1999 and January 1, 2000  operations  and will further
validate the contingency plans.  Final verification of external  interfaces will
be performed over the remainder of 1999.  Contingency  plans will continue to be
revised as needed.

      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  their 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.

      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.


ACCOUNTING STANDARDS

      SFAS No. 137
      SFAS No. 137, an amendment to SFAS No. 133, defers the effective date for
implementation  of SFAS No. 133 to fiscal years  beginning  after June 15, 2000,
which  makes  this  statement  applicable  for  CSW in  2001.  CSW is  currently
analyzing the effects of SFAS No. 133 on its results of operations and financial
condition.
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<PAGE>


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 power and 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 four 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 year-end 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  purchases  is $68 per MWH, and the average  contract  price for forward
sales is $83 per MWH.  The option  contract facilitated  management with respect
to power price and volume volatility.

      Contractual commitments at June 30, 1999 are as follows:

    Products             Net Notional      Fair Value of       Fair Value of
                            Amount            Assets            Liabilities
    ----------------------------------------------------------------------------
                                                      (millions)
    Swaps                7,010,000 MMbtu          $1                 $--
    Forwards: purchases    513,600 MWH            --                   8
              sales        291,200 MWH             6                  --
    Option    sale          73,600 MWH            --                   1

      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 June 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 June 30, 1999, this liability is included in long-term debt on
the balance sheet at a carrying value of approximately $407 million.

                                              Expected        Expected Cash
                                             Cash Inflows        Outflows
Contract                  Maturity Date    (Maturity Value)   (Market Value)
-----------------------------------------------------------------------------
Cross currency swaps      August 1, 2001     $200 million     $208.9 million
Cross currency swaps      August 1, 2006     $200 million     $224.5 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 quarter ended March 31, 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:

 (2)  Plan   of   Acquisition,   reorganization,   arrangement,  liquidation  or
      succession.

      Third Amendment to  Joint Plan  of Reorganization for Cajun Electric Power
      Cooperative,   Inc.  submitted   by  the  Committee  of  Certain  Members,
      Southwestern Electric Power  Company and Washington-St. Tammany, Dated May
      14, 1999 (Exhibit 2.1), filed herewith.

(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, CPL, PSO, SWEPCO and WTU
Date of earliest event reported:  June 18, 1999
Date of report:  July 7, 1999
Item 5. Other Events and Item 7 Financial  Statements  and  Exhibits,  reporting
developments  related to Texas  Electric  restructuring  legislation,  July 1999
SWEPCO Plan and the proposed AEP/CSW merger.


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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: August 13, 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: August 13, 1999                /s/ R. Russell Davis
                                     R. Russell Davis
                                     Controller and Chief Accounting Officer
                                     (Principal Accounting Officer)