UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-K

(Mark One)
  [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
           THE SECURITIES EXCHANGE ACT OF 1934

           For the Fiscal Year Ended December 31, 1998

                      OR

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

           For the transition period from _____________   to   ____________

             Exact name of registrant as specified in its charter,
             State or other jurisdiction of incorporation or 
             organization, Address of principal executive offices 
Commission   and Registrant's Telephone Number,                    IRS Employer
File Number  including area code                              Identification No.
-----------  -------------------                              ------------------

1-12927      NEW CENTURY ENERGIES, INC.                            84-1334327
             (a Delaware Corporation)
             1225 17th Street
             Denver, Colorado  80202
             Telephone (303) 571-7511

1-3280       PUBLIC SERVICE COMPANY OF COLORADO                    84-0296600
             (a Colorado Corporation)
             1225 17th Street
             Denver, Colorado  80202
             Telephone (303) 571-7511

1-3789       SOUTHWESTERN PUBLIC SERVICE COMPANY                   75-0575400
             (a New Mexico Corporation)
             Tyler at Sixth
             Amarillo, Texas  79101
             Telephone (303) 571-7511


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

Public Service Company of Colorado and Southwestern  Public Service Company meet
the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K and
are therefore filing this Form 10-K with the reduced disclosure format specified
in General Instruction I (2) to such Form 10-K.


<PAGE>


Securities registered pursuant to Section 12(b) of the Act:

                                                         Name of Each Exchange
Registrant                   Title of Each Class          on Which Registered
----------                   -------------------          -------------------
New Century Energies, Inc.   Common Stock,  $1 par
                              value per share                   New York

Public Service Company
  of Colorado                7.60% Trust Originated 
                             Preferred Securities               New York

Southwestern Public
  Service Company            7.85% Trust Preferred
                             Securities, Series A               New York

Securities registered pursuant to Section 12(g) of Act:         None

      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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants'  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

      As of March 24, 1999, 114,924,982 shares of New Century Energies,  Inc.
Common  Stock  were  outstanding.  The  aggregate  market  value of New  Century
Energies,  Inc. Common Stock,  $1.00 par value (the only class of voting stock),
held by non-affiliates was  $4,446,160,241  based on the last sale price of such
stock on the New York Stock Exchange on March 24, 1999. New Century Energies,
Inc. is the sole holder of the Common Stock of PSCo and SPS.

                     DOCUMENTS INCORPORATED BY REFERENCE
      Portions of the Proxy Statement of New Century Energies,  Inc. to be filed
in connection with its Annual Meeting of Shareholders,  to be held May 11, 1999,
are incorporated by reference into Part III hereof.



<PAGE>


                              TABLE OF CONTENTS

                                                                         Page
Definitions                                                             Number
-----------                                                             ------
Part I
      Item 1. Business..............................................       1
      Item 2. Properties............................................      23
      Item 3. Legal Proceedings.....................................      27
      Item 4. Submission of Matters to a Vote of Securities Holders.      27
Part II
      Item 5. Market for  Registrant's  Common Equity and Related
                Stockholder Matters.................................      27
      Item 6. Selected Financial Data...............................      29
      Item 7. Management's Discussion and Analysis of Financial 
               Condition and Results of Operations..................      31
      Item 7A Quantitative and Qualitative Disclosures About 
               Market Risk .........................................      42
      Item 8. Financial Statements and Supplementary Data...........      43
      Item 9. Changes in and Disagreements with Accountants on 
               Accounting and Financial Disclosure..................     127
Part III
      Item 10. Directors and Executive Officers of the Registrants..     127
      Item 11. Executive Compensation ..............................     133
      Item 12. Security Ownership of Certain Beneficial Owners 
               and Management ......................................     133
      Item 13. Certain Relationships and Related Transactions.......     133
Part IV
      Item 14. Exhibits, Financial Statement Schedules and Reports
                on Form 8-K ........................................     133
Experts  ...........................................................     135
Consents of Independent Public Accountants..........................     136
Signatures    ......................................................     138
Exhibit Index ......................................................     145

This  combined  Form 10-K is  separately  filed by New Century  Energies,  Inc.,
Public Service  Company of Colorado and  Southwestern  Public  Service  Company.
Information contained herein relating to any individual company is filed by such
company on its own behalf.  Each  registrant  makes  representations  only as to
itself and makes no other representations  whatsoever as to information relating
to the other registrants.

This report should be read in its  entirety.  No one section of the report deals
with all aspects of the subject matter.

                         FORWARD LOOKING INFORMATION

The  following  discussions  include  "forward  looking  statements"  within the
meaning of Section  27A of the  Securities  Act of 1933 and  Section  21E of the
Securities  Exchange  Act of  1934.  Investors  and  prospective  investors  are
cautioned that the forward-looking  statements  contained herein with respect to
the  revenues,   earnings,  capital  expenditures,   resolution  and  impact  of
litigation,  competitive performance, or other prospects for the business of New
Century Energies,  Inc., Public Service Company of Colorado and/or  Southwestern
Public  Service  Company or their  affiliated  companies,  including any and all
underlying  assumptions  and other  statements that are other than statements of
historical  fact, may be influenced by factors that could cause actual  outcomes
and results to be materially different than projected. Such factors include, but
are not  limited to, the effects of weather,  future  economic  conditions,  the
performance  of  generating  units,  fuel  prices and  availability,  regulatory
decisions  and the  effects of changes in state and  federal  laws,  the pace of
deregulation of domestic retail natural gas and electricity  markets, the timing
and  extent of change  in  commodity  prices  for all forms of  energy,  capital
spending  requirements,  the evolution of  competition,  earnings  retention and
dividend payout policies,  changes in accounting  standards,  and other factors.
From time to time,  New  Century  Energies,  Inc.,  Public  Service  Company  of
Colorado and  Southwestern  Public Service Company may publish or otherwise make
available  forward-looking   statements.  All  such  subsequent  forward-looking
statements,  whether  written or oral and  whether  made by or on behalf of each
company, are also expressly qualified by these cautionary statements.

                                       i


<PAGE>

                                 DEFINITIONS

The abbreviations or acronyms used in the text and notes are defined below:

Abbreviation or Acronym                                              Term
-----------------------                                              ----
AEP............................................American Electric Power Company
AFDC..............................Allowance for Funds Used During Construction
Arapahoe............................Arapahoe Steam Electric Generating Station
BLM .................................................Bureau of Land Management
Cameo .................................Cameo Steam Electric Generating Station
CERCLA ...Comprehensive Environmental Response, Compensation and Liability Act
Cherokee........................... Cherokee Steam Electric Generating Station
Cheyenne ...............................Cheyenne Light, Fuel and Power Company
CIG ...........................................Colorado Interstate Gas Company
Comanche ...........................Comanche Steam Electric Generating Station
Company or NCE........................New Century Energies, Inc., a registrant
CPUC .....................Public Utilities Commission of the State of Colorado
Craig..................................Craig Steam Electric Generating Station
Denver District Court..District Court in and for the City and County of Denver
DOE..................................................U.S. Department of Energy
DSM.....................................................Demand Side Management
DSMCA...................................Demand Side Management Cost Adjustment
Dth..................................................................Dekatherm
e prime.........................................e prime, inc. and subsidiaries
ECA.....................................................Energy Cost Adjustment
EIS.............................................Environmental Impact Statement
EPA.......................................U.S. Environmental Protection Agency
EPAct.......................................National Energy Policy Act of 1992
EWG.................................................Exempt Wholesale Generator
FASB......................................Financial Accounting Standards Board
FERC......................................Federal Energy Regulatory Commission
FERC Order 636.................................FERC Order Nos. 636-A and 636-B
Fort St. Vrain ....................Fort St. Vrain Electric Generating Station,
                                         formerly a nuclear generating station
Fuelco .......Fuel Resources Development Co., a dissolved Colorado corporation
GCA .......................................................Gas Cost Adjustment
Hayden ...............................Hayden Steam Electric Generating Station
IBM .......................................................IBM Global Services
ICA..................................................Incentive Cost Adjustment
IRP ..................................................Integrated Resource Plan
IRS...................................................Internal Revenue Service
KN Energy......................................................KN Energy, Inc.
Kwh..............................................................kilowatt-hour
Merger...................... the business combination between the PSCo and SPS
Merger Agreement.............Agreement and Plan of Reorganization by and among
                                                 PSCo, SPS and NCE, as amended
Mw....................................................................Megawatt
NMPRC........................New Mexico Public Regulation Commission formerly,
                                      the New Mexico Public Utility Commission
Natural Fuels .......................................Natural Fuels Corporation
NC Enterprises............................................NC Enterprises, Inc.
NCI............................................New Century International, Inc.
NCS.................................................New Century Services, Inc.
New Century Cadence..................................New Century Cadence, Inc.

                                       ii
<PAGE>

New Century Centrus..................................New Century Centrus, Inc.
NOx.............................................................Nitrogen Oxide
OCC .......................................Colorado Office of Consumer Counsel
OPEB ...................................Other Postretirement Employee Benefits
PCB...................................................Polychlorinated biphenyl
Pawnee ...............................Pawnee Steam Electric Generating Station
Pawnee 2...........Pawnee Steam Electric Generating Station, Unit 2 (proposed)
Planergy..............................................The Planergy Group, Inc.
Pool ........................................................Inland Power Pool
PRPs ..........................................Potentially Responsible Parties
PSCCC...........................................PS Colorado Credit Corporation
PSCo..........................Public Service Company of Colorado, a registrant
PSRI ....................................................PSR Investments, Inc.
PUHCA ..............................Public Utility Holding Company Act of 1935
PUCT........................................Public Utility Commission of Texas
QF.........................................................Qualifying Facility
QFCCA...........................Qualifying Facilities Capacity Cost Adjustment
QSP....................................................Quality of Service Plan
Quixx.......................................Quixx Corporation and subsidiaries
SEC.........................................Securities and Exchange Commission
SFAS...............................Statement of Financial Accounting Standards
SFAS 106................Statement of Financial Accounting Standards No. 106 -
       "Employers' Accounting for Postretirement Benefits Other Than Pensions"
SFAS 112................Statement of Financial Accounting Standards No. 112 -
                           "Employers' Accounting for Postemployment Benefits"
SFAS 123................Statement of Financial Accounting Standards No. 123 -
                                     "Accounting for Stock-Based Compensation"
SO2.............................................................Sulfur Dioxide
SPP.......................................................Southwest Power Pool
SPS..........................Southwestern Public Service Company, a registrant
TNP.............................................Texas-New Mexico Power Company
TOG.......................................................Texas-Ohio Gas, Inc.
TOP..................................................Texas-Ohio Pipeline, Inc.
Transition Period .................Four month period September 1, 1996 through
                                                             December 31, 1996
Tri-State..............Tri-State Generation and Transmission Association, Inc.
TUCO................................................................TUCO, Inc.
UE............................Utility Engineering Corporation and subsidiaries
U.K. ...........................................................United Kingdom
Valmont .............................Valmont Steam Electric Generating Station
WGI ..................................................WestGas InterState, Inc.
WPSC......................................Public Service Commission of Wyoming
WSCC......................................Western Systems Coordinating Council
WSPP................................................Western Systems Power Pool
Young Storage..................................Young Gas Storage Company, Ltd.
YGSC.................................................Young Gas Storage Company
Yorkshire Electricity..........................Yorkshire Electricity Group plc
Yorkshire Power.....................................Yorkshire Power Group Ltd.
Zuni ...................................Zuni Steam Electric Generating Station


                                      iii
<PAGE>


                                    PART I

Item l.  Business

The Company

      NCE,  incorporated under the laws of Delaware in 1995, is a public utility
holding company registered under PUHCA. On August 1, 1997, PSCo and SPS combined
to form NCE, with PSCo and SPS becoming  wholly-owned  subsidiaries  of NCE. The
common  shareholders  of  PSCo  and SPS  received  one  and  0.95 of one  share,
respectively,  of NCE common stock, par value $1.00 per share, and became common
shareholders of NCE. The Merger was accounted for as a pooling-of-interests, and
the Consolidated Financial Statements and statistical data in this Form 10-K are
presented as if the Merger were  consummated as of the beginning of the earliest
period presented.

      The  Company  has no  significant  assets  other  than  the  stock  of its
subsidiaries. The revenues of NCE and its subsidiaries are derived substantially
from  the  generation,   purchase,   transmission,   distribution  and  sale  of
electricity  and from the  purchase,  transportation,  distribution  and sale of
natural gas. The utility  subsidiaries serve  approximately 1.6 million electric
customers  and   approximately  1.1  million  gas  customers  in  their  service
territories which include portions of the states of Colorado, Texas, New Mexico,
Wyoming, Kansas and Oklahoma.

      The Company owns all the outstanding  common stock of PSCo, SPS, Cheyenne,
WGI, NCS, and NC Enterprises. PSCo owns certain subsidiaries as described below.
NC  Enterprises,   an   intermediate   holding   company,   owns  the  following
subsidiaries:  Quixx, e prime, UE, Natural Fuels (83.63% ownership), New Century
Cadence, Planergy, New Century Centrus and, effective March 31, 1998, NCI. Refer
to the non-utility operations and foreign investments sections below for further
discussion.

      Disclosure  about  business  segments  of NCE,  PSCo  and SPS and  related
information are set forth in Note 14. Business Segment Information in Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Recent Events - Proposed Merger

     On March 24, 1999,  NCE and  Northern  States  Power  Company,  a Minnesota
corporation  ("NSP"),  entered into an Agreement and Plan of Merger (the "Merger
Agreement")  providing  for a  strategic  business  combination  of NCE and NSP.
Pursuant to the Merger Agreement,  NCE will be merged with and into NSP with NSP
as the surviving corporation in the Merger (the "Merger").  Subject to the terms
of the Merger  Agreement,  at the time of the  Merger,  each share of NCE common
stock,  par value  $1.00 per share ("NCE  Common  Stock"),  (other than  certain
shares to be canceled)  together with any associated  purchase  rights,  will be
converted  into the right to receive 1.55 shares of NSP common stock,  par value
$2.50  per  share  ("NSP  Common  Stock").  Cash  will  be  paid  in lieu of any
fractional  shares of NSP Common  Stock which  holders of NCE Common Stock would
otherwise  receive.  The Merger is  expected  to be a  tax-free  stock-for-stock
exchange for shareholders of both companies and to be accounted for as a pooling
of interests.

     Consummation  of the  Merger is  subject  to  certain  closing  conditions,
including,  among others,  approval by the shareholders of NCE and NSP, approval
of regulatory  review by certain state utilities  regulators,  the SEC under the
PUHCA,  as amended,  the FERC, the Nuclear  Regulatory  Commission,  the Federal
Communications Commission and  expiration or  termination  of the waiting period
applicable to the Merger under the Hart-Scott-Rodino  Antitrust Improvements Act
of 1976, as amended. Each of NCE and NSP have agreed to certain undertakings and
limitations  regarding the conduct of their  businesses  prior to the closing of
the  transaction.  The  Merger  is  expected  to take  from 12 to 18  months  to
complete.

     Pursuant to employment agreements,  Mr. James J. Howard, Chairman and Chief
Executive  Officer of NSP will serve as Chairman of the combined company for one
year  following the Merger and Mr. Wayne H. 

                                       1
<PAGE>

Brunetti,  Vice  Chairman,  President and Chief  Operating  Officer of NCE, will
President and Chief Executive  Officer  following the Merger and will assume the
responsibilities of Chairman when Mr. Howard retires.

     NCE expects to hold a special shareholders' meeting later this year to vote
on the Merger. all shareholders will receive a detailed proxy statement prior to
the meeting, which will explain in detail the terms of the Merger, membership on
the Board of Directors, employment arrangements and other matters related to the
Merger

Utility Operations

      PSCo was incorporated through merger of predecessors under the laws of the
State of Colorado in 1924. PSCo is an operating  utility engaged  principally in
the generation, purchase, transmission, distribution and sale of electricity and
in the  purchase,  transportation,  distribution  and sale of natural gas.  PSCo
serves  approximately  1.2 million  electric  customers  and  approximately  1.0
million gas customers in the state of Colorado.  PSCo owns the following  direct
subsidiaries:  1480 Welton,  Inc., a real estate company which owns certain real
estate  interests of PSCo; PSRI which owns and manages  permanent life insurance
policies on certain past and present  employees,  the benefits from which are to
provide future funding for general corporate purposes;  PSCCC, a finance company
that finances  certain of PSCo's current  assets;  Green and Clear Lakes Company
which  owns  water  rights  and  storage  facilities  for  water  used at PSCo's
Georgetown  Hydroelectric station; and Fuelco, a dissolved Colorado corporation,
which was  primarily  involved  in the  exploration  and  production  of oil and
natural gas. On July 1, 1996, Fuelco sold its remaining properties, the San Juan
Basin Coal Bed Methane  properties,  at approximately  book value and, effective
October 31, 1996, Fuelco was dissolved.  PSCo also holds a controlling  interest
in several  other  relatively  small  ditch and water  companies  whose  capital
requirements are not significant.

      PSCo also owned all of the outstanding common stock of NCI. NCI was formed
to hold  PSCo's 50%  interest  in  Yorkshire  Power (a joint  venture  initially
between  PSCo and AEP)  which  purchased  Yorkshire  Electricity  in April  1997
through Yorkshire  Holdings plc.  Effective March 31, 1998, PSCo sold its common
stock  investment in NCI to NC Enterprises in exchange for a 20-year  promissory
note. For a more detailed  discussion refer to "Foreign  Investments"  below and
Note 2. Investment in Yorkshire Power and U.K. Windfall Tax in Item 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.

       SPS was  incorporated  in 1921 under the laws of the State of New Mexico.
SPS is an operating utility engaged  primarily in the generation,  transmission,
distribution and sale of electricity.  SPS serves approximately 385,000 electric
customers in portions of the states of Texas,  New Mexico,  Oklahoma and Kansas.
The 267 wholesale  customers served by SPS comprise  approximately  35% of total
Kwh sales.

      Cheyenne was  incorporated in 1900 under the laws of the State of Wyoming.
Cheyenne is an operating utility engaged in the purchase,  distribution and sale
of electricity and natural gas primarily serving  approximately  35,000 electric
customers and 28,000 gas customers in Cheyenne, Wyoming.

      WGI was incorporated in 1990 under the laws of the State of Colorado.  WGI
is a natural gas  transmission  company engaged in transporting gas to Cheyenne,
Wyoming via a thirteen mile connecting  pipeline between Chalk Bluffs,  Colorado
and Cheyenne, Wyoming.

Electric Utility Operations

      The  Company's  utility   subsidiaries   expect  to  use  the  following
resources to meet their net dependable  system capacity  requirements:  1) the
Company's electric  generating  stations (see Electric  Generation Property in
Item 2.  PROPERTIES);  2) purchases  from other  utilities and from QFs, EWGs,
IPPFs and power marketers;  3) renewables and demand-side  management  options
and 4) new generation alternatives,  including the phased expansion at of Fort
St. Vrain.

                                       2
<PAGE>

Peak Load

      During  1999,  net firm system peak demand and the net  dependable  system
capacity for the Company's  electric utility  subsidiaries is projected to be as
follows:

                       1999 Projected          1999 Projected            Reserve
Operating company  Net Firm System Peak  Net Dependable System Capacity*  Margin
-----------------  --------------------  -------------------------------  ------

      PSCo                 4,894 Mw               5,171 Mw                  6%
      SPS                  4,043 Mw               4,850 Mw                 17%
      Cheyenne               136 Mw                 152 Mw                 **
--------------

      *  Net dependable system capacity is the maximum net capacity available
         from both owned generating units and purchased power contracts to meet
         the net firm system peak demand.
      ** Reserve margin for Cheyenne is held by PacifiCorp.

       The net firm system peak demand for each of the last three years was as
follows:

                                          Net Firm System Peak Demand (Mw)
                                      1996          1997           1998
                                      ----          ----           ----
      PSCo*......................    4,397          4,487         4,771
      SPS........................    3,694          3,715         3,933
      Cheyenne **................        -            132           140
--------------

      *  Excludes  station   housepower,   nonfirm  electric  furnace  load  and
         controlled  interruptible  loads.  In  1998,  approximately  138  Mw of
         controlled  interruptible  loads  were  interrupted  at the time of the
         system  peak.  Approximately  122 Mw and 116 Mw in the  years  1996 and
         1997, respectively, was not interrupted at the time of the system peak.
      ** Prior to the Merger,  Cheyenne  was a  subsidiary  of PSCo;  therefore,
         Cheyenne's coincidental peak demand is included with PSCo in 1996.

     The net firm system peak demand for PSCo for the years  1996-1998  occurred
in the summer.  The net firm system peak demand for 1998, which occurred on July
13, 1998, was 4,771 Mw. At that time, the net dependable system capacity totaled
5,034 Mw (generating capacity of 3,392 Mw, together with firm purchases of 1,642
Mw), which  represented a reserve margin of approximately  6%). With higher than
expected demand in summer 1998, PSCo revised its demand  forecast,  and found it
needed resources two years earlier than previously believed. The approximate 250
Mw resource  need for the summer of 1999 will be filled  through a  solicitation
for short-term resources. The approximate 520 Mw resource need for 2000 and 2001
will be filled through a separate  solicitation  allowing contract terms up to 7
years.

      The net firm system peak demand for SPS for the years  1996-1998  occurred
in the summer.  The net firm system peak demand for 1998, which occurred on June
30, 1998, was 3,933 Mw. At that time, the net dependable system capacity totaled
approximately  4,443 Mw (including firm purchases),  which represented a reserve
margin of approximately 13%.

Purchased Power

      The Company's electric utility subsidiaries have contractual  arrangements
with  regional  utilities as well as QFs, and EWGs,  in order to meet the energy
needs  of  their  customers.   Capacity,  typically  measured  in  Kilowatts  or
Megawatts,  is the measure of the rate at which a particular  generating  source
produces   electricity.   Energy,   typically   measured  in  Kilowatt-hours  or
Megawatt-hours,  is a measure  of the  amount  of  electricity  produced  from a
particular  generating  source over a period of time.  Purchase power  contracts
typically  provide for a charge for the capacity  from a  particular  generating
source, together with a charge for the associated energy actually purchased from
such generating source.


                                       3
<PAGE>


      The Company's  electric  utility  subsidiaries  have  contracted  with the
following  sources for the firm  purchase of capacity  and energy at the time of
the  anticipated  summer 1999 net firm system peak demand through the expiration
of the contracts:
                                                    Mw Contracted
                                                  For at the Time
                                                 of the Anticipated
                                Generating      Summer 1999 Net Firm   Contract
Company                           Source         System Peak Demand   Expiration
-------                           ------         ------------------   ----------
PSCo Contracts:

Basin Electric Power
  Cooperative:            Laramie River Station          175             2016
  Agreements 1 and 2(a)(b)

  Agreement 3 (a)(b)      Laramie River Station          125             2004

Colorado Energy 
 Management (a)(c)        Brush 4 Facility                50             2000

CL Six Power Sales 
 Agreement (a)(d)         CL 6 Resource Portfolio         80             2002

El Paso Electric Power
 Services (a)(e)          Brush 1 & 3 Facility            75             2005

PacifiCorp (f)            PacifiCorp Resource Pool       176             2011

Platte River Power
 Authority (a)(g)         Craig Units 1 and 2;           116             2004
                               Rawhide Unit 1

Tri-State:                                               475              (i)
  Agreements 1, 2,
   3 and 4 (a)(h)         Laramie River Station
                          Craig Station

  Agreement 5 (a)(h)      Laramie River Station
                          Craig Station
                          Nucla Station

Other contracts
 individually less
 than 50Mw (a)            QFs & IPPF                     496       Various dates
                                                   ---------
    Subtotal - PSCo                                    1,768

SPS Contracts:
Borger Energy
 Associates (i)           Blackhawk Station              230             2024

Golden Spread Electric
 Cooperative (a)(j)       Mustang Station                278             1999
                                                         ---
   Subtotal - SPS                                        508

Cheyenne Contract:
PacifiCorp (k)            PacifiCorp System              152             2000
                                                      ------
                                                       2,428
                                                       =====
------------

(a)These contracts are contingent  upon the  availability of the units listed as
   the generating source. These contracts are take and pay contracts. Based upon
   the terms of these agreements, if the capacity is available from these units,
   then  PSCo is  obligated  to pay for  capacity  whether  or not it takes  any
   energy.   However,  PSCo  has  historically   satisfied  the  minimum  energy
   requirements associated with these agreements and anticipates doing so in the
   future.  Additionally,  if these units are unavailable, the supplying company
   has no  obligation to furnish  capacity or energy and the capacity  charge to
   PSCo is reduced accordingly.

