UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                       For the Quarter Ended June 30, 1997

                                       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) 222-2141

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 July 31, 1997                  Shares
   Central and South West Corporation                   212,235,310
   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> 2



                                                       

           CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES

               TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM 10-Q
                                  JUNE 30, 1997


                                                                            PAGE

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

FOWARD LOOKING INFORMATION.....................................................4

PART I - FINANCIAL INFORMATION

     ITEM 1.    FINANCIAL STATEMENTS

         Central and South West Corporation and Subsidiary Companies...........5

         Central Power and Light Company......................................15

         Public Service Company of Oklahoma...................................23

         Southwestern Electric Power Company..................................30

         West Texas Utilities Company.........................................37

         Notes to Financial Statements........................................44


     ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS...........................60


PART II - OTHER INFORMATION

     ITEM 1.    LEGAL PROCEEDINGS.............................................67

     ITEM 2.    CHANGES IN SECURITIES...............................Inapplicable

     ITEM 3.    DEFAULTS UPON SENIOR SECURITIES.....................Inapplicable

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

     ITEM 5.    OTHER INFORMATION.............................................69

     ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K..............................69


SIGNATURES....................................................................71


<PAGE> 3


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

Abbreviation or Acronym            Definition
AFUDC..............................Allowance for funds used during construction
ANI................................American Nuclear Insurance
Arkansas Commission................Arkansas Public Service Commission
Burlington Northern................Burlington Northern Railroad Company
Cajun..............................Cajun Electric Power Cooperative, Inc.
Committee of Certain Members.......The members committee of Cajun, which
                                   currently represents 7 of the 12 Louisiana
                                   member distribution cooperatives that are 
                                   served by Cajun
Court of Appeals...................Court of Appeals, Third District of Texas, 
                                   Austin, Texas
CPL................................Central Power and Light Company, Corpus
                                   Christi, Texas
CPL 1996 Fuel Agreement............Fuel settlement agreement entered into by
                                   CPL and other parties in March 1996
CPL 1997 Rate Order................Final order issued on March 31, 1997 by
                                   Texas Commission in CPL's current rate case
CSW................................Central and South West Corporation, Dallas,
                                   Texas
CSW Communications.................CSW Communications, Inc., Austin, Texas
CSW Energy.........................CSW Energy, Inc., Dallas, Texas
CSW International..................CSW International, Inc., Dallas, Texas
CSW PMI............................CSW Power Marketing, Inc., Dallas, Texas
CSW System.........................CSW and its subsidiaries
CWIP...............................Construction work in progress
ECOM...............................Excess cost over market
El Paso............................El Paso Electric Company
El Paso Merger.....................The proposed merger whereby El Paso would
                                   have become a wholly-owned subsidiary of CSW
EnerShop...........................EnerShopSM Inc., Dallas, Texas
Entergy Gulf States................Gulf States Utilities Company
EPA................................Environmental Protection Agency
ERCOT..............................Electric Reliability Council of Texas
Exchange Act.......................Securities Exchange Act of 1934, as amended
FERC...............................Federal Energy Regulatory Commission
IRS................................Internal Revenue Service
ITC................................Investment tax credit
LIFO...............................Last-in First-out (inventory accounting 
                                   method)
MD&A...............................Management's Discussion and Analysis of
                                   Financial Condition and Results of Operations
MDEQ...............................Mississippi Department of Environmental
                                   Quality
Merger Agreement...................Agreement and Plan of Merger between El Paso
                                   and CSW, dated as of May 3, 1993, as amended
MGP................................Manufactured gas plant or coal gasification
                                   plant
Mirror CWIP........................Mirror Construction Work in Progress
Mississippi Power..................Mississippi Power Company
MMbtu..............................Million Btu (British thermal unit)
MWH................................Megawatt-hour
National Grid......................National Grid Group plc
NEIL...............................Nuclear Electric Insurance Limited
OCC Staff..........................Staff of the Oklahoma Commission
Oklahoma Commission................Corporation Commission of the State of
                                   Oklahoma
Oklaunion..........................Oklaunion Power Station
PRP................................Potentially responsible party
PSO................................Public Service Company of Oklahoma, Tulsa,
                                   Oklahoma
Registrant(s)......................CSW, CPL, PSO, SWEPCO and WTU
SEC................................United States Securities and Exchange
                                   Commission

<PAGE> 4



GLOSSARY OF TERMS  (continued)

Abbreviation or Acronym ...........Definition
SEEBOARD...........................SEEBOARD 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
STP................................South Texas Project nuclear electric
                                   generating station, jointly owned by CPL,
                                   Houston Lighting & Power Company, City of 
                                   Austin, and City of San Antonio
Subsidiary obligated, mandatorily
    redeemable, trust preferred
    securities.....................Collective term for securities issued by 
                                   business trusts of CPL, PSO andSWEPCO
SWEPCO.............................Southwestern Electric Power Company,
                                   Shreveport, Louisiana
SWEPCO Plan........................The plan of reorganization for Cajun filed by
                                   the Committee of Certain Members, SWEPCO and 
                                   Entergy   Gulf  States  on October 26, 1996
                                   with the U.S. Bankruptcy Court for the Middle
                                   District of Louisiana
Texas Commission...................Public Utility Commission of Texas
Transok............................Transok, Inc. and subsidiaries, a former
                                   wholly owned subsidiary of CSW U.S.
Electric(s) or U.S. Electric
    Operating Companies............CPL, PSO, SWEPCO and WTU
WTU................................West Texas Utilities Company, Abilene, Texas











FORWARD LOOKING INFORMATION

This report and other  presentations  made by CSW and its  subsidiaries  contain
forward  looking  statements  within the meaning of Section 21E of the  Exchange
Act. Although CSW and each of its subsidiaries  believe that, in making any such
statements,  its  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 U.S. and in countries in which CSW either currently has
made or in the future may make  investments;  the impact of  deregulation on the
U.S.  electric  utility  business;  increased  competition and electric  utility
industry  restructuring in the U.S.;  federal and state regulatory  developments
and changes in law which may have a substantial  adverse  impact on the value of
CSW System  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; 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;
and the timing and  success of  efforts to develop  domestic  and  international
power projects.  In the non-utility area, the aforementioned  factors would also
apply, and, in addition,  would include:  the ability to compete  effectively in
new areas,  including  telecommunications,  power  marketing and brokering,  and
other energy related services,  as well as 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.




<PAGE> 5



CSW


                       CENTRAL AND SOUTH WEST CORPORATION
                            AND SUBSIDIARY COMPANIES




                         PART I. FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.


<PAGE> 6
                       CENTRAL AND SOUTH WEST CORPORATION

                        CONSOLIDATED STATEMENTS OF INCOME
                                   (unaudited)
<TABLE>
<CAPTION>

                                             Three Months Ended     Six Months Ended
                                                  June 30,              June 30,
                                             ------------------    ------------------
                                              1997       1996       1997       1996
                                             -------    -------    -------    -------
                                                (millions, except per share amounts)
OPERATING REVENUES
<S>                                           <C>        <C>       <C>        <C>
    U.S. Electric                               $765       $861     $1,508     $1,527
    United Kingdom                               403        394        923        931
    Other diversified                             16         12         31         24
                                             -------    -------    -------    -------
                                               1,184      1,267      2,462      2,482
OPERATING EXPENSES AND TAXES
    U.S. Electric fuel                           261        290        522        538
    U.S. Electric purchased power                 17         24         43         40
    United Kingdom cost of sales                 282        287        651        687
    Operating and maintenance                    264        217        515        438
    Provision for CPL 1997 Rate Order            (26)      --           15       --
    El Paso Merger litigation                     10       --           35       --
    Depreciation and amortization                120        119        239        234
    Taxes, other than income                      46         46         94         89
    Income taxes                                  41         70         52         98
                                             -------    -------    -------    -------
                                               1,015      1,053      2,166      2,124
                                             -------    -------    -------    -------
OPERATING INCOME                                 169        214        296        358
                                             -------    -------    -------    -------

OTHER INCOME AND DEDUCTIONS
    U.S. Electric reserves for utility
      plant development costs, net of
      tax benefit of $1 for 1997 and
      $33 for 1996                              --          (84)        (2)       (84)
    Other                                         11         (5)        17          5
                                             -------    -------    -------    -------
                                                  11        (89)        15        (79)
                                             -------    -------    -------    -------
INCOME BEFORE INTEREST CHARGES                   180        125        311        279
                                             -------    -------    -------    -------

INTEREST AND OTHER CHARGES
    Interest on long-term debt                    85         82        167        160
    Distributions on Subsidiary obligated,
      mandatorily redeemable, trust
      preferred securities                         4       --            4       --
    Interest on short-term debt and other         15         28         35         55
                                             -------    -------    -------    -------
                                                 104        110        206        215
                                             -------    -------    -------    -------

INCOME FROM CONTINUING OPERATIONS                 76         15        105         64

DISCONTINUED OPERATIONS
    Income from discontinued operations,
      net of income tax expense of $2 and
      $6 for 1996                               --            4       --           12
    Gain on the sale of discontinued
      operations, net of tax of $71             --          113       --          113
                                             -------    -------    -------    -------
                                                --          117       --          125
                                             -------    -------    -------    -------

NET INCOME                                        76        132        105        189
  Less: Preferred stock dividends                  3          4          7          9
  Gain on  reacquired preferred stock             10       --           10       --
                                             -------    -------    -------    -------
NET INCOME FOR COMMON STOCK                      $83       $128       $108       $180
                                             =======    =======    =======    =======

Average Common Shares Outstanding              212.2      209.5      212.0      204.2

Earnings per Share of Common Stock
   from Continuing Operations                  $0.39      $0.05      $0.51      $0.27
Earnings per Share of Common Stock
   from Discontinued Operations                 --         0.56       --         0.61
                                             -------    -------    -------    -------
Earnings per Share of Common Stock             $0.39      $0.61      $0.51      $0.88
                                             =======    =======    =======    =======

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

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


<PAGE> 7
                       CENTRAL AND SOUTH WEST CORPORATION

                           CONSOLIDATED BALANCE SHEETS

                                                     June 30,     December 31,
                                                       1997         1996
                                                   (unaudited)    (audited)
                                                     -------       -------
                                                           (millions)
ASSETS

FIXED ASSETS
    Electric
        Production                                    $5,800        $5,830
        Transmission                                   1,553         1,538
        Distribution                                   4,321         4,237
        General                                        1,369         1,318
        Construction work in progress                    185           230
        Nuclear fuel                                     193           184
                                                     -------       -------
            Total Electric                            13,421        13,337
    Other diversified                                    171            84
                                                     -------       -------
                                                      13,592        13,421
  Less - Accumulated depreciation and amortization     5,050         4,940
                                                     -------       -------
                                                       8,542         8,481
                                                     -------       -------
CURRENT ASSETS
    Cash and temporary cash investments                  268           254
    Accounts receivable                                1,004           837
    Materials and supplies, at average cost              181           185
    Electric utility fuel inventory                       83           102
    Under-recovered fuel costs                            59            46
    Prepayments and other                                 86            85
                                                     -------       -------
                                                       1,681         1,509
                                                     -------       -------
DEFERRED CHARGES AND OTHER ASSETS
    Deferred plant costs                                 506           509
    Mirror CWIP asset                                    292           299
    Other non-utility investments                        343           371
    Income tax related regulatory assets, net            236           236
    Goodwill                                           1,463         1,525
    Other                                                360           402
                                                     -------       -------
                                                       3,200         3,342
                                                     -------       -------
                                                     $13,423       $13,332
                                                     =======       =======












       The accompanying notes to consolidated financial statements are an
                       integral part of these statements.
<PAGE> 8
                       CENTRAL AND SOUTH WEST CORPORATION

                           CONSOLIDATED BALANCE SHEETS

                                                 June 30,       December 31,
                                                   1997             1996
                                               (unaudited)       (audited)
                                                 -------          -------
                                                        (millions)
CAPITALIZATION AND LIABILITIES

CAPITALIZATION
  Common stock equity
    Common stock:   $3.50 par value
        Authorized: 350.0 million shares
        Issued and outstanding: 212.2 
          million shares in 1997 and 
          211.5 million shares in 1996              $743             $740
    Paid-in capital                                1,039            1,022
    Retained earnings                              1,887            1,963
    Foreign currency translation
      adjustment and other                            38               77
                                                 -------          -------
                                                   3,707            3,802
  Preferred stock
    Not subject to mandatory redemption              176              292
    Subject to mandatory redemption                   28               33
  Subsidiary obligated, mandatorily
    redeemable, trust preferred securities           324             --
  Long-term debt                                   3,979            4,024
                                                 -------          -------
                                                   8,214            8,151
                                                 -------          -------

CURRENT LIABILITIES
    Long-term debt and preferred stock
      due within twelve months                       204              204
    Short-term debt                                  400              364
    Short-term debt - CSW Credit, Inc.               708              579
    Loan notes                                        67               76
    Accounts payable                                 494              630
    Accrued taxes                                    245              324
    Accrued interest                                 102               82
    Other                                            249              166
                                                 -------          -------
                                                   2,469            2,425
                                                 -------          -------

DEFERRED CREDITS
    Accumulated deferred income taxes              2,244            2,272
    Investment tax credits                           284              291
    Other                                            212              193
                                                 -------          -------
                                                   2,740            2,756
                                                 -------          -------
                                                 $13,423          $13,332
                                                 =======          =======








       The accompanying notes to consolidated financial statements are an
                       integral part of these statements.
<PAGE> 9
                       CENTRAL AND SOUTH WEST CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
                                                        Six Months Ended
                                                             June 30,
                                                       -------------------
                                                         1997        1996
                                                       -------     -------
OPERATING ACTIVITIES                                         (millions)
    Net Income                                            $105        $189
    Non-cash Items Included in Net Income
        Depreciation and amortization                      256         269
        Deferred income taxes and investment
          tax credits                                      (15)          5
        Utility plant and other development costs            3         148
        Provision for CPL 1997 Rate Order                   15        --
        Gain on sale of subsidiary                        --          (184)
    Changes in Assets and Liabilities
        Accounts receivable                               (171)       (148)
        Fuel recovery                                      (13)        (64)
        Accounts payable                                  --           (92)
        Accrued taxes                                      (79)        (20)
    Other                                                   69         (52)
                                                       -------     -------
                                                           170          51
                                                       -------     -------
INVESTING ACTIVITIES
    Construction expenditures                             (243)       (224)
    Acquisition expenditures                              --        (1,346)
    CSW Energy/CSW International projects                  (97)        (15)
    Sale of National Grid assets                          --            99
    Cash proceeds from sale of subsidiary                 --           690
    Other                                                   (5)       --
                                                       -------     -------
                                                          (345)       (796)
                                                       -------     -------
FINANCING ACTIVITIES
    Common stock sold                                       20         434
    Proceeds from issuance of long-term debt              --            39
    SEEBOARD acquisition financing                        --           501
    Retirement of long-term debt                           (51)        (28)
    Reacquisition and retirement of
      preferred stock                                     (110)       --
    Proceeds from issuance of Subsidiary
      obligated, mandatorily redeemable,
      trust preferred securities                           324        --
    Other financing activities                              39        --
    Change in short-term debt                              164         (71)
    Payment of dividends                                  (194)       (183)
                                                       -------     -------
                                                           192         692
                                                       -------     -------

Effect of exchange rate changes on cash
   and cash equivalents                                     (3)          5

Net change in cash and cash equivalents                     14         (48)
Cash and cash equivalents - beginning of period            254         401
                                                       -------     -------
Cash and cash equivalents - end of period                 $268        $353
                                                       =======     =======

SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized (includes
       distributions on trust preferred securities)       $190        $179
                                                       =======     =======
    Income taxes paid                                     $174         $98
                                                       =======     =======


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

<PAGE> 10


CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
RESULTS OF OPERATIONS

         Set forth below is information  concerning the consolidated  results of
operations  of CSW for the three and six month  periods  ended June 30, 1997 and
June 30, 1996. 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 JUNE 30, 1997 AND 1996

         Net income  for common  stock  decreased  to $83  million in the second
quarter of 1997 from $128 million in the second quarter of 1996 due primarily to
lower sales  attributable  to milder weather in 1997, the impact of the CPL 1997
Rate Order  which  decreased  earnings  approximately  $12 million in the second
quarter of 1997 and an after-tax charge of $6.5 million in the second quarter of
1997 to reflect CSW's final  settlement of  litigation  with El Paso.  Partially
offsetting  these  reductions  in net  income  for  common  stock  was a gain of
approximately  $10 million  recognized on the  reacquisition of a portion of the
U.S. Electric Operating  Companies' preferred stock. See NOTE 6. CPL RATE REVIEW
- DOCKET NO.  14965 for  additional  information  relating  to the CPL 1997 Rate
Order  and  NOTE  2.  LITIGATION  AND  REGULATORY   PROCEEDINGS  for  additional
information on CSW's litigation with El Paso.

         In addition,  several items that occurred in the second quarter of 1996
were not  present in the  comparable  period in 1997.  In the second  quarter of
1996, CSW  recognized  earnings from Transok of $4 million and an after-tax gain
of approximately $113 million on the sale of Transok. However, the U.S. Electric
Operating  Companies and CSW Energy  recorded  reserves and write-offs  totaling
$102 million  after-tax for certain  investments  and  contingencies  in 1996 to
offset  most of the  gain.  See  NOTE 9.  DISCONTINUED  OPERATIONS  for  details
concerning Transok operations.

         In the second quarter of 1997, the U.S. Electric Operating Companies
and SEEBOARD U.S.A. contributed the following percentages to CSW's results of
operations.
                                                             Corporate
                              U.S.     SEEBOARD     Total    Items and
                            Electric    U.S.A.     Electric    Other       Total
                            ----------------------------------------------------

 Operating Revenues            65%        34%        99%         1%         100%
 Operating Income              81%        19%        100%        --         100%
 Net Income for CSW Common    110%        11%        121%      (21)%        100%

         U.S.  Electric  revenues  decreased $96 million,  or 11%, in the second
quarter of 1997  compared to the same period a year ago due to several  factors.
Mild weather in 1997 caused a reduction  in retail base  revenues of $38 million
on retail  MWH sales  that were 4.6% lower  than  1996,  and fuel  revenue  also
decreased by approximately $38 million.  In addition,  during the second quarter
of 1997,  CPL recorded a provision for rate refund of $36 million as a result of
the  reclassification  of the  provision  for the CPL  1997  Rate  Order.  These
decreases  were  partially  offset by $17  million  of new  transmission  access
revenues at CPL and WTU related to FERC Order No. 888 and the Texas Commission's
rules regarding  transmission access and pricing, the effect of which was almost
entirely offset by a  corresponding  increase in  transmission  expense.  United
Kingdom  revenues  increased  $9 million,  or 2%, in the second  quarter of 1997

<PAGE> 11

compared  to the  second  quarter  of 1996 due  primarily  to the  effect of the
exchange rate movement between the British pound and the U.S. dollar,  partially
offset by the effect of mild  weather on sales  volume  and a  reduction  in the
fossil fuel levy  collected on behalf of the United  Kingdom  government.  Other
diversified revenues increased $4 million, or 33%, in the second quarter of 1997
compared to the same period last year due  primarily to increased  revenues from
CSW Energy and CSW International,  with each company contributing  approximately
$2 million to the increase.

         U.S. Electric fuel expense decreased $29 million to $261 million in the
second  quarter of 1997 compared to the second  quarter of 1996 due in part to a
decrease  in the  average  cost of fuel to $1.69 per MMbtu from $1.86 per MMbtu,
reflecting  lower spot  market  natural  gas  prices  and lower cost coal.  Also
contributing  to the decrease was a change in the overall energy mix as a result
of  utilizing  a larger  percentage  of the lower cost  coal.  The  decrease  in
weather-related  customer  demand led to a 5% reduction in generation  that also
contributed  to lower fuel costs.  Purchased  power  decreased $7 million to $17
million in the second quarter of 1997 compared to the same period a year ago due
primarily  to a decrease in economy  energy  purchases.  United  Kingdom cost of
sales  decreased $5 million,  or 2%, in the second quarter of 1997 due primarily
to the  reduced  fossil  fuel levy  collected  on behalf of the  United  Kingdom
government and the impact of mild weather on sales volume,  partially  offset by
the effect of the exchange rate movement  between the British pound and the U.S.
dollar.

