UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION

                          Washington, D.C. 20549

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

                 For the Quarter Ended September 30, 1998

                                    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 November 10, 1998                  Shares
   Central and South West Corporation                       212,601,915
   Central Power and Light Company                            6,755,535
   Public Service Company of Oklahoma                         9,013,000
   Southwestern Electric Power Company                        7,536,640
   West Texas Utilities Company                               5,488,560

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


<PAGE>


                                        
        CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES

            TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM 10-Q
                            SEPTEMBER 30, 1998


                                                                           PAGE

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


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


PART I.  FINANCIAL INFORMATION...............................................6
  ITEM 1.  FINANCIAL STATEMENTS
    CENTRAL AND SOUTH WEST CORPORATION.......................................6
    CENTRAL POWER AND LIGHT COMPANY.........................................17
    PUBLIC SERVICE COMPANY OF OKLAHOMA......................................25
    SOUTHWESTERN ELECTRIC POWER COMPANY.....................................33
    WEST TEXAS UTILITIES COMPANY............................................41
    NOTES TO FINANCIAL STATEMENTS...........................................49

  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
    RESULTS OF OPERATIONS...................................................67

PART II - OTHER INFORMATION.................................................78


  ITEM 1.  LEGAL PROCEEDINGS................................................78

  ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.................................78

SIGNATURES..................................................................80




<PAGE>


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

Abbreviation or Acronym    Definition
AEP........................American Electric Power Company, Inc.
AEP Merger.................Proposed Merger between AEP and CSW as a result of
                           which CSW would become a wholly owned subsidiary of 
                           AEP
ALJ........................Administrative Law Judge
Alpek......................Alpek S.A. de C.V.
Ameren System..............Ameren Corporation, parent of recently merged Union
                           Electric Company and Central Illinois Public Service 
                           Company
Anglo Iron.................Anglo Iron and Metal, Inc.
Arkansas Commission........Arkansas Public Service Commission
C3 Communications..........C3 Communications, Inc., Austin, Texas (formerly CSW
                           Communications, Inc.)
Cajun......................Cajun Electric Power Cooperative, Inc.
Cajun Members Committee....A committee which represents 7 of the 12 Louisiana
                           member distribution cooperatives that are served by 
                           Cajun
CERCLA.....................Comprehensive Environmental Response, Compensation
                           and Liability Act of 1980
ChoiceCom..................CSW/ICG ChoiceCom, L..P., a joint venture between C3
                           Communications and ICG Communications
CPL........................Central Power and Light Company, Corpus Christi,
                           Texas
CPL 1997 Final Order.......Final orders received from the Texas Commission in
                           CPL's rate case Docket No. 14965
CSW........................Central and South West Corporation, Dallas, Texas
CSW Credit.................CSW Credit, Inc., Dallas, Texas
CSW Energy.................CSW Energy, Inc., Dallas, Texas
CSW International..........CSW International, Inc., Dallas, Texas
CSW Services...............Central and South West Services, Inc., Dallas, Texas
                           and Tulsa, Oklahoma
CSW System.................CSW and its subsidiaries
CWIP.......................Construction work in progress
ECOM.......................Excess cost over market
El Paso....................El Paso Electric Company
EnerShop...................EnerShop Inc., Dallas, Texas
Enertek....................Co-generation power plant, Tampico, Mexico
EPA........................Environmental Protection Agency
ERCOT......................Electric Reliability Council of Texas
Exchange Act...............Securities Exchange Act of 1934, as amended
FASB.......................Financial Accounting Standards Board
FERC.......................Federal Energy Regulatory Commission
FMB........................First mortgage bond
Holding Company Act........Public Utility Holding Company Act of 1935, as 
                           amended
ICG Communications.........ICG Communications, Inc.
ITC........................Investment tax credit
LIFO.......................Last-in First-out (inventory accounting method)
Louisiana Commission.......Louisiana Public Service Commission
MD&A.......................Management's Discussion and Analysis of Financial
                           Condition and Results of Operations
MDEQ.......................Mississippi Department of Environmental Quality
MGP........................Manufactured gas plant or coal gasification plant
Mirror CWIP................Mirror Construction Work in Progress
Mississippi Power..........Mississippi Power Company
MMbtu......................Million Btu (British thermal unit)
MW.........................Megawatt
MWH........................Megawatt-hour
NEIL.......................Nuclear Electric Insurance Limited
NRC........................Nuclear Regulatory Commission
Oklahoma Commission........Corporation Commission of the State of Oklahoma
Phillips Sweeny............Cogeneration power plant, Sweeny, Texas
PRP........................Potentially responsible party


<PAGE>


GLOSSARY OF TERMS  (continued)

Abbreviation or Acronym    Definition
PSO........................Public Service Company of Oklahoma, Tulsa, Oklahoma
PSO 1997 Rate Settlement
   Agreement...............Joint stipulation agreement reached by PSO and other
                           parties to settle PSO's 1997 rate inquiry
Registrant(s)..............CSW, CPL, PSO, SWEPCO and WTU
RUS........................Rural Utilities Service of the federal government
SEC........................United States Securities and Exchange Commission
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. 130...............Reporting Comprehensive Income
SFAS No. 133...............Accounting for Derivative Instruments and Hedging
Activities
SOP........................Statement of Position (accounting standard)
SOP 98-5...................Reporting on the Costs of Start-Up Activities
STP........................South Texas Project nuclear electric generating
                           station, jointly owned by CPL, Houston Lighting and 
                           Power Company, City of Austin, and City of San
                           Antonio
SWEPCO.....................Southwestern Electric Power Company, Shreveport,
Louisiana
SWEPCO Plan................The amended plan of reorganization for Cajun filed by
                           the Members Committee and SWEPCO on March 18, 1998
                           with the U.S. Bankruptcy Court for the Middle
                           District of Louisiana
Texas Commission...........Public Utility Commission of Texas
Transok....................Transok, Inc., a former wholly-owned subsidiary of 
                           CSW
Trust Preferred Securities.Collective term for securities issued by business
                           trusts of CPL, PSO and SWEPCO classified on the
                           balance sheet as "Certain Subsidiary (or
                           CPL/PSO/SWEPCO)- obligated, mandatorily redeemable
                           preferred securities of subsidiary trusts holding
                           solely Junior Subordinated Debentures of such
                           Subsidiaries (or CPL/PSO/SWEPCO)"
U.S. Electric(s) or U.S.
  Electric Operating
  Companies................CPL, PSO, SWEPCO and WTU
Valero.....................Valero Refining Company-Texas, Valero Refining
                           Company and Valero Energy
                           Company
WTU........................West Texas Utilities Company, Abilene, Texas
Yorkshire..................Yorkshire plc, a regional electricity company in the
                           United Kingdom


<PAGE>


FORWARD-LOOKING INFORMATION
This report made by CSW and certain of its subsidiaries contains forward-looking
statements  within the meaning of Section 21E of the Exchange Act.  Although CSW
and each of its subsidiaries believe that, in making any such statements,  their
expectations  are based on reasonable  assumptions,  any such  statements may be
influenced  by factors  that  could  cause  actual  outcomes  and  results to be
materially  different from those projected.  Important  factors that could cause
actual results to differ materially from those in the forward-looking statements
include,  but are not limited to: the impact of general  economic changes in the
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.;  the  impact of the  proposed  AEP  Merger  including  any  regulatory
conditions imposed on the merger, the inability to consummate the AEP Merger, or
other merger and  acquisition  activity  including the SWEPCO Plan;  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;  costs associated with any year 2000 failure
either within the CSW System or supplier  failures that adversely affect the CSW
System;  uncertainties  in foreign  operations and foreign laws affecting  CSW's
investments in those countries; the effects of retail competition in the natural
gas and electricity  distribution  and supply  businesses in the United Kingdom;
and the timing and  success of  efforts to develop  domestic  and  international
power projects.  In the non-utility area, the previously mentioned factors would
apply  and  also  include,  but are not  limited  to:  the  ability  to  compete
effectively  in new areas,  including  telecommunications,  power  marketing and
brokering,  and other energy related  services,  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>






CSW

                       CENTRAL AND SOUTH WEST CORPORATION
                            AND SUBSIDIARY COMPANIES



                         PART I. FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.


                                                           
                                                      


<PAGE>

                                         CENTRAL AND SOUTH WEST CORPORATION

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

                                                                     Three Months Ended           Nine Months Ended
                                                                        September 30,               September 30,
                                                                   ------------------------    -------------------------
                                                                     1998          1997           1998          1997
                                                                   ----------    ----------    -----------   -----------
                                                                           (millions, except per share amounts)
<S>                                                                <C>           <C>           <C>           <C>    

Operating Revenues
    U.S. Electric                                                    $ 1,172       $ 1,054        $ 2,746       $ 2,562
    United Kingdom                                                       352           401          1,288         1,324
    Other diversified                                                     57            22            148            53
                                                                   ----------    ----------    -----------   -----------
                                                                       1,581         1,477          4,182         3,939
Operating Expenses and Taxes
    U.S. Electric fuel                                                   388           370            939           892
    U.S. Electric purchased power                                         39            18             86            61
    United Kingdom cost of sales                                         224           276            879           927
    Other operating                                                      232           216            705           658
    Maintenance                                                           41            38            114           111
    Provision for CPL 1997 Final Order                                    --             3             --            18
    El Paso merger litigation                                             --            --             --            35
    Depreciation and amortization                                        126           121            375           360
    Taxes, other than income                                              44            49            145           143
    Income taxes                                                         143            83            218           135
                                                                   ----------    ----------    -----------   -----------
                                                                       1,237         1,174          3,461         3,340
                                                                   ----------    ----------    -----------   -----------
Operating Income                                                         344           303            721           599
                                                                   ----------    ----------    -----------   -----------

Other Income and Deductions
    Other                                                                  5            11             33            24
    Non-operating income taxes                                             3            (1)             2             3
                                                                   ----------    ----------    -----------   -----------
                                                                           8            10             35            27
                                                                   ----------    ----------    -----------   -----------
Income Before Interest and Other Charges                                 352           313            756           626
                                                                   ----------    ----------    -----------   -----------

Interest and Other Charges
    Interest on long-term debt                                            78            84            238           251
    Interest on short-term debt and other                                 33            23             92            59
    Distributions on trust preferred securities                            7             7             20            11
    Preferred dividend requirements of subsidiaries                        1             3              6            10
    (Gain)/loss on reacquired preferred stock                             --            --              1           (10)
                                                                   ----------    ----------    -----------   -----------
                                                                         119           117            357           321
                                                                   ----------    ----------    -----------   -----------

Income Before Extraordinary Item                                         233           196            399           305
Extraordinary Item - United Kingdom windfall profits tax                  --          (176)            --          (176)
                                                                   ==========    ==========    ===========   ===========
Net Income for Common Stock                                            $ 233          $ 20          $ 399         $ 129
                                                                   ==========    ==========    ===========   ===========

Average Common Shares Outstanding                                      212.5         212.2          212.3         212.1

Basic and Diluted Earnings per Share before Extraordinary Item          1.10          0.93           1.88          1.44
Basic and Diluted Loss per Share from Extraordinary Item                  --         (0.83)            --         (0.83)
                                                                   ==========    ==========    ===========   ===========
Basic and Diluted Earnings per Share                                  $ 1.10        $ 0.10         $ 1.88        $ 0.61
                                                                   ==========    ==========    ===========   ===========

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

</TABLE>


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

<PAGE>

                                CENTRAL AND SOUTH WEST CORPORATION

                           CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                           (unaudited)

<TABLE>
<CAPTION>


                                                               Three Months Ended   Nine Months Ended
                                                                September 30,        September 30,
                                                               -----------------    -----------------
                                                                1998      1997       1998      1997
                                                               -------   -------    -------   -------
                                                                  (millions)           (millions)
<S>                                                            <C>       <C>        <C>       <C>   


Net Income for Common Stock                                     $ 233      $ 20      $ 399     $ 129
                                                               -------   -------    -------   -------

Other Comprehensive Income, Net of Tax
    Foreign currency translation adjustment                        10        (7)        20       (46)
    Unrealized gains or losses on securities:
        Unrealized gains/(losses) occurring during period          (9)        2        (18)        3
        Adjustments for gains/(losses) included in net income      --        --         (8)       --
                                                               -------   -------    -------   -------
                                                                    1        (5)        (6)      (43)

Comprehensive Income                                            $ 234      $ 15      $ 393      $ 86
                                                               =======   =======    =======   =======

</TABLE>


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


<PAGE>
                              CENTRAL AND SOUTH WEST CORPORATION

                                  CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                       September 30,     December 31,
                                                                           1998             1997
                                                                       (unaudited)        (audited)
                                                                     ---------------   --------------
                                                                                (millions)
ASSETS
<S>                                                                  <C>               <C>      

Fixed Assets
    Electric
        Production                                                         $ 5,852          $ 5,824
        Transmission                                                         1,589            1,558
        Distribution                                                         4,659            4,453
        General                                                              1,371            1,381
        Construction work in progress                                          174              184
        Nuclear fuel                                                           202              196
                                                                     ---------------   --------------
                                                                            13,847           13,596
    Other diversified                                                          348              250
                                                                     ---------------   --------------
                                                                            14,195           13,846
  Less - Accumulated depreciation and amortization                           5,592            5,264
                                                                     ---------------   --------------
                                                                             8,603            8,582
                                                                     ---------------   --------------
Current Assets
    Cash and temporary cash investments                                        183               75
    Accounts receivable                                                      1,407              916
    Materials and supplies, at average cost                                    174              172
    Electric utility fuel inventory                                             84               65
    Under-recovered fuel costs                                                  18               84
    Notes receivable                                                           105               --
    Prepayments and other                                                       75               78
                                                                     ---------------   --------------
                                                                             2,046            1,390
                                                                     ---------------   --------------
Deferred Charges and Other Assets
    Deferred plant costs                                                       499              503
    Mirror CWIP asset                                                          275              285
    Other non-utility investments                                              416              448
    Securities available for sale                                               61              103
    Income tax related regulatory assets, net                                  321              329
    Goodwill                                                                 1,445            1,428
    Other                                                                      439              383
                                                                     ---------------   --------------
                                                                             3,456            3,479
                                                                     ---------------   --------------
                                                                          $ 14,105         $ 13,451
                                                                     ===============   ==============

</TABLE>


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



<PAGE>
                                     CENTRAL AND SOUTH WEST CORPORATION

                                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                           September 30,            December 31,
                                                                               1998                     1997
                                                                            (unaudited)               (audited)
                                                                           --------------           --------------
CAPITALIZATION AND LIABILITIES                                                            (millions)
<S>                                                                        <C>            <C>       <C>            <C>    

Capitalization
    Common stock:   $3.50 par value
        Authorized shares:   350.0 million
        Issued and outstanding shares: 212.3 million
          in 1998 and 212.1 million in 1997                                        $ 744                    $ 743
    Paid-in capital                                                                1,046                    1,039
    Retained earnings                                                              1,871                    1,750
    Accumulated other comprehensive income                                            18                       24
                                                                           --------------           --------------
                                                                                   3,679       47%          3,556        45%
                                                                           -------------- --------- -------------- ----------
    Preferred stock
        Not subject to mandatory redemption                                          176                      176
        Subject to mandatory redemption                                               --                       26
                                                                           --------------           --------------
                                                                                     176        2%            202         2%
    Certain Subsidiary-obligated, mandatorily redeemable
       preferred securities of subsidiary trusts holding solely
        Junior Subordinated Debentures of such Subsidiaries                          335        4%            335         4%
    Long-term debt                                                                 3,702       47%          3,898        49%
                                                                           -------------- --------- -------------- ----------
         Total Capitalization                                                      7,892      100%          7,991       100%
                                                                           -------------- --------- -------------- ----------

Current Liabilities
    Long-term debt and preferred stock due within twelve months                      144                       32
    Short-term debt                                                                  794                      721
    Short-term debt - CSW Credit                                                     929                      636
    Loan notes                                                                        59                       56
    Accounts payable                                                                 650                      573
    Accrued taxes                                                                    379                      171
    Accrued interest                                                                 109                       87
    Other                                                                            190                      238
                                                                           --------------           --------------
                                                                                   3,254                    2,514
                                                                           --------------           --------------
                                                                   
Deferred Credits
    Accumulated deferred income taxes                                              2,436                    2,431
    Investment tax credits                                                           270                      278
    Other                                                                            253                      237
                                                                           --------------           --------------
                                                                                   2,959                    2,946
                                                                           --------------           --------------
                                                                                $ 14,105                 $ 13,451
                                                                           ==============           ==============

</TABLE>


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

<PAGE>
                               CENTRAL AND SOUTH WEST CORPORATION

                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                                         (unaudited)
<TABLE>
<CAPTION>

                                                                                   Nine Months Ended
                                                                                     September 30,
                                                                                ------------------------
                                                                                   1998         1997
                                                                                -----------   ----------
OPERATING ACTIVITIES                                                                  (millions)
<S>                                                                             <C>            <C>   

    Net Income for Common Stock                                                      $ 399        $ 129
    Non-cash Items and Adjustments
        Depreciation and amortization                                                  436          385
        Deferred income taxes and investment tax credits                               (19)         (11)
        Preferred stock dividends included in Net income for common stock                6           10
        (Gain)/loss on reacquired preferred stock                                        1          (10)
        Provision for CPL 1997 Final Order                                              --           18
    Changes in Assets and Liabilities
        Accounts receivable                                                           (486)        (383)
        Accounts payable                                                                62            5
        Accrued taxes                                                                  211          125
        Fuel inventory                                                                 (19)          30
        Fuel recovery                                                                   73          (53)
        Refund due customers                                                            --           29
        Other                                                                          (40)         131
                                                                                -----------   ----------
                                                                                       624          405
                                                                                -----------   ----------
INVESTING ACTIVITIES
    Construction expenditures                                                         (339)        (341)
    CSW Energy/CSW International projects                                             (143)        (187)
    Other                                                                                1           --
                                                                                -----------   ----------
                                                                                      (481)        (528)
                                                                                -----------   ----------
FINANCING ACTIVITIES
    Common stock sold                                                                    8           20
    Long-term debt sold                                                                  5           --
    Reacquisition/Retirement of long-term debt                                        (181)         (52)
    Reacquisition of preferred stock                                                   (28)        (114)
    Proceeds from the issuance of Subsidiary obligated,
      mandatorily redeemable, trust preferred securities                                --          323
    Change in short-term debt                                                          365          344
    Payment of dividends                                                              (279)        (290)
    Other                                                                               73           35
                                                                                -----------   ----------
                                                                                       (37)         266
                                                                                -----------   ----------

Effect of exchange rate changes on cash and cash equivalents                             2           (7)

Net Change in Cash and Cash Equivalents                                                108          136
Cash and Cash Equivalents at Beginning of Period                                        75          254
                                                                                ===========   ==========
Cash and Cash Equivalents at End of Period                                           $ 183        $ 390
                                                                                ===========   ==========

SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized                                           $ 249        $ 282
                                                                                ===========   ==========
    Income taxes paid                                                                $  49        $ 247
                                                                                ===========   ==========

</TABLE>

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

<PAGE>



CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
RESULTS OF OPERATIONS

      Set forth below is  information  concerning  the  consolidated  results of
operations of CSW for the three month and nine month periods ended September 30,
1998  and  September  30,  1997.  For  information  concerning  the  results  of
operations for each of the U.S. Electric Operating Companies, see the discussion
under the heading  RESULTS OF OPERATIONS  following the financial  statements of
each of the U.S. Electric Operating Companies.


COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997

      Net income for common stock increased to $233 million in the third quarter
of 1998 from $20 million in 1997.  The  largest  single  factor  that  increased
earnings was the absence in 1998 of the United Kingdom  windfall  profits tax of
$176 million that was recorded in 1997.

      Earnings  in  1998  from  the  U.S.  Electric  Operating   Companies  were
substantially  higher.  Hotter than normal weather added $25 million to earnings
and  increased  customer  usage and  growth  added  another  $21  million.  Also
contributing  to the  increase in earnings at the U.S.  Electric  companies  was
lower  operations and  maintenance  expense of $6 million and the absence of the
provision  for rate refund  associated  with the PSO rate case  settlement  that
lowered  1997  earnings by $16 million.  The increase in earnings  from the U.S.
Electric Operating Companies was partially offset by lower base rates at CPL and
PSO  related  to the CPL  1997  Final  Order  and the PSO 1997  Rate  Settlement
Agreement.

      SEEBOARD U.S.A.  earnings  increased due primarily to lower operations and
maintenance  expenses  in the  third  quarter  of 1998 when  compared  to a year
earlier and  increased  earnings  from its Medway power  plant.  The increase in
earnings  at  SEEBOARD  U.S.A.  was offset in part by a $4 million  decrease  in
deferred tax expenses related to United Kingdom  corporation tax rate reductions
that affected both periods.  C3  Communications'  earnings were $3 million below
the  same  period  last  year  because  of  increased  operating  costs  for new
telecommunications  activities.  Corporate  expenses  were  higher than the same
period  last year due  primarily  to tax  provisions.  Other  factors  affecting
earnings are discussed below.