(b)Agreement 1 is for 100 Mw of capacity through March 31, 2016.  Agreement 2 is
   for 75 Mw of summer  season  capacity  through  March  31,  2016 and 25 Mw of
   winter season  capacity  through March 31, 2010.  Agreement 3, dated December
   14, 1998 is for 125 Mw of capacity beginning April 1, 1999 and continuing for
   five years.

(c)Agreement dated November 24, 1998 is for 50 Mw of peaking capacity.  The term
   of the agreement is for 11 months beginning June 1, 1999.

                                       4
<PAGE>

(d)The  Agreement  between  PSCo and CL Six Power Sales is for 80 Mw of capacity
   during the summer  season and 85 Mw during the winter  season.  The agreement
   became  effective  April 2, 1998, and it terminates on August 10, 2002.  This
   agreement replaced an 81 Mw QF purchased power contract.

(e)Effective  October 30, 1998,  PSCo agreed to purchase 50 Mw of capacity  from
   El Paso Power  Services.  The term of the agreement is for 7 years  beginning
   January 1, 1999. This agreement  replaced a 50 Mw QF purchased power contract
   which was terminated in 1998.

(f)The current agreement with PacifiCorp expires October 31, 2022. However,  the
   agreement  provides PSCo the opportunity to exercise an irrevocable option to
   terminate the  agreement on December 31, 2011,  provided PSCo gives notice to
   PacifiCorp no later than March 1, 2002.

(g)The  amount  of  capacity  to be  made  available  from  Platte  River  Power
   Authority during the term of the agreement for each summer and winter season,
   is established in the Agreement.

(h)PSCo has entered into five agreements  with Tri-State.  Agreements 1, 2 and 5
   are contracts for 100 Mw each of capacity and expire in 2001,  2017 and 2011,
   respectively.  Agreement 3 is a contract for 25 Mw of summer season  capacity
   and 75 Mw of winter season capacity and expires in 2016.  Agreement 4 expires
   in 2018 and the related capacity is for the following  amounts:  1999 through
   2000 - 200 Mw and 2001 through 2018 - 250 Mw; however, either party may elect
   to reduce the Agreement 4 capacity by up to 50 Mw each year, except for 2001,
   effective  in the year 1999.  If the full 50 Mw reduction is taken each year,
   the capacity  associated  with  Agreement 4 from 1999 on would be as follows:
   1999 - 150 Mw, 2000 through  2001 - 100 Mw, 2002 - 50 Mw with no  commitments
   thereafter.  PSCo has  notified  Tri-State  of its intent not to purchase any
   capacity under Agreement 4 for the contract period 2003 through 2018.

(i)SPS  entered  into  a  25  year  agreement  with  Borger  Energy   Associates
     L.P.("BEA"),  an affilliate of Quixx holding a 45% ownership interest,  for
     the purchase of capacity and energy.  Effective  October 1, 1998, BEA began
     providing SPS with up to 205 Mw of capacity.  On or about May 1, 1999,  BEA
     will  provide  SPS  with up to 230 Mw of  capacity  through  the  remaining
     contract term. SPS has an option to extend the term of the agreement for an
     additional 10 years.

(j)SPS and Golden Spread Electric  Cooperative  ("Golden Spread") entered into a
   Power Sales Agreement on November 16, 1998. Under the terms of the Agreement,
   SPS will purchase up to 278 Mw of capacity  during the simple cycle operation
   of the  Mustang  Station,  estimated  to cover  the  period  from May 1, 1999
   through the end of 1999.

(k)This  contract,  which expires on December 31, 2000,  provides for PacifiCorp
   to sell to  Cheyenne  the total  electric  capacity  and energy  requirements
   associated with the operation of Cheyenne's service area.

      See Note 10.  Commitments and  Contingencies - Purchase  Requirements in
Item  8.  FINANCIAL   STATEMENTS  AND   SUPPLEMENTARY   DATA  for  information
regarding the  Company's  financial  commitments  under these  contracts.  See
Interconnections  in Item 2.  PROPERTIES  for a  discussion  of the  Company's
interconnections with these sources.

      Based on present  estimates,  PSCo will purchase  approximately 31% of the
total electric system energy input for 1999. In addition,  based on the capacity
associated with the purchase power contracts described above,  approximately 34%
of the total net dependable  system  capacity for the estimated  summer 1999 net
firm system peak demand for PSCo will be provided by purchased power.

      All of the QF capacity purchased by PSCo, including  approximately 4 Mw of
additional  capacity scheduled to come on line in the future, is being purchased
under  contracts  entered  into prior to  January  1,  1988.  Subject to certain
exceptions or a waiver  permitted by the CPUC, PSCo is to use a complete bidding
process  to make any  additional  purchases  of QF and IPPF  capacity.  In 1998,
approximately  13% of PSCo's  summer net firm system peak demand was provided by
QFs.

      In addition to the  long-term  purchases of capacity and energy  discussed
above PSCo made short-term and non-firm purchases throughout the year to replace
generation from PSCo-owned  units which were  unavailable due to maintenance and
unplanned  outages,  to provide PSCo's reserve obligation to the Pool, to obtain
energy at a lower  cost than that  which  could be  produced  by other  resource
options,   including  PSCo-owned  generation  and/or  long-term  purchase  power
contracts, and for various other operating requirements. Short-term and non-firm
purchases  represented  approximately  6% of PSCo's total energy  requirement in
1998.

                                       5
<PAGE>

      Based on current  projections,  PSCo expects that purchased  capacity will
continue to meet a significant  portion of system  requirements.  Such purchases
neither  require PSCo to make an investment  nor afford PSCo an  opportunity  to
earn a return.  Further  discussion  related to recovery of  purchased  capacity
costs can be found in "Regulations  and Rates - Cost Recovery  Mechanisms."  SPS
arranged  seasonal  short-term  purchases  for the  summer  of 1998 and may make
additional short-term purchases for the 1999 summer season.

      PSCo is a member of the Rocky Mountain Reserve Group ("Reserve  Group"), a
new reserve sharing group. The Reserve Group is composed of members in the Rocky
Mountain area, each of which owns and/or  operates  electric  generation  and/or
transmission systems and are interconnected to one or more other member systems.
The Reserve Group was granted final  acceptance by the FERC in January 1999. The
objective of the Reserve Group is to provide  capacity  which is  categorized as
either  immediately  accessible or accessible  within ten minutes.  The capacity
used by the Reserve Group members is to cover  unanticipated  loss of generation
as well as to provide a source of emergency  assistance  when there is a risk of
not meeting firm load. As a result of its membership in the Reserve Group,  PSCo
can supply and protect its electric system with less aggregate operating reserve
capacity than otherwise would be necessary.  Additionally,  emergency conditions
can be met with less likelihood of curtailment or impairment of electric service
and generation and transmission facilities and interconnections can be used more
efficiently and economically.

      Refer  to  Item 2.  Properties  -  Electric  Transmission  Property  for a
discussion of SPS's activities with the SPP and the WSPP.

Electric Fuel Supply

      The following  tables  present the delivered  cost per million Btu of each
category of fuel consumed by the system for electric generation during the years
indicated,  the  percentage  of  total  fuel  requirements  represented  by each
category of fuel and the weighted average cost of all fuels during such years:

      PSCo generating plants:                             Weighted
                                                           Average
                                Coal*          Gas       All Fuels**
                            Cost $   %     Cost $   %      Cost $ 
                            ----------     ----------      ------ 

       1998...............    0.93  95       2.46   5       1.00

       1997...............    0.99  98       3.03   2       1.03

       1996...............    1.03  98       2.42   2       1.05

      *  The average cost per ton of coal for years 1996 through 1998, including
         freight, shown above was $20.17, $18.96, and $17.41, respectively.
      ** Insignificant purchases of oil are included.

      SPS generating plants:                              Weighted
                                                           Average
                                Coal           Gas       All Fuels**
                            Cost $   %     Cost $   %      Cost $
                            ----------     ----------      ------

       1998...............    1.60  67       2.19  33       1.80

       1997...............    1.84  69       2.55  31       2.06

       1996...............    1.93  69       2.38  31       2.06

      *  The average cost per ton of coal for years 1996 through 1998, including
         freight  and other  components,  shown above was  $33.26,  $31.97,  and
         $28.57 respectively.
       **Insignificant purchases of oil, steam and hot nitrogen are included.

                                       6
<PAGE>

Coal

      PSCo's  primary  fuel  for  its  steam  electric  generating  stations  is
low-sulfur western coal. PSCo's coal requirements are purchased  primarily under
eight long-term contracts with suppliers operating in Colorado and Wyoming.  The
percentage  of PSCo's 1999 coal  requirements  supplied  under  these  long-term
contracts varies from plant to plant as detailed  herein.  During the year ended
December  31,  1998,   PSCo's  coal   requirements   for  existing  plants  were
approximately  9,780,000  tons.  A  substantial  portion  of which was  supplied
pursuant to long-term supply contracts.  Coal supply inventories at December 31,
1998, were  approximately 40 days usage,  based on the average burn rate for all
of PSCo's coal-fired plants.

                                             Ending Inventory 
                                             Tons         Days
                                             ----         ----
            Arapahoe                        68,092          28
            Cameo                            6,815           8
            Cherokee                       229,737          36
            Comanche                       394,094          40
            Craig-PSCo                     151,069          22
            Hayden-PSCo                     21,534          59
            Pawnee                         332,702          48
            Valmont                         70,490          42

      PSCo operates two  mine-mouth  generating  stations:  the Cameo and Hayden
Stations and has partial ownership in a third mine-mouth generating station, the
Craig Station located in Colorado.  PSCo has secured over 90% of Cameo Station's
coal  requirements  through 1999 via a contract with the nearby  Powderhorn Coal
Company's  Roadside  mine  ("Powderhorn").  Any  remaining  requirements  may be
purchased from either the spot market or Powderhorn. PSCo is the operating agent
at the Hayden Station and all coal  requirements  are supplied under a long-term
agreement  from the nearby  Peabody-affiliated  Seneca mine.  Over 75% of PSCo's
Craig Station coal requirements are supplied under two long-term agreements with
Colowyo Coal Company and the nearby  Trapper  Mining,  Inc.  mine. Any remaining
Craig Station requirements for PSCo are supplied via spot market coal purchases.

     PSCo has  contracted  for  long-term  coal supplies  with  Twentymile  Coal
Company's  Foidel Creek Mine and Mountain Coal  Company's West Elk Mines located
in Colorado to supply  approximately  70% of the Cherokee and Valmont  Station's
projected  requirements  through 2000. PSCo has long-term coal supply agreements
with Cyprus' affiliate,  Amax Coal West, Inc., for Pawnee and Comanche Station's
projected  requirements  from the Belle Ayr and Eagle Butte mines located in the
Powder River Basin in Wyoming.  Under the  long-term  agreements,  specific coal
reserves  at the  contractually  defined  mine(s)  have  been  dedicated  by the
respective supplier to meet the contract quantity obligations. In addition, PSCo
has a coal supply  agreement  with Kennecott  Energy's  Antelope Coal Company to
supply  approximately 66% of Arapahoe Station's projected  requirements  through
1999. Any remaining Arapahoe Station  requirements will be obtained through spot
market purchases.

      Coal is transported by rail,  primarily from mines located in Colorado for
PSCo's  Cherokee  and Valmont  Stations,  and from mines  located in Wyoming for
PSCo's Arapahoe,  Pawnee and Comanche  Stations,  to stockpiles  adjacent to the
Company's coal-burning generating stations. Powder River Basin coal supplies are
transported by the Burlington  Northern Santa Fe Railway  Company over distances
ranging from 368-575 miles.  Transportation charges for these Powder River Basin
coal supplies  comprise more than 55% of the total cost of the coal delivered to
the Arapahoe,  Pawnee and Comanche  stations.  Colorado origin coal supplies are
transported by the Union Pacific  Railroad  Company and the Burlington  Northern
Santa Fe Railway Company over a combined  distance ranging  approximately 250 to
300 miles.  Transportation  charges for these Colorado origin coal supplies make
up more than 32% of the total  delivered  cost of the coal to the  Cherokee  and
Valmont stations.

                                       7
<PAGE>

      SPS  purchases  all of its  coal  requirements  for  Harrington  and  Tolk
electric  generating  stations from TUCO, in the form of crushed,  ready-to-burn
coal delivered by coal-handling  facilities owned by Wheelabrator  Coal Services
Co. to the SPS's boiler bunkers located within SPS's coal-fueled  stations where
it is processed for burning. The coal is transported for TUCO by rail, primarily
from mines located in Wyoming, to TUCO's stockpiles, which are adjacent to SPS's
coal-burning  generation stations. At December 31, 1998, TUCO's coal inventories
at  the   Harrington  and  Tolk  sites  were  438,129  tons  and  421,719  tons,
respectively,  (approximately  34 and 36 days  supply,  respectively).  TUCO has
executed a long-term coal supply agreement with a subsidiary of Kennecott Energy
Company  to supply  approximately  55% of  Harrington's  projected  requirements
through 2001 from Cordero, Caballo Rojo and Antelope mines located in the Powder
River  Basin.  In  addition,  TUCO  has  contracted  for  approximately  16%  of
Harrington's  1999 projected  requirements with Kennecott's  affiliate,  Colowyo
Coal Company,  from its Colowyo mine located in western Colorado and transported
by the Union Pacific  Railroad.  TUCO has long term contracts with Thunder Basin
Coal  Company,  an  affiliate  of  Arch  Coal  Company,  for  supply  of coal in
sufficient quantities to meet the Company's Tolk Station. Specific coal reserves
in the Powder  River  Basin  have been  dedicated  by Thunder  Basin to meet the
contract quantities.  The Powder River Basin coal supplies for both stations are
transported  for TUCO by the Burlington  Northern Santa Fe Railway  Company over
distances ranging from 900-1,032 miles.  Transportation charges for these Powder
River  Basin Coal  supplies  make up more than 40% of the total cost of the coal
delivered to the boiler.

      See Note 10. Commitments and Contingencies - Purchase Requirements in Item
8.  FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA  for  information  regarding
financial  commitments  under  the coal  supply  contracts,  as well as the coal
transportation contracts.

Natural Gas and Fuel Oil

      PSCo uses both  firm and  interruptible  natural  gas and  standby  oil in
combustion  turbines and certain boilers.  Natural gas supplies for PSCo's power
plants are procured under short and intermediate term contracts on a competitive
basis to  provide  an  adequate  supply  of fuel.  SPS has a number of short and
intermediate  contracts with natural gas suppliers  operating in gas fields with
long life  expectancies  in or near its service area. SPS also utilizes firm and
interruptible  transportation  to minimize  fuel costs  during  volatile  market
conditions and to provide  reliability of supply.  SPS maintains  sufficient gas
supplies  under short and  intermediate  term  contracts to meet all power plant
requirements;  however,  due to flexible  contract terms,  approximately  40% of
SPS's gas requirements were purchased under spot agreements.

Natural Gas Utility Operations

     During the period 1994-1998,  PSCo and Cheyenne have experienced  growth in
the number of  residential  and commercial  customers  ranging from 2.7% to 3.2%
annually.  Since 1994, residential and commercial gas volumes sold have averaged
131.5 million  dekatherms  ("MMDth")  annually.  The growth of  residential  and
commercial  sales  has been  strong  due to  favorable  economic  conditions  in
Colorado and Wyoming.  PSCo and Cheyenne offer transportation  services to their
large commercial and industrial customers,  allowing these customers to purchase
gas directly from their suppliers.  The per-unit fee charged for  transportation
services, while significantly less than the per-unit fee charged for the sale of
gas to a similar customer, provides an operating margin approximately equivalent
to the margin earned on gas sold.  Therefore,  increases in such activities will
not have as great an impact on gas revenues as increases in deliveries  from the
sale of gas, but will have a positive impact on operating  margin.  During 1998,
transportation services revenues were of $35.0 million compared to $32.7 million
in 1997 and $28.5 million in 1996.

Natural Gas Supply and Storage

      PSCo and Cheyenne have  attempted to maintain low cost,  reliable  natural
gas supplies by optimizing a balance of long - and short-term gas purchase, firm
transportation  and gas  storage  contracts.  During  1998,  PSCo  and  Cheyenne
purchased  140.1 MMDth from  approximately  59 suppliers.  In 1998,  the average
delivered  cost per one thousand  dekatherms  ("MDth") for PSCo and Cheyenne was
$1.89 compared to $2.92 per MDth in 1997 and $2.58 per MDth in 1996 (see Item 7.
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  

                                       8
<PAGE>

AND RESULTS OF  OPERATIONS).  Purchased gas costs are recovered  from  customers
through the gas cost adjustment mechanisms.

      PSCo and Cheyenne have completed  substantially  all of their  obligations
related to gas supply  transportation  and storage contracts which resulted from
FERC Order 636. During 1996,  PSCo and Cheyenne  entered into new contracts with
CIG and others for firm  transportation  and gas storage  services with terms of
5-10  years.  Adequate  supplies  of natural  gas are  currently  available  for
delivery  within  the  Rocky  Mountain  region.  PSCo and  Cheyenne  continually
evaluate  the  natural gas markets  and  procure  supplies,  as needed,  to meet
current and anticipated customer demand.

Regulation and Rates

Regulation

General

      The NCE system is subject to the  jurisdiction of the SEC under PUHCA. The
rules and regulations under PUHCA generally limit the operations of a registered
holding company to a single  integrated  public utility system,  plus additional
energy-related  businesses.   PUHCA  rules  require  that  transactions  between
affiliated  companies in a  registered  holding  company  system be performed at
cost, with limited exceptions.

PSCo

      PSCo is  subject  to the  jurisdiction  of the CPUC  with  respect  to its
facilities,  rates,  accounts,  services  and issuance of  securities.  The CPUC
consists of three  full-time  members  appointed by the Governor and approved by
the Colorado Senate. Only two members may be from the same political party.

      PSCo is  subject  to the  jurisdiction  of the DOE  through  the FERC with
respect to its  wholesale  electric  operations  and  accounting  practices  and
policies.  PSCo  has  received  authorization  from  the  FERC to act as a power
marketer. PSCo is also subject to the jurisdiction of the NRC in connection with
the pending transfer of the title of Independent Spent Fuel Storage Installation
facility at Fort St. Vrain.

      PSCo holds a FERC certificate  which allows it to transport natural gas in
interstate  commerce  pursuant to the  provisions  of the  Natural Gas Act,  the
Natural  Gas Policy Act of 1978 and FERC Order  Nos.  436 and 500  without  PSCo
becoming subject to full FERC jurisdiction.

SPS

     The PUCT has  jurisdiction  over  SPS's  Texas  operations  as an  electric
utility  and  original  and  appellate  jurisdiction  over its retail  rates and
services.  The Texas  municipalities  exercise original  jurisdiction over rates
within  their  respective  city  limits.  The NMPRC,  the  Oklahoma  Corporation
Commission and the Kansas Corporation  Commission have jurisdiction with respect
to  retail  rates  and  services  in  their  respective  states.  The  FERC  has
jurisdiction  over SPS's  rates for sales of  electricity  for  resale.  SPS has
received authorization from the FERC to act as a power marketer.

Other

      Cheyenne  is  subject  to the  jurisdiction  of the WPSC.  WGI and TOP are
subject to FERC  jurisdiction.  WGI and TOP each hold a FERC  certificate  which
allows them to  transport  natural gas in  interstate  commerce  pursuant to the
provisions of the Natural Gas Act. e prime and TOG have  authorization  from the
FERC to act as power marketers.

                                       9
<PAGE>

Cost Recovery Mechanisms

PSCo

      At December 31, 1998,  PSCo had four  adjustment  clauses:  the ICA (which
replaced the ECA in 1996),  the GCA, the DSMCA and the QFCCA.  These  adjustment
clauses allow certain costs to be passed  through to retail  customers.  PSCo is
required  to  file  applications  with  the  CPUC  for  approval  of  adjustment
mechanisms in advance of the proposed  effective dates. The applications must be
acted upon before becoming effective.

      The ICA,  which  became  effective  October 1, 1996,  allows for a 50%/50%
sharing of certain fuel and energy cost increases and decreases  among customers
and  shareholders.  PSCo,  through its GCA, is allowed to recover the difference
between  its  actual  costs of  purchased  gas and the  amount  of  these  costs
recovered  under its base rates.  The GCA rate is revised  annually on October 1
and  otherwise  as needed,  to coincide  with  changes in  purchased  gas costs.
Purchased gas costs and revenues received to recover such gas costs are compared
on a monthly basis and differences,  including interest, are deferred. The QFCCA
provides for recovery of purchased capacity costs from certain QF projects,  not
otherwise reflected in base electric rates.

      PSCo, in a collaborative  process with public interest  groups,  consumers
and  industry  has  developed  DSM  programs  (programs  designed to reduce peak
electricity demand,  shift on-peak demand to off-peak hours and provide for more
efficient operation of the electric generation system),  including incentive and
cost  recovery  mechanisms.  The DSMCA clause  permits PSCo to recover DSM costs
over five to seven years while  non-labor  incremental  expenses,  and  carrying
costs associated with deferred DSM costs are recovered on an annual basis.  PSCo
also has implemented a Low-Income Energy Assistance  Program.  The costs of this
energy  conservation  and  weatherization  program for low-income  customers are
recoverable through the DSMCA.

SPS

      Fuel and purchased  power costs are  recoverable  in Texas through a fixed
fuel factor  which is part of SPS's  rates.  If it appears  that the factor will
materially  over-recover or under-recover these costs, the factor may be revised
upon  application by SPS or action by the PUCT. The rule requires  refunding and
surcharging under/over-recovery amounts, including interest, when they exceed 4%
of the utility's  annual fuel and purchased power costs, as allowed by the PUCT,
if this condition is expected to continue. Under the PUCT's regulations,  SPS is
required to file an application for the PUCT to retrospectively  review at least
every  three  years the  operations  of SPS's  electricity  generation  and fuel
management  activities.  In June  1998,  SPS  filed its  reconciliation  for the
generation and fuel management  activities  totaling  approximately $690 million
for the three year period ended December 31, 1997.

      On October 24, 1997,  the NMPRC approved a fixed fuel factor for SPS's New
Mexico  retail  jurisdiction,   effective  in  January  1998.  This  employs  an
over/under fuel collection  calculation  determined on a monthly basis. SPS will
petition  for a change  in the fixed  fuel  factor  if the  over/under  recovery
balance  reaches  $5  million.  In  addition,  on an  annual  basis SPS files an
application for the NMPRC to review the utility's  electric  generation and fuel
management  activities.  The  methodology  of the over/under  calculation,  plus
interest, is similar to the Texas fixed fuel factor calculation discussed above.

      In all other  jurisdictions,  SPS  currently  recovers  substantially  all
increases and refunds  substantially  all decreases in fuel and purchased  power
costs pursuant to monthly adjustment and clauses.