         Operating and maintenance expense increased $47 million to $264 million
in the second  quarter of 1997 compared to the same period last year due in part
to the  absence in 1997 of a $27  million  pension  adjustment  recorded  in the
second  quarter of 1996 at SEEBOARD.  The effect of the exchange  rate  movement
between the British pound and U.S.  dollar also  contributed  to the increase in
operating and maintenance expense of SEEBOARD U.S.A. In addition,  approximately
$16 million in new  transmission  access  expense was recorded at CPL and WTU in
the  second  quarter  of  1997  related  to FERC  Order  No.  888 and the  Texas
Commission  rules regarding  transmission  access and pricing.  A second quarter
1997 adjustment  related to the CPL 1997 Rate Order further increased  operating
and maintenance  expense by  approximately  $6 million,  $4 million of which was
decommissioning  expense.  Partially  offsetting  the increase in operating  and
maintenance  expense were reduced pension expense in 1997 resulting from changes
made to CSW's pension plan and the absence in 1997 of  restructuring  charges of
approximately  $8 million  recorded in the second  quarter of 1996.  See NOTE 8.
PENSION PLAN AMENDMENT for details  concerning  changes to CSW's pension plan. A
$4 million  decrease  in  maintenance  expense  in 1997,  due  primarily  to the
scheduled  refueling  outage  of  CPL's  STP  Unit  1 and  production  inventory
write-offs at the U.S.  Electric  Operating  Companies that occurred  during the
second  quarter of 1996,  also  partially  offset the increase in operating  and
maintenance expense.  Income tax expense decreased $29 million to $41 million in
the second quarter of 1997 due primarily to lower pre-tax income.

         CPL  recorded a $41 million  contingency  in the first  quarter of 1997
related to the CPL 1997 Rate Order issued by the Texas  Commission in Docket No.
14965.  In the second quarter of 1997, CPL  reclassified  most of the effects of
the contingency  recorded in the first quarter of 1997 to reflect the effects of
the CPL 1997 Rate Order and the Texas Commission's  hearings on June 20, 1997 in
its specific  accounts.  Approximately  $15 million remains as the Provision for
the CPL 1997 Rate Order, the final  classification  of which is pending approval
from the FERC.  See NOTE 6. CPL RATE  REVIEW - DOCKET NO.  14965 for  additional
information.

         Other income and  deductions  increased  $100 million to $11 million in
the second  quarter of 1997 as compared to the same period in 1996 due primarily
to the reserves for certain investments and contingencies recorded in the second
quarter of 1996 of approximately  $84 million,  after tax, at the U.S.  Electric
Operating  Companies and $18 million at CSW Energy.  Long-term  interest expense

<PAGE> 12

increased $3 million,  or 4%, in the second quarter of 1997 due primarily to the
addition in 1997 of interest  expense  resulting from a fourth quarter 1996 debt
issuance by CSW Energy.  Short-term  and other  interest  expense  decreased $13
million to $15 million in the second  quarter of 1997 when  compared to the same
period a year ago due  primarily to lower levels of short-term  borrowings.  New
distributions on Subsidiary obligated,  mandatorily redeemable,  trust preferred
securities  increased  interest  and other  charges  by $4 million in the second
quarter of 1997,  the  effect of which was  partially  offset by lower  dividend
requirements  resulting  from the  preferred  stock  reacquisitions  at the U.S.
Electric  Operating  Companies.  See NOTE 7. LONG-TERM  FINANCING for additional
information on the new securities.


COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

         Net income for common stock  decreased to $108 million in the first six
months of 1997 from $180  million in the same  period of 1996 due  primarily  to
lower  sales  resulting  from mild  weather in the second  quarter of 1997,  the
effect of the CPL 1997 Rate  Order that  decreased  earnings  approximately  $37
million and the impact of CSW's final  settlement of litigation  with El Paso of
approximately $23 million,  after tax.  Partially  offsetting the lower earnings
was the gain of approximately  $10 million on the  reacquisition of a portion of
the U.S.  Electric  Operating  Companies'  preferred stock. See NOTE 6. CPL RATE
REVIEW - DOCKET NO. 14965 for  additional  information  relating to the CPL 1997
Rate Order and NOTE 2.  LITIGATION  AND  REGULATORY  PROCEEDINGS  for additional
information on CSW's litigation with El Paso.

         In  addition,  several  items that  occurred in the first six months of
1996 were not present in the comparable  period in 1997. In the first six months
of 1996, CSW recognized $12 million of earnings from Transok's operations and an
after-tax gain of  approximately  $113 million on the sale of Transok.  However,
the U.S.  Electric  Operating  Companies  and CSW Energy  recorded  reserves and
write-offs   totaling  $102  million  after-tax  for  certain   investments  and
contingencies  in 1996 to  offset  most of the  gain.  See NOTE 9.  DISCONTINUED
OPERATIONS for details concerning Transok operations.

         In the first six months of 1997, the U.S. Electric Operating Companies
and SEEBOARD U.S.A. contributed the following percentages to CSW's results of 
operations.
                                                            Corporate
                              U.S.     SEEBOARD    Total    Items and
                            Electric    U.S.A.    Electric    Other        Total
                            ----------------------------------------------------

Operating Revenues           62%         37%         99%         1%         100%
Operating Income             73%         31%         104%       (4)%        100%
Net Income for CSW Common    99%         37%         136%      (36)%        100%

         U.S. Electric revenues decreased  approximately $19 million,  or 1%, in
the  first  six  months  of 1997  compared  to the  same  period  a year ago due
primarily to mild weather in the second  quarter of 1997 that caused retail base
revenues to decline by  approximately  $42  million.  Also  contributing  to the
decline in  revenues  was a  decrease  in fuel  revenues  of  approximately  $21
million,  as it relates to fuel expense  discussed below.  Partially  offsetting
these decreases in U.S. Electric  revenues was new transmission  access revenues
at CPL and WTU of  approximately  $33 million  related to FERC Order No. 888 and
the Texas  Commission's  rule  regarding  transmission  access and pricing,  the
effect  of which  was  almost  entirely  offset  by a  corresponding  amount  of
transmission  expense and the absence in 1997 of the provision for refund at CPL
related to the CPL 1996 Fuel  Agreement.  United Kingdom  revenues  decreased $8
million to $923 million in the first half of 1997  compared to the first half of
1996 due primarily to a reduction in the fossil fuel levy collected on behalf of

<PAGE> 13

the United  Kingdom  government  and the adverse effect of mild weather on sales
volume in the first half of 1997, partially offset by the effect of the exchange
rate movement between the British pound and the U.S. dollar.  Other  diversified
revenues increased $7 million,  or 29%, in the first six months of 1997 compared
to the first six months of 1996 due  primarily  to increased  revenues  from CSW
Energy, CSW International, CSW Communications and EnerShop.

         U.S. Electric fuel expense decreased $16 million to $522 million in the
first  half of 1997  compared  to the  same  period  last  year due in part to a
decrease in fuel costs to $1.76 per MMbtu from $1.82 per MMbtu.  The decrease in
fuel  expense is partially  attributable  to lower cost coal and a change in the
fuel mix of  generation  in favor of lower cost coal.  Mild weather in the first
half of 1997 lead to a 4% reduction in generation  which  decreased fuel expense
as well.  Partially  offsetting  these  decreases  was the  absence in 1997 of a
one-time  reduction  to fuel  expense of  approximately  $9 million in the first
quarter  of 1996  related  to the  CPL  1996  Fuel  Agreement.  Purchased  power
increased  $3  million,  or 8%,  in the  first  half of 1997  due  primarily  to
increased economy energy purchases and other first quarter 1997 purchases at CPL
which resulted from a scheduled  nuclear refueling at STP Unit 2 and an overhaul
of a  coal-fired  generating  plant.  United  Kingdom  cost of  sales  decreased
approximately  $36 million to $651 million in the first half of 1997 compared to
the same period a year ago due  primarily to a reduction in the fossil fuel levy
collected on behalf of the United  Kingdom  government and the adverse effect of
mild weather on sales volume in the first half of 1997,  partially offset by the
effect of the  exchange  rate  movement  between the British  pound and the U.S.
dollar.

         Operating and maintenance expense increased $77 million to $515 million
in the first half of 1997  compared  to the same period last year due in part to
the absence in 1997 of a $27 million pension  adjustment  recorded in the second
quarter of 1996 at SEEBOARD.  The effect of the exchange rate  movement  between
the British pound and U.S. dollar also  contributed to the increase in operating
and  maintenance  expense of SEEBOARD  U.S.A.  In  addition,  approximately  $31
million in new  transmission  access  expense was recorded at CPL and WTU in the
first six months of 1997 related to FERC Order No. 888 and the Texas  Commission
rules regarding  transmission  access and pricing. An adjustment recorded in the
second  quarter of 1997  related to the CPL 1997 Rate  Order  further  increased
operating and maintenance  expense by  approximately  $6 million,  $4 million of
which was  decommissioning  expense.  Additional  charges  recorded in the first
quarter of 1997  related to CSW's 1996  restructuring  also  contributed  to the
increase. Partially offsetting the increase in operating and maintenance expense
were  reduced  pension  expense in 1997  resulting  from  changes  made to CSW's
pension plan and the absence in 1997 of  restructuring  charges of approximately
$8 million  recorded in the second  quarter of 1996.  See NOTE 8.  PENSION  PLAN
AMENDMENT  for details  concerning  changes to CSW's  pension plan. A $3 million
decrease in maintenance expense, due primarily to the scheduled refueling outage
of CPL's  STP Unit 1 and the  write-down  of  production  inventory  at the U.S.
Electric  Operating  Companies in 1996,  also  partially  offset the increase in
operating and maintenance  expense.  Income tax expense decreased $46 million to
$52  million  in the first six  months of 1997 due  primarily  to lower  pre-tax
income.

         CPL  recorded a $41 million  contingency  in the first  quarter of 1997
related to the CPL 1997 Rate Order issued by the Texas  Commission in Docket No.
14965.  In the second quarter of 1997, CPL  reclassified  most of the effects of
the reserve  contingency  in the first quarter of 1997 to reflect the effects of
the CPL 1997 Rate Order and the Texas Commission's  hearings on June 20, 1997 in
its specific  accounts.  Approximately  $15 million remains as the Provision for
the CPL 1997 Rate Order, the final  classification  of which is pending approval
from the FERC.  See NOTE 6. CPL RATE  REVIEW - DOCKET NO.  14965 for  additional
information.

         Other income and deductions increased $94 million to $15 million in the
first six months of 1997 as compared to the same period in 1996 due primarily to
the reserves for certain  investments and  contingencies  recorded in the second

<PAGE> 14

quarter of 1996 of approximately  $84 million,  after tax, at the U.S.  Electric
Operating  Companies and $18 million at CSW Energy.  Long-term  interest expense
increased  $7  million,  or 4%, in the first half of 1997 due  primarily  to the
addition in 1997 of interest  expense  resulting from a fourth quarter 1996 debt
issuance by CSW Energy.  Short-term  and other  interest  expense  decreased $20
million to $35 million in the first six months of 1997 when compared to the same
period a year ago due  primarily to lower levels of short-term  borrowings.  New
distributions on Subsidiary obligated,  mandatorily redeemable,  trust preferred
securities  increased  interest and other charges by $4 million in the first six
months  of 1997,  the  effect of which was  partially  offset by lower  dividend
requirements  resulting  from the  preferred  stock  reacquisitions  at the U.S.
Electric  Operating  Companies.  See NOTE 7. LONG-TERM  FINANCING for additional
information on the new securities.






<PAGE> 15


CPL


                         CENTRAL POWER AND LIGHT COMPANY




                         PART I. FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.



<PAGE> 16
                         CENTRAL POWER AND LIGHT COMPANY

                              STATEMENTS OF INCOME
                                   (unaudited)

<TABLE>
<CAPTION>

                                           Three Months Ended      Six Months Ended
                                                June 30,                June 30,
                                         ---------------------   ---------------------
                                            1997        1996        1997        1996
                                         ---------   ---------   ---------   ---------
                                               (thousands)            (thousands)
<S>                                      <C>         <C>         <C>         <C>
ELECTRIC OPERATING REVENUES               $301,121    $362,065    $615,782    $615,453

OPERATING EXPENSES AND TAXES
  Fuel                                      83,936      90,478     162,196     154,495
  Purchased power                           10,550      16,865      28,151      29,300
  Other operating                           70,153      59,242     145,924     109,762
  Provision for CPL 1997 Rate Order        (25,885)       --        15,038        --
  Maintenance                               14,450      18,766      29,433      29,110
  Depreciation and amortization             39,534      42,542      77,907      82,137
  Taxes, other than income                  19,671      20,987      40,928      39,341
  Income taxes                              23,482      33,033      20,771      43,031
                                         ---------   ---------   ---------   ---------
                                           235,891     281,913     520,348     487,176
                                         ---------   ---------   ---------   ---------

OPERATING INCOME                            65,230      80,152      95,434     128,277
                                         ---------   ---------   ---------   ---------

OTHER INCOME AND DEDUCTIONS
  Reserve for utility plant
    development costs, net of tax
    benefit of $779 for 1997 and
    $5,893 for 1996                           --       (15,481)     (1,282)    (15,481)
  Allowance equity for funds used
    during construction                        288        --           773        --
  Other                                      1,788       1,462       2,784       3,210
                                         ---------   ---------   ---------   ---------
                                             2,076     (14,019)      2,275     (12,271)
                                         ---------   ---------   ---------   ---------

INCOME BEFORE INTEREST CHARGES              67,306      66,133      97,709     116,006
                                         ---------   ---------   ---------   ---------

INTEREST AND OTHER CHARGES
  Interest on long-term debt                27,143      27,396      54,118      54,665
  Interest on short-term debt and other      1,083       4,467       8,211      11,130
  Distributions on CPL obligated,
    mandatorily redeemable, trust
    preferred securities                     1,548        --         1,548        --
  Allowance for borrowed funds used
    during construction                       (633)       (537)     (1,126)     (1,216)
                                         ---------   ---------   ---------   ---------
                                            29,141      31,326      62,751      64,579
                                         ---------   ---------   ---------   ---------

NET INCOME                                  38,165      34,807      34,958      51,427

  Less:  Preferred stock dividends           2,177       3,360       5,610       6,797
  Gain on reacquired preferred stock         2,706        --         2,706        --
                                         ---------   ---------   ---------   ---------

NET INCOME FOR COMMON STOCK                $38,694     $31,447     $32,054     $44,630
                                         =========   =========   =========   =========



                The accompanying notes to financial statements as
          they relate to CPL are an integral part of these statements.
</TABLE>
<PAGE> 17
                         CENTRAL POWER AND LIGHT COMPANY

                                 BALANCE SHEETS

                                                       June 30,    December 31,
                                                        1997          1996
                                                     (unaudited)    (audited)
                                                     ----------    ----------
ASSETS                                                      (thousands)

 ELECTRIC UTILITY PLANT
     Production                                      $3,109,521    $3,102,929
     Transmission                                       509,110       505,801
     Distribution                                       983,821       956,928
     General                                            281,266       271,347
     Construction work in progress                       84,201        95,336
     Nuclear fuel                                       193,199       184,229
                                                     ----------    ----------
                                                      5,161,118     5,116,570

  Less - Accumulated depreciation and amortization    1,759,539     1,697,552
                                                     ----------    ----------
                                                      3,401,579     3,419,018
                                                     ----------    ----------

CURRENT ASSETS
     Cash and temporary cash investments                 25,884         3,299
     Advances to affiliates                              51,826          --
     Accounts receivable                                 93,927        53,038
     Materials and supplies, at average cost             72,607        75,732
     Fuel inventory                                      11,008        15,461
     Under-recovered fuel costs                          31,580        26,298
     Prepayments and other                                6,343         4,484
                                                     ----------    ----------
                                                        293,175       178,312
                                                     ----------    ----------

DEFERRED CHARGES AND OTHER ASSETS
     Deferred STP costs                                 485,677       486,978
     Mirror CWIP asset                                  292,422       298,708
     Income tax related regulatory assets, net          329,182       335,226
     Other                                              101,579       110,021
                                                     ----------    ----------
                                                      1,208,860     1,230,933
                                                     ----------    ----------

                                                     $4,903,614    $4,828,263
                                                     ==========    ==========











                The accompanying notes to financial statements as
          they relate to CPL are an integral part of these statements.
<PAGE> 18
                         CENTRAL POWER AND LIGHT COMPANY

                                 BALANCE SHEETS

                                                      June 30,     December 31,
                                                        1997          1996
                                                    (unaudited)     (audited)
                                                     ----------    ----------
CAPITALIZATION AND LIABILITIES                             (thousands)

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                                   854,986       868,932
                                                     ----------    ----------
                                                      1,428,874     1,442,820

     Preferred stock                                    163,204       250,351
     CPL obligated, mandatorily redeemable,
       trust preferred securities                       144,861          --
     Long-term debt                                   1,326,917     1,323,054
                                                     ----------    ----------
                                                      3,063,856     3,016,225
                                                     ----------    ----------

CURRENT LIABILITIES
     Long-term debt due within twelve months            200,000       200,000
     Advances from affiliates                              --          52,525
     Payables to affiliates                              23,465        23,995
     Accounts payable                                    82,812        45,946
     Accrued taxes                                       66,764        64,207
     Accrued interest                                    30,701        31,566
     Refund due customers                                98,951        43,266
     Provision for CPL 1997 Rate Order                   15,038          --
     Accumulated deferred income taxes                    9,322         7,310
     Other                                               16,420        19,048
                                                     ----------    ----------
                                                        543,473       487,863
                                                     ----------    ----------

DEFERRED CREDITS
     Accumulated deferred income taxes                1,136,592     1,162,051
     Investment tax credits                             144,296       147,191
     Other                                               15,397        14,933
                                                     ----------    ----------
                                                      1,296,285     1,324,175
                                                     ----------    ----------

                                                     $4,903,614    $4,828,263
                                                     ==========    ==========







                The accompanying notes to financial statements as
          they relate to CPL are an integral part of these statements.
<PAGE> 19
                         CENTRAL POWER AND LIGHT COMPANY

                            STATEMENTS OF CASH FLOWS
                                   (unaudited)
                                                         Six Months Ended
                                                             June 30,
                                                     -----------------------
                                                        1997          1996
                                                     ---------     ---------
OPERATING ACTIVITIES                                        (thousands)
     Net Income                                        $34,958       $51,427
     Non-cash Items Included in Net Income
         Depreciation and amortization                  89,050        93,333
         Deferred income taxes and
           investment tax credits                      (20,298)        3,981
         Establishment of regulatory assets               --           6,682
         Provision for CPL 1997 Rate Order              15,038          --
         Utility plant development costs                 2,061        21,374
         Inventory reserve                                --             487
     Changes in Assets and Liabilities
         Accounts receivable                           (40,889)       (8,036)
         Fuel inventory                                  4,453         7,016
         Accounts payable                               36,022        25,852
         Accrued taxes                                   2,557         8,020
         Fuel recovery                                  (5,282)      (17,009)
         Refund due customers                           55,685        22,977
     Other                                              12,067       (26,597)
                                                     ---------     ---------
                                                       185,422       189,507
                                                     ---------     ---------

INVESTING ACTIVITIES
     Construction expenditures                         (73,603)      (45,845)
     Other                                               9,239          (344)
                                                     ---------     ---------
                                                       (64,364)      (46,189)
                                                     ---------     ---------

FINANCING ACTIVITIES
     Reacquisition of long-term debt                      --            (231)
     Redemption of preferred stock                     (84,441)         --
     Proceeds from issuance of CPL
       obligated, mandatorily redeemable,
       trust preferred securities                      144,861          --
     Change in advances from affiliates                (52,525)      (86,327)
     Payment of dividends                              (54,501)      (56,925)
     Other                                                 (41)         (109)
                                                     ---------     ---------
                                                       (46,647)     (143,592)
                                                     ---------     ---------

NET CHANGE IN CASH AND CASH EQUIVALENTS                 74,411          (274)
CASH AND CASH EQUIVALENTS AT BEGINNING
  OF PERIOD                                              3,299         2,883
                                                     ---------     ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD             $77,710        $2,609
                                                     =========     =========

SUPPLEMENTARY INFORMATION
     Interest paid less amounts capitalized
       (includes distributions on trust
       preferred securities)                           $57,212       $60,137
                                                     =========     =========
     Income taxes paid                                 $25,912       $12,753
                                                     =========     =========


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


<PAGE> 20




CENTRAL POWER AND LIGHT COMPANY
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED JUNE 30, 1997 AND 1996

         Net income for common stock increased $7.2 million,  or 23%, from $31.4
million  during the second  quarter of 1996 to $38.7  million  during the second
quarter of 1997. This increase was due primarily to a $15.5 million, net of tax,
one-time charge associated with certain investments for plant sites, engineering
studies and  lignite  reserves  which was  recorded in 1996.  The  increase  was
partially  offset by a decrease  in non-fuel  revenues in the second  quarter of
1997 resulting from  decreased  weather-related  demand as well as the impact of
the CPL 1997 Rate Order which decreased earnings  approximately $12 million. See
NOTE 6. CPL RATE REVIEW DOCKET NO. 14965 for more information related to the CPL
1997 Rate Order.