      In the third quarter of 1998, 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         74%      22%      96%     4%       100%
  Operating Income           83%      17%     100%     --%      100%
  Net Income for Common      
    Stock                    99%      13%     112%    (12)%     100%

      U.S.  Electric  revenues  increased  $118  million,  or 11%,  in the third
quarter of 1998  compared to the same period a year ago.  The  increase  was due
primarily  to  higher  non-fuel  revenues  of  $88  million.  Non-fuel  revenues
increased  as a result  of hotter  weather  and the  absence  in 1998 of the $26
million  provision for rate refund at PSO. Also  contributing to the increase in
U.S. Electric revenues were higher fuel revenues of $30 million due primarily to
increased  weather-related  usage.  The increases in fuel and non-fuel  electric
revenues were partially  offset by rate reductions  associated with both the CPL
1997 Final Order and the PSO 1997 Rate Settlement Agreement.


<PAGE>


CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
RESULTS OF OPERATIONS

      Revenues  from  SEEBOARD  U.S.A.  decreased $49 million due to the loss of
revenues  associated with the sale of its retail stores in the second quarter of
1998 and lower  business  volumes.  Other  diversified  revenues  increased  $35
million to $57 million during the comparison  periods.  A CSW Energy power plant
project which began  operations in February 1998 was responsible for $29 million
of the increase.  However, CSW Energy also experienced a significant increase in
other operating expenses, as discussed below.

      U.S. Electric fuel expenses increased $18 million, or 5%, during the third
quarter of 1998  compared to the same period  last year due  primarily  to a $16
million  increase  in the  recovery  of  deferred  fuel  costs at PSO and hotter
weather.  The increase in fuel  expenses was offset in part by a decrease in the
average  unit fuel cost to $1.70 per MMbtu in 1998 from $1.87 per MMbtu in 1997.
The average unit fuel cost declined as a result of lower spot market natural gas
and coal prices during the quarter. Purchased power increased $21 million during
the comparison periods due primarily to increases in off-system energy purchases
resulting  from the  effects of hotter  weather.  United  Kingdom  cost of sales
decreased $52 million,  or 19%, during the third quarter of 1998 compared to the
same period last year due primarily to lower cost of sales  associated  with the
sale of SEEBOARD's  retail stores and a decrease in the cost of purchased  power
reflecting lower business volumes.

      Other  operating  expenses  increased  $16 million in the third quarter of
1998  compared  to the same period a year ago. As  previously  discussed,  a CSW
Energy power plant went into service in February 1998 resulting in a $25 million
increase in other  operating  expenses in the third  quarter of 1998 compared to
the same period last year. Reductions in operating expenses at the U.S. Electric
Operating Companies and SEEBOARD U.S.A. partially offset this increase.

      Depreciation and amortization  expenses  increased $5 million in the third
quarter  of 1998  compared  to the  same  period  last  year  due  primarily  to
accelerated  recovery of ECOM property  recorded in 1998 related to the CPL 1997
Final Order, as well as increases in depreciable property.  Partially offsetting
this  increase is reduced  depreciation  rates as a result of the CPL 1997 Final
Order (on non-ECOM property) and the PSO 1997 Rate Settlement Agreement.

      Operating  income taxes increased $60 million in the third quarter of 1998
compared to the same period last year due primarily to increased  taxable income
partially offset by the recognition of foreign tax benefits at SEEBOARD U.S.A.

      Interest on  long-term  debt  decreased  $6 million due  primarily  to the
repayment of a $60 million  variable rate bank loan due December 1, 2001 and the
maturity of $228 million of FMBs at CPL.  Short-term  debt was used to repay the
variable rate bank loan in two $30 million  installments on January 28, 1998 and
April 27, 1998. Interest on short-term debt and other increased $10 million when
compared  to the same  period  last  year due  primarily  to  higher  levels  of
borrowings.


<PAGE>


CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
RESULTS OF OPERATIONS


COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

      Net income for common stock for the first nine months of 1998 increased to
$399 million from $129 million for the  comparable  period in 1997.  The largest
single factor that  contributed  to this increase in earnings was the absence in
1998 of the United Kingdom windfall profit tax of $176 million that was recorded
at SEEBOARD U.S.A. in 1997.

      Earnings in 1998 from the U.S.  Electric  Operating  Companies were higher
due primarily to increased MWH sales from hotter than normal weather which added
about $40 million to earnings,  and  increased  customer  usage and growth added
another $32 million.  Also  contributing to the increase in earnings at the U.S.
Electric  Operating  Companies was lower operations and maintenance  expenses of
$26 million. Earnings for the first nine months of 1998 also improved due to the
absence  in 1998 of a  provision  for rate  refund  related to the PSO 1997 Rate
Settlement  Agreement  that lowered 1997 earnings by $18 million and the absence
of a provision  for the CPL 1997 Final Order.  The increase in earnings from the
U.S.  Electric  Operating  Companies was partially offset by lower base rates at
CPL and PSO related to the CPL 1997 Final Order and the PSO 1997 Rate Settlement
Agreement.

       Earnings at SEEBOARD  U.S.A.  in the first nine months of 1998  increased
due primarily to foreign tax benefits, lower operations and maintenance expenses
and increased  earnings from its Medway power plant. The increase in earnings at
SEEBOARD  U.S.A.  was offset in part by a $4 million  decrease in  deferred  tax
expenses related to United Kingdom corporation tax rate reductions that affected
both periods. C3 Communications'  earnings were $3 million below the same period
last year  because  of  increased  operating  costs  for new  telecommunications
activities.  Corporate  expenses  were lower than the same  period last year due
primarily  to the  absence in 1998 of the impact of CSW's  final  settlement  of
litigation  with El Paso,  which  cost $23  million,  after tax.  Other  factors
affecting earnings are discussed below.

      In the first nine months of 1998, 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%      31%      96%     4%       100%
  Operating Income           76%      22%      98%     2%       100%
  Net Income for Common      
     Stock                   91%      21%     112%    (12)%     100%

      U.S.  Electric revenues  increased $184 million,  or 7%, in the first nine
months of 1998  compared to the same  period a year ago.  The  increase  was due
primarily to higher non-fuel related revenues of $137 million. Non-fuel revenues
increased as a result of hotter  weather and the absence in 1998 of the CPL 1997
Final  Order  and the  $26  million  provision  for  rate  refund  at PSO.  Also
contributing to the increase in U.S. Electric revenues were higher  fuel-related
revenues of $47 million due primarily to increased  weather-related  demand. The
increases in fuel and non-fuel  electric  revenues were partially offset by rate
reductions  associated  with  the CPL 1997  Final  Order  and the PSO 1997  Rate
Settlement Agreement.

<PAGE>

CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
RESULTS OF OPERATIONS

      Revenues  from  SEEBOARD  U.S.A.  decreased $36 million due to the loss of
revenues  associated with the sale of its retail stores in the second quarter of
1998. Other  diversified  revenues  increased $95 million to $148 million during
the comparison  periods. A CSW Energy power plant project which began operations
in February 1998 was responsible for $79 million of the increase.  However,  CSW
Energy also experienced a significant  increase in other operating expenses,  as
discussed below. Also contributing to the increase in other diversified revenues
was increased business activity at C3 Communications, CSW Credit and EnerShop.

      U.S. Electric fuel expenses increased $47 million, or 5%, during the first
nine months of 1998 compared to the same period last year due primarily to a $25
million  increase  in the  recovery  of  deferred  fuel  costs at PSO and hotter
weather.  The increase in fuel  expenses was offset in part by a decrease in the
average  unit fuel cost from $1.80 per MMbtu in the first nine months of 1997 to
$1.71 per MMbtu in the first nine months of 1998 due to lower priced spot market
natural gas and coal.  Purchased power expenses  increased $25 million,  or 41%,
during the  comparison  periods due primarily to increases in off-system  energy
purchases  resulting from the effects of hotter weather.  United Kingdom cost of
sales  decreased  $48  million,  or 5%,  during  the first  nine  months of 1998
compared  to the same  period  last year due  primarily  to lower  cost of sales
associated with the sale of SEEBOARD's  retail stores and a decrease in the cost
of purchased power reflecting lower business volumes.

      Other operating expenses increased $47 million in the first nine months of
1998  compared  to the same period a year ago. As  previously  discussed,  a CSW
Energy power plant went into service in February 1998 resulting in a $67 million
increase in other operating expense in the first nine months of 1998 compared to
the same period last year. Partially offsetting this increase were reductions in
operating expenses at the U.S. Electric Operating Companies and SEEBOARD U.S.A.

      In the first quarter of 1997, CPL recorded a $41 million provision related
to the CPL 1997  Final  Order.  In the second and third  quarters  of 1997,  CPL
reclassified $23 million of the provision to reflect the effects of the CPL 1997
Final Order in its specific  accounts.  Approximately  $18 million remained as a
Provision  for the CPL 1997 Final  Order at the end of the first nine  months of
1997.

      Another  item for which there is no  corresponding  amount in 1998 was the
$35 million accrual for settlement of the El Paso merger litigation  recorded in
the first nine months of 1997.

      Depreciation and amortization  expenses increased $15 million in the first
nine  months of 1998  compared to the same  period  last year due  primarily  to
accelerated  recovery of ECOM property  recorded in 1998 related to the CPL 1997
Final Order, as well as increases in depreciable property.  Partially offsetting
this increase are reduced  depreciation  rates as a result of the CPL 1997 Final
Order (on non-ECOM property) and the PSO 1997 Rate Settlement Agreement.

      Operating  income taxes  increased $83 million in the first nine months of
1998  compared to the same period last year due  primarily to increased  taxable
income, which was partially offset by the recognition of foreign tax benefits at
SEEBOARD U.S.A.

<PAGE>
CENTRAL AND SOUTH WEST CORPORATION AND SUBSIDIARY COMPANIES
RESULTS OF OPERATIONS

      Other  income and  deductions  increased  $8 million to $35 million in the
first nine months of 1998 compared to the same period in 1997. In 1998, SEEBOARD
U.S.A.  recorded  a $4 million  gain from the sale of its  retail  stores and $4
million of increased  earnings  from its Medway power plant.  Also, in the first
nine months of 1998, C3  Communications  recorded a $5 million dollar  after-tax
gain on the  sale  of a  telecommunications  investment.  These  increases  were
partially  offset by the  absence in 1998 of a  litigation  settlement  that CSW
Energy recorded in 1997 in the amount of $3 million.

      Interest and other charges  increased $36 million in the first nine months
of 1998  compared to the same period  last year due  primarily  to a $33 million
increase in interest on short-term debt due to higher levels of borrowings. Also
contributing  to the increase was an additional $9 million in  distributions  on
Trust Preferred  Securities at CPL, PSO and SWEPCO as a result of the securities
being outstanding for a full nine months in 1998 compared to only five months in
1997. Also contributing to the increase in 1998 was the absence of a $10 million
gain on reacquired  preferred stock which lowered the interest and other charges
in 1997.  Interest on long-term  debt decreased $13 million due to the repayment
of a $60 million  variable  rate bank loan due December 1, 2001 and the maturity
of $228 million of FMBs at CPL.  Short-term  debt was used to repay the variable
rate bank loan in two $30 million installments on January 28, 1998 and April 27,
1998.


<PAGE>


                                         
CPL

                         CENTRAL POWER AND LIGHT COMPANY




                         PART I. FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.

<PAGE>
                                        CENTRAL POWER AND LIGHT COMPANY

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


                                                         Three Months Ended                   Nine Months Ended
                                                           September 30,                        September 30,
                                                   -------------------------------    -----------------------------------
                                                       1998              1997              1998                1997
                                                   -------------     -------------    ---------------     ---------------
                                                            (thousands)                          (thousands)
<S>                                                <C>               <C>              <C>                 <C>    


Electric Operating Revenues                           $ 454,403         $ 444,964        $ 1,092,506         $ 1,060,746

Operating Expenses and Taxes
    Fuel                                                121,129           129,296            302,406             291,492
    Purchased power                                      12,198            11,705             28,733              39,856
    Other operating                                      55,276            66,489            178,030             212,413
    Provision for CPL 1997 Final Order                       --             3,122                 --              18,160
    Maintenance                                          15,361            16,985             42,886              46,418
    Depreciation and amortization                        42,903            39,349            126,892             117,256
    Taxes, other than income                             14,664            20,455             55,719              61,383
    Income taxes                                         64,369            45,753            104,541              66,524
                                                   -------------     -------------    ---------------     ---------------
                                                        325,900           333,154            839,207             853,502
                                                   -------------     -------------    ---------------     ---------------

Operating Income                                        128,503           111,810            253,299             207,244
                                                   -------------     -------------    ---------------     ---------------

Other Income and Deductions
    Allowance for equity funds used
        during construction                                  59               849                 51               1,622
    Other                                                (3,141)            2,360               (592)              1,269
    Non-operating income taxes                            1,964               195              3,055               2,788
                                                   -------------     -------------    ---------------     ---------------
                                                         (1,118)            3,404              2,514               5,679
                                                   -------------     -------------    ---------------     ---------------

Income Before Interest Charges                          127,385           115,214            255,813             212,923
                                                   -------------     -------------    ---------------     ---------------

Interest Charges
    Interest on long-term debt                           23,331            26,864             70,397              80,982
    Distributions on Trust Preferred Securities           3,000             2,985              9,000               4,533
    Interest on short-term debt and other                 1,200             3,783             16,025              11,994
    Allowance for borrowed funds used
        during construction                                (607)             (644)            (1,948)             (1,770)
                                                   -------------     -------------    ---------------     ---------------
                                                         26,924            32,988             93,474              95,739
                                                   -------------     -------------    ---------------     ---------------


Net Income                                              100,461            82,226            162,339             117,184
    Less:  preferred stock dividends                      1,320             2,039              4,929               7,649
    Gain/(loss) on reacquired preferred stock                --              (284)                --               2,422
                                                   =============     =============    ===============     ===============
Net Income for Common Stock                            $ 99,141          $ 79,903          $ 157,410           $ 111,957
                                                   =============     =============    ===============     ===============

</TABLE>



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

<PAGE>

                                    CENTRAL POWER AND LIGHT COMPANY

                                      CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                              September 30,      December 31,
                                                                                  1998               1997
                                                                               (unaudited)         (audited)
                                                                             ----------------   ----------------
                                                                                         (thousands)
<S>                                                                          <C>                <C>    

ASSETS
Electric Utility Plant
    Production                                                                   $ 3,116,812        $ 3,106,576
    Transmission                                                                     525,866            517,903
    Distribution                                                                   1,078,421          1,021,759
    General                                                                          302,596            295,974
    Construction work in progress                                                     76,598             77,390
    Nuclear fuel                                                                     202,639            196,147
                                                                             ----------------   ----------------
                                                                                   5,302,932          5,215,749
  Less - Accumulated depreciation                                                  2,026,835          1,891,406
                                                                             ----------------   ----------------
                                                                                   3,276,097          3,324,343
                                                                             ----------------   ----------------
Current Assets
    Cash                                                                                  --                 --
    Accounts receivable                                                              102,155             61,311
    Materials and supplies, at average cost                                           58,468             65,290
    Fuel inventory                                                                    19,095             14,816
    Under-recovered fuel costs                                                            --             43,229
    Prepayments                                                                          490              2,595
                                                                             ----------------   ----------------
                                                                                     180,208            187,241
                                                                             ----------------   ----------------
Deferred Charges and Other Assets
    Deferred STP costs                                                               482,984            484,277
    Mirror CWIP asset                                                                275,229            285,431
    Income tax related regulatory assets, net                                        376,703            390,149
    Nuclear decommissioning trust                                                     56,272             45,676
    Other                                                                             94,859             96,193
                                                                             ----------------   ----------------
                                                                                   1,286,047          1,301,726
                                                                             ----------------   ----------------
                                                                                 $ 4,742,352        $ 4,813,310
                                                                             ================   ================

</TABLE>


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

<PAGE>

                                     CENTRAL POWER AND LIGHT COMPANY

                                       CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                         September 30,             December 31,
                                                                             1998                      1997
                                                                          (unaudited)                (audited)
                                                                     -----------------------   ----------------------
                                                                                       (thousands)
<S>                                                                  <C>             <C>       <C>            <C>

CAPITALIZATION AND LIABILITIES
Capitalization
    Common stock:  $25 par value
        Authorized shares:  12,000,000
        Issued and outstanding shares:  6,755,535                         $ 168,888                $ 168,888
    Paid-in capital                                                         405,000                  405,000
    Retained earnings                                                       818,692                  833,282
                                                                     ---------------           --------------
       Total Common Stock Equity                                          1,392,580     48%        1,407,170     47%
                                                                     --------------- -------   -------------- -------

    Preferred stock                                                         163,204      6%          163,204      5%
    CPL-obligated, mandatorily redeemable preferred securities of
        subsidiary trust holding solely Junior Subordinated
        Debentures of CPL                                                   150,000      5%          150,000      5%
    Long-term debt                                                        1,170,325     41%        1,302,266     43%
                                                                     --------------- -------   -------------- -------
                                                                                
       Total Capitalization                                               2,876,109    100%        3,022,640    100%
                                                                     --------------- -------   -------------- -------
                                                                    

Current Liabilities
    Long-term debt due within twelve months                                 100,000                   28,000
    Advances from affiliates                                                127,781                  142,781
    Accounts payable                                                         85,108                   84,160
    Accrued taxes                                                            98,626                   13,558
    Accumulated deferred income taxes                                         4,686                   21,382
    Accrued interest                                                         27,340                   28,379
    Refund due customers                                                         --                   63,713
    Over-recovered fuel                                                       6,184                       --
    Other                                                                    20,035                   14,551
                                                                     ---------------           --------------
                                                                            469,760                  396,524
                                                                     ---------------           --------------
Deferred Credits
    Accumulated deferred income taxes                                     1,239,306                1,237,386
    Investment tax credits                                                  139,815                  142,371
    Other                                                                    17,362                   14,389
                                                                     ---------------           --------------
                                                                          1,396,483                1,394,146
                                                                     ---------------           --------------
                                                                        $ 4,742,352              $ 4,813,310
                                                                     ===============           ==============

</TABLE>


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


<PAGE>


                             CENTRAL POWER AND LIGHT COMPANY

                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       (unaudited)
<TABLE>
<CAPTION>

                                                                     Nine Months Ended
                                                                       September 30,
                                                                   1998              1997
                                                               -------------     -------------
                                                                         (thousands)
<S>                                                            <C>               <C>    

OPERATING ACTIVITIES
    Net Income                                                    $ 162,339         $ 117,184
    Non-cash Items Included in Net Income
        Depreciation and amortization                               181,237           133,610
        Deferred income taxes and investment tax credits             (3,886)          (11,230)
        Provision for CPL 1997 Final Order                               --            18,160
        Refund due customers                                        (63,713)           62,865
    Changes in Assets and Liabilities                                               
        Accounts receivable                                         (40,844)          (12,490)
        Material and supplies                                         6,822             5,051
        Fuel inventory                                               (4,279)            1,713
        Fuel recovery                                                49,413           (27,877)
        Accounts payable                                                 10            15,535
        Accrued interest                                              1,039             3,373
        Accrued taxes                                                85,068            14,711
        Other                                                       (30,774)           13,134
                                                               -------------     -------------
                                                                    342,432           333,739
                                                               -------------     -------------

INVESTING ACTIVITIES
    Construction expenditures                                       (84,348)         (101,164)
    Other                                                            (6,400)            6,870
                                                               -------------     -------------
                                                                    (90,748)          (94,294)
                                                               -------------     -------------

FINANCING ACTIVITIES
    Retirement of long-term debt                                    (28,000)               --
    Reacquisition of preferred stock                                (36,000)          (84,725)
    Trust Preferred Securities                                           --           144,706
    Change in advances from affiliates                              (15,000)          (52,525)
    Payment of dividends                                           (172,684)         (119,577)
    Other                                                                --               (41)
                                                               -------------     -------------
                                                                   (251,684)         (112,162)
                                                               -------------     -------------

Net Change in Cash and Cash Equivalents                                  --           127,283
Cash and Cash Equivalents at Beginning of Period                         --             3,299
                                                               =============     =============
Cash and Cash Equivalents at End of Period                             $ --         $ 130,582
                                                               =============     =============

SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized (includes
      distributions on Trust Preferred Securities)                 $ 88,021          $ 82,716
                                                               =============     =============
    Income taxes paid                                              $ 19,364          $ 61,510
                                                               =============     =============

</TABLE>


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


<PAGE>


CENTRAL POWER AND LIGHT COMPANY
RESULTS OF OPERATIONS

COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1998 and 1997

      Net income for  common  stock  increased  $19.2  million to $99.1  million
during  the third  quarter of 1998 from  $79.9  million in the third  quarter of
1997.  This increase was due primarily to higher  non-fuel  related  revenues as
well as the absence of the impact of the provision for the CPL 1997 Final Order.
The increase in net income for common stock was partially  offset by a reduction
in base rates  associated with the CPL 1997 Final Order.  See NOTE 2. LITIGATION
AND  REGULATORY  PROCEEDINGS  and MD&A,  RATES AND  REGULATORY  MATTERS for more
information related to the CPL 1997 Final Order.