Cheyenne

      Purchased  power and gas costs are  recoverable  in  Wyoming.  Cheyenne is
required  to  file  applications  with  the  WPSC  for  approval  of  adjustment
mechanisms  in advance of the proposed  effective  date.  Cheyenne  filed for an
increase in its ECA rates of  approximately $3 million which became effective on
January 1, 1999.  The  increase,  however,  is being  contested and hearings are
scheduled for March 1999.
                                       10
<PAGE>

      See Note 9.  Regulatory  Matters  in Item 8.  FINANCIAL  STATEMENTS  AND
SUPPLEMENTARY DATA for additional discussion.

Environmental Matters

      Certain of the Company's  subsidiary  facilities  are regulated by federal
and state  environmental  agencies.  These agencies have  jurisdiction  over air
emissions,  water  quality,  wastewater  discharges,  solid wastes and hazardous
substances. Various Company activities require registrations, permits, licenses,
inspections  and  approvals  from these  agencies.  The Company has received all
necessary  authorizations  for the construction  and continued  operation of its
generation,  transmission and distribution systems. Company facilities have been
designed and constructed to operate in compliance with applicable  environmental
standards.

      The Company and its subsidiaries  continue to strive to achieve compliance
with all  environmental  regulations  currently  applicable  to its  operations.
However,  it is not  possible at this time to  determine  when or to what extent
additional facilities or modifications of existing or planned facilities will be
required as a result of changes to environmental regulations, interpretations or
enforcement  policies or, generally,  what effect future laws or regulations may
have upon the Company's operations. See Note 10. Commitments and Contingencies -
Environmental  Issues in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA for
additional  discussion.  At December 31, 1998, the estimated 1999, 2000 and 2001
expenditures for  environmental  air and water emission control  facilities were
$19.1  million,  $14.1  million  and $38.6  million,  respectively  (see Item 7.
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS).

Construction Program

      Discussion of the construction  programs for each registrant is provided
within  their  respective  Item 7.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Competition

Industry Outlook

      The business and regulatory  environment in the utility  industry that has
existed  for  decades  is  continuing  to  change.  Competition  is  increasing,
particularly in energy supply and retail energy services.  Several states in the
U.S.  have  either  passed or  proposed  legislation  that  provides  for retail
electric  competition  and price  deregulation  of energy supply.  The wholesale
electric  energy  market has expanded and  geographic  boundaries  are no longer
present  barriers.  Increased  activity by power marketers and traders has added
new  dimensions  of  complexity  and risk.  A  significant  amount  of  electric
generation  assets have been  purchased,  sold or traded in the U.S. during 1998
and this trend is expected to continue.  Consolidation  and  globalization  is a
continuing  trend  as  businesses  position  themselves  for  competition  in an
unbundled energy industry.  The Company  continues to look for  opportunities to
expand its customer base as an energy service provider, and on an ongoing basis,
evaluates merger, acquisition and divestiture opportunities.

      Electric prices in the Company's service territories are low in comparison
to other parts of the U.S. State  legislatures and state utility  commissions in
the  retail  jurisdictions  served by the  Company's  utility  subsidiaries  are
focusing on the restructuring and deregulation of the electric utility industry;
however, no significant  progress was achieved during 1998. The Company supports
a fair and orderly transition to a competitive environment and believes that any
restructuring  plans should  provide the Company with an  opportunity to recover
its costs for prudently incurred utility investments and contractual commitments
that may be uneconomic  in the future.  Overall,  the Company  believes that the
prices its  utility  subsidiaries  charge for  electricity  and the  quality and
reliability  of their  service  currently  place them in a  position  to compete
effectively in the energy market.  The potential  negative  financial impacts of
deregulation,  however,  could include an impairment of assets, a loss of retail
customers,  lower  profit  margins and  increased  costs of capital (see Note 1.
Summary of Significant  Accounting Policies in Item 8. FINANCIAL  STATEMENTS AND
SUPPLEMENTARY  DATA).  At this time,  the Company  and its utility  subsidiaries
cannot  predict  when  they  will  be  subject  to  changes  in  legislation  or
                                       11
<PAGE>

regulation,  nor can they predict the impacts of such changes on their financial
position, results of operations or cash flows.

Retail Electric Business

      Today,  the retail  electric  business  faces  increasing  competition  as
industrial and large commercial customers who have the ability to own or operate
facilities  to generate  their own electric  energy  requirements.  In addition,
customers  may have the option of  substituting  fuels,  such as natural gas for
heating,  cooling and manufacturing purposes rather than electric energy, or the
option of relocating their facilities to a lower cost environment. While each of
the Company's utility  subsidiaries face these  challenges,  these  subsidiaries
believe their rates are competitive with currently available  alternatives.  The
Company's  utility  subsidiaries are taking actions to lower operating costs and
are working with their customers to analyze the feasibility of various  options,
including energy efficiency, load management and cogeneration in order to better
position the Company's  utility  subsidiaries to more  effectively  operate in a
competitive environment.

State Regulatory and Legislative Environments - Electric Business

      Below  is a  discussion  on the  regulatory  and  legislative  initiatives
currently being addressed in each of the Company's retail jurisdictions  related
to the electric business.

      Colorado - Colorado  law permits the CPUC to  authorize  rates  negotiated
with  individual  electric and gas customers who have  threatened to discontinue
using the services of PSCo,  so long as the CPUC finds that such  authorization:
1) in the case of electric  rates,  will not adversely  affect PSCo's  remaining
customers  and 2) in the case of gas  rates,  will not affect  PSCo's  remaining
customers as adversely as would the alternative.  The CPUC is continuing to work
with the Colorado General Assembly in its  investigation  and  implementation of
public  policy.  The  CPUC  has  no  electric  restructuring  authority  without
legislative mandate.

      During 1998, an electric restructuring bill was passed which established a
30 member advisory panel to conduct an evaluation of the potential  benefits and
possible regulatory structure of the retail electric industry.  This panel is to
finalize  and report its  findings to the General  Assembly  and the Governor by
November 1, 1999. NCE has one representative appointed to this panel.

      Texas  - In the  1997  session,  Texas  introduced  legislative  proposals
relating to retail wheeling;  however,  the Texas legislature  adjourned without
adopting any  legislation on this issue.  The Governor  submitted a proposal for
retail   competition  by  September  2001.  This  and  all  other   deregulation
legislation  failed to gain the necessary  support for  enactment.  There was no
general session in 1998 in Texas. The PUCT initiated  several  rulemakings which
prepare for eventual electric industry  restructuring,  however,  it has not yet
issued a final order with respect to any of them.  The PUCT granted  approval of
one utility company's voluntary plan to transition to retail  competition.  This
program  provides for immediate rate reductions which will result in refunds for
all residential  and commercial  customers.  A five-year  transition plan begins
with a pilot program that evolves to customer  choice for all of that  utility's
customers by 2003.

      A Senate  Interim  Committee  on Electric  Utility  Restructuring  began a
series of statewide  hearings in late 1997, which continued  throughout 1998, in
order to solicit public input on a series of statewide issues relating to retail
competition  in Texas.  This  information  will be used by the Committee to make
recommendations  on restructuring  legislation for the 1999 session.  In January
1999, three different electric  restructuring bills were introduced in the Texas
legislative.  At this time, it is impossible to determine  which, if any, of the
proposals  will  pass.  SPS  believes  it will  continue  to be  subject to rate
regulation  that will  allow for  recovery  of its  deferred  costs (see Note 1.
Summary of Significant  Accounting  Policies - Business,  Utility Operations and
Regulation - Regulatory Assets and Liabilities and Note 9. Regulatory Matters in
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).

      New  Mexico - In 1998,  the NMPRC  allowed  an  electric  utility to begin
offering a two-year  transition test program for customer choice. A total of 425
residential and small commercial customers and one large

                                       12
<PAGE>

industrial customer may participate.  A second pilot program,  which was ordered
by the NMPRC, was halted by a stay order issued by the New Mexico Supreme Court.

      Following  the  1997  session,   the  NMPRC   initiated   Case  2681,  the
"Investigation   of  Electric  Utility   Restructuring",   which  called  for  a
"collaborative process" that involved utilities,  consumer groups, environmental
groups, and other interested  stakeholders.  The NMPRC encouraged the parties to
attempt to reach a consensus  on a retail  choice  plan for New Mexico,  but the
effort was unsuccessful.  On January 28, 1998, the NMPRC issued its final report
and found  that it is in the  public  interest  for the  State of New  Mexico to
advance  changes in the  structure and  regulation of the electric  industry and
recommended  that  restructuring  proposals should continue to be brought before
the legislature.  The New Mexico legislature tabled  consideration of the single
electric  utility  restructuring  bill presented during 1998. A similar proposal
has been introduced in the 1999 session.  At this time, no final action has been
taken on this proposal.

      Wyoming  -  There  were no  electric  industry  restructuring  legislation
proposals  introduced in the  Legislature  during 1998. A joint committee of the
Wyoming  legislature held a series of hearings on restructuring in June of 1997.
On September 15, 1997, a report  entitled the "Study of the  Potential  Economic
Impacts of Electric  Restructuring  on the State of  Wyoming,"  prepared for the
WPSC by an  external  consultant  was made  public.  The  report  analyzed  four
different restructuring scenarios and concluded overall that restructuring would
have  only a  small  impact  on  rates.  No  action  with  respect  to  electric
restructuring is anticipated in 1999.

      Kansas - In December 1997, the Task Force On Retail Wheeling presented its
final report to the 1998 Kansas Legislature.  The report culminated a study that
was  authorized  by House Bill 2600 and was signed by the  Governor on April 26,
1996.  In  general,  this  legislation  imposed  a  three-year  freeze on retail
electric wheeling.  During 1998, several restructuring  measures were introduced
in the Legislature, but subsequently failed.

      Oklahoma  - The  Electric  Restructuring  Act of 1997  was  signed  by the
Governor of Oklahoma on April 25,  1997.  This  legislation  directs a series of
studies which will define the orderly  transition to consumer choice of electric
energy  supplier  by  July  1,  2002.  During  1998,  the  Oklahoma  Corporation
Commission  began such studies and held  research  meetings  focusing on several
restructuring issues.  Results and recommendations  derived from the studies and
meetings will direct further  legislative  action that may be necessary in order
for  the  Electric  Restructuring  Act  of  1997  to be  fully  implemented.  An
independent  system  operator  ("ISO")  study  report,  prepared by the Oklahoma
Corporation  Commission,  was issued in January 1998.  The Oklahoma  Corporation
Commission  Taxation Issues study and a Technical Issues study on the effects of
an ISO were concluded on December 31, 1998. The Electric  Restructuring  Act was
modified  during 1998 to clarify  terms used in the  original  bill,  as well as
advancing  timelines  for studies of the Joint  Electric  Utility  Task Force in
order to meet the stated  implementation date. In December 1998, this Task Force
began the formation of groups which will examine numerous  restructuring issues.
It is expected to issue a report on its findings in October 1999.

Wholesale Electric

     The wholesale electric business faces increasing  competition in the supply
of bulk power due to provisions  of the EPAct and Federal and state  initiatives
with respect to providing  open access to utility  transmission  systems.  Under
applicable FERC rules,  utilities are required to provide wholesale  open-access
transmission  services  consistent  with  what  is  provided  for in  their  own
operations and to unbundle wholesale merchant and transmission  operations.  The
Company's utility  subsidiaries are operating under a joint tariff in compliance
with these rules.  To date,  these  provisions have not had a material impact on
the operations of the Company's  utility  subsidiaries.  For 1998, the Company's
consolidated  wholesale  revenues totaled  approximately  $607 million or 22% of
total electric  revenues,  an increase from approximately $435 million or 18% in
1997.   Non-firm  sales,   including   economy  sales,   off-system   sales  and
non-regulated power marketing  activities have grown significantly in 1998. As a
result,  only 56.3% of the Kwh sold related to firm sales  contracts in 1998, as
compared  with  80.9% in 1997,  despite  the fact  that  Kwh  sales  under  firm
contracts increased 14% in 1998 as compared with 1997.

                                       13
<PAGE>
Natural Gas

      Changes in  regulatory  policies and market forces have begun to shift the
industry   from   traditional   bundled  gas  sales   service  to  an  unbundled
transportation and market based commodity  service.  Following the unbundling of
interstate pipeline delivery services by the FERC in 1993, PSCo has participated
fully in state  regulatory  and  legislative  efforts to develop a framework for
extending  unbundling down to the residential and small  commercial  level.  The
goal of  unbundling  is to offer  customers  choice  of gas  suppliers.  PSCo is
currently  supporting  a  gas  unbundling  bill,   introduced  to  the  Colorado
legislature  in  January  1999,  that will grant to the CPUC the  authority  and
responsibility to approve  voluntary  unbundling plans submitted by Colorado gas
utilities in the future. PSCo plans to participate fully in any such legislative
efforts and in any  regulatory  proceedings  which will affect the unbundling of
natural gas delivery services.

      The  natural  gas  delivery  or   transportation   business  has  remained
competitive  as industrial  and large  commercial  customers have the ability to
"by-pass" the local gas utility  through the  construction  of  interconnections
directly  with,  and the purchase of gas directly  from,  interstate  pipelines,
thereby avoiding the delivery  charges added by the local gas utility.  PSCo and
Cheyenne have and will continue to  aggressively  pursue the retention of all of
these customers on their systems.

      PSCo and Cheyenne extend and operate their distribution  systems primarily
by virtue of non-exclusive  franchises  granted by the various cities and towns.
Such franchise  agreements are approved by their respective  state  commissions.
Because the  franchises are  non-exclusive,  PSCo and Cheyenne can be faced with
the threat of  intrusion  into their gas  territory by third  parties.  PSCo and
Cheyenne  hold  territorial  certificates  for a portion  of their  gas  service
territory  giving them the exclusive right to extend their  distribution  system
and  provide  natural gas sales and  transportation  service.  However,  for the
majority of their gas service territory, no such territorial certificates exist.
PSCo has filed  with the CPUC an  application  to  certificate  its gas  service
territory along the front range of Colorado.

Franchises

      PSCo held  nonexclusive  franchises to provide  electric or gas service or
both services in approximately 121 incorporated cities and towns at December 31,
1998.  These  franchises  consist  of  69  combined  gas  and  electric  service
franchises,  28 electric service  franchises and 24 gas service  franchises.  In
1999, PSCo expects to re-negotiate  four of the franchise  agreements which will
be expiring.  PSCo's franchise with the City of Denver will expire in 2006. PSCo
supplies  electric or gas service or both  services in about 114  unincorporated
communities.

      SPS held  franchises  to provide  electric  service in  approximately  104
cities and towns at December 31, 1998.

Foreign Investments

Yorkshire Power

      During  the second  quarter  of 1997,  Yorkshire  Power,  a joint  venture
initially  equally  owned  by  PSCo  and  AEP,  acquired  indirectly  all of the
outstanding ordinary shares of Yorkshire Electricity,  a United Kingdom regional
electricity  company.  Effective March 31, 1998, NCI was sold to NC Enterprises,
an NCE subsidiary. The total consideration paid by Yorkshire Power for Yorkshire
Electricity  in  1997  was  approximately   $2.4  billion  (1.5  billion  pounds
sterling).  Yorkshire  Electricity's  main businesses are the  distribution  and
supply of electricity and the supply of gas and its service  territory is one of
the region's largest with approximately 2 million customers.

      In July  1997,  the U.K.  government  enacted a  windfall  tax on  certain
privatized  business  entities,  payable in two  installments  with the first in
December  1997  and  the  second  in  December  1998.  The  windfall  tax  was a
retroactive  adjustment to the privatization  value based on  post-privatization
profits  during  the 1992 to 1995

                                       14
<PAGE>
period.   During  the  third  quarter  of  1997,  Yorkshire  Power  recorded  an
extraordinary charge of approximately $221 million (135 million pounds sterling)
for this windfall tax. The Company's share of this tax was approximately  $110.6
million.

      During the second  quarter of 1998,  Yorkshire  Electricity  recognized  a
$54.7  million  after-tax  impairment of its  investment  in Ionica,  a wireless
telecommunications  company, upon the May 22, 1998,  announcement by Ionica that
negotiations  for release of lines of credit  from  existing  providers  of bank
facilities had been  unsuccessful.  The  impairment,  reflecting a write-down to
fair market  value,  was offset,  in part,  by an unrelated  tax  adjustment  of
approximately  $21.5  million.  In the fourth quarter of 1998,  Yorkshire  Power
recognized a $42.1 million after-tax gain on the sale of its generation  assets.
Yorkshire  Electricity  is focusing its main  business on the  distribution  and
supply of electricity  and the supply of natural gas. See Note 2.  Investment in
Yorkshire  Electricity and U.K. Windfall Tax in Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA for summary financial information on Yorkshire Power.

Other foreign investments

      The Company owns other foreign investments  through various  non-regulated
subsidiaries;  however,  at this time, these  investments are not significant to
the Company's consolidated assets or results of operations.

Service Company

      NCS, a wholly-owned  subsidiary of NCE, was incorporated in 1997 under the
laws of the State of Delaware. NCS is the service company for the NCE system and
provides a variety of  administrative,  management,  engineering,  construction,
environmental and support services.  NCS provides its services to the NCE system
generally  at cost,  pursuant  to service  agreements  approved by the SEC under
PUHCA.

Non-Utility Operations

      NC Enterprises, a wholly-owned subsidiary of NCE, was incorporated in 1997
under the laws of the State of Delaware.  NC  Enterprises  was  incorporated  to
serve as a holding company for non-utility  subsidiaries and foreign  operations
of NCE. NC Enterprises currently has the following subsidiaries: NCI, Quixx, UE,
e prime, Natural Fuels,  Planergy,  New Century Cadence and New Century Centrus.
The table presented below provides certain financial  information regarding each
subsidiary of NC Enterprises,  followed by a discussion of the operations of the
subsidiaries.
<TABLE>
<CAPTION>
                                                                            New      New
                                                     Natural               Century  Century
                       NCI    Quixx   UE    e prime   Fuels    Planergy    Cadence  Centrus          
                      -----   -----  ----   -------  ------   ---------    -------- -------
                                                    (in millions)

<S>                  <C>      <C>   <C>     <C>      <C>        <C>         <C>      <C>
Operating revenues   $   -    $14.6 $106.3  $255.4   $ 7.6      $ 9.3       $  -     $ -
Total assets         353.7     88.2   58.5    81.5    10.2       31.4          2.1     0.7
NC Enterprise's Net
 investment at
 12/31/98            349.6     78.0   44.8    27.8     3.5       12.0          1.6     0.8
</TABLE>


      NCI:  NCI was formed in 1997 to hold PSCo's 50%  interest  in  Yorkshire
Power.  For a more detailed discussion refer to "Foreign Investments" above.

      Quixx:  Quixx  was  incorporated  in 1985  under  the laws of the State of
Texas. Quixx's primary business is investing in and developing  cogeneration and
energy-related  projects.  Quixx  also holds  water  rights  and  certain  other
non-utility  assets.  Quixx also finances  sales of heat pumps and markets other
non-utility goods and services.  Quixx currently has the following  wholly-owned
subsidiaries, most of which hold partnership interests in various energy-related
limited partnerships:

      Quixx  Jamaica,  Inc., a  wholly-owned  subsidiary  of Quixx,  holds a 99%
limited  partnership  interest  in KES  Jamaica,  L.P.  which  owned a  facility
consisting of two-oil fired combustion turbines located in Montego


                                       15
<PAGE>
Bay,  Jamaica,  W.I.  This  facility  was  completely  dismantled  in 1998.  The
remaining  1%  general  partnership  interest  is owned by KES  Montego,  Inc. a
wholly-owned  subsidiary  of Quixx.  As of December  31,  1998,  Quixx is in the
process of winding up operations of this subsidiary.

      Quixx Mustang  Station,  Inc., a  wholly-owned  subsidiary  of Quixx,  was
created to hold Quixx's 0.5%, general partnership interest in Denver City Energy
Associates,  L.P., a partnership which owns a 50% interest in Mustang Station, a
488 Mw combined cycle  generating  facility which is scheduled for completion in
1999.  Quixx also holds a 49.5%  limited  partnership  interest  in Denver  City
Energy Associates, L.P., through Quixx Resources, Inc. a wholly-owned subsidiary
of Quixx.

      Quixxlin  Corp, a wholly-owned  subsidiary of Quixx,  holds a 0.5% general
partnership interest in Quixx Linden, L.P., which owns a 23 Mw natural gas fired
cogeneration  facility under construction in Linden, New Jersey. It is estimated
that this facility will be completed in early 1999.  Quixx also directly holds a
49.5% limited partnership interest in Quixx Linden, L.P.

      Quixx Borger Cogen,  Inc., a  wholly-owned  subsidiary  of Quixx,  holds a
0.45% general partnership interest in Borger Energy Associates, L.P., which owns
Blackhawk  Station,  a  cogeneration  plant  located at the  Phillips  Petroleum
Refinery  Complex near Borger,  Texas.  Quixx  Resources,  Inc., a  wholly-owned
subsidiary of Quixx,  holds a 44.55% limited  partnership  interest in this same
partnership.  This  facility  commenced  Phase I electric  operations in October
1998, and is expected to commence Phase II cogeneration operations in 1999.

      Quixx  WPP94,  Inc., a  wholly-owned  subsidiary  of Quixx,  holds a 0.33%
general  partnership  interest  in  Windpower  Partners,   1994  L.P.  Windpower
Partners,  1994 L.P. owns a 35 Mw wind generation  facility in Culberson County,
Texas.  Quixx also  directly  holds a 24.67%  limited  partnership  interest  in
Windpower Partners, 1994 L.P.

      Quixx  Louisville,  L.L.C.,  a  wholly-owned  subsidiary of Quixx,  owns a
facility  consisting of two gas-fired  boilers providing steam to a DuPont plant
in Louisville, Kentucky.

      Quixx Power Services,  Inc., a wholly-owned  subsidiary of Quixx, operates
and maintains certain cogeneration facilities.

      Quixx Resources,  Inc., a wholly-owned subsidiary of Quixx, holds a 44.55%
limited partnership interest in Borger Energy Associates,  L.P., a 49.5% limited
partnership  interest in Denver City Energy Associates,  L.P., and a 99% limited
partnership interest in Quixx WRR, L.P.

      Quixx WRR, L.P., a wholly-owned  subsidiary of Quixx,  holds Quixx's water
rights located in Roberts,  Gray,  Hutchinson and Carson Counties,  Texas. Quixx
holds a 1% general partnership interest and through Quixx Resources,  Inc. a 99%
limited partnership interest in Quixx WRR, L.P.

      Quixx  Carolina,  Inc., a  wholly-owned  subsidiary  of Quixx,  holds a 1%
general  partnership  interest  in  Carolina  Energy  Limited   Partnership,   a
waste-to-energy  cogeneration  facility.  Quixx  also  holds  a  32.33%  limited
partnership interest in this same partnership. In June 1997, Quixx wrote off its
investment  of  approximately  $13.64  million in the  Carolina  Energy  Limited
Partnership  (see Note 3.  Acquisitions  and  Divestitures  in Item 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA).

      Quixx holds a 42.2%  limited  partnership  interest in BCH Energy  Limited
Partnership,  a waste-to-energy  facility, which has declared in bankruptcy near
Fayetteville,  North  Carolina.  In  December  1996,  Quixx wrote off its entire
investment  in  this  project  of   approximately   $16  million  (See  Note  3.
Acquisitions and Divestitures in Item 8. FINANCIAL  STATEMENTS AND SUPPLEMENTARY
DATA).