         Total electric operating revenues decreased  approximately $61 million,
or 17%, in the second quarter of 1997 compared to the second quarter of 1996 due
primarily to the effects of recording a provision  for rate refund in the second
quarter  of  1997  as a  result  of the  reclassification  of a  portion  of the
provision  for CPL 1997  Rate  Order and the  resulting  recording  to  specific
accounts.  Also  contributing to the decrease was a 4.9% reduction in retail MWH
sales  resulting  from milder  weather.  Additionally,  fuel revenues  decreased
because of lower fuel costs,  as discussed  below.  Partially  offsetting  these
decreases  was an  increase in  transmission  revenues  of  approximately  $11.8
million as a result of the  implementation  of open access tariffs in accordance
with FERC Order No. 888 and the Texas  Commission  rules regarding  transmission
access  and  pricing,  the  effect  of which  was  almost  entirely  offset by a
corresponding increase in transmission expense.

         Fuel and purchased power expense  decreased $12.9 million in the second
quarter of 1997 to $94.5 million  compared to the second  quarter of 1996.  Fuel
expense  decreased  $6.5 million,  or 7%, in the second quarter of 1997 compared
with the second  quarter  of 1996  primarily  as a result of a  decrease  in the
average unit cost of fuel from $1.68 per MMbtu in the second  quarter of 1996 to
$1.56 per MMbtu in the second quarter of 1997. This decrease resulted  primarily
from lower spot market  prices for  natural gas and lower coal costs  during the
second quarter of 1997. Purchased power expense decreased 37% from $16.9 million
during the second quarter of 1996 to $10.6 million in the second quarter of 1997
due primarily to a lower volume of economy energy purchases.

         Other  operating  expense  increased 18% to $70.2 million in the second
quarter of 1997 when compared to the second  quarter of 1996 due primarily to an
approximate $11.5 million increase in transmission  expenses  resulting from the
implementation  of open access tariffs in accordance with FERC Order No. 888 and
the Texas Commission rules regarding transmission access and pricing, the effect
of which  was more than  offset  by a  corresponding  increase  in  transmission
revenue.  This increase was  partially  offset by decreased  property  insurance
expense  resulting  from an  insurance  refund and  decreased  employee  pension
expense.  Maintenance  expenses decreased to approximately  $14.5 million in the
second quarter of 1997 from approximately $18.8 million in the second quarter of
1996 due primarily to the scheduled refueling outage of STP Unit 1 that occurred
during the second quarter of 1996.

         CPL recorded a $40.9 million  contingency  in the first quarter of 1997
related to the CPL 1997 Rate Order issued by the Texas  Commission in Docket No.
14965.  In the second quarter of 1997, CPL  reclassified  most of the effects of

<PAGE> 21

the contingency recorded in the first quarter in order to reflect the effects of
the CPL 1997  Rate  Order  and the  hearings  on June 20,  1997 in its  specific
accounts.  Approximately  $15 million remains as the Provision for CPL 1997 Rate
Order, the final  classification of which is pending approval from the FERC. See
NOTE 6. CPL RATE REVIEW - DOCKET NO. 14965 for additional information.

         Depreciation  and  amortization  expenses  decreased  approximately  $3
million, or 7%, compared to the second quarter of 1996 due to the implementation
in 1997 of lower  depreciation rates in accordance with the CPL 1997 Rate Order.
Income taxes decreased approximately $9.6 million to $23.5 million in the second
quarter of 1997 compared with the second  quarter of 1996  resulting  from lower
pre-tax income in the second quarter of 1997 and prior year tax adjustments that
were recorded in the second  quarter of 1996,  which  resulted in an increase in
the 1996 income tax expense.

         Other income and  deductions  increased  $16.1 million due primarily to
the  one-time  charge  associated  with  certain  investments  for plant  sites,
engineering studies and lignite reserves of approximately $15.5 million,  net of
tax,  recorded in the second  quarter of 1996.  Interest on short-term  debt and
other decreased from $4.5 million in the second quarter of 1996 to approximately
$1.1  million in the second  quarter of 1997 due  primarily  to a true-up in the
accrual for interest associated with the provision for rate refund in Docket No.
14965 and a decrease in short-term borrowings from affiliates.


COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

         Net income for common stock decreased $12.6 million, or 28%, from $44.6
million  for the first six  months  of 1996 to $32.1  million  for the first six
months of 1997. The major reason for the decrease was the impact of the CPL 1997
Rate Order which decreased earnings approximately $37 million. This decrease was
partially offset by an increase in other income and deductions due to a one-time
charge associated with certain investments for plant sites,  engineering studies
and lignite reserves of approximately $15.5 million, net of tax, recorded in the
second  quarter of 1996. See NOTE 6. CPL RATE REVIEW - DOCKET NO. 14965 for more
information related to the CPL 1997 Rate Order.

         Total electric  operating revenues increased slightly for the first six
months of 1997  compared  to the first six  months of 1996.  There were two main
factors that contributed to the increase,  including an increase in transmission
revenues of  approximately  $23.6 million as a result of the  implementation  of
open  access  tariffs  in  accordance  with  FERC  Order  No.  888 and the Texas
Commission rules regarding  transmission access and pricing,  and the absence in
1997 of the provision for refund related to the CPL 1996 Fuel  Agreement.  These
increases in revenue were almost entirely offset by the effects of the recording
of a  provision  for rate  refund  of  approximately  $43  million  during  1997
associated  with Docket No.  14965.  The impact of the increase in  transmission
access  revenues  was almost  entirely  offset by a  corresponding  increase  in
transmission expense.

         Fuel and purchased power expense increased  approximately  $6.6 million
in the first six months of 1997  compared to the first six months of 1996.  Fuel
expense  increased  $7.7  million as a result of an increase in the average unit
cost of fuel from  $1.54 per MMbtu in the first six  months of 1996 to $1.66 per
MMbtu in the first six months of 1997.  This increase  resulted  primarily  from
higher spot market  prices for natural gas. Also  contributing  to this increase
was a one-time  $8.8 million  reduction  in fuel  expense  recorded in the first
quarter of 1996 in accordance with the CPL 1996 Fuel Agreement.  Purchased power
expense  decreased 4% from $29.3 million  during the first six months of 1996 to
$28.2 million in the first six months of 1997 due primarily to decreased economy
energy purchases.

<PAGE> 22

         Other  operating  expense  increased 33% to $145.9 million in the first
six months of 1997 due  primarily  to a $23  million  increase  in  transmission
operations  expenses as a result of the implementation of open access tariffs in
accordance  with FERC Order No.  888 and the Texas  Commission  rules  regarding
transmission  access and pricing,  the effect of which was more than offset by a
corresponding  increase in transmission  revenue; the write-off of approximately
$11 million in previously  deferred  rate case  expenses in accordance  with the
settlement  in principle of the rate case  expense  phase of CPL's  current rate
case; and additional expenses recorded in 1997 associated with the restructuring
that CSW undertook in 1996. These increases were offset in part by reductions in
pension expense and other employee related expenses.

         CPL recorded a $40.9 million  contingency  in the first quarter of 1997
related to the CPL 1997 Rate Order issued by the Texas  Commission in Docket No.
14965.  In the second quarter of 1997, CPL  reclassified  most of the effects of
the contingency recorded in the first quarter in order to reflect the effects of
the CPL 1997  Rate  Order  and the  hearings  on June 20,  1997 in its  specific
accounts.  Approximately  $15 million remains as the Provision for CPL 1997 Rate
Order, the final  classification of which is pending approval from the FERC. See
NOTE 6. CPL RATE REVIEW - DOCKET NO. 14965 for additional information.

         Depreciation and amortization  expenses  decreased  approximately  $4.2
million  compared to the first six months of 1996 due to the  implementation  in
1997 of lower depreciation rates in accordance with the CPL Rate Review.  Income
taxes  decreased  approximately  $22.3  million  in the first six months of 1997
compared with the first six months of 1996  resulting  primarily from the income
tax effect of the CPL 1997 Rate Order.

         Other income and deductions  increased  approximately  $14.5 million to
$2.3  million due  primarily  to the  one-time  charge  associated  with certain
investments  for plant  sites,  engineering  studies  and  lignite  reserves  of
approximately $15.5 million, net of tax, recorded in the second quarter of 1996.
Interest on short-term  debt and other decreased from $11.1 million in the first
six months of 1996 to approximately $8.2 million in the first six months of 1997
due  primarily  to the  recording  of a  true-up  in the  accrual  for  interest
associated with the provision for rate refund in Docket No. 14965 and a decrease
in short-term borrowings from affiliates.


<PAGE> 23




PSO



                       PUBLIC SERVICE COMPANY OF OKLAHOMA




                         PART I. FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.


<PAGE> 24
                       PUBLIC SERVICE COMPANY OF OKLAHOMA

                        CONSOLIDATED STATEMENTS OF INCOME
                                   (unaudited)


                                      Three Months Ended      Six Months Ended
                                            June 30,              June 30,
                                     --------------------  --------------------
                                        1997       1996       1997       1996
                                     ---------  ---------  ---------  ---------
                                          (thousands)          (thousands)

ELECTRIC OPERATING REVENUES           $166,692   $181,586   $321,857   $329,006

OPERATING EXPENSES AND TAXES
  Fuel                                  58,949     68,695    121,808    131,244
  Purchased power                       12,515      9,776     24,440     18,439
  Other operating                       30,363     29,442     58,075     57,522
  Maintenance                            9,420     11,512     15,356     17,710
  Depreciation and amortization         20,034     19,400     39,817     38,431
  Taxes, other than income               7,104      6,633     14,404     13,409
  Income taxes                           6,696      9,778      9,668     11,896
                                     ---------  ---------  ---------  ---------
                                       145,081    155,236    283,568    288,651
                                     ---------  ---------  ---------  ---------

OPERATING INCOME                        21,611     26,350     38,289     40,355
                                     ---------  ---------  ---------  ---------

OTHER INCOME AND DEDUCTIONS
  Allowance for equity funds
    used during construction               167        (22)       257        (23)
  Reserve for utility plant
    development costs, net of
    tax benefit of $48 for 1997
    and $15,302 for 1996                  --      (35,552)       (75)   (35,552)
  Other                                    862        (21)       685        222
                                     ---------  ---------  ---------  ---------
                                         1,029    (35,595)       867    (35,353)
                                     ---------  ---------  ---------  ---------

INCOME BEFORE INTEREST CHARGES          22,640     (9,245)    39,156      5,002
                                     ---------  ---------  ---------  ---------

INTEREST AND OTHER CHARGES
  Interest on long-term debt             7,619      7,677     15,237     15,116
  Interest on short-term debt
    and other                            1,054      1,633      2,666      3,322
  Distributions on PSO obligated,
    mandatorily redeemable, trust
    preferred securities                   968       --          968       --
  Allowance for borrowed funds used
     during construction                  (443)      (340)      (920)      (699)
                                     ---------  ---------  ---------  ---------
                                         9,198      8,970     17,951     17,739
                                     ---------  ---------  ---------  ---------

NET INCOME (LOSS)                       13,442    (18,215)    21,205    (12,737)

  Less: Preferred stock dividends           53        204        257        408
  Gain on reacquired preferred stock     4,444       --        4,444       --
                                     ---------  ---------  ---------  ---------

NET INCOME (LOSS) FOR COMMON STOCK     $17,833   $(18,419)   $25,392   $(13,145)
                                     =========  =========  =========  =========



                The accompanying notes to consolidated financial
   statements as they relate to PSO are an integral part of these statements.
<PAGE> 25
                       PUBLIC SERVICE COMPANY OF OKLAHOMA

                           CONSOLIDATED BALANCE SHEETS


                                                      June 30,     December 31,
                                                        1997          1996
                                                    (unaudited)     (audited)
                                                     ----------    ----------
ASSETS                                                      (thousands)

 ELECTRIC UTILITY PLANT
     Production                                        $902,723      $902,813
     Transmission                                       372,046       368,280
     Distribution                                       799,840       773,590
     General                                            203,720       186,252
     Construction work in progress                       39,784        59,241
                                                     ----------    ----------
                                                      2,318,113     2,290,176

  Less - Accumulated depreciation and amortization    1,015,724       987,283
                                                     ----------    ----------
                                                      1,302,389     1,302,893
                                                     ----------    ----------

CURRENT ASSETS
     Cash and temporary cash investments                  5,293         1,479
     Advances to affiliates                               7,446          --
     Accounts receivable                                 24,952        11,069
     Materials and supplies, at average cost             33,976        34,542
     Fuel inventory                                      15,842        14,061
     Accumulated deferred income taxes                    6,192         2,558
     Prepayments and other                                4,143         2,991
                                                     ----------    ----------
                                                         97,844        66,700
                                                     ----------    ----------

DEFERRED CHARGES AND OTHER ASSETS                        64,958        62,004
                                                     ----------    ----------

                                                     $1,465,191    $1,431,597
                                                     ==========    ==========















                The accompanying notes to consolidated financial
   statements as they relate to PSO are an integral part of these statements.
<PAGE> 26
                       PUBLIC SERVICE COMPANY OF OKLAHOMA

                           CONSOLIDATED BALANCE SHEETS


                                                        June 30,   December 31,
                                                         1997         1996
                                                      (unaudited)   (audited)
                                                      ----------   ----------
CAPITALIZATION AND LIABILITIES                              (thousands)

CAPITALIZATION
     Common stock:  $15 par value
       Authorized shares: 11,000,000
       Issued shares:  10,482,000
       Outstanding shares: 9,013,000                    $157,230     $157,230
     Paid-in capital                                     180,000      180,000
     Retained earnings                                   155,335      145,943
                                                      ----------   ----------
                                                         492,565      483,173

     Preferred stock                                       5,292       19,826
     PSO obligated, mandatorily redeemable,
       trust preferred securities                         72,520         --
     Long-term debt                                      421,062      420,301
                                                      ----------   ----------
                                                         991,439      923,300
                                                      ----------   ----------

CURRENT LIABILITIES
     Advances from affiliates                               --         42,867
     Payables to affiliates                               23,985       27,425
     Accounts payable                                     43,427       47,604
     Payables to customers                                15,309       14,329
     Accrued taxes                                        26,500       12,306
     Accrued interest                                      8,742        9,193
     Other                                                 5,374        7,421
                                                      ----------   ----------
                                                         123,337      161,145
                                                      ----------   ----------

DEFERRED CREDITS
     Accumulated deferred income taxes                   254,030      251,007
     Investment tax credits                               42,046       43,438
     Income tax related regulatory liabilities, net       43,977       46,007
     Other                                                10,362        6,700
                                                      ----------   ----------
                                                         350,415      347,152
                                                      ----------   ----------

                                                      $1,465,191   $1,431,597
                                                      ==========   ==========






                The accompanying notes to consolidated financial
   statements as they relate to PSO are an integral part of these statements.
<PAGE> 27
                       PUBLIC SERVICE COMPANY OF OKLAHOMA

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
                                                        Six Months Ended
                                                            June 30,
                                                     ----------------------
                                                       1997          1996
                                                     --------      --------
OPERATING ACTIVITIES                                       (thousands)
     Net Income                                       $21,205      $(12,737)
     Non-cash Items Included in Net Income
         Depreciation and amortization                 42,756        41,419
         Deferred income taxes and
           investment tax credits                      (4,033)       (8,434)
         Utility plant development costs                  123        50,854
         Inventory reserve                               --           3,945
     Changes in Assets and Liabilities
         Accounts receivable                          (13,883)       (9,243)
         Accounts payable                              (7,340)      (10,498)
         Accrued taxes                                 14,194       (13,334)
      Other                                            (3,441)       (3,276)
                                                     --------      --------
                                                       49,581        38,696
                                                     --------      --------

INVESTING ACTIVITIES
     Construction expenditures                        (38,793)      (39,166)
     Other                                             (1,713)       (3,128)
                                                     --------      --------
                                                      (40,506)      (42,294)
                                                     --------      --------

FINANCING ACTIVITIES
     Proceeds from issuance of long-term debt            --          39,415
     Retirement of long-term debt                        --         (25,000)
     Reacquisition of preferred stock                 (10,090)         --
     Proceeds from issuance of PSO obligated,
       mandatorily redeemable, trust
       preferred securities                            72,520          --
     Change in advances from affiliates               (42,867)       (3,127)
     Payment of dividends                             (17,378)       (7,431)
                                                     --------      --------
                                                        2,185         3,857
                                                     --------      --------

NET CHANGE IN CASH AND CASH EQUIVALENTS                11,260           259
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD        1,479           744
                                                     --------      --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD            $12,739        $1,003
                                                     ========      ========

SUPPLEMENTARY INFORMATION
     Interest paid less amounts capitalized
       (includes distributions on trust
       preferred securities)                          $17,558       $16,493
                                                     ========      ========
     Income taxes paid                                 $8,788       $16,867
                                                     ========      ========






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

<PAGE> 28
PUBLIC SERVICE COMPANY OF OKLAHOMA
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED JUNE 30, 1997 AND 1996

         Net income for common stock  increased  $36.3 million during the second
quarter of 1997 to $17.8 million compared to an $18.4 million loss in the second
quarter of 1996. The increase resulted primarily from a 1996 one-time charge for
certain investments for plant sites, engineering studies and lignite reserves of
approximately $35.6 million, net of taxes.

         Electric  operating  revenues  were  $166.7  million  during the second
quarter of 1997, an 8% decrease from $181.6 million during the second quarter of
1996. The decrease was due primarily to a decline in residential  and commercial
MWH sales of 13% and 4%,  respectively,  resulting from mild weather conditions.
Additionally,  a  decrease  in  fuel  related  revenues  of $6.9  million  and a
provision  established for a rate refund contributed to the decreased  revenues.
See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for additional information.

         Fuel expense decreased $9.7 million,  or 14%, during the second quarter
of 1997  compared to the second  quarter of 1996 due  primarily to a decrease in
the average unit cost of fuel from $2.03 per MMbtu in the second quarter of 1996
to $1.85 per MMbtu for the same period in 1997.  The decline in the average unit
cost of fuel was due  primarily to utilizing  lower cost coal in place of higher
cost spot market natural gas. A decrease in generation attributable to lower MWH
sales also  contributed to this decrease.  Partially  offsetting the decrease in
fuel expense was a decline in  under-recovered  fuel costs in the second quarter
of 1997 compared to the same period in 1996.  Purchased power expenses increased
approximately  28% to $12.5  million  for the  second  quarter of 1997 from $9.8
million in the same period of 1996.  The increase was due primarily to increases
in the amount of economy energy purchased.

         Other  operating  expenses  were  relatively  stable  during the second
quarter of 1997  compared  to the second  quarter of 1996.  Maintenance  expense
decreased  18% to $9.4 million in the second  quarter of 1997 from $11.5 million
in the second  quarter of 1996  primarily as a result of the 1996  write-down of
production inventory partially offset by an increase in tree trimming expense in
1997. Depreciation and amortization expense increased 3% to $20.0 million in the
second  quarter  of 1997  from  $19.4  million  in the  second  quarter  of 1996
primarily as a result of an increase in depreciable  property.  Operating income
taxes were $6.7 million in the second  quarter of 1997  compared to $9.8 million
in the same period of 1996 due primarily to lower taxable income in 1997.

         Other  income  and  deductions  increased  $36.6  million in the second
quarter of 1997 compared to the same period in 1996 primarily as a result of the
1996  one-time  charge for  certain  investments  for plant  sites,  engineering
studies and lignite reserves of approximately $35.6 million, net of tax.


COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

         Net income for common  stock  increased  to $25.4  million in the first
half of 1997  from a loss of  $13.1  million  in the  first  half of  1996.  The
increase   resulted   primarily  from  the  1996  one-time  charge  for  certain
investments  for plant  sites,  engineering  studies  and  lignite  reserves  of
approximately $35.6 million, net of tax.

