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 March 31, 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 May 7, 1999                          Shares
  Central and South West Corporation                          212,613,935
  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
                                 MARCH 31, 1999




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


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


PART 1. FINANCIAL INFORMATION..................................................6


  ITEM 1. FINANCIAL STATEMENTS.................................................6
                                      .........................................6
    CENTRAL POWER AND LIGHT COMPANY...........................................14
    PUBLIC SERVICE COMPANY OF OKLAHOMA........................................20
    SOUTHWESTERN ELECTRIC POWER COMPANY.......................................26
    WEST TEXAS UTILITIES COMPANY..............................................32
    NOTES TO FINANCIAL STATEMENTS.............................................39

  ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS.......................................................56

  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........72

PART II -OTHER INFORMATION....................................................74


  ITEM 1. LEGAL PROCEEDINGS...................................................74

  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................74

  ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................75

SIGNATURES....................................................................77

                                       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
April 1999 SWEPCO Plan..The amended plan of reorganization for Cajun filed by 
                        the Members Committee and SWEPCO on April 16, 1999 with
                        the U.S. Bankruptcy Court for the Middle District of
                        Louisiana
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.
Cajun Members Committee.Committee represented by 7 of the 12 Louisiana member
                        distribution cooperatives that are served by Cajun
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
EPS ....................Earnings per share of common stock
ERCOT ..................Electric Reliability Council of Texas
Exchange Act ...........Securities Exchange Act of 1934, as amended
EWG ....................Exempt Wholesale Generator
FERC ...................Federal Energy Regulatory Commission
FUCO ...................Foreign utility company as defined by the Holding
                        Company Act
Holding Company Act ....Public Utility Holding Company Act of 1935, as amended
IBEW ...................International Brotherhood of Electrical Workers
ISO ....................Independent system operator
ITC ....................Investment tax credit
KW .....................Kilowatt
KWH ....................Kilowatt-hour
LIFO ...................Last-in first-out (inventory accounting method)
Louisiana Commission ...Louisiana Public Service Commission
Market Method...........The five year average market-related method to determine
                        pension costs
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
NEIL ...................Nuclear Electric Insurance Limited
NLRB ...................National Labor Relations Board
NRC ....................Nuclear Regulatory Commission

                                       3
<PAGE>


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

Abbreviation or Acronym       Definition

Oklahoma Commission ....Corporation Commission of the State of Oklahoma
PCB ....................Polychlorinated biphenyl
PRP ....................Potentially responsible party
PSO ....................Public Service Company of Oklahoma, Tulsa, Oklahoma
Registrant(s) ..........CSW, CPL, PSO, SWEPCO and WTU
Retirement Plan ........CSW's tax-qualified Cash Balance Retirement Plan
Rights Plan ............Stockholders Rights Agreement between CSW and CSW 
                        Services, as Rights Agent
RUS ....................Rural Utilities Service of the federal government
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. 87.............Employers' Accounting for Pensions
SFAS No. 115 ...........Accounting for Certain Investments in Debt and Equity 
                        Securities
SFAS No. 130 ...........Reporting Comprehensive Income
SFAS No. 131............Disclosure about Segments of an Enterprise and Related 
                        Information
STP ....................South Texas Project nuclear electric generating station
Sweeny..................A CSW Energy cogeneration facility located in Sweeny,
                        Texas
SWEPCO .................Southwestern Electric Power Company, Shreveport, 
                        Louisiana
SWEPCO Plan ............The amended plan of reorganization for Cajun filed by 
                        the Members Committee and SWEPCO on March 18, 1998 wit
                        the U.S. Bankruptcy Court for the Middle District of
                        Louisiana
Texas Commission .......Public Utility Commission of Texas
Texas Eastman...........Eastman Chemical Company
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
Vale ...................Empresa De Electricidade Vale Paranapanema S/A, a 
                        Brazilian Electric Distribution Company
Valero..................Valero Refining Company-Texas, Valero Refining Company 
                        and Valero Energy 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 April
    1999 SWEPCO Plan,
-   the impact of deregulation on the United States electric utility business,
-   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 1. FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.





                                       6

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

                                              Three Months Ended March 31,
                                         ---------------------------------------
                                               1999                   1998
                                         --------------          ---------------
                                         (in millions, except per share amounts)
Operating Revenues
    U.S. Electric                                 $ 697               $ 689
    United Kingdom                                  476                 533
    Other diversified                                52                  35
                                                -------             -------
                                                  1,225               1,257
                                                -------             -------
Operating Expenses and Taxes
    U.S. Electric fuel                              229                 236
    U.S. Electric purchased power                    29                  21
    United Kingdom cost of sales                    322                 385
    Other operating                                 251                 228
    Maintenance                                      41                  34
    Depreciation and amortization                   132                 123
    Taxes, other than income                         57                  46
    Income taxes                                     17                  21
                                                -------             -------
                                                  1,078               1,094
                                                -------             -------
Operating Income                                    147                 163
                                                -------             -------

Other Income and Deductions
    Other                                            13                  15
    Non-operating income taxes                       (4)                 (3)
                                                -------             -------
                                                      9                  12
                                                -------             -------
Income Before Interest and Other Charges            156                 175
                                                -------             -------

Interest and Other Charges
    Interest on long-term debt                       78                  80
    Interest on short-term debt and other            24                  26
    Distributions on Trust Preferred Securities       7                   7
    Preferred dividend requirements of
     subsidiaries                                     2                   2
                                                -------             -------
                                                    111                 115
                                                -------             -------
Net Income for Common Stock                        $ 45                $ 60
                                                =======             =======

Average Common Shares Outstanding                 212.6              212.3
                                               
Basic and Diluted EPS                             $0.21              $0.28
                                                =======             =======

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




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


                                       7

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

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

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

   Comprehensive Income:

      Foreign currency translation
       adjustment (net of tax of $2)          --       --          --          7               7
      Unrealized loss on securities
       (net of tax of $8)                    --       --          --        (14)            (14)
      Adjustment for gain included in 
       net income (net of tax of $4)         --       --          --         (7)             (7)
      Minimum pension liability 
      (net of tax of $0.6)                   --       --          --         (1)             (1)
      Net Income                             --       --         440         --             440
                                                                                         -------
         Total comprehensive income                                                         425
                                           -----------------------------------------------------
Ending Balance -- December 31, 1998        $744   $1,049      $1,823         $8          $3,624
                                           =====================================================

(unaudited)
Beginning Balance -- January 1, 1999       $744   $1,049      $1,823         $8          $3,624
   Sale of common stock                      --        1          --         --               1
   Common stock dividends                    --       --         (93)        --             (93)
                                                                                         -------
                                                                                          3,532
   Comprehensive Income:
      Foreign currency translation
       adjustment                                                           (62)            (62)
      Unrealized gain on securities 
       (net of tax of $2)                    --       --          --          5               5
      Net Income                             --       --          45         --              45
                                                                                         -------
         Total comprehensive income                                                         (12)
                                           -----------------------------------------------------
Ending Balance -- March 31, 1999           $744   $1,050      $1,775       ($49)         $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
--------------------------------------------------------------------------------
                                                       March 31,    December 31,
                                                         1999          1998
                                                      (unaudited)   (audited)
                                                      ------------  -----------
                                                             (millions)
ASSETS
Fixed Assets
    Electric
        Production                                        $ 5,895       $ 5,887
        Transmission                                        1,598         1,594
        Distribution                                        4,686         4,681
        General                                             1,385         1,380
        Construction work in progress                         172           166
        Nuclear fuel                                          209           207
                                                      ------------   -----------
                                                           13,945        13,915
    Other diversified                                         375           333
                                                      ------------   -----------
                                                           14,320        14,248
  Less - Accumulated depreciation and amortization          5,717         5,652
                                                      ------------   -----------
                                                            8,603         8,596
                                                      ------------   -----------
Current Assets
    Cash and temporary cash investments                       123           157
    Accounts receivable                                       901         1,110
    Materials and supplies, at average cost                   195           191
    Electric utility fuel inventory                           108            90
    Under-recovered fuel costs                                 --             4
    Notes receivable                                          113           109
    Prepayments and other                                     103            90
                                                      ------------   -----------
                                                            1,543         1,751
                                                      ------------   -----------
Deferred Charges and Other Assets
    Deferred plant costs                                      496           497
    Mirror CWIP asset                                         253           257
    Other non-utility investments                             448           432
    Securities available for sale                              74            66
    Income tax related regulatory assets, net                 306           308
    Other regulatory assets                                   198           204
    Goodwill                                                1,353         1,402
    Other                                                     400           384
                                                      ------------   -----------
                                                            3,528         3,550
                                                      ------------   -----------
                                                         $ 13,674      $ 13,897
                                                      ============   ===========

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

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

<TABLE>
<CAPTION>

                                                            March 31,         December 31,
                                                              1999               1998
                                                           (unaudited)        (audited)
                                                           -----------        -----------
<S>                                                        <C>         <C>    <C>         <C>

CAPITALIZATION AND LIABILITIES                                       (millions)
Capitalization
    Common stock:   $3.50 par value
        Authorized:   350.0 million shares
        Issued and outstanding: 212.6 million shares
          in 1999 and in 1998                                    $ 744              $ 744
    Paid-in capital                                              1,050              1,049
    Retained earnings                                            1,775              1,823
    Accumulated other comprehensive income                         (49)                 8
                                                           -----------        -----------
                                                                 3,520    44%       3,624   45%
                                                           ----------- ------ ----------- -----

    Preferred Stock                                                176     3%         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                                               3,925    49%       3,938   49%
                                                           ----------- ------ ----------- -----
                                                                 7,956   100%       8,073  100%
                                                           ----------- ------ ----------- -----

Current Liabilities
    Long-term debt and preferred stock due within twelve months    170                169
    Short-term debt                                                960                811
    Short-term debt - CSW Credit, Inc.                             567                749
    Loan notes                                                      29                 32
    Accounts payable                                               518                624
    Accrued taxes                                                  187                190
    Accrued interest                                               105                 84
    Other                                                          230                218
                                                           -----------        -----------
                                                                 2,766              2,877
                                                           -----------        -----------
                                   
Deferred Credits
    Accumulated deferred income taxes                            2,391              2,410
    Investment tax credits                                         263                267
    Other                                                          298                270
                                                           -----------        -----------
                                                                 2,952              2,947
                                                           -----------        -----------
                                                              $ 13,674           $ 13,897
                                                           ===========        ===========

</TABLE>



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

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

                                                         Three Months Ended
                                                              March 31,
                                                        ---------------------
                                                         1999           1998
                                                              (millions)

OPERATING ACTIVITIES
    Net income for common stock                          $ 45           $ 60
    Non-cash Items and Adjustments
        Depreciation and amortization                     139            127
        Deferred income taxes and investment tax credits  (14)           (10)
        Preferred stock dividends                           2              2
    Changes in Assets and Liabilities
        Accounts receivable                               185             88
        Accounts payable                                  (72)           (90)
        Accrued taxes                                      (1)             4
        Fuel inventory                                    (18)            (5)
        Fuel recovery                                      23             51
        Refund due customers                               --            (59)
        Other                                             (40)           (21)
                                                        ------         ------
                                                          249            147
                                                        ------         ------
INVESTING ACTIVITIES
    Construction expenditures                            (125)          (119)
    CSW Energy/CSW International projects                 (41)            19
    Other                                                 (17)           (10)
                                                        ------         ------
                                                         (183)          (110)
                                                        ------         ------
FINANCING ACTIVITIES
    Common stock sold                                       1              1
    Long-term debt sold                                    --              5
    Reacquisition/Maturity of long-term debt               (1)           (59)
    Other financing activities                             29             19
    Change in short-term debt                             (32)           110
    Payment of dividends                                  (95)           (95)
                                                        ------         ------
                                                          (98)           (19)
                                                        ------         ------

Effect of exchange rate changes on cash and cash
 equivalent                                                (2)            --
                                                        ------         ------
Net Change in Cash and Cash Equivalents                   (34)            18
Cash and Cash Equivalents at Beginning of Year            157             75
                                                        ------         ------
Cash and Cash Equivalents at End of Period              $ 123           $ 93
                                                        ======         ======

SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized               $ 86          $ 101
                                                        ======         ======
    Income taxes paid                                    $ 13           $ --
                                                        ======         ======



       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 month periods ended March 31, 1999 and March 31,
1998. For information  concerning the results of operations for each of the U.S.
Electric Operating  Companies,  see the discussions under the heading RESULTS OF
OPERATIONS  following  the  financial  statements  of each of the U.S.  Electric
Operating Companies.


COMPARISON OF THE QUARTERS ENDED MARCH 31, 1999 AND 1998


      Net income for common stock  decreased to $45 million in the first quarter
of 1999 from $60  million in 1998 due  primarily  to the  absence in 1999 of the
recovery in the first quarter of 1998 of certain  regulatory allowed revenues in
the United  Kingdom.  Also  contributing  to the  decrease in  earnings  was the
absence  in 1999  of the  gain  from  an  investment  available  for  sale by C3
Communications  in the first quarter of 1998. Other factors  affecting  earnings
are discussed below.

     In the first 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         57%        39%         96%       4%       100%
Operating Income           66%        34%        100%       --%      100%
Net Income for Common      72%        59%        131%      (31)%     100%
Stock

      Operating  revenues  decreased $32 million,  or 3% in the first quarter of
1999 compared to the same period a year ago due to the following factors. United
Kingdom revenues  decreased $57 million in the first quarter of 1999 compared to
the same period last year due  primarily  to the absence in 1999 of the recovery
of  regulatory   allowed  revenues  in  1998,  which  represented   allowed  but
unrecovered  revenues for previous years.  Also  contributing to the decrease in
United  Kingdom  revenues  were lower sales volumes in the  low-margin  business
market and the  absence of  revenues in 1999 from  SEEBOARD's  retail  business,
which was sold in the second quarter of 1998.  Also  contributing to the decline
in operating revenues was lower fuel revenues of $2 million in the first quarter
of 1999 due to lower fuel expense,  discussed  below.  Partially  offsetting the
decrease in operating revenues was an increase in other diversified  revenues of
$17 million for the  comparison  periods due  primarily  to  increased  business
activity  at CSW Energy and CSW  Credit.  Further  offsetting  the  decrease  in
operating  revenues  was  an $8  million  increase  in  non-fuel  revenues,  due
primarily to higher weather-related demand.