      Electric  operating  revenues  increased  $9.4  million,  or 2%, to $454.4
million  during the third quarter of 1998 from $445.0  million  during the third
quarter of 1997. The increase was due primarily to higher  non-fuel  revenues of
$25.4  million  as a result of a 9%  increase  in retail MWH sales  relating  to
weather-related  demand, as well as the absence in 1998 of the provision for the
CPL 1997 Final  Rate  Order.  In  addition,  electric  operating  revenues  were
affected by a transmission  service  agreement  adjustment  related to the final
order  in  Texas  Commission  Docket  No.  17285.  See  NOTE 2.  LITIGATION  AND
REGULATORY  PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities  Electric
Company (Docket No. 17285).  These increases were partially offset by lower base
rates as a result of the CPL 1997 Final Rate Order and  decreased  fuel recovery
of $16.0 million.

      Fuel expenses  decreased $8.2 million,  or 6%, due primarily to a decrease
in  average  unit fuel  costs from $1.90 per MMbtu in 1997 to $1.60 per MMbtu in
1998,  which was the result of lower  priced  spot  market  natural gas and coal
during the quarter.

      Other  operating  expenses were $55.3 million  during the third quarter of
1998, a decrease of $11.2 million from the same period of 1997. The decrease was
due primarily to a reduction in transmission expenses and a reduction in general
and  administrative  expenses.  The decrease in transmission  expenses  resulted
primarily from a transmission  service agreement adjustment related to the final
order  in  Texas  Commission  Docket  No.  17285.  See  NOTE 2.  LITIGATION  AND
REGULATORY  PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities  Electric
Company (Docket No. 17285).  Depreciation  and amortization  expenses  increased
$3.6  million for the third  quarter of 1998 due  primarily  to the  accelerated
recovery of ECOM  property  recorded in 1998 related to the CPL 1997 Final Order
as well as increases in depreciable and amortizable plant.  Partially offsetting
the increase in depreciation and amortization  expenses was reduced depreciation
rates on non-ECOM property related to the CPL 1997 Final Order.

      Taxes other than income  decreased  $5.8  million in the third  quarter of
1998 due to a  decrease  in Texas  ad  valorem  taxes.  Operating  income  taxes
increased  $18.6  million in the third  quarter of 1998 as compared to the third
quarter of 1997 as a result of an increase in taxable income.

      Other income and  deductions  decreased  due  primarily to net losses from
equity investments in the nuclear decommissioning trust. The net earnings of the
nuclear  decommissioning  trust are offset by a like amount of interest  expense
shown as interest  charges in short-term debt and other.  See NOTE 1. PRINCIPLES
OF PREPARATION - CPL Nuclear Decommissioning of STP.

<PAGE>


CENTRAL POWER AND LIGHT COMPANY
RESULTS OF OPERATIONS

       Interest  charges  decreased  $6.1  million in the third  quarter of 1998
compared  to the same period last year due  primarily  to the  maturity of CPL's
$200 million  Series BB, 6% First Mortgage Bonds in October 1997 and $28 million
Series J, 6-5/8% First Mortgage Bonds that matured January 1, 1998.


COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

      Net income for common  stock  increased  $45.5  million to $157.4  million
during  the first  nine  months of 1998 from  $112.0  million  in the first nine
months of 1997. This increase was due primarily to increased  non-fuel  revenues
and the absence in 1998 of the 1997 provision for the CPL 1997 Final Order.  The
increase in net income for common stock was  partially  offset by a reduction in
base rates  associated with the CPL 1997 Final Order. See NOTE 2. LITIGATION AND
REGULATORY   PROCEEDINGS  and  MD&A,  RATES  AND  REGULATORY  MATTERS  for  more
information related to the CPL 1997 Final Order.

      Electric operating  revenues  increased $31.8 million,  or 3%, to $1,092.5
million  during the first nine months of 1998 from $1,060.7  million  during the
first nine months of 1997. This increase was due primarily to increased non-fuel
revenue of $46.3 million as a result of increased weather-related demand and the
absence in 1998 of the provision for rate refund in 1997. In addition,  electric
operating revenues were affected by a transmission  service agreement adjustment
related to the final order in Texas  Commission  Docket No.  17285.  See NOTE 2.
LITIGATION  AND  REGULATORY  PROCEEDINGS  - CPL and WTU  Complaint  versus Texas
Utilities Electric Company (Docket No. 17285). The increase was partially offset
by decreased  fuel revenues of $14.5  million and by lower base rates  resulting
from the CPL 1997 Final Order.

      Fuel and purchased power expenses decreased  approximately $0.2 million in
the first nine months of 1998  compared  to the first nine months of 1997.  Fuel
expenses  increased  $10.9 million as a result of an 11% increase in generation,
which was offset in part by a reduction  in the average  unit cost of fuel.  The
average unit cost of fuel declined from $1.76 per MMbtu in the first nine months
of 1997 to $1.61 per MMbtu in the first  nine  months of 1998 due to lower  spot
market natural gas prices.  Purchased power expenses decreased approximately 28%
from  $39.9  million in the first  nine  months of 1997 to $28.7  million in the
first  nine  months  of 1998  due  primarily  to  decreases  in  economy  energy
purchases.

     Other  operating  expenses were $178.0 million during the first nine months
of 1998, a decrease of $34.4  million  compared to the same period in 1997.  The
decrease  was due to a reduction  in  transmission  expenses  and a reduction in
general and  administrative  expenses.  The  decrease in  transmission  expenses
resulted primarily from a transmission  service agreement  adjustment related to
the final order in Texas Commission Docket No. 17285. See NOTE 2. LITIGATION AND
REGULATORY  PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities  Electric
Company (Docket No. 17285).  Maintenance  expenses decreased $3.5 million due to
the  scheduled  refueling  of  STP  Unit  2  during  the  first  half  of  1997.
Depreciation and amortization  expenses  increased $9.6 million,  or 8%, for the
first nine months of 1998 compared to the same period last year due primarily to
the  accelerated  recovery of ECOM property  recorded in 1998 related to the CPL
1997 Final Order as well as  increases in  depreciable  and  amortizable  plant.
Partially offsetting the increase in depreciation and amortization  expenses was
lower  depreciation  rates on  non-ECOM  property  related to the CPL 1997 Final
Order.

<PAGE>

CENTRAL POWER AND LIGHT COMPANY
RESULTS OF OPERATIONS

    
      Taxes,  other than income decreased $5.7 million for the first nine months
of 1998 due to a decrease  in Texas ad valorem  taxes.  Operating  income  taxes
increased  $38.0  million in the first nine months of 1998 compared to the first
nine months of 1997 resulting primarily from an increase in taxable income.

      Other  income and  deductions  decreased  approximately  $3.2  million due
primarily to net losses from equity  investments in the nuclear  decommissioning
trust.  The net  earnings of the nuclear  decommissioning  trust are offset by a
like amount of interest expense shown as interest charges in short-term debt and
other.  See NOTE 1. PRINCIPLES OF PREPARATION - CPL Nuclear  Decommissioning  of
STP.

      Interest  charges  decreased  $2.3 million during the first nine months of
1998  when  compared  to the same  period of 1997  primarily  as a result of the
maturity of CPL's $200  million  Series BB, 6% First  Mortgage  Bonds in October
1997 and $28 million Series J, 6-5/8%, First Mortgage Bonds that matured January
1, 1998.  The  decrease  was offset in part by  increased  levels of  short-term
borrowing and distributions on Trust Preferred Securities.


<PAGE>



PSO


                       PUBLIC SERVICE COMPANY OF OKLAHOMA




                         PART I. FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.

<PAGE>
                                     PUBLIC SERVICE COMPANY OF OKLAHOMA

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


                                                                 Three Months Ended              Nine Months Ended
                                                                    September 30,                   September 30,
                                                          ------------------------------   ------------------------------
                                                              1998             1997            1998            1997
                                                          --------------   -------------   -------------   --------------
                                                                    (thousands)                     (thousands)
<S>                                                       <C>              <C>             <C>             <C>    


Electric Operating Revenues                                   $ 279,833        $ 222,235       $ 623,110       $ 544,092

Operating Expenses and Taxes
  Fuel                                                          104,704          89,577         242,891          211,385
  Purchased power                                                17,594           9,979          44,891           34,419
  Other operating                                                20,102          28,707          75,478           86,782
  Maintenance                                                     8,014           7,732          23,899           23,088
  Depreciation and amortization                                  18,202          20,412          54,358           60,229
  Taxes, other than income                                        7,363           6,953          22,583           21,357
  Income taxes                                                   40,282          18,738          52,564           28,406
                                                          --------------   -------------   -------------   --------------
                                                                216,261         182,098         516,664          465,666
                                                          --------------   -------------   -------------   --------------

Operating Income                                                 63,572          40,137         106,446           78,426
                                                          --------------   -------------   -------------   --------------

Other Income and Deductions
  Allowance for equity funds used during construction               293             395             519              652
  Other                                                             242            (253)             24             (128)
  Non-operating income taxes                                         56             560             430            1,045
                                                          --------------   -------------   -------------   --------------
                                                                    591             702             973            1,569
                                                          --------------   -------------   -------------   --------------

Income Before Interest Charges                                   64,163          40,839         107,419           79,995
                                                          --------------   -------------   -------------   --------------

Interest Charges
  Interest on long-term debt                                      7,287           7,618          22,524           22,855
  Interest on short-term debt and other                             736             683           3,200            3,349
  Distributions on Trust Preferred Securities                     1,500           1,499           4,500            2,467
  Allowance for borrowed funds used                                                                         
     during construction                                           (281)           (221)           (943)          (1,141)
                                                          --------------   -------------   -------------   --------------
                                                                  9,242           9,579          29,281           27,530
                                                          --------------   -------------   -------------   --------------


Net Income                                                       54,921          31,260          78,138           52,465
  Less: preferred stock dividends                                    54              53             160              310
  Gain/(loss) on reacquired preferred stock                          --            (217)             --            4,227
                                                          --------------   -------------   -------------   --------------
Net Income for Common Stock                                    $ 54,867        $ 30,990        $ 77,978         $ 56,382
                                                          ==============   =============   =============   ==============

</TABLE>


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

<PAGE>

                            PUBLIC SERVICE COMPANY OF OKLAHOMA

                                CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
  

                                                             September 30,      December 31,
                                                                 1998               1997
                                                              (unaudited)         (audited)
                                                             --------------     --------------
ASSETS                                                                  (thousands)
<S>                                                          <C>                <C>  

 Electric Utility Plant
     Production                                                  $ 916,581          $ 907,735
     Transmission                                                  378,495            375,111
     Distribution                                                  852,010            818,806
     General                                                       207,885            197,264
     Construction work in progress                                  31,889             40,992
                                                             --------------     --------------
                                                                 2,386,860          2,339,908

  Less - Accumulated depreciation and amortization               1,083,543          1,031,322
                                                             --------------     --------------
                                                                 1,303,317          1,308,586
                                                             --------------     --------------

Current Assets
     Cash                                                            7,524              2,171
     Advances to affiliates                                          8,366                 --
     Accounts receivable                                            34,349             34,974
     Materials and supplies, at average cost                        33,781             32,211
     Fuel inventory                                                 13,477             11,427
     Accumulated deferred income taxes                               6,297                 --
     Prepayments and other                                           1,027              3,366
                                                             --------------     --------------
                                                                   104,821             84,149
                                                             --------------     --------------

Deferred Charges and Other Assets                                   57,555             54,946
                                                             --------------     --------------

                                                               $ 1,465,693        $ 1,447,681
                                                             ==============     ==============

</TABLE>

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

<PAGE>

                                    PUBLIC SERVICE COMPANY OF OKLAHOMA

                                       CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                     September 30,                 December 31,
                                                                          1998                        1997
                                                                      (unaudited)                   (audited)
                                                                     ---------------             ----------------
CAPITALIZATION AND LIABILITIES                                                       (thousands)
<S>                                                                  <C>             <C>         <C>              <C>    


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                                                      172,974                      136,996
                                                                     ---------------             ----------------
        Total Common Stock Equity                                           510,204       53%            474,226       49%
                                                                     --------------- ---------   ---------------- ---------

     Preferred stock                                                          5,287        1%              5,287       --%
     PSO-obligated, mandatorily redeemable preferred securities of
        subsidiary trust holding solely Junior Subordinated
        Debentures of PSO                                                    75,000        8%             75,000        8%
     Long-term debt                                                         367,724       38%            421,821       43%
                                                                     --------------- ---------   ---------------- ---------
       Total Capitalization                                                 958,215      100%            976,334      100%
                                                                     --------------- ---------   ---------------- ---------
                                                              
Current Liabilities
     Advances from affiliates                                                    --                        4,874
     Payables to affiliates                                                   5,378                       29,011
     Accounts payable                                                        45,268                       55,179
     Payables to customers                                                   17,939                       18,837
     Accrued taxes                                                           49,009                           --
     Accumulated deferred income taxes                                           --                        2,262
     Accrued interest                                                        10,396                        9,090
     Other                                                                    9,170                        4,178
                                                                     ---------------             ----------------
                                                                            137,160                      123,431
                                                                     ---------------             ----------------
                                                                   

Deferred Credits
     Accumulated deferred income taxes                                      279,177                      258,848
     Investment tax credits                                                  39,812                       41,160
     Income tax related regulatory liabilities, net                          39,235                       41,793
     Other                                                                   12,094                        6,115
                                                                     ---------------             ----------------
                                                                            370,318                      347,916
                                                                     ---------------             ----------------

                                                                         $1,465,693                   $1,447,681
                                                                     ===============             ================

</TABLE>



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

<PAGE>

                                 PUBLIC SERVICE COMPANY OF OKLAHOMA

                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                             (unaudited)
<TABLE>
<CAPTION>

                                                                     Nine Months Ended
                                                                        September 30,
                                                                 ---------------------------
                                                                    1998            1997
                                                                 ------------    -----------
OPERATING ACTIVITIES                                                    (thousands)
<S>                                                              <C>             <C>    
     Net Income                                                     $78,138         $52,465
     Non-cash Items Included in Net Income
         Depreciation and amortization                               56,616          64,417
         Deferred income taxes and investment tax credits             7,864          (9,814)
         Refund due customers                                            --          29,000
     Changes in Assets and Liabilities
         Accounts receivable                                            625         (16,050)
         Prepayments and other                                        2,339           2,562
         Accounts payable                                           (34,929)        (17,439)
         Accrued taxes                                               49,696          26,641
         Other                                                        5,604          (2,960)
                                                                 ------------    -----------
                                                                    165,953         128,822
                                                                 ------------    -----------

INVESTING ACTIVITIES
     Construction expenditures                                      (45,004)        (55,851)
     Other                                                           (4,966)         (4,734)
                                                                 ------------    -----------
                                                                    (49,970)        (60,585)
                                                                 ------------    -----------

FINANCING ACTIVITIES
     Change in advances from affiliates                              (4,874)        (42,867)
     Proceeds from the issuance of Trust Preferred Securities            --          72,506
     Reacquisition of long-term debt                                (55,231)             --
     Reacquisition of preferred stock                                    --         (10,312)
     Payment of dividends                                           (42,159)        (40,461)
                                                                 ------------    -----------
                                                                   (102,264)        (21,134)
                                                                 ------------    -----------

Net Change in Cash and Cash Equivalents                               13,719          47,103
Cash and Cash Equivalents at Beginning of Period                       2,171           1,479
                                                                 ============    ===========
Cash and Cash Equivalents at End of Period                           $15,890         $48,582
                                                                 ============    ===========

SUPPLEMENTARY INFORMATION
     Interest paid less amounts capitalized (includes
         distributions on Trust Preferred Securities)                $26,713         $24,501
                                                                 ============    ===========
     Income taxes paid                                               $ 6,606         $22,095
                                                                 ============    ===========


</TABLE>


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


<PAGE>


PUBLIC SERVICE COMPANY OF OKLAHOMA
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997

      Net income for common  stock was $54.9  million  for the third  quarter of
1998, a 77% increase,  or $23.9 million above the equivalent period of 1997. The
increase resulted primarily from higher non-fuel  revenues,  the absence in 1998
of a provision for rate refund and decreased depreciation expenses. The increase
in net  income was offset in part by lower base rates in 1998 as a result of the
PSO 1997 Rate Settlement Agreement.

      Electric  operating  revenues were $279.8 million during the third quarter
of 1998, a 26% increase from $222.2  million in the third quarter of 1997.  This
increase was due primarily to increases in non-fuel and fuel-related revenues of
$26.4 million and $19.4 million, respectively. The increase in non-fuel revenues
was due  primarily to a 15% increase in retail MWH sales  resulting  from warmer
weather as well as the  absence in 1998 of a $25.9  million  provision  for rate
refund.  Additionally,  this increase was  partially  offset by lower base rates
resulting  from the PSO 1997 Rate  Settlement  Agreement  in the amount of $14.1
million and a decrease in transmission  related revenues  resulting from changes
to CSW's Transmission  Coordination  Agreement pending before the FERC. See NOTE
2. LITIGATION AND REGULATORY PROCEEDINGS - Transmission  Coordination Agreement.
The increase in fuel  revenues was due  primarily  to higher fuel  expenses,  as
discussed below.

      Fuel expenses increased $15.1 million, or 17%, during the third quarter of
1998  compared to the third  quarter of 1997 due  primarily  to a $15.5  million
increase in the recovery of deferred fuel costs and a 10% increase in generation
due primarily to higher  weather-related  demand.  The increase in fuel expenses
was offset in part by lower  average unit fuel costs.  The average unit costs of
fuel for the quarter declined from $2.02 per MMbtu in 1997 to $1.82 per MMbtu in
1998 due primarily to lower spot market  natural gas and coal prices.  Purchased
power  expenses  increased  to $17.6  million in the third  quarter of 1998 from
$10.0  million for the same period in 1997.  This  increase was due primarily to
more  off-system  and  emergency  pool  energy  purchases  as well as  increased
capacity commitments due primarily to higher weather-related demand.

      Other  operating  expenses were $20.1 million  during the third quarter of
1998,  a  decrease  of $8.6  million  from the  comparable  period of 1997.  The
decrease in other  operating  expenses was due  primarily to lower  transmission
expenses resulting  primarily from a transmission  service agreement  adjustment
related  to the  final  order  in Texas  Commission  Docket  17285.  See NOTE 2.
LITIGATION  AND  REGULATORY  PROCEEDINGS  - CPL and WTU  Complaint  versus Texas
Utilities  Electric  Company (Docket No. 17285).  Depreciation  and amortization
expenses  decreased 11% to $18.2 million in the third quarter of 1998 from $20.4
million in the third  quarter of 1997.  This decrease was due primarily to lower
depreciation rates as a result of the PSO 1997 Rate Settlement Agreement, offset
in part by an increase in depreciable property. Operating income taxes increased
to $40.3  million in the third  quarter  1998  compared to $18.7  million in the
third quarter of 1997 due primarily to higher taxable income in 1998.


<PAGE>


PUBLIC SERVICE COMPANY OF OKLAHOMA
RESULTS OF OPERATIONS

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

      Net income for common stock was $78.0 million for the first nine months of
1998, a 38% increase when compared to $56.4 million for the equivalent period of
1997. The increase resulted from higher non-fuel  revenues,  the absence in 1998
of a provision for rate refund and decreased depreciation expenses. The increase
in net  income was offset in part by lower base rates in 1998 as a result of the
PSO 1997 Rate  Settlement  Agreement  and the absence in 1998 of a $4.2  million
gain on the reacquisition of preferred stock.

      Electric  operating  revenues  were $623.1  million  during the first nine
months of 1998, a 15%  increase  from $544.1  million  during the same period of
1997.  This  increase  was due  primarily to higher  non-fuel  revenues of $40.4
million and  fuel-related  revenues of $39.3  million.  The increase in non-fuel
revenues was due primarily to an 11% increase in retail MWH sales resulting from
warmer  weather as well as the absence in 1998 of a $29.0 million  provision for
rate refund.  Additionally,  this  increase was  partially  offset by lower base
rates  resulting  from the PSO 1997 Rate  Settlement  Agreement in the amount of
$29.8 million and a decrease in  transmission  related  revenues  resulting from
changes to CSW's  Transmission  Coordination  Agreement pending before the FERC.
See NOTE 2.  LITIGATION AND REGULATORY  PROCEEDINGS - Transmission  Coordination
Agreement.  The  increase  in fuel  revenues  was due  primarily  to higher fuel
expenses, as discussed below.