<PAGE> 29

         Electric  operating  revenues were $321.9 million during the first half
of 1997, a 2% decrease from $329.0  million  during the same period in 1996. The
decrease was due primarily to a decline in residential  and commercial MWH sales
of 7% and  2%,  respectively,  resulting  from  mild  weather.  Additionally,  a
decrease in fuel related  revenues of $2.3  million and a provision  established
for a  possible  rate  refund  contributed  to the lower  revenues.  See NOTE 2.
LITIGATION AND REGULATORY  PROCEEDINGS for additional information related to the
PSO rate review.

         Fuel  expense  decreased  $9.4  million  during  the first half of 1997
compared  to the first half of 1996 due  primarily  to a decrease in the average
unit  cost of fuel from  $2.06 per MMbtu in the first  half of 1996 to $1.90 per
MMbtu for the same period in 1997.  The decline in the average unit cost of fuel
was due  primarily  to  utilizing  lower cost coal in place of higher  cost spot
market  natural gas. A decrease in  generation  attributable  to lower MWH sales
also  contributed  to this  decrease.  Offsetting  the  decrease  in part was an
over-recovery  of  fuel  costs  in  the  first  half  of  1997  compared  to  an
under-recovery of fuel costs in the first half of 1996. Purchased power expenses
increased  approximately  33% to $24.4  million for the first six months of 1997
from $18.4 million in the same period of 1996. The increase was due primarily to
increases in the amount of economy energy purchased.

         Other operating  expenses were  relatively  stable during the first six
months of 1997 compared to the first half of 1996. Maintenance expense decreased
13% to $15.4  million in the first six months of 1997 from $17.7  million in the
first  six  months  of 1996  primarily  as a result  of the 1996  write-down  of
production  inventory.  Depreciation  and amortization  expense  increased 4% to
$39.8  million  in the first  half of 1997 from  $38.4  million in the first six
months of 1996 as a result of an increase in depreciable property.  Taxes, other
than income were $14.4  million in 1997, a 7% increase from $13.4 million in the
first half of 1996.  This  increase was due primarily to higher ad valorem taxes
in the first six months of 1997. Operating income taxes were $9.7 million in the
first half of 1997  compared  to $11.9  million  in the same  period of 1996 due
primarily to higher taxable income in 1996.

         Other income and  deductions  increased  $36.2 million in the first six
months of 1997  compared to the same period in 1996  primarily  as a result of a
1996  one-time  charge for  certain  investments  for plant  sites,  engineering
studies and lignite reserves of approximately $35.6 million, net of tax.



<PAGE> 30





SWEPCO


                       SOUTHWESTERN ELECTRIC POWER COMPANY




                         PART I. FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.



<PAGE> 31
                       SOUTHWESTERN ELECTRIC POWER COMPANY

                              STATEMENTS OF INCOME
                                   (unaudited)

<TABLE>
<CAPTION>

                                         Three Months Ended     Six Months Ended
                                               June 30,             June 30,
                                        --------------------  --------------------
                                           1997       1996       1997       1996
                                        ---------  ---------  ---------  ---------
                                             (thousands)           (thousands)
<S>                                     <C>        <C>        <C>        <C>
ELECTRIC OPERATING REVENUES              $227,327   $236,563   $430,607   $437,444

OPERATING EXPENSES AND TAXES
  Fuel                                     90,987     95,606    178,583    184,918
  Purchased power                           5,309     10,764     10,440     16,098
  Other operating                          33,208     31,579     65,756     63,473
  Maintenance                              12,399     11,932     21,439     21,038
  Depreciation and amortization            23,604     22,698     47,028     44,939
  Taxes, other than income                 12,698     11,501     26,093     23,412
  Income taxes                             10,765     12,462     16,837     17,196
                                        ---------  ---------  ---------  ---------
                                          188,970    196,542    366,176    371,074
                                        ---------  ---------  ---------  ---------

OPERATING INCOME                           38,357     40,021     64,431     66,370
                                        ---------  ---------  ---------  ---------

OTHER INCOME AND DEDUCTIONS
  Reserve for utility plant
    development costs, net of
    tax benefit of $260 for
    1997 and $7,847 for 1996                 --      (21,743)      (483)   (21,743)
  Allowance for equity funds
    used during construction                  176          2        176        326
  Other                                       678        163        864        925
                                        ---------  ---------  ---------  ---------
                                              854    (21,578)       557    (20,492)
                                        ---------  ---------  ---------  ---------

INCOME BEFORE INTEREST CHARGES             39,211     18,443     64,988     45,878
                                        ---------  ---------  ---------  ---------

INTEREST AND OTHER CHARGES
  Interest on long-term debt               10,278     10,995     20,820     21,995
  Distributions on SWEPCO obligated,
    mandatorily redeemable, trust
    preferred securities                    1,398       --        1,398       --
  Interest on short-term debt and other     1,479      2,534      3,591      4,957
  Allowance for borrowed funds used
     during construction                     (343)      (471)      (742)    (1,226)
                                        ---------  ---------  ---------  ---------
                                           12,812     13,058     25,067     25,726
                                        ---------  ---------  ---------  ---------

NET INCOME                                 26,399      5,385     39,921     20,152

  Less: Preferred stock dividends             575        758      1,333      1,537
  Gain on reacquired preferred stock        2,180       --        2,180       --
                                        ---------  ---------  ---------  ---------

NET INCOME FOR COMMON STOCK               $28,004     $4,627    $40,768    $18,615
                                        =========  =========  =========  =========





                 The accompanying notes to financial statements
       as they relate to SWEPCO are an integral part of these statements.
</TABLE>
<PAGE> 32
                       SOUTHWESTERN ELECTRIC POWER COMPANY

                                 BALANCE SHEETS


                                                      June 30,     December 31,
                                                        1997          1996
                                                    (unaudited)     (audited)
                                                     ----------    ----------
ASSETS                                                      (thousands)

 ELECTRIC UTILITY PLANT
     Production                                      $1,370,027    $1,407,134
     Transmission                                       466,503       463,425
     Distribution                                       848,496       844,503
     General                                            309,775       283,878
     Construction work in progress                       45,412        45,374
                                                     ----------    ----------
                                                      3,040,213     3,044,314

  Less - Accumulated depreciation                     1,189,058     1,192,356
                                                     ----------    ----------
                                                      1,851,155     1,851,958
                                                     ----------    ----------

CURRENT ASSETS
     Cash and temporary cash investments                  5,240         1,879
     Advances to affiliates                               5,472          --
     Accounts receivable                                 55,986        68,140
     Materials and supplies, at average cost             27,832        29,265
     Fuel inventory                                      41,256        55,775
     Under-recovered fuel costs                          12,236         9,120
     Prepayments and other                               14,408        13,499
                                                     ----------    ----------
                                                        162,430       177,678
                                                     ----------    ----------

DEFERRED CHARGES AND OTHER ASSETS                        75,055        69,520
                                                     ----------    ----------

                                                     $2,088,640    $2,099,156
                                                     ==========    ==========
















                The accompanying notes to financial statements as
         they relate to SWEPCO are an integral part of these statements.
<PAGE> 33
                       SOUTHWESTERN ELECTRIC POWER COMPANY

                                 BALANCE SHEETS


                                                       June 30,    December 31,
                                                        1997          1996
                                                     (unaudited)    (audited)
                                                     ----------    ----------
CAPITALIZATION AND LIABILITIES                              (thousands)

CAPITALIZATION
     Common stock:  $18 par value
        Authorized shares: 7,600,000
        Issued and outstanding shares: 7,536,640       $135,660      $135,660
     Paid-in capital                                    245,000       245,000
     Retained earnings                                  334,569       321,801
                                                     ----------    ----------
                                                        715,229       702,461
     Preferred stock
        Not subject to mandatory redemption               4,710        16,032
        Subject to mandatory redemption                  28,306        32,464
     SWEPCO obligated, mandatorily redeemable,
       trust preferred securities                       106,393          --
     Long-term debt                                     547,523       597,151
                                                     ----------    ----------
                                                      1,402,161     1,348,108
                                                     ----------    ----------

CURRENT LIABILITIES
     Long-term debt and preferred stock due
       within twelve months                               3,679         3,760
     Advances from affiliates                              --          57,495
     Accounts payable                                    57,664        48,826
     Payable to affiliates                               61,908        68,708
     Customer deposits                                   11,006        10,497
     Accrued taxes                                       33,417        25,241
     Accumulated deferred income taxes                    5,312         4,162
     Accrued interest                                    13,597        14,782
     Other                                               12,027        27,449
                                                     ----------    ----------
                                                        198,610       260,920
                                                     ----------    ----------

DEFERRED CREDITS
     Accumulated deferred income taxes                  376,443       372,552
     Investment tax credits                              69,176        71,507
     Income tax related regulatory
       liabilities, net                                  32,967        36,106
     Other                                                9,283         9,963
                                                     ----------    ----------
                                                        487,869       490,128
                                                     ----------    ----------

                                                     $2,088,640    $2,099,156
                                                     ==========    ==========




                The accompanying notes to financial statements as
         they relate to SWEPCO are an integral part of these statements.
<PAGE> 34
                       SOUTHWESTERN ELECTRIC POWER COMPANY

                            STATEMENTS OF CASH FLOWS
                                   (unaudited)
                                                         Six Months Ended
                                                             June 30,
                                                     ----------------------
                                                        1997         1996
                                                     ---------     --------
OPERATING ACTIVITIES                                       (thousands)
     Net Income                                        $39,921      $20,152
     Non-cash Items Included in Net Income
         Depreciation and amortization                  49,272       50,074
         Deferred income taxes and investment
           tax credits                                    (429)      (2,526)
         Utility plant development costs                   743       29,590
         Inventory reserve                                --          1,130
     Changes in Assets and Liabilities
         Accounts receivable                            12,154      (19,617)
         Fuel inventory                                 14,519       (5,381)
         Deferred charges and other assets              (5,535)     (10,772)
         Accounts payable                                9,320       15,407
         Payable to affiliates                          (6,800)      14,772
         Accrued taxes                                   8,176        2,082
         Accrued interest                               (1,185)      (1,052)
         Fuel recovery                                  (3,116)     (18,396)
    Other                                              (13,706)       1,668
                                                     ---------     --------
                                                       103,334       77,131
                                                     ---------     --------

INVESTING ACTIVITIES
     Construction expenditures                         (48,708)     (44,663)
     Other                                              (2,125)      (4,059)
                                                     ---------     --------
                                                       (50,833)     (48,722)
                                                     ---------     --------

FINANCING ACTIVITIES
     Retirement of long-term debt                      (51,200)      (1,839)
     Redemption of preferred stock                     (13,300)      (1,200)
     Proceeds from issuance of SWEPCO
       obligated, mandatorily redeemable,
       trust preferred securities                      106,393         --
     Change in advances from affiliates                (57,495)     (14,572)
     Payment of dividends                              (28,066)     (10,834)
                                                     ---------     --------
                                                       (43,668)     (28,445)
                                                     ---------     --------

NET CHANGE IN CASH AND CASH EQUIVALENTS                  8,833          (36)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD         1,879        1,702
                                                     ---------     --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD             $10,712       $1,666
                                                     =========     ========

SUPPLEMENTARY INFORMATION
     Interest paid less amounts capitalized
       (includes distributions on trust
       preferred securities)                           $25,645      $25,610
                                                     =========     ========
     Income taxes paid                                 $12,441      $13,950
                                                     =========     ========



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

<PAGE> 35
SOUTHWESTERN ELECTRIC POWER COMPANY
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED JUNE 30, 1997 AND 1996

         Net income for common stock  increased  $23.4  million to $28.0 million
during the second quarter of 1997 from $4.6 million during the second quarter of
1996. The increase  resulted  primarily from a 1996 one-time  charge  associated
with  certain  investments  for plant  sites,  engineering  studies  and lignite
reserves  of  approximately  $21.7  million,   net  of  tax,  and  the  gain  on
reacquisition  of  preferred  stock of $2.2 million  recorded  during the second
quarter of 1997.

         Electric  operating  revenues  decreased $9.2 million to $227.3 million
during the second  quarter of 1997 from $236.6 million during the second quarter
of 1996. The decrease was  attributable to a decrease in retail non-fuel revenue
of $5.4  million as a result of a 6% decrease in retail MWH sales due to reduced
weather-related demand and a $8.3 million decrease in fuel revenue. The decrease
was offset in part by an increase in non-fuel wholesale sales of $4.5 million.

         Fuel and  purchased  power expense  decreased in the second  quarter of
1997  compared  to the  second  quarter of 1996.  Fuel  expense  decreased  $4.6
million,  or 5%, due  primarily  to a decrease  in average  unit fuel costs from
$1.86  per MMbtu in 1996 to $1.70 per  MMbtu in 1997.  Average  unit fuel  costs
decreased due to a decline in the delivered  cost of coal  resulting  from lower
transportation  charges as well as purchases of lower priced spot market coal. A
decrease in natural gas  generation  because of its  relative  higher  costs per
MMbtu also  contributed  to the lower fuel expense  during the second quarter of
1997.  Purchased power expenses  decreased $5.5 million in the second quarter of
1997 compared to the second quarter of 1996 as a result of a decrease in economy
energy purchases.

         Other operating expenses  increased $1.6 million,  or 5%, in the second
quarter  of  1997  compared  to the  same  period  of  1996.  The  increase  was
attributable  to  higher  open  access  transmission   expenses,   higher  steam
generation   production   expenses,   increased  customer  assistance  expenses,
increased  outside services  expenses and increased  employee related  expenses,
offset in part by decreased pension expenses. Taxes, other than income increased
$1.2  million,  or 10%, as a result of increased ad valorem  taxes due to higher
assessed  values.  Income taxes  decreased  $1.7 million due  primarily to lower
taxable income.

         Other  income and  deductions  increased  $22.4  million for the second
quarter of 1997  compared to the same period of 1996 due primarily to a one-time
charge associated with certain investments for plant sites,  engineering studies
and lignite reserves of  approximately  $21.7 million,  net of tax,  recorded in
1996.


COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

         Net income for common stock  increased  $22.2  million to $40.8 million
for the six months  ended June 30, 1997  compared to $18.6  million for the same
period of 1996.  The increase  resulted  primarily  from a 1996 one-time  charge
associated  with certain  investments for plant sites,  engineering  studies and
lignite  reserves of  approximately  $21.7 million,  net of tax, and the gain on
reacquisition  of  preferred  stock of $2.2 million  recorded  during the second
quarter of 1997.

<PAGE> 36

         Electric  operating  revenues  decreased $6.8 million to $430.6 million
during the six months  ended June 30, 1997 from $437.4  million  during the same
period in 1996. The decrease was due primarily to a decrease in retail  non-fuel
revenue of $1.9 million,  which  resulted from a 4% decrease in retail MWH sales
due to less weather-related demand and a $10.5 million decrease in fuel revenue.
The decrease in electric operating revenues was offset in part by an increase in
non-fuel wholesale sales of $5.6 million.

         Fuel and  purchased  power  expense  decreased for the six months ended
June 30, 1997 compared to the same period of 1996.  Fuel expense  decreased $6.3
million,  or 3%, due  primarily  to a decrease  in average  unit fuel costs from
$1.85 per MMbtu in 1996 to $1.69 per MMbtu in 1997 which resulted from a decline
in the delivered  cost of coal resulting  from lower  transportation  charges as
well as  purchases  of lower  priced spot market coal. A decrease in natural gas
generation  because of its relative  higher costs per MMbtu also  contributed to
the lower fuel  expense  during the six months  ended June 30,  1997.  Purchased
power expenses decreased $5.7 million,  or 35%, in the six months ended June 30,
1997  compared  to the same  period in 1996 as a result of a decrease in economy
energy purchases.

         Other  operating  expenses  increased $2.3 million to $65.8 million for
the six months  ended June 30, 1997  compared  to the same  period in 1996.  The
increase was  attributable to increased  transmission  access  expenses,  higher
steam generation production expenses and increased customer assistance expenses,
offset in part by decreased  pension  expenses.  Depreciation  and  amortization
expenses increased $2.1 million,  or 5%, due primarily to increased  depreciable
plant.  Taxes,  other than income  increased  $2.7 million to $26.1 million as a
result of increased ad valorem taxes due to higher assessed values.

         Other  income and  deductions  increased  $21 million for the six month
period ended June 30, 1997  compared to the same period of 1996 due primarily to
a  one-time  charge  associated  with  certain   investments  for  plant  sites,
engineering studies and lignite reserves of approximately $21.7 million,  net of
tax, recorded during the second quarter of 1996.



<PAGE> 37



WTU



                          WEST TEXAS UTILITIES COMPANY




                         PART I. FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.




<PAGE> 38
                          WEST TEXAS UTILITIES COMPANY

                              STATEMENTS OF INCOME
                                   (unaudited)
<TABLE>
<CAPTION>


                                        Three Months Ended     Six Months Ended
                                             June 30,              June 30,
                                        -------------------  --------------------
                                          1997       1996       1997       1996
                                        --------  ---------  ---------  ---------
                                            (thousands)          (thousands)
<S>                                     <C>       <C>        <C>        <C>
ELECTRIC OPERATING REVENUES              $91,237   $101,587   $183,883   $182,376

OPERATING EXPENSES AND TAXES
  Fuel                                    27,026     35,822     59,911     67,805
  Purchased power                          7,028      6,608     18,425     12,524
  Other operating                         22,408     18,227     43,118     34,702
  Maintenance                              4,071      4,472      7,155      7,691
  Depreciation and amortization           10,236      9,832     20,327     19,510
  Taxes, other than income                 5,704      5,583     11,800     11,181
  Income taxes                             2,789      4,870      3,287      5,035
                                        --------  ---------  ---------  ---------
                                          79,262     85,414    164,023    158,448
                                        --------  ---------  ---------  ---------

OPERATING INCOME                          11,975     16,173     19,860     23,928
                                        --------  ---------  ---------  ---------

OTHER INCOME AND DEDUCTIONS
  Reserve for utility plant
    development costs, net of
    tax benefit of $20 for
    1997 and $3,988 for 1996                --      (10,917)       (38)   (10,917)
  Allowance for equity funds
    used during construction                --          (10)        99        128
  Other                                      351        280        437        529
                                        --------  ---------  ---------  ---------
                                             351    (10,647)       498    (10,260)
                                        --------  ---------  ---------  ---------

INCOME BEFORE INTEREST CHARGES            12,326      5,526     20,358     13,668
                                        --------  ---------  ---------  ---------

INTEREST AND OTHER CHARGES
  Interest on long-term debt               5,088      5,296     10,176     10,592
  Interest on short-term debt and other    1,469      1,367      2,783      2,745
  Allowance for borrowed funds used
     during construction                    (237)      (218)      (467)      (504)
                                        --------  ---------  ---------  ---------
                                           6,320      6,445     12,492     12,833
                                        --------  ---------  ---------  ---------

NET INCOME (LOSS)                          6,006       (919)     7,866        835

  Less: Preferred stock dividends             26         66         92        132
  Gain on reacquired preferred stock       1,183       --        1,183       --
                                        --------  ---------  ---------  ---------

NET INCOME (LOSS) FOR COMMON STOCK        $7,163      $(985)    $8,957       $703
                                        ========  =========  =========  =========






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

<PAGE> 39
                          WEST TEXAS UTILITIES COMPANY

                                 BALANCE SHEETS


                                                      June 30,     December 31,
                                                        1997          1996
                                                     (unaudited)    (audited)
                                                     ----------    ----------
ASSETS                                                      (thousands)

 ELECTRIC UTILITY PLANT
     Production                                        $417,330      $417,467
     Transmission                                       205,755       200,688
     Distribution                                       355,351       347,328
     General                                            101,199        92,622
     Construction work in progress                       15,887        30,036
                                                     ----------    ----------
                                                      1,095,522     1,088,141

  Less - Accumulated depreciation and amortization      426,671       414,777
                                                     ----------    ----------
                                                        668,851       673,364
                                                     ----------    ----------

CURRENT ASSETS
     Cash                                                   661           664
     Accounts receivable                                 32,941        24,123
     Materials and supplies, at average cost             16,160        15,966
     Fuel inventory                                       8,177         8,140
     Coal inventory                                       7,063         8,534
     Accumulated deferred income taxes                     --           1,079
     Under-recovered fuel costs                          13,912         7,857
     Prepayments and other                                1,038         2,435
                                                     ----------    ----------
                                                         79,952        68,798
                                                     ----------    ----------