      UE: UE was  incorporated  in 1985 under the laws of the State of Texas. UE
is  engaged  in   engineering,   design,   construction   management  and  other
miscellaneous services. UE currently has two wholly-owned subsidiaries Universal
Utility  Services  Company and Precision  Resource  Company.  Universal  Utility
Services 

                                       16
<PAGE>
Company provides cooling tower maintenance and repair,  certain other industrial
plant  improvement  services,  and engineered  maintenance of high voltage plant
electric  equipment.  Precision Resource Company provides contract  professional
and technical resources for customers in the energy industrial sectors.

      e prime: e prime was  incorporated  in 1995 under the laws of the State of
Colorado.  e prime provides energy related  products and services which include,
but are not limited to,  electric and gas  brokering,  marketing and trading and
energy  consulting.  In March of 1996, e prime received  authorization  from the
FERC to act as a power marketer.  In September 1996, e prime acquired TOG, a gas
marketing company, with headquarters in Houston and an office in Boston. e prime
and TOG have merged  operations  and together  they provide  value-added  energy
related  products and  services to over 2,200 end use  customers  and  utilities
nationwide.  Additionally,  e prime  currently  owns the following  subsidiaries
(subsidiaries formed, but inactive have been excluded):

      TOP is a small  pipeline  company  which  connects  two  major  interstate
pipelines.

      YGSC owns a 47.5% general partnership interest in Young Storage which owns
and operates an underground gas storage facility in northeastern Colorado.

      e prime also holds a 50% ownership interest in Johnstown  Cogeneration,  a
limited liability company.

      Natural Fuels:  Natural Fuels was  incorporated  in 1990 under the laws of
the  State  of  Colorado.  Natural  Fuels  sells  compressed  natural  gas  as a
transportation fuel to retail markets,  converts vehicles for natural gas usage,
constructs  fueling  facilities,   and  sells  miscellaneous   fueling  facility
equipment.  Natural Fuels has a 50% ownership interest in Natural/Total  Limited
Liability Company,  which owns and operates natural gas fueling stations located
at Total  Petroleum Gas Stations in Colorado.  Natural Fuels has a 25% ownership
interest in  Natural/Peoples  Limited  Liability Company which owns and operates
one natural gas fueling station located in Castle Rock, Colorado.  Additionally,
Natural  Fuels  has  a  67%  ownership   interest   through   Natural/Total   in
Natural/Total/KN  Limited  Partnership,  a  partnership  which owns the  profits
interest in the natural gas fueling stations located at Total Petroleum sites in
the Colorado towns of Grand Junction and Glenwood Springs.

     Planergy:  Planergy,  which was acquired April 1, 1998  (formerly  known as
Falcon Seaboard Energy Services,  Inc.), was incorporated in 1990 under the laws
of the State of Texas.  Planergy  provides  energy  management,  consulting  and
demand side management services to commercial, industrial, utility and municipal
customers.  Planergy  currently  has two  principal  wholly-owned  subsidiaries,
Planergy,  Inc.,  and Planergy  Services,  Inc.  Planergy Inc.  provides  energy
consulting,  energy-efficiency management, conservation programs and mass-market
services.  Planergy Services,  Inc. specializes in industrial energy audits, and
conservation  and  reliability  projects.  It  focuses  on energy  services  for
industrial and large commercial customers.

      New Century  Cadence:  New  Century  Cadence  was  incorporated  in 1997
under the laws of the State of  Colorado.  New Century  Cadence was created to
hold a 1/3 interest in Cadence Network,  LLC, an energy-related  company which
provides energy management and consulting  services,  as well as brokering and
marketing of energy  commodities.  Cadence Network LLC is equally owned by New
Century  Cadence,  Cinergy-Cadence,  Inc. (a subsidiary of Cinergy,  Inc.) and
Progress Holdings, Inc. (a subsidiary of Florida Progress Holdings, Inc.).

      New Century  Centrus:  New  Century  Centrus  was  incorporated  in 1998
under the laws of the State of  Colorado.  New Century  Centrus was created in
1998 to hold a 1/3 interest in Centrus,  LLP.  Centrus LLP was  established to
develop  products  and  services to meet the  residential  and small  business
customers  increasing demands for a "one-bill" utility and  telecommunications
approach.   Centrus   LLP  is   equally   owned   by  New   Century   Centrus,
Cinergy-Centrus,  Inc. (a subsidiary of Cinergy,  Inc.) and  Progress-Centrus,
Inc. (a subsidiary of Florida Progress Holdings, Inc.).

                                       17
<PAGE>

Employees

The number of employees in the NCE system at December 31, 1998,  is presented in
the table below. Of the employees listed below, approximately 2,817, or 45%, are
covered under collective  bargaining  agreements.  For further information,  see
Note 10.  Commitments  and  Contingencies - Union Contracts in Item 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.

                             NCE System Employees
                             --------------------

                        PSCo                    3,148
                        SPS                     1,345
                        NCS                     1,229
                        Cheyenne                   97
                        NC Enterprises            490
                                                 ----
                          Total                 6,309
                                                =====

                                       18
<PAGE>


                Consolidated Electric Operating Statistics (NCE)

                                                 Year Ended December 31,
                                           1998          1997          1996  
                                           ----          ----          ----
Energy Generated, Received & Sold
 (Thousands of Kwh):
Net Generated:
  Steam, Fossil..................       33,960,532    33,278,721    32,116,961
  Combustion Turbine.............        8,211,645     6,595,055     6,351,117
  Pumped Storage.................          222,175       193,834       178,205
  Hydro..........................          206,287       224,898       197,660
                                           -------       -------      --------
    Total Net Generation.........       42,600,639    40,292,508    38,843,943
  Energy Used for Pumping........          343,393       300,649       276,983
                                           -------       -------      --------
    Total Net System Input.......       42,257,246    39,991,859    38,566,960
  Purchased Power and Net
    Interchange .................       17,066,272    11,985,546    10,295,074 
                                        ----------    ----------    ----------
    Total System Input...........       59,323,518    51,977,405    48,862,034
  Used by Company................           75,303        77,734        88,304
  Other (1)......................        1,739,911     1,677,085     1,352,843
                                        ---------      ---------     ---------
    Total Energy Sold............       57,508,304    50,222,586    47,420,887
                                        ==========    ==========    ==========

Electric Sales (Thousands of Kwh):
  Residential....................       10,136,581     9,730,390     9,530,275
  Commercial.....................       14,135,012    13,223,936    12,832,091
  Industrial.....................       13,530,830    13,789,814    13,729,777
  Public Authorities.............          840,611       773,656       780,251
  Wholesale - Regulated..........       15,948,594    11,494,742    10,129,788
  Wholesale Energy Services -
    Non-Regulated                        2,916,676     1,210,048       418,705
                                         ---------     ---------       -------
    Total Energy Sold............       57,508,304    50,222,586    47,420,887
                                        ==========    ==========    ==========

Number of Customers at End
 of Period:
  Residential....................       1,313,075      1,285,307     1,269,322
  Commercial.....................         190,812        185,911       183,928
  Industrial.....................          12,956         12,888        12,830
  Public Authorities.............          83,775         81,994        80,486
  Wholesale - Regulated..........             317            279           235
  Wholesale Energy Services - 
    Non-Regulated ...............              27             12             6
                                           ------       --------       -------
      Total Customers............       1,600,962      1,566,391     1,546,807
                                        =========      =========     =========

Electric Revenues
 (Thousands of Dollars):
  Residential....................      $  720,841     $  692,886    $  682,966
  Commercial.....................         774,521        735,636       738,266
  Industrial.....................         524,645        532,276       521,843
  Public Authorities.............          63,249         58,235        55,608
  Wholesale - Regulated..........         532,431        412,088       376,315
  Wholesale Energy Services - 
    Non-Regulated ...............          74,518         22,861         7,806
  Other Electric Revenues........           7,281         19,377        33,735
                                          -------        -------      --------
    Total Electric Revenues......      $2,697,486     $2,473,359    $2,416,539
                                       ==========     ==========    ==========

Average Annual Kwh Sales per 
  Residential Customer                      7,818          7,613         7,508
Average Annual Revenue per
  Residential Customer                    $555.94        $542.12       $538.06
Average Residential Revenue 
  per Kwh                                 $0.0711        $0.0712       $0.0717
Average Commercial Revenue
  per Kwh                                 $0.0548        $0.0556       $0.0575
Average Industrial Revenue
  per Kwh                                 $0.0388        $0.0386       $0.0380
Average Wholesale - Regulated
 Revenue per Kwh                          $0.0334        $0.0359       $0.0371
-------------------------

(1) Primarily includes net distribution and transmission line losses.


                                       19
<PAGE>


              Consolidated Electric Operating Statistics (PSCo)

                                                Year Ended December 31,
                                            1998        1997(1)       1996(1)   
                                         --------      ---------     ---------

Energy Generated, Received & Sold
 (Thousands of Kwh):
Net Generated:
  Steam, Fossil..................       17,939,109    17,586,343    17,099,890
  Combustion Turbine.............          636,455       154,019       121,079
  Pumped Storage.................          222,175       193,834       178,205
  Hydro..........................          206,287       224,898       197,660
                                           -------       -------      --------
    Total Net Generation.........       19,004,026    18,159,094    17,596,834
  Energy Used for Pumping........          343,393       300,649       276,983
                                           -------       -------      --------
    Total Net System Input.......       18,660,633    17,858,445    17,319,851
  Purchased Power and Net
   Interchange                          13,544,768    11,470,535    10,349,298
                                        ----------    ----------    ----------
    Total System Input...........       32,205,401    29,328,980    27,669,149
  Used by Company................           45,857        45,492        57,603
  Other (2)......................        1,707,914     1,659,347     1,352,843
                                         ---------     ---------     ---------
    Total Energy Sold............       30,451,630    27,624,141    26,258,703
                                        ==========    ==========    ==========
Electric Sales (Thousands of Kwh):
  Residential....................        6,760,764     6,662,679     6,606,601
  Commercial.....................       10,778,116    10,109,615     9,880,502
  Industrial.....................        4,831,965     5,511,722     5,791,608
  Public Authorities.............          206,985       189,141       200,070
  Wholesale - Regulated .........        7,873,800     4,490,895     3,361,217
  Wholesale Energy Services -
    Non-Regulated                                -       660,089       418,705
                                           -------      --------       -------
    Total Energy Sold............       30,451,630    27,624,141    26,258,703
                                        ==========   ===========    ==========
Number of Customers at End
 of Period:
  Residential....................          970,217       947,017       959,249
  Commercial.....................          127,386       123,839       126,426
  Industrial.....................              325           330           380
  Public Authorities.............           82,764        81,023        79,725
  Wholesale - Regulated..........               50            33            26
  Wholesale Energy Services -
    Non-Regulated                                -             -             6
                                           -------      --------       -------
      Total Customers............        1,180,742     1,152,242     1,165,812
                                         =========     =========     =========
Electric Revenues (Thousands
 of Dollars):
  Residential....................       $  514,235    $  503,727    $  507,233
  Commercial.....................          592,045       563,439       571,536
  Industrial.....................          207,885       228,925       249,774
  Public Authorities.............           29,546        26,778        25,798
  Wholesale - Regulated..........          250,555       145,561       120,478
  Wholesale Energy Services -
    Non-Regulated                                -        10,448         7,806
  Other Electric Revenues........           41,307         6,318         6,365
                                           -------       -------      --------
    Total Electric Revenues......       $1,635,573    $1,485,196    $1,488,990
                                        ==========    ==========    ==========

Average Annual Kwh Sales per
 Residential Customer                        7,071         6,875         6,965
Average Annual Revenue per
 Residential Customer                      $537.80       $519.08       $534.79
Average Residential Revenue
 per Kwh                                   $0.0761       $0.0756       $0.0768
Average Commercial Revenue
 per Kwh                                   $0.0549       $0.0557       $0.0578
Average Industrial Revenue
 per Kwh                                   $0.0430       $0.0415       $0.0431
Average Wholesale - Regulated
 Revenue per Kwh                           $0.0318       $0.0324       $0.0358
-------------------------

(1)The 1996 and 1997  information  through  July 31,  1997  include  information
   related to Cheyenne,  WGI and e prime. These subsidiaries were transferred to
   NCE, effective August 1, 1997, in connection with the Merger.
(2) Primarily includes net distribution and transmission line losses.


                                       20
<PAGE>


               Consolidated Electric Operating Statistics (SPS)

<TABLE>
<CAPTION>
                                          Year ended            September 1-   Year ended
                                          December 31,          December 31,    August 31,
                                         1998        1997          1996           1996 
                                         ----        ----          ----           ---- 
<S>                                   <C>         <C>           <C>           <C>
Energy Generated, Received & Sold
 (Thousands of Kwh):
Net Generated:
  Steam, Fossil..................     16,021,423   15,692,378    4,994,294     14,895,995
  Combustion Turbine.............      7,575,190    6,441,036    1,747,556      6,186,155   
                                       ---------    ---------    ---------     ----------
    Total Net Generation.........     23,596,613   22,133,414    6,741,850     21,082,150
Purchased Power and Net
 Interchange                            (276,031)    (402,504)     332,644      1,226,976
                                        --------     --------      -------      ---------
    Total System Input...........     23,320,582   21,730,910    7,074,494     22,309,126
  Used by Company and Other......         28,606       31,862      438,190      1,420,687
                                          ------       ------      -------      ---------
  Total Energy Sold..............     23,291,976   21,699,048    6,636,304     20,888,439
                                      ==========   ==========    =========     ========== 

Electric Sales (Thousands of Kwh):
  Residential....................      3,169,433    2,986,815      891,695      2,868,982
  Commercial.....................      3,051,258    2,990,488      989,580      2,886,807
  Industrial.....................      8,367,012    8,135,280    2,661,642      7,813,433
  Public Authorities.............        629,478      582,618      190,439        571,579
  Wholesale - Regulated .........      8,074,795    7,003,847    1,902,948      6,747,638 
                                       ---------    ---------    ---------      ---------
    Total Energy Sold............     23,291,976   21,699,048    6,636,304     20,888,439     
                                      ==========   ==========    =========     ==========

Number of Customers at End of Period:
  Residential....................        312,539      308,439      310,073        308,554
  Commercial.....................         58,535       57,298       57,502         57,204
  Industrial.....................         12,622       12,549       12,450         12,418
  Public Authorities.............            824          785          761            750
  Wholesale - Regulated .........            267          246          209            197
                                         -------      -------     --------        -------
      Total Customers ...........        384,787      379,317      380,995        379,123
                                         =======      =======     ========        =======

Electric Revenues (Thousands of Dollars):
  Residential....................       $194,535     $184,372     $ 54,109       $172,214
  Commercial.....................        168,731      166,572       54,033        154,653
  Industrial.....................        305,987      298,754       95,494        274,117
  Public Authorities.............         33,207       31,249       10,090         29,220
  Wholesale - Regulated..........        281,877      266,527       71,663        252,145
  Other Electric Revenues (1)....        (33,150)      12,881       10,190         17,048
                                        --------      -------     --------        -------
    Total Electric Revenues......       $951,187     $960,355     $295,579       $899,397
                                        ========     ========     ========       ========

Average Kwh Sales per 
  Residential Customer                     10,212       9,669        2,876          9,298
Average Revenue per
  Residential Customer                    $626.80     $596.85      $174.50        $558.13
Average Residential 
  Revenue per Kwh                         $0.0614     $0.0617      $0.0607        $0.0600
Average Commercial
 Revenue per Kwh                          $0.0553     $0.0557      $0.0546        $0.0536
Average Industrial
 Revenue per Kwh                          $0.0366     $0.0367      $0.0359        $0.0351
Average Wholesale -
  Regulated Revenue per Kwh               $0.0349     $0.0381      $0.0377        $0.0374
-------------------------
</TABLE>

(1)Other electric  revenues is negative in 1998 primarily due to the recognition
   of lower deferred fuel revenues  resulting from cost reductions for fuel used
   in generation.


                                       21
<PAGE>


              Consolidated Gas Operating Statistics (NCE and PSCo)

<TABLE>
<CAPTION>
                                           Year Ended December 31,           
                                         NCE           NCE & PSCo        PSCo 
                                    1998    1997          1996        1998    1997 (3) 
                                  ------- -------        -------    -------  ---------
<S>                                <C>        <C>        <C>        <C>      <C>
Natural Gas Purchased and Sold
 (Thousands of Dth):
  Purchased for Utility 
    Operations                     141,887    151,687    147,298    137,402   150,163
  Purchased for Non-regulated
     Gas Marketing (1)              72,651     61,248     22,807          -    35,189      
                                   -------    -------    -------     ------   ------
      Total Purchased............   214,538   212,935    170,105    137,402   185,352
  Company Use....................     1,411     1,213        520      1,397     1,211
  Other (2)......................    14,038    17,236     10,000     11,608    15,461
                                    -------   -------    -------    -------  --------
    Total Gas Sold...............   199,089   194,486    159,585    124,397   168,680
                                    =======   =======    =======    =======  ========

Gas Deliveries (Thousands of Dth):
  Residential....................    84,710    87,386     86,102     82,239    86,634
  Commercial.....................    42,352    47,471     51,655     40,191    46,857
  Non-regulated Gas Marketing (1)    70,599    59,629     21,828          -    35,189           
                                     ------    ------     ------      -----    ------
      Total Gas Sold.............   197,661   194,486    159,585    122,430   168,680
  Transportation.................   107,423    93,271     90,304     90,746    86,831
  Other Gas Deliveries...........         -        73      1,141          -        73
                                    -------   -------    -------    -------  --------
    Total Deliveries.............   305,084   287,830    251,030    213,176   255,584
                                    =======   =======    =======    =======  ========

Number of Customers at End of
 Period:
  Residential....................   958,693   928,134    902,078    932,829   902,759
  Commercial.....................    93,549    91,937     90,761     90,858    89,229
  Non-regulated Gas Marketing (1)     2,043     2,190      1,255          -         -
                                      -----     -----      -----       ----      ----
    Total........................ 1,054,285 1,022,261    994,094  1,023,687   991,988
  Transportation and Other.......     2,738     2,215      1,794      2,731     2,205
                                    -------    -------   -------    -------  --------
    Total Customers.............. 1,057,023 1,024,476    995,888  1,026,418   994,193
                                  ========= =========    =======  =========   =======

Gas Revenues (Thousands of Dollars):
  Residential.................... $ 434,503 $ 410,406   $362,481  $ 423,875  $407,004
  Commercial.....................   182,506   186,248    176,328    175,291   184,192
  Non-regulated Gas Marketing (1)   180,641   172,524     64,389          -    99,273
  Transportation.................    34,990    32,646     28,549     34,472    32,465
  Other Gas Revenues.............     8,636    14,772      8,750      6,426    10,157
                                    -------   -------   --------    -------  --------
      Total Gas Revenues......... $ 841,276  $816,596   $640,497  $ 640,064  $733,091         
                                  =========  ========   ========  =========  ========

Average Annual Dth Sales per
 Residential Customer ...........     89.99     95.51      97.14      89.81     94.70
Average Annual Revenue per
 Residential Customer ...........   $461.60   $448.55    $408.93    $462.90   $444.91
Average  Revenue per Dekatherm:
  Residential ...................    $5.129    $4.696     $4.210     $5.154    $4.698
  Commercial ....................    $4.309    $3.923     $3.414     $4.361    $3.931
  Transportation ................    $0.326    $0.350     $0.316     $0.380    $0.374
-------------------------
</TABLE>

(1) Includes purchases and sales by e prime and TOG.
(2)Primarily includes  distribution and transmission line losses and net changes
   to gas in storage.
(3)Information  through July 31, 1997 includes  information related to Cheyenne,
   WGI, Natural Fuels and e prime.  These  subsidiaries were transferred to NCE,
   effective August 31, 1997, in connection with the Merger.


                                       22
<PAGE>



Item 2.  Properties

PSCo Electric Generation Property

      The PSCo electric generating stations expected to be available at the time
of the anticipated 1999 net firm system peak demand during the summer season are
as follows:
<TABLE>
<CAPTION>
                                                      Net Dependable
                                                        Capacity
                                         Installed        (Mw)
                                           Gross    at Time of Anticipated    Major
            Name of Station              Capacity    1999 Net Firm System      Fuel
             and Location                   (Mw)       Peak Demand*          Source
             ------------                   ----       ------------          ------
<S>                                        <C>            <C>               <C>
Steam:
    Arapahoe - Denver..................      262.00         246.00            Coal
    Cameo - near Grand Junction .......       77.00          72.70            Coal
    Cherokee - Denver..................      779.00         717.00            Coal
    Comanche - near Pueblo.............      725.00         660.00            Coal
    Craig - near Craig.................       86.90 (a)      83.20            Coal
    Hayden - near Hayden...............      259.00 (b)     237.00            Coal
    Pawnee - near Brush................      530.00         511.00            Coal
    Valmont - near Boulder (Unit 5)....      188.00         178.00            Coal
    Zuni - Denver......................      115.00        107.00           Gas/Oil
                                            -------        ------
      Total............................    3,021.90       2,811.90

Fort St. Vrain Combustion Turbines 
 - near Platteville ...................      243.45         226.75            Gas
Combustion turbines (6 units-various
  locations) ..........................      209.00         171.00            Gas
Hydro (14 units-various locations) (c).       53.35          36.55 (d)        Hydro
Cabin Creek Pumped Storage-near
  Georgetown ..........................      324.00 (e)     162.00            Hydro
      Total............................    3,851.70       3,408.20
                                           ========       ========
----------------
</TABLE>

* A measure of the unit  capability  planned to be  available at the time of the
system peak load net of seasonal  reductions in unit  capability due to weather,
stream flow, fuel availability and station  housepower,  including  requirements
for air and water quality control equipment.

(a)The gross  maximum  capability  of Craig  Units No. 1 and No. 2 is 894 Mw, of
   which the Company has a 9.72% undivided ownership interest.

(b)The gross  maximum  capability  of Hayden  Units No. 1 and No. 2 is 202.01 Mw
   and  285.96  Mw,  respectively,  of which the  Company  has a 75.5% and 37.4%
   undivided ownership interest, respectively.

(c)Includes one station (two units) not owned by the Company but operated  under
   contract.

(d)Seasonal  Hydro  Plant net  dependable  capabilities  are based upon  average
   water conditions and limitations for each particular  season.  The individual
   plant seasonal  capabilities are sometimes  limited by less than design water
   flow.

(e) Capability at maximum load.

      Fort St. Vrain,  PSCo's only former  nuclear  generating  station,  ceased
operations   on  August  29,  1989,   and  on  March  22,  1996,   the  physical
decommissioning of the station was completed. The initial phase of the repowered
gas fired  combined  cycle steam electric  generating  station began  commercial
operations on May 1, 1996. Phase 2 is scheduled to begin operations in May 1999.
(see Note 10. Commitments and Contingencies in Item 8. FINANCIAL  STATEMENTS AND
SUPPLEMENTARY DATA).


                                       23
<PAGE>


SPS Electric Generation Property

      The SPS electric  generating stations expected to be available at the time
of the anticipated 1999 net firm system peak demand during the summer season are
as follows:

<TABLE>
<CAPTION>
                                                      Net Dependable
                                                        Capacity
                                         Installed        (Mw)
                                           Gross    at Time of Anticipated    Major
            Name of Station              Capacity    1999 Net Firm System      Fuel
             and Location                   (Mw)       Peak Demand*          Source
             ------------                   ----       ------------          ------

<S>                                        <C>            <C>             <C>
Steam:
    Harrington - near Amarillo, TX.....    1,137.00       1,066.00           Coal
    Tolk - near Muleshoe, TX ..........    1,130.00       1,080.00           Coal
    Jones - near Lubbock, TX...........      512.00         486.00            Gas
    Plant X - near Earth, TX...........      463.00         442.00            Gas
    Nichols - near Amarillo, TX........      479.00         457.00            Gas
    Cunningham - near Hobbs, NM........      281.00         267.00            Gas
    Maddox - near Hobbs, NM............      123.00         118.00            Gas
    CZ-2 - near Pampa, TX..............       26.00          26.00        Purch. steam
    Moore County - near Sunray, TX.....       51.00          48.00            Gas
                                            -------         ------
      Total............................    4,202.00       3,990.00

Gas Turbine:
    Carlsbad - near Carlsbad, NM.......       16.00          16.00            Gas
    CZ-1 - near Pampa, TX..............       13.00          13.00        Hot nitrogen
    Maddox - near Hobbs, NM............       76.00          76.00            Gas
    Riverview - near Borger, TX........       25.00          25.00            Gas
    Cunningham - near Hobbs, NM........      245.00         231.00            Gas

Diesel Engine (1 unit) - Tucumcari, NM.       15.00          15.00           Diesel
                                            -------        -------
      Total............................     4,592.00      4,366.00
                                            ========      ========

----------------
</TABLE>

* A measure of the unit  capability  planned to be  available at the time of the
system peak load net of seasonal  reductions in unit  capability due to weather,
stream flow, fuel availability and station  housepower,  including  requirements
for air and water quality control equipment.