      Fuel  expenses  increased  $31.5  million,  or 15%,  during the first nine
months of 1998 when compared to the same period of 1997 due primarily to a $25.2
million  increase in the  recovery of deferred  fuel costs and a 10% increase in
generation due primarily to higher weather-related  demand. The increase in fuel
expenses was offset in part by lower  average unit fuel costs.  The average unit
cost of fuel  declined  from $1.95 per MMbtu in the first nine months of 1997 to
$1.80 per MMbtu in the first  nine  months of 1998 due  primarily  to lower spot
market natural gas and coal prices.  Purchased  power expenses  increased 30% to
$44.9  million for the first nine months of 1998 from $34.4  million in the same
period  of 1997.  This  increase  was due  primarily  to higher  off-system  and
emergency pool energy purchases associated with higher weather-related demand in
the first nine months of 1998 and a plant  outage in the first  quarter of 1998,
partially offset by lower cogeneration purchases.

      Other  operating  expenses were $75.5 million for the first nine months of
1998, a decrease of $11.3  million from the $86.8 million for the same period in
1997.  The  decrease in other  operating  expenses  was due  primarily  to lower
transmission  expenses resulting primarily from a transmission service agreement
adjustment related to the final order in Texas Commission Docket 17285. See NOTE
2.  LITIGATION AND REGULATORY  PROCEEDINGS - CPL and WTU Complaint  versus Texas
Utilities  Electric  Company  (Docket No. 17285).  Additionally,  lower employee
benefit  expenses  offset in part by higher  meter and  overhead  line  expenses
contributed  to the  decline  in  other  operating  expenses.  Depreciation  and
amortization  expenses decreased 10% to $54.4 million in 1998 from $60.2 million
in 1997. This decrease was due primarily to lower depreciation rates as a result
of the PSO 1997  Rate  Settlement  Agreement  offset in part by an  increase  in
depreciable property.

     Taxes other than income were $1.2  million  higher in the first nine months
of 1998  when  compared  to the same  period  in 1997 as a result  of  higher ad
valorem tax  expenses.  Operating  income taxes were $52.6  million in the first
nine  months of  1998 compared to $28.4  million in the  same period in 1997 due
<PAGE>

PUBLIC SERVICE COMPANY OF OKLAHOMA
RESULTS OF OPERATIONS

primarily to higher  taxable  income in 1998.  Interest  charges  increased $1.8
million,  or 6%,  during the first nine months of 1998 when compared to the same
period  of  1997  as  a  result  of  higher  distributions  on  Trust  Preferred
Securities.


<PAGE>



SWEPCO


                       SOUTHWESTERN ELECTRIC POWER COMPANY




                         PART I. FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.



<PAGE>
                                    SOUTHWESTERN ELECTRIC POWER COMPANY

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

                                                                Three Months Ended              Nine Months Ended
                                                                  September 30,                   September 30,
                                                           ----------------------------   -----------------------------
                                                               1998            1997            1998            1997
                                                           ------------   -------------   -------------   -------------
                                                                  (thousands)                     (thousands)
<S>                                                        <C>            <C>             <C>             <C>   


Electric Operating Revenues                                   $311,549        $291,539        $756,044        $722,146
                                                           ------------   -------------   -------------   -------------

Operating Expenses and Taxes
    Fuel                                                       124,210         116,294         298,530         294,876
    Purchased power                                             12,230           7,456          30,234          17,895
    Other operating                                             36,168          35,318         100,490         101,074
    Maintenance                                                 12,341           9,984          35,770          31,424
    Depreciation and amortization                               24,675          24,138          74,303          71,166
    Taxes, other than income                                    14,239          14,339          43,320          40,432
    Income taxes                                                28,164          22,561          45,416          39,399
                                                           ------------   -------------   -------------   -------------
                                                               252,027         230,090         628,063         596,266
                                                           ------------   -------------   -------------   -------------

Operating Income                                                59,522          61,449         127,981         125,880
                                                          -------------   -------------   -------------   -------------

Other Income and Deductions
    Allowance for equity funds used during construction            219             413             925             589
    Other                                                         (462)          1,902            (564)          1,109
    Non-operating income taxes                                     522             (12)          1,734           1,162
                                                          -------------   -------------   -------------   -------------
                                                                   279           2,303           2,095           2,860
                                                          -------------   -------------   -------------   -------------

Income Before Interest Charges                                  59,801          63,752         130,076         128,740
                                                          -------------   -------------   -------------   -------------

Interest Charges
    Interest on long-term debt                                   9,808           9,811          29,426          30,631
    Distributions on Trust Preferred Securities                  2,166           2,167           6,497           3,565
    Interest on short-term debt and other                        1,566           1,028           5,763           4,619
    Allowance for borrowed funds used during construction         (369)           (202)         (1,066)           (944)
                                                          -------------   -------------   -------------   -------------
                                                                13,171          12,804          40,620          37,871
                                                          -------------   -------------   -------------   -------------


Net Income                                                      46,630          50,948          89,456          90,869
    Less: preferred stock dividends                                 57             589             648           1,922
    Gain/(loss) on reacquired preferred stock                       --            (528)           (855)          1,652
                                                          =============   =============   =============   =============
Net Income for Common Stock                                   $ 46,573        $ 49,831        $ 87,953        $ 90,599
                                                          =============   =============   =============   =============


</TABLE>



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

<PAGE>

                            SOUTHWESTERN ELECTRIC POWER COMPANY

                                CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                             September 30,        December 31,
                                                                 1998                 1997
                                                              (unaudited)          (audited)
                                                            ----------------    -----------------
                                                                         (thousands)
<S>                                                         <C>                 <C>    

ASSETS

  Electric Utility Plant
    Production                                                  $ 1,399,156          $ 1,391,676
    Transmission                                                    471,442              456,401
    Distribution                                                    909,790              870,378
    General                                                         320,644              311,323
    Construction work in progress                                    37,016               51,665
                                                            ----------------    -----------------
                                                                  3,138,048            3,081,443
  Less - Accumulated depreciation                                 1,300,827            1,225,865
                                                            ----------------    -----------------
                                                                  1,837,221            1,855,578
                                                            ----------------    -----------------
Current Assets
    Cash                                                              5,077                2,298
    Accounts receivable                                              87,555               81,507
    Materials and supplies, at average cost                          24,261               24,523
    Fuel inventory                                                   37,916               26,415
    Under-recovered fuel cost                                         7,697               13,013
    Prepayments and other                                            18,385               13,678
                                                            ----------------    -----------------
                                                                    180,891              161,434
                                                            ----------------    -----------------

Deferred Charges and Other Assets                                    78,948               77,734
                                                            ----------------    -----------------
                                                                $ 2,097,060          $ 2,094,746
                                                            ================    =================

</TABLE>


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


<PAGE>

                                        SOUTHWESTERN ELECTRIC POWER COMPANY

                                            CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                          September 30,              December 31,
                                                                              1998                       1997
                                                                           (unaudited)                 (audited)
                                                                         -----------------         -----------------
                                                                                        (thousands)
<S>                                                                      <C>              <C>      <C>               <C>   

CAPITALIZATION AND LIABILITIES
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                                                            334,003                    324,050
                                                                         ----------------           ----------------
        Total Common Stock Equity                                                714,663       54%          704,710       51%
                                                                         ---------------- --------- ---------------- ---------
    Preferred stock
        Not subject to mandatory redemption                                        4,707                      4,709
        Subject to mandatory redemption                                               --                     25,930
                                                                         ----------------           ----------------
                                                                                   4,707       --%           30,639        2%
    SWEPCO-obligated, mandatorily redeemable preferred securities
         of subsidiary trust holding solely Junior Subordinated
         Debentures of SWEPCO                                                    110,000        8%          110,000        8%
    Long-term debt                                                               506,304       38%          547,751       39%
                                                                                          ---------                  ---------
                                                                         ----------------           ----------------
        Total Capitalization                                                   1,335,674      100%        1,393,100      100%
                                                                         ---------------- --------- ---------------- ---------
                                                                     
Current Liabilities
    Long-term debt and preferred stock due within twelve months                   43,932                      3,555
    Advances from affiliates                                                      11,917                     25,175
    Accounts payable                                                              70,104                     73,582
    Payables to affiliates                                                        53,705                     63,583
    Customer deposits                                                             14,400                     14,359
    Accrued taxes                                                                 57,093                     12,884
    Accumulated deferred income taxes                                              4,187                      4,594
    Accrued interest                                                              12,727                     13,425
    Other                                                                         14,017                      9,551
                                                                         ----------------           ----------------
                                                                                 282,082                    220,708
                                                                         ----------------           ----------------
Deferred Credits
    Accumulated deferred income taxes                                            395,695                    395,909
    Investment tax credits                                                        63,371                     66,845
    Income tax related regulatory liabilities, net                                 5,930                     10,072
    Other                                                                         14,308                      8,112
                                                                         ----------------           ----------------
                                                                                 479,304                    480,938
                                                                         ----------------           ----------------

                                                                             $ 2,097,060                $ 2,094,746
                                                                         ================           ================
</TABLE>



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


<PAGE>

                            SOUTHWESTERN ELECTRIC POWER COMPANY

                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       (unaudited)
<TABLE>
<CAPTION>

                                                                     Nine Months Ended
                                                                       September 30,
                                                                ----------------------------
                                                                   1998            1997
                                                                ------------   -------------
                                                                        (thousands)
<S>                                                             <C>            <C>    

OPERATING ACTIVITIES
    Net Income                                                     $ 89,456        $ 90,869
    Non-cash Items Included in Net Income
        Depreciation and amortization                                78,353          74,775
        Deferred income taxes and investment tax credits             (8,237)          1,956
    Changes in Assets and Liabilities
        Accounts receivable                                          (6,048)         17,146
        Fuel inventory                                              (11,501)         27,001
        Fuel recovery                                                 5,316          (9,862)
        Deferred charges and other assets                            (1,214)        (15,835)
        Accounts payable                                             (2,403)         10,126
        Payables to affiliates                                       (9,878)         (8,416)
        Accrued taxes                                                44,209          16,488
        Other current liabilities                                     4,466         (15,151)
        Other deferred credits                                        6,196          (1,206)
        Other                                                        (3,209)          2,975
                                                                ------------   -------------
                                                                    185,506         190,866
                                                                ------------   -------------
INVESTING ACTIVITIES
    Construction expenditures                                       (55,690)        (73,268)
    Other                                                            (4,456)         (2,990)
                                                                ------------   -------------
                                                                    (60,146)        (76,258)
                                                                ------------   -------------
FINANCING ACTIVITIES
    Redemption of preferred stock                                   (27,988)        (16,210)
    Retirement of long-term debt                                     (2,209)        (52,278)
    Change in advances from affiliates                              (13,258)        (57,495)
    Trust Preferred Securities                                           --         106,245
    Payment of dividends                                            (79,126)        (65,134)
                                                                ------------   -------------
                                                                   (122,581)        (84,872)
                                                                ------------   -------------

Net Change in Cash and Cash Equivalents                               2,779          29,736
Cash and Cash Equivalents at Beginning of Period                      2,298           1,879
                                                                ============   =============
Cash and Cash Equivalents at End of Period                          $ 5,077        $ 31,615
                                                                ============   =============

SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized (includes
      distributions on Trust Preferred Securities)                 $ 39,257        $ 39,119
                                                                ============   =============
    Income taxes paid                                              $ 30,849        $ 33,507
                                                                ============   =============

</TABLE>


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


<PAGE>


SOUTHWESTERN ELECTRIC POWER COMPANY
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997

      Net  income  for  common  stock  for the third  quarter  of 1998 was $46.6
million,  a decrease of $3.3 million,  or 7%, from the same period of 1997.  The
decrease resulted primarily from increased  operating expenses and taxes and the
absence in 1998 of the gain on the sale of lignite  properties  recorded  in the
third  quarter of 1997.  The decrease  was offset in part by increased  non-fuel
revenues.

      Electric  operating  revenues  increased  $20.0 million,  or 7%, to $311.5
million  during the third quarter of 1998 from $291.5  million  during the third
quarter of 1997.  The increase was due primarily to a $17.0 million  increase in
non-fuel revenues as a result of an 8% increase in retail MWH sales attributable
to warmer weather.  Fuel revenues increased $6.7 million as discussed below. The
increase in electric  operating  revenues was partially offset by a $3.7 million
transmission  service agreement  adjustment  related to the final order in Texas
Commission Docket No. 17285. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS -
CPL and WTU  Complaint  versus  Texas  Utilities  Electric  Company  (Docket No.
17285).

      Fuel expenses increased $7.9 million, or 7%, for the third quarter of 1998
compared to the third  quarter of 1997 due  primarily to  increased  natural gas
generation associated with weather-related demand. The increase in fuel expenses
was offset in part by a decrease in average  unit fuel cost for natural gas from
$2.45 per  MMbtu in 1997 to $2.08 per MMbtu in 1998 as a result of lower  priced
spot-market  natural  gas.  Fuel  expenses  also  increased  as  a  result  of a
transmission  service agreement  adjustment  related to the final order in Texas
Commission Docket No. 17285. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS -
CPL and WTU  Complaint  versus  Texas  Utilities  Electric  Company  (Docket No.
17285).  Purchased  power  expenses for the third quarter of 1998 increased $4.8
million  compared  to the same  period of 1997 due  primarily  to an increase in
economy energy purchases.

      Other  operating and maintenance  expenses  increased  approximately  $1.0
million as a result of increased production steam generation expenses and higher
administrative  and  general  expenses,  offset  in part by  decreased  customer
assistance   expenses  and  lower   transmission   expenses.   The  decrease  in
transmission  expenses resulted from a transmission service agreement adjustment
related to the final order in Texas  Commission  Docket No.  17285.  See NOTE 2.
LITIGATION  AND  REGULATORY  PROCEEDINGS  - CPL and WTU  Complaint  versus Texas
Utilities  Electric  Company  (Docket No. 17285).  The decrease in  transmission
expenses  was  offset  in part by the  accrual  of  expenses  related  to  CSW's
transmission  coordination agreement currently pending before the FERC. See NOTE
2. LITIGATION AND REGULATORY PROCEEDINGS - Transmission  Coordination Agreement.
Maintenance  expenses increased $2.4 million, or 24%, due primarily to increased
power plant maintenance.  Operating income taxes increased $5.6 million, or 25%,
due primarily to increased taxable income.

      Other income and  deductions  decreased $2.0 million for the third quarter
of 1998 compared to the same period of 1997 due primarily to the absence in 1998
of a gain on the sale of lignite  properties  recorded  in the third  quarter of
1997.



<PAGE>


SOUTHWESTERN ELECTRIC POWER COMPANY
RESULTS OF OPERATIONS

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

      Net income for common stock for the nine months ended  September  30, 1998
was $88.0 million, a decrease of $2.6 million, or 3%, from $90.6 million for the
same period in 1997.  The  decrease  in net income  resulted  primarily  from an
increase in operating and maintenance  expenses,  increased  interest charges, a
loss on  reacquisition of preferred stock in 1998 and the absence in 1998 of the
gain on  reacquisition  of preferred stock recorded in 1997. The decrease in net
income was offset in part by increased non-fuel revenues.

      Electric  operating  revenues  increased  $33.9 million,  or 5%, to $756.0
million for the nine months ended  September 30, 1998 from $722.1 million during
the same period in 1997.  The  increase  was due  primarily  to higher  non-fuel
revenues of $33.2 million resulting from a 7% increase in weather-related retail
MWH sales and increased fuel revenues of $11.2 million. The increase in electric
operating  revenues  was  offset  in part by a  transmission  service  agreement
adjustment  related to the final order in Texas  Commission  Docket No. 17285, a
provision  for rate  refund  of $3.6  million  in  connection  with  the  annual
determination of cost of service formula rates for SWEPCO's wholesale  customers
and a $3.2  million  reduction  in  fuel  revenues  in  accordance  with a Texas
Commission  order  in  SWEPCO's  fuel  reconciliation   regarding   transmission
equalization expense recovery. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS
- CPL and WTU Complaint  versus Texas  Utilities  Electric  Company  (Docket No.
17285).

      Fuel expenses  increased $3.7 million for the nine months ended  September
30, 1998 when  compared to the same period in 1997 due  primarily to an increase
in  weather-related  natural gas  generation.  The increase in fuel expenses was
offset in part by a decrease in the average  unit fuel cost for natural gas from
$2.49 per MMbtu in 1997 to $2.19 per MMbtu in 1998 which resulted from purchases
of lower priced spot-market  natural gas. Fuel expenses increased due in part to
a transmission  service agreement adjustment related to the final order in Texas
Commission Docket No. 17285. See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS -
CPL and WTU  Complaint  versus  Texas  Utilities  Electric  Company  (Docket No.
17285).  Purchased  power expenses for the nine months ended  September 30, 1998
increased  $12.3  million when compared to the same period in 1997 due primarily
to an increase in economy energy purchases.

      Other operating  expenses  decreased slightly during the first nine months
of 1998 from the  comparable  period of 1997.  The decrease was due primarily to
decreased  transmission  expenses and decreased  customer  assistance  expenses,
offset  in  part  by  increased  steam  generation  expenses.  The  decrease  in
transmission  expenses resulted from a transmission service agreement adjustment
related to the final order in Texas  Commission  Docket No.  17285.  See NOTE 2.
LITIGATION  AND  REGULATORY  PROCEEDINGS  - CPL and WTU  Complaint  versus Texas
Utilities  Electric  Company  (Docket No. 17285).  The decrease in  transmission
expenses was offset in part by increased  expenses related to CSW's transmission
coordination agreement currently pending before the FERC. See NOTE 2. LITIGATION
AND REGULATORY PROCEEDINGS - Transmission  Coordination  Agreement.  Maintenance
expenses increased $4.3 million, or 14%, as a result of increased overhead lines
expenses from additional  tree-trimming  maintenance expenses, wind storm damage
and increased power station maintenance expenses.  Depreciation and amortization
expenses  increased  $3.1 million,  or 4%, for the first nine months of 1998 due
primarily to increases in depreciable and amortizable plant.

<PAGE>

SOUTHWESTERN ELECTRIC POWER COMPANY
RESULTS OF OPERATIONS

     Taxes,  other than income  increased  $2.9  million,  or 7%, as a result of
increased ad valorem taxes due to higher assessed values. Operating income taxes
increased $6.0 million, or 15%, due primarily to increased taxable income.

      Other  income and  deductions  decreased  in the first nine months of 1998
compared  to the same period of 1997 due  primarily  to the absence in 1998 of a
gain on the sale of lignite  properties  recorded in the third  quarter of 1997,
offset  in part by  charges  associated  with the  write-off  of  certain  plant
development costs recorded in the first quarter of 1997.

     Interest  charges increased $2.7 million due  primarily to distributions on
Trust Preferred Securities, which were outstanding for only five months in 1997.




<PAGE>



WTU



                          WEST TEXAS UTILITIES COMPANY




                         PART I. FINANCIAL INFORMATION.

                          ITEM 1. FINANCIAL STATEMENTS.