      U.S. Electric fuel expense  decreased $7 million,  or 3%, during the first
quarter  of 1999  compared  to the same  period  last  year due  primarily  to a
decrease in the average  unit fuel cost to $1.54 per MMbtu from $1.63 per MMbtu.
The decrease resulted from lower spot market natural gas prices. Purchased power
expense  increased $8 million,  or 38%, for the comparison  periods primarily at
CPL and WTU. Purchased power expense increased at CPL due primarily to increased
demand and  scheduled  power plant  outages for routine  maintenance.  Purchased
power expense increased at WTU due primarily  increased purchases resulting from
scheduled  maintenance  on a  generating  plant.  United  Kingdom  cost of sales
decreased $63 million,  or 16%, during the first quarter of 1999 compared to the
same period last year due primarily to a lower level of sales of electricity and
the absence in 1999 of cost of sales for SEEBOARD's retail business,  which were
sold in the second quarter of 1998.

                                       12
<PAGE>

      Other operating expense increased $23 million in the first quarter of 1999
compared to the same period a year ago due primarily to increased expenses of $9
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 associated with running  SEEBOARD's  systems for
operating in the competitive  electricity  market in the United  Kingdom.  Other
operating  expense  also  increased  $8 million at CSW Energy  reflecting a full
quarter of operations of the Sweeny cogeneration  facility,  which began service
in February 1998.

      Depreciation  and amortization  expense  increased $9 million in the first
quarter  of 1999  compared  to the same  period  last year due  primarily  to an
increase of depreciable property at most CSW subsidiaries.

      Taxes other than income increased $11 million in the first quarter of 1999
compared to the corresponding period last year due primarily to higher franchise
and ad valorem taxes at the U.S. Electric Operating Companies.  Operating income
taxes  decreased  $4 million in the first  quarter of 1999  compared to the same
period last year due primarily to lower taxable income.

      Other income and  deductions  decreased $3 million in the first quarter of
1999  compared to the first quarter of 1998 due primarily to the absence in 1999
of the $5  million  gain  from the sale by C3  Communications  of an  investment
available for sale.

      Interest and other  charges  decreased $4 million in the first  quarter of
1999  compared to the same period last year due primarily to the absence in 1999
of $5 million in decreased  interest  expenses from a bonded rate refund related
to the CPL 1997 Final Order.  In addition,  interest on long-term debt decreased
$2 million from the  reacquisition  of long-term  debt of $55 million at PSO and
$36 million at CPL in the third quarter of 1998.

                                       13

<PAGE>




                                       CPL



                         CENTRAL POWER AND LIGHT COMPANY


                         PART 1. FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS
                       
                                       14

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

                                              Three Months Ended March 31,
                                              ----------------------------
                                                   1999          1998
                                                ---------     ----------
                                                      (thousands)

Electric Operating Revenues                     $ 282,278     $ 274,453
                                                ---------     ---------
Operating Expenses and Taxes
    Fuel                                           67,915        72,948
    Purchased power                                13,147         8,558
    Other operating                                61,827        60,496
    Maintenance                                    15,226        13,057
    Depreciation and amortization                  43,114        41,712
    Taxes, other than income                       23,324        19,482
    Income taxes                                   11,105        11,820
                                                ---------     ---------       
                                                  235,658       228,073
                                                ---------     ---------

Operating Income                                   46,620        46,380
                                                ---------     ---------
Other Income and Deductions
    Other                                            (730)         (735)
    Non-operating income taxes                      1,678           384
                                                ---------     ---------
                                                      948          (351)
                                                ---------     ---------

Income Before Interest Charges                     47,568        46,029
                                                ---------     ---------
Interest Charges
    Interest on long-term debt                     22,829        23,500
    Distributions on Trust Preferred Securities     3,000         3,000
    Interest on short-term debt and other           5,064         6,828
    Allowance for borrowed funds used during
     construction                                    (873)         (688)
                                                ---------     ---------
                                                   30,020        32,640
                                                ---------     ---------
Net Income                                         17,548        13,389
    Less:  Preferred stock dividends                1,812         1,808
                                                ---------     ---------
Net Income for Common Stock                      $ 15,736      $ 11,581
                                                =========     =========






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

                                       15
<PAGE>
CPL
Consolidated Balance Sheets
Central Power and Light Company

                                                      March 31,     December 31,
                                                         1999          1998
                                                      (unaudited)    (audited)
                                                      -----------   ------------
                                                             (thousands)
ASSETS
Electric Utility Plant
    Production                                        $3,147,129    $ 3,146,269
    Transmission                                         527,863        527,146
    Distribution                                       1,101,920      1,090,175
    General                                              299,210        298,352
    Construction work in progress                         79,456         67,300
    Nuclear fuel                                         208,957        206,949
                                                      -----------   ------------
                                                       5,364,535      5,336,191
  Less - accumulated depreciation                      2,111,785      2,072,686
                                                      -----------   ------------
                                                       3,252,750      3,263,505
                                                      -----------   ------------
Current Assets
    Cash                                                   9,773          5,195
    Accounts receivable                                   54,724         51,056
    Materials and supplies, at average cost               58,101         59,814
    Fuel inventory                                        22,993         20,340
    Accumulated deferred income taxes                      3,436            713
    Prepayments and other                                  3,879          2,952
                                                      -----------   ------------
                                                         152,906        140,070
                                                      -----------   ------------
Deferred Charges and Other Assets
    Deferred STP costs                                   481,883        482,447
    Mirror CWIP asset                                    253,380        256,702
    Income tax related regulatory assets, net            357,013        360,482
    Nuclear decommissioning trust                         71,982         65,972
    Other                                                164,497        167,011
                                                      -----------   ------------
                                                       1,328,755      1,332,614
                                                      -----------   ------------
                                                      $ 4,734,411   $ 4,736,189
                                                      ===========   ============



   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
<TABLE>
<CAPTION>

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

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                                     717,767            739,031
                                                        ---------         ----------
                                                        1,291,655    46%   1,312,919   46%

                                                        ---------   ----  ---------- ----
    Preferred stock                                       163,204     6%     163,20     6%
    CPL-obligated, mandatorily redeemable preferred
        securities of subsidiary trust holding solely
        Junior Subordinated Debentures of CPL             150,000     5%     150,00     5%
    Long-term debt                                      1,225,798    43%   1,225,70    43%
                                                        ---------   ----  ----------  ----
                                                        2,830,657   100%   2,851,829  100%
                                                        ---------   ----  ----------  ----
Current Liabilities
    Long-term debt due within twelve months               125,000            125,000
    Advances from affiliates                              192,638            160,298
    Accounts payable                                       71,087             86,998
    Payables to affiliates                                 31,964             38,331
    Accrued taxes                                          53,342             46,855
    Accrued interest                                       30,522             27,036
    Over-recovered fuel costs                              18,244              9,135
    Other                                                  19,574             18,819
                                                        ---------         ----------
                                                          542,371            512,472
                                                        ---------         ----------
Deferred Credits
    Accumulated deferred income taxes                   1,212,331          1,221,561
    Investment tax credits                                137,212            138,513
    Other                                                  11,840             11,814
                                                        ---------         ----------
                                                        1,361,383          1,371,888
                                                        ---------         ----------
                                                      $ 4,734,411        $ 4,736,189
                                                        =========         ==========


</TABLE>


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

                                       17
<PAGE>
CPL
Consolidated Statements of Cash Flows (unaudited)
Central Power and Light Company

                                                    Three Months Ended
                                                        March 31,
                                                    -------------------
                                                      1999       1998
                                                    ---------  --------
                                                        (thousands)
OPERATING ACTIVITIES
    Net Income                                      $ 17,548   $ 13,389
    Non-cash Items Included in Net Income
        Depreciation and amortization                 48,110     42,944
        Deferred income taxes and investment 
         tax credits                                  (9,785)    (6,559)
        Refund due customers                              --    (59,153)
    Changes in Assets and Liabilities
        Accounts receivable                           (3,668)     9,114
        Fuel inventory                                (2,653)    (4,248)
        Material and supplies                          1,713      2,075
        Accrued interest                               3,486      1,677
        Accounts payable                             (22,523)     4,592
        Accrued taxes                                  6,487     (1,407)
        Fuel recovery                                  9,109     42,150
        Other                                          2,088     10,975
                                                    ---------  --------
                                                      49,912     55,549
                                                    ---------  --------
INVESTING ACTIVITIES
    Construction expenditures                        (37,018)   (32,504)
    Other                                             (1,600)    (1,462)
                                                    ---------  --------
                                                     (38,618)   (33,966)
                                                    ---------  --------
FINANCING ACTIVITIES
    Repayment of long-term debt                           --    (28,000)
    Change in advances from affiliates                32,340     49,825
    Payment of dividends                             (39,056)   (41,945)
                                                    ---------  --------
                                                      (6,716)   (20,120)
                                                    ---------  --------
Net Change in Cash and Cash Equivalents                4,578      1,463
Cash and Cash Equivalents at Beginning of Year         5,195         --
                                                    ---------  --------
Cash and Cash Equivalents at End of Period           $ 9,773    $ 1,463
                                                    =========  ========
SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized (includes
      distributions on Trust Preferred Securities)  $ 22,327   $ 30,057
                                                    =========  ========
    Income taxes paid/(refund received)             $ (3,727)  $     --
                                                    =========  ========

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

                                       18
<PAGE>

CENTRAL POWER AND LIGHT COMPANY
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED MARCH 31, 1999 AND 1998


      Net  income  for  common  stock  for the first  quarter  of 1999 was $15.7
million,  an increase of $4.1  million,  or 36%, from the first quarter of 1998.
The increase resulted primarily from an increase in non-fuel revenues, which was
offset in part by an increase in taxes, other than income.

      Electric  operating  revenues  increased  $7.8  million,  or 3%, to $282.3
million  during the first  quarter of 1999  compared to the same period of 1998.
The  increase is mainly  attributable  to an $8.7  million  increase in non-fuel
revenues  partially offset by a $0.9 million decrease in fuel-related  revenues.
The increase in non-fuel  related  revenues  resulted  from a 9% increase in MWH
sales due to customer demand.

      Fuel expense decreased $5.0 million, or 7%, due primarily to a decrease in
average  unit fuel  costs from $1.54 per MMbtu in 1998 to $1.33 per MMbtu in the
first quarter of 1999,  resulting  from  purchases of  lower-priced  spot market
natural gas.  Purchased  power  expenses for the first quarter of 1999 increased
$4.6  million,  or 54%,  compared  to the same period of 1998 due  primarily  to
increased demand and scheduled power plant outages for routine maintenance.

      Other  operating  expenses were $61.8 million  during the first quarter of
1999, an increase of $1.3 million from the same period in 1998. The increase was
due primarily to higher outside  services  expense,  which was offset in part by
lower transmission  expenses  resulting from the transmission  service agreement
related to the final order in Texas  Commission  Docket No.  17285.  See NOTE 2.
LITIGATION  AND  REGULATORY  PROCEEDINGS  - CPL and WTU  Complaint  Versus Texas
Utilities  Electric Company (Docket No. 17285).  Maintenance  expenses increased
$2.1  million,  or 17% over 1998 largely due to the  scheduled  refueling of STP
Unit No. 1, flood damage and storm repairs.

      Taxes, other than income, were $23.3 million in the first quarter of 1999,
a $3.8 million  increase  above 1998.  This increase was due to a combination of
higher  ad  valorem  taxes,  which  reflect  higher  assessed  values  and state
franchise taxes which are calculated based on a higher 1998 taxable income.

      Other  income  and   deductions   increased  due  primarily  to  a  higher
non-operating income tax benefit resulting from $1.6 million in consolidated tax
savings from CSW in 1999.

      Other  interest  expense  decreased  in the  first  quarter  of  1999  due
primarily to the absence in 1999 of interest  expense related to the 1998 bonded
rate refund and the reacquisition of long-term debt in 1998.


                                       19

<PAGE>



                                       PSO



                       PUBLIC SERVICE COMPANY OF OKLAHOMA


                         PART 1. FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.
                                  

                                       20
<PAGE>
PSO
Consolidated Statements of Income (unaudited)
Public Service Company of Oklahoma

                                                   Three Months Ended March 31,
                                                   ----------------------------
                                                       1999          1998
                                                   ----------     ----------
                                                           (thousands)

Electric Operating Revenues                         $ 151,030     $ 151,411
                                                   ----------     ----------
Operating Expenses and Taxes
    Fuel                                               61,881        61,520
    Purchased power                                    14,044        13,597
    Other operating                                    25,713        27,147
    Maintenance                                         9,207         7,573
    Depreciation and amortization                      18,455        18,095
    Taxes, other than income                            8,059         6,644
    Income taxes                                        1,143         2,032
                                                   ----------     ----------
                                                      138,502       136,608
                                                   ----------     ----------
Operating Income                                       12,528        14,803
                                                   ----------     ----------
Other Income and Deductions
    Allowance for equity funds used during construction    81           155
    Other                                              (1,311)         (616)
    Non-operating income taxes                            709           503
                                                   ----------     ----------
                                                         (521)           42
                                                   ----------     ----------
Income Before Interest Charges                         12,007        14,845
                                                   ----------     ----------
Interest Charges
    Interest on long-term debt                          6,610         7,618
    Distributions on Trust Preferred Securities         1,500         1,500
    Interest on short-term debt and other               1,169         1,230
    Allowance for borrowed funds used during 
     construction                                        (192)         (332)
                                                   ----------     ----------
                                                        9,087        10,016
                                                   ----------     ----------
Net Income                                              2,920         4,829
  Less:  Preferred stock dividends                         53            53
                                                   ----------     ----------
Net Income for Common Stock                           $ 2,867       $ 4,776
                                                   ==========     ==========



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

                                       21

<PAGE>
PSO
Consolidated Balance Sheets
Public Service Company of Oklahoma

                                                      March 31,     December 31,
                                                         1999          1998
                                                      (unaudited)   (audited)
                                                      -----------   -----------
                                                             (thousands)
ASSETS
Electric Utility Plant
    Production                                         $ 915,594     $ 913,083
    Transmission                                         379,157       378,719
    Distribution                                         855,897       855,277
    General                                              216,502       211,124
    Construction work in progress                         35,912        33,519
                                                      -----------   -----------
                                                       2,403,062     2,391,722
  Less - Accumulated depreciation                      1,091,811     1,082,081
                                                      -----------   -----------
                                                       1,311,251     1,309,641
                                                      -----------   -----------
Current Assets
    Cash                                                   1,253         4,670
    Accounts receivable                                   31,692        32,916
    Materials and supplies, at average cost               33,654        33,006
    Fuel inventory, at LIFO cost                          17,411        16,441
    Accumulated deferred income taxes                     12,969        11,789
    Prepayments and other                                  5,871         2,881
                                                      -----------   -----------
                                                         102,850       101,703
                                                      -----------   -----------