Electric Transmission Property

      PSCo:  On December  31,  1998,  PSCo's  transmission  system  consisted of
approximately 112 circuit miles of 345 Kv overhead lines; 1,936 circuit miles of
230 Kv overhead lines; 15 circuit miles of 230 Kv underground  lines; 65 circuit
miles of 138 Kv overhead lines; 1,002 circuit miles of 115 Kv overhead lines; 22
circuit miles of 115 Kv underground  lines;  330 circuit miles of 69 Kv overhead
lines;  137 circuit miles of 44 Kv overhead  lines;  and 1 circuit mile of 44 Kv
underground  lines.  PSCo jointly owns with another  utility  approximately  342
circuit miles of 345 Kv overhead  lines and 359 miles of 230 Kv overhead  lines,
of which PSCo's share is 112 miles and 147 miles, respectively, which shares are
included in the amounts listed above.

      SPS:  On  December  31,  1998,  SPS's  transmission  system  consisted  of
approximately 319 circuit miles of 345 Kv overhead lines; 1,598 circuit miles of
230 Kv overhead  lines;  2,579  circuit  miles of 115 Kv overhead  lines;  1,768
circuit  miles of 69 Kv overhead  lines;  1 circuit  mile of 115 Kv  underground
line; and 5 circuit miles of 69 Kv underground lines.


                                       24
<PAGE>


Interconnections

      PSCo: PSCo's  transmission  facilities are located wholly within Colorado.
The system is  interconnected  with the systems of the following  utilities with
which PSCo has major firm  purchase  power  contracts;  capacity  and energy are
provided primarily by generating sources in the locations indicated:

      Utility                                          Location
      -------                                          --------

      Basin Electric Power Cooperative................ Southeast Wyoming
      PacifiCorp ..................................... West & Northwest U.S.
                                                       Northwest Colorado
      Platte River Power Authority.................... Northcentral Colorado
      Tri-State....................................... Southeast Wyoming and
                                                       Northwest Colorado

      PSCo has wheeling  agreements with the above, and with other utilities and
public  power  agencies,  which are  utilized to provide  capacity and energy to
PSCo's system from time to time.

      PSCo is a member  of the  WSCC,  an  interstate  network  of  transmission
facilities which are owned by public entities and investor-owned utilities. WSCC
is the regional reliability coordinating  organization for member electric power
systems  in the  western  United  States.  PSCo is also a member of the  Western
Systems  Power Pool which is an economic  power pool that operates an electronic
bulletin board and acts as a  clearinghouse  for bulk power  transactions  among
over 90 member utilities and marketers.

      SPS: SPS's  transmission  system is located in parts of Texas, New Mexico,
Oklahoma  and  Kansas.  SPS is  connected  with  utilities  west of its  service
territory  through  two  HVDC  interconnections  in  New  Mexico  and  has  four
interconnecting   transmission   lines  with   utilities   of  the  SPP.   These
interconnections are described in the following table:

      Utility                                           Location
      -------                                           --------

      El Paso Electric Company and Texas-New
           Mexico Power Company ........................Near Artesia, NM
      Public Service Company of New Mexico .............Near Clovis, NM
      Public Service Company of Oklahoma................Near Oklaunion, TX
                                                         and near Elk City, OK
      West Texas Utilities..............................Near Shamrock, TX
                                                         and near Groom, TX
      WestPlains Energy.................................Near Guymon, OK

      SPS is a member of the SPP.  Transactions with the SPP are handled through
interties near Elk City and Guymon,  OK, and Shamrock and  Oklaunion,  TX. These
interties  allow the  Company to sell or to  purchase  energy  from the  eastern
electrical grid. HVDC interconnections link SPS with the western electrical grid
of the United States. SPS purchases and sells energy through HVDC interties near
Artesia and Clovis, New Mexico.

      SPS is a  participant  in the FERC  approved  WSPP bulk power  market This
arrangement provides for short-term energy and capacity exchanges,  transmission
services,  flexible pricing,  and electronic bulletin board posting of available
power and energy.

     After further evaluation during 1998, PSCo and SPS recently announced plans
to interconnect  their systems and build additional  transmission  facilities to
alleviate  transmission  constraints,  increase  reliability  and provide energy
supply  alternatives in anticipation of competition.  This expansion is expected
to be  completed  in a phased  approach  and  will  require  various  regulatory
approvals.  This first  phase is 230 miles of 345 Kv line from  Amarillo,  TX to
Holcomb,  KS,  and is  expected  to be  completed  in 2001,  pending  regulatory
approvals.  The second  phase is 100 miles of 345 Kv line from Holcomb to Lamar,
CO and a high voltage direct current



                                       25
<PAGE>

conversion facility,  which would interconnect the PSCo and SPS systems, as well
as the  WSCC and SPP  regional  transmission  grids.  This  second  phase is now
scheduled  for   completion  in  2004.   While  not  directly   related  to  the
interconnection of the PSCo and SPS systems,  the third phase of this project is
approximately  275 miles of 345 Kv line from Amarillo to Oklahoma  City, OK. The
estimated completion of this line is not expected before 2006.

Electric Distribution Property

      The distribution system of the Company's electric subsidiaries consists of
both  overhead   lines  and   underground   distribution   systems.   PSCo  owns
approximately  210  substations  (30 of  which  are  jointly  owned)  having  an
aggregate  transformer  capacity of  19,390,000  Kva, of which  4,141,000 Kva is
step-up transformer capacity at generating stations.  SPS owns approximately 316
substations having an aggregate transformer capacity of 20,531,310 Kva, of which
5,951,000 Kva is step-up transformer capacity.

Gas Property

      The gas property of PSCo at December 31, 1998,  consisted of approximately
16,048 miles of  distribution  mains  ranging in size from 0.50 to 30 inches and
related equipment.  The Denver  distribution  system consisted of 9,093 miles of
mains.  Pressures  in the  system  are  varied  to meet  load  requirements  and
individual house regulators are installed on each customer's premises to provide
uniform flow of gas to appliances.  PSCo also owns and operates four gas storage
facilities.

Other Property

      PSCo's steam  heating  property at December  31,  1998,  consisted of 10.5
miles of  transmission,  distribution  and service lines in the central business
district of Denver, CO including a steam  transmission line connecting the steam
heating  system with Zuni.  Steam is supplied  from boilers  installed at PSCo's
Denver  Steam Plant which has a capability  of 295,000  pounds of steam per hour
under  sustained  load and an  additional  300,000  pounds  of steam per hour is
available from Zuni on a peak demand basis. An additional 80,000 pounds per hour
can be supplied as  emergency  backup  through  operation of a leased steam heat
boiler  housed at the State of  Colorado.  PSCo also  owns  service  and  office
facilities in Denver and other communities  strategically located throughout its
service territory.

      As of December 31, 1998,  PSCo has installed  8,500 tons of mechanical and
iced storage capacity.  Approximately 3,200 feet of piping has been installed to
provide central chilled water service to the Downtown Denver area.

Property of Subsidiaries

      Unregulated  subsidiary  property is  approximately  1% of the total net
book value of the  properties  of the  Company and  consolidated  subsidiaries
combined.  1480 Welton, Inc. owns two buildings that are used by PSCo.

Character of Ownership

      The steam  electric  generating  stations,  the majority of major electric
substations  owned by the Company and its subsidiaries are on land owned in fee.
Approximately  half of the  compressor  stations  and a  limited  number of town
border and meter  stations  are also on land owned in fee. The  remaining  major
electric  substations,  compressor  stations and the  majority of gas  regulator
stations  and town border and meter  stations  are wholly or  partially  on land
leased from others or on or along public highways or on streets or public places
within incorporated towns and cities (under franchises or other rights).  PSCo's
Cabin Creek  Pumped  Storage  Hydroelectric  Generating  Station,  its  Shoshone
Hydroelectric  Generating Station and a portion of the related intake tunnel are
located on public lands of the United States.  As to substantially  all property
on or across public lands of the United States,  the Company or its subsidiaries
hold licenses or permits issued by appropriate  Federal agencies or departments.
The Leyden gas storage  facility  is located  largely on leased  property  under
leases expiring December 31, 2040. The Company and its utility subsidiaries have
the power of eminent domain 


                                       26
<PAGE>

pursuant to State law to acquire property for their electric and gas facilities.
The electric and gas transmission  and distribution  facilities are for the most
part  located  on land  owned by the  Company or its  subsidiaries  pursuant  to
easements  obtained  from  the  record  holders  of  title  or are over or under
streets,  public  highways  or other  public  places and on public  lands  under
franchises or other rights. The water rights of the Company and its subsidiaries
are owned subject to divestment to the extent of any abandonment thereof.

      Substantially  all of the utility plant and other physical  property owned
by the Company's utility  subsidiaries is subject to the liens of the respective
indentures securing the mortgage bonds of the Company's utility subsidiaries.

Item 3.  Legal Proceedings

      See  Note  9.   Regulatory   Matters  and  Note  10.   Commitments   and
Contingencies in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Item 4.  Submission of Matters to a Vote of Security Holders

      NCE:  None.
      PSCo: Omitted pursuant to General Instruction I(2)(c).
      SPS:  Omitted pursuant to General Instruction I(2)(c).

                                   PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

      The Company's  common stock,  $1.00 par value per share,  is listed on the
New York  Stock  Exchange.  On August 1,  1997,  following  the  receipt  of all
required State and Federal regulatory  approvals,  PSCo and SPS combined to form
NCE with the  result  that the  common  shareholders  of PSCo and SPS became the
common  shareholders of NCE. Pursuant to the Merger Agreement,  each outstanding
share of PSCo  common  stock,  par  value  $5.00 per  share,  was  canceled  and
converted into one share of NCE common stock and each  outstanding  share of SPS
common stock, $1.00 par value per share, was canceled and converted into 0.95 of
one share of NCE common  stock.  Prior to the Merger,  PSCo and SPS common stock
was listed on the New York,  Chicago and Pacific Stock Exchanges.  The following
table sets forth for the periods  indicated the dividends  declared per share of
common  stock  and the high  and low  sale  prices  of the  common  stock on the
consolidated  tape as reported by The Wall Street  Journal for NCE, PSCo and SPS
in 1998 and 1997.

                                                 Dividends        Price Range
                  NCE                             Declared      High       Low
                  ---                             --------      ----       ---
1998
    First Quarter................................   $ 0.58  $51 3/16   $44 1/2
    Second Quarter...............................     0.58    50 3/4   44 5/16
    Third Quarter................................     0.58   49 3/16    41 5/8
    Fourth Quarter...............................     0.58    52 1/4    45 1/2
                                                   -------
                                                    $ 2.32

1997
    Third Quarter (from August 1, 1997).......... $   0.58  $43 3/16    $   39
    Fourth Quarter...............................     0.58    49 5/8    40 1/4
                                                  --------
                                                    $ 1.16


                                       27
<PAGE>


                                                 Dividends        Price Range
                 PSCo                             Declared      High       Low
                 ----                             --------      ----       ---
1997
    First Quarter................................   $0.525   $40 1/8   $38 1/4
    Second Quarter...............................    0.525    41 3/4    37 3/4
    Third Quarter (to August 1, 1997) (1)........    0.115   42 3/16    40 1/8
                                                   -------
                                                    $1.165
                  SPS
1997
    First Quarter................................   $ 0.55   $37 1/8   $35 3/4
    Second Quarter...............................     0.55    39 1/2    37 3/8
    Third Quarter (to August 1, 1997) (2)........     0.46    40 1/8    37 5/8
                                                   -------
                                                    $ 1.56

(1)A partial dividend payable to shareholders  covering the period July 12, 1997
   through July 31, 1997, the day prior to the Merger  effective date,  based on
   the quarterly  dividend rate of $0.525,  but pro-rated for the number of days
   in the interim period.
(2)A partial dividend  payable to shareholders  covering the period May 16, 1997
   through July 31, 1997, the day prior to the Merger  effective date,  based on
   the quarterly dividend rate of $0.55, but pro-rated for the number of days in
   the interim period.

      At December 31, 1998,  the book value of the  Company's  common equity was
$22.84 per share.  At March 24, 1999,  there were 73,000 holders of record of
the Company's common stock and the market price of the stock was $38 11/16.  The
Company sold 5.9 million  shares of common  stock in December  1997 and sold 2.5
million  shares in November  1998. See NOTE 4. CAPITAL STOCK for a discussion of
the shareholders' rights plan.

      The dividend level is dependent upon the Company's  results of operations,
financial position and other factors and is evaluated  quarterly by the Board of
Directors.  See  Item 7.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  Of  FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (NCE).


                                       28
<PAGE>


Item 6.  Selected Financial Data (NCE)

      The  following  selected  consolidated  financial  data  should be read in
conjunction  with the  consolidated  financial  statements and the  management's
discussion  and  analysis  of  financial  condition  and  results of  operations
appearing  elsewhere herein.  The NCE selected  financial data for 1996 has been
prepared from the  combination of the historical  information of PSCo and SPS as
of and for the year  ended  December  31,  1996.  The  1995  and  1994  selected
financial data has been prepared from the combination of PSCo  information as of
and for the years ended  December 31, 1995 and 1994 with the SPS  information as
of and for the years ending August 31, 1995 and 1994.

<TABLE>
<CAPTION>
                                                 Year ended December 31,      
                                      1998         1997         1996         1995         1994       
                                      ----         ----         ----         ----         ---- 
                                        (In thousands, except per share data & ratio)

<S>                               <C>          <C>          <C>          <C>          <C>
NCE                                   
Operating revenues:
   Electric..................     $ 2,697,486  $ 2,473,359  $ 2,416,539  $ 2,283,179  $ 2,243,284
   Gas.......................         841,276      816,596      640,497      624,585      624,922
   Other.....................          72,143       52,570       39,998       54,444       42,092
                                      -------      -------      -------       ------       ------
      Total..................       3,610,905    3,342,525    3,097,034    2,962,208    2,910,298
Total operating expenses.....       2,960,404    2,713,300    2,461,451    2,345,264    2,413,704
Operating income.............         650,501      629,225      635,583      616,944      496,594
Income before extraordinary
  item ......................         341,957      261,487      272,341      281,492      255,545
Extraordinary item - U.K. 
  windfall tax ..............               -     (110,565)           -            -            -
Net income...................         341,957      150,922      272,341      281,492      255,545
Per share data applicable to
  common stock (a):
  Basic earnings per share (c)          $3.06        $2.50        $2.64        $2.77        $2.54
  Diluted earnings per share (c)        $3.05        $2.50        $2.64        $2.77        $2.54
  Dividends declared (b)....            $2.32        $2.53        $2.18        $2.15        $2.13
Rate of return earned on 
 average common equity
  (income before extraordinary
   item to common) .........            13.8%        11.6%        12.8%        14.0%        13.3%
Total assets.................      $7,671,964   $7,321,666   $6,617,442   $6,260,794   $6,027,106
Total construction expenditures       608,972      475,497      454,968      380,407      409,485
Total common equity..........       2,614,827    2,357,387    2,170,040    2,064,397    1,963,654
Preferred stock of subsidiaries:
  Not subject to mandatory
   redemption ..............                -      140,002      140,008      212,688      212,688
  Subject to mandatory 
   redemption at par
   (including amounts due
    within one year) .......                -       41,829       42,489       43,865       45,241
PSCo and SPS obligated 
  mandatorily redeemable
  preferred securities......          294,000      100,000      100,000            -            -
Long-term debt of subsidiaries
   (including amounts due
    within one year) .......        2,343,710    2,245,424    2,050,189    1,854,737    1,703,808
Notes payable & commercial
 paper .....................          524,394      588,343      298,561      288,050      339,794

-----------------
</TABLE>

(a)Earnings  per  share are based on the  weighted  average  number of shares of
   common stock outstanding.
(b)The 1997 amount  includes  dividends  declared by PSCo and SPS for the period
   January 1, 1997 through July 31, 1997 and  dividends  declared by NCE for the
   period  August 1, 1997  through  December  31,  1997.  See Item 5. Market for
   Registrant's Common Equity and Related Stockholder Matters.
(c)The 1997 amounts are before the $1.06  extraordinary  loss per share  related
   to the U.K. windfall tax.


                                       29
<PAGE>

<TABLE>
<CAPTION>

                                                 Year ended December 31,      
                                       1998(d)        1997 (e)       1996 (e)       1995 (e)     1994 (e)
                                       -------        --------       --------       --------     --------
PSCo                                  (In thousands, except per share data & ratio)

<S>                                 <C>            <C>            <C>            <C>            <C>
Operating revenues:
   Electric..................       $1,635,573     $1,485,196     $1,488,990     $1,449,096     $1,399,836
   Gas.......................          640,064        733,091        640,497        624,585        624,922
   Other.....................            8,449         11,356          7,951          7,010          7,517
                                       -------         ------          -----         ------         ------
      Total..................        2,284,086      2,229,643      2,137,438      2,080,691      2,032,275
Total operating expenses.....        1,952,068      1,892,290      1,812,902      1,784,784      1,786,592
Operating income.............          332,018        337,353        324,536        295,907        245,683
Income before extraordinary item       200,103        204,042        190,346        178,856        170,269
Extraordinary item - U.K.
  windfall tax                               -       (110,565)             -              -              -
Net income...................          200,103         93,477        190,346        178,856        170,269
Total assets.................        5,177,636      4,998,875      4,572,648      4,351,789      4,207,832
Total common equity..........        1,627,332      1,625,541      1,438,288      1,343,645      1,267,482
Preferred stock:
  Not subject to mandatory
  redemption ................                -        140,002        140,008        140,008        140,008
   Subject to mandatory
   redemption at par (including
   amounts due within one year)              -         41,829         42,489         43,865         45,241
PSCo obligated mandatorily
  redeemable preferred
  securities.................          194,000              -              -              -              -
Long-term debt
   (including amounts due
    within one year) ........        1,687,611      1,595,298      1,414,558      1,278,389      1,180,580
Notes payable & commercial paper       402,795        348,555        244,725        288,050        324,800

-----------------
</TABLE>

(d)The 1998  information  includes NCI through  March 31, 1998, at which time it
   was sold to NC Enterprises.
(e)The 1994  through  1997  information  includes  Cheyenne,  WGI, e prime,  and
   Natural Fuels through July 31, 1997. These  subsidiaries  were transferred by
   dividend to NCE in connection with the Merger.

<TABLE>
<CAPTION>

                             Year ended December 31, Transition     Year Ended August 31,        
                                1998        1997     Period        1996       1995         1994      
                             ---------    --------   --------    --------   ---------     ------
SPS (f)                               (In thousands, except per share data & ratio)

<S>                          <C>         <C>         <C>         <C>        <C>         <C>
Operating revenues:
   Electric................  $ 951,187   $ 960,355   $ 295,579   $ 899,397  $ 834,083   $ 843,448
   Other...................          -      18,928      10,701      32,403     47,434      34,575
                               -------     -------      ------     -------    -------      ------
      Total................    951,187     979,283     306,280     931,800    881,517     878,023
Total operating expenses...    785,508     820,002     252,299     780,758    723,485     738,304
Operating income...........    165,679     159,281      53,981     151,042    158,032     139,719
Net income.................    114,987      75,575      19,137     105,773    119,477     102,168
Total assets...............  2,129,864   2,188,736   2,044,799   1,997,817  1,909,005   1,821,235
Total common equity........    738,220     698,390     731,752     735,119    720,752     696,172
Preferred stock, not subject
  to mandatory redemption...         -           -           -           -     72,680      72,680
SPS obligated mandatorily
 redeemable preferred 
 securities.................   100,000     100,000     100,000     100,000          -           -
Long-term debt
   (including amounts due
    within one year)........   620,731     620,771     635,631     638,107    582,552     523,228
Notes payable & commercial
  paper ....................    94,162     179,404      53,836      69,624          -      14,944

-----------------
</TABLE>

(f)The 1994  through  1997  information  includes UE and Quixx  through July 31,
   1997.  These  subsidiaries  were  transferred  by sale to NC  Enterprises  in
   connection with the Merger.


                                       30
<PAGE>


Item 7.  Management's  Discussion  and  Analysis of  Financial  Condition  and
     Results of Operations (NCE,PSCo and SPS)

Competition and Industry Outlook

      The business and regulatory  environment in the utility  industry that has
existed  for  decades  is  continuing  to  change.  Competition  is  increasing,
particularly in energy supply and retail energy services.  Several states in the
U.S.  have  either  passed or  proposed  legislation  that  provides  for retail
electric  competition  and price  deregulation  of energy supply.  The wholesale
electric  energy  market has expanded and  geographic  boundaries  are no longer
barriers.  Increased  activity  by power  marketers  and  traders  has added new
dimensions of complexity and risk. A significant  amount of electric  generation
assets  have been  purchased,  sold or traded in the U.S.  during  1998 and this
trend is expected to continue.  Consolidation  and globalization is a continuing
trend as businesses  position  themselves for competition in an unbundled energy
industry. The Company continues to look for opportunities to expand its customer
base as an energy  service  provider and on an ongoing basis  evaluates  merger,
acquisition and divestiture opportunities.

      Electric prices in the Company's service territories are low in comparison
to other parts of the U.S. State  legislatures and state utility  commissions in
the  retail  jurisdictions  served by the  Company's  utility  subsidiaries  are
focusing on the restructuring and deregulation of the electric utility industry,
however, no significant  progress was achieved during 1998. The Company supports
a fair and orderly transition to a competitive environment and believes that any
restructuring  plans should  provide the Company with an  opportunity to recover
its costs for prudently incurred utility investments and contractual commitments
that may be uneconomic  in the future.  Overall,  the Company  believes that the
prices its  utility  subsidiaries  charge for  electricity  and the  quality and
reliability  of their  service  currently  place them in a  position  to compete
effectively in the energy market.  The potential  negative  financial impacts of
deregulation,  however,  could include an impairment of assets, a loss of retail
customers,  lower  profit  margins and  increased  costs of capital (see Note 1.
Summary of Significant  Accounting Policies in Item 8. FINANCIAL  STATEMENTS AND
SUPPLEMENTARY  DATA).  At this time,  the Company  and its utility  subsidiaries
cannot  predict  when  they  will  be  subject  to  changes  in  legislation  or
regulation,  nor can they predict the impacts of such changes on their financial
position, results of operations or cash flows.

Corporate Overview - 1998

      The Company  completed its first full year of operations  since the merger
of PSCo and SPS which was  effective  August 1, 1997.  The primary focus in 1998
has been on providing customers with reliable energy service,  controlling costs
to  maintain  low  prices  for  customers  and to earn an  adequate  return  for
shareholders.  Customers benefited from electric rate reductions  resulting from
shared  savings under a performance  based  regulatory  plan in Colorado and the
pass  through  of lower fuel costs in  several  jurisdictions.  Strong  customer
growth in its service  territories and aggressive cost control efforts  continue
to help keep gas and  electric  rates  among  the  lowest  in the  industry.  In
connection  with various  state  regulatory  and  legislative  initiatives,  the
Company is evaluating  its  potentially  stranded  costs.  The issues related to
determining  stranded  costs are very  complex  and  dependent  upon the  future
changes in legislation or regulation. However, at this time the Company believes
that its risks  related  to this  matter are  relatively  low.  Risk  management
initiatives  were further  implemented  this year to better manage  exposures to
changes in market  risks and to better  position  the  Company  for the  future.
Additionally,  Yorkshire Power provided a solid contribution to earnings for the
year demonstrating the value of some strategic international diversification.