<PAGE>

                          WEST TEXAS UTILITIES COMPANY

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


                                                                    Three Months Ended               Nine Months Ended
                                                                      September 30,                     September 30,
                                                             -----------------------------    -----------------------------
                                                                1998             1997             1998            1997
                                                             ------------    -------------    -------------    ------------
                                                                      (thousands)                       (thousands)
<S>                                                          <C>             <C>              <C>              <C>    


Electric Operating Revenues                                    $ 147,343        $ 124,984        $ 335,644       $ 308,867

Operating Expenses and Taxes
  Fuel                                                            38,546           34,450           95,231          94,361
  Purchased power                                                 17,169           16,559           37,831          34,984
  Other operating                                                 19,637           20,920           62,496          64,038
  Maintenance                                                      4,911            3,239           11,816          10,393
  Depreciation and amortization                                   10,719           10,741           32,108          31,067
  Taxes, other than income                                         5,827            6,347           18,008          18,148
  Income taxes                                                    16,623            9,139           21,705          12,425
                                                             ------------    -------------    -------------    ------------
                                                                 113,432          101,395          279,195         265,416
                                                             ------------    -------------    -------------    ------------

Operating Income                                                  33,911           23,589           56,449          43,451
                                                             ------------    -------------    -------------    ------------

Other Income and Deductions
  Allowance for equity funds used during construction                193               26              421             125
  Other                                                              (22)             (48)           1,476             176
  Non-operating income taxes                                         259              198              282             373
                                                             ------------    -------------    -------------    ------------
                                                                     430              176            2,179             674
                                                             ------------    -------------    -------------    ------------

Income Before Interest Charges                                    34,341           23,765           58,628          44,125
                                                             ------------    -------------    -------------    ------------

Interest Charges
  Interest on long-term debt                                       5,088            5,088           15,264          15,264
  Interest on short-term debt and other                            1,319            1,127            3,405           3,912
  Allowance for borrowed funds used                                                                             
     during construction                                            (182)            (132)            (469)           (599)
                                                             ------------    -------------    -------------    ------------
                                                                   6,225            6,083           18,200          18,577
                                                             ------------    -------------    -------------    ------------


Net Income                                                        28,116           17,682           40,428          25,548
  Less:  preferred stock dividends                                    26               26               78             118
  Gain/(loss) on reacquired preferred stock                           --             (101)              --           1,082
                                                             ------------    -------------    -------------    ------------
Net Income for Common Stock                                     $ 28,090         $ 17,555         $ 40,350        $ 26,512
                                                             ============    =============    =============    ============


</TABLE>



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


<PAGE>

                          WEST TEXAS UTILITIES COMPANY

                                 BALANCE SHEETS
<TABLE>
<CAPTION>


                                              September 30,    December 31,
                                                   1998             1997
                                              (unaudited)       (audited)
                                             --------------   --------------
ASSETS                                                 (thousands)
<S>                                          <C>              <C>    

 ELECTRIC UTILITY PLANT
     Production                              $  419,302       $  417,849
     Transmission                               212,887          208,905
     Distribution                               378,129          363,911
     General                                    107,911          104,026
     Construction work in progress               24,076           14,154
                                             ----------       ----------
                                              1,142,305        1,108,845

  Less - Accumulated depreciation               466,493          441,281
                                             ----------       ----------
                                                675,812          667,564
                                             ----------       ----------

CURRENT ASSETS
     Cash                                         3,160              811
     Advances to affiliates                      14,618           19,802
     Accounts receivable                         42,747           10,570
     Materials and supplies, at average cost     13,266           14,246
     Fuel inventory                              13,215           12,471
     Under-recovered fuel costs                  10,597           11,968
     Prepayments and other                        6,889            4,006
                                             ----------       ----------
                                                104,492           73,874
                                             ----------       ----------

DEFERRED CHARGES AND OTHER ASSETS
  Deferred Oklaunion costs                       15,842           18,637
  Restructuring costs                             7,550            8,966
  Other                                          33,605           33,107
                                             ----------       ----------
                                                 56,997           60,710
                                             ----------       ----------
                                             $  837,301       $  802,148
                                             ==========       ==========

</TABLE>


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

<PAGE>

                                        WEST TEXAS UTILITIES COMPANY

                                               BALANCE SHEETS
<TABLE>
<CAPTION>


                                                         September 30,               December 31,
                                                             1998                        1997
                                                         (unaudited)                  (audited)
                                                         -------------               -------------
CAPITALIZATION AND LIABILITIES                                          (thousands)
<S>                                                      <C>            <C>          <C>           <C>    


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                                        141,829                     119,479
                                                         -------------               -------------
                                                              281,279        50%          258,929        48%
                                                         -------------  ---------    ------------- ----------

     Preferred stock                                            2,482        --%            2,483        --%
     Long-term debt                                           281,318        50%          278,640        52%
                                                         -------------  ---------    ------------- ----------
                                                                                  
                                                              565,079       100%          540,052       100%
                                                         -------------  ---------    ------------- ----------
                                                                  

CURRENT LIABILITIES
     Payables to affiliates                                    20,496                      21,569
     Accounts payable                                          29,208                      29,521
     Accrued taxes                                             25,136                      11,375
     Accumulated deferred income taxes                            908                         203
     Accrued interest                                           8,024                       4,525
     Other                                                      5,492                       3,859
                                                         -------------               -------------
                                                               89,264                      71,052
                                                         -------------               -------------
                                                                  
DEFERRED CREDITS
     Accumulated deferred income taxes                        141,064                     149,346
     Investment tax credits                                    26,927                      27,918
     Income tax related regulatory liabilities, net            10,673                       9,482
     Other                                                      4,294                       4,298
                                                          -------------               -------------
                                                              182,958                     191,044
                                                          -------------               -------------

                                                            $ 837,301                   $ 802,148
                                                          =============               =============

</TABLE>


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

<PAGE>

                                     WEST TEXAS UTILITIES COMPANY

                                       STATEMENTS OF CASH FLOWS
                                              (unaudited)
<TABLE>
<CAPTION>

                                                                    Nine Months Ended
                                                                      September 30,
                                                           --------------------------------
                                                               1998              1997
                                                           --------------    --------------
OPERATING ACTIVITIES                                                  (thousands)
<S>                                                        <C>               <C>   

     Net Income                                               $ 40,428          $ 25,548
     Non-cash Items Included in Net Income
         Depreciation and amortization                          32,890            32,286
         Deferred income taxes and investment tax credits       (7,377)            3,077
     Changes in Assets and Liabilities
         Accounts receivable                                   (32,177)           (6,741)
         Accounts payable                                         (313)           (1,163)
         Accrued taxes                                          13,761               103
         Fuel recovery                                           1,371            (6,581)
         Other                                                  (3,241)            9,149
                                                           --------------    --------------
                                                                45,342            55,678
                                                           --------------    --------------

INVESTING ACTIVITIES
     Construction expenditures                                 (33,049)          (21,448)
     Other                                                       2,950            (1,008)
                                                           --------------    --------------

                                                               (30,099)          (22,456)
                                                           --------------    --------------

FINANCING ACTIVITIES
     Change in advances from affiliates                           --             (11,503)
     Redemption of preferred stock                                --              (2,727)
     Payment of dividends                                      (18,078)          (18,159)
                                                           --------------    --------------

                                                               (18,078)          (32,389)
                                                           --------------    --------------

Net Change in Cash and Cash Equivalents                         (2,835)              833
Cash and Cash Equivalents at Beginning of Period                20,613               664
                                                           ==============    ==============
Cash and Cash Equivalents at End of Period                    $ 17,778          $  1,497
                                                           ==============    ==============

SUPPLEMENTARY INFORMATION
     Interest paid less amounts capitalized                   $  9,813          $ 11,773
                                                           ==============    ==============
     Income taxes paid                                        $ 15,042          $  9,407
                                                           ==============    ==============

</TABLE>

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

<PAGE>


WEST TEXAS UTILITIES COMPANY
RESULTS OF OPERATIONS


COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1998 AND 1997

      Net Income for common  stock was $28.1  million  for the third  quarter of
1998 compared to $17.6 million in the third quarter of 1997. The increase in net
income  was  primarily  a  result  of  an  increase  in  non-fuel  revenues,   a
transmission  service  agreement  adjustment  and  a  transmission  coordination
agreement accrual,  as discussed below. The increase in net income was partially
offset by an increase in operating expenses and taxes.

      Electric  operating  revenues were $147.3  million in the third quarter of
1998,  an 18% increase from $125.0  million in the third  quarter of 1997.  This
increase was due  primarily to increases in non-fuel  revenues of $12.0  million
and fuel revenues of $10.4  million.  The increase in non-fuel  revenues was due
primarily to a 9% increase in retail MWH sales resulting from favorable weather.
Included in non-fuel revenues were additional  transmission  revenues  resulting
from changes to CSW's  Transmission  Coordination  Agreement  currently  pending
before  the  FERC.  See  NOTE  2.   LITIGATION  AND  REGULATORY   PROCEEDINGS  -
Transmission  Coordination  Agreement.  Fuel revenues were higher as a result of
higher fuel costs, as discussed below.

      Fuel  expenses  were  $38.5  million  for the third  quarter  of 1998,  an
increase of $4.1 million, or 12%, when compared to the third quarter of 1997 due
primarily to a 16% increase in  generation.  The increase in generation  was due
primarily to favorable weather conditions.  Partially offsetting the increase in
fuel  expenses was a lower  average unit cost of fuel.  The average unit cost of
fuel  declined  from  $1.97 per MMbtu in the third  quarter of 1997 to $1.81 per
MMbtu in the third  quarter of 1998.  This  decline in the average  unit cost of
fuel was due primarily to lower spot market natural gas and coal prices.

      Other  operating  expenses  declined  $1.3 million in the third quarter of
1998  when  compared  to third  quarter  of 1997 as a result  of lower  employee
related expenses as well as a decrease in transmission expenses. The decrease in
transmission  expenses resulted primarily from a transmission  service agreement
adjustment  related to the final order in Texas Commission Docket No. 17285. See
NOTE 2.  LITIGATION  AND REGULATORY  PROCEEDINGS - CPL and WTU Complaint  versus
Texas Utilities Electric Company (Docket No. 17285).  Maintenance  expenses rose
$1.7 million from the comparable  period in 1997.  This increase was primarily a
result of the  re-activation  of generating  stations due primarily to increased
customer demand.

      Operating income taxes increased $7.5 million in the third quarter of 1998
as compared to the third quarter in 1997 due primarily to higher taxable income.


<PAGE>


WEST TEXAS UTILITIES COMPANY
RESULTS OF OPERATIONS


COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

      Net income for common stock was $40.4 million during the first nine months
of 1998  compared to $26.5 million in the first nine months of 1997, an increase
of $13.8 million, or 52%. The rise in net income was due largely to increases in
non-fuel revenues,  interest income, a transmission service agreement adjustment
and a transmission  coordination  agreement  accrual,  as discussed  below.  The
increase in net income was partially offset by an increase in operating expenses
and taxes.  The change also reflects the  recognition  of the gain on reacquired
preferred stock recorded in the first nine months of 1997.

      Electric  operating revenues were $335.6 million for the first nine months
of 1998,  an increase of $26.8  million,  or 9%, when compared to the first nine
months of 1997.  This  increase  was due  primarily  to an  increase in non-fuel
revenues of $18.6  million and fuel  revenues of $8.2  million.  The increase in
non-fuel  revenues  was due  primarily  to a 5%  increase  in  retail  MWH sales
resulting from favorable weather.  Included in non-fuel revenues were additional
transmission revenues resulting from changes to CSW's Transmission  Coordination
Agreement  currently  pending  before  the  FERC.  See  NOTE 2.  LITIGATION  AND
REGULATORY PROCEEDINGS Transmission  Coordination Agreement.  Fuel revenues were
higher as a result of higher fuel costs, as discussed below.

      Fuel costs  increased  to $95.2  million in the first nine  months of 1998
from  $94.4  million  in the first  nine  months of 1997 due  primarily  to a 6%
increase in generation.  The increase in generation was due largely to favorable
weather conditions and increase retail sales.  Partially offsetting the increase
in fuel expenses was a lower average unit cost of fuel. The average unit cost of
fuel declined from $2.04 per MMbtu in the first nine months of 1997 to $1.87 per
MMbtu in the first nine months of 1998. This decline in the average unit cost of
fuel was due  primarily  to  lower  spot  market  natural  gas and coal  prices.
Purchased  power  expenses  increased  $2.8  million,  or 8%, for the first nine
months  of 1998  compared  to the  first  nine  months  of 1997 as a  result  of
additional economy energy purchases.

      Other operating expenses declined $1.5 million in the first nine months of
1998 when  compared to the same  period of 1997  resulting  from a reduction  in
transmission expenses due to a transmission service agreement adjustment related
to the final order in Texas Commission  Docket No. 17285. See NOTE 2. LITIGATION
AND  REGULATORY  PROCEEDINGS  - CPL and WTU  Complaint  versus  Texas  Utilities
Electric Company (Docket No. 17285). Additionally, other operating expenses were
affected by lower employee  related  expenses.  The decrease in other  operating
expenses was offset in part by higher  production  expenses  resulting  from the
re-activation of generating stations due primarily to increased customer demand.
Maintenance  expenses rose $1.4 million from the comparable  period in 1997 as a
result of the previously mentioned re-activation of generating stations.

      Operating  income  taxes  increased  to $21.7  million  for the first nine
months of 1998  compared to $12.4  million in the first nine months of 1997 as a
result of higher  taxable  income.  Other income and  deductions  increased $1.5
million  for the first nine  months of 1998  compared to the same period in 1997
due primarily to an increase in interest income.



<PAGE>


INDEX TO APPLICABLE NOTES TO FINANCIAL STATEMENTS
BY REGISTRANTS





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

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

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

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

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

NOTE 6.  PROPOSED AEP MERGER                 CSW, CPL, PSO, SWEPCO, WTU

NOTE 7.  LONG-TERM FINANCING                 CSW, CPL, PSO

NOTE 8.  NEW ACCOUNTING STANDARDS            CSW, CPL, PSO, SWEPCO, WTU

NOTE 9.  EXTRAORDINARY ITEM                  CSW



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NOTES TO FINANCIAL STATEMENTS
(Unaudited)


1.    PRINCIPLES OF PREPARATION

      The condensed  financial  statements of the Registrants have been prepared
by each  Registrant  pursuant to the rules and  regulations of the SEC.  Certain
information  and note  disclosures  normally  included in  financial  statements
prepared in accordance with generally accepted  accounting  principles have been
condensed  or omitted  pursuant  to such rules and  regulations,  although  each
Registrant  believes that the  disclosures  are adequate to make the information
presented not misleading. These condensed financial statements should be read in
conjunction  with  the  financial  statements  and  the  notes  included  in the
Registrants' Combined Annual Report on Form 10-K for the year ended December 31,
1997  and the  Registrants'  Combined  Quarterly  Reports  on Form  10-Q for the
quarters ended March 31, 1998 and June 30, 1998.

      The unaudited financial information 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 foreign  operations have been translated from
the local currency to U.S.  dollars in accordance  with SFAS No. 52. SFAS No. 52
requires the translation of income statement items at average exchange rates and
balance sheet accounts at current exchange rates. All balance sheet  translation
adjustments are recorded directly to Accumulated other  comprehensive  income on
CSW's consolidated balance sheets. Cash flow statement items are translated at a
combination of average,  historical  and current  exchange  rates.  The non-cash
impact of the changes in exchange rates on cash and cash equivalents is shown on
CSW's  consolidated  statements of cash flows in Effect of exchange rate changes
on cash and cash equivalents.

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

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

      CPL's  portion of the costs of  decommissioning  STP were  estimated to be
$258 million in 1995 dollars based on a site specific  study  completed in 1995.
CPL is accruing and recovering these  decommissioning  costs through rates based
on the service  life of STP at a rate of $8.2  million  per year.  The funds are
deposited  with a  trustee  under  the  terms of an  irrevocable  trust  and are
reflected in CPL's consolidated balance sheets as Nuclear  decommissioning trust
with a  corresponding  amount  accrued  in  Accumulated  depreciation.  On CSW's
consolidated  balance  sheets,  the  irrevocable  trust is  included in Deferred

<PAGE>

Charges  and  Other  Assets,  Other  with  a  corresponding  amount  accrued  in
Accumulated depreciation.  In CSW's and CPL's consolidated statements of income,
the interest income related to the irrevocable trust is recorded in Other Income
and Deductions,  Other. In CPL's consolidated statements of income, the interest
expense  related to the  irrevocable  trust is  recorded  in  Interest  Charges,
Interest on  short-term  debt and other.  In CSW's  consolidated  statements  of
income the  interest  expense  related to the  irrevocable  trust is recorded in
Interest and Other Charges, Interest on short-term debt and other.

      Inventory
      CPL,  PSO and WTU utilize the LIFO method for the  valuation of all fossil
fuel  inventories.  SWEPCO continues to utilize the weighted average cost method
pending  approval of the  Arkansas  Commission  to utilize the LIFO  method.  At
October  31,  1998,  none of the  U.S.  Electric  Operating  Companies  had LIFO
reserves.  LIFO reserves are the excess of the inventory  replacement  cost over
the carrying amount on the balance sheet.

      Cash Equivalents
      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.

      Comprehensive Income
      Consistent  with the  requirements  of SFAS  No.  130,  CSW has  presented
consolidated statements of comprehensive income. Comprehensive income is defined
as the change in equity (net  assets) of a business  enterprise  during a period
from transactions and other events and circumstances from non-owner sources.  It
includes  all changes in equity  during a period  except  those  resulting  from
investments by owners and distributions to owners.

      Reclassifications
      Certain financial statement items for prior periods have been reclassified
to conform to the 1998 presentation.


2.    LITIGATION AND REGULATORY PROCEEDINGS

      See the  Registrants'  Combined  Annual  Report  on Form 10-K for the year
ended  December  31, 1997 and  Combined  Quarterly  Reports on Form 10-Q for the
quarters  ended March 31, 1998 and June 30, 1998 for  additional  discussion  of
litigation  and  regulatory  proceedings.  Reference  is  also  made  to NOTE 3.
COMMITMENTS AND CONTINGENT LIABILITIES,  MD&A - RATES AND REGULATORY MATTERS and
PART II - OTHER INFORMATION, ITEM 1. LEGAL PROCEEDINGS for additional discussion
of litigation and regulatory matters.

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

<PAGE>

      CPL has appealed the CPL 1997 Final Order to the State  District  Court of
Travis  County to challenge the  resolution of several  issues in the rate case.
The primary issues include:  (i) the  classification of $800 million of invested
capital in STP as ECOM which was also  assigned  a lower  return on equity  than
non-ECOM  property,  (ii) the Texas  Commission's  use of the "Glide  Path" rate
reduction  methodology  applied on May 1, 1998 and to be applied on May 1, 1999,
and  (iii)  the $18  million  of  disallowed  affiliate  transactions  from  CSW
Services.  As part of the appeal, CPL sought a temporary  injunction to prohibit
the  Texas  Commission  from   implementing  the  "Glide  Path"  rate  reduction
methodology. The court denied the temporary injunction and the "Glide Path" rate
reduction was  implemented in May 1998.  Hearings on the appeal were held during
the third  quarter of 1998. A decision from the State  District  Court of Travis
County has not yet been received.  Management is unable to predict how the final
resolution  of these issues will  ultimately  affect CSW's and CPL's  results of
operations and financial condition.

      See MD&A - RATES AND  REGULATORY  MATTERS,  CPL Rate  Review - Docket  No.
14965 for additional discussion of the CPL 1997 Final Order.

      CPL Fuel Proceeding
      In January 1998, CPL filed a request with the Texas  Commission to recover
approximately  $41.4  million in  uncollected  fuel and  purchased  power  costs
including  related  interest from its retail customers and to increase its fixed
fuel factors used to recover fuel costs by approximately $23.4 million effective
with March 1998 bills. The primary cause of CPL's fuel cost  under-recovery  and
the need to  increase  its fuel  factors  was the  result  of the  unanticipated
increase in the price of natural gas.

      In February 1998, stipulated  settlements were reached with intervenors in
CPL's fuel  proceeding  on both the fuel factor and  surcharge.  The fuel factor
increase was reduced to $15.4 million, and the fuel surcharge including interest
was reduced to $34.3 million.  The reductions are not a disallowance and will be
considered  as part of CPL's fuel  reconciliation  filing to be made in December
1998.

      CPL Anglo Iron Litigation
      In April 1998,  CPL was sued by Anglo Iron in the United  States  District
Court for the  Southern  District  of Texas,  Brownsville  Division,  for claims
arising  from the  clean  up of a site  owned  and  operated  by  Anglo  Iron in
Harlingen,  Texas. Anglo Iron seeks reimbursement  pursuant to CERCLA and common
law  contribution  and  indemnity  for  alleged  response  and clean up costs of
$328,139  and damages of $150,000  for "loss of fair market  value" of the site.
Management  cannot predict the outcome of this litigation.  However,  management
believes  that CPL has valid  defenses  to Anglo  Iron's  claims and  intends to
defend  the  matter  vigorously.  Management  also  believes  that the  ultimate
resolution  of this matter will not have a material  adverse  impact on CSW's or
CPL's consolidated results of operations or financial condition.

      CPL Municipal Franchise Fee Litigation
      In May 1996, the City of San Juan, Texas filed a purported 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 plaintiff's
petition asserts various contract and tort claims against CPL as well as certain
audit rights. The suit seeks unspecified  damages and attorneys' fees. CPL filed
a counterclaim for any overpayment of franchise fees it may have made as well as
its attorneys' fees. CPL also filed a motion to transfer venue to Nueces County,
Texas, and a plea to the jurisdiction and pleas in abatement  asserting that the
Texas  Commission  has primary  jurisdiction  over the  claims.  In May 1996 and
December 1996,  respectively,  the Cities of Pharr, Texas and San Benito,  Texas
filed individual suits making claims virtually identical to those claimed by the
City of San Juan. In January,  1997, CPL filed an original petition at the Texas

<PAGE>

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,  Texas District
Court overruled CPL's plea to the  jurisdiction  and plea in abatement.  In July
1997, the Hidalgo County,  Texas District Court entered an order  certifying the
case as a class action.  CPL appealed this order to the Corpus  Christi Court of
Appeals.  In February  1998,  the Corpus  Christi Court of Appeals  affirmed the
trial court's order  certifying the class. CPL appealed the Corpus Christi Court
of Appeals ruling to the Texas Supreme  Court,  which declined to hear the case.
In August,  1998, the Hidalgo  County,  Texas District Court ordered the case to
mediation and suspended all proceedings pending the completion of the mediation.

      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 Sinton Landfill Litigation
      CPL,  along with over 30 others,  is named as a defendant  in the district
court in San Patricio County,  Texas. The plaintiffs,  approximately 500 current
and former  landowners  in the vicinity of a landfill  site near Sinton,  Texas,
each of whom alleges $10 million property damage and personal injury as a result
of alleged contamination from the site. Plaintiffs have made a collective demand
upon CPL for $1.1  million.  Trial  for 20 of the  plaintiffs'  cases is set for
January 29,  1999.  Management  cannot  predict the outcome of this  litigation.
However,  management  believes  that CPL has valid  defenses to the  plaintiffs'
claims and intends to defend the matter  vigorously.  Management  also  believes
that the  ultimate  resolution  of this matter will not have a material  adverse
impact  on  CSW's  or CPL's  consolidated  results  of  operation  or  financial
condition.