Deferred Charges and Other Assets                         71,809        71,384
                                                      -----------   -----------
                                                      $ 1,485,910   $ 1,482,728
                                                      ===========   ===========










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

                                       22
<PAGE>
PSO
Consolidated Balance Sheets
Public Service Company of Oklahoma
-------------------------------------------------------------------------
                                            March 31,         December 31,
                                               1999              1998
                                            (unaudited)       (audited)
                                            -----------       -----------
CAPITALIZATION AND LIABILITIES                       (thousands)
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                          132,493           144,626
                                            -----------       -----------
                                               469,723    50%    481,856    51%
                                            ----------------------------- ------

    Preferred stock                              5,287     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                             384,144    41%    384,064    41%
                                            ----------------------------- ------
                                               934,154   100%    946,207   100%
                                            ----------------------------- ------


Current Liabilities
    Advances from affiliates                    46,793            15,892
    Payables to affiliates                      20,767            33,489
    Accounts payable                            46,396            52,888
    Payables to customers                       41,926            32,608
    Accrued taxes                               14,073            23,095
    Accrued interest                            10,187             7,606
    Other                                        7,005             6,599
                                            -----------       -----------
                                               187,147           172,177
                                            -----------       -----------
Deferred Credits
    Accumulated deferred income taxes          277,528           277,181
    Investment tax credits                      38,917            39,365
    Income tax related regulatory liabilities,
      net                                       35,132            35,818
    Other                                       13,032            11,980
                                            -----------       -----------
                                               364,609           364,344
                                            -----------       -----------
                                            $ 1,485,910       $ 1,482,728
                                            ===========       ===========






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

                                       23
<PAGE>
PSO
Consolidated Statements of Cash Flows (unaudited)
Public Service Company of Oklahoma

                                                    Three Months Ended
                                                          March 31,
                                                    --------------------
                                                      1999       1998
                                                    ---------   --------
                                                        (thousands)
OPERATING ACTIVITIES
    Net Income                                       $ 2,920    $ 4,829
    Non-cash Items Included in Net Income
        Depreciation and amortization                 18,700     18,832
        Deferred income taxes and investment tax
         credits                                      (1,967)    (3,635)
    Changes in Assets and Liabilities
        Accounts receivable                            1,224     (4,542)
        Prepayments and other                         (2,990)       (97)
        Accounts payable                             (10,479)   (28,502)
        Accrued taxes                                 (9,022)     3,723
        Other                                          1,873      6,021
                                                    ---------   --------
                                                         259     (3,371)
                                                    ---------   --------
INVESTING ACTIVITIES
    Construction expenditures                        (21,299)   (12,096)
    Other                                              1,775     (1,164)
                                                    ---------   --------
                                                     (19,524)   (13,260)
                                                    ---------   --------
FINANCING ACTIVITIES
    Change in advances from affiliates                30,901     26,959
    Payment of dividends                             (15,053)    (9,053)
                                                    ---------   --------
                                                      15,848     17,906
                                                    ---------   --------

Net Change in Cash and Cash Equivalents               (3,417)     1,275
Cash and Cash Equivalents at Beginning of Year         4,670      2,171
                                                    ---------   --------
Cash and Cash Equivalents at End of Period           $ 1,253    $ 3,446
                                                    =========   ========
SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized (includes
        distributions on Trust Preferred Securities) $ 6,125    $ 7,892
                                                    =========   ========
    Income taxes paid                                $ 5,510       $ --
                                                    =========   ========


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

                                       24
<PAGE>

PUBLIC SERVICE COMPANY OF OKLAHOMA
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED MARCH 31, 1999 AND 1998


      Net  income  for  common  stock  for the  first  quarter  of 1999 was $2.9
million,  a decrease of $1.9 million  compared to 1998.  The  decrease  resulted
primarily from higher maintenance expenses as well as a decrease in other income
and deductions,  which was offset in part by lower other operating  expenses and
interest on long-term debt.

      Electric  operating  revenues  were  relatively  stable  during  the first
quarter of 1999 compared to the first quarter of 1998. Non-fuel related revenues
increased  $2.9 million  during the first quarter of 1999 primarily from changes
in the  average  price of retail  sales by  customer  rate  class.  Fuel-related
revenues decreased $3.3 million as discussed below.

      Fuel expense was relatively  stable for the first quarter of 1999 compared
to the first quarter of 1998.  Deferred fuel costs increased slightly in 1999. A
change in fuel mix due to more gas generation and less coal generation  occurred
in the first  quarter of 1999.  The average unit fuel costs  declined from $1.72
per MMbtu in the first  quarter of 1998 to $1.70 per MMbtu in the first  quarter
of 1999 due primarily to lower spot market gas prices.

      Other  operating  expenses were $25.7 million in the first three months of
1999, a 5% decrease  compared to 1998, due primarily to lower  transmission  and
customer  accounting  expenses.  The reduction in transmission  expenses was due
primarily to a transmission  service agreement  adjustment  related to the final
order  in  Texas  Commission  Docket  No.  17285.  See  NOTE 2.  LITIGATION  AND
REGULATORY  PROCEEDINGS  - CPL and WTU Complaint  vs. Texas  Utilities  Electric
Company (Docket No. 17285). The decline in customer  accounting expenses was due
primarily to lower customer  collections-related  expenses.  Maintenance expense
increased  by $1.6  million,  or 22%,  during  the  first  quarter  of 1999 when
compared to the same period in 1998 due primarily to higher expenses  related to
scheduled power plant maintenance.

      Operating  income taxes  decreased to $1.1 million in the first quarter of
1999 from  $2.0  million  in the same  period of 1998,  due  primarily  to lower
taxable income in 1999.

      Other  income and  deductions  decreased  $0.6  million in the first three
months of 1999  primarily as a result of losses on equity  investments  in 1999.
Interest charges decreased $0.9 million, or 9%, during the first quarter of 1999
when  compared  to  the  same  period  of  1998  primarily  as a  result  of the
reacquisition of long-term debt in the third quarter of 1998.


                                       25
<PAGE>





                                     SWEPCO



                       SOUTHWESTERN ELECTRIC POWER COMPANY


                         PART 1. FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.



                                       26
<PAGE>
SWEPCO
Consolidated Statements of Income (unaudited)
Southwestern Electric Power Company

                                                    Three Months Ended March 31,
                                                    ----------------------------
                                                        1999            1998
                                                    -----------      -----------
                                                             (thousands)

Electric Operating Revenues                           $ 197,064      $ 197,560
                                                    -----------      -----------
Operating Expenses and Taxes
    Fuel                                                 76,271         76,233
    Purchased power                                       6,193          6,339
    Other operating                                      30,180         31,094
    Maintenance                                          12,244         10,270
    Depreciation and amortization                        26,206         24,803
    Taxes, other than income                             15,794         13,522
    Income taxes                                          3,807          6,166
                                                    -----------      -----------
                                                        170,695        168,427
                                                    -----------      -----------
Operating Income                                         26,369         29,133
                                                    -----------      -----------
Other Income and Deductions
    Allowance for equity funds used during
     construction                                            47            662
    Other                                                  (454)          (299)
    Non-operating income taxes                              683            869
                                                    -----------      -----------
                                                            276          1,232
                                                    -----------      -----------

Income Before Interest Charges                           26,645         30,365
                                                    -----------      -----------
Interest Charges
    Interest on long-term debt                            9,802          9,808
    Distributions on Trust Preferred Securities           2,166          2,166
    Interest on short-term debt and other                 2,391          1,719
    Allowance for borrowed funds used during
     construction                                          (367)          (259)
                                                    -----------      -----------
                                                         13,992         13,434
                                                    -----------      -----------
Net Income                                               12,653         16,931
   Less: Preferred stock dividends                           57            534
   Gain on reacquired preferred stock                      --                1
                                                    -----------      -----------
Net Income for Common Stock                           $  12,596      $  16,398
                                                    ===========      ===========





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

                                       27

<PAGE>
SWEPCO
Consolidated Balance Sheets
Southwestern Electric Power Company

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

  Electric Utility Plant
    Production                                      $ 1,399,130    $ 1,397,924
    Transmission                                        476,320        474,035
    Distribution                                        923,986        916,293
    General                                             327,437        321,136
    Construction work in progress                        40,195         48,523
                                                      ----------   ------------
                                                      3,167,068      3,157,911
  Less - Accumulated depreciation                     1,337,269      1,317,057
                                                      ----------   ------------
                                                      1,829,799      1,840,854
                                                      ----------   ------------
Current Assets
    Cash                                                  2,597          4,444
    Accounts receivable                                  44,560         40,430
    Materials and supplies, at average cost              25,762         25,135
    Fuel inventory                                       53,347         40,238
    Accumulated deferred income taxes                     2,983          4,869
    Prepayments and other                                18,024         16,651
                                                      ----------   ------------
                                                        147,273        131,767
                                                      ----------   ------------

Deferred Charges and Other Assets                       114,352        113,701
                                                      ----------   ------------
                                                    $ 2,091,424    $ 2,086,322
                                                      ==========   ============









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

                                       28
<PAGE>

Consolidated Balance Sheets
Southwestern Electric Power Company
--------------------------------------------------------------------
                                                 March 31,      December 31,
                                                   1999            1998
                                                (unaudited)      (audited)
                                                 ----------      ----------
CAPITALIZATION AND LIABILITIES                        (thousands)
Capitalization
    Common stock:   $18 par value
        Authorized:   7,600,000 shares
        Issued and outstanding: 7,536,640       $ 135,660       $ 135,660
    Paid-in capital                               245,000         245,000
    Retained earnings                             286,188         300,592
                                                 --------        --------
        Total Common Stock Equity                 666,848   51%   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    8%   110,000    8%
    Long-term debt                                541,092   41%   543,741   41%
                                                 --------   ---  --------  ----
                                                1,322,646  100% 1,339,700  100%
                                                 --------  ----   -------  ----
Current Liabilities
    Long-term debt and preferred stock due
      within twelve months                         44,959          43,932
    Advances from affiliates                       88,501          40,705
    Accounts payable                               46,547          73,507
    Payables to affiliates                         29,006          37,795
    Customer deposits                              13,600          13,316
    Accrued taxes                                  34,310          23,189
    Accrued interest                               12,756          14,275
    Over-recovered fuel costs                       6,397           5,378
    Other                                          12,529          12,538
                                                ---------       ---------
                                                  288,605         264,635
                                                ---------       ---------
Deferred Credits
    Accumulated deferred income taxes             394,579         398,664
    Investment tax credits                         61,072          62,213
    Income tax related regulatory liabilities,
     net                                            3,761           4,931
    Other                                          20,761          16,179
                                                ---------       ---------
                                                  480,173         481,987
                                                ---------       ----------

                                              $ 2,091,424     $ 2,086,322
                                                =========       =========







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

                                       29
<PAGE>
SWEPCO
Consolidated Statements of Cash Flows (unaudited)
Southwestern Electric Power Company

                                                    Three Months Ended
                                                         March 31,
                                                   ---------------------
                                                      1999       1998
                                                   ---------   ---------
                                                       (thousands)
OPERATING ACTIVITIES
    Net Income                                      $ 12,653   $ 16,931
    Non-cash Items Included in Net Income
        Depreciation and amortization                 27,403     25,850
        Deferred income taxes and investment tax 
         credits                                      (4,510)    (3,181)
    Changes in Assets and Liabilities
        Accounts receivable                           (4,130)    11,344
        Fuel inventory                               (13,109)      (782)
        Accounts payable                             (26,393)   (21,282)
        Payables to affiliates                        (8,789)    (6,129)
        Accrued taxes                                 11,121     13,431
        Other deferred credits                         4,582      2,225
        Other                                         (2,909)     1,734
                                                   ---------   ---------
                                                      (4,081)    40,141
                                                   ---------   ---------
INVESTING ACTIVITIES
    Construction expenditures                        (17,250)   (18,078)
    Other                                                383     (1,246)
                                                   ---------   ---------
                                                     (16,867)   (19,324)
                                                   ---------   ---------
FINANCING ACTIVITIES
    Redemption of preferred stock                         (1)        (2)
    Retirement of long-term debt                      (1,637)    (1,079)
    Change in advances from affiliates                47,796        492
    Payment of dividends                             (27,057)   (14,534)
                                                   ---------   ---------
                                                      19,101    (15,123)
                                                   ---------   ---------
Net Change in Cash and Cash Equivalents               (1,847)     5,694
Cash and Cash Equivalents at Beginning of Year         4,444      2,298
                                                   ---------   ---------
Cash and Cash Equivalents at End of Period           $ 2,597    $ 7,992
                                                   =========   =========

SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized (includes
      distributions on Trust Preferred Securities)  $ 14,485   $ 14,195
                                                   =========   =========
    Income taxes paid                                $ 1,676      $ 307
                                                   =========   =========





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


                                       30
<PAGE>

SOUTHWESTERN ELECTRIC POWER COMPANY
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED MARCH 31, 1999 AND 1998


      Net  income  for  common  stock  for the first  quarter  of 1999 was $12.6
million,  a decrease of $3.8 million,  or 23%, from the same period of 1998. The
decrease resulted primarily from increased  maintenance  expenses,  depreciation
and amortization expense and taxes, other than income.

      Electric  operating  revenues  decreased  $0.5  million to $197.1  million
during the first  quarter of 1999  compared  to the first  quarter of 1998.  The
decrease  was due  primarily  to lower fuel  revenue of $0.6  million  which was
offset in part by increased non-fuel revenue of $0.2 million.

      Fuel  expense  for the first  quarter of 1999 was  relatively  stable when
compared  to the same  period of 1998.  Fuel  expense  for 1999 was  affected by
increased  natural gas generation,  offset in part by a decrease in average unit
fuel costs for natural gas.

      Other  operating  expenses were $30.2 million  during the first quarter of
1999,  a  decrease  of $0.9  million  from the  comparable  period of 1998.  The
decrease  was due  primarily  to  decreases  in  employee-related  expenses  and
decreased  customer  assistance  expenses.  Maintenance  expenses increased $2.0
million, or 19%, due primarily to scheduled power plant maintenance expenses and
increases in tree-trimming maintenance activities.