DEFERRED CHARGES AND OTHER ASSETS
     Deferred Oklaunion costs                            20,501        22,365
     Restructuring costs                                  9,910        10,854
     Other                                               41,961        34,998
                                                     ----------    ----------
                                                         72,372        68,217
                                                     ----------    ----------

                                                       $821,175      $810,379
                                                     ==========    ==========











                The accompanying notes to financial statements as
          they relate to WTU are an integral part of these statements.
<PAGE> 40
                          WEST TEXAS UTILITIES COMPANY

                                 BALANCE SHEETS


                                                      June 30,    December 31,
                                                       1997          1996
                                                    (unaudited)    (audited)
                                                      --------     --------
CAPITALIZATION AND LIABILITIES                             (thousands)

CAPITALIZATION
     Common stock:  $25 par value
        Authorized shares: 7,800,000
        Issued and outstanding shares: 5,488,560      $137,214     $137,214
     Paid-in capital                                     2,236        2,236
     Retained earnings                                 124,034      123,077
                                                      --------     --------
                                                       263,484      262,527

     Preferred stock                                     2,484        6,291
     Long-term debt                                    276,855      275,070
                                                      --------     --------
                                                       542,823      543,888
                                                      --------     --------

CURRENT LIABILITIES
     Advances from affiliates                           25,761       14,833
     Payables to affiliates                             32,316       13,578
     Accounts payable                                    8,057       19,669
     Accrued taxes                                       8,761       13,463
     Accrued interest                                    5,140        5,403
     Accumulated deferred income taxes                   1,534         --
     Other                                               2,520        4,124
                                                      --------     --------
                                                        84,089       71,070
                                                      --------     --------

DEFERRED CREDITS
     Accumulated deferred income taxes                 144,621      144,146
     Investment tax credits                             28,579       29,239
     Income tax related regulatory liabilities, net     16,511       16,918
     Other                                               4,552        5,118
                                                      --------     --------
                                                       194,263      195,421
                                                      --------     --------

                                                      $821,175     $810,379
                                                      ========     ========










                The accompanying notes to financial statements as
          they relate to WTU are an integral part of these statements.
<PAGE> 41
                          WEST TEXAS UTILITIES COMPANY

                            STATEMENTS OF CASH FLOWS
                                   (unaudited)
                                                        Six Months Ended
                                                            June 30,
                                                     ----------------------
                                                       1997          1996
                                                     --------      --------
OPERATING ACTIVITIES                                        (thousands)
     Net Income                                        $7,866          $835
     Non-cash Items Included in Net Income
         Depreciation and amortization                 21,195        19,414
         Deferred income taxes and
           investment tax credits                       2,021        (1,481)
         Utility plant development costs                   58        14,905
         Inventory reserve                               --           1,103
     Changes in Assets and Liabilities
         Accounts receivable                           (8,818)        7,508
         Accounts payable                               7,605         6,179
         Accrued taxes                                 (4,702)       (2,429)
         Fuel recovery                                 (6,055)       (7,589)
     Other                                             (5,065)       (3,267)
                                                     --------      --------
                                                       14,105        35,178
                                                     --------      --------

INVESTING ACTIVITIES
     Construction expenditures                        (13,495)      (16,722)
     Other                                               (785)         (868)
                                                     --------      --------
                                                      (14,280)      (17,590)
                                                     --------      --------

FINANCING ACTIVITIES
     Redemption of preferred stock                     (2,624)         --
     Change in advances from affiliates                10,928        (7,403)
     Payment of dividends                              (8,132)      (10,066)
     Other                                               --             (27)
                                                     --------      --------
                                                          172       (17,496)
                                                     --------      --------

NET CHANGE IN CASH AND CASH EQUIVALENTS                    (3)           92
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD          664           717
                                                     --------      --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD               $661          $809
                                                     ========      ========

SUPPLEMENTARY INFORMATION
     Interest paid less amounts capitalized           $10,534       $10,470
                                                     ========      ========
     Income taxes paid                                 $2,931        $1,220
                                                     ========      ========













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

<PAGE> 42
WEST TEXAS UTILITIES COMPANY
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED JUNE 30, 1997 AND 1996

         Net income for common stock increased to $7.2 million during the second
quarter of 1997 from a net loss of $1.0  million in the second  quarter of 1996.
The increase  resulted  primarily from a one-time charge in 1996 associated with
certain investments for plant sites, engineering studies and lignite reserves of
approximately  $10.9  million,  net of tax,  and the  gain on  reacquisition  of
preferred stock of $1.2 million recognized in 1997.

         Electric operating revenues decreased  approximately  $10.4 million, or
10%, in the second quarter of 1997 compared to the second quarter of 1996 due to
several factors,  including a $10.1 million decrease in fuel revenues because of
lower fuel costs,  which are discussed  below. The remaining  decrease  resulted
from lower non-fuel  revenues due to a 6% decrease in retail MWH sales resulting
from mild  weather.  Partially  offsetting  the  decrease in electric  operating
revenues was an increase of approximately $5.2 million in transmission  revenues
as a result of the implementation of open access tariffs in accordance with FERC
Order No. 888 and the Texas Commission rules regarding  transmission  access and
pricing,  the  effect of which was  almost  entirely  offset by a  corresponding
increase in transmission expense.

         Fuel expense decreased $8.8 million,  or 25%, for the second quarter of
1997  compared to the second  quarter of 1996 due primarily to a 13% decrease in
generation, resulting primarily from decreased natural gas generation because of
its  relative  higher cost per MMbtu.  Also  contributing  to the decrease was a
decrease  in  average  unit fuel costs from $2.04 per MMbtu in 1996 to $1.78 per
MMbtu in 1997 resulting from lower-priced spot market coal.

         Other operating expenses increased  approximately $4.1 million, or 23%,
during the second  quarter of 1997 compared to the second  quarter of 1996.  The
increase was primarily due to a $4.9 million  increase in transmission  expenses
as a result of the implementation of open access tariffs in accordance with FERC
Order No. 888 and the Texas Commission rules regarding  transmission  access and
pricing, the effect of which was more than offset by a corresponding increase in
transmission  revenue.  Partially  offsetting  the  increase in other  operating
expenses was a decrease in  employee-related  expenses.  Income taxes  decreased
$2.0  million,  or 43%,  in the second  quarter of 1997 as  compared to the same
period a year ago due primarily to lower taxable income.

         Other  income and  deductions  increased  by $11.0  million  during the
second quarter of 1997 compared with the second quarter of 1996 as a result of a
one-time charge  incurred in 1996 associated with certain  investments for plant
sites,  engineering studies and lignite reserves of appropriately $10.9 million,
net of tax.


COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996

         For the first six months of 1997, net income for common stock increased
to $9.0 million from $0.7 million in the first six months of 1996.  The increase
resulted  primarily  from a one-time  charge  incurred in 1996  associated  with
certain investments for plant sites, engineering studies and lignite reserves of
approximately  $10.9  million,  net of tax,  and the  gain on  reacquisition  of
preferred stock of $1.2 million recognized in 1997.

<PAGE> 43

         Electric operating revenues increased approximately $1.5 million in the
first six months of 1997 compared to the first six months of 1996.  The increase
was due  primarily to $9.0 million in  transmission  revenues as a result of the
implementation  of open access tariffs in accordance with FERC Order No. 888 and
the Texas Commission rules regarding transmission access and pricing, the effect
of which was almost entirely offset by a corresponding  increase in transmission
expense.  The increase was offset  primarily by a $4.0 million  decrease in fuel
revenues  resulting from lower fuel costs as discussed below.  Also contributing
to the decease was a 3% decrease in retail MWH sales  resulting  from  decreased
sales due to adverse weather conditions.

         Fuel expense  decreased $7.9 million,  or 12%, for the first six months
of 1997  compared  to the first six months of 1996 due  primarily  to lower fuel
costs,  resulting  from  lower-priced  spot market  coal and an 11%  decrease in
natural gas generation resulting from relative higher costs per MMbtu. Partially
offsetting  the decrease  were the  increased  purchases of  higher-priced  spot
market  natural gas.  Purchased  power  expenses  increased  approximately  $5.9
million  during the first six months of 1997 as compared to the first six months
of 1996,  primarily as a result of additional economy purchases at a higher cost
per MWH.

         Other operating  expenses  increased  approximately $8.4 million during
the  first  six  months of 1997  compared  to the  first six  months of 1996 due
primarily to an $8.2 million  increase in  transmission  expenses as a result of
the  implementation of open access tariffs in accordance with FERC Order No. 888
and the Texas Commission rules regarding  transmission  access and pricing,  the
effect of which was more than offset by a corresponding increase in transmission
revenue.  Partially  offsetting the increase in other  operating  expenses was a
decrease in pension  expense.  Income taxes  decreased $1.7 million in the first
six months of 1997 compared to the same period a year ago due primarily to lower
taxable income in 1997.

         Other income and  deductions  increased  $10.8 million during the first
six months of 1997  compared  with the first six months of 1996 as a result of a
one-time charge  incurred in 1996 associated with certain  investments for plant
sites,  engineering studies and lignite reserves of approximately $10.9 million,
net of tax.


<PAGE> 44


INDEX TO APPLICABLE NOTES TO FINANCIAL STATEMENTS
BY REGISTRANT





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

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

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

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

NOTE 5.       INCOME TAXES                            CSW, CPL, PSO, SWEPCO, WTU

NOTE 6.       CPL RATE REVIEW - DOCKET                CSW, CPL
              NO. 14965

NOTE 7.       LONG TERM FINANCING                     CSW, CPL, PSO, SWEPCO, WTU

NOTE 8.       PENSION PLAN AMENDMENT                  CSW, CPL, PSO, SWEPCO, WTU

NOTE 9.       DISCONTINUED OPERATIONS                 CSW




<PAGE> 45


NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1.  PRINCIPLES OF PREPARATION

         The condensed financial  statements of the Registrants  included herein
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
thereto included in the Registrants' Combined Annual Report on Form 10-K for the
year ended December 31, 1996 and the Registrants'  Combined  Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997.

         The unaudited  financial  information  furnished  herewith reflects all
adjustments  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.

         The financial statements of SEEBOARD and its related entities have been
translated  from British pounds to U.S.  dollars in accordance with SFAS No. 52.
SFAS No. 52 requires the translation of income  statement items at average rates
and  balance  sheet  accounts  at  current  rates.  All  resulting   translation
adjustments are recorded directly to Foreign Currency Translation  Adjustment on
CSW's consolidated balance sheets.

         Effective  January 1, 1997, CPL and WTU began utilizing the LIFO method
for the valuation of all fossil fuel inventories.  Previously,  CPL had used the
weighted  average  cost method and WTU had used the LIFO method for coal and the
weighted average cost method for other fuel  inventories.  PSO utilizes the LIFO
method.  SWEPCO  continues to utilize the weighted  average cost method  pending
approval of the Arkansas  Commission  to utilize the LIFO method.  The change in
accounting  did not  affect  the  results of  operations  due to the  regulatory
treatment of such costs.

         Cash  equivalents  are considered to be highly liquid debt  instruments
purchased with a maturity of three months or less.  Accordingly,  temporary cash
investments and advances to affiliates are considered cash equivalents.

         Certain   financial   statement   items  for  prior   years  have  been
reclassified to conform to the 1997 presentation.


2.  LITIGATION AND REGULATORY PROCEEDINGS

         See the  Registrants' Combined Annual Report on Form 10-K for the  year
ended December 31, 1996 for  additional  discussion of litigation and regulatory
proceedings.  Reference  is also  made to NOTE  3.  COMMITMENTS  AND  CONTINGENT
LIABILITIES,  NOTE 6. CPL RATE  REVIEW - DOCKET NO.  14965 and PART II - ITEM 1.
for additional discussion of litigation matters.

<PAGE> 46


         Settlement of Litigation Related to Termination of El Paso Merger
         In May 1993, CSW entered into a merger  agreement  pursuant to which El
Paso would have emerged from bankruptcy as a wholly owned  subsidiary of CSW. In
June 1995,  following  CSW's  notification  that it was  terminating  the Merger
Agreement,  El Paso filed suit against CSW seeking a $25 million termination fee
from CSW,  unspecified  damages for various  contract and tort claims,  punitive
damages, interest as permitted by law and certain other costs. Subsequently, CSW
filed suit  against El Paso seeking a $25 million  termination  fee from El Paso
due to El Paso's breach of the Merger  Agreement,  at least $3.6 million in rate
case expenses  incurred by CSW on behalf of El Paso related to state  regulatory
merger proceedings and a declaratory  judgment that CSW properly  terminated the
Merger  Agreement.  In June 1996, CSW filed an amended complaint seeking a first
priority  administrative expense claim of $50 million from El Paso based upon El
Paso's alleged breach of the Merger Agreement.

         The United States  Bankruptcy  Court for the Western District of Texas,
Austin  Division,  consolidated  the El Paso  suit  and the CSW  suit  into  one
adversary  proceeding,  the trial of which was completed on January 30, 1997. On
April 11,  1997,  the court  issued an interim  order in which it ruled that CSW
owed El Paso the $25 million termination fee pursuant to the terms of the Merger
Agreement.  The court reserved  judgment on CSW's liability for interim interest
on the termination fee which El Paso alleged to total $18 million.

         In July  1997,  CSW and El Paso  reached a  settlement  agreement  that
resolved all of the pending  litigation  resulting  from the  termination of the
proposed  merger.  Under the terms of the settlement,  CSW and El Paso agreed to
dismiss all pending  claims in the litigation and give a mutual release from any
potential claims related to the Merger Agreement or the pending litigation,  and
CSW paid $35 million to El Paso,  various of its creditor  groups under its plan
of reorganization and its attorneys.

         As  previously  reported,  CSW  recorded a charge of $25 million in the
first quarter of 1997 following the court's  interim  order.  As a result of the
settlement with El Paso, CSW recorded an additional charge of $10 million in the
second quarter of 1997 to fully recognize the $35 million settlement amount. The
interim order of the bankruptcy court was vacated.

         PSO Regulatory Matters
         As  previously  reported,   in  July  1996,  the  OCC  Staff  filed  an
application seeking a review of PSO's earnings and rate structure. In accordance
with the  established  schedule,  PSO filed financial  information  with the OCC
Staff on November 1, 1996,  and cost of service  and rate  design  testimony  on
January  10,  1997,  supporting  current  rates  assuming  an increase in future
depreciation  expense.  The  OCC  Staff  and  intervenors  filed  their  revenue
requirements  testimony  on July 17,  1997.  The OCC  Staff  recommended  to the
Oklahoma  Commission that PSO decrease its rates by $76.8 million annually,  but
included  a fuel  cost-based  performance  incentive  that  would  allow PSO the
opportunity  to achieve an additional  $15 million in annual  revenues.  The OCC
Staff's revenue  requirement  calculations  include an overall rate of return of
9.308% including a return on equity of 11.0%. Other parties to PSO's rate review
have filed testimony with the Oklahoma Commission which recommend rates that are
comparable  to the OCC  Staff's  recommendation.  A hearing on the merits of the
review is scheduled to begin on September 24, 1997.

         On  January  14,  1997,  the  Oklahoma   Commission  approved  a  joint
settlement  which provides that all bills rendered to PSO's customers  beginning
with PSO's June 1997 billing cycle shall be considered  interim rates subject to
refund in the event the  permanent  final  order  grants  less than the  current
revenue  produced  by the  existing  rates.  The OCC  Staff's  recommended  rate

<PAGE> 47

reduction and PSO's preliminary  analysis of the estimated  earnings impact that
would result therefrom is detailed and reconciled with PSO's existing rate level
as follows (annualized effect, in millions).

OCC Staff recommended denial of PSO's requested
 depreciation increase (1)                                        $   (27.5)
Additional OCC Staff depreciation decrease                            (18.7)
Working capital (accounts receivable factoring)                        (3.3)
Construction work in progress                                          (2.8)
Recovery of Inola Plant costs                                          (6.3)
Marketing and advertising expense                                      (7.4)
Payroll and benefits reduction                                         (8.2)
Other                                                                  (2.6)
                                                                   -----------
     OCC Staff recommended rate decrease                              (76.8)
Decrease current depreciation expense                                  18.7
Storm cost recovery (2)                                                 1.2
Recovery of deferred customer incentive costs (2)                       0.5
Rate case expenses                                                     (0.2)
Income taxes                                                           22.2
                                                                   -----------
     Estimated impact on net income                               $   (34.4)
                                                                   ===========

(1)  OCC Staff  exhibits  reflect this  decrease as a denial of PSO's  requested
     depreciation increase. However, since PSO has not recorded the depreciation
     increase  on its  books,  this item is  effectively  a  reduction  in PSO's
     allowed return.
(2)  If the  OCC  Staff  recommendation  is  accepted,  an  additional  one-time
     after-tax  write off of the  unamortized  balance of these costs,  totaling
     $6.4 million,  would be required.  Consequently,  there would be no ongoing
     amortization of these costs.

         The OCC Staff's  recommended rate reduction  includes the effect of its
recommendation of a rate base decrease of $109 million for PSO from $997 million
to $888 million as shown below.

PSO's current rate base                                        $   997.0
Construction work in progress                                      (21.1)
Recovery of Inola Plant costs                                      (27.6)
Capitalized marketing incentives                                    (7.2)
Working capital (accounts receivable factoring)                    (25.0)
Capitalized expenditures                                            (6.6)
Pension funding level                                               (7.8)
Other                                                              (13.7)
                                                             ============
    OCC Staff recommended rate base                            $   888.0
                                                             ============

         A final  order of the  Oklahoma  Commission  is  expected in late 1997.
Management cannot predict the ultimate outcome of PSO's rate review. However, if
PSO  ultimately  is  unsuccessful  in  reaffirming  adequate  rates,  PSO  could
experience a material adverse effect on its  consolidated  results of operations
and financial  condition,  and CSW could experience a material adverse effect on
its results of operations but not on its financial condition.

         The foregoing  discussion of PSO Regulatory Matters constitutes forward
looking  information.  Actual results may differ  materially from such projected
information.

         CPL Fuel Proceeding
         As  previously  reported,  CPL  filed  with  the  Texas  Commission  an
Application  for  Authority  to  Implement  an increase in fuel factors of $34.4
million, or 15.4%, on an annual basis. In addition,  CPL proposed to implement a
fuel surcharge of $23.4 million,  including accumulated interest,  over a twelve
month  period.  On February 10,  1997,  CPL filed a  stipulation  with the Texas

<PAGE> 48

Commission  which  would  surcharge   customers  the  $23.4  million  and  would
coordinate the surcharge with any refund in CPL's current rate case as described
in NOTE 6. CPL RATE REVIEW - DOCKET NO. 14965.  In the  Stipulation,  CPL's fuel
factors were  increased  approximately  $29.4  million,  or 13.2%,  on an annual
basis.  The Texas  Commission's  interim approval of the stipulated fuel factors
permitted a March 1997  implementation  of the fuel  factors.  The CPL 1997 Rate
Order confirmed the stipulated fuel factors.

         SWEPCO Fuel Proceeding
         In April 1997,  SWEPCO filed with the Texas  Commission an  application
concerning  fuel cost  under-recoveries  and a  possible  fuel  surcharge  which
included  a  motion  to  either  abate  the  requested   interim  surcharge  and
consolidate the surcharge with a filed fuel  reconciliation  as discussed below,
or  alternatively,  implement  an interim  surcharge  in the months of July 1997
through  June  1998.  The Office of Policy  Development,  on behalf of the Texas
Commission,  approved such consolidation.  In addition, the Texas Commission has
waived the requirement that SWEPCO file biannual  surcharge requests through the
pendency  of  this  proceeding,  and  has  deferred  the  implementation  of any
surcharge and interest until after final disposition.

         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
commence,  SWEPCO  did not  establish  a  proposed  surcharge  period or a total
surcharge  amount  which would  reflect  interest  through the entire  surcharge
period  in  its  filing.  In  its  filing,  SWEPCO  indicated  that  it  had  an
under-recovered  Texas  jurisdictional  fuel cost balance of approximately $16.8
million,  including  interest,  through  December  1996.  Included  in the $16.8
million  balance are fuel  related  litigation  expenses of $5.0  million and an
interest  return of $2.0 million on the  unamortized  balance of a fuel contract
termination payment.