      The Company has organized  into business units as part of its strategy for
future  growth.  These  business  units,  consisting of Energy  Supply,  Retail,
Delivery and International have made significant progress in developing business
plans focused on the corporate  priorities  to profitably  grow the Company.  In
1999,  the Company will  continue to further  develop and implement the business
unit infrastructure,  including business systems and regulatory strategies.  The
deployment  of  this  strategy  will  be  an  important  step  toward   creating
shareholder value and preparing the Company for the year 2000 and beyond.

                                       31
<PAGE>

Earnings

      Basic  earnings  per share were  $3.06  (diluted  earnings  per share were
$3.05),  $1.44 ($2.50 before the extraordinary item) and $2.64 during 1998, 1997
and 1996,  respectively.  The increase in 1998 earnings was primarily attributed
to  increased  electricity  sales  during the hot summer  months with  continued
strong customer growth in Colorado.  Improved  earnings from NCE's investment in
Yorkshire Power,  also contributed  positively to the higher 1998 earnings.  The
significant  decrease  in 1997  earnings,  as compared  to 1996,  was  primarily
attributable to the recognition of an extraordinary item related to the one-time
U.K. windfall tax of approximately $110.6 million, or $1.06 per share,  however,
ongoing  operations of Yorkshire  Power  positively  impacted the Company's 1997
earnings.  Earnings  during  1997  and  1996  were  negatively  impacted  by the
write-offs of certain  investments in waste-to-energy  cogeneration  facilities,
higher merger and business  integration costs resulting from the August 1, 1997,
closing of the Merger and electric rate decreases instituted in 1997 and 1996.

Electric Operations

      The  following  table  details  the annual  change in  electric  operating
revenues and energy costs as compared to the preceding year (in thousands).
                                                    Increase (Decrease)
                                                      From Prior Year
                                                    1998          1997  
                                                  --------      --------
Electric operating revenues:
 Retail......................................      $ 62,565      $ 20,350
 Wholesale...................................       120,343        35,773
 Non-regulated power marketing...............        51,656        15,055
 Other (including unbilled revenues).........       (10,437)      (14,358)
                                                   --------      --------
  Total revenues.............................       224,127        56,820
Fuel used in generation......................       (27,494)       36,525
Purchased power..............................       181,400        20,905
                                                   --------      --------
  Net increase (decrease) in electric margin       $ 70,221      $   (610)   
                                                   ========      ========

      The  following  table  summarizes  electric  Kwh  sales by major  customer
classes.
                                                                  % Change *
                                          Millions of Kwh Sales  From Prior Year
                                                 1998     1997    1998   1997
                                                 ----     ----    ----   ----
Residential ...............................     10,136    9,730    4.2%   2.1%
Commercial and Industrial  ................     27,666   27,014    2.4    1.7
Public Authority ..........................        841      774    8.7   (0.8)
                                                ------    -----
  Total Retail.............................     38,643   37,518    3.0    1.8
Wholesale..................................     15,948   11,495   38.7   13.5
Non-regulated Power Marketing..............      2,917    1,210   **     **
                                                ------    -----
Total......................................     57,508   50,223   14.5    5.9
                                                ======   ======

*   Percentages are calculated using unrounded amounts.
** Percentage  change is  significant,  but  presentation of the amount is not
meaningful.

      Electric  margin  increased  during  1998,  when  compared  to  1997,  due
primarily to a 3.0% increase in total retail sales and a 14.5% increase in total
sales  resulting  from  customer  growth of 2.2% and hotter than normal  weather
during the second and third  quarters of 1998.  In addition,  PSCo's  margin was
positively  impacted by lower  accruals of  approximately  $9.6  million for the
estimated customer refund obligation  associated with the sharing of earnings in
excess of 11% return on equity in Colorado  (see Note 9.  Regulatory  Matters in
Item 8.  FINANCIAL  STATEMENTS AND  SUPPLEMENTARY  DATA).  Higher  wholesale and
non-regulated  power  marketing  sales,   reflecting  marketing  activities  for
economy,   short-term  firm  and  off-system  sales,  contributed  to  increased
operating revenues,  however, the margin on such sales was minimal. SPS's margin
was also  positively  impacted by $16.9 million in revenue  recognized  with the
settlement of a 1985 FERC rate case.

                                       32
<PAGE>

      Electric  margin  decreased  slightly  during 1997 when  compared to 1996.
PSCo's retail rate  reductions  (approximately  $15.4  million)  implemented  in
October  1996 and  February  1997 and the  recognition  at PSCo of an  estimated
customer refund obligation  (approximately $16.4 million) in connection with the
earnings  sharing  in excess of 11%  return on equity  which  resulted  from the
settlement of the Merger proceedings in Colorado (see Note 9. Regulatory Matters
in  Item  8.  FINANCIAL   STATEMENTS  AND   SUPPLEMENTARY   DATA)  were  primary
contributors to the decrease.  Electric  margin was also negatively  impacted by
the recognition at SPS of an estimated customer refund obligation (approximately
$1.8 million) related to the guaranteed  merger savings as well as interruptible
rates available to certain classes of retail and wholesale customers. An overall
1.8%  increase in electric Kwh sales to retail  customers,  resulting  primarily
from  customer  growth of 1.3%  minimized  the impact of these rate  reductions.
Higher wholesale electric sales and power marketing  activities by non-regulated
subsidiaries  also contributed to increased  operating  revenues,  however,  the
margin on such sales is minimal

      The Company's regulated subsidiaries have cost adjustment mechanisms which
recognize the majority of the effects of changes in fuel used in generation  and
purchased  power costs and allow recovery of such costs on a timely basis.  As a
result,  the changes in revenues  associated  with these  mechanisms in 1998 and
1997,  when compared to the respective  preceding year, had little impact on net
income. In its decision on the Merger, the CPUC replaced PSCo's ECA with an ICA,
effective  October 1, 1996,  which allows for a 50%/50%  sharing of certain fuel
and energy cost increases and decreases  among customers and  shareholders.  For
1998 and 1997, the ICA did not significantly impact electric margin (see Note 9.
Regulatory Matters in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).

      Fuel used in generation expense decreased  approximately 4.1% during 1998,
as  compared to 1997,  primarily  due to lower per unit cost of coal and natural
gas offset,  in part, by increased  generation levels at PSCo and SPS. Fuel used
in generation  expense increased  approximately 5.8% during 1997, as compared to
1996,  primarily due to increased  generation levels at PSCo and SPS, and higher
natural gas costs at SPS.

      Purchased  power  expense  increased  34.1% and 4.1% during 1998 and 1997,
respectively,  as compared to the previous year.  These  increases are primarily
due to the  amount of power  purchased  by PSCo and a  non-regulated  subsidiary
related  to  growth  in  wholesale  marketing  activities  of  gas  trading  and
non-trading operations.

Gas Operations

      The  following  table  details the annual  change in gas  revenues and gas
purchased for resale as compared to the preceding year (in thousands).

                                                    Increase (Decrease)
                                                      From Prior Year
                                                    1998          1997  
                                                  --------      --------
Revenues from gas sales (including 
  unbilled revenues) .......................      $ 22,500      $172,340
Gas purchased for resale....................        19,292       150,128
                                                  --------      --------
 Net increase in gas sales margin...........         3,208        22,212
Transportation revenues.....................         2,180         3,759
                                                  --------      --------
  Increase in net gas margin................      $  5,388      $ 25,971
                                                  ========      ========


                                       33
<PAGE>


      The  following  table  compares gas  dekatherm  (Dth)  deliveries by major
customer classes.

                                              Millions of         % Change *
                                            Dth Deliveries       From Prior Year
                                             1998      1997        1998   1997 
                                             ----      ----        ----   ---- 
Residential............................       84.7     87.4      (3.1)%   1.5%
Commercial.............................       42.4     47.5     (10.8)   (8.1)
Non-regulated gas marketing............       70.6     59.6      18.4    **
                                            ------   ------
  Total Sales..........................      197.7    194.5       1.6    21.9
Transportation, gathering and processing     107.4     93.3      15.2     2.1 
                                             -----     ----
  Total................................      305.1    287.8       6.0    14.7
                                            ======   ======

*  Percentages are calculated using unrounded amounts
** Percentage  change is  significant,  but  presentation of the amount is not
   meaningful

      Gas sales  margin  increased  slightly  in 1998,  when  compared  to 1997,
primarily  due to an  increase in PSCo's base  revenues  associated  with a rate
increase  effective February 1, 1997, offset in part, by lower PSCo retail sales
which resulted from warmer  weather.  Gas sales margin  increased in 1997,  when
compared  to  1996,  primarily  due  to an  increase  in  PSCo's  base  revenues
associated with the higher rates, effective February 1, 1997, and an increase in
gas marketing activities by non-regulated subsidiaries.  Per-unit gas costs were
lower in 1998 than  1997,  however,  the total cost of gas  increased  due to an
increase in the  quantity  purchased.  Gas costs were  higher  during  1997,  as
compared to 1996, as a result of higher per-unit gas prices throughout 1997.

      Gas transportation  revenues increased during 1998 and 1997, when compared
to the respective preceding years,  primarily due to increases in deliveries and
higher transportation  rates,  effective February 1, 1997, resulting from PSCo's
1996 rate case. In addition,  the shifting of various PSCo commercial  customers
to firm transportation  customers,  some of which became retail customers of the
Company's non-regulated subsidiaries,  contributed to the increases in both 1998
and 1997.

      PSCo and  Cheyenne  have in place GCA  mechanisms  for  natural gas sales,
which  recognize  the  majority  of the  effects  of  changes in the cost of gas
purchased  for resale and adjust  revenues to reflect such changes in costs on a
timely  basis.  As a result,  the  changes  in  revenues  associated  with these
mechanisms  during 1998 and 1997 had little impact on net income.  However,  the
fluctuations  in gas sales impact the amount of gas the  Company's gas utilities
must  purchase  and,  therefore,  along with the  increases and decreases in the
per-unit cost of gas, affect total gas purchased for resale.

Other Operating Revenues

      Other operating revenues increased  approximately  $19.6 million and $12.6
million  during 1998 and 1997,  respectively,  as compared the  preceding  year,
primarily due to higher  revenues from  diversified  energy related  businesses,
primarily engineering, design and construction management, energy management and
consulting services.

Non-Fuel Operating Expenses and Other Income and Deductions

      Other operating and maintenance expenses increased $43.4 and $25.8 million
during  1998 and  1997,  respectively,  as  compared  to the same  period in the
preceding year. The increase in 1998 was primarily due to higher operating costs
from  non-regulated  operations  (approximately  $34  million).  The increase in
non-regulated  operating and  maintenance  expenses is due to the acquisition of
subsidiaries  and growth of existing  businesses.  The increase in operating and
maintenance  costs  in the  Company's  regulated  operations  (approximately  $9
million)  was  primarily  due to higher  labor  costs from wage rate  increases,
increased  contract labor costs,  higher data processing  costs,  including Year
2000 related costs and additional  transmission  wheeling costs. Other operating
and  maintenance  expenses  increased  during 1997 due to the recognition of the
Thunder Basin judgement  (approximately $12 million). The Thunder Basin judgment
did not  impact  earnings  as the costs  were  included  in

                                       34
<PAGE>

the calculation of deferred revenue.  The Company expects to recover these costs
through  SPS's  fixed  fuel  factor  (see Note 9.  Regulatory  Matters in Item 8
FINANCIAL  STATEMENTS AND  SUPPLEMENTARY  DATA).  Also  contributing to the 1997
increase was the favorable  impact on 1996 earnings of the settlement  agreement
with the DOE  resolving  all spent  nuclear fuel storage and disposal  issues at
Fort St. Vrain (approximately $16 million).

      Depreciation and amortization  expense increased $25.7 million in 1998 and
$18.2  million  in 1997  primarily  due to  higher  depreciation  expenses  from
property  additions.  The  increase  in  1998  also  includes  $7.6  million  of
additional  depreciation in connection with a settlement  related to an SPS 1985
wholesale rate case.

      Other  income  and  deductions  increased  $59.0  million in 1998 and $7.3
million in 1997 when  compared to the preceding  year.  The increase in 1998 was
primarily  attributable  to the absence of Merger  expenses and the write-off of
investments  in  cogeneration  projects  and lower legal costs  associated  with
various employee  lawsuits.  The increase in 1997 was primarily due to equity in
earnings of Yorkshire  Power ($34.9  million)  offset,  in part, by increases in
Merger  expenses  in 1997  and the  recognition  of a gain on the  sale of water
rights by Quixx in 1996.

      Interest  charges and preferred  dividends of subsidiaries  decreased $1.8
million in 1998. Proceeds from the issuance of $250 million in long-term debt in
April 1998 were used,  in part,  to reduce short  term-debt.  Proceeds  from the
November 1998  issuance of $117 million in common stock were used,  primarily to
reduce short-term debt and other borrowings.  Higher average levels of debt were
offset by lower average interest rates.  Additionally,  in May 1998, PSCo issued
$194 million of Trust Originated  Preferred Securities  ("TOPRS").  The proceeds
were used to redeem all of PSCo's  outstanding  preferred stock (totaling $181.8
million) on June 10, 1998.  A redemption  premium  totaling  approximately  $2.1
million  was  incurred  as part  of this  refinancing,  however,  the  after-tax
financing  costs  associated  with the TOPRS will be lower  over the  long-term.
Additionally,   higher  AFDC  was  recorded  in  1998  as  a  result  of  higher
construction expenditures.  In 1997, interest charges and preferred dividends of
subsidiaries  increased  $31.5  million  primarily due to interest on borrowings
used to finance capital  expenditures and the April 1997 investment in Yorkshire
Power.  These  financings  included PSCo's issuance of medium-term  notes and an
increased  level  of  short-term   borrowings  by  NCE  and  its   subsidiaries.
Additionally,  dividends  on  SPS  obligated  mandatorily  redeemable  preferred
securities  of  subsidiary  trust  increased due to the October 1996 issuance of
$100 million of these preferred securities.

Risk Management

      NCE and its  subsidiaries  are exposed to market  risks in both the energy
trading and non-trading  operations.  The objective of NCE's trading operations,
which were primarily  initiated in 1998, is to generate profits while minimizing
the related exposure to changes in commodity  prices.  These operations  include
the gas and power marketing and trading  activities at e prime and the wholesale
power trading  activities  at PSCo and SPS. The  objective of NCE's  non-trading
activities is to protect the Company's  profitability.  These operations include
the retail gas business at e prime,  the gas  distribution  and electricity load
management  activities  at PSCo in  addition  to the  normal  operations  of the
Company.  The market risks mentioned above include changes in commodity  prices,
interest rates, and currency  exchange rates. Due to cost-based rate regulation,
NCE's  regulated  subsidiaries  have  limited  exposure to  commodity  price and
interest rate risk.

      The Company  manages  these  market  risks  through  various  policies and
procedures  that  allow for the use of  various  instruments  in the  energy and
financial  markets.  Risk  management  activities are monitored by the Company's
Risk Management Compliance Committee,  whose responsibilities  include reviewing
NCE and its subsidiaries'  overall risk management  strategy and monitoring risk
management  activities to ensure  compliance with risk  management  limitations,
policies and procedures.

Commodity Price Risk

      NCE  continued  to  develop  and expand  its gas and power  marketing  and
trading  activities during 1998 and management expects to continue the growth of
these activities during 1999. As a result,  the Company's exposure to changes in
commodity  prices may increase and NCE may experience  earnings  volatility.  To
manage

                                       35
<PAGE>

exposure  to price  volatility  in the natural gas and  electricity  markets,  a
variety of energy contracts,  both financial and commodity based are utilized as
hedges.  These contracts consist mainly of commodity futures and options,  index
or fixed  price  swaps and  basis  swaps  and are used by both the  trading  and
non-trading operations.

      NCE measures its open exposure to commodity  price changes  separately for
the trading and non-trading operations using a Value-at-Risk ("VaR") methodology
to quantify the estimates of the magnitude and  probability of potential  future
losses related to open contractual  positions.  VaR expresses the potential loss
in  fair  value  of all  open  forward  contract  and  option  positions  over a
particular period of time, with a specified likelihood of occurrence.  The model
employs a 95 percent  confidence  level based on historical price movement for a
holding  period of 30 days. As of December 31, 1998,  the  calculated VaR was as
follows (in thousands):

                                                        NCE        PSCo
                                                        ---        ----
    Natural gas marketing & trading activities .....   $   29     $    -
    Power marketing & trading activities ...........      307        291
    Natural gas non-trading activities..............      312          -
    Power non-trading activities....................    1,159      1,159

      On a thirty-day  holding  period as of December 31, 1998,  the VaR for NCE
does not exceed $1.3 million.

Interest Rate Risk

      NCE  and  its  subsidiaries   have  both  long-term  and  short-term  debt
instruments that subject the Company and certain of its subsidiaries to the risk
of loss associated with movements in market interest rates. This risk is limited
for NCE's  regulated  companies  primarily  due to cost based  rate  regulation.
Except for one interest rate swap agreement  entered into by SPS, the Company is
not currently utilizing financial instruments to manage its exposure to interest
rate fluctuations.  In the future,  management  anticipates  utilizing financial
instruments  to  manage  its  exposure  to  changes  in  interest  rates.  These
instruments may include interest rate swaps, caps,  collars and  exchange-traded
futures contracts and put or call options on U.S.
Treasury securities.

      As of  December  31 1998,  a 100 basis  point  change in each  outstanding
debt's instrument benchmark rate would impact net income of NCE, PSCo and SPS by
approximately  $5.8  million,  $2.9 million and $2.1 million,  respectively.  If
interest  rates were to decline by 10% from their  levels at December  31, 1998,
the  corresponding  increase  in  fair  value  of $69  million  at NCE  and  its
subsidiaries,  $53 million at PSCo and its  subsidiaries  and $15 million at SPS
would impact  earnings  and cash flows only if the Company and its  subsidiaries
were to reacquire all or a portion of these instruments in the open market prior
to their maturity.

Currency Exchange Risk

      NCE's investment in Yorkshire Power, a foreign currency  denominated joint
venture, also exposes the Company to currency translation rate risk. At December
31,  1998 and 1997,  the  Company's  exposure  to changes  in  foreign  currency
exchange rates is not material to its consolidated  financial position,  results
of operations or cash flows.  The Company does not presently  utilize  financial
instruments to manage its exposures to foreign currency exchange rate movements.

Credit Risk

      In addition to the risks discussed  above,  NCE and its  subsidiaries  are
exposed to credit risk in its risk management activities. Credit risk relates to
the risk of loss resulting  from the  nonperformance  of a  counterparty  of its
contractual  obligations.  As the Company  continues to expand its gas and power
marketing  and trading  activities,  the  Company's  exposure to credit risk and
counterparty  default may increase.  NCE and its  subsidiaries  maintain  credit
policies intended to minimize overall credit risk.

                                       36
<PAGE>

      NCE and its  subsidiaries  conduct  standard credit reviews for all of its
counterparties.  The Company employs  additional credit risk control  mechanisms
when  appropriate,   such  as  letters  of  credit,   parental   guarantees  and
standardized master netting agreements that allow for offsetting of positive and
negative  exposures.  The credit exposure is monitored and, when necessary,  the
activity with a specific  counterparty  is limited until credit  enhancement  is
provided.

Commitments and Contingencies

      Issues relating to regulatory and  environmental  matters are discussed in
Notes 9 and 10 in Item 8. FINANCIAL  STATEMENTS AND  SUPPLEMENTARY  DATA.  These
matters  and the future  resolution  thereof  may impact  the  Company's  future
results of operations, financial position or cash flows.

Year 2000 Issue

      The  Year  2000  ("Y2K")  issue  is a result  of a  universal  programming
standard that records dates as six digits, e.g.,  mm/dd/yy,  using only the last
two digits for the year.  Any  automated  system  software or firmware that uses
two-digit fields could understand the year 2000 as the year 1900 if the issue is
not corrected.  This situation is not limited to computers; it has the potential
to affect many systems,  components  and devices,  which have embedded  computer
chips,  which may be,  date  sensitive.  The Y2K issue  could  result in a major
system failure or  miscalculations  and does impact many NCE systems  considered
critical or important to the Company's business  operations.  Systems posing the
greatest business risks to the Company include power generation and distribution
systems, telecommunications systems, energy trading systems and billing systems.
The Company is addressing  all potential  Y2K failure  points  identified in its
critical  automated systems to maintain service to its customers and to mitigate
legal and financial risks.

      In 1997,  the Company  established  the Y2K Program  Office to oversee all
corporate-wide  Y2K  initiatives.   These  initiatives  encompass  all  computer
software,  embedded systems, as well as contingency planning.  Teams of internal
and external  specialists  were  established  to  inventory  and assess and test
critical  computer programs and automated  operational  systems and modify those
that may not be Y2K  compliant.  The inventory  phase and  assessment  phase for
information  technology  ("IT")  systems were  completed in 1998.  Additionally,
approximately  77% of the  remediation  and  testing  phase for all  critical IT
systems was completed in 1998 with the remaining remediation and testing planned
to be completed by June 30, 1999. For non-IT  systems,  which exist primarily in
the  generation,  transmission  and  distribution  areas  of the  business,  the
inventory and assessment phases are complete. Remediation and testing for non-IT
systems were approximately 46% complete at December 31, 1998, with the remainder
expected  to be  completed  by  September  30,  1999.  Systems  critical  to the
generation and delivery of energy are expected to be completed by June 30, 1999.

      The Company  has  identified  third  parties,  with which it has  material
business relationships including  interconnected  utilities,  telecommunications
service  providers,  fuel  and  water  suppliers,  equipment  suppliers,  leased
facilities  and  financial  institutions.  Subject  matter  experts,  along with
functional managers,  continue to evaluate the current list of third parties and
have ongoing discussions with these and other critical suppliers about their Y2K
readiness and contingency planning efforts.

      The Company  currently expects to incur costs of approximately $25 million
to modify its computer  software,  hardware and other automated  systems used in
operations enabling proper data processing relating to the year 2000 and beyond.
This includes approximately $19 million for inventory,  assessment,  remediation
and testing and approximately $6 million for the replacement of automated system
components.  Furthermore, the Company expects to spend approximately $15 million
for the accelerated  replacement of certain non-compliant IT systems,  which are
expected to be  implemented by September 30, 1999. The majority of all Y2K costs
will be incurred by PSCo and SPS. A significant portion of the costs incurred to
address the Company's Y2K issues will  represent  the  redeployment  of existing
information  technology  resources.  The table below  details  the actual  costs
incurred  through  December 31,  1998,  and the  estimated  costs to be incurred
during 1999 (in millions).


                                       37
<PAGE>



                                             Actual Costs   Estimated  Estimated
                                             1998 and Prior   1999      Total
                                             --------------   ----      -----

      Operating expenses.......................    $ 8.2      $11.1     $19.3
      Capital expenditures ....................      7.1       13.4      20.5

      Yorkshire Power has also undertaken  activities to address Y2K issues. The
estimated  proportionate share of Yorkshire Power's incremental Y2K costs (costs
which would not have been required in the normal  course of business)  that will
flow through to the  Company's  earnings as a result of such  activities  is not
expected  to have a material  impact on the  financial  condition  or results of
operations of the Company.