      Taxes,  other than income  increased $2.3 million,  or 17%, as a result of
increased ad valorem taxes,  which reflect higher assessed values, and increased
state  franchise  taxes which are  calculated  on a higher 1998 taxable  income.
Operating  income taxes  decreased  $2.4  million,  or 38%, as a result of lower
taxable income for the first quarter of 1999.

      Interest charges increased $0.6 million for the first quarter of 1999, due
primarily to increases in the levels of short-term debt.


                                       31

<PAGE>




                                       WTU



                          WEST TEXAS UTILITIES COMPANY


                         PART 1. FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.


                                       32
<PAGE>
WTU
Statements of Income (unaudited)
West Texas Utilities Company
                                            Three Months Ended March 31,
                                            ----------------------------
                                                1999          1998
                                              ---------    ---------
                                                    (thousands)

Electric Operating Revenues                    $ 81,052    $ 83,948
                                              ---------    ---------
Operating Expenses and Taxes
    Fuel                                         23,134      25,231
    Purchased power                               8,294       7,908
    Other operating                              20,133      22,386
    Maintenance                                   4,178       3,186
    Depreciation and amortization                10,774      10,669
    Taxes, other than income                      7,488       5,555
    Income taxes                                   (247)        945
                                              ---------    ---------
                                                 73,754      75,880
                                              ---------    ---------
Operating Income                                  7,298       8,068
                                              ---------    ---------
Other Income and Deductions
    Allowance for equity funds used during
     construction                                    96         133
    Other                                          (199)        779
    Non-operating income taxes                      219          91
                                              ---------    ---------
                                                    116       1,003
                                              ---------    ---------
Income Before Interest Charges                    7,414       9,071
                                              ---------    ---------
Interest Charges
    Interest on long-term debt                    5,088       5,088
    Interest on short-term debt and other         1,162       1,004
    Allowance for borrowed funds used during
     construction                                  (143)       (111)
                                              ---------    ---------
                                                  6,107       5,981
                                              ---------    ---------
Net Income                                        1,307       3,090
    Less: Preferred stock dividends                  26          26
                                              ---------    ---------
Net Income for Common Stock                    $  1,281    $  3,064
                                              =========    =========




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


                                       33

<PAGE>
WTU
Balance Sheets
West Texas Utilities Company

                                                      March 31,     December 31,
                                                        1999           1998
                                                     (unaudited)     (audited)
                                                     ------------   ------------
                                                             (thousands)
ASSETS
 
  Electric Utility Plant
    Production                                         $ 433,170      $ 429,896
    Transmission                                         214,729        213,630
    Distribution                                         386,086        382,373
    General                                              110,125        108,878
    Construction work in progress                         10,834         11,805
                                                     ------------   ------------
                                                       1,154,944      1,146,582
  Less - Accumulated depreciation                        476,852        473,503
                                                     ------------   ------------
                                                         678,092        673,079
                                                     ------------   ------------
Current Assets
    Cash                                                   2,700          2,093
    Accounts receivable                                   31,322         31,689
    Materials and supplies, at average cost               14,580         14,191
    Fuel inventory                                        14,093         13,186
    Accumulated deferred income taxes                      1,722            366
    Under-recovered fuel costs                               238          3,980
    Prepayments and other                                  6,976          5,988
                                                     ------------   ------------
                                                          71,631         71,493
                                                     ------------   ------------
Deferred Charges and Other Assets
    Deferred Oklaunion costs                              13,978         14,910
    Restructuring costs                                    6,607          7,079
    Other                                                 53,145         53,251
                                                     ------------   ------------
                                                          73,730         75,240
                                                     ------------   ------------

                                                       $ 823,453      $ 819,812
                                                     ============   ============








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

                                       34
<PAGE>
WTU
Balance Sheets
West Texas Utilities Company

                                          March 31,         December 31,
                                             1999              1998
                                          (unaudited)       (audited)
                                          -----------       -----------
CAPITALIZATION AND LIABILITIES                     (thousands)
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                        111,470           117,189
                                          -----------       -----------
                                             250,920    45%    256,639    46%
                                          ----------- ----- ----------- ------

    Preferred stock                            2,482    --%      2,482    --%
    Long-term debt                           303,561    55%    303,519    54%
                                          ----------- ----- ----------- ------
                                             556,963   100%    562,640   100%
                                          ----------- ----- ----------- ------

                               
Current Liabilities
    Advances from affiliates                  18,634             4,573
    Payables to affiliates                    15,794            19,917
    Accounts payable                          31,017            31,473
    Accrued taxes                              5,488            10,031
    Accrued interest                           8,000             4,125
    Other                                      4,918             3,797
                                          -----------       -----------
                                              83,851            73,916
                                          -----------       -----------
Deferred Credits
    Accumulated deferred income taxes        141,145           140,731
    Investment tax credits                    26,078            26,597
    Income tax related regulatory
     liabilities, net                         11,627            12,088
    Other                                      3,789             3,840
                                          -----------       -----------
                                             182,639           183,256
                                          -----------       -----------

                                           $ 823,453         $ 819,812
                                          ===========       ===========





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

                                       35
<PAGE>
WTU
Statements of Cash Flows (unaudited)
West Texas Utilities Company
                                                    Three Months Ended
                                                         March 31,
                                                    ------------------
                                                     1999       1998
                                                    -------    -------
                                                        (thousands)

OPERATING ACTIVITIES
    Net Income                                      $ 1,307    $ 3,090
    Non-cash Items Included in Net Income
        Depreciation and amortization                11,051     10,924
        Deferred income taxes and investment tax
         credits                                     (1,922)    (2,200)
    Changes in Assets and Liabilities
        Accounts receivable                             367    (11,746)
        Fuel inventory                                 (907)       228
        Accounts payable                               (456)    10,090
        Payables to affiliates                       (4,123)    (7,788)
        Accrued taxes                                (4,543)    (2,864)
        Accrued interest                              3,875      3,568
        Fuel recovery                                 3,742       (398)
        Other deferred credits                          (51)   (13,336)
        Other                                          (246)       960
                                                    -------    -------
                                                      8,094     (9,472)
                                                    -------    -------
INVESTING ACTIVITIES
    Construction expenditures                       (12,445)    (9,886)
    Other                                            (2,077)      (345)
                                                    -------    -------
                                                    (14,522)   (10,231)
                                                    -------    -------
FINANCING ACTIVITIES
    Payment of dividends                             (7,026)    (4,026)
    Change in advances from affiliates               14,061      6,037
                                                    -------    -------
                                                      7,035      2,011
                                                    -------    -------
Net Change in Cash and Cash Equivalents                 607    (17,692)
Cash and Cash Equivalents at Beginning of Year        2,093     20,613
                                                    -------    -------
Cash and Cash Equivalents at End of Period          $ 2,700    $ 2,921
                                                    =======    =======

SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized          $ 1,200    $ 1,134
                                                    =======    =======
    Income taxes paid                                 $ 295       $ --
                                                    =======    =======


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

                                       36
<PAGE>

WEST TEXAS UTILITIES COMPANY
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED MARCH 31, 1999 AND 1998


      Net  income for  common  stock  decreased  to $1.3  million  for the first
quarter of 1999 from $3.1 million in the first  quarter of 1998.  The decline in
net income was due to decreases in electric operating revenues and other income.
These  decreases  were partially  offset by a decline in operating  expenses and
taxes.

      Electric operating  revenues  decreased $2.9 million,  or 3%, in the first
quarter of 1999  compared to the first  quarter of 1998.  The  decrease  was due
primarily to lower non-fuel related revenues of $2.6 million in 1999 due to less
favorable weather in the first quarter of 1999 as compared to 1998.

      Fuel expense  decreased $2.1 million,  or 8%, in the first quarter of 1999
compared to the first  quarter of 1998 due  primarily  to a reduction in average
unit fuel  costs  from  $1.95 per MMbtu in 1998 to $1.75 per MMbtu in 1999.  The
decrease was due primarily to a decline in the spot market price of natural gas.
The  decrease in fuel expense was  partially  offset by an increase in purchased
power of $0.4  million  from the first  quarter of 1998 to the first  quarter of
1999 due to increased  purchases  resulting  from  scheduled  maintenance  for a
generating plant.

      Other  operating  expenses  declined $2.3 million for the first quarter of
1999  compared to the same  period of 1998 due to a $2.2  million  reduction  in
transmission  expenses.  This  reduction  resulted from a  transmission  service
agreement  adjustment  related to the final order in Texas Commission Docket No.
17285. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS - CPL and WTU Complaint
vs. Texas Utilities  Electric  Company (Docket No. 17285).  Maintenance  expense
rose $1.0 million from the comparable  period in 1998 due primarily to scheduled
maintenance occurring in the first quarter of 1999.

      Taxes,  other than income  increased  $1.9 million in the first quarter of
1999  compared  to the first  quarter of 1998 due to an  increase  in ad valorem
taxes,  which reflect higher assessed values,  and state franchise taxes,  which
are calculated based on a higher 1998 taxable income.

      Operating income taxes decreased $1.2 million as a result of lower taxable
income for the first quarter of 1999 compared to the first quarter of 1998.

      Other income and deductions  declined $0.9 million in the first quarter of
1999  compared  to the  same  time  period  in  1998.  Income  from  merchandise
operations  decreased  $0.5  million from 1998 to 1999 for the  respective  time
periods.  Interest and dividend  income also declined $0.3 million for the first
quarter of 1999 compared to the same quarter of 1998.


                                       37

<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


                                       38

<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.

      The unaudited financial  information  reflects all adjustments of a normal
recurring  nature which are, in the opinion of  management  of such  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.

      Benefit Plans
      During the first  quarter  of 1999,  CSW  changed to the Market  Method to
determine pension costs. Prior to January 1, 1999, CSW utilized the market value
of the pension assets at September 30  in its calculation of pension costs.  The
change was made to minimize  the plan asset market  value  volatility  effect on
recorded  pension  costs.  Adopting  the  Market  Method did not have a material
effect on first quarter 1999 results of operations or financial  position on CSW
or its  subsidiaries.  The  cumulative  effect of the  accounting  change to the
Market  Method was not material to first  quarter 1999 results of  operations or
financial position on CSW or its subsidiaries.

      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
acceptable to 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 pre-plant condition.

      CPL's  decommissioning  costs are accrued and funded to an external  trust
over the  expected  service life of the STP units.  The  existing NRC  operating
licenses  will  allow the  operation  of STP Unit 1 until  2027 and Unit 2 until
2028. The accrual for decommissioning costs is an annual level cost based on the
estimated  future cost to decommission  STP,  including  escalation for expected
inflation  to the  expected  time  of  decommissioning,  and is net of  expected
earnings on the trust fund.

      CPL's portion of the costs of decommissioning STP was estimated to be $258
million in 1995 dollars based on a site specific study completed in 1995. CPL is
accruing and recovering these  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

                                       39
<PAGE>

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.  At March 31, 1999,  the nuclear  trust
balance was $72.0 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
statement  items are translated at the average  exchange rate for the applicable
period.  At  March  31,  1999,  the  current  exchange  rate  was  approximately
(pound)1.00=$1.61,  and the average  exchange  rate for the three  month  period
ended March 31, 1999 was approximately (pound)1.00=$1.62. At March 31, 1998, the
current  exchange  rate was  approximately  (pound)l.00=$1.68,  and the  average
exchange rate for the three month period ended March 31, 1998 was  approximately
(pound)l.00=$1.65.  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.

      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 has utilized 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 at privatization of the United
Kingdom's  electric  industry  for  the  bulk  trading  of  electricity  between
generators and suppliers.

      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.


2.     LITIGATION AND REGULATORY PROCEEDINGS

      See the  Registrants'  Combined  Annual  Report  on Form 10-K for the year
ended December 31, 1998 for  additional  discussion of litigation and regulatory
proceedings.  Reference  is also  made to NOTE  3.  COMMITMENTS  AND  CONTINGENT

                                       40
<PAGE>

LIABILITIES and ITEM 2. MD&A - RATES AND REGULATORY  MATTERS,  CPL Rate Review -
Docket No. 14965 for additional discussion of litigation and regulatory matters.

      Litigation Related to the Rights Plan and AEP Merger
      Two lawsuits were filed in Delaware  state court seeking to enjoin the AEP
Merger.  CSW and each of its  directors  were named as defendants in both cases.
The first  suit  alleged  that the  Rights  Plan,  approved  by the CSW Board of
Directors  on  September  27,  1997,  constituted  a  "poison  pill"  precluding
acquisition  offers and resulting in a heightened  fiduciary duty on the part of
the CSW Board of Directors to pursue an auction-type sales process to obtain the
best value for CSW  stockholders.  This suit was voluntarily  dismissed on April
12,  1999.  The  second  suit  alleged  that the AEP  Merger  was  unfair to CSW
stockholders  in that it did not recognize  the  underlying  intrinsic  value of
CSW's assets and its future profitability. The plaintiffs have filed a notice of
dismissal in that case.

      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 were  reduced by $13 million  beginning  May 1, 1998
and an additional $13 million on May 1, 1999.

      CPL  appealed  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.  While CPL appealed  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.  Regarding the AEP/CSW  merger
case, 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.  If the  stipulated  agreement  is  approved by the Texas
Commission and the AEP Merger is ultimately  consummated,  the agreement  states
that 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.

      CPL  currently   accounts  for  the  economic  effects  of  regulation  in
accordance  with SFAS No. 71. Pursuant to the provisions of SFAS No. 71, CPL has
recorded  approximately $1.2 billion of  regulatory-related  assets at March 31,
1999. The  application of SFAS No. 71 is conditioned  upon CPL's rates being set
based on the cost of providing service.  In the event management  concludes that
as a result of changes in regulation,  legislation, the competitive environment,
or other  factors,  CPL or some  portion  of its  business  no longer  meets the
criteria  for  following  SFAS No.  71, a  write-off  of  regulatory  assets and
liabilities  would be  required,  absent a means of  recovering  such  assets or
settling such liabilities in a continuing regulated segment of the business. CPL
would also be required  to  evaluate  whether  there was any  impairment  of any

                                       41
<PAGE>

deregulated plant assets. CPL and CSW could experience,  depending on the timing
and amount of any  write-off,  a  material  adverse  effect on their  results of
operations and financial condition.

      The foregoing discussion of CPL Rate Review - Docket No. 14965 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 - 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  authorization  to carry the  reconciled
balance  forward  into  the  next  reconciliation  period.  CPL did  not  seek a
surcharge of the reconciled balance in the filing.