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

      CPL and WTU Complaint versus Texas Utilities Electric Company (Docket No.
      17285)
      A joint complaint filed by CPL and WTU with the Texas Commission asserted
that  since  January  1,  1997,  Texas  Utilities   Electric  Company  has  been
effectively  double charging for  transmission  service within ERCOT. A proposal
for decision  received in February  1998  recommended  approval of a CPL and WTU
proposed  reduction  of $15.5  million  annually of payments to Texas  Utilities
Electric Company under  FERC-approved  transmission  service  agreements against
amounts that CPL and WTU would  otherwise owe Texas Utilities  Electric  Company
pursuant to Texas Commission rules for transmission  service in ERCOT. The Texas
Commission  approved the proposal in June 1998. On September 30, 1998, the Texas
Commission  denied Texas  Utilities  Electric  Company's  most recent motion for
rehearing.  Based on this  denial for  rehearing,  the U.S.  Electric  Operating
Companies  recorded  the  effects  of  the  final  order.  Prior  to  the  Texas
Commission's  September 1998 decision, the $15.5 million annual payment to Texas

<PAGE>

Utilities  Electric  Company  was  allocated  to  the  U.S.  Electric  Operating
Companies.  As a result of this order the payment is recorded on CPL's and WTU's
books as a reduction to ERCOT transmission expense.

      Transmission Coordination Agreement
      The Transmission  Coordination  Agreement  provides the means by which the
U.S.  Electric  Operating  Companies  will  operate,  plan and maintain the four
separate transmission systems as a single system. The agreement also establishes
a  process  for the U.S.  Electric  Operating  Companies  to  allocate  revenues
received  under open access  transmission  tariffs.  On August 7, 1998, the FERC
accepted the Transmission  Coordination Agreement for filing, suspended it for a
nominal period,  and made it effective as of January 1, 1997,  subject to refund
and investigation.

      SWEPCO Fuel Proceeding
      In April  1997,  SWEPCO  filed with the Texas  Commission  an  application
concerning  fuel  cost  under-recoveries  and a  possible  fuel  surcharge.  The
application  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 Texas Commission's Office of Policy Development,  on
behalf of the Texas Commission, approved the consolidation.

      In May 1997,  SWEPCO filed with the Texas  Commission  an  application  to
reconcile  fuel  costs  and  implement  a  12  month   surcharge  of  fuel  cost
under-recoveries.  Because  of the  uncertainty  as to when a  surcharge  may be
implemented,  SWEPCO did not establish in its filing a proposed surcharge period
or a total  surcharge  amount which would  reflect  interest  through the entire
surcharge period. However, SWEPCO indicated that it had an under-recovered Texas
jurisdictional  fuel cost balance of $16.8 million,  including  interest through
December 1996. Included in the $16.8 million balance are fuel-related litigation
expenses  of  $5.0  million  and an  interest  return  of  $2.0  million  on the
unamortized balance of a fuel contract termination payment.

      On  December  8,  1997,   SWEPCO  and  the  other  parties  to  the  above
consolidated  proceedings  before the Texas Commission filed a settlement on all
issues except whether transmission  equalization  payments should be included in
fuel revenues or base  revenues.  Of the $16.8 million in  under-recovered  fuel
costs as of December 31, 1996, the settlement  would result in a decrease of the
under-recovered  fuel  costs,  and the  resulting  surcharge  recovery,  of $6.0
million.  The  settlement  also provides  that  SWEPCO's  fuel and  fuel-related
expenses  during the  reconciliation  period were  reasonable  and necessary and
would allow them to be reconciled as eligible fuel expense. Also, the settlement
provides that  SWEPCO's  actions in litigating  and  renegotiating  certain fuel
contracts,  together with the prices,  terms and conditions of the  renegotiated
contracts,  were prudent.  The $6.0 million reduction is not associated with any
particular activity or issue within the fuel proceedings.

      On April 8, 1998,  the ALJ assigned to this  proceeding  issued a proposal
for  decision  regarding  the  one  outstanding  issue,   whether   transmission
equalization  payments should be included in eligible fuel expense. The proposal
for  decision  recommended  that  SWEPCO  be  allowed  to  include  transmission
equalization  expense in  eligible  fuel  expense.  On May 19,  1998,  the Texas
Commission reversed the ALJ and did not allow SWEPCO to recover its transmission
equalization  payments as a  component  of eligible  fuel  expense.  This ruling
resulted in an earnings  reduction  of $1.8  million,  which was recorded in the
second quarter of 1998. On June 8, 1998,  SWEPCO filed a motion for rehearing on
the transmission  equalization issue, which was denied through operation of law.
After  the  Texas   Commission's  order  on  May  19,  1998,  SWEPCO  still  had

<PAGE>

under-recovered  its fuel and fuel related expenses.  On July 1, 1998, the Texas
Commission  issued an order  allowing  SWEPCO  to  surcharge  its  Texas  retail
customers  $6.9  million  of  under-recovered  fuel  and fuel  related  expenses
including associated interest.  The surcharge began in July 1998 and will end in
June  1999.  SWEPCO  has  filed an  appeal  regarding  this  matter in the State
District  Court of Travis  County,  Texas.  Management  believes  that  SWEPCO's
position is legally  correct but is unable to predict  the  ultimate  outcome of
this litigation.

      WTU Fuel Proceedings

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

      During the  reconciliation  period of July 1, 1994  through June 30, 1997,
WTU  incurred  approximately  $422  million in  eligible  fuel and  fuel-related
expenses  to  generate  and  purchase  electricity.   The  Texas  jurisdictional
allocation of such fuel and fuel-related expenses is approximately $295 million.

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

      On October 14, 1998, the general  counsel of the Texas  Commission and WTU
agreed  to an  non-unanimous  stipulation  regarding  WTU's  eligible  fuel  and
fuel-related  expenses.  One party does not accept  the  stipulation's  proposed
treatment of transmission  equalization  payment,  discussed above. Parties will
file  briefs in  November  1998,  and a proposal  for  decision  from the ALJ is
expected by early 1999 with a Texas Commission  decision  expected by the end of
the first quarter 1999.  Management is unable to predict the outcome of the fuel
proceeding.

      Fuel Factor Filing
In March 1998, WTU filed with the Texas  Commission an Application for Authority
to Implement an increase in fuel factors of $7.4 million,  or 7.3%, on an annual
basis. Additionally, WTU proposed to implement a fuel surcharge of $6.8 million,
including  accumulated  interest,  over  a  six  month  period  to  collect  its
under-recovered  fuel costs.  WTU  implemented the revised fuel factors with its
June 1998 billings.



<PAGE>


      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.


3.    COMMITMENTS AND CONTINGENT LIABILITIES

      Fuel and Related Commitments
      To  supply  a  portion  of their  fuel  requirements,  the  U.S.  Electric
Operating Companies have entered into various commitments for the procurement of
fuel.

      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 September 30, 1998, the
maximum  amount  SWEPCO  believes it could  potentially  assume is $93  million.
However,  the maximum amount may vary as the mining  contractor's need for funds
fluctuates. The contractor's actual obligation outstanding on September 30, 1998
was $73 million.

      SWEPCO South Hallsville Lignite Mine
      As part of the process to receive a renewal of a Texas Railroad Commission
permit for lignite  mining at the South  Hallsville  lignite mine and  expansion
into the  Marshall  South  Lignite  Project  area,  SWEPCO has agreed to 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.

      Other Commitments and Contingencies

      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 NRC 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  1997.  The owners of STP are insured for their 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, for any one nuclear incident,  payable at $10 million
per year per reactor. An additional surcharge of five percent of the maximum may
be  payable if the total  amount of public  claims  and legal  costs  exceed the
limit.  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.

<PAGE>

      The owners of STP currently maintain on-site decontamination liability and
property  damage  insurance  in the amount of $2.75  billion  provided  by NEIL.
Policies of insurance issued by 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 the  result of a
covered  accident that shuts down production at one or both of the STP Units for
more than 23 consecutive  weeks.  In the event of an outage of STP Units 1 and 2
as a result of the same accident, such insurance will reimburse CPL up to 80% of
the recovery.  The maximum amount recoverable for a single unit outage is $133.8
million for both Units 1 and 2. CPL is subject to an additional assessment of up
to $1.54 million for the current policy year in the event that insured losses at
a nuclear facility covered under the NEIL I policy exceed the accumulated  funds
available under the policy. CPL renewed its current NEIL I Business Interruption
and/or Extra Expense policy on October 1, 1998.

      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.

      On March 18, 1998,  SWEPCO,  together  with the Cajun  Members  Committee,
which  currently   represents  7  of  the  12  Louisiana   member   distribution
cooperatives  that are served by Cajun,  filed the SWEPCO Plan in the bankruptcy
court.  The SWEPCO Plan replaces  plans filed  previously  by SWEPCO.  Under the
SWEPCO  Plan,  a  SWEPCO  affiliate  or  subsidiary  would  acquire  all  of the
non-nuclear  assets  of Cajun,  comprised  of the  two-unit  Big Cajun I natural
gas-fired  plant,  the  three-unit  Big Cajun II coal-fired  plant,  and related
non-nuclear  assets.  The purchase price under the SWEPCO Plan is $940.5 million
in cash,  subject  to  adjustment  pursuant  to the terms of the asset  purchase
agreement  proposed as part of the SWEPCO Plan. The SWEPCO Plan incorporates the
terms of a  settlement  between  the RUS,  Cajun  Members  Committee,  Claiborne
Electric Cooperative, Inc. and SWEPCO. In addition, the SWEPCO Plan provides for
SWEPCO and the Cajun member  cooperatives  to enter into long-term  power supply
agreements  which will  provide  the Cajun  member  cooperatives  with rate plan
options  and  market  access   provisions   designed  to  ensure  the  long-term
competitiveness  of the cooperatives.  Eight  cooperatives and Central Louisiana
Electric  Company,  Inc.,  successor to Teche  Electric  Cooperative,  agreed to
purchase  power from SWEPCO,  if SWEPCO's  plan is  confirmed by the  bankruptcy
court.

       Two competing plans of reorganization for the non-nuclear assets of Cajun
were filed with the bankruptcy  court. On September 25, 1998,  Enron Capital and
Trade Resource Corporation, a subsidiary of Enron Corporation, withdrew its bid.
The trustee for Cajun supports the sole remaining competing bid of $1.19 billion
by Louisiana  Generating LLC, a partnership of subsidiaries of Southern  Energy,
Inc.,   Northern  States  Power  Company  and  Zeigler  Coal  Holding   Company.
Confirmation hearings in Cajun's bankruptcy case were completed in May 1998.

      SWEPCO and the Cajun  Members  Committee are  co-plaintiffs  in litigation
regarding a central  issue in the  bankruptcy  case,  whether a  competing  plan
supported by the Cajun  trustee can force the  cooperatives  to buy power for 25
years under the nonconsensual arrangements contained in that plan.

<PAGE>

      As previously reported,  on August 11, 1998 , the U.S. Fifth Circuit Court
of Appeals overturned a U.S. District Court for the Middle District of Louisiana
ruling  that  disqualified  the SWEPCO Plan from being  considered  in the Cajun
bankruptcy  reorganization process. The U.S. Fifth Circuit Court of Appeals said
the U.S.  District Court for the Middle District of Louisiana erred in reversing
the bankruptcy  court,  which had  originally had determined  that $1 million in
assistance  payments  from  SWEPCO  to  the  Cajun  Members  Committee  did  not
constitute  vote-buying  and were legal.  On October 30,  1998,  the U.S.  Fifth
Circuit Court of Appeals  rejected  requests for rehearing by the Cajun Trustee,
the RUS and others of its  decision  to overturn a U.S.  District  Court for the
Middle  District  of  Louisiana  ruling that  disqualified  the SWEPCO Plan from
competing in the Cajun bankruptcy reorganization process.

      On October 13, 1998, the trustee for Cajun sought an injunction preventing
the Louisiana Commission from acting on a rate case involving Cajun,  contending
that the Louisiana Commission's  involvement in the rate case was a violation of
the bankruptcy  court's  jurisdiction over Cajun's assets and thus by extension,
its  rates.  The  bankruptcy  court  enjoined  individual  commissioners  of the
Louisiana  Commission  from  acting on issues  related  to  possible  changes in
wholesale  electric rates of Cajun. The bankruptcy court dismissed the Louisiana
Commission  as a defendant  in the case,  but  permitted  the action to continue
against  the  commissioners  of  the  Louisiana  Commission  and  the  executive
secretary of the Louisiana Commission.

      Consummation  of the SWEPCO Plan is conditioned  upon  confirmation by the
bankruptcy  court,  and the receipt by SWEPCO and CSW of all requisite state and
federal regulatory  approvals in addition to their respective board of directors
approvals.  If the SWEPCO  Plan is  confirmed,  the $940.5  million  required to
consummate  the  acquisition  of Cajun's  non-nuclear  assets is  expected to be
financed through a combination of external  borrowings and internally  generated
funds with approximately 70% of the external borrowings funded with non-recourse
debt.  There can be no  assurance  that the SWEPCO Plan will be confirmed by the
bankruptcy court or, if it is confirmed, that it will be approved by federal and
state regulators. As of September 30, 1998, SWEPCO had deferred $10.4 million in
costs related to the SWEPCO Plan on its  consolidated  balance sheet which would
be expensed if the SWEPCO plan is not ultimately successful.

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

      Currently,  a feasibility  study is being  conducted to more  definitively
evaluate  remedial  strategies for the property.  The feasibility  study process
will  require  public  input  prior to a final  decision  and will  result  in a
remediation strategy along with associated costs.

<PAGE>

      SWEPCO has incurred  approximately $200,000 to date for its portion of the
cleanup of this site, and, based on its preliminary estimates,  anticipates that
an additional $2 million may be incurred.  Accordingly,  SWEPCO has accrued $2.2
million for the cleanup of the site.

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

      SWEPCO Voda Petroleum Superfund Site
      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.
SWEPCO is  considering an option where over 30 PRPs would conduct the cleanup in
lieu of EPA. Any SWEPCO  liability  associated with this project is not expected
to have a material adverse effect on SWEPCO's results of operations or financial
condition.

     SWEPCO  Wilkes  Power Plant  Copper  Limit  Compliance
     The EPA has  issued  Wilkes  power  plant,  which is owned  by  SWEPCO,  an
administrative  order for wastewater permit violations related to copper limits.
The  administrative  order is initially for a show cause meeting only.  Past and
future compliance  activities  including  activities that have been conducted to
determine  the source of copper will be presented by SWEPCO during this meeting.
The show  cause  meeting  with the EPA held on  August  13,  1998,  resulted  in
continued  negotiations.  The EPA has not issued an administrative penalty order
or referral to the United States  Department of Justice for judicial action with
monetary fines.

      CSW Energy Loans and Commitments
      In June 1998, the 325 MW Phillips Sweeny cogeneration  facility, an entity
50% owned by CSW Energy, obtained permanent project financing.  The $149 million
of debt, with an effective interest rate of 7.4%, is unconditionally  guaranteed
by the  project and is  non-recourse  to CSW Energy and CSW.  Concurrently,  the
project repaid its outstanding  note to CSW Energy for  construction  financing.
CSW Energy obtained the funds for this project from CSW's  short-term  borrowing
program, which were also repaid.

      CSW, CSW Energy and CSW International  have provided letters of credit and
guarantees on behalf of independent power projects,  including  Phillips Sweeny,
of approximately $254 million, $1 million, and $200 million, respectively, as of
September 30, 1998.


4.    COMMON STOCK AND DIVIDENDS

      CSW's basic  earnings  per share of common  stock are computed by dividing
net income for common stock by the average  number of common shares  outstanding
for the respective  periods.  CSW's dividends per common share reflect per share
amounts  paid  for  each  of the  periods.  See  MD&A -  LIQUIDITY  AND  CAPITAL
RESOURCES, Capital Structure for information related to CSW's common stock.

<PAGE>

      At September  30,  1998,  approximately  $1.6 billion of CSW's  subsidiary
companies'  retained  earnings were  available for payment of cash  dividends by
such  subsidiaries to CSW. The CPL and PSO 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.  The amounts of
retained  earnings  available  for  dividends  attributable  to each of the U.S.
Electric Operating Companies at September 30, 1998 are as follows.

CPL - $819 million  PSO - $173 million SWEPCO - $334 million  WTU - $142 million


<PAGE>


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 September 30, 1998

Income before taxes attributable
 to:
   Domestic operations               $353
   Foreign operations                  21
                                   ---------
Income before taxes                  $374   $162,865  $95,147  $74,272  $44,480

Tax at U.S. statutory rate           $131    $57,003  $33,301  $25,995  $15,568

Differences
  Amortization of ITC                  (3)    (1,302)    (448)   (1,142)   (330)
  Mirror CWIP                           1      1,285       --        --      --
  Non-deductible goodwill               
    Amortization                        3         --       --        --      --
  Foreign tax benefit                 (16)        --       --        --      --
  Other                                24      5,419    7,373     2,789   1,126
                                   ---------------------------------------------
Tax expense                          $140    $62,405  $40,226   $27,642 $16,364
                                   ---------------------------------------------

Effective tax rate                     37%        38%      42%       37%     37%

Quarter Ended September 30, 1997
 Income before taxes attributable
    to:
   Domestic operations               $269
   Foreign operations                  15
                                   ---------
Income before taxes                  $284   $127,785  $49,597   $73,521 $26,620

Tax at U.S. statutory rate            $99    $44,725  $17,359   $25,732  $9,317
Differences
  Amortization of ITC                  (2)      (622)     (46)   (1,165)   (330)
  Non-deductible goodwill               
    Amortization                        3         --       --        --      --
  Foreign tax benefit                 (15)        --       --        --      --
  Other                                (1)     1,455      865    (1,994)    (46)
                                   ---------------------------------------------
Tax expense                           $84    $45,558  $18,178   $22,573  $8,941
                                   ---------------------------------------------

Effective tax rate                     30%        36%      37%       31%     34%


Nine Months Ended September 30, 1998
Income before taxes attributable to:
   Domestic operations               $543
   Foreign operations                  80
                                   ---------
Income before taxes                  $623   $263,824 $130,271  $133,139 $61,850

Tax at U.S. statutory rate           $218    $92,338  $45,595   $46,599 $21,648

Differences
  Amortization of ITC                 (10)    (3,905)  (1,347)   (3,474)   (991)
  Mirror CWIP                           4      3,571       --        --      --
  Non-deductible goodwill               
    Amortization                        9         --       --        --      --
  Foreign tax benefit                 (29)        --       --        --      --
  Other                                24      9,482    7,886       557     766
                                   ---------------------------------------------
Tax expense                          $216   $101,486  $52,134   $43,682 $21,423
                                   ---------------------------------------------

Effective tax rate                     35%        38%      40%       33%     35%


<PAGE>



                                     CSW     CPL      PSO    SWEPCO    WTU
                                   ---------------------------------------------
                                   (millions)         (thousands)
                                            ------------------------------------
Nine Months Ended September 30, 1997
Income before taxes attributable to:
   Domestic operations               $363
   Foreign operations                  74
                                   ---------
Income before taxes                  $437   $180,921  $79,826  $129,107 $37,598

Tax at U.S. statutory rate           $153    $63,322  $27,939   $45,187 $13,159

Differences
  Amortization of ITC                  (9)    (3,517)  (1,438)   (3,497)   (991)
  Non-deductible goodwill               
    Amortization                        9         --       --        --      --
  Foreign tax benefit                 (15)        --       --        --      --
  Other                                (6)     3,931      860    (3,453)   (116)
                                   ---------------------------------------------
Tax expense                          $132    $63,736  $27,361   $38,237 $12,052
                                   ---------------------------------------------

Effective tax rate                     30%        35%      34%       30%     32%


6.    PROPOSED AEP MERGER

      Background Information
      On December 22, 1997, CSW and AEP announced that their boards of directors
had  approved a  definitive  merger  agreement  for a tax-free,  stock-for-stock
transaction   creating  a  company  with  a  total  market   capitalization   of
approximately $28.1 billion ($16.5 billion in equity;  $11.6 billion in debt and
preferred  stock).  The  combined  company  would  serve  more than 4.6  million
customers in 11 states and  approximately 4 million customers outside the United
States.  On  May  27,  1998,  AEP  shareholders  approved  the  issuance  of the
additional shares of stock required to complete the merger. On May 28, 1998, CSW
shareholders approved the merger.