      The most  reasonably  likely  worst  case  scenario  resulting  during Y2K
critical  dates is a loss of  production  capacity from certain of the Company's
generating units, along with loss of a portion of the communication  system that
is critical to generation and distribution  control.  If this were to occur, the
Company's  operating  utilities  may be  required  to  "island"  (separate  from
neighboring  interconnected utilities) their generation and distribution systems
in their service  territories.  As part of this  scenario,  difficulty  could be
encountered with the restart of generating  units. The overall blackout recovery
plan for NCE is designed so that this most reasonably likely worst case scenario
would be addressed and electricity  restored.  Critical  components of this plan
have been and continue to be tested to provide  assurance  that the Company will
be prepared for risks which could result from the Y2K millennium change.

      If correction or replacement of non-compliant systems are not completed on
a timely basis,  the Y2K issues may have a material  impact on the operations of
the Company and its subsidiaries. Management, however, does not anticipate these
activities  will  have a  material  adverse  impact on the  financial  position,
results of operations or cash flows of the Company or its subsidiaries.

Tax Matters

      PSRI, a subsidiary  of PSCo,  owns and manages  permanent  life  insurance
policies  on certain  past and present  employees.  These  corporate  owned life
insurance  ("COLI")  policies  were entered into prior to July 1, 1986. In 1996,
Congress  passed  legislation  to phase out the tax  benefits  with certain COLI
policies,   however,  the  Company's  policies  were  grandfathered  under  this
legislation.  In August  1998,  the IRS issued a Notice of  Proposed  Adjustment
proposing to disallow the 1993 and 1994  deductions of interest  expense related
to policy loans on the COLI policies  totaling  approximately  $54.6 million.  A
Request for Technical  Advice was filed with the IRS National  Office on January
15, 1999, with respect to the proposed adjustment.

      Management plans to vigorously  contest this issue.  PSCo has not recorded
any  provision  for  income tax or  interest  expense  related  to this  matter.
Management believes that the Company's tax deduction of interest expense on life
insurance  policy loans was in full compliance with IRS regulations and believes
that the  resolution of this matter will not have a material  adverse  impact on
PSCo's financial position, results of operations or cash flows.

Common Stock Dividend

      During 1998, the Company  declared common stock  dividends  totaling $2.32
per share.  The  Company's  common stock  dividend  level is dependent  upon the
Company's  results  of  operations,  financial  position,  cash  flows and other
factors.  The Board of Directors  of the Company  will  continue to evaluate the
common stock dividend on a quarterly basis.


                                       38
<PAGE>


Liquidity and Capital Resources

Cash Flows
                                                  1998       1997     1996     
                                                  ----       ----     ----
Net cash provided by operating
  activities (in millions) ................      $659.5    $344.4    $481.2

      Cash  provided by  operations  increased in 1998,  when  compared to 1997,
primarily  due to higher  earnings  from  utility  operations  and a decrease in
payments  to  gas  suppliers   resulting  from  lower  gas  costs  during  1998.
Additionally,  SPS and a non-regulated  subsidiary of NCE recorded combined cash
proceeds of  approximately  $67 million for the  recovery of deferred  costs and
income from the investment in a non-regulated  energy development project during
1998. Cash provided by operating  activities decreased in 1997, when compared to
1996,  primarily  due to the SPS payment of the Thunder  Basin  judgment  and an
increase  in payments to gas  suppliers  resulting  from the higher gas costs in
late 1996 and early 1997.  A portion of these  lower gas costs  incurred in 1998
and higher gas costs incurred in 1997 have been deferred  through PSCo's GCA and
will be paid to or recovered from customers in the future.

                                                  1998       1997     1996     
                                                  ----       ----     ----
Net cash used in investing
  activities (in millions) ................     $614.0     $856.4    $443.2

      Cash used in investing  activities decreased during 1998, when compared to
1997,  primarily  due to the  investment in Yorkshire  Power in 1997,  partially
offset by higher 1998 construction expenditures and the acquisition of Planergy.
Cash used in investing  activities increased during 1997, when compared to 1996,
primarily due to the equity investment in Yorkshire Power for approximately $360
million  and the 1996  sale by  Quixx  of  certain  water  rights.  Construction
expenditures also increased in 1997 when compared to the preceding year.

                                                  1998       1997     1996     
                                                  ----       ----     ----
Net cash (used in) provided by
  financing activities (in millions) ......     $(61.5)    $534.6    $(16.3)

      Cash provided by financing activities decreased during 1998, when compared
to 1997,  primarily due to PSCo's  issuance of debt in early 1997 to finance the
investment in Yorkshire Power. In November 1998, the Company issued $117 million
in common  stock and in April  1998,  PSCo's  issued $250  million of  long-term
bonds.  Proceeds  from  the  1998  financings  were  primarily  used  to  reduce
short-term  debt and other  corporate  purposes.  In May 1998,  PSCo issued $194
million of Trust  Originated  Preferred  Securities.  The proceeds  were used to
redeem all of PSCo's  outstanding  preferred stock (totaling  $181.8 million) on
June 10, 1998. Cash provided by financing activities increased during 1997, when
compared to 1996,  primarily  due to NCE's  issuance of common stock in December
1997 and PSCo's issuance of medium-term notes. The proceeds from the $75 million
financing  by PSCo in January 1997 were used to fund its  construction  program.
The  proceeds  from the issuance of $250  million  medium-term  notes by PSCo in
March 1997, together with additional borrowings of approximately $110 million on
its  short-term  lines of credit,  were used to fund the investment in Yorkshire
Power.  An increase in recoverable  purchased gas and electric  energy costs and
reduced cash flows resulting from lower electric  rates,  coupled with increased
merger and business integration costs,  required PSCo to temporarily utilize the
additional short-term borrowings to finance ongoing construction expenditures.


                                       39
<PAGE>


Prospective Capital Requirements

      The estimated cost as of December 31, 1998 of the construction programs of
the Company and its  subsidiaries  and other capital  requirements for the years
1999, 2000 and 2001 are shown in the table below (in millions):

                                             1999        2000      2001 
                                           -------      ------    ------
Electric
    Production *........................   $   163      $  134    $   79
    Transmission........................        44         107        92
    Distribution........................       188         170       181
Gas ....................................        82          82        85
General and non-utility subsidiaries....       155         117       128
                                           -------      ------    ------
      Total construction expenditures...       632         610       565
Less: Allowance for funds used during
      construction                              20          17        18
Add: Sinking funds and debt maturities..       192          35       143
                                           -------      ------    ------
Total capital requirements..............   $   804      $  628    $  690
                                           =======      ======    ======

*  Capital  requirements for 1999 Electric Production include  approximately $72
   million for emission control equipment and environmental projects.

      The  construction  programs of the Company's  subsidiaries  are subject to
continuing  review  and  modification.   In  particular,   actual   construction
expenditures  may vary from the estimates due to changes in the electric  system
projected  load  growth,  the desired  reserve  margin and the  availability  of
purchased  power,  as  well as  alternative  plans  for  meeting  the  Company's
long-term energy needs. In addition, the Company's ongoing evaluation of merger,
acquisition and divestiture  opportunities to support  corporate  strategies and
future  requirements  to install  emission  control  equipment may impact actual
capital requirements (see Note 10. Commitments and Contingencies - Environmental
Issues in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).

Capital Sources

      At December 31, 1998, the Company and its subsidiaries estimate that their
1999-2001  capital  requirements  will be met with a  combination  of funds from
external sources and funds from operations. The Company and its subsidiaries may
meet their  external  capital  requirements  through the sale of common stock by
NCE, the issuance by NCE and its subsidiaries of secured and unsecured long-term
and short-term  debt and the sale of other  securities.  The financing needs are
subject to  continuing  review and can change  depending  on market and business
conditions and changes,  if any, in the construction  programs and other capital
requirements of the Company and its subsidiaries.

Registration Statements

      The Company has an effective  registration statement covering the issuance
of 10 million  shares of common stock to be issued under the Company's  Dividend
Reinvestment and Cash Payment Plan ("Dividend  Reinvestment Plan"). Any proceeds
received  by the  Company  will be used for  general  corporate  purposes.  This
program  allows  for  either the  purchase  of shares on the open  market or the
issuance of new shares.  The  Dividend  Reinvestment  Plan allows the  Company's
shareholders to purchase additional shares of the Company's common stock through
the  reinvestment  of cash  dividends and the purchase of  additional  shares of
common stock with optional cash payments. As of December 31, 1998, approximately
8.8 million shares were available for issuance.

Subsidiary Registration Statement

      SPS has an effective shelf registration statement under which $220 million
of debt securities and/or preferred stock are available for issuance,  a portion
of which is still subject to state utility commission approval.

                                       40
<PAGE>

Short-Term Borrowing Arrangements

      NCE has a $225 million  credit  facility  with several banks that provides
for $200 million of direct borrowings by NCE and $25 million by Cheyenne.

      PSCo and its subsidiaries have available committed lines of credit to meet
their  short-term cash  requirements.  PSCo and its  subsidiaries  have a credit
facility with several banks which  provides $300 million in committed bank lines
of credit and is used  primarily to support the issuance of commercial  paper by
PSCo and PSCCC, and to provide for direct borrowings thereunder. At December 31,
1998, this facility was fully drawn.  Generally,  the banks participating in the
credit facility would have no obligation to continue their  commitments if there
has been a material  adverse  change in the  consolidated  financial  condition,
operations,  business or otherwise that would prevent PSCo and its  subsidiaries
from  performing  their  obligation  under the credit  facility.  This  facility
expires on November  17,  2000.  PSCo also has  available a $150 million line of
credit which expires on June 25, 1999. At December 31, 1998, approximately $47.2
million of this facility remained unused.

      PSCCC may periodically issue medium-term notes to supplement the financing
or purchase of PSCo's customer accounts  receivable and fossil fuel inventories.
As of December 31, 1998,  PSCCC had issued and had  outstanding  $100 million in
medium-term  notes.  The level of financing  of PSCCC is tied  directly to daily
changes in the level of PSCo's  outstanding  customer  accounts  receivable  and
monthly  changes  in  fossil  fuel  inventories  and will  vary  minimally  from
year-to-year  although  seasonal  fluctuations in the level of assets will cause
corresponding fluctuations in the level of associated financing.

      SPS has  available  a $200  million  committed  line of  credit,  expiring
February 26, 1999. This credit  facility,  which is being renewed,  is primarily
used to support  commercial  paper issued by SPS. At December 31, 1998,  SPS had
$86 million in commercial paper outstanding and $114 million was available under
this line of credit.

Accounting Pronouncements Issued But Not Yet Effective

      In March 1998,  the American  Institute of  Certified  Public  Accountants
issued  Statement  of  Position  98-1,  "Accounting  for the  Costs of  Computer
Software  Developed for Internal  Use".  This  statement  requires  companies to
expense  costs as incurred in the  preliminary  project  stage,  training,  data
conversion,  internal maintenance and other indirect payroll related costs. This
statement is not expected to have a material impact on the Company, PSCo or SPS.
This Statement is effective for fiscal years  beginning after December 15, 1998,
with  earlier  adoption  encouraged.  The  Company  will adopt  this  accounting
standard as required on January 1, 1999.

      In April 1998,  the American  Institute of  Certified  Public  Accountants
issued  Statement  of  Position  98-5,  "Reporting  on  the  Costs  of  Start-Up
Activities".  This statement  requires  companies to expense  incurred costs for
start-up  activities,  including  organizational  costs.  This  statement is not
expected  to have a  material  impact on the  Company's  consolidated  financial
statements.  This  statement  is  effective  for fiscal  years  beginning  after
December 15, 1998, with earlier adoption encouraged. The Company will adopt this
accounting standard as required by January 1, 1999.

      In June 1998,  the FASB issued SFAS No. 133,  "Accounting  for  Derivative
Instruments and Hedging Activities". This statement requires companies to record
derivatives  on the balance  sheet as assets and  liabilities,  measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted  for  depending on the use of the  derivative  and whether it
qualifies  for  hedge  accounting.  The  Company  is  currently  evaluating  the
potential  impact of this new accounting  standard.  This statement is effective
for  fiscal  years  beginning  after  June  15,  1999,  with  earlier   adoption
encouraged.  The  Company  will adopt this  accounting  standard  as required by
January 1, 2000.


                                       41
<PAGE>


Item 7a.  Quantitative  and  Qualitative  Disclosure  About  Market Risk (NCE,
PSCo, and SPS)

      Reference is made to the "Risk Management" section in Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS  (NCE,
PSCo and SPS).



                                       42
<PAGE>



Item 8.  Financial Statements and Supplementary Data (NCE)

           REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

The Board of Directors of the Company addresses its oversight responsibility for
the consolidated  financial  statements  through its Audit Committee.  The Audit
Committee  meets  regularly  with the  independent  public  accountants  and the
internal  auditor to discuss results of their audit work and their evaluation of
the adequacy of the internal controls and the quality of financial reporting.

In fulfilling its  responsibilities in 1998, the Audit Committee  recommended to
the Board of Directors,  subject to shareholder  approval,  the selection of the
Company's  independent  public  accountants.  The Audit  Committee  reviewed the
overall scope and specific  plans of the  independent  public  accountants'  and
internal auditor's  respective audit plans, and discussed the independent public
accountants'  management  letter  recommendations,  approved their general audit
fees, and reviewed their non-audit services to the Company.

The committee  meetings are designed to  facilitate  open  communications  among
Company  management,  internal auditing,  independent public accountants and the
Audit Committee.  To ensure auditor  independence,  both the independent  public
accountants  and  internal  auditor  have  full and  free  access  to the  Audit
Committee.




Danny H. Conklin, Chairman
Audit Committee

February 23, 1999

                                       43
<PAGE>


                             REPORT OF MANAGEMENT

The  accompanying  financial  statements  of  New  Century  Energies,  Inc.  and
subsidiaries  have  been  prepared  by  Company  personnel  in  conformity  with
generally accepted accounting  principles  consistent with the Uniform System of
Accounts  of  the  Federal  Energy  Regulatory  Commission.  The  integrity  and
objectivity of the data in these financial  statements are the responsibility of
management.  Financial  information contained elsewhere in this Annual Report on
Form 10-K is consistent with that in the financial statements.

The accompanying  financial  statements have been audited by independent  public
accountants. Management has made available to its independent public accountants
all the Company's and its  subsidiaries'  financial records and related data and
has provided to them representations we believe to be valid and appropriate.

The Company  maintains a system of internal  control over  financial  reporting,
including the safeguarding of assets against  unauthorized  acquisition,  use or
disposition,  which is designed to provide reasonable assurance to the Company's
management  and  Board  of  Directors  regarding  the  preparation  of  reliable
published financial statements and such asset safeguarding.  The system includes
a  documented   organizational   structure   and  division  of   responsibility,
established  policies  and  procedures  including  a code of conduct to foster a
strong ethical climate,  which are communicated  throughout the Company, and the
careful  selection,  training and development of our people.  Internal  auditors
monitor the  operation of the internal  control  system and report  findings and
recommendations to management and the Audit Committee of the Board of Directors,
and  corrective  actions  are taken to address  control  deficiencies  and other
opportunities  for  improving  the  system as they are  identified.  The  board,
operating  through its Audit Committee,  which is composed entirely of directors
who are not  officers or employees  of the  Company,  provides  oversight to the
financial reporting process.

There are inherent  limitations in the  effectiveness  of any system of internal
control,  including  the  possibility  of human error and the  circumvention  or
overriding of controls.  Accordingly,  even an effective internal control system
can provide  only  reasonable  assurance  with  respect to  financial  statement
preparation.  Further, because of changes in conditions, internal control system
effectiveness may vary over time.

The Company  assessed  its  internal  control  system as of December 31, 1998 in
relation to criteria for effective  internal  control over  financial  reporting
described in "Internal  Control - Integrated  Framework" issued by the Committee
of Sponsoring Organizations of the Treadway Commission.  Based on the results of
its  assessment,  the Company  believes  that,  as of  December  31,  1998,  the
Company's  system  of  internal  control  over  external  financial   reporting,
including the safeguarding of assets against  unauthorized  acquisition,  use or
disposition, met those criteria.




Teresa S. Madden                          Bill D. Helton
Principal Accounting Officer              Chief Executive Officer

February 23, 1999


                                       44
<PAGE>


                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO NEW CENTURY ENERGIES, INC.:

We have audited the consolidated balance sheets of New Century Energies, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated  statements of income,  shareholders' equity and cash flows
for each of the  three  years in the  period  ended  December  31,  1998.  These
financial  statements and the schedule referred to below are the  responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these  financial  statements and schedule based on our audits.  We did not audit
the consolidated financial statements of Southwestern Public Service Company for
the year  ended  December  31,  1996,  included  in the  consolidated  financial
statements  of New  Century  Energies,  Inc.,  which  statements  reflect  total
revenues  constituting 31% in 1996, of the related  consolidated  totals.  Those
statements  were  audited  by  other  auditors  whose  report  thereon  has been
furnished to us, and our opinion expressed herein,  insofar as it relates to the
amounts included for Southwestern  Public Service Company,  is based solely upon
the report of the other auditors.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.

In our  opinion,  based upon our audits  and the report of other  auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material respects, the financial position of New Century Energies,  Inc. and its
subsidiaries  as of  December  31,  1998  and  1997,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial  statements  taken as a whole.  The  schedule  listed  in the index of
financial  statements is presented for purposes of complying with the Securities
and  Exchange  Commission's  rules  and  is not  part  of  the  basic  financial
statements.  This schedule has been subjected to the auditing procedures applied
in our audits of the basic  financial  statements  and, in our  opinion,  fairly
states in all material  respects  the  financial  data  required to be set forth
therein in relation to the basic financial statements taken as a whole.


                                                        ARTHUR ANDERSEN LLP
Denver, Colorado
February 23, 1999


                                       45
<PAGE>


                        NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
                                CONSOLIDATED BALANCE SHEETS
                                   (Thousands of Dollars)
                                 December 31, 1998 and 1997

                                           ASSETS

                                                             1998       1997 
                                                             ----       ---- 

Property, plant and equipment, at cost:
   Electric ..........................................   $7,097,070  $6,703,863
   Gas................................................    1,210,605   1,136,231
   Steam and other....................................      111,620     120,322
   Common to all departments..........................      423,287     437,636
   Construction in progress...........................      391,100     318,124
                                                            -------     -------
                                                          9,233,682   8,716,176
   Less: accumulated depreciation ....................    3,351,659   3,182,800
                                                          ---------   ---------
     Total property, plant and equipment..............    5,882,023   5,533,376
                                                          ---------   ---------



Investments, at cost:
   Investment in Yorkshire Power and other 
     unconsolidated subsidiaries (Note 2).............      340,874     299,458
   Other..............................................       64,562      71,411
                                                            -------      ------
    Total investments.................................      405,436     370,869
                                                            -------     -------


Current assets:
   Cash and temporary cash investments................       56,667      72,623
   Accounts receivable, less reserve for uncollectible
     accounts ($4,842 at December 31, 1998; $5,355 
     at December 31, 1997)............................      319,145     315,539
   Accrued unbilled revenues..........................      130,455     110,877
   Recoverable purchased gas and electric energy 
     costs - net .....................................       66,154     129,292
   Materials and supplies, at average cost............       69,298      68,411
   Fuel inventory, at average cost....................       24,653      23,162
   Gas in underground storage, at cost (LIFO).........       52,624      47,394
   Prepaid expenses and other.........................       83,561      56,868
                                                            -------      ------
    Total current assets..............................      802,557     824,166
                                                            -------     -------

Deferred charges:
   Regulatory assets (Note 1).........................      381,632     430,475
   Unamortized debt expense ..........................       27,408      20,833
   Other..............................................      172,908     141,947
                                                            -------     -------
    Total deferred charges............................      581,948     593,255
                                                            -------     -------
                                                         $7,671,964  $7,321,666
                                                         ==========  ==========


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

                                       46
<PAGE>


                   NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (Thousands of Dollars)
                           December 31, 1998 and 1997

                             CAPITAL AND LIABILITIES

                                                           1998       1997 
                                                           ----       ---- 
                                                         

Common stock (Note 4)................................   $1,866,386  $1,694,195
Retained earnings....................................      740,677     659,050
Accumulated comprehensive income.....................        7,764       4,142
                                                           -------      ------
    Total common equity..............................    2,614,827   2,357,387

Preferred stock of subsidiaries (Note 4):
   Not subject to mandatory redemption...............            -     140,002
   Subject to mandatory redemption at par............            -      39,253
PSCo and SPS obligated mandatorily redeemable
   preferred securities of subsidiary trusts holding
   solely subordinated debentures of PSCo and SPS
   (Note 5)..........................................      294,000     100,000
Long-term debt of subsidiaries (Note 6)..............    2,205,545   1,987,955
                                                         ---------   ---------
                                                         5,114,372   4,624,597

Noncurrent liabilities:
   Employees' postretirement benefits other than
   pensions (Note 12) ................................      61,732      62,716
   Employees' postemployment benefits (Note 12).......      31,326      27,953
                                                           -------      ------
    Total noncurrent liabilities......................      93,058      90,669
                                                           -------      ------

Current liabilities:
   Notes payable and commercial paper (Note 7)........      524,394    588,343
   Long-term debt due within one year.................      138,165    257,469
   Preferred stock subject to mandatory redemption 
     within one year .................................            -      2,576
   Accounts payable...................................      285,080    298,469
   Dividends payable..................................       69,271     68,296
   Recovered electric energy costs - net..............       18,760          -
   Customers' deposits................................       30,793     27,993
   Accrued taxes......................................       85,384     66,587
   Accrued interest...................................       50,229     52,615
   Current portion of accumulated deferred income 
     taxes (Note 13) .................................        2,031     27,391
   Other..............................................      120,716     94,623
                                                            -------     ------
    Total current liabilities.........................    1,324,823  1,484,362
                                                          ---------  ---------

Deferred credits:
   Customers' advances for construction...............       55,400     53,041
   Unamortized investment tax credits ................      100,925    106,147
   Accumulated deferred income taxes (Note 13)........      947,247    922,341
   Other..............................................       36,139     40,509
                                                            -------     ------
    Total deferred credits............................    1,139,711  1,122,038
                                                          ---------  ---------

Commitments and contingencies (Notes 9 and 10)........   ---------- ----------
                                                         $7,671,964 $7,321,666
                                                         ========== ==========


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


                                       47
<PAGE>


                   NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                  (Thousands of Dollars, Except per Share Data)
                  Years ended December 31, 1998, 1997 and 1996


                                                   1998       1997      1996 
                                                   ----       ----      ----
Operating revenues:
   Electric................................    $2,697,486 $2,473,359 $2,416,539
   Gas.....................................       841,276    816,596    640,497
   Other...................................        72,143     52,570     39,998
                                                  -------    -------     ------
                                                3,610,905  3,342,525  3,097,034

Operating expenses:
   Fuel used in generation...................     644,311    671,805    635,280
   Purchased power...........................     712,887    531,487    510,582
   Cost of gas sold..........................     562,583    543,291    393,163
   Other operating and maintenance expenses..     637,743    594,359    568,581
   Depreciation and amortization.............     268,743    243,078    224,865
   Taxes (other than income taxes) ..........     134,137    129,280    128,980
                                                  -------    -------    -------
                                                2,960,404  2,713,300  2,461,451
                                                ---------  ---------  ---------
Operating  income............................     650,501    629,225    635,583

Other income and deductions:
   Merger expenses...........................        (790)   (34,088)   (21,107)
   Write-off of investments in cogeneration 
     projects (Note 3) ......................           -    (16,052)   (15,546)
   Equity in earnings of Yorkshire Power and 
     other unconsolidated subsidiaries (Note 2)    36,101     34,166        389
   Miscellaneous income and deductions - net..     (3,460)   (11,215)     1,771
                                                   ------    -------     ------
                                                   31,851    (27,189)   (34,493)