      During the  reconciliation  period of July 1, 1995  through June 30, 1998,
CPL incurred  $828.5  million in 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 the Texas Commission to
authorize  CPL to recover the reward that was 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%,  saving
customers $28.4 million in fuel and purchased power costs. CPL proposed an equal
sharing  with its  customers  of the  benefit,  or  reward,  resulting  from STP
operation during the reconciliation period above the 83% capacity factor target,
net of any  reduction  of eligible  fuel  expense as a result of this case.  CPL
requested  that it be  authorized to recover the Texas retail  amount,  or $13.4
million, of its 50% share of the performance  standard reward, by including 1/36
of this amount, or $373,003,  in retail eligible fuel expense each month for the
three-year  period  following the Texas  Commission's  order in this case. These
amounts  will  be  included  in  calculating   the  monthly   over-recovery   or
under-recovery  balances.  CPL further  requested that it be authorized to apply
the amounts of the reward  recovered  through Texas retail eligible fuel expense
as additional amortization of its STP deferred accounting regulatory asset.

      CPL also made an  alternative  proposal if  consistent  and uniform  equal
sharing  of  potential  penalties  and  rewards  is not  intended  by the  Texas
Commission.  CPL proposed  that it be authorized to recover the Texas portion of
50% of the reward by including 1/36 of this amount, or $373,003, in Texas retail
eligible fuel expense each month for three years following the Texas  Commission
order in this case and that the  remaining  50% of the reward be  "banked" to be
used against potential future penalties or other disallowance of fuel costs. CPL
will recognize such amounts at the time Texas Commission approval is obtained.

      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 based upon
CPL's alleged underpayment of municipal franchise fees. The plaintiffs' petition
asserts  various  contract and tort claims  against CPL as well as certain audit
rights.  The suit seeks  unspecified  damages and  attorneys'  fees. 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 claimed by the

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<PAGE>

City of San Juan. In January 1997,  CPL filed an original  petition at the Texas
Commission  requesting  the Texas  Commission to 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
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, but the case was not resolved.

      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 a franchise underpayment, CPL will
extend  the  principles  of  that   decision,   with  regard  to  the  franchise
underpayment,  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 cannot  predict  the  outcome  of the  municipal
franchise  fee  litigation  or its  impact on CPL's  results  of  operations  or
financial position.

      CPL Valero Litigation
      In April  1998,  Valero  filed suit  against CPL in Nueces  County,  Texas
District Court, alleging claims for breach of contract and negligence.  Valero's
suit  seeks in excess of $11  million  as  damages  for  property  loss and lost
profits allegedly  incurred after an interruption of electricity to its facility
in Corpus Christi, Texas in April 1996. Management cannot predict the outcome of
this  litigation.  However,  management  believes that CPL has valid defenses to
Valero's  claims and intends to defend the matter  vigorously.  Management  also
believes  that the ultimate  resolution  of this matter will not have a material
adverse impact on CSW's or CPL's consolidated results of operations or financial
condition.

      CPL and WTU Complaint vs. Texas Utilities Electric Company Complaint
      (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  received in February  1998  recommended  approval of a CPL and WTU
proposed  reduction  of $15.5  million  annually of payments to Texas  Utilities
Electric Company under  FERC-approved  transmission  service  agreements against
amounts that CPL and WTU would  otherwise owe Texas Utilities  Electric  Company
pursuant to Texas Commission rules for transmission  service in ERCOT. The Texas
Commission  approved the proposal in September 1998. Even though 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.

                                       43
<PAGE>

      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  first  quarter  of 1999,  U.S.  Electric  Operating
Companies and supporting  intervenor  signatories  filed an uncontested offer of
settlement,  which is awaiting approval from the FERC. Management cannot predict
if FERC will approve the offer of settlement.

      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.  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 adverse
effect on CSW's or PSO's results of operations or financial condition.

      PSO Union Negotiations
      In  March  1999,  PSO and its  Local  Union  1002 of the IBEW  reached  an
agreement to contract negotiations,  which began in July 1996. In December 1996,
PSO had  implemented  portions of its then final  proposal  after  declaring  an
impasse. The principal issue of disagreement involved PSO's need for flexibility
in a deregulated environment. In April 1997, Oklahoma's governor signed into law
an electric  industry-restructuring bill. The law mandates the implementation of
retail  competition to begin on July 1, 2002.  Following passage of the law, PSO
resumed  negotiations  with the union.  The new  contract  allows PSO to be in a
better  position  to  compete  as the  electric  utility  industry  in  Oklahoma
restructures.  The effective of the new  agreement was on April 4, 1999,  and it
will remain in effect until September 30, 2000.

      PSO and the union  continued  discussions  to resolve  issues related to a
recent NLRB ruling  against PSO. In October 1998, PSO received an adverse ruling
from a NLRB ALJ on the union's unfair labor practice charge against PSO. The ALJ
upheld PSO's right to cease  collecting  union dues through payroll  deductions.
The ALJ ruled  that PSO did  negotiate in good faith but that PSO's  position on
some issues was too harsh, and therefore the December 1996 implementation should
be rolled back and employees  made whole.  Additionally,  the ALJ ruled that PSO
improperly solicited employees to withdraw from the union. In December 1998, PSO
appealed  the ALJ's  ruling to the NLRB.  At this time,  PSO cannot  predict the
ultimate outcome of the NLRB matter. However, PSO believes that it will not have
a material  adverse effect on its results of operations or financial  condition.
As a result of the agreement, the union agreed to withdraw its opposition to the
AEP merger proceedings.

      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 establish in its filing a proposed surcharge period
or a total surcharge  amount,  which would reflect  interest  through the entire
surcharge period.  However,  SWEPCO indicated that it had under-recovered  Texas
jurisdictional  fuel costs in the amount balance of approximately $16.8 million,

                                       44
<PAGE>

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
above-consolidated 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.  Of the $16.8 million in under-recovered fuel
costs as of December  31,  1996,  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
would allow them to be reconciled as eligible 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.  The $6.0 million  reduction was not associated with any
particular activity or issue within the fuel proceedings.

      On April 8, 1998, the ALJ issued a proposal for decision regarding the one
outstanding issue, whether transmission equalization payments should be included
in eligible fuel expense.  The proposal for decision  recommended that SWEPCO be
allowed to include  transmission  equalization expense in eligible fuel expense.
On May 19,  1998,  the Texas  Commission  reversed the ALJ and declined to allow
SWEPCO to recover its  transmission  equalization  payments  as a  component  of
eligible  fuel  expense.  This  ruling  resulted  in an  earnings  reduction  of
approximately $1.8 million, which was 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 will end 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 will withdraw the appeal if the stipulated AEP merger settlement
is approved and the merger is consummated.

      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  filed  suit  against  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 in the counterclaims on the grounds
the  counterclaims  have no merit. On January 8, 1999,  SWEPCO and CLECO amended
the claims  against DHMV in the lawsuit to include a request  that, if the court
determines  that DHMV has breached  the lignite  mining  agreement,  the lignite
mining  agreement  be  terminated.  This  federal  court  suit is set for  trial
beginning in November 1999.

      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  adverse  effect on SWEPCO's
results of operations or financial condition.

                                       45
<PAGE>

       WTU Fuel Reconciliation
      On December 31, 1997,  WTU filed with the Texas  Commission an application
to reconcile  fuel costs and to request  authorization  to carry the  reconciled
balance  forward  into  the  next  reconciliation  period.  WTU did  not  seek a
surcharge of the reconciled balance in the December 31, 1997 filing.

      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 such fuel and fuel-related expenses is approximately $295 million.

      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 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.  One party does not accept  the  stipulation's  proposed
treatment of transmission equalization payment. Parties filed briefs in November
1998, and a proposal for decision from the ALJ was received on January 29, 1999.
In the proposal for decision,  the ALJ recommends  recovery of all eligible fuel
and fuel-related  expenses requested by WTU except for $70,000, or approximately
0.02%, of the amount requested. On March 26, 1999, the Texas Commission issued a
final order accepting the ALJ's proposal for decision.  The final order provided
for the recovery of ERCOT ISO transaction  fees in eligible fuel expense,  which
the ALJ had previously  disallowed.  On April 14, 1999, certain cities served by
WTU filed  motions  for  rehearing  at the Texas  Commission.  The  motions  for
rehearing  were  considered by the Texas  Commission  on April 29, 1999,  and no
material  change  was made to the March 26,  1999  final  order.  The period for
motions for rehearing has not yet lapsed.


3.     COMMITMENTS AND CONTINGENT LIABILITIES

      SWEPCO Henry W. Pirkey Power Plant
      In connection with the South  Hallsville  lignite-mining  contract for its
Henry W. Pirkey Power Plant,  SWEPCO has agreed,  under certain  conditions,  to
assume the  obligations  of the mining  contractor.  As of March 31,  1999,  the
maximum  amount SWEPCO  believes it may have to assume is $92 million.  However,
the  maximum  amount  may  vary  as  the  mining  contractor's  need  for  funds
fluctuates. The contractor's actual obligation outstanding at March 31, 1999 was
$70 million.

      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 has agreed to guarantee the
costs of mine reclamation of up to $85 million.  Since SWEPCO uses self-bonding,
the guarantee provides for SWEPCO to commit to use its resources to complete the
reclamation in the event the work is not completed by the third party miner. The
current 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.

                                       46
<PAGE>

      On  April  16,  1999,  the  April  1999  SWEPCO  Plan was  filed  with the
bankruptcy  court.  The April 1999 SWEPCO Plan replaces all previous plans filed
by SWEPCO.  Under the April 1999 SWEPCO Plan, a SWEPCO  affiliate  would acquire
all the non-nuclear assets of Cajun for $1.017 billion. SWEPCO's bid is based on
interest  rate  adjustments  to its base bid of $940.5  million.  The April 1999
SWEPCO Plan  incorporates  the terms of a settlement  between the RUS, the Cajun
Members  Committee,   Clairborne  Electric  Cooperative,  Inc.  and  SWEPCO.  In
addition,  the April 1999 SWEPCO Plan  provides  for SWEPCO and the Cajun member
cooperatives  to enter into  long-term  power supply  agreements  with rate plan
options   and   market   access   provisions   designed   to  ensure   long-term
competitiveness  of the cooperatives.  Eight  cooperatives and Central Louisiana
Electric  Company,  Inc. agreed to purchase power from SWEPCO, if the bankruptcy
court confirms the April 1999 SWEPCO Plan.

      The trustee for Cajun supports a revised competing bid of $960 million, on
an interest-adjusted  basis, filed by the Cajun trustee and Louisiana Generating
LLC on April 16,  1999.  The  Cajun  trustee  filed  additional  changes  to the
proposed  purchase price on April 19, 1999. On April 22, 1999, the Cajun trustee
and  Louisiana  Generating  LLC then filed  additional  changes to the  proposed
purchase price. The interest-adjusted purchase price under the amended Louisiana
Generating LLC bid is now approximately $1.037 billion.

       The bankruptcy court has ordered  mediation to occur among the parties in
an effort to resolve  the  bankruptcy  case.  Final  confirmation  hearings  are
scheduled to begin June 22, 1999.

      Consummation   of  the  April  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 April 1999  SWEPCO  Plan is  ultimately
confirmed by the bankruptcy court, the $1.017 billion required to consummate the
acquisition of Cajun's  non-nuclear  assets is expected to be financed through a
combination of external non-recourse  borrowings and internally generated funds.
There can be no assurance that the bankruptcy  court will confirm the April 1999
SWEPCO  Plan or, if it is  confirmed,  that  federal and state  regulators  will
approve it. As of March 31,  1999,  SWEPCO had deferred  $12.1  million in costs
related to the Cajun acquisition on its consolidated  balance sheet, which would
be expensed if the April 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,  which was  formerly  owned and  operated by a
predecessor of SWEPCO.  Since then,  SWEPCO has worked with Mississippi Power on
both the investigation of the extent of contamination on the site as well as the
subsequent sampling of the site. The sampling results indicated contamination at
the  property  as  well  as the  possibility  of  contamination  of an  adjacent
property.  A risk  assessment  was submitted to the MDEQ, and 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  this site has been  industrial/commercial  for more than 100  years,  and
Mississippi  Power plans to continue this type of usage.  Mississippi  Power and
SWEPCO also presented a report to the MDEQ  demonstrating  that the ground water
on the site was not potable,  further  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 associated costs.

                                       47
<PAGE>

      SWEPCO has incurred  approximately $200,000 to date for its portion of the
cleanup of this site, and based on its 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.

      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 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.  Past and
planned compliance activities,  including activities that have been conducted to
determine  the  source of  copper,  were  presented  by SWEPCO to EPA  during an
administrative meeting, which was held on August 13, 1998. Negotiations continue
between  SWEPCO and the EPA.  The EPA has not issued an  administrative  penalty
order nor a referral to the United  States  Department  of Justice for  judicial
action with monetary  fines. On December 29, 1998, the TNRCC fined SWEPCO $8,250
for the same issue on the state permit, which was paid in February 1999.

      SEEBOARD London Underground Commitment
      SEEBOARD has  committed  (pound)79  million,  or $127  million,  for costs
associated with its contract  related to the London  Underground  transportation
system. 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.

      SEEBOARD Third Party Pension Litigation
      In the U.K.,  National Grid Group and National Power have been involved in
continuing litigation in respect of their use of actuarial surpluses declared in
the electricity  industry's  occupational pension scheme, the Electricity Supply
Pension  Scheme.  A high court  decision in favor of the National Grid Group and
National  Power was  appealed and on February 10, 1999 the Court of Appeal ruled
that the particular  arrangements  made by these  corporations to dispose of the
surplus, partly by canceling liabilities relating to additional pension payments
resulting  from  early  retirement,  were  invalid  due to  procedural  defects.
SEEBOARD  employees are members of the  Electricity  Supply  Pension  Scheme and
SEEBOARD has made similar use of actuarial surplus. For SEEBOARD,  the amount of
the cancelled  payments was approximately  $33 million.  The Court of Appeal did
not order the  National  Grid Group and  National  Power to make  payment to the
Electricity Supply Pension Scheme but will hold a further hearing to decide what
action to take.  It is likely  that the case will then be  referred  to the U.K.
House of Lords.  The final  outcome of the hearing,  or any referral to the U.K.
House of Lords,  cannot be  determined  and  therefore  it is not  possible  for
management  to  quantify  the  potential  impact,  if  any,  on the  results  of
operations and financial condition of CSW and/or SEEBOARD.