      Under the merger  agreement,  each common  share of CSW will be  converted
into 0.6 shares of AEP common stock.  Based upon AEP's closing price immediately
prior to the merger announcement, this represented a premium of 20% over the CSW
closing  price.  AEP  will  issue  approximately  $6.6  billion  in stock to CSW
stockholders   to  complete  the   transaction.   CSW   stockholders   will  own
approximately 40% of the combined company.  Both companies anticipate continuing
their current dividend policies until the close of the transaction.

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

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

<PAGE>

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

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

      Merger Regulatory Approvals
      The proposed AEP merger has a targeted  completion  date in the first half
of 1999.  The merger is  conditioned,  among other things,  upon the approval of
several state and federal regulatory agencies.

      On April 30, 1998,  AEP and CSW jointly  filed a request with the FERC for
approval of their proposed  merger.  On July 15, the FERC approved a draft order
accepting the proposed transmission service agreements between the Ameren System
and PSO.  The draft  order  confirms  that  PSO's 250 MW firm  contract  path is
available for AEP and CSW to meet the Holding Company Act's requirement that the
two systems  operate on an integrated  and  coordinated  basis.  On November 10,
1998, the FERC issued an order to establish a procedural schedule for its review
of the proposed merger between AEP and CSW. A scheduling conference will be held
in November  1998. The order  indicated  that the review of the proposed  merger
will address the issues of  competition  and market power and instructed AEP and
CSW to refile an updated market power study.  The outcome of the FERC scheduling
conference could extend the targeted completion date of the merger.

      On  April 30,  1998,  AEP and CSW jointly  filed a request  with the Texas
Commission for a finding that the merger is in the public  interest.  On July 2,
1998, the Texas Commission  issued a preliminary  order setting forth the issues
the Texas Commission will consider in the merger application. In its preliminary
order, the Texas Commission also determined that (i) the merger  application was
not a rate  proceeding,  (ii)  restructuring  issues should not be addressed and
(iii)  matters in the  jurisdiction  of other  regulatory  bodies  should not be
addressed.

      AEP and CSW have reached a settlement  in principle  with the Texas Office
of Public Utility Counsel and several cities in Texas.  The settlement  resolves
all issues in principle and anticipates the submission of a more detailed filing
outlining specific terms of the settlement along with supporting testimony.

      As a result of the settlement, the ALJ for the merger proceeding suspended
the  procedural  schedule on November 10, 1998 and announced  that a pre-hearing
conference  will be held  November  17,  1998.  The purpose of that  pre-hearing
conference will be to determine the schedule for consideration of the settlement

<PAGE>

by other parties  relating to AEP and CSW's  application  for merger approval by
the Texas  Commission.  The hearing to consider  merger  approval was originally
scheduled to begin December 2, 1998.

      On May 15, 1998,  AEP and CSW jointly  filed a request with the  Louisiana
Commission  for  approval of their  proposed  merger and for a finding  that the
merger is in the public  interest.  Hearings in Louisiana are scheduled to begin
January 18, 1999.

   On June 12,  1998,  AEP and CSW  jointly  filed a request  with the  Arkansas
Commission  for  approval of their  proposed  merger.  On August 17,  1998,  the
Arkansas  Commission  approved  the  merger,  subject to a number of  conditions
including the approval of a regulatory plan for sharing net merger  savings.  On
November 3, 1998, AEP, CSW and SWEPCO filed a settlement  agreement for approval
with the Arkansas  Commission  outlining a regulatory  plan,  agreed to with the
Arkansas  Commission  general staff,  which provides for a sharing of net merger
savings through a reduction of rates for Arkansas retail customers.

      On June 19, 1998, CPL filed a license  transfer  application  with the NRC
requesting  the NRC's  consent  to the  indirect  transfer  of  control of CPL's
interests  in the NRC  licenses  issued for STP,  which  would  result  from the
proposed merger between CSW, CPL's parent  company,  and AEP. CPL would continue
to own its  25.2%  interest  in STP  and  CPL's  name  would  remain  on the NRC
operating  license.  On November 5, 1998, the NRC approved the license  transfer
application.

      On August 14, 1998,  AEP and CSW jointly filed a request with the Oklahoma
Commission for approval of their proposed merger.  The merger filing in Oklahoma
is similar to  requests  currently  before the  Arkansas  Commission,  Louisiana
Commission,  Texas Commission, FERC and SEC. Testimony submitted in these merger
filings outlines the expected combined company benefits of the merger to AEP and
CSW customers and shareholders, which include:

     - $2  billion in net non-fuel  cost savings over 10 years; 
     - $98 million in net fuel savings  over 10 years; 
     - Improved  capital  structure  and  increased financial strength; 
     - Increased diversity in customer base, generating resources and service
          territory;
     - Optimization  of business  practices and continued  high-quality service;
     - Support  for  restructuring  of retail  electric  markets;  and
     - Support for an independent system operator.

   AEP and CSW have proposed a regulatory plan in Oklahoma that provides for:

   -  Approximately  $11.8 million in fuel cost savings to Oklahoma customers of
      CSW's PSO  subsidiary  during  the 10 years  following  completion  of the
      merger;
   -  A commitment not to raise base rates above current levels prior to Jan. 1,
      2002,  for PSO retail  customers  in Oklahoma  and to share  approximately
      one-half of the savings from  synergies  created by the merger  during the
      first 10 years following the merger. Under this plan,  approximately $78.6
      million of these  non-fuel  merger-related  savings will be used to reduce
      future costs to PSO's retail customers; and
   -  A commitment to continue the current high level of customer service and to
      identify  opportunities and implement  measures to further improve service
      quality.

<PAGE>

      On October 1,  1998,  an  Oklahoma  Commission  ALJ issued an oral  ruling
recommending  to the  Oklahoma  Commission  that the merger  filing be dismissed
without prejudice for lack of information  regarding the potential impact of the
merger on the retail  electric  market in  Oklahoma,  in  response  to  comments
received from  intervenors to the merger.  A dismissal  without  prejudice would
allow AEP and CSW to submit an amended application with the added information.

      Subsequent  meetings with the parties to the merger proceeding resulted in
an agreement on criteria for the  additional  studies.  On October 21, 1998, the
ALJ approved these  criteria,  as well as AEP and CSW's plans to file an amended
application along with the additional studies.

      Submission  of the  amended  application  would  reset  Oklahoma's  90-day
statutory time period for Oklahoma  Commission  action on the merger.  All other
material in the written  record in the merger case will be  preserved  since the
docket  is not  being  dismissed.  AEP  and CSW  anticipate  that  the  Oklahoma
Commission  will  establish a  procedural  schedule  that will result in a final
order in Oklahoma in the first  quarter of 1999.  The  revision to the  Oklahoma
proceeding schedule should not impact the timing of the merger closing, which is
targeted for completion during the first half of 1999.

      On October 13, 1998, AEP and CSW jointly filed an application with the SEC
for  approval  of their  proposed  merger.  The SEC merger  filing is similar to
requests currently before other jurisdictions and outlines the expected combined
company  benefits of the merger to AEP and CSW  customers and  shareholders.  On
November 9, 1998, AEP and CSW filed an amendment to the application.

      AEP and CSW plan to make other  required  federal  merger filings with the
Federal  Communications  Commission  and the  Department  of Justice  and/or the
Federal Trade Commission later in 1998.

      CSW  has a 100%  interest  in  SEEBOARD,  and AEP  has a 50%  interest  in
Yorkshire.  The proposed merger of CSW into AEP would result in common ownership
of the United Kingdom entities.  As a result, the common ownership of the United
Kingdom entities could be referred by the United Kingdom  Secretary of State for
Trade and Industry for an  investigation  by the United  Kingdom  Monopolies and
Mergers Commission.  CSW is unable to predict the outcome of any such regulatory
proceeding.

      The merger is  conditioned,  among  other  things,  upon the  approval  of
several state and federal regulatory agencies. The transaction must satisfy many
conditions,  including  the condition  that it must be a pooling.  Some of these
conditions  may not be waived by the  parties.  AEP and CSW have  initiated  the
process of seeking  regulatory  approvals,  but there can be no assurances as to
when,  on what terms or whether  the  required  approvals  will be  received  or
whether there will be any regulatory  proceedings in the United  Kingdom.  There
can be no assurance that the AEP merger will be consummated.

      Merger Costs
      As of September 30, 1998, CSW had deferred $22 million in costs related to
the merger on its consolidated  balance sheet,  which will be charged to expense
if AEP and CSW are not successful in completing their proposed merger.

<PAGE>

7.    LONG-TERM FINANCING

      On September 1, 1998, PSO called $25 million principal amount  outstanding
of Series K and $30 million  principal  amount  outstanding of Series L FMBs, in
their entirety, at call prices of 100 and 100.77, respectively.  On September 1,
1998, CPL called $36 million  principal amount  outstanding of Series L FMBs, in
its entirety, at a call price of 100.53.


8.    NEW ACCOUNTING STANDARDS

      SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities
     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting  for  Derivative  Instruments  and Hedging  Activities.  SFAS No. 133
establishes  accounting and reporting  standards requiring that every derivative
instrument  (including  derivative  instruments  embedded in other contracts) be
recorded on the balance  sheet as either an asset or liability  measured at fair
value.  SFAS No. 133  requires  that changes in the  derivative's  fair value be
recognized  currently in earnings unless specific hedge accounting  criteria are
met. Special accounting for qualifying hedges allows gains and losses associated
with a  derivative  to offset  related  results on the hedged item in the income
statement  and requires  that a company must  formally  document,  designate and
assess  the   effectiveness  of  transactions   that  receive  hedge  accounting
treatment.

     SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement  SFAS No. 133 for any fiscal  quarter  beginning June
16, 1998 and thereafter. SFAS No. 133 cannot be applied retroactively.  SFAS No.
133 must be applied to derivative instruments and certain derivative instruments
embedded  in  hybrid  contracts  that were  issued,  acquired  or  substantially
modified after December 31, 1997.

     The Registrants have not yet quantified the impact of adopting SFAS No. 133
on their  financial  statements and have not determined the timing or the method
of adopting SFAS No. 133.

      SOP 98-5, Reporting on the Costs of Start-Up Activities
      The Accounting  Standards Executive Committee of the American Institute of
Certified  Public  Accountants  has issued SOP 98-5,  Reporting  on the Costs of
Start-Up  Activities.  SOPs are included in the hierarchy of generally  accepted
accounting  principals  and must be followed  unless a  transaction  or event is
covered by a more specific pronouncement.

      SOP 98-5 defines start-up  activities very broadly,  including  activities
related to organizing a new entity (commonly referred to as start-up costs). SOP
98-5  provides  that the cost of  start-up  activities,  including  organization
costs, should be expensed as incurred.

      SOP 98-5 is effective for financial  statements for fiscal years beginning
after December 15, 1998. SOP 98-5 requires that start-up costs be identified and
that upon adoption of the SOP, a retroactive adjustment be made to expense these
amounts.

      CSW  is  currently   reviewing   amounts   capitalized  on  its  books  as
organization  or start-up costs.  Any amounts  identified as subject to SOP 98-5
would have to be expensed in the first quarter of 1999. The Registrants have not
yet quantified the impact of adopting SOP 98-5 on their financial statements.

<PAGE>


9.    EXTRAORDINARY ITEM

      In the third quarter of 1997, a one-time  windfall profits tax was enacted
in the United Kingdom.  Accordingly,  during the third quarter of 1997, SEEBOARD
U.S.A.  accrued,  as an  extraordinary  item,  $176  million  for the  one-time,
windfall profits tax.

      The windfall profits tax is payable in two equal  installments,  the first
of which was paid December 1, 1997 and the second of which will be paid December
1, 1998.  The tax was charged at a rate of 23% on the  difference  between  nine
times  the  average   profits  after  tax  for  the  four  years  following  the
privatization  of  SEEBOARD  and the  public  sale of its  shares  in 1990,  and
SEEBOARD's  market  capitalization  calculated  as the  number of shares  issued
multiplied by the price per share.



<PAGE>


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

      Reference  is made to  Management's  Discussion  and Analysis of Financial
Condition and Results of Operations included in the Registrants' Combined Annual
Report on Form 10-K for the year ended  December  31, 1997 and the  Registrants'
Combined  Quarterly  Reports on Form 10-Q for the quarters  ended March 31, 1998
and  June  30,  1998.  Reference  is also  made to each  Registrant's  unaudited
Financial Statements and related Notes to Financial Statements.  The information
should be read in  conjunction  with,  and is  essential to  understanding,  the
following discussion and analysis.


RESULTS OF OPERATIONS

      Reference  is  made  to  ITEM  1.  FINANCIAL  STATEMENTS  for  each of the
Registrants'  RESULTS OF  OPERATIONS  for the three and nine month periods ended
September 30, 1998.


LIQUIDITY AND CAPITAL RESOURCES

      Overview of CSW Operating, Investing, and Financing Activities
      Net cash inflows from operating  activities increased $219 million to $624
million for the first nine months of 1998 compared to the same period last year.
The increase in net cash inflows is due primarily to the absence in 1998 of $190
million of federal and state income tax payments  made in the first half of 1997
for the gain on CSW's 1996 sale of Transok.  However, these payments were offset
in part by the  utilization  of  Alternative  Minimum Tax  credits  that CSW had
previously  generated.  Also  contributing  to the  increase  were  better  fuel
recovery  positions and a higher accounts payable  balance.  The increase in net
cash  inflows  was also offset in part by  decreases  in other  working  capital
accounts.

      Net cash outflows from  investing  activities  decreased $47 million to an
outflow of $481 million for the first nine months of 1998 compared to an outflow
of $528  million for the same period last year.  CSW Energy  obtained  permanent
external  financing  during the first  half of 1997 for the Orange  cogeneration
project  and  subsequently  reduced its equity  investment  in the  project.  In
addition, CSW Energy made its final purchase agreement payment on the Ft. Lupton
cogeneration  project in the first half of 1997.  CSW Energy also  experienced a
decrease in construction expenditures for the Phillips Sweeny project which went
into operation in the first quarter of 1998.  Further reducing the cash outflows
from investing  activities was a cash inflow resulting from CSW  International's
Enertek partner, Alpek, assuming its 50% obligation of that power plant project.
Also  contributing to the lower net cash outflows from investing  activities was
reduced spending at the U.S. Electric  Operating  Companies for facilities.  The
decrease in net cash outflows was partially  offset by an increase in investment
for telecommunications projects at C3 Communications.

      Net cash flows from  financing  activities  decreased  $303  million to an
outflow of $37 million  for the first nine months of 1998  compared to an inflow
of $266 million for the same period last year.  In September  1998,  CPL and PSO
called bonds,  which  contributed  $91 million to the decline in cash flows from
financing activities.  In the second quarter of 1997, CSW received proceeds from
the issuance of Trust Preferred Securities.  The proceeds were used primarily to
reacquire  preferred stock and pay down short-term debt in the second quarter of
1997.  In April  1997,  CSW made  changes to its common  stock plans and stopped

<PAGE>

issuing original shares. The decrease in net cash from financing  activities was
due in part to funding these common stock plans through open market purchases.

      Construction Expenditures
      CSW's construction expenditures, including allowance for funds used during
construction, totaled $345 million for the nine months ended September 30, 1998.
Construction  expenditures for the U.S. Electric Operating Companies totaled $86
million, $46 million, $58 million and $34 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.

      Other Financing Issues
      CSW provides common stock,  either through the purchase of shares from the
open market or original issue shares, to fund its long-term  incentive plan, the
CSW  PowerShare  Dividend  Reinvestment  and  Stock  Purchase  Plan  and the CSW
Retirement  Savings  Plan.  CSW began  funding  these plans  through open market
purchases effective April 1, 1997.

      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 and CSW Services.
In addition,  CSW also incurs  borrowings  for other  subsidiaries  that are not
included in the money pool. As of September 30, 1998,  CSW had revolving  credit
facilities totaling $1.4 billion to back up its commercial paper program.

      As of September 30, 1998, CSW Credit's  revolving credit agreement totaled
$1.2 billion.

      On September 1, 1998, PSO called $25 million principal amount  outstanding
of Series K and $30 million  principal  amount  outstanding of Series L FMBs, in
their entirety, at call prices of 100 and 100.77, respectively.  On September 1,
1998, CPL called $36 million  principal amount  outstanding of Series L FMBs, in
its entirety, at a call price of 100.53.

      The final  installment of (pound)55  million,  or an estimated $91 million
using an exchange rate of (pound)1.00 = $1.65,  for the windfall  profits tax is
payable by SEEBOARD on December 1, 1998.


RATES AND REGULATORY MATTERS

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

<PAGE>

      CPL has appealed the CPL 1997 Final Order to the State  District  Court of
Travis  County to challenge the  resolution of several  issues in the rate case.
The primary issues include:  (i) the  classification of $800 million of invested
capital in STP as ECOM which was also  assigned  a lower  return on equity  than
non-ECOM  property,  (ii) the Texas  Commission's  use of the "Glide  Path" rate
reduction  methodology  applied on May 1, 1998 and to be applied again on May 1,
1999, and (iii) the $18 million of disallowed  affiliate  transactions  from CSW
Services.  As part of the appeal, CPL sought a temporary  injunction to prohibit
the  Texas  Commission  from   implementing  the  "Glide  Path"  rate  reduction
methodology.  The  court  denied  the  injunction,  and the  "Glide  Path"  rate
reduction was  implemented in May 1998.  Hearings on the appeal were held during
the third  quarter of 1998. A decision from the State  District  Court of Travis
County has not yet been received.  Management is unable to predict how the final
resolution  of these issues will  ultimately  affect CSW's and CPL's  results of
operations and financial condition.

      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 $1.3 billion of  regulatory-related  assets at March 31,
1998. 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 Final Order,  CPL, or some portion of
its  business,  no longer  meets  the  criteria  for  following  SFAS No.  71, a
write-off of regulatory assets and liabilities would be required, absent a means
of recovering such assets or settling such liabilities in a continuing regulated
segment of the  business.  CPL would also be required to evaluate  whether there
was any impairment of any  deregulated  plant assets.  In addition,  CPL and CSW
could  experience,  depending  on the  timing  and  amount of any  write-off,  a
material adverse effect on their results of operations and financial condition.

      The foregoing  discussion  of CPL Rate Review - Docket No. 14965  contains
forward-looking  information  within the meaning of Section 21E of the  Exchange
Act. Actual results may differ materially from such projected  information.  See
FORWARD-LOOKING  INFORMATION.  See NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS
for additional information on the CPL 1997 Final Order.

      SWEPCO Louisiana Rate Review
      In 1993, the Louisiana  Commission  issued an order initiating a review of
the rates of all investor-owned utilities in the state. Since that time, each of
the other investor-owned  utilities in Louisiana has been reviewed.  In December
1997,  the Louisiana  Commission  announced it would review  SWEPCO's  rates and
service.  SWEPCO's  last  rate  activity  was an  $8.2  million  rate  decrease,
initiated by SWEPCO and approved for its small and large industrial customers in
January 1988. Prior to that, SWEPCO's last rate increase was in 1985.

      The Louisiana  Commission  has selected  consultants  and legal counsel to
perform a review of SWEPCO's rates and charges and to review SWEPCO's quality of
service.  The  Louisiana  Commission's  legal counsel will issue a report in May
1999, and hearings will begin in September 1999.  Management  cannot predict the
outcome of this review.

      SWEPCO Arkansas Rate Review
      In June 1998,  the Arkansas  Commission  indicated that it would conduct a
review of SWEPCO's earnings.  The review began in July 1998, but no case has yet
been docketed. Management cannot predict the outcome of this review.

<PAGE>

      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 strategy  involves the pursuit of initiatives
that are outside the traditional  United States electric utility business due to
increasing  competition and fundamental  changes in this industry.  In addition,
lower  anticipated  growth rates in CSW's core United  States  electric  utility
business combined with the previously  mentioned  industry factors have resulted
in CSW pursuing other  initiatives.  These  initiatives  have taken a variety of
forms; however, they are all consistent with the overall plan for CSW to develop
a global energy business.  CSW also has restrictions on the amounts it may spend
on these activities under the AEP merger agreement as discussed below. While CSW
believes that such initiatives are necessary to maintain its competitiveness and
to  supplement  its  growth in the  future,  the  Holding  Company  Act may also
restrict  its  ability to  successfully  pursue some of these  initiatives  (The
foregoing statement  constitutes a forward-looking  statement within the meaning
of Section 21E of the Exchange Act.  Actual results may differ  materially  from
such projected  information  due to changes in the underlying  assumptions.  See
FORWARD-LOOKING INFORMATION and RECENT DEVELOPMENTS AND TRENDS.


PROPOSED AEP MERGER

      Background Information
      On December 22, 1997, CSW and AEP announced that their boards of directors
had  approved a  definitive  merger  agreement  for a tax-free,  stock-for-stock
transaction   creating  a  company  with  a  total  market   capitalization   of
approximately $28.1 billion ($16.5 billion in equity;  $11.6 billion in debt and
preferred  stock).  The  combined  company  would  serve  more than 4.6  million
customers in 11 states and  approximately 4 million customers outside the United
States.  On  May  27,  1998,  AEP  shareholders  approved  the  issuance  of the
additional shares of stock required to complete the merger. On May 28, 1998, CSW
shareholders approved the merger.