Interest charges and preferred dividends 
  of subsidiaries:
   Interest on long-term debt.................    168,184    165,560    144,067
   Other interest.............................     31,069     32,389     23,479
   Allowance for borrowed funds used during 
     construction ............................    (17,347)   (10,921)    (5,945)
   Dividends on PSCo and SPS obligated 
     mandatorily redeemable preferred
     securities of subsidiary trusts holding
     solely subordinated debentures of PSCo
     and SPS .................................     17,561      7,850      1,526
   Dividend requirements and redemption premium
     on preferred stock of subsidiaries ......      5,332     11,752     11,969
                                                    -----     ------     ------
                                                  204,799    206,630    175,096
                                                  -------    -------    -------
Income before income taxes and 
  extraordinary item .........................    477,553    395,406    425,994

Income taxes (Note 13)........................    135,596    133,919    153,653
                                                  -------    -------    -------

Income before extraordinary item..............    341,957    261,487    272,341
Extraordinary item - U.K. windfall tax (Note 2).        -   (110,565)         -
                                                  -------    --------    ------
Net income....................................   $341,957   $150,922   $272,341
                                                 ========   ========   ========

Weighted average common shares outstanding:
   Basic......................................    111,859    104,805    103,059
   Diluted....................................    112,008    104,872    103,102

Earnings per share of common stock outstanding
  - Basic:
   Income before extraordinary item...........      $3.06     $2.50       $2.64
   Extraordinary item.........................          -     (1.06)          -
                                                     ----     -----       -----
   Net income.................................      $3.06     $1.44       $2.64
                                                    =====     =====       =====
Earnings per share of common stock outstanding
  - Diluted:
   Income before extraordinary item...........       $3.05    $2.50       $2.64
   Extraordinary item.........................           -    (1.06)          -
                                                     -----    -----       -----
   Net income.................................       $3.05    $1.44       $2.64
                                                     =====    =====       =====

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

                                       48
<PAGE>



                   NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                (Thousands of Dollars, Except Share Information)
                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                     Accumulated
                                                                                        Other
                              Common Stock, $1 par value       Paid       Retained    Comprehensive
                                   Shares         Amount     in Capital   Earnings      Income        Total 
                                   ------         ------     ----------   --------      ------        ----- 

<S>                              <C>            <C>          <C>            <C>         <C>         <C>
Balance at January 1, 1996..     102,230,141    $  102,230   $1,243,278     $ 726,065   $      -    $2,071,573
Net income/Comprehensive
  income ...................               -             -            -       272,341          -       272,341
Dividends declared on common
  stock ....................               -             -            -      (225,130)         -      (225,130)
Issuance of common stock:
  Employees' Savings Plan ..         274,934           275        9,519             -          -         9,794
  Dividend Reinvestment Plan         809,603           810       27,818             -          -        28,628
  Incentive Compensation Plans        58,346            58        1,661             -          -         1,719
  Acquisitions (Note 3) ....         317,748           318       10,882             -          -        11,200
Other.......................               -             -            -           (85)         -           (85)
                                     -------        ------      -------       -------    -------       -------

Balance at December 31, 1996     103,690,772       103,691    1,293,158        773,191         -     2,170,040
Comprehensive income:
  Net income................               -             -            -        150,922         -       150,922
  Foreign currency translation
    adjustment .............               -             -            -              -     4,142         4,142
                                                                                                         -----
      Comprehensive income
       (Note 1) ............                                                                           155,064
Dividends declared on common
   stock ...................               -             -            -       (264,957)        -      (264,957)
Issuance of common stock:
  Employees' Savings Plan ..         250,058           250        9,518              -         -         9,768
  Dividend Reinvestment Plan         818,783           819       32,512              -         -        33,331
  Incentive Compensation Plans        89,688            89        2,765              -         -         2,854
  Stock offering proceeds, net
   (Note 4) ..................     5,900,000         5,900      245,493              -         -       251,393
Other.........................             -             -            -           (106)        -          (106)
                                     -------        ------      -------        -------   -------       -------

Balance at December 31, 1997     110,749,301       110,749    1,583,446        659,050     4,142     2,357,387
Comprehensive income:
  Net income..........                     -             -            -        341,957         -       341,957
  Foreign currency translation 
    adjustment                             -             -            -              -     3,622         3,622
                                                                                                         -----
     Comprehensive income (Note 1)                                                                     345,579
Dividends declared on common stock         -             -            -       (260,330)        -      (260,330)
Issuance of common stock:
  Employees' Savings Plan            222,387           222       10,146              -         -        10,368
  Dividend Reinvestment Plan         825,005           825       37,198              -         -        38,023
  Incentive Compensation Plans       194,079           195        6,605              -         -         6,800
  Stock offering proceeds, net
   (Note 4)                        2,500,000         2,500      114,500              -         -       117,000
                                   ---------         -----      -------          -----     -----       -------
Balance at December 31, 1998     114,490,772    $  114,491   $1,751,895      $ 740,677    $7,764    $2,614,827
                                 ===========    ==========   ==========      =========    ======    ==========  

</TABLE>

Authorized  shares of common stock were 260 million at December  31, 1998,  1997
and 1996.

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


                                       49
<PAGE>


                   NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Thousands of Dollars)
                  Years ended December 31, 1998, 1997 and 1996

                                                      1998      1997      1996
                                                      ----      ----     -----

Operating activities:
   Net income...................................    $341,957  $150,922 $272,341
   Adjustments to reconcile net income to net
    cash provided by operating activities:
     Extraordinary item - U.K. windfall tax 
       (Note 2) ................................           -   110,565        -
     Depreciation and amortization..............     279,829   253,263  225,264
     Amortization of investment tax credits.....      (5,222)   (5,501)  (7,506)
     Deferred income taxes......................       6,248    52,211   78,962
     Write-off of investments in cogeneration 
       projects (Note 3) .......................           -    16,052   15,546
     Equity in earnings of Yorkshire Power and
       other unconsolidated subsidiaries, net        (34,199)  (31,168)    (389)
     Allowance for equity funds used during
      construction .............................           -         1     (936)
     Change in accounts receivable..............       2,026   (29,627) (92,600)
     Change in inventories......................      (7,485)   (2,334)  23,479
     Change in other current assets.............      16,965   (97,063) (47,226)
     Change in accounts payable.................     (13,704)  (18,791) 141,771
     Change in other current liabilities........      69,908   (15,356) (85,321)
     Change in deferred amounts.................         740   (46,134) (34,617)
     Change in noncurrent liabilities...........       2,389     4,567   (9,725)
     Other......................................          87     2,832    2,139
                                                     -------   -------  -------
       Net cash provided by operating activities     659,539   344,439  481,182

Investing activities:
   Construction expenditures....................    (608,972) (475,497)(454,968)
   Allowance for equity funds used during 
     construction ..............................           -        (1)     936
   Proceeds from disposition of property, plant
     and equipment .............................       9,369     2,117   24,292
   Payment for purchase of companies, net of 
     cash acquired (Note 3) ....................     (13,725)        -    3,649
   Investment in Yorkshire Power (Note 2).......           -  (362,342)       -
   Purchase of other investments................      (6,131)  (32,560) (17,790)
   Sale of other investments....................       5,466    11,844      664
                                                     -------   -------  -------
       Net cash used in investing activities....    (613,993) (856,439)(443,217)

Financing activities:
   Proceeds from sale of common stock (Note 4)..     161,823   286,869   30,115
   Proceeds from sale of long-term debt (Note 6)     250,497   419,819  359,715
   Proceeds from sale of PSCo and SPS obligated 
    mandatorily redeemable preferred securities
    of subsidiary trusts holding solely 
    subordinated debentures of PSCo 
    and SPS (Note 6)............................     187,700         -  100,000
   Redemption of long-term debt.................    (159,323) (227,577)(175,298)
   Short-term borrowings - net..................     (63,949)  289,782 (105,739)
   Redemption of preferred stock of subsidiaries    (181,824)     (665)  (1,636)
   Dividends on common stock....................    (256,426) (233,620)(223,413)
                                                    --------  --------   ------
       Net cash (used in) provided by financing
         activities ............................     (61,502)  534,608  (16,256)
                                                     -------   -------   ------
       Net (decrease) increase in cash and 
          temporary cash investments ...........     (15,956)   22,608   21,709
       Cash and temporary cash investments at
          beginning of year                           72,623    50,015   51,553
       Net decrease in cash and temporary cash 
          investments for SPS for the
          transition period (Note 1)...........            -         -  (23,247)
                                                       -----     -----  -------
       Cash and temporary cash investments at 
          end of year .........................     $ 56,667  $ 72,623  $50,015
                                                    ========  ========  =======



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


                                       50
<PAGE>


Item 7.  Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations (PSCo)

      The following  narrative  analysis  discusses PSCo's results of operations
comparing the changes for the years ended December 31, 1998, 1997 and 1996. PSCo
merged with SPS effective August 1, 1997.  Effective with the Merger,  Cheyenne,
WGI, e prime and Natural Fuels were  transferred  by a declaration of a dividend
of the subsidiaries' stock, at net book value,  aggregating  approximately $49.9
million, to NCE. NCE subsequently made a capital contribution of the e prime and
Natural Fuels common stock, at net book value,  aggregating  approximately $29.5
million, to NC Enterprises.  Accordingly,  the consolidated statements of income
and cash flows for 1997 reflect the results of  operations  of Cheyenne,  WGI, e
prime and Natural  Fuels  through  July 31,  1997.  Where  relevant,  additional
information  has been  presented  to discuss the impact of the transfer of these
subsidiaries.   Certain   information  has  been  omitted  pursuant  to  General
Instructions I(2)(a). Discussion related to PSCo's Commitments and Contingencies
is covered  within  NCE's  Management's  Discussion  and  Analysis of  Financial
Condition and Results of Operations. See FORWARD LOOKING INFORMATION.

      In addition,  on March 31, 1998, NCI was  transferred  through the sale by
PSCo of all the outstanding common stock of NCI at net book value (approximately
$292.6 million), to NC Enterprises,  an intermediate holding company of NCE, and
received  as   consideration  a  promissory   note  from  NC  Enterprises.   The
consolidated statements of income and cash flows for 1998 reflect the results of
NCI through March 31, 1998 (See Note 2.  Investment in Yorkshire  Power and U.K.
Windfall Tax in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).

Earnings Available for Common Stock

      Earnings  were $194.8  million,  $81.7 million and $178.5  million  during
1998,  1997  and  1996,  respectively.  The  significant  decrease  in 1997  was
primarily  attributable to the recognition of an  extraordinary  item related to
the one-time  U.K.  windfall  tax of  approximately  $110.6  million for its 50%
ownership in Yorkshire Power.  Excluding the impact of this extraordinary  item,
earnings  increased  slightly  from 1997 to 1998  primarily  due to higher  1998
electric margin resulting from customer growth and lower merger costs, offset in
part by the  sale of NCI to  NCT.  Excluding  the  impact  of the  extraordinary
charge,  earnings  increased  $13.7  million in 1997,  as compared to 1996, as a
result of customer  growth  contributing  to  increased  electric and gas sales,
lower operating and maintenance expenses as well as equity earnings.

Electric Operations

      The  following  table  details  the annual  change in  electric  operating
revenues and energy costs as compared to the preceding year (in thousands).

1998                                   Increase (Decrease) From Prior Year    
                                                 Cheyenne
                                        PSCo     & e prime    Total
                                        ----     ---------    -----
Electric operating revenues:
 Retail...........................    $ 40,850   $(21,492)   $ 19,358
 Wholesale - regulated............     104,994          -     104,994
 Non-regulated power marketing....           -    (10,448)    (10,448)
 Other (including unbilled revenues)    36,492        (19)     36,473
                                        ------      -----      ------
  Total revenues..................     182,336    (31,959)    150,377
Fuel used in generation...........      13,478          -      13,478
Purchased power...................     121,546    (25,811)     95,735
                                       -------    -------      ------
  Net increase (decrease) in 
  electric margin ................     $47,312   $ (6,148)    $41,164
                                       =======   ========     =======


                                       51
<PAGE>


1997                                   Increase (Decrease) From Prior Year    
                                                  Cheyenne
                                        PSCo      & e prime     Total      
                                        ----      ---------     -----      
Electric operating revenues:
 Retail...........................     $(15,167)  $(16,305)  $(31,472)
 Wholesale - regulated............       25,083          -     25,083
 Non-regulated power marketing....            -      2,642      2,642
 Other (including unbilled revenues)        (25)       (22)       (47)
                                            ---        ---        ---
  Total revenues..................        9,891    (13,685)    (3,794)
Fuel used in generation...........        3,264          -      3,264
Purchased power...................       13,340     (9,866)     3,474
                                        -------    --------  --------
  Net decrease in electric margin.      $(6,713)   $(3,819)  $(10,532)
                                        =======    =======   ========

   The following table compares electric Kwh sales by major customer classes.

                          Millions of Kwh Sales      % Change From Prior Year *
                                                 1998               1997      
                                             --------------    ---------------
                                              Consoli   PSCo  Consoli    PSCo
                              1998     1997    dated    Only    dated     Only
                              ----     ----     -----   ----    -----     ----
Residential ..............    6,761    6,663     1.5%   3.4%    0.8%      2.1%
Commercial and Industrial.   15,610   15,621    (0.1)   2.3    (0.3)      1.3
Public Authority .........      207      189     9.4   10.8    (5.5)     (4.6)
                             ------   ------
  Total Retail............   22,578   22,473     0.5    2.7     -         1.5
Wholesale - Regulated.....    7,874    4,491    75.3   75.3    33.6      33.6
Non-regulated Power
  Marketing ..............        -      660     **     **     57.7       -
                              -----     ----
Total.....................   30,452   27,624    10.2   15.0     5.2       5.8
                             ======   ======

*  Percentages are calculated using unrounded amounts.
** Percentage  change  is  significant,  but  presentation  of  amount  is not
meaningful.

      Electric margin increased in 1998, when compared to 1997, primarily due to
higher retail sales of 2.7% resulting from customer growth of approximately 1.8%
and the  positive  impact  of a lower  1998  accrual  related  to the  estimated
customer refund obligation  (approximately  $9.6 million) in connection with the
earnings  sharing  in excess of 11%  return  on equity  (see Note 9.  Regulatory
Matters  in  Item  8.  FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA).  Higher
wholesale electric sales, reflecting increased marketing activities for economy,
short-term  firm  and  off-system  sales,  contributed  to  increased  operating
revenues; however, the margin on such sales is minimal. Electric margin revenues
decreased  in 1997,  when  compared  to 1996,  primarily  due to the retail rate
reductions  (approximately  $15.4  million)  implemented  in  October  1996  and
February 1997 and the  recognition of an estimated  customer  refund  obligation
(approximately  $16.4 million) in connection with the earnings sharing in excess
of 11%  return on  equity.  Higher  economy  sales by PSCo and  power  marketing
activities  of  non-regulated   subsidiaries  contributed  to  the  increase  in
wholesale revenues but had little impact on electric margin.

      PSCo has cost  adjustment  mechanisms  which recognize the majority of the
effects of changes in fuel used in  generation  and  purchased  power  costs and
allow  recovery of such costs on a timely basis.  In its decision on the Merger,
the CPUC  replaced  PSCo's ECA with an ICA,  effective  October  1, 1996,  which
allows for a 50%/50%  sharing of certain  fuel and  energy  cost  increases  and
decreases among customers and  shareholders.  For 1998 and 1997, the ICA did not
significantly  impact electric margin (see Note 9. Regulatory Matters in Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).

      Fuel used in  generation  expense  increased  approximately  $13.5 million
during 1998, as compared to 1997,  primarily due to increased  generation levels
at PSCo's power  plants.  Fuel used in  generation  expense  increased  slightly
during 1997, as compared to prior year,  due to increased  generation  levels at
PSCo's power plants offset in part, by lower coal supply costs.

                                       52
<PAGE>

      Purchased power expense increased approximately $95.7 million during 1998,
as compared to 1997,  primarily  due to  purchases to meet  increased  wholesale
marketing activities. Purchased power expense increased slightly during 1997, as
compared  to the  prior  year,  primarily  due to  purchases  to meet  increased
wholesale requirements, other customer demands and non-regulated power marketing
sales commitments.  The increase in 1997 was offset, in part, by the recognition
of only seven months of Cheyenne and e prime costs in 1997.

Gas Operations

      The  following  table details the annual change in revenues from gas sales
and gas purchased for resale as compared to the preceding year (in thousands).

1998                                      Increase (Decrease) From Prior Year 
                                                    Cheyenne
                                                  Natural Fuels
                                                      WGI &
                                             PSCo    e prime        Total 
                                             ----    -------        -----
Revenues from gas sales (including 
  unbilled revenues) ..................    $15,122  $(110,156)   $ (95,034)
Gas purchased for resale...............     14,078   (101,269)     (87,191)   
                                            ------   --------      -------

  Net increase (decrease) in gas sales
   margin .............................      1,044     (8,887)      (7,843)
Transportation, gathering, and 
  processing revenues .................      2,464       (457)       2,007
                                             -----       ----        -----
  Increase (decrease) in gas margin....     $3,508  $  (9,344)   $  (5,836)
                                            ======  =========    =========

1997                                      Increase (Decrease) From Prior Year 
                                                    Cheyenne
                                                  Natural Fuels
                                                      WGI &
                                             PSCo    e prime       Total 
                                             ----    -------       -----
Revenues from gas sales (including
  unbilled revenues) ..................    $62,504  $  26,538    $  89,042
Gas purchased for resale...............     44,500     30,082       74,582
                                            ------     ------       ------
  Net increase (decrease) in gas sales
    margin ............................     18,004     (3,544)      14,460
Transportation, gathering, and
 processing revenues ..................      4,068       (516)       3,552
                                             -----    -------        -----
  Increase (decrease) in gas margin....    $22,072  $  (4,060)   $  18,012
                                           =======  =========    =========

   The  following  table  compares gas  dekatherm  ("Dth")  deliveries  by major
customer classes.

                              Millions of        % Change From Prior Year *   
                             Dth Deliveries      1998               1997      
                                               Consoli  PSCo    Consoli   PSCo
                              1998     1997     dated   Only    dated     Only
                              ----     ----     -----   ----    -----     ----
Residential ..............    82.2      86.6    (5.1)% (3.2)%   0.6%      1.5%
Commercial................    40.2      46.9   (14.2) (11.7)   (9.3)     (7.1)
Non-regulated gas marketing      -      35.2    **       -     61.2        -
                              ----      ----  
  Total sales.............   122.4     168.7   (27.4)  (6.2)    5.7      (1.7)
Transportation, gathering
  and processing              90.7      86.9     4.5   17.3    (5.0)      3.1
                              ----      ----
  Total...................   213.1     255.6   (16.6)   2.5     1.8       -
                             =====    ======

*  Percentages are calculated using unrounded amounts.
** Percentage  change  is  significant,  but  presentation  of  amount  is not
meaningful.

      Gas  sales  margin  increased  in 1998  and  1997,  when  compared  to the
respective  preceding year, primarily due to an increase in PSCo's base revenues
associated with the higher rates effective February 1, 1997,  resulting from the
1996 rate case. This increase in 1998 was offset, in part, by a 6.2% decrease in
PSCo's  retail gas sales,  which  resulted  from warmer  weather  despite a 2.8%
increase in customers.  Gas marketing  activities by non-regulated  subsidiaries
favorably contributed to the gas sales margin in 1997 and 1996.


                                       53
<PAGE>

      Gas   transportation,   gathering  and   processing   revenues   increased
approximately  $2.0 million and $3.6  million,  when  compared to 1997 and 1996,
respectively,  primarily due to an increase in transport  deliveries  and higher
transportation  rates effective  February 1, 1997,  resulting from the Company's
1996 rate case. The increase in transport deliveries continues to be impacted by
the shifting of various  commercial  customers  to  transport  customers as such
customers procure their unbundled gas supply from other sources.

      PSCo has in place a GCA mechanism for natural gas sales,  which recognizes
the majority of the effects of changes in the cost of gas  purchased  for resale
and adjusts  revenues to reflect  such changes in cost on a timely  basis.  As a
result,  the changes in revenues  associated  with these  mechanisms in 1998 and
1997,  when compared to the respective  preceding year, had little impact on net
income.  However,  the  fluctuations  in gas sales impact the amount of gas PSCo
must  purchase  and,  therefore,  along with the  increases and decreases in the
per-unit  cost of gas,  affect total gas purchased  for resale.  In 1998,  lower
quantities  of gas were  purchased  during the year along with a decrease in the
per-unit  cost of gas,  served to reduce the cost of gas  purchased  for resale;
however,  these  decreases  were offset in part,  by the  recovery of prior year
deferred gas costs.  This  recovery was greater than the decrease in  purchases,
thereby  increasing  the cost of gas.  During 1997,  there were higher  per-unit
average  costs of gas,  along with  increases in the quantity of gas  purchased,
which contributed to the increase in cost of gas purchased for resale.

Non-Fuel Operating Expenses

      Other operating and maintenance  expenses  increased  approximately  $12.1
million  during 1998 as compared to 1997  primarily due to electric  operations,
including  higher  distribution  costs to serve new  customers  and a $5 million
reduction in the  decommissioning  liability  during 1997.  Other  operating and
maintenance expenses decreased $8.8 million during 1997 as compared to the prior
year,  primarily due to lower labor and employee  benefit costs, the recognition
in  1997  of only  seven  months  of  costs  from  the  subsidiaries  that  were
transferred  to NCE  effective  with the  Merger  and other  general  reductions
resulting from the Merger and cost  containment  efforts.  These  decreases were
offset,  in part,  by the  favorable  impact of the February 9, 1996  settlement
agreement  with the DOE  resolving  all spent  nuclear fuel storage and disposal
issues at Fort St. Vrain (See Note 10.  Commitments and Contingencies - Fort St.
Vrain in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).

      Depreciation and amortization  expense increased $12.5 million in 1998 and
$13.8 million in 1997 primarily due to the  depreciation  of property  additions
and the higher amortization of software costs.

      Income  taxes  increased  $10.7  million  in 1998,  as  compared  to 1997,
primarily  due to higher  pre-tax  income and lower  foreign tax credits as PSCo
transferred its investment in Yorkshire Power,  effective March 31, 1998. Income
taxes  decreased $5.5 million in 1997, as compared to prior year,  primarily due
to the  recognition  of foreign tax credits.  Additional  income tax expense was
recognized in 1997 due to higher  non-deductible  merger and executive severance
costs.

Other Income and Deductions

      Other  income and  deductions  increased  $3.5 million  during 1998,  when
compared  to  1997,  primarily  due  to  the  absence  of  Merger  and  business
integration costs and legal costs associated with various employee lawsuits.  In
addition,  equity in earnings from Yorkshire  Power decreased as a result of the
sale of NCI to NC Enterprises in exchange for a promissory note, effective March
31, 1998.  This  decrease in equity  earnings was offset,  in part,  by interest
income recognized on the note receivable ($14.2 million). See Note 2. Investment
in Yorkshire  Power and U.K.  Windfall Tax in Item 8.  FINANCIAL  STATEMENTS AND
SUPPLEMENTARY  DATA. Other income and deductions  increased $27.4 million during
1997,  when compared to prior year,  primarily due to the  recognition of equity
earnings in Yorkshire  Power ($34.9  million).  Merger and business  integration
costs  increased in 1997 by $7.5 million,  when compared to the preceding  year.
The 1997  amount  included  executive  severance  costs  and other  costs  which
resulted from the closing of the Merger effective August 1, 1997.


                                       54
<PAGE>


Interest Charges

      Interest  charges and  dividend  requirements  and  redemption  premium on
preferred  stock  decreased  $4.3 million  during 1998,  when  compared to 1997.
Proceeds from the issuance of $