      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. 
In addition to funds already spent,  at March 31, 1999, CSW Energy had committed
costs of  approximately  $36 million,  including  development  construction  and
financing of the projected  $210 million  project costs.  The natural  gas-fired
facility  should begin simple cycle operation in the summer of 1999 and combined
cycle  operation by the end of 1999.  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.  Pursuant to
AEP and CSW's  stipulated  settlement  with several  intervenors in the state of

                                       48
<PAGE>

Texas  related to the AEP merger,  CSW Energy  willsell 250 MW of Frontera  upon
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 Texas  Eastman to construct
and operate a 440-MW  cogeneration  facility in Longview,  Texas.  This facility
will be known as the Eastex Cogeneration  Project. At March 31, 1999, CSW Energy
had  construction  obligations of $72 million.  Construction  of the facility is
scheduled  to  begin in  mid-1999,  with  expected  operation  in  2001.  Excess
electricity  generated by the plant will be sold by CSW Energy in the  wholesale
electricity market.

      During the first  quarter  of 1999,  CSW  International  and its 50% joint
venture partner,  Scottish Power, obtained construction  financing of (pound)190
million (at March 31, 1999,  $306 million) for the South Coast power project,  a
400-MW combined cycle gas turbine power station in Shoreham, United Kingdom. The
permanent  financing of (pound)152  million (at March 31, 1999, $245 million) of
debt was also  arranged.  CSW  International  has guaranteed  approximately  $31
million of the  (pound)190  million  construction  financing,  and the permanent
financing is unconditionally guaranteed by the project.  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 of approximately $26 million,
$23 million, and $237 million, respectively, as of March 31, 1999.


4.     COMMON STOCK AND DIVIDENDS

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

      At  March  31,  1999,  approximately  $1.3  billion  of  CSW's  subsidiary
companies'  retained  earnings were  available for payment of cash  dividends by
such  subsidiaries  to CSW.  The  amounts of  retained  earnings  available  for
dividends  attributable to each the U.S. Electric  Operating  Companies at March
31, 1999 is as follows.

CPL-$718 million    PSO-$132 million    SWEPCO-$286 million     WTU-$111 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 shares 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.

                                       49
<PAGE>

      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.

      The  electric  systems of AEP and CSW will  operate on an  integrated  and
coordinated  basis as required  by the Holding  Company  Act.  Any fuel  savings
resulting from the coordinated  operation of the combined company will be passed
on 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.

      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.  These expected benefits include $2 billion
in non-fuel  savings  over 10 years and $98 million in net fuel  savings over 10
years.

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

      Hearings at the FERC are  scheduled  to begin June 29, 1999. A final order
is expected in the fourth quarter of 1999.

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

                                       50
<PAGE>

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  final  order  is  conditioned  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 their  proposed  merger and for a finding  that the
merger is in the public interest.

      In Louisiana,  hearings have been  postponed as AEP and CSW negotiate with
all parties in an attempt to settle all issues in that state.

      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, and AEP and
CSW.

      Under the partial  settlement  agreement,  AEP and CSW would share  merger
savings with Oklahoma customers as well as AEP shareholders,  effective with the
merger closing;  not increase Oklahoma base rates prior to January 1, 2003; file
by  December  31,  2001  with  the  FERC  an  application  to  join  a  regional
transmission organization; and 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
will be split between Oklahoma  customers and AEP  shareholders,  with customers
receiving approximately 55% of the savings.

      The partial settlement agreement includes a recommendation by the Oklahoma
Commission  Staff that the Oklahoma  Commission  file a position  statement with
FERC  indicating that it does not oppose the merger while reserving the right to
ensure that there are no adverse impacts on the Oklahoma transmission system.

      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 and to resolve
issues  associated  with  CPL,  SWEPCO  and WTU  rate  and  fuel  reconciliation
proceedings.  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 and the merger is completed as planned.

      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

                                       51
<PAGE>

Counsel of Texas and the  cities'  steering  committee.  That  prior  settlement
agreement provided for Texas retail rate reductions of $180 million over the six
years following  completion of the merger. The new settlement agreement proposes
additional rate reductions totaling $41 million for a total of $221 million. The
settlement  also calls for the  divestiture  of a total of 1,604 MW of existing
and proposed generating capacity within Texas.

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

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

      The  cumulative  amount  of  the  rate-reduction  riders  proposed  in the
settlement  will  result in total  reductions  over the  six-year  period in the
following amounts.

             Cumulative Reduction     Annual Reduction
                                (millions)

CPL                     $142.8                  $23.8
SWEPCO                   $42.1                   $7.0
WTU                      $36.1                   $6.0

AEP and CSW also agree to divest a total of 1,604 MW of generation  capacity in
the  ERCOT,  while  retaining  the right to  purchase  power from the CPL plants
during peak  periods.  The  generation  to be divested  includes the  previously
announced  plan to  divest  250 MW of CSW  Energy's  Frontera  Plant,  which  is
currently under construction near Mission, Texas, as well as the following power
plants currently owned by CPL.

Lon C. Hill Power Station            Corpus Christi   546 MW
Nueces Bay Power Station             Corpus Christi   559 MW
Ennis S. Joslin Power Station        Point Comfort    249 MW

If it is  determined  that the  divestiture  can proceed  immediately  after the
merger closes without jeopardizing pooling of interests accounting treatment for
the  merger,  sale of the  plants  would  begin no later  than 90 days after the
merger  closes.   Without  that  determination,   the  divestiture  would  occur
consistent with SEC pooling of interests  requirements,  approximately two years
after the merger closes.

Other provisions of the proposed settlement include:

-  Accelerate  depreciation  and  amortization  by CPL of $60  million  over the
   six-year period to reduce its amount of potentially stranded cost.

-  Quality-of-service standards that the newly merged company must meet.

-  Continuation  of programs for low-income and elderly  customers and expansion
   of these programs by $4.5 million over the six-year period.

                                       52
<PAGE>

-  In  the  absence  of  legislative  or  regulatory  initiatives   establishing
   affiliate standards, AEP and CSW have agreed to affiliate standards that will
   be observed by their subsidiaries.

-  As provided in the earlier settlement,  CSW has agreed to withdraw its appeal
   of the CPL glide-path  rate reduction of $13 million  implemented in May 1998
   as well as the second glide-path rate reduction of $13 million implemented in
   May 1999 if the settlement is approved and the AEP/CSW merger is completed.

-  AEP and CSW  commit to file  prior to  December  31,  2000,  with the FERC an
   application  to  transfer  the  operational   control  of  bulk  transmission
   facilities  located in the Southwest Power Pool to a  FERC-approved  Regional
   Transmission   Organization  directly   interconnected  with  AEP's  existing
   Southwest Power Pool transmission facilities.

-  CPL,  SWEPCO  and WTU  agree not to seek an  increase  in base  rates  before
   January  1,  2003 or three  years  from  the  effective  date of the  merger,
   whichever  is  later.  All  signatories  to the  agreement  except  the Texas
   Commission  General  Counsel  have agreed not to initiate  rate  reviews that
   would result in a change in base rates prior to January 1, 2001.

-  The  settlement  proposal  also  provides  for  a  sharing  of  margins  from
   off-system sales on the wholesale electricity market after the effective date
   of the merger.

      Hearings on the merger  proceedings in Texas are scheduled to begin August
9, 1999 and a final order is expected in the fourth quarter of 1999.

      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.

      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 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 intervened in the proceedings at the SEC.

      AEP and CSW plan to make a merger filing with the Department of Justice in
the near future.

      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
      AEP has received a request from the staff of the Kentucky  Public  Service
Commission to file an application  seeking  Kentucky  Public Service  Commission
approval for the indirect  change in control of Kentucky Power Company that will
occur as a result of the proposed merger. CSW understands that although AEP does
not believe that the Kentucky Public Service  Commission has the  jurisdictional
authority to approve the merger, AEP prepared a merger application filing, which

                                       53
<PAGE>

was filed April 15, 1999, with the Kentucky Public Service Commission. Under the
governing  statute  the  Kentucky  Public  Service  Commission  must  act on the
application within 60 days.

      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 raised in the pending merger between AEP
and CSW. As part of the  settlement,  the IBEW local unions will withdraw  their
opposition to the merger.

      Completion of the Merger
      The  proposed  AEP  merger has a  targeted  completion  date in the fourth
quarter  of 1999.  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  assurances  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 March 31, 1999, CSW had deferred $31 million in costs related to the
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

      Effective  December 31, 1998,  CSW adopted  SFAS No. 131.  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 the business segments for the periods covered in
this form 10-Q is in the following table.

                                       54

<PAGE>


<TABLE>
<CAPTION>

                                                                      Other and      CSW
                                                U.S.       U.K.      Reconciling Consolidated
                                            Electric     Electric
                                                                 (millions)
<S>                                            <C>         <C>          <C>         <C>    
 
Three months ended March 31, 1999
   Operating Revenues                           $697        $476          $52       $1,225
   Income/(Loss) from Continuing Operations       34          27          (16)          45
Total Assets at March 31, 1999                 9,146       2,966        1,562       13,674
Total Assets at December 31, 1998              9,151       3,032        1,714       13,897

Three months ended March 31, 1998
   Operating Revenues                           $689        $533          $35       $1,257
   Income/(Loss) from Continuing Operations       38          33          (11)          60
Total Assets at March 31, 1998                 9,235       3,035        1,276       13,546
Total Assets at December 31, 1997              9,338       2,931        1,347       13,616

</TABLE>


7.    SOUTH AMERICAN INVESTMENTS

      Through March 31, 1999, CSW International has invested $80 million in Vale
to obtain a 36% equity interest.  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 debt as a loan.

      In mid-January  1999, amid market  instability,  the Brazilian  government
abandoned  its policy of pegging the Real in a broad  range  against the dollar.
This  resulted in a 37%  devaluation  of the Brazilian  currency,  by the end of
April 1999. Vale is unfavorably impacted by the devaluation primarily due to the
revaluation of foreign denominated debt.

      CSW  International  has a put option which requires that Vale purchase CSW
International's shares, upon CSW International  exercising the put, at a minimum
price equal to the purchase price paid for the shares ($80 million). 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, that are
not  recognized  as a result of the floor  established  by the put  option,  are
recouped.   At  March  31,  1999,  CSW  International  had  deferred  losses  of
approximately $19 million.  CSW International  views its investment in Vale as a
long-term investment strategy and believes that the investment in Vale continues
to have significant long-term value and is recoverable. Management will continue
to closely evaluate the changes in the Brazilian economy,  and its impact on CSW
International's investment in Vale.

      As of March 31, 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
March 31, 1999 is $74  million.  The  reduction  in the  carrying  value of this
investment   has  been  reflected  in  Other   Comprehensive   Income  in  CSW's
Consolidated Statements of Stockholder's Equity. Management views its investment
in Chile as a long-term investment strategy. 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.

                                       55
<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. Reference is also made
to each  Registrant's  unaudited  Financial  Statements  and  related  Notes  to
Financial Statements included herein. The information included therein 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 period ended March 31,
1999.


LIQUIDITY AND CAPITAL RESOURCES

      Overview of CSW Operating, Investing, and Financing Activities
      Net cash inflows from operating  activities increased $102 million to $249
million for the first quarter of 1999 compared to the same period last year. The
increase in net cash  inflows is due  primarily to a lower  accounts  receivable
balance,  which  increased cash flows $97 million,  and the absence in 1999 of a
$59 million refund paid to CPL customers in the first quarter of 1998. Partially
offsetting  the increase in net cash inflows were lower levels of fuel recovery,
which  decreased cash flows $28 million,  and higher levels of fuel  inventories
that decreased cash flows $13 million.

      Net cash outflows from investing  activities increased $73 million to $183
million  for the first  quarter of 1999  compared to the same period a year ago.
The increase in investing  activity  cash  outflows was due  primarily to higher
levels of spending in 1999 for CSW Energy and CSW International  projects.  Also
affecting  the increase in cash  outflows  were lower levels of spending in 1999
for CSW Energy's  Sweeny power plant,  which began  commercial  operation in the
first  quarter  of 1998,  and a cash  inflow  in 1998  from CSW  International's
Altamira  partner,  Alpek,  which assumed its 50% obligation of that power plant
project.

      Net cash outflows from financing  activities  increased $79 million to $98
million for the first  quarter of 1999  compared to the first  quarter  1998 due
primarily to a $142 million change in short-term debt from a cash inflow of $110
million in 1998 to a cash  outflow of $32  million in 1999.  This  change is due
primarily  to the absence in 1999 of  short-term  debt  borrowings  in the first
quarter of 1998 used to repay a $60 million  variable  bank loan at CSW Services
and to redeem $28 million of  preferred  stock at SWEPCO.  The  increase in cash
outflows from investing  activities was offset in part by the absence in 1999 of
the retirement and reacquisition of long-term debt in the first quarter of 1998.

      Construction Expenditures
      CSW's construction expenditures, including allowance for funds used during
construction,  totaled  $167  million for the three months ended March 31, 1999.
Such expenditures for the U.S. Electric Operating Companies totaled $38 million,
$22  million,  $18  million  and $13  million,  for CPL,  PSO,  SWEPCO  and WTU,
respectively. Construction expenditures at the U.S. Electric Operating Companies
were  primarily  for  improvements  to  existing  production,  transmission  and
distribution facilities.  The improvements are required to meet the needs of new
customers and to satisfy the changing  requirements of existing  customers.  CSW
anticipates  that all funds required for  construction  for the remainder of the
year will be provided from internal sources.

                                       56
<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 March 31, 1999, CSW had revolving  credit  facilities  totaling $1.4
billion to back up its commercial paper program.

     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  (the  foregoing   statement   constitutes
forward-looking  information  within the meaning of Section 21E of the  Exchange
Act. Actual results may differ materially from such projected information due to
changes in the underlying assumptions. See FORWARD-LOOKING INFORMATION).

PROPOSED AEP MERGER

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

      Under the merger  agreement,  each common  share of CSW will be  converted
into 0.6 shares 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.

      The  electric  systems of AEP and CSW will  operate on an  integrated  and
coordinated  basis as required  by the Holding  Company  Act.  Any fuel  savings
resulting from the coordinated  operation of the combined company will be passed
on 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

                                       57
<PAGE>

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.

      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.  These expected benefits include $2 billion
in non-fuel  savings  over 10 years and $98 million in net fuel  savings over 10
years.