         SWEPCO Burlington Northern Transportation Contract
         In January 1995, a state district court in Bowie County,  Texas entered
judgment in favor of SWEPCO against  Burlington  Northern in a lawsuit regarding
rates  charged under two rail  transportation  contracts for delivery of coal to
SWEPCO's  Welsh  and Flint  Creek  power  stations.  The  court  awarded  SWEPCO
approximately  $72  million  that would inure to the  benefit of  customers,  if
collected,  representing  damages  for the period  from April 27,  1989  through
September 26, 1994, as well as  post-judgment  interest and attorneys'  fees and
granted certain  declaratory  relief  requested by SWEPCO.  Burlington  Northern
appealed the state district  court's  judgment to the Texarkana,  Texas Court of
Appeals  and,  in April  1996,  that court  reversed  the  judgment of the state
district  court. In October 1996,  SWEPCO filed an application  with the Supreme
Court of Texas to grant a writ of error to review and  reverse  the  judgment of
the Texarkana,  Texas Court of Appeals. In June 1997, the Supreme Court of Texas
granted SWEPCO's  application for writ of error.  Oral argument is scheduled for
October 1997.

         WTU Fuel Proceeding
         As  previously  reported,  in February  1997,  WTU filed with the Texas
Commission an Application for Authority to Implement an increase in fuel factors
of $4.2  million,  or 4.2%, on an annual  basis.  Additionally,  WTU proposed to
implement a fuel surcharge of $13.3  million,  including  accumulated  interest,
over a twelve  month  period to collect  its  under-recovered  fuel  costs.  WTU
requested  authority  to  implement  the revised  fuel factors with its May 1997
billings and to commence the surcharge with its June 1997 billings.

         On April 14, 1997,  an agreement  in  principle  was reached  among the
parties to settle this docket. Under the proposed settlement,  WTU agreed not to

<PAGE> 49

increase the fuel factors. Also, the $13.3 million surcharge will be implemented
over the period June 1997 through February 1999. The Texas  Commission  approved
this stipulation in May 1997.


3.  COMMITMENTS AND CONTINGENT LIABILITIES

         CPL Deferred Accounting
         By orders issued in 1989 and 1990, the Texas Commission  authorized CPL
to defer  certain STP Unit 1 and Unit 2 costs  incurred  between the  commercial
operation  dates of those units and the effective  date of rates  reflecting the
operation of those units. Upon appeal of the 1989 CPL order, and a related order
involving another utility, the Supreme Court of Texas in 1994 sustained deferred
accounting  as an  appropriate  mechanism  for the  Texas  Commission  to use in
preserving the financial  integrity of CPL, but remanded CPL's case to the Court
of  Appeals  to  consider  certain  substantial  evidence  points  of error  not
previously  decided by the Court of Appeals.  On August 16,  1995,  the Court of
Appeals  rendered  its opinion in the remand  proceeding  and affirmed the Texas
Commission's order in all respects.

         By  orders  issued  in  October  1990  and  December  1990,  the  Texas
Commission  quantified the STP Unit 1 and Unit 2 deferred  accounting  costs and
authorized the inclusion of the amortization of the costs and associated  return
in CPL's retail rates. These Texas Commission orders were appealed to the Travis
County  District  Court,  where the appeals are still  pending.  Language in the
opinion of the Supreme  Court of Texas on the appeal of the deferred  accounting
authorization  case  suggests  that the  appropriateness  of including  deferred
accounting costs in rates charged to customers is dependent on a finding, in the
first case in which the deferred STP costs are to be  recovered  through  rates,
that the  deferral was actually  necessary to preserve the  utility's  financial
integrity. If, in the appeals of the October 1990 and December 1990 rate orders,
the courts decide that subsequent review under the financial  integrity standard
is required  and was not made in those  orders,  then such rate orders  would be
remanded to the Texas Commission for the purpose of entering  findings  applying
the  financial  integrity  standard.  Pending the ultimate  resolution  of CPL's
deferred accounting issues, CPL is unable to predict how its deferred accounting
orders will ultimately be resolved by the Texas Commission.

         If CPL's deferred  accounting matters are not favorably  resolved,  CSW
and CPL could experience a material  adverse effect on their respective  results
of  operations  and  financial  condition.  While CPL's  management is unable to
predict the ultimate  outcome of these matters,  management  believes either CPL
will  receive  approval  of its  deferred  accounting  amounts  or CPL  will  be
successful  in  renegotiation  of its  rate  orders,  so that  there  will be no
material  adverse  effect on CSW's or CPL's  results of  operations or financial
condition.

         The foregoing discussion of CPL Deferred Accounting constitutes forward
looking  information.  Actual results may differ  materially from such projected
information.


         CPL Nuclear Insurance
         In connection  with the licensing and operation of STP, the owners have
purchased nuclear property and liability  insurance coverage as required by law,
and  have  executed  indemnification  agreements  with  the  Nuclear  Regulatory
Commission  in  accordance  with the financial  protection  requirements  of the
Price-Anderson   Act.  The   Price-Anderson   Act,  a  comprehensive   statutory
arrangement   providing   limitations  on  nuclear  liability  and  governmental
indemnities, is in effect until August 1, 2002. The limit of liability under the
Price-Anderson  Act for  licensees of nuclear  power plants is $8.92 billion per
incident, effective as of December 1996. The owners of STP are insured for their

<PAGE> 50

share of this liability through a combination of private insurance  amounting to
$200 million and a mandatory  industry-wide program for self-insurance  totaling
$8.72  billion.  The maximum amount that each licensee may be assessed under the
industry-wide  program of  self-insurance  following  a nuclear  incident  at an
insured  facility  is $75.5  million  per  reactor,  which may be  adjusted  for
inflation,  plus a five percent charge for legal expenses, but not more than $10
million per reactor for each nuclear  incident in any one year.  CPL and each of
the other STP owners are  subject to such  assessments,  which CPL and the other
owners have agreed will be allocated on the basis of their respective  ownership
interests  in STP.  For  purposes  of these  assessments,  STP has two  licensed
reactors.

         The owners of STP currently maintain on-site decontamination  liability
and property damage insurance in the amount of $2.75 billion provided by ANI and
NEIL.  Policies  of  insurance  issued  by ANI and NEIL  stipulate  that  policy
proceeds  must be used first to pay  decontamination  and cleanup  costs  before
being used to cover direct losses to property. Under project agreements, CPL and
the other owners of STP will share the total cost of  decontamination  liability
and property  insurance for STP,  including  premiums and assessments,  on a pro
rata basis, according to each owner's respective ownership interest in STP.

         CPL  purchased,  for its own  account,  a NEIL I Business  Interruption
and/or  Extra  Expense  policy.  This  insurance  will  reimburse  CPL for extra
expenses incurred for replacement generation or purchased power as a result of a
covered  accident that shuts down production at one or both of the STP Units for
more than 21 consecutive  weeks.  In the event of an outage of STP Units 1 and 2
and the outage is the result of the same accident, such insurance will reimburse
CPL up to 80% of the single unit recovery.  The maximum amount recoverable for a
single unit  outage is $118.6  million for both Units 1 and 2. CPL is subject to
an additional  assessment  of up to $1.9 million for the current  policy year in
the event insured losses at a nuclear  facility  covered under the NEIL I policy
exceeds  the  accumulated   funds  available  under  the  policy.   For  further
information relating to litigation associated with CPL nuclear insurance claims,
reference is made to PART II-ITEM 1.

         SWEPCO Biloxi, Mississippi Manufactured Gas Plant Site
         As previously  reported,  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 on 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 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.

         The MDEQ has not agreed to a  non-residential  future land use scenario
and  has  requested  further  testing.  Following  the  additional  testing  and
resolution of whether cleanup is necessary to meet a residential  usage scenario
or if cleanup to a commercial/industrial  scenario is appropriate, a feasibility
study will be conducted to more definitively  evaluate  remedial  strategies for
the property. The feasibility study process will require public input prior to a
final decision being made.

<PAGE> 51

         A final range of cleanup  costs has not been  determined,  but based on
preliminary  estimates,  SWEPCO has incurred to date approximately  $200,000 for
its portion of the cleanup of this site and  anticipates  that an  additional $2
million  may be  required.  Accordingly,  SWEPCO has  accrued $2 million for the
cleanup of the site.

         SWEPCO Voda Petroleum Superfund Site
         As previously reported,  in April 1996, SWEPCO received  correspondence
from the EPA notifying  SWEPCO that it is a PRP to a cleanup  action planned for
the Voda  Petroleum  Superfund  Site located in  Clarksville,  Texas.  SWEPCO is
conducting a records review to compile  documentation  relating to SWEPCO's past
use of the Voda Petroleum site. The proposed cleanup of the site is estimated by
the EPA to cost approximately $2 million and to take approximately twelve months
to  complete.  An option for over 30 PRPs to conduct  the cleanup in lieu of EPA
conducting the cleanup is under  consideration.  Any SWEPCO liability associated
with this  project  is not  expected  to have a material  adverse  effect on its
results of operations or financial condition.

         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 June 30,  1997,  the
maximum amount SWEPCO would have to assume was $61.8 million. The maximum amount
may vary as the mining contractor's need for funds fluctuates.  The contractor's
actual obligation outstanding as of June 30, 1997 was $52.5 million.

         SWEPCO South Hallsville Lignite Mine
         As  part  of  the  process  to  receive  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
provide  guarantees  of mine  reclamation  in the amount of $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.

         United Kingdom Windfall Profits Tax
         As  previously  reported,  in the general  election  held in the United
Kingdom on May 1, 1997,  the Labour Party won control of the  government  with a
considerable  majority.  Prior to the  general  election,  the Labour  Party had
announced  that, if elected,  it would impose a windfall  profits tax on certain
industries in the United Kingdom,  including the privatized utilities, to fund a
variety of social improvement  programs.  On July 2, 1997, the one-time windfall
profits tax was  introduced in the Labour  Party's  budget by Chancellor  Gordon
Brown. It is anticipated that legislation enacting the tax will be passed during
the second half of 1997.

         CSW is  currently  analyzing  the  impact  of the  tax on its  SEEBOARD
subsidiary.  Based upon its initial  analysis of the proposed tax, CSW estimates
the  impact to be a one-time  charge  against  net  income  for common  stock of
approximately  (pound)110 million,  approximately $180 million when converted at
the current  prevailing  exchange rates.  The tax itself is computed based on an
imputed  increase in value of SEEBOARD  since it was  privatized  in 1990 by the
United  Kingdom  government.  The  actual  amount of the tax when  converted  to
dollars  would depend upon the  exchange  rates in effect at the time the tax is
accrued.  The timing of the actual  charge  against  CSW's net income for common
stock has not been  determined at this time,  but CSW  anticipates  that the tax
will be accrued in the period in which the tax is enacted.  The  proposed tax is
expected to be payable in two equal installments, with the first due by December
1, 1997 and the second due by December 1, 1998. SEEBOARD is currently evaluating

<PAGE> 52

alternatives for financing the tax payments.  There can be no assurance that any
windfall profits tax will be ultimately enacted or that, if enacted,  it will be
the same or  substantially  similar to that  proposed by  Chancellor  Brown.  If
enacted in the form  proposed,  the tax would have a material  adverse effect on
CSW's results of operations.

         The  foregoing  discussion  of  United  Kingdom  Windfall  Profits  Tax
constitutes  forward looking  information.  Actual results may differ materially
from such projected information.


4.  COMMON STOCK AND DIVIDENDS

         CSW's  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 during the periods.  See MD&A - LIQUIDITY  AND CAPITAL  RESOURCES -
Capital  Structure  for  information  related to changes in CSW's  common  stock
plans.

         The U.S. Electric Operating Companies' mortgage indentures,  as amended
and  supplemented,  contain  certain  restrictions  on the use of their retained
earnings for cash  dividends on their common stock.  These  restrictions  do not
currently limit the ability of CSW to pay dividends to its shareholders. At June
30, 1997,  approximately  $1.8  billion of the  subsidiary  companies'  retained
earnings were  available for payment of cash dividends by such  subsidiaries  to
CSW. The amounts  attributable to the U.S. Electric Operating  Companies were as
follows.

CPL - $766 million PSO - $155 million  SWEPCO - $335 million  WTU - $124 million


5.  INCOME TAXES

         The  following  tables  provide  a  reconciliation  of the  differences
between total income tax expense  (income taxes  included in Operating  Expenses
and Taxes as well as Other Income and  Deductions) at the federal  statutory tax
rate and the effective tax rate for the Registrants.

                            CSW         CPL        PSO        SWEPCO       WTU
                            ----------------------------------------------------
                            (millions)                 (thousands)
                            ----------------------------------------------------
Quarter Ended June 30, 1997 
Income before taxes 
attributable to:
   Domestic operations      $102
   Foreign operations         13
                            -----
Income before taxes         $115     $60,499      $20,079     $36,702    $8,821

Tax at U.S. statutory rate   $40     $21,175       $7,028     $12,846    $3,087
Differences
  Amortization of ITC         (4)     (1,447)        (696)     (1,166)     (330)
  Non-deductible goodwill
    amortization               3          --           --          --        --
  Prior period adjustments     1          --           --         150
  Other                       --       2,606          427      (1,527)       59
                            ----------------------------------------------------
Tax expense                   $40    $22,334       $6,759     $10,303    $2,816
                            ----------------------------------------------------

Effective tax rate             35%        37%          34%         28%       32%


<PAGE> 53



                             CSW         CPL          PSO      SWEPCO       WTU
                            ----------------------------------------------------
                            (millions)                 (thousands)
                            ----------------------------------------------------
Quarter Ended June 30, 1996 
Income before taxes
attributable to:
   Domestic operations       $200
   Foreign operations          46
                            -----
Income before taxes          $246    $61,242     $(23,903)     $9,658     $(111)

Tax at U.S. statutory rate    $86    $21,435      $(8,366)     $3,380      $(39)
 Differences
   Amortization of ITC         (4)    (1,447)        (696)     (1,182)     (330)
   Non-deductible goodwill
     amortization               3         --           --          --        --
   State Income Taxes from the
     Sale of Transok            7         --           --          --        --
   Permanent differences
     related to a one-time                                       
     charge                     9      1,390        4,382      2,330        977
     Prior period adjustments   4      3,198          549        269        143
   Other                        8      1,859       (1,661)      (506)        57
                             ---------------------------------------------------
 Tax expense                 $113    $26,435      $(5,792)    $4,291       $808
                             ---------------------------------------------------

 Effective tax rate            46%        43%         24%        45%        727%


Six Months Ended June 30, 1997
 Income before taxes 
 attributable to:
   Domestic operations        $95
   Foreign operations          58
                             -----
Income before taxes          $153    $53,135     $30,401     $55,589    $10,978

Tax at U.S. statutory rate    $54    $18,597     $10,640     $19,456     $3,842
Differences
  Amortization of ITC          (7)    (2,895)     (1,392)     (2,331)      (661)
  Non-deductible goodwill
    amortization                6         --          --          --         --
  Prior period adjustments     (2)    (1,720)       (261)        (48)      (124)
  Other                        (3)     4,196         256      (1,413)        54
                              --------------------------------------------------
Tax expense                   $48    $18,178      $9,243     $15,664     $3,111
                              --------------------------------------------------

Effective tax rate             31%        34%         30%         28%        28%


Six Months Ended June 30, 1996
 Income before taxes
 attributable to:
   Domestic operations        $252
   Foreign operations           72
                             -----
Income before taxes           $324   $86,695     $(16,746)   $28,291     $1,616

Tax at U.S. statutory rate    $113   $30,343      $(5,861     $9,902       $566
 Differences
   Amortization of ITC          (7)   (2,895)      (1,392)    (2,365)      (661)
   Non-deductible goodwill
     amortization                6        --           --         --         --
   State Income Taxes from the
     Sale of Transok             7        --           --         --         --
   Permanent differences related
     to a one-time charge        9     1,390        4,382      2,330        977
   Prior period adjustments      4     3,198          549        269        143
   Other                         4     3,233       (1,899)    (1,962)      (244)
                             -----  ----------- ------------ ----------- -------
 Tax expense                  $136   $35,269      $(4,221)    $8,174       $781
                            ------  ----------- ------------ ----------- -------

 Effective tax rate             42%       41%          25%        29%        48%





<PAGE> 54
6.  CPL RATE REVIEW - DOCKET NO. 14965

         Overview
         As  previously  reported,  in November  1995,  CPL filed with the Texas
Commission  a request to  increase  its  retail  base  rates $71  million.  In a
preliminary  order issued December 21, 1995, the Texas  Commission  expanded the
scope of the rate review proceeding to address certain competitive issues facing
the electric utility industry  including  estimates of CPL's potential  stranded
costs based upon various possible  structures of the electric  industry.  In May
1996,  CPL placed a $70 million base rate increase  into effect under bond.  The
bonded  rates  are  subject  to  refund  based on the  final  order of the Texas
Commission.  On July 17, 1997, CPL restored its rates,  with two exceptions,  to
levels  existing  prior to the  implementation  of bonded rates.  For additional
information, see Implementation of New Rates.

         CPL 1997 Rate Order
         On March 31, 1997, the Texas Commission  issued the CPL 1997 Rate Order
in CPL's Rate Review Docket No. 14965. The CPL 1997 Rate Order lowers the annual
base rates of CPL by approximately $27 million,  or approximately 3.5%, in 1997,
from CPL's existing rate level prior to CPL's May 1996  implementation of bonded
rates.  The  Texas  Commission  also  introduced  a glide  path  rate  reduction
methodology  whereby CPL's rates will be reduced by an additional $16 million in
mid-1998  and  another  $16  million  in  mid-1999.  The  preliminary  estimated
financial impact of the order is described in Estimated  Financial Impact of CPL
1997 Rate Order.

         There are numerous  contributing  factors to the difference between the
$71 million  retail base rate increase  originally  requested by CPL and the $27
million retail base rate reduction  included in the CPL 1997 Rate Order. The CPL
1997 Rate  Order  decreased  CPL's  requested  return on equity of 12.25% on its
retail rate base to a 10.9% return on equity for all non-ECOM  invested capital,
which results in an approximate $30 million decrease in CPL's rate request.  The
CPL 1997 Rate Order provides for the disallowance of  approximately  $21 million
of affiliate  transactions.  In  addition,  the CPL 1997 Rate Order denied CPL's
request to use straight line  amortization for CPL's deferred  accounting costs.
Instead,  the CPL 1997 Rate Order  requires  CPL to continue to use the mortgage
amortization  method to amortize its deferred  accounting costs,  resulting in a
reduction of $14 million from CPL's rate  request.  The CPL 1997 Rate Order also
decreases  other  depreciation  and  amortization by $21 million from CPL's rate
request.

         Another  major  provision  of the CPL 1997  Rate  Order  was the  Texas
Commission's  categorization  of  approximately  $859 million,  or 32%, of CPL's
investment in STP, including Mirror CWIP and deferred  accounting,  as ECOM. The
term ECOM has been used to refer to the amount of costs that  potentially  would
become "stranded" if retail competition were mandated and prices were set in the
market,  rather than the price being determined by current regulatory  standards
of reasonable and necessary cost of providing  service.  The CPL 1997 Rate Order
reduced  CPL's return on the ECOM portion of CPL's  investment  in STP to 7.96%,
compared to the 10.9% return on common  equity  approved for all other  invested
capital,  resulting in a $17.6 million  decrease in CPL's rate  request.  At the
same time, the CPL 1997 Rate Order  accelerated the recovery of the $859 million
designated as ECOM to 20 years from the remaining 32-year life of STP, resulting
in a $16.8  million  increase in CPL's rate request.  CPL has a 25.2%  ownership
interest in STP.

         Based upon  management's  preliminary  evaluation  of the CPL 1997 Rate
Order,  management  believes  there is a  possibility  that certain  consistency
provisions  (otherwise  referred  to as  normalization  rules)  of the  Internal
Revenue Code may have been violated by the order.  If the IRS determines  that a
normalization  violation  has occurred and no changes to the CPL 1997 Rate Order
are made to remedy the  violation,  the IRS could disallow  certain  significant
accelerated tax deductions and investment tax credits  previously  taken by CPL,
<PAGE> 55
which would have a material adverse effect on the financial condition of CSW and
CPL.

         CPL filed a motion  for  rehearing  on April 21,  1997.  The motion for
rehearing requests reconsideration by the Texas Commission of numerous issues in
the rate case including the following issues.

(i)    The calculation of a portion of STP as ECOM and the decision to allow 
       only a 7.96% return on equity on the ECOM amount.
(ii)   The disallowance of $21 million of affiliate transactions.
(iii)  The Texas Commission glide path rate reductions in 1998 and 1999.
(iv)   The amount of nuclear decommissioning expense included in cost of 
       service.