      Under the merger  agreement,  each common  share of CSW will be  converted
into 0.6 shares of AEP common stock.  Based upon AEP's closing price immediately
prior to the merger announcement, this represented a premium of 20% over the CSW
closing  price.  AEP  will  issue  approximately  $6.6  billion  in stock to CSW
stockholders   to  complete  the   transaction.   CSW   stockholders   will  own
approximately 40% of the combined company.  Both companies anticipate continuing
their current dividend policies until the close of the transaction.

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

      The   companies   anticipate   net  savings   related  to  the  merger  of
approximately  $2  billion  over  a  10-year  period  from  the  elimination  of
duplication in corporate and administrative  programs,  greater  efficiencies in
operations and business processes,  increased purchasing  efficiencies,  and the
combination of the two work forces.

<PAGE>

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

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

      Merger Regulatory Approvals
      The proposed AEP merger has a targeted  completion  date in the first half
of 1999.  The merger is  conditioned,  among other things,  upon the approval of
several state and federal regulatory agencies.

      AEP and CSW have  jointly  filed a  request  with the FERC,  the  Arkansas
Commission,  the Louisiana  Commission,  the Oklahoma Commission and the SEC for
approval of their proposed merger.  AEP and CSW jointly filed a request with the
Texas Commission for a finding that the merger is in the public interest.

      On August 17, 1998,  the Arkansas  Commission  issued a conditional  order
approving  the  proposed  merger  between CSW and AEP,  subject to the  findings
issued  when the  Arkansas  Commission  reviews  the  proposed  regulatory  plan
associated with the merger.  The Arkansas  Commission had previously divided the
merger  application  into one phase to review the merger  and  another  phase to
review the proposed regulatory plan.

      CPL filed a license transfer application with the NRC requesting the NRC's
consent  to the  indirect  transfer  of control  of CPL's  interests  in the NRC
licenses  issued for STP,  which would result from the proposed  merger  between
CSW, CPL's parent company, and AEP. CPL would continue to own its 25.2% interest
in STP and CPL's name would remain on the NRC operating license.  On November 5,
1998, the NRC approved the license transfer application.

      AEP and CSW plan to make other  required  federal  merger filings with the
Federal  Communications  Commission  and the  Department  of Justice  and/or the
Federal Trade Commission later in 1998.

      CSW  has a 100%  interest  in  SEEBOARD,  and AEP  has a 50%  interest  in
Yorkshire.  The proposed merger of CSW into AEP would result in common ownership
of the United Kingdom entities.  As a result, the common ownership of the United

<PAGE>

Kingdom entities could be referred by the United Kingdom  Secretary of State for
Trade and Industry for an  investigation  by the United  Kingdom  Monopolies and
Mergers Commission.  CSW is unable to predict the outcome of any such regulatory
proceeding.

      The merger is  conditioned,  among  other  things,  upon the  approval  of
several state and federal regulatory agencies. The transaction must satisfy many
conditions,  including  the condition  that it must be a pooling.  Some of these
conditions  may not be waived by the  parties.  AEP and CSW have  initiated  the
process of seeking  regulatory  approvals,  but there can be no assurances as to
when,  on what terms or whether  the  required  approvals  will be  received  or
whether there will be any regulatory  proceedings in the United  Kingdom.  There
can be no  assurance  that  the AEP  merger  will be  consummated.  See  NOTE 6.
PROPOSED AEP MERGER.

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

      Merger Costs
      As of September 30, 1998, CSW had deferred $22 million in costs related to
the merger on its consolidated  balance sheet,  which will be charged to expense
if AEP and CSW are not successful in completing their proposed merger.


OTHER MERGER AND ACQUISITION ACTIVITY

      SWEPCO Cajun Asset Purchase Proposal
      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.

      On March 18, 1998,  SWEPCO,  together  with the Cajun  Members  Committee,
which  currently   represents  7  of  the  12  Louisiana   member   distribution
cooperatives  that are served by Cajun,  filed the SWEPCO Plan in the bankruptcy
court.  The SWEPCO Plan replaces  plans filed  previously  by SWEPCO.  Under the
SWEPCO  Plan,  a  SWEPCO  affiliate  or  subsidiary  would  acquire  all  of the
non-nuclear  assets  of Cajun,  comprised  of the  two-unit  Big Cajun I natural
gas-fired  plant,  the  three-unit  Big Cajun II coal-fired  plant,  and related
non-nuclear  assets.  The purchase price under the SWEPCO Plan is $940.5 million
in cash,  subject  to  adjustment  pursuant  to the terms of the asset  purchase
agreement proposed as part of the SWEPCO Plan.

       Two competing plans of reorganization for the non-nuclear assets of Cajun
were filed with the bankruptcy  court. On September 25, 1998,  Enron Capital and
Trade Resource Corporation, a subsidiary of Enron Corporation, withdrew its bid.
The trustee for Cajun supports the sole remaining competing bid of $1.19 billion
by Louisiana  Generating LLC, a partnership of subsidiaries of Southern  Energy,
Inc.,   Northern  States  Power  Company  and  Zeigler  Coal  Holding   Company.
Confirmation hearings in Cajun's bankruptcy case were completed in May 1998.

      Consummation  of the SWEPCO Plan is conditioned  upon  confirmation by the
bankruptcy  court,  and the receipt by SWEPCO and CSW of all requisite state and
federal regulatory  approvals in addition to their respective board of directors
approvals.  If the SWEPCO  Plan is  confirmed,  the $940.5  million  required to
consummate  the  acquisition  of Cajun's  non-nuclear  assets is  expected to be
financed through a combination of external  borrowings and internally  generated
funds with approximately 70% of the external borrowings funded with non-recourse

<PAGE>

debt.  There can be no  assurance  that the SWEPCO Plan will be confirmed by the
bankruptcy court or, if it is confirmed, that it will be approved by federal and
state regulators. As of September 30, 1998, SWEPCO had deferred $10.4 million in
costs related to the SWEPCO Plan on its  consolidated  balance sheet which would
be  expensed  if the  SWEPCO  plan is not  ultimately  successful.  See  NOTE 3.
COMMITMENTS AND CONTINGENT LIABILITIES.

      Frontera Project
      CSW Energy  began  construction  in August  1998 of a 500 MW power  plant,
known as Frontera, in the Rio Grande Valley, near the city of Mission, Texas. At
September 30, 1998, CSW Energy had spent  approximately  $50 million,  including
development,  construction  and financing of the projected $210 million  project
costs.  The natural  gas-fired  facility  should begin partial  operation in the
summer of 1999 and full  operation  by the end of 1999.  Although  the  Frontera
project is being built as a merchant  power  plant  without  long-term  purchase
power  contracts,  it will supply power to the rapidly growing Rio Grande Valley
and customers throughout Texas.

      Shoreham Project
      CSW International and Scottish Power plc. commenced  construction of a 400
MW combined  cycle gas turbine  power station in southeast  England.  Commercial
operation is expected to begin in the year 2000. The joint venture partners will
provide interim  construction  financing with third party financing  expected in
early 1999. Project costs are expected to total approximately $320 million.  CSW
International has a 50% interest in the joint venture.

      C3 Communications
      On October  8, 1998,  C3  Communications  announced  that it had signed an
agreement  with  ICG  Communications,  Inc.  to end  their  CSW\ICG  ChoiceComSM
partnership.  The  agreement,  anticipated  to close by the end of 1998 or early
1999,  is  subject  to the  approval  of the Texas  Commission  and the  Federal
Communications Commission and to certain other conditions, some of which may not
be  waived by the  parties.  ChoiceCom  was  formed  in  January  1997 to market
telecommunications  services,  including local exchange telephone service,  in a
four-state region in the southwest.

      C3  Communications  plans to form a new  division,  C3 Networks,  from the
fiber assets of the partnership  that C3  Communications  will receive under the
agreement.  C3  Networks  will use this  city-to-city  fiber  network to deliver
state-of-the-art optical networking to the wholesale  telecommunications market.
The preceding  two sentences  contains  forward-looking  information  within the
meaning of Section 21E of the Exchange Act. Actual results may differ materially
from such projected  information  due to changes in the underlying  assumptions.
See  FORWARD-LOOKING   INFORMATION.   Also,  as  part  of  the  agreement,   ICG
Communications is expected to own and operate ChoiceCom's  telephone business in
several Texas cities.

      Under the  terms of the  agreement,  ICG  Communications  will  pay,  upon
closing,  approximately  $50  million for certain  ChoiceCom  assets  comprising
ChoiceCom's  telephone  business.  C3 Communications will also receive the fiber
network  assets from the  partnership  at closing.  The agreement is expected to
result in a one-time gain,  which is not expected to be material to CSW's annual
earnings.  During  the  remainder  of 1998 and  thereafter,  C3  Communications'
operating  expenses and capital  investments to develop its  city-to-city  fiber
optic  network  are  expected  to be  significantly  lower  than the  previously
expected  expenses and investments  that would have been required to support the
ChoiceCom partnership.

<PAGE>

RECENT DEVELOPMENTS AND TRENDS

      Industry Restructuring Initiatives
      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.   Legislation  was  enacted  in  Oklahoma  while
legislative  activity in Texas,  Louisiana  and  Arkansas  stopped  short of any
definitive action. The regulatory  commissions in Arkansas,  Louisiana and Texas
are currently studying various restructuring issues. 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 relevant issues relating to  restructuring
and develop a framework for a  restructured  industry.  A bill was passed in the
1998 Oklahoma  legislative  session that accelerates the completion date for the
restructuring studies but does not change the date for retail competition.

      Electricity Deregulation in the United Kingdom
      On October 28, 1998, the market for the supply of  electricity  was opened
to competition in part of the United Kingdom,  and competition is to be extended
to the rest of the country in subsequent phases.  Customers in SEEBOARD's region
will be able to choose their power  supplier,  but SEEBOARD will also be able to
win  customers  in  areas  previously  supplied  by other  regional  electricity
companies.


RISK MANAGEMENT

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

      The U.S. Electric Operating Companies experience commodity price exposures
related to the purchase of fuel supplies for the generation of  electricity  and
for the purchase of power and energy from other  generation  sources.  Contracts
that  provide for the future  delivery of these  commodities  can be  considered
forward  contracts  which  contain  pricing  and/or  volume  terms  designed  to
stabilize  the cost of the  commodity.  The U.S.  Electric  Operating  Companies
manage their price  exposure  for the benefit of  customers  by balancing  their
commodity   purchases   through  a  combination   of  long-term  and  short-term
(spot-market) agreements.  In addition,  SEEBOARD has entered into contracts for
differences  to reduce  exposure  to  fluctuations  in the price of  electricity
purchased from the  electricity  power pool of England and Wales.  This pool was
established upon privatization of the United Kingdom's electric industry for the
bulk trading of electricity between generators and suppliers.

      Since CSW's  purchase of SEEBOARD in 1995, it has been exposed to currency
and interest  rate risks which  reflect the floating  exchange  rate that exists
between the U.S.  dollar and the British  pound.  CSW has utilized  certain risk
management  tools to manage  potential  adverse changes in exchange rates and to
facilitate financing  transactions resulting from CSW's acquisition of SEEBOARD.
At September 30, 1998, CSW had positions in two cross currency swap contracts to
hedge its  interest  rate and  exchange  rate risks  associated  with these U.S.
denominated  debts. The following table presents  information  relating to these
contracts. The market value represents the foreign  exchange/interest rate terms
inherent in the cross currency swaps at current market  pricing.  CSW expects to

<PAGE>

hold these contracts to maturity.  At current exchange rates,  this liability is
included  in  long-term  debt  on the  balance  sheet  at a  carrying  value  of
approximately $431 million.

                                               Expected          Expected
                                              Cash Inflows          Cash
      Contract                Maturity        (Maturity           Outflows
                                Date           Value)           (Market Value)
      --------------------------------------------------------------------------

      Cross currency swap    August 1, 2001    $200 million     $219.7  million
      Cross currency swap    August 1, 2006    $200 million     $229.0  million

      The decline in value of the currency swaps reflects the  strengthening  of
the British  pound versus the U.S.  dollar.  Consequently,  CSW's  investment in
SEEBOARD's  assets at September 30, 1998 is worth more in U.S. dollars than when
the  acquisition was made. This gain in asset value offsets the change in market
value of the currency swaps.

      CSW Energy or its  affiliates  use interest rate swap  agreements to hedge
exposure  to  fluctuations  in the  interest  rates  to be paid  on  outstanding
indebtedness.  CSW  Energy or its  affiliates  have  entered  into swaps on debt
totaling $87 million with  expiration  dates through the year 2013. The interest
rate of these instruments is 6.02%.

      CSW Energy or its  affiliates  are  exposed to credit risk in the event of
nonperformance by the counter parties. An analysis of the financial condition of
each counter party is made prior to entering  into an  agreement,  credit limits
are  established  and the  appropriateness  of these limits are  monitored on an
on-going basis.


ENVIRONMENTAL

      State of Texas
      Pursuant to legislation  passed in the 1997 Texas  legislature,  the Texas
Natural  Resources  Conservation  Commission  is  developing a program that will
allow  effected  parties to obtain  permits for  grandfathered  facilities  on a
voluntary  basis.  Grandfathered  facilities  are  generally  defined  as  those
facilities  with air emissions that began operation  before the  requirements of
the 1971 Clean Air Act took effect. These facilities were not required to obtain
construction  or  operation  permits  for  their  air  emissions.  Grandfathered
facilities  include a wide  range of  sources,  including  refineries,  chemical
plants, power plants, cotton gins, paint shops, bakeries, and dry cleaners.

      Constituents  in Texas  are  working  with  the  Texas  Natural  Resources
Conservation  Commission to develop the rules for the voluntary  program,  which
are  currently in draft form.  The proposed  draft rules call for  grandfathered
facilities to employ "best available retrofit  technology" where appropriate and
reasonable. CSW estimates the cost to obtain permits for its grandfathered units
under the voluntary program to be $3 to $15 million over the next ten years. All
of CSW's  grandfathered  units are gas units which are less expensive to upgrade
than coal units.


OTHER MATTERS

      Year 2000
      In 1996,  CSW  initiated a system-wide  program to prepare CSW's  computer
systems and  applications  for the year 2000. The year 2000 activities are a top
priority of CSW. CSW expects to incur internal staff costs as well as consulting

<PAGE>

and  other  expenses  related  to  infrastructure  and  facilities  enhancements
necessary  to prepare the systems for the year 2000.  Costs  related to the year
2000 program are being  expensed as incurred.  The  estimated  historical  costs
incurred to date for the year 2000 project are $13 million, $11 million of which
has been  incurred  in 1998.  Testing  and  conversion  is  expected  to cost an
additional $32 million to $37 million over the next eighteen  months,  including
both domestic and foreign  operations.  Approximately  29% of the expected costs
are to be covered through the redeployment of existing resources.  Approximately
39% of the  projected  costs are for contract  labor.  The  remaining 32% of the
projected costs is for computer hardware and software  purchases.  The funds for
year 2000  project  expenditures  are  included in CSW's  operating  budget.  At
present,  no CSW computer  information system projects have been affected by the
year 2000 project, but that may change as the year 2000 approaches. Accordingly,
no  estimate  has been  made for the  financial  impact  of any  future  forgone
projects.  CSW has completed a review of its year 2000  project.  The purpose of
this review was to assess the  project  plans and  processes  to ensure that the
significant  risks to CSW associated  with the year 2000 are prudently  managed.
Several changes have been incorporated into the year 2000 project as a result of
the review findings.

      The year 2000 project  includes all  management  information  systems that
support business functions such as customer billing,  payroll and other business
functions.    Other    systems   with    computer-based    controls    such   as
telecommunications,  elevators,  building  environmental  management,  metering,
plant,  transmission,  distribution and substations are included in this project
as well.  The  greatest  financial  risk to CSW  would be a total  inability  to
generate and deliver electricity.  Many primary systems and backup systems would
have to fail in order for that total  inability to occur.  The  probability of a
total  inability by CSW to generate and deliver  electricity is very low because
only 50% of its power  generation  systems operate with date sensitive logic and
less  than  15%  of the  transmission  and  distribution  systems  contain  date
sensitive  logic.  The  potential  problems  related to this worse case scenario
include electric service  interruptions to customers,  interrupted  revenue data
gathering and poor customer relations resulting from delayed billing. Currently,
no cost estimate exists related to CSW's year 2000 risks.

      CSW's  system-wide year 2000 program began with the naming of an executive
sponsor and project  manager and the formation of a program  management  office.
CSW has hired a  consultant  to  assist  the  project  team.  Status is  checked
bi-weekly including weekly updates to the senior management team, monthly review
by an executive oversight committee comprised of the functional vice presidents,
and quarterly review by the board of directors' audit committee.  Key milestones
for the CSW system-wide year 2000 program excluding SEEBOARD are listed below.

     (i) Inventory and assessment of business  applications  and vendor supplied
     software  were  completed  in the first  quarter  of 1997.  Only 25% of the
     business  application  programs were determined to be non-compliant  and in
     need of  remediation  by December  1999. 
     (ii)  Plans  for  modification  and   certification   testing  of  business
     application software was completed in the third quarter of 1997.
     (iii)  Remediation  plans and  schedules  for  business  applications  were
     established in the fourth quarter of 1997, and conversion and certification
     activities  were  initiated.  All but three  applications  are targeted for
     completion  by December 31, 1998 and the  remainder by mid-year  1999.  The
     conversion and certification activities are approximately 60% complete.

<PAGE>

     (iv) A detailed  inventory  and  assessment of other  critical  systems was
     completed  in the  third  quarter  of  1998.  This  includes  switchboards,
     elevators, environmental controls, vehicles, metering systems, and embedded
     logic or real time control systems in support of generation and delivery of
     electricity.  The  findings  have  shown  that less  than 15% of  installed
     controls  have  microprocessors,  very few have date  logic and over 90% of
     those with date logic already process new millennium dates  correctly.  The
     need for  additional  functionality  in the early  1990's  resulted  in the
     modernization  of several electric  operation  systems that has reduced the
     conversion  requirements.  Corrective and  certification  measures are well
     underway for these  systems and  completion  is targeted for all systems by
     the  second  quarter  of 1999. 
     (v)  Contingency  plans are currently in  development  to address year 2000
     issues internally, as well as within the national electric delivery system,
     and with our  suppliers.  Contingency  plans will be completed in the first
     quarter of 1999, and most of calendar year 1999 has been reserved for final
     verification of all external interfaces and rehearsal of contingency plans.

      SEEBOARD is on schedule to complete an  inventory  and  assessment  of all
critical  systems by year-end 1998 and remediation of those systems in the first
quarter of 1999. Final verification of those systems is scheduled for completion
by mid-year 1999.

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


      New Accounting Standards

      The  FASBoard  has  issued  SFAS  No.  133,   Accounting   for  Derivative
Instruments  and  Hedging  Activities,  which  is  effective  for  fiscal  years
beginning after June 15, 1999.

      The Accounting  Standards Executive Committee of the American Institute of
Certified Public Accountants has issued Statement of Position 98-5, Reporting on
the Costs of Start-Up Activities,  which is effective for fiscal years beginning
after December 15, 1998.

      See NOTE 8.  ACCOUNTING  STANDARDS for  additional  information on the new
accounting standards.


<PAGE>


PART II - OTHER INFORMATION

      For background and earlier  developments  relating to PART II information,
reference is made to the  Registrants'  Combined  Annual Report on Form 10-K for
the year ended December 31, 1997 and Combined Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1998 and June 30, 1998.


ITEM 1.  LEGAL PROCEEDINGS.

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


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

(a)  EXHIBITS:

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


<PAGE>


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


(b)   REPORTS FILED ON FORM 8-K:

CSW, PSO, and SWEPCO

Date of earliest event reported:    August 17, 1998
Date of Report:                     August 20, 1998

Item 5. Other Events and Item 7. Financial  Statements  and Exhibits,  reporting
information related to the proposed merger between CSW and AEP (requested merger
approval from the Oklahoma Commission and conditional  approval of the merger by
the Arkansas Commission).

CSW and PSO

Date of earliest event reported:    October 1, 1998
Date of Report:                     October 9, 1998

Item 5. Other Events and Item 7. Financial  Statements  and Exhibits,  reporting
information  related to the proposed merger between CSW and AEP  (recommendation
from an administrative law judge that the merger filing be dismissed for lack of
information).




<PAGE>



SIGNATURES

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


                       CENTRAL AND SOUTH WEST CORPORATION


Date:  November 16, 1998            /s/ Lawrence B. Connors                 
                                    -------------------------------------------
                                    Lawrence B. Connors
                                    Controller and Chief Accounting Officer
                                    (Principal Accounting Officer)



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


Date:  November 16, 1998            /s/ R. Russell Davis         
                                    --------------------------------

                                    R. Russell Davis
                                    Controller and Chief Accounting Officer
                                    (Principal Accounting Officer)