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

      Hearings at the FERC are  scheduled  to begin June 29, 1999. A final order
is expected in the fourth quarter of 1999.

      Arkansas
      On June 12,  1998,  AEP and CSW jointly  filed a request with the Arkansas
Commission for approval of their proposed merger. The Arkansas Commission issued
an order  approving the merger subject to approval of the associated  regulatory
plan on August 13, 1998. 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  final  order  is  conditioned  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 their  proposed  merger and for a finding  that the
merger is in the public interest.

      In Louisiana,  hearings have been  postponed as AEP and CSW negotiate with
all parties in an attempt to settle all issues in that state.

      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

                                       58
<PAGE>

Oklahoma  Commission  Utility Division Staff, the Oklahoma  Commission  Consumer
Services Division,  the Office of the Attorney General for Oklahoma, and AEP and
CSW.

      Under the partial  settlement  agreement,  AEP and CSW would share  merger
savings with Oklahoma customers as well as AEP shareholders,  effective with the
merger closing;  not increase Oklahoma base rates prior to January 1, 2003; file
by  December  31,  2001  with  the  FERC  an  application  to  join  a  regional
transmission organization; and 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
will be split between Oklahoma  customers and AEP  shareholders,  with customers
receiving approximately 55% of the savings.

      The partial settlement agreement includes a recommendation by the Oklahoma
Commission  Staff that the Oklahoma  Commission  file a position  statement with
FERC  indicating that it does not oppose the merger while reserving the right to
ensure that there are no adverse impacts on the Oklahoma transmission system.

      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 and
the merger is  completed  as planned and  resolve  issues  associated  with CPL,
SWEPCO and WTU rate and fule reconciliation proceedings.

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

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

      Additional  rate-reduction  riders will be  implemented  to resolve issues
associated with CPL, WTU and SWEPCO rate and fuel reconciliation proceedings and
court appeals in Texas. The settlement  provides for an additional  reduction of
$136.6  million,  which  will  be  implemented  over  the  six  years  following
completion of the merger.
                                       59

<PAGE>


      The  cumulative  amount  of  the  rate-reduction  riders  proposed  in the
settlement  will  result in total  reductions  over the  six-year  period in the
following amounts.

             Cumulative Reduction     Annual Reduction
                                (millions)
CPL                     $142.8                  $23.8
SWEPCO                   $42.1                   $7.0
WTU                      $36.1                   $6.0

AEP and CSW also agree to divest a total of 1,604 MW of generation  capacity in
the  ERCOT,  while  retaining  the right to  purchase  power from the CPL plants
during peak  periods.  The  generation  to be divested  includes the  previously
announced  plan to  divest  250 MW of CSW  Energy's  Frontera  Plant,  which  is
currently under construction near Mission, Texas, as well as the following power
plants currently owned by CPL.

Lon C. Hill Power Station            Corpus Christi   546 MW
Nueces Bay Power Station             Corpus Christi   559 MW
Ennis S. Joslin Power Station        Point Comfort    249 MW

If it is  determined  that the  divestiture  can proceed  immediately  after the
merger closes without jeopardizing pooling of interests accounting treatment for
the  merger,  sale of the  plants  would  begin no later  than 90 days after the
merger  closes.   Without  that  determination,   the  divestiture  would  occur
consistent with SEC pooling of interests  requirements,  approximately two years
after the merger closes.

Other provisions of the proposed settlement include:

-  Accelerate  depreciation  and  amortization  by CPL of $60  million  over the
   six-year period to reduce its amount of potentially stranded cost.

-  Quality-of-service standards that the newly merged company must meet.

-  Continuation  of programs for low-income and elderly  customers and expansion
   of these programs by $4.5 million over the six-year period.

-  In  the  absence  of  legislative  or  regulatory  initiatives   establishing
   affiliate standards, AEP and CSW have agreed to affiliate standards that will
   be observed by their subsidiaries.

-  As provided in the earlier settlement,  CSW has agreed to withdraw its appeal
   of the CPL glide-path  rate reduction of $13 million  implemented in May 1998
   as well as the second glide-path rate reduction of $13 million implemented in
   May 1999 if the settlement is approved and the AEP/CSW merger is completed.

-  AEP and CSW  commit to file  prior to  December  31,  2000,  with the FERC an
   application  to  transfer  the  operational   control  of  bulk  transmission
   facilities  located in the Southwest Power Pool to a  FERC-approved  Regional
   Transmission   Organization  directly   interconnected  with  AEP's  existing
   Southwest Power Pool transmission facilities.

-  CPL,  SWEPCO  and WTU  agree not to seek an  increase  in base  rates  before
   January  1,  2003 or three  years  from  the  effective  date of the  merger,
   whichever  is  later.  All  signatories  to the  agreement  except  the Texas
   Commission  General  Counsel  have agreed not to initiate  rate  reviews that
   would result in a change in base rates prior to January 1, 2001.

                                       60
<PAGE>

-  The  settlement  proposal  also  provides  for  a  sharing  of  margins  from
   off-system sales on the wholesale electricity market after the effective date
   of the merger.

      Hearings on the merger  proceedings in Texas are scheduled to begin August
9, 1999 and a final order is expected in the fourth quarter of 1999.

      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.

      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 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 intervened in the proceedings at the SEC.

      AEP and CSW plan to make a merger filing with the Department of Justice in
the near future.

      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
      AEP has received a request from the staff of the Kentucky  Public  Service
Commission to file an application  seeking  Kentucky  Public Service  Commission
approval for the indirect  change in control of Kentucky Power Company that will
occur as a result of the proposed merger. CSW understands that although AEP does
not believe that the Kentucky Public Service  Commission has the  jurisdictional
authority to approve the merger, AEP prepared a merger application filing, which
was filed April 15, 1999, with the Kentucky Public Service Commission. Under the
governing  statute  the  Kentucky  Public  Service  Commission  must  act on the
application within 60 days.

      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. 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 raised in the pending merger between AEP
and CSW. As part of the  settlement,  the IBEW local unions will withdraw  their
opposition to the merger.

                                       61
<PAGE>

       Completion of the Merger
      The  proposed  AEP  merger has a  targeted  completion  date in the fourth
quarter  of 1999.  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  assurances  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 March 31, 1999, CSW had deferred $31 million in costs related to the
merger on its  consolidated  balance sheet,  which will be charged to expense if
AEP and CSW are not successful in completing their proposed merger.


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.

      On  April  16,  1999,  the  April  1999  SWEPCO  Plan was  filed  with the
bankruptcy  court.  The April 1999 SWEPCO Plan replaces all previous plans filed
by SWEPCO.  Under the April 1999 SWEPCO Plan, a SWEPCO  affiliate  would acquire
all the non-nuclear assets of Cajun for $1.017 billion. SWEPCO's bid is based on
interest  rate  adjustments  to its base bid of $940.5  million.  The April 1999
SWEPCO Plan  incorporates  the terms of a settlement  between the RUS, the Cajun
Members  Committee,   Clairborne  Electric  Cooperative,  Inc.  and  SWEPCO.  In
addition,  the April 1999 SWEPCO Plan  provides  for SWEPCO and the Cajun member
cooperatives  to enter into  long-term  power supply  agreements  with rate plan
options   and   market   access   provisions   designed   to  ensure   long-term
competitiveness  of the cooperatives.  Eight  cooperatives and Central Louisiana
Electric  Company,  Inc. agreed to purchase power from SWEPCO, if the bankruptcy
court confirms the April 1999 SWEPCO Plan.

      The trustee for Cajun supports a revised competing bid of $960 million, on
an interest-adjusted  basis, filed by the Cajun trustee and Louisiana Generating
LLC on April 16,  1999.  The  Cajun  trustee  filed  additional  changes  to the
proposed  purchase price on April 19, 1999. On April 22, 1999, the Cajun trustee
and  Louisiana  Generating  LLC then filed  additional  changes to the  proposed
purchase price. The interest-adjusted purchase price under the amended Louisiana
Generating LLC bid is now approximately $1.037 billion.

       The bankruptcy court has ordered  mediation to occur among the parties in
an effort to resolve  the  bankruptcy  case.  Final  confirmation  hearings  are
scheduled to begin June 22, 1999.

      Consummation   of  the  April  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 April 1999  SWEPCO  Plan is  ultimately
confirmed by the bankruptcy court, the $1.017 billion required to consummate the

                                       62
<PAGE>

acquisition of Cajun's  non-nuclear  assets is expected to be financed through a
combination of external non-recourse  borrowings and internally generated funds.
There can be no assurance that the bankruptcy  court will confirm the April 1999
SWEPCO  Plan or, if it is  confirmed  that  federal  and state  regulators  will
approve it. As of March 31,  1999,  SWEPCO had deferred  $12.1  million in costs
related to the Cajun acquisition on its consolidated  balance sheet, which would
be expensed if the April 1999 SWEPCO  Plan was not  ultimately  successful.  See
NOTE  3.  COMMITMENTS  AND  CONTINGENT  LIABILITIES.  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.


RECENT DEVELOPMENTS AND TRENDS

      Industry  Restructuring  Initiatives  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  Arkansas  in 1999.  Legislative  activity  in Texas and
Louisiana has, to date, stopped short of any such definitive action.

      In April 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 Legislature  based on the
work  performed by these working  groups.  The Task Force's final report will be
provided to the 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.

      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 the 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.

      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

                                       63
<PAGE>

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

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

      Several bills addressing  industry  restructuring  and retail  competition
have been filed in the 1999 session of the Texas legislature. In March 1999, the
Texas Senate passed Senate Bill No. 7, which would begin retail  competition  in
qualifying power regions on January 1, 2002,  although  municipal  utilities and
retail  electric  cooperatives  can  choose  whether  to  participate  in retail
competition.  The bill  provides  for a rate  freeze  until  January 1, 2002 for
utilities  participating in retail competition.  The bill further provides for a
price freeze period for residential and small commercial customers,  starting on
January 1, 2002, after a five percent reduction in rates for such customers. The
bill  also   provides  for   stranded   cost   recovery.   The  Texas  House  of
Representatives is currently  considering several restructuring bills. The Texas
Legislative session concludes on May 31, 1999.

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

      PSO Union Negotiations
      In  March  1999,  PSO and its  Local  Union  1002 of the IBEW  reached  an
agreement to contract negotiations,  which began in July 1996. In December 1996,
PSO had  implemented  portions of its then final  proposal  after  declaring  an
impasse. The principal issue of disagreement involved PSO's need for flexibility
in a deregulated environment. In April 1997, Oklahoma's governor signed into law
an electric  industry-restructuring bill. The law mandates the implementation of
retail  competition to begin on July 1, 2002.  Following passage of the law, PSO
resumed  negotiations  with the union.  The new  contract  allows PSO to be in a
better  position  to  compete  as the  electric  utility  industry  in  Oklahoma
restructures.  The effective of the new  agreement was on April 4, 1999,  and it
will remain in effect until September 30, 2000.

      PSO and the union  continued  discussions  to resolve  issues related to a
recent NLRB ruling  against PSO. In October 1998, PSO received an adverse ruling
from a NLRB ALJ on the union's unfair labor practice charge against PSO. The ALJ
upheld PSO's right to cease  collecting  union dues through payroll  deductions.
The ALJ ruled  that PSO did  negotiate in good faith but that PSO's  position on
some issues was too harsh, and therefore the December 1996 implementation should
be rolled back and employees  made whole.  Additionally,  the ALJ ruled that PSO
improperly solicited employees to withdraw from the union. In December 1998, PSO
appealed  the ALJ's  ruling to the NLRB.  At this time,  PSO cannot  predict the
ultimate outcome of the NLRB matter. However, PSO believes that it will not have
a material  adverse effect on its results of operations or financial  condition.
As a result of the agreement, the union agreed to withdraw its opposition to the
AEP merger proceedings.  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.
                                       64
<PAGE>

      SWEPCO - Texas Eastman
      Texas Eastman, one of SWEPCO's largest customers, and CSW Energy announced
an  agreement  to  construct  and  operate  a 440 MW  cogeneration  facility  in
Longview,  Texas. Construction of the facility is scheduled to begin in mid-1999
with  expected  operation in March 2001.  The plant will  provide a  significant
portion of the steam and all electricity  requirements  needed by Texas Eastman.
It is  anticipated  that Texas Eastman will remain a SWEPCO  customer  until the
cogeneration   facility  is  operational.   Texas  Eastman  currently   provides
approximately  3% of SWEPCO's total  electric  operating  revenues.  See NOTE 3.
COMMITMENTS  AND  CONTINGENT   LIABILITIES-   Diversified   Electric  Loans  and
Commitments.

      SEEBOARD - Third Party Pension Litigation
      In the U.K.,  National Grid Group and National Power have been involved in
continuing litigation in respect of their use of actuarial surpluses declared in
the electricity  industry's  occupational pension scheme, the Electricity Supply
Pension  Scheme.  A high court  decision in favor of the National Grid Group and
National  Power was appealed and on February 10, 1999, the Court of Appeal ruled
that the particular  arrangements  made by these  corporations to dispose of the
surplus, partly by canceling liabilities relating to additional pension payments
resulting  from  early  retirement,  were  invalid  due to  procedural  defects.
SEEBOARD  employees are members of the Electricity  Supply Pension  Scheme,  and
SEEBOARD has made similar use of actuarial surplus. For SEEBOARD,  the amount of
the cancelled  payments was approximately  $33 million.  The Court of Appeal did
not order the  National  Grid Group and  National  Power to make  payment to the
Electricity Supply Pension Scheme but will hold a further hearing to decide what
action to take.  It is likely  that the case will then be  referred  to the U.K.
House of Lords.  The final  outcome of the hearing,  or any referral to the U.K.
House of Lords,  cannot be  determined  and  therefore  it is not  possible  for
management to quantify the impact,  on the results of  operations  and financial
condition of CSW and SEEBOARD.


RATES AND REGULATORY MATTERS

      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  methodology  in the CPL 1997 Final Order  pursuant to which
CPL's annual rates were reduced by $13 million on May 1, 1998 and an  additional
$13 million on May 1, 1999.

      CPL  appealed  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) $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.  While CPL appealed  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

                                       65
<PAGE>

results  of  operations  andfinancial  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.  If the
stipulated  agreement is approved by the Texas  Commission and the AEP Merger is
ultimately  consummated,  the agreement states that CSW will withdraw its appeal
with respect to the "glide path" rate reduction methodology. See ITEM 1. NOTE 5.
PROPOSED  AEP  MERGER and ITEM 2. MD&A -  PROPOSED  AEP  MERGER  for  additional
information on the stipulated agreement.