         CPL requested that the Texas Commission  revise the CPL 1997 Rate Order
on  other  issues  including  tax  normalization,  post-test  year  adjustments,
deferred  accounting and depreciation.  In addition,  motions for rehearing were
filed  by eight  other  parties  including  the  General  Counsel  of the  Texas
Commission,  certain cities in CPL's service territory that filed as intervenors
in CPL's rate case and the Office of Public Utility Counsel.

         On June 20, 1997, the Texas Commission,  in response to the motions for
rehearing filed by CPL and the other parties,  modified the CPL 1997 Rate Order.
The  modifications  would result in a rate reduction of $24 million on an annual
basis as compared with the $27 million reduction in the CPL 1997 Rate Order. The
Texas Commission also decided to rehear some issues,  including $21.5 million of
affiliate expenses originally  disallowed in the CPL 1997 Rate Order and the tax
normalization  issues.  The June 20, 1997  modifications  also reduced the Texas
Commission's  amount of ECOM from $859 million to $800 million and increased the
level of recovery for costs associated with the decommissioning of STP. However,
the Texas Commission upheld its prior decision on the glide path rate reductions
for 1998 and  1999 as well as the use of the  lower  return  on  equity  for the
portion of STP designated as ECOM.

         On August 6, 1997, the administrative law judge reviewing the rehearing
issues issued a proposal for decision and proposed  order that  recommended  the
recovery by CPL of a  significant  portion,  approximately  $19 million,  of the
affiliate  expenses the Texas Commission  originally  disallowed in the CPL 1997
Rate  Order.  The  original  disallowance  was based on the  Texas  Commission's
decision  that CPL had not provided  adequate  information  during the discovery
process to justify  recovery of the  expenses.  In his proposal for decision and
proposed order, the administrative law judge ruled instead that CPL had provided
adequate information to justify the recovery of the expenses. However, the Texas
Commission is not bound to follow the administrative law judge's recommendation.

         Also as part of the remand  process,  CPL has entered into an agreement
on two of the potential tax normalization  violations  whereby the parties agree
that corrections should be made to the CPL 1997 Rate Order for these issues. CPL
has entered into an agreement on the third potential tax normalization violation
whereby the issue  would be withheld  from rates until CPL obtains a ruling from
the  IRS.  Should  the  IRS  determine  that  it is  not  in  violation  of  the
normalization rules, revenues related to this issue would be refunded. The Texas
Commission  has not yet approved the  settlement  agreements  but is expected to
rule on these issues in its new final order.

         The  Texas  Commission  will  consider  all  the  issues  remanded  for
rehearing  during the latter part of August 1997 and a new final order is expect
by the end of August 1997. Regardless of the resolution of the remaining issues,
CPL will likely  appeal the new final order to the Texas  State  District  Court
after the rehearing process is concluded.

<PAGE> 56
         The  foregoing  discussion of CPL 1997 Rate Order  constitutes  forward
looking  information.  Actual results may differ  materially from such projected
information.

         Rate Case Expense Phase
         The CPL 1997 Rate  Order  established  a  separate  docket,  Docket No.
17280,  to consider  the  recoverability  of $20  million of rate case  expenses
incurred  in the  current  rate case and in two  prior  dockets.  CPL  reached a
settlement with all parties to resolve Docket No. 17280. The settlement resulted
in CPL's  agreement  to recover $14 million out of the total $20 million of rate
case expenses  originally  requested.  Approximately $8 million of the rate case
expenses will be recovered as an offset to the refund in the rate case,  and the
remaining $6 million of expenses  will be  surcharged  to  customers  over three
years.  CPL expensed the $6 million in foregone  rate case  expenses  during the
first quarter of 1997.

         Estimated Financial Impact of CPL 1997 Rate Order
         If  ultimately  upheld  after  rehearing  and any  appeals,  management
expects the CPL 1997 Rate Order to have a material  adverse  impact on CSW's and
CPL's results of operations  for the next several years as compared to what they
otherwise  would  have  been,  beginning  with an  estimated  reduction  of 1997
earnings by  approximately  $53.5 million and reductions in succeeding years due
to the  effects of applying  the glide path  methodology  in 1998 and 1999.  The
table below details management's most recent estimate of the financial impact of
the CPL 1997 Rate Order. The estimated  reduction in 1997 earnings  includes the
annualized  impact of the CPL 1997 Rate Order (including the Texas  Commission's
June 20, 1997  modifications) on 1997, the recognition of the retroactive impact
of the CPL 1997 Rate Order on 1996 results of operations from the implementation
of bonded  rates in May 1996,  subject  to refund,  and also the  effects of the
settlement in Docket No. 17280 described in Rate Case Expense Phase.

                                             1997     1998     1999
                                            ------   ------   ------
                                                    (millions)

Decrease in revenue                         $(26.0)  $(36.4)  $(52.1)

Items included in decrease in revenue
  with an offsetting effect on expense
    Accelerated recovery of STP (ECOM)       (40.0)   (40.0)   (40.0)
    Change in depreciation/amortization       25.4     25.4     25.4
    Decommissioning                           (4.3)    (4.3)    (4.3)
    Other                                     (4.3)    (2.6)    (2.6)
                                             -----    -----    -----
                                             (23.2)   (21.5)   (21.5)

                                             -----    -----    -----
Change in current year income before tax     (49.2)   (57.9)   (73.6)
Federal income taxes                          16.4     19.5     25.0
                                             -----    -----    -----
Current year impact on net income            (32.8)   (38.4)   (48.6)

1996 effect                                  (20.7)    --       --
                                             -----    -----    -----
Estimated impact on net income              $(53.5)  $(38.4)  $(48.6)
                                             -----    -----    -----

         Due to the  uncertainty  of the outcome of any rehearing or any appeals
process,  CSW and CPL are  unable to  predict  how the final  resolution  of the
issues raised in the CPL 1997 Rate Order will ultimately  impact CSW's and CPL's
results of operations  and financial  condition.  In the event the CPL 1997 Rate
Order is ultimately  upheld after  rehearing and any appeals,  CSW and CPL would
continue to experience a material  adverse effect on their results of operations
as compared to what they otherwise would have been.

         The foregoing discussion of Estimated Financial Impact of CPL 1997 Rate
Order  constitutes  forward  looking  information.  Actual  results  may  differ
materially from such projected information.

<PAGE> 57
         Implementation of New Rates
         As previously stated, CPL implemented bonded rates subject to refund in
May 1996.  On July 17, 1997,  CPL restored its rates,  with two  exceptions,  to
levels  existing  prior  to the  implementation  of the  bonded  rates.  The two
exceptions are for industrial  interruptible  rates and customer service charges
for which the Texas  Commission  has  indicated  it will  approve the  increases
requested by CPL. Based upon the CPL 1997 Rate Order (and the modifications made
by the Texas  Commission  on June 20,  1997),  which is still  subject to change
resulting from CPL's and any other party's  motions for rehearing,  CPL's refund
obligation through June 1997, including interest,  is approximately $99 million.
The ultimate  amount  subject to refund will depend upon the final rates ordered
by the Texas  Commission  after any rehearing.  Any such refunds,  which will be
coordinated  with any fuel  surcharge  as described  in NOTE 2.  LITIGATION  AND
REGULATORY  PROCEEDINGS and will be applied to customers' bills over one or more
months as ordered by the Texas Commission,  are expected to be issued no earlier
than February 1998.

         Accounting Policies
         CPL  currently  accounts  for the  economic  effects of  regulation  in
accordance  with SFAS No. 71. Pursuant to the provisions of SFAS No. 71, CPL had
recorded approximately $1.2 billion of regulatory related assets at December 31,
1996. 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,  including  the CPL 1997 Rate Order,  CPL no longer meets the
criteria for following  SFAS No. 71, a write-off of  regulatory  assets would be
required.  In addition,  CPL would be required to determine  any  impairment  to
carrying  costs of plant  investments.  If CPL no longer  met the  criteria  for
following SFAS No. 71 and a write-off of regulatory assets was required, 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 Accounting  Policies  constitutes  forward
looking  information.  Actual results may differ  materially from such projected
information.


7.  LONG-TERM FINANCING

         The following trust  preferred  securities  issued by the  wholly-owned
statutory  business  trusts of CPL, PSO and SWEPCO were  outstanding at June 30,
1997.  They are  classified  on the  balance  sheets  as  Subsidiary  obligated,
mandatorily redeemable, trust preferred securities.
<TABLE>
<CAPTION>

                                               Amount      Description of Underlying
Business Trust      Security         Units   (millions)    Debentures of Registrant
------------------------------------------------------------------------------------------------
<S>              <C>             <C>            <C>    <C>
CPL Capital I     8.00% Series A   6,000,000     $150   CPL, $154.6 million, 8.00%, Series A
PSO Capital I     8.00% Series A   3,000,000       75   PSO, $77.3 million, 8.00%, Series A
SWEPCO Capital I  7.875% Series A  4,400,000      110   SWEPCO, $113.4 million, 7.875%, Series A
                                  ----------      ---
                                  13,400,000     $335
                                  ==========      ===
</TABLE>

         Each of the  business  trusts  will be treated as a  subsidiary  of its
parent  company.  The only assets of the  business  trusts are the  subordinated
debentures issued by their parent company as specified above. In addition to the
obligations under their  subordinated  debentures,  each of the parent companies
has  also  agreed  to  a  security   obligation  which  represents  a  full  and
unconditional  guarantee  of its  capital  trust's  obligation.  For  additional
information   concerning  these  financing   activities,   see  MD&A,  Long-Term
Financing.
<PAGE> 58
         During the second quarter of 1997, each of the U.S. Electric  Operating
Companies  reacquired a significant portion of its outstanding  preferred stock.
As a result of differences between the coupon rates on the reacquired securities
and prevailing  market rates, CSW realized an overall gain of approximately  $10
million  on the  transactions.  This  gain  is  shown  separately,  as  Gain  on
Reacquired  Preferred  Stock,  on the statements of income.  The following table
shows  the  results  of  the  tender   offers,   including  the  gain,  for  the
reacquisitions of the U.S. Electric Operating Companies' preferred stock.

                                             Shares        Shares
                                           Reacquired    Remaining
                                          ------------- -------------
CPL
   Series 4.00%                               57,952        42,048
   Series 4.20%                               57,524        17,476
   Series 7.12%                              260,000            --
   Series 8.72%                              500,000            --
   Gain (thousands)                           $2,706

PSO
   Series 4.00%                               53,203        44,697
   Series 4.24%                               91,931         8,069
   Gain (thousands)                           $4,444

SWEPCO
   Series 4.28%                               52,614         7,386
   Series 4.65%                               23,092         1,908
   Series 5.00%                               37,228        37,772
   Series 6.95%                               41,990       298,010
   Gain (thousands)                           $2,180

WTU
   Series 4.40%                               36,306        23,694
   Gain (thousands)                           $1,183


8.  PENSION PLAN AMENDMENT

         CSW maintains a tax qualified, non-contributory defined benefit pension
plan  covering  substantially  all CSW employees in the United  States.  The CSW
Board of Directors approved an amendment, effective July 1, 1997, which converts
the existing  pension plan into a cash balance  pension plan. The purpose of the
plan change is to  continue  to provide  retirement  income  benefits  which are
competitive  both  within the utility  industry as well as with other  companies
within the United States.

         As the plan  sponsor,  CSW will  continue  to reflect  the costs of the
pension plan  according to the provisions of SFAS No. 87 and allocate such costs
to each  of the  participating  employers.  As a  result  of the  July  1,  1997
amendment,  preliminary  estimates  indicate  that CSW will realize a savings in
1997 of approximately $20 million in pension expense as compared to the previous
pension plan and will realize  significant  ongoing  reductions in operating and
maintenance  expense  because of the change.  The change to the pension plan was
applied  retroactively  to the  beginning  of  1997,  so these  savings  will be
recognized  evenly  throughout  1997  with  a  portion  being  capitalized.  The
estimated  amounts  of  savings  attributable  to the  U.S.  Electric  Operating
Companies for 1997 are as follows.

CPL - $5.0 million           PSO - $3.9 million          SWEPCO - $4.5 million
                             WTU - $2.7 million

<PAGE> 59
9.  DISCONTINUED OPERATIONS

         On June 6, 1996, CSW sold Transok,  an intrastate  natural gas pipeline
and gas marketing  company that was previously a wholly owned subsidiary of CSW,
to Tejas Gas  Corporation.  Accordingly,  the results of operations  for Transok
have been  reported  as  discontinued  operations  and no assets or  liabilities
related to Transok are contained in CSW's  Consolidated  Balance  Sheets.  Since
Transok was sold in June 1996,  CSW's  results of  operations do not reflect any
earnings  from Transok for either the three or six month  periods ended June 30,
1997.  Operating  results of Transok  that are included in CSW's  Statements  of
Income for the three and six month periods ended June 30, 1996 are summarized in
the following table (in millions, transactions with CSW affiliates have not been
eliminated).

                                             Three Months     Six Months
                                                 Ended          Ended
                                             June 30, 1996  June 30, 1996
                                             -------------  -------------
                                                      (millions)
Total revenue                                    $107           $362
Operating income before income taxes                8             23
Earnings before income taxes                        6             18
Income taxes                                        2              6
                                                 ----           ----
Net income from discontinued operations            $4            $12
                                                 ----           ----







<PAGE> 60


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, 1996 and the  Registrants'
Combined  Quarterly  Report on Form 10-Q for the quarter  ended March 31,  1997.
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 in  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 and six month  periods ended
June 30, 1997.

         Factors Impacting CSW's 1997 Annual Earnings
         CSW  expects its 1997 net income for common  stock to be  substantially
lower than it has been in the past.  Several factors discussed in this Form 10-Q
or disclosed previously that have had or are expected to have a material adverse
effect on CSW's 1997  results of  operations.  These items  include the proposed
windfall profits tax in the United Kingdom, the settlement of litigation related
to the  termination  of the  proposed  merger with El Paso and the impact of the
Texas  Commission's  order in CPL's  current rate case.  The  proposed  windfall
profits tax and the charge for the settlement with El Paso are one-time  events.
However,  the rate case at CPL will  likely  have an  ongoing  material  adverse
impact on CSW's  consolidated  results of operations  compared to prior periods.
The  estimated  after-tax  impact of these items for 1997 compared to 1996's net
income for common stock is shown in the following table.

                                                       Estimated
Factors Impacting 1997 Earnings                         Impact
----------------------------------------------------- -----------
                                                       (millions)

Proposed United Kingdom windfall profits tax             $180
Settlement of El Paso litigation                           23
CPL 1997 Rate Order (1996 effect)                          21
CPL 1997 Rate Order (1997 effect)                          33
                                                      -----------
Total estimated 1997 impact                              $257

1996 Net Income for Common Stock                         $429

Percentage of prior year                                  60%

         This table is intended to highlight  several items that are expected to
adversely  impact  CSW's 1997 results of  operations.  Although CSW is unable at
this time to quantify all of the items with certainty,  it is management's  best
estimate  at this time.  In  addition,  if PSO  ultimately  is  unsuccessful  in
reaffirming adequate rates in its current rate proceeding,  CSW could experience
a material adverse effect on its consolidated  results of operations  related to
this matter. However,  management is unable to predict the outcome of PSO's rate
proceeding  and is uncertain  what the impact will be in 1997, so no estimate is
provided in this table. For additional  information  related to these items, see
NOTE  2.  LITIGATION  AND  REGULATORY  PROCEEDINGS,   NOTE  3.  COMMITMENTS  AND
CONTINGENT LIABILITIES and NOTE 6. CPL RATE REVIEW - DOCKET NO. 14965.

<PAGE> 61
         The  foregoing  discussion  of  Factors  Impacting  CSW's  1997  Annual
Earnings  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.


LIQUIDITY AND CAPITAL RESOURCES

         Overview of CSW Operating, Investing and Financing Activities
         Net cash flows from operating  activities increased $119 million during
the first six months of 1997  compared to same period in 1996.  The increase was
attributable  in  part  to  the  higher  rates  that  CPL  has  collected  since
implementing the bonded rates in May 1996,  improved fuel recovery positions and
changes in other working capital  accounts.  These increases were offset in part
by  federal  and state  income tax  payments  for the gain of CSW's 1996 sale of
Transok which totaled  approximately $122 million (after being offset in part by
the  utilization  of  Alternative  Minimum Tax credits  that CSW had  previously
generated).

         Net cash outflows from  investing  activities  decreased  substantially
during the first six months of 1997  compared to the same period in 1996.  There
were  no  acquisition   expenditures  during  1997  while  SEEBOARD  acquisition
expenditures were made during 1996. In addition,  during 1996, the National Grid
shares were sold in  conjunction  with SEEBOARD  acquisition  activities and CSW
also received  cash proceeds of $690 million on the sale of Transok.  CSW Energy
obtained   permanent  external  financing  during  March  1997  for  the  Orange
Cogeneration  project  and  subsequently  reduced its equity  investment  in the
project. For additional  information related to this transaction,  see Long-Term
Financing.  CSW  Energy  made its final  purchase  agreement  payment on the Ft.
Lupton  cogeneration  project  and also  incurred  approximately  $83 million in
construction  expenditures  on the Sweeny  project which were not present in the
comparable  period  in  1996.  CSW   International   continued  to  provide  the
construction  financing for its Altamira  project.  Construction  on the project
began in the third quarter of 1996.

         Net cash  inflows from  financing  activities  decreased  substantially
during  the first six months of 1997  compared  to same  period in 1996.  During
1996,  CSW incurred  substantial  amounts of debt to finance the  acquisition of
SEEBOARD.  In addition,  during 1996, CSW sold approximately 15.5 million shares
of common stock and received  net  proceeds of  approximately  $398 million in a
primary public offering.  The proceeds were subsequently used to repay a portion
of the debt incurred in connection with the SEEBOARD  acquisition.  In addition,
in April 1997,  CSW made changes in its common  stock plans and stopped  issuing
original  shares  through  these  plans.  However,  partially  offsetting  these
activities, the business trusts of CPL, PSO and SWEPCO issued approximately $324
million of preferred  securities  during  1997. A portion of these  proceeds was
used to redeem  preferred stock of these  companies.  See Capital  Structure and
Long-Term Financing for additional information related to these matters.

         Construction Expenditures
         CSW's construction expenditures,  including AFUDC, totaled $246 million
for the six months ended June 30, 1997. Such  expenditures for the U.S. Electric
Operating  Companies  totaled  $76  million,  $40  million,  $50 million and $14
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.



<PAGE> 62


         Capital Structure
         The CSW System is committed to  maintaining  financial  flexibility  by
having a strong capital structure and favorable securities ratings which help to
assure future access to capital  markets when  required.  At June 30, 1997,  the
capitalization  ratios of each of the  Registrants is presented in the following
table.
                                         Trust
          Common        Preferred       Preferred         Long
       Stock Equity       Stock       Securities (1)    Term Debt      Total
       ------------     ---------     --------------    ---------      -----

CSW         45%             2%             4%              49%          100%
CPL         47%             5%             5%              43%          100%
PSO         50%             1%             7%              42%          100%
SWEPCO      51%             2%             8%              39%          100%
WTU         48%             1%            --%              51%          100%

(1)  classified on the balance sheet as Subsidiary (CPL, PSO, SWEPCO) obligated,
     mandatorily redeemable, trust preferred securities

         CSW can issue common  stock,  either  through open market  purchases or
original  issue  shares,  through a long-term  incentive  plan,  the  PowerShare
Dividend Reinvestment and Stock Purchase Plan and the ThriftPlus plan. Following
the  issuance of the CPL 1997 Rate Order and the decline in the market  price of
CSW's common stock, which management believes is attributable in part to the CPL
1997 Rate Order,  management determined that it was appropriate for CSW to begin
funding these plans through open market purchases, effective April 1, 1997.

         Long-Term Financing
         On April  24,  1997,  PSO's  business  trust,  PSO  Capital  I, sold to
underwriters  in a  negotiated  offering  $75  million,  8.00%  Series A,  Trust
Originated  Preferred  Securities  due April 2037. The proceeds from the sale of
these  securities were used by PSO to repay  short-term debt, to reimburse PSO's
treasury for the cost of reacquiring approximately $14.5 million of 4.00% Series
and 4.24%  Series  preferred  stock,  to provide  working  capital and for other
general  corporate  purposes.  Settlement of the transaction  occurred on May 2,
1997. PSO Capital I will be treated as a subsidiary of PSO whose only assets are
the approximately $77.3 million principal subordinated debentures issued by PSO.
In addition to PSO's obligation under the subordinated debentures,  PSO has also
agreed  to a  security  obligation  which  represents  a full and  unconditional
guarantee of PSO Capital I's trust obligations.

         On April 30, 1997,  SWEPCO's business trust,  SWEPCO Capital I, sold to
underwriters  in a negotiated  offering  $110  million,  7.875%  Series A, Trust
Preferred  Securities  due  April  2037.  The  proceeds  from  the sale of these
securities were used by SWEPCO to repay short-term  debt, to reimburse  SWEPCO's
treasury  for the  cost of  reacquiring  approximately  $15.5  million  of 4.28%
Series,  4.65% Series, 5.00% Series and 6.95% Series preferred stock, to provide
working  capital and for other  general  corporate  purposes.  Settlement of the
transaction  occurred  on May 8,  1997.  SWEPCO  Capital I will be  treated as a
subsidiary  of SWEPCO  whose only assets are the  approximately  $113.4  million
principal  subordinated  debentures  issued by SWEPCO.  In  addition to SWEPCO's
obligation  under  the  subordinated  debentures,  SWEPCO  has also  agreed to a
security  obligation  which  represents  a full and  unconditional  guarantee of
SWEPCO Capital I's trust obligations.

         On  May  8,  1997,  CPL's  business  trust,  CPL  Capital  I,  sold  to
underwriters  in a negotiated  offering $150 million,  8.00% Series A, Quarterly
Income Preferred  Securities due April 2037. The proceeds from the sale of these
securities  were  used by CPL to  repay  short-term  debt,  to  reimburse  CPL's
treasury  for the  cost of  reacquiring  approximately  $87.5  million  of 4.00%
Series,  4.20% Series, 7.12% Series and 8.72% Series preferred stock, to provide
<PAGE> 63
working  capital and for other  general  corporate  purposes.  Settlement of the
transaction  occurred  on May 14,  1997.  CPL  Capital  I will be  treated  as a
subsidiary  of CPL  whose  only  assets  are the  approximately  $154.6  million
principal subordinated debentures issued by CPL. In addition to CPL's obligation
under the subordinated debentures,  CPL has also agreed to a security obligation
which  represents  a full and  unconditional  guarantee of CPL Capital I's trust
obligations.

         In March 1997, an affiliate of Orange Cogeneration Limited Partnership,
an entity that is  indirectly  50% owned by CSW Energy and  accounted for by the
equity method of accounting,  issued $110 million,  8.175% Senior Secured Bonds,
due 2022.  The  bonds  are  unconditionally  guaranteed  by Orange  Cogeneration
Limited Partnership.  Concurrently,  $53.2 million was distributed to CSW Energy
representing its equity investment in the Orange Cogeneration project.

         Short-Term Financing
         The CSW System uses  short-term  debt to meet  fluctuations  in working
capital  requirements  and other interim  capital needs.  CSW has  established a
system  money  pool to  coordinate  short-term  borrowings  for  certain  of its
subsidiaries,  primarily the U.S. Electric Operating Companies. In addition, CSW
also incurs borrowings for other subsidiaries that are not included in the money
pool. As of June 30, 1997,  CSW had revolving  credit  facilities  totaling $1.2
billion to back up its commercial paper program.


RATES AND REGULATORY MATTERS

         CPL Regulatory Matters
         Reference is made to NOTE 6.  CPL RATE REVIEW - DOCKET NO. 14965.

         PSO Regulatory Matters
         Reference is made to NOTE 2.  LITIGATION AND REGULATORY PROCEEDINGS.

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


STRATEGIC INITIATIVES

         A vital part of CSW's future  business  strategy  involves  initiatives
that are outside of the  traditional  United States electric  utility  industry.
This  is  due  in  large  measure  to the  well-documented  fundamental  changes
currently  impacting the electric utility industry.  CSW has undertaken  several
such  initiatives  in the past,  and will  continue to pursue them in the future
provided they are  consistent  with the overall  vision for the company which is
articulated  as "CSW is an  innovative  leader in the global  energy and related
services  markets." During the first half of 1997,  several new initiatives were
undertaken in support of this vision.  These initiatives  include  activities in
both CSW's Energy Trading and Energy Services lines of business.

         In June 1997,  the FERC  approved  the request of CSW PMI to sell power
and energy at market-based  rates,  rather than prices based on cost-of-service,
in  the  wholesale  electricity  market.  Although  CSW  PMI is  subject  to the
jurisdiction  of the FERC,  it will not be subject to rate  jurisdiction  of any
state utility commissions.

<PAGE> 64
         During the second quarter of 1997,  CSW made an equity  investment in a
firm that provides  technical  consulting  services to both the nuclear industry
and to governmental  agencies associated with the energy industry.  In addition,
CSW is in the process of forming a group that will spearhead  CSW's  competitive
efforts in the retail electricity  markets of states outside of CSW's historical
service territories. This initiative will not only attempt to secure electricity
supply business in the few markets which soon will have retail competition,  but
will also permit CSW to extend its business  reach and name  recognition  beyond
CSW's traditional customer base.


RECENT DEVELOPMENTS

         FERC Order No. 888/Texas Commission ERCOT Transmission Rules
         As  previously  reported,  the FERC issued Order No. 888,  which is the
final comparable open access transmission  service rule, in 1996. The provisions
of FERC  Order No. 888  provide  for  comparable  transmission  service  between
utilities  and their  transmission  customers  by  requiring  utilities  to take
transmission  service  under  their  open  access  tariffs  for all of their new
wholesale  sales and  purchases  and by requiring  utilities to rely on the same
information  that  their  transmission  customers  rely  on  to  make  wholesale
purchases and sales.

         In addition, the Texas Commission adopted a rule governing transmission
access and pricing for ERCOT in 1996.  The pricing  method  adopted by the Texas
Commission is a hybrid  combination of an ERCOT-wide postage stamp rate covering
70% of total ERCOT transmission costs and a  distance-sensitive  component which
recovers the  remaining  30% of ERCOT's  transmission  costs.  CPL and WTU began
recording  transmission  revenues  and  expenses  in  accordance  with the Texas
Commission's rule on January 1, 1997.

         FERC Order No. 888 requires  holding  companies to offer single  system
transmission  rates.  However,  because the transmission rates of PSO and SWEPCO
are under the exclusive jurisdiction of the FERC while the transmission rates of
CPL and WTU are under the exclusive jurisdiction of the Texas Commission and the
two  commissions   have  different   approaches  to  defining  and  implementing
comparable  open  access  transmission  service,  Order No. 888 granted the U.S.
Electric  Operating  Companies an exemption  permitting  them an  opportunity to
propose a solution  that  provides  comparability  to all  wholesale  users.  On
November 1, 1996,  the U.S.  Electric  Operating  Companies  filed a system-wide
tariff to comply with Order No. 888 and, on December 31, 1996, the FERC accepted
for filing the  system-wide  tariff which  become  effective on January 1, 1997,
subject  to refund  and to the  issuance  of  further  orders.  CSW and the U.S.
Electric Operating Companies believe that their system-wide tariff complies with
the requirements of both the FERC and the Texas  Commission  although the tariff
does not offer a single system rate.

         Industry Restructuring Initiatives
         As previously reported, several initiatives regarding restructuring the
electric  utility  industry have recently been  undertaken in the four states in
which the U.S. Electric  Operating  Companies  operate.  Such actions have taken
various  forms,  including  proposed  legislation.  Legislation  was  enacted in
Oklahoma that provides for retail competition by July 2002. However, legislative
activities in Texas, Louisiana and Arkansas stopped short of any such definitive
action.

         In April 1997, the Oklahoma  Legislature  enacted  legislation  dealing
with industry  restructuring in Oklahoma,  which provides for retail competition
by July 1, 2002. The  legislation  directs the Oklahoma  Commission to study all
<PAGE> 65
relevant  issues  relating  to  restructuring  and  develop  a  framework  for a
restructured industry. The legislation divides the study of restructuring issues
by the Oklahoma  Commission  into four parts:  (i)  independent  system operator
issues; (ii) technical issues; (iii) financial issues; and (iv) consumer issues.
At the end of each of  these  studies,  the  Oklahoma  Commission  must  provide
reports along with  legislative  recommendations.  The  legislation  directs the
Oklahoma Tax Commission to study the impact of electric utility restructuring on
state tax revenues and the existing tax structure, consider the establishment of
a uniform  consumption  tax, and report to the Oklahoma  Legislature by December
31, 1998. The  legislation  prohibits the  establishment  of retail  competition
until a uniform tax policy is established.  The legislation also creates a Joint
Electric  Utility Task Force,  a 14-member  panel composed of an equal number of
representatives  from the  Oklahoma  House of  Representatives  and the Oklahoma
Senate. The duties of this task force include the oversight and direction of the
studies by the Oklahoma  Commission and the Oklahoma Tax Commission.  Management
is unable to predict the outcome of these  studies or their  ultimate  impact on
the results of operations and financial condition of CSW or PSO.

         In March 1997, the Arkansas  Legislature passed a resolution  directing
interim  legislative  committees  to study  competition  in the  electric  power
industry in  Arkansas.  The study will begin on  December  1, 1997,  or when the
Arkansas  Commission issues a final order in a currently pending rate proceeding
filed by Entergy Arkansas,  Inc., whichever occurs first. Although several bills
addressing industry  restructuring and retail competition were introduced in the
recent sessions of the Texas and Louisiana legislatures, no such legislation was
adopted.  The  Louisiana  Senate  did  adopt a  resolution  creating  a  special
committee to assess the impact of retail  competition on the state of Louisiana.
The committee will begin meeting in the fall of 1997 and is scheduled to issue a
report before the next regular session of the Louisiana Legislature.  Management
cannot predict the outcome of either of the studies in Arkansas and Louisiana or
their ultimate  impact on the results of operations  and financial  condition of
CSW or SWEPCO.


MERGER AND ACQUISITION ACTIVITIES

         SWEPCO Cajun Asset Purchase Proposal
         As previously reported, 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.  In October 1996,  SWEPCO,  together with
Entergy  Gulf  States and the  Committee  of Certain  Members,  which  currently
consists of seven of the twelve distribution cooperatives served by Cajun, filed
the SWEPCO Plan in the bankruptcy court. In April 1997, the Committee of Certain
Members as well as another  cooperative  signed  term  sheets  that  support the
SWEPCO Plan. In signing the term sheets, the Committee of Certain Members agreed
to support the SWEPCO  Plan  throughout  the  confirmation  process,  and if the
SWEPCO  Plan is  confirmed,  to sign  power  supply  agreements  that  meet  the
conditions of the term sheets.

         Under the SWEPCO Plan, which amended other plans filed earlier in 1996,
a SWEPCO subsidiary or affiliate would acquire all of the non-nuclear  assets of
Cajun for approximately $780 million in cash and up to an additional $20 million
to pay certain other bankruptcy claims and expenses. SWEPCO would acquire claims
of  unsecured  creditors  of up to $7  million.  In  addition,  the SWEPCO  Plan
provides  for the Cajun  member  cooperatives  to enter into new  25-year  power
supply  agreements  which will  provide the Cajun member  cooperatives  with two
wholesale  rate  options  while  permitting  the Cajun member  cooperatives  the
flexibility to acquire power on the open market when their  requirements  exceed
mutually agreed upon levels of generating capacity.  The cooperatives could also
elect,  once every five years,  to move from one rate  option to the other.  The
<PAGE> 66
SWEPCO Plan would settle power supply contract claims and related  litigation in
the bankruptcy  case. The term sheets signed by the eight  cooperatives  contain
the major provisions of the SWEPCO Plan.

         Two competing  plans of  reorganization  for Cajun have also been filed
with the  bankruptcy  court,  each with  different  rate paths,  asset  purchase
proposals and other  provisions.  One of the competing  plans has the support of
both the bankruptcy  court-appointed  trustee and Cajun's largest creditor,  the
Rural Utilities  Service of the federal  government.  It also has the support of
the four  cooperatives  not currently  supporting the SWEPCO plan,  although the
support  is based  upon  signed  memoranda  of  understanding  which  allow  the
cooperatives to support other competing parties.

         Confirmation  hearings  in Cajun's  bankruptcy  case are now  scheduled
through  the  month  of  October  1997.  Consummation  of  the  SWEPCO  Plan  is
conditioned upon confirmation by the bankruptcy court, the receipt by SWEPCO and
CSW of all requisite state and federal regulatory approvals and receipt of their
corresponding board approvals.  If the SWEPCO Plan is confirmed,  CSW and SWEPCO
expect  initially  to  finance  the $807  million  required  to  consummate  the
acquisition  of Cajun's  non-nuclear  assets  through a combination  of external
borrowings and internally generated funds.

         The  foregoing  discussion  of SWEPCO  Cajun  Asset  Purchase  Proposal
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.

         Termination of El Paso Merger
         Reference is made to NOTE 2.  LITIGATION AND REGULATORY PROCEEDINGS.


DERIVATIVE INSTRUMENTS

         The  U.S.  Electric  Operating  Companies  experience  commodity  price
exposures  related to the purchase of both 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 which
are  designed to stabilize  the cost of the  commodity.  Consequently,  the U.S.
Electric  Operating  Companies  hedge their price  exposure by  balancing  their
commodity   purchases   through  a  combination   of  long-term  and  short-term
(spot-market) agreements.

         Since  the  purchase  of  SEEBOARD  in 1995,  CSW has been  exposed  to
currency and interest rate risks which  reflect the changing  exchange rate that
exists  between the U.S.  dollar and the British pound.  For accrual  accounting
purposes,  transactions  are  recorded at  differing  times than when the actual
transfer of dollars or pounds  occurs.  To enable CSW to protect  itself from an
adverse  change in the exchange  rates between the  currencies  during this time
span, various risk management tools may be utilized.



<PAGE> 67


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, 1996 and Combined  Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997.


ITEM 1.  LEGAL PROCEEDINGS.

         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 city of San
Juan 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 filed by the 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.  After the Texas  Commission's  order, the Hidalgo County court overruled
CPL's plea to the jurisdiction and plea in abatement.  In July 1997, the Hidalgo
County  court  entered  an  order  certifying  the case as a class  action.  CPL
appealed  this order to the Corpus  Christi  Court of  Appeals.  In May 1996 and
December 1996,  respectively,  the cities of Pharr, Texas and San Benito,  Texas
filed  individual  suits making claims identical to those claimed by the city of
San Juan.

         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 these lawsuits.

         CPL Nuclear Insurance Claims
         In 1994,  CPL  filed a claim  under its NEIL I policy  relating  to the
1993-1994 outage at STP Units 1 and 2. NEIL formally denied CPL's claim in 1995.
In April 1996, CPL filed an action in state  district  court in Corpus  Christi,
Texas,  against NEIL and Johnson & Higgins of Texas,  Inc., the former insurance
broker  for STP,  seeking  recovery  under the  policy  and other  relief.  NEIL
responded by filing a suit against CPL in the United States  District  Court for
the Southern  District of New York seeking a declaratory  judgment to enforce an
arbitration  provision  contained in the policy. In May 1996, the New York court
ordered the dispute, including the issue of whether the arbitration provision is
enforceable,  to arbitration and stayed the Texas proceeding. NEIL also canceled
CPL's current NEIL I policy  effective July 31, 1996. NEIL also filed a claim in
arbitration seeking a determination that NEIL properly terminated CPL's coverage
and that CPL has  caused  NEIL  damages  by  opposing  NEIL's  attempt to compel
arbitration and seeking recovery of NEIL's attorneys' fees.

         In June  1996,  CPL filed a notice  of  appeal of the New York  court's
order  in  the  United   States  Court  of  Appeals  for  the  Second   Circuit.
Subsequently,  CPL and NEIL  agreed  to  dismiss  all  litigation  between  them
concerning  CPL's  claim for NEIL  coverage.  CPL and NEIL also agreed to submit
<PAGE> 68
their  disputes  over coverage to a  non-binding,  neutral  evaluation  process,
although  both CPL and NEIL  reserved the right to take their dispute to binding
arbitration.  CPL and  NEIL  also  agreed  that  CPL's  NEIL I  policy  would be
reinstated.  Evidentiary hearings were held by the neutral evaluator in February
1997. A final oral  argument  was held before the neutral  evaluator on April 4,
1997. On April 22, 1997,  the neutral  evaluator  made the  recommendation  that
CPL's claim was not covered by its NEIL I policy.  CPL will abide by the neutral
evaluator's recommendation.

         Other Legal Claims and Proceedings
         The CSW System is party to various  other legal claims and  proceedings
arising in the normal course of business. Management does not expect disposition
of these matters to have a material adverse effect on the  Registrants'  results
of  operations  or  financial  condition.  See PART I - NOTE 2.  LITIGATION  AND
REGULATORY PROCEEDINGS,  PART 1 - NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES
and PART I - NOTE 6. CPL RATE REVIEW DOCKET NO. 14965.




<PAGE> 69


ITEM 5.  OTHER INFORMATION

         PSO Union Negotiations
         As  previously   reported,   PSO  and  its  Local  Union  1002  of  the
International  Brotherhood  of Electrical  Workers have been engaged in contract
renewal negotiations. The underlying agreement expired in September 1996 and, to
date, the parties have been unable to reach an agreement.  In December 1996, PSO
implemented  portions of its final  proposal  after  declaring  an impasse.  The
principal  issue  of  disagreement  involves  PSO's  need for  flexibility  in a
deregulated environment.

         In April 1997, Oklahoma's governor signed into law an electric industry
restructuring   bill.  The  new  law  mandates  the   implementation  of  retail
competition  to begin on July 1, 2002.  PSO believed that the new law also broke
the impasse in the contract  negotiations and has resumed  negotiations with the
union. At this time, PSO cannot predict the outcome of this matter. However, PSO
is confident that, even in the event of a strike,  its operations would continue
without a significant disruption.


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

(a)  EXHIBITS:

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


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





<PAGE> 70


(b)  REPORTS FILED ON FORM 8-K:

           CSW
           Item 5. Other  Events,  dated April 11,  1997,  reporting  bankruptcy
           judge's  interim order in the El Paso terminated  merger  litigation.
           Item 5. Other Events and Item 7.  Financial  Statements and Exhibits,
           dated April 17, 1997,  announcing first quarter earnings and dividend
           declaration.
           Item 5. Other  Events,  dated  July 2, 1997,  reporting information
           related to the United Kingdom Windfall Profits Tax. 
           Item 5. Other Events,  dated July 16, 1997,  reporting  the  
           settlement of litigation related to the termination of the proposed 
           El Paso merger.

           CSW and CPL
           Item 5. Other  Events,  dated March 31, 1997 and filed April 2, 1997,
           updating  CPL Rate Review  Docket No.  14965.  
           Item 5. Other  Events, dated  March 31,  1997 and filed  April 3, 
           1997,  updating  CPL Rate Review Docket No. 14965.  
           Item 5. Other Events and Item 7.  Financial Statements and Exhibits,
           dated  March 31, 1997 and filed April 10, 1997,  reporting  (i) the 
           CPL 1997 Rate  Order;  (ii)  Other  Matters including  legislative
           action in Texas,  CSW's dividend policy,  and certain  
           regulation-related  accounting issues; (iii) a change in the funding
           of CSW stock plans; and (iv) the results of a special meeting of 
           CPL's  shareholders.  
           Item 5. Other  Events,  dated April 7, 1997, providing certain
           information in anticipation of a preferred securities offering by CPL
           Capital I.

           CSW and PSO
           Item 5. Other Events,  dated July 17, 1997, reporting the OCC Staff's
           recommendation  to the OCC with  regard to PSO's  current  regulatory
           matters.

           PSO
           Item 5.  Other  Events,  dated  April  16,  1997,  providing  certain
           information in anticipation of a preferred securities offering by PSO
           Capital I.

           SWEPCO
           Item 5.  Other  Events,  dated  April  16,  1997,  providing  certain
           information in anticipation of a preferred securities offering by 
           SWEPCO Capital I.

           WTU
           None


<PAGE> 71



SIGNATURES

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


                       CENTRAL AND SOUTH WEST CORPORATION


Date:  August 13, 1997                   /s/ Lawrence B. Connors
                                         --------------------------
                                         Lawrence B. Connors
                                         Controller and Chief Accounting Officer
                                         (Principal Accounting Officer)



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


Date:  August 13, 1997                   /s/ R. Russell Davis
                                         -----------------------
                                         R. Russell Davis
                                         Controller and Chief Accounting Officer
                                         (Principal Accounting Officer)