      CPL  currently   accounts  for  the  economic  effects  of  regulation  in
accordance  with SFAS No. 71. Pursuant to the provisions of SFAS No. 71, CPL has
recorded  approximately $1.2 billion of  regulatory-related  assets at March 31,
1999. The  application of SFAS No. 71 is conditioned  upon CPL's rates being set
based on the cost of providing service.  In the event management  concludes that
as a result of changes in regulation,  legislation, the competitive environment,
or other  factors,  CPL or some  portion  of its  business  no longer  meets the
criteria  for  following  SFAS No.  71, a  write-off  of  regulatory  assets and
liabilities  would be  required,  absent a means of  recovering  such  assets or
settling such liabilities in a continuing regulated segment of the business. CPL
would also be required  to  evaluate  whether  there was any  impairment  of any
deregulated plant assets. In addition,  CPL and CSW could experience,  depending
on the timing and amount of any  write-off,  a material  adverse effect on their
results of operations and financial condition.

      The foregoing discussion of CPL Rate Review - Docket No. 14965 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.

      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
will issue a report in June 1999,  and hearings  will 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.  Management cannot
predict the outcome of this review.

      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 six  operating  power  projects
totaling  978 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 should begin simple cycle operation in the summer of 1999 and
combined  cycle  operation  by the  end of  1999.  Pursuant  to  AEP  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.

                                       66
<PAGE>

      CSW Energy has entered into an agreement  with Texas  Eastman to construct
and operate a 440-MW  cogeneration  facility in Longview,  Texas.  This facility
will be known as the Eastex Cogeneration  Project. At March 31, 1999, CSW Energy
had construction obligations of $72 million related to the project. Construction
of the facility is scheduled to begin in mid-1999,  with  expected  operation in
2001.  Excess  electricity  generated by the plant will be sold by CSW Energy in
the wholesale electricity market.

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

      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.

      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.  In the first quarter of 1998, CSW  International  and its joint
venture partner,  Alpek,  commenced commercial operations of a 109 MW, gas fired
cogeneration  project  at  Alpek's  Petrocel  industrial  complex  in  Altamira,
Tamaulipas, Mexico.

      During the first  quarter  of 1999,  CSW  International  and its 50% joint
venture partner,  Scottish Power, obtained construction  financing of (pound)190
million (at March 31, 1999,  $306 million) for the South Coast power project,  a
400-MW combined cycle gas turbine power station in Shoreham, United Kingdom. The
permanent  financing of (pound)152  million (at March 31, 1999, $245 million) of
debt was also  arranged.  CSW  International  has guaranteed  approximately  $31
million of the  (pound)190  million  construction  financing,  and the permanent
financing is unconditionally guaranteed by the project.  Commercial operation is
expected to begin in 2000.

      Through March 31, 1999, CSW International has invested $80 million in Vale
to obtain a 36% equity interest.  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 as a loan.

      In mid-January  1999, amid market  instability,  the Brazilian  government
abandoned  its policy of pegging the Real in a broad  range  against the dollar.
This resulted in a 37%  devaluation of the Real by the end of January 1999. Vale
is unfavorably  impacted by the devaluation  primarily due to the revaluation of
foreign denominated debt.

      CSW  International  has a put option which requires that Vale purchase CSW
International's shares, upon CSW International  exercising the put, at a minimum
price equal to the purchase price paid for the shares ($80 million). 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, that are
not  recognized  as a result of the floor  established  by the put  option,  are
recouped.   At  March  31,  1999,  CSW  International  had  deferred  losses  of
approximately $19 million.  CSW International  views its investment in Vale as a
long-term investment strategy and believes that the investment in Vale continues
to have significant long-term value and is recoverable. Management will continue
to closely evaluate the changes in the Brazilian economy,  and its impact on CSW
International's investment in Vale.
                                       67
<PAGE>

      As of March 31, 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
March 31, 1999 is $74  million.  The  reduction  in the  carrying  value of this
investment   has  been  reflected  in  Other   Comprehensive   Income  in  CSW's
Consolidated Statements of Stockholder's Equity. Management views its investment
in Chile as a long-term investment strategy. 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  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 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 have been  initiated and are in various  phases of the project.
Currently,  those teams represent the equivalent of about 90 full-time  employee
positions working on year 2000 readiness.  The teams are using a formal approach
that  includes  inventory,  assessment,  remediation,  testing  of  systems  and
development of contingency  plans.  Formal  progress  checkpoints  are conducted
biweekly  by  the  project  management  team.  An  executive  oversight  council
comprising the functional  vice presidents  convenes  monthly to review progress
and address issues.  The project  executive  sponsor updates top management on a
weekly basis and at every Board of Directors' Audit Committee meeting.

      CSW has completed a review of its year 2000 project.  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 have been incorporated into
the year 2000 project as a result of the review findings.

      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

                                       68
<PAGE>

    of several  electric  operation  systems  that has  reduced  the  conversion
    requirements.  Corrective and  certification  measures are well underway for
    these systems and completion is targeted for all systems by June 30, 1999.

-  Inventory  and  assessment  of  business   applications  and  vendor-supplied
   software was 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 the end the first quarter of 1999, 82% of business critical
   applications were converted and certified.  The remaining 18% of applications
   are targeted for completion by mid-year 1999.

      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 was
completed in March 1999.  The  remediation of all other critical path systems is
on schedule for completion by July 1999. Final  verification of those systems is
scheduled for completion by the third quarter of 1999. As of March 31, 1999, 74%
of the work to be performed in electric operations has been completed.

      Vale completed an inventory of date dependent  assets and critical systems
in the fourth  quarter of 1998.  Vale is on schedule  for  remediation  of these
assets  and  systems  by  the  third  quarter  of  1999.  Most  business  system
remediation has been completed.

      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 majority of costs related to the project are
expensed as incurred.  The  historical  cost  incurred to date for the year 2000
project is  approximately  $14 million,  $4 million of which was incurred in the
first quarter of 1999.  Remaining  testing and conversion is expected to cost an
additional $22 million to $24 million over the next 12 months. Approximately 33%
of the  projected  cost is to be covered  through the  redeployment  of existing
labor resources. Approximately 37% of the projected cost is for outside contract
labor.  The  remaining 30% 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 on 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.  The
probability of a total  inability to generate and deliver  electricity by CSW is
very low.

                                       69
<PAGE>

      To date at CSW System  power  plants,  no year 2000 issues have been 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 have been  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 where 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% have  been  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. So far most of those microprocessors process dates correctly.

      The areas  requiring the greatest  amount of work are the  computers  that
operate  business  systems such as customer  billing and  accounting.  CSW is on
schedule  to have year 2000  issues in these  systems  resolved by the summer of
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,  through  very  close
relationships within the electricity industry 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 are being
updated to include year 2000 issues. Contingency planning is engineered into the
transmission and  distribution  systems as it is designed with the capability to
by-pass failed  equipment.  A margin of power  generation  reserve above what is
needed is normally maintained. This reserve is a customary operating contingency
plan that allows CSW to operate  normally  even when a power plant  unexpectedly
quits operating.  Backup supplies of fuels are normally  maintained at CSW power
plants.  Natural  gas plants  have fuel oil as a backup and  multiple  pipelines
provide  redundant  supplies.  At coal plants  about 40-45 days of extra coal is
kept on hand.

      The North American Electric  Reliability  Council is coordinating 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 are  currently  being  further  developed  and will be
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  by
utilizing  alternative means to acquire net generation and transmission tie-flow
readings, communicate those readings to transmission dispatch operation centers,
and  communicate  those  readings to CSW's  central  control  center who in turn
communicated  those  readings  to  the  regional  power  reliability   councils.
Additionally,  CSW  will  participate  in an  industry-wide  drill  to test  its
operational  preparedness  in the third quarter of 1999.  Final  verification of
external  interfaces  will be  performed  in the last half of 1999.  Contingency
plans will continue to be revised as needed as a result of the drills.

                                       70
<PAGE>

      The CSW supply chain has contacted over 6,000 suppliers to determine their
organization  readiness and 70% responded.  Approximately 250 of those 6,000 are
mission critical suppliers, of which 96% have responded that their organizations
are  either  already  year  2000  ready or will be  before  December  31,  1999.
Contingency  plans have been developed to cover the possible  failure of those 8
to 10 critical  suppliers  that have not responded  with positive  statements on
their year 2000 readiness.

      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 services business
areas and are being updated to include Year 2000 scenarios. Contingency planning
is considered  essential by SEEBOARD and also other external  bodies such as the
government who are proposing  legislation that key infrastructure  utilities and
industries make readily  available their contingency plans for external viewing.
These plans are continually being reviewed by SEEBOARD's year 2000 central team.
In addition,  SEEBOARD is working with other utilities  through  interest groups
and the National Grid on interface contingency plans and testing.

      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.

                                       71

<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 purchase of power and energy from other  generation  sources.  Contracts
that  provide for the future  delivery of these  commodities  can be  considered
forward  contracts  which  contain  pricing  and/or  volume  terms  designed  to
stabilize the cost of the commodity.  Consequently,  the U.S. Electric Operating
Companies  manage their price exposure for the benefit of customers by balancing
their commodity purchases through a combination of long-term and short-term spot
market agreements.

      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 purchased natural gas swaps.
These swaps cover natural gas deliveries beginning in January and continuing for
the remainder of 1999.  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  natural gas swaps and
electricity forward contracts that are sensitive to changes in commodity prices.
The swaps hedge commodity price exposure for the year 1999. 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 September 1999.
The average contract price for forward purchases is $75 per MWH, and the average
contract price for forward sales is $81 per MWH.

     Contractual commitments at March 31, 1999 are as follows.

    Products              Net Notional   Fair Value of Assets    Fair Value of
                             Amount                               Liabilities
    ----------------------------------------------------------------------------
                                                      (millions)
 Swaps                  5,140,000 MMbtu          $--                  $--
 Forwards:  purchases     430,400 MWH             --                    3
            sales         361,600 MWH              4                   --
    
      CSW has, at times,  been exposed to currency and interest rate risks which
reflect the floating  exchange rate that exists between the U.S.  dollar and the
British pound.  CSW has utilized certain risk management tools to manage adverse
changes in exchange  rates and to facilitate  financing  transactions  resulting
from CSW's acquisition of SEEBOARD.  At March 31, 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
current  market  pricing.  CSW expects to hold these  contracts to maturity.  At
exchange  rates on March 31, 1999,  this liability is included in long-term debt
on the balance sheet at a carrying value of approximately $416 million.

                                       72
<PAGE>

                                               Expected          Expected Cash
                                             Cash Inflows          Outflows
Contract                 Maturity Date     (Maturity Value)     (Market Value)
--------------------------------------------------------------------------------
Cross currency swaps    August 1, 2001       $200 million       $215.0 million
Cross currency swaps    August 1, 2006       $200 million       $234.2 million

      For  information  related to currency  risk in South  America see ITEM 1.,
NOTE 8 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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<PAGE>


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.


ITEM 1. LEGAL PROCEEDINGS.

      Other Legal Claim 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

CPL
(i) The annual meeting of stockholders of CPL was held on April 8, 1999.

(ii) Directors elected at the annual meeting were:

John F. Brimberry         Robert A. McAllen
E. R. Brooks              Pete Morales, Jr.
Glenn Files               H. Lee Richards
Ruben M. Garcia           J. Gonzalo Sandoval
Alphonso Jackson          Gerald E. Vaughn

(iii) No other  matters  (other than  procedural matters) were voted upon at the
annual meeting.


PSO
(i) The annual meeting of stockholders of PSO was held on April 20, 1999.

(ii) Directors elected at the annual meeting were:

E. R. Brooks              Paul K. Lackey, Jr.
T.D. Churchwell           Paula Marshall-Chapman
Harry A. Clarke           William R. McKamey
Glenn Files               Dr. Robert B. Taylor, Jr.

(iii) No other matters (other than procedural  matters) voted upon at the annual
meeting.


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<PAGE>


SWEPCO
(i) The annual meeting of stockholders of SWEPCO was held on April 14, 1999.

(ii) Directors elected at the annual meeting were:

Karen C. Adams            John M. Lewis
E. R. Brooks              Michael H. Madison
James E. Davison          William C. Peatross
Glenn Files               Maxine P. Sarpy
Dr. Frederick E. Joyce

(iii) No other matters (other than procedural matters) were voted upon at the
annual meeting.


WTU
(i) The annual meeting of stockholders of WTU was held on March 30, 1999.

(ii) Directors elected at the annual meeting were:

E. R. Brooks             Tommy Morris
Paul J. Brower           Dian G. Owen
Glenn Files              James M Parker
Alphonso Jackson         F.L. Stephens

(iii) No other matters (other than procedural matters) were voted upon at the 
annual meeting.


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

(a) EXHIBITS:

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

      Second Amended and Restated Joint Plan of Reorganization for Cajun 
      Electric Power Cooperative, Inc. submitted jointly by the Committee of 
      Certain Member, Washington-St. Tammany Electric Cooperative, Inc. and
      Southwestern Electric Power Company Dated April 19, 1999 (Exhibit 2.1), 
      filed herewith.

      Supplemental Disclosure Statement in support of the Second Amended and 
      Restated Joint Plan of Reorganization for Cajun Electric Power 
      Cooperative, Inc. submitted by the Committee of Certain Member,
      Washington-St.Tammany Electric Cooperative, Inc. and Southwestern Electric
      Power Company Dated April 19, 1999 (Exhibit 2.2), 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.

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<PAGE>


 (18)Letter re:  Change in  Accounting  Principle
     CSW - (Exhibit  18.1),  filed herewith.
     CPL -  (Exhibit  18.2),  filed  herewith. 
     PSO -  (Exhibit  18.3),  filed  herewith.
     SWEPCO - (Exhibit 18.4), filed herewith.  
     WTU - (Exhibit 18.5), 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: December 17, 1998
Date of report: January 5, 1999
Item 5. Other Events and Item 7. Financial  Statements  and Exhibits,  reporting
developments  in the CSW and AEP merger  proceedings  in Arkansas as well as the
current status of other regulatory proceedings.


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<PAGE>


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: May 14, 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: May 14, 1999                   /s/ R. Russell Davis         
                                     -----------------------------
                                         R. Russell Davis
                                         Controller and Chief Accounting Officer
                                        (Principal Accounting Officer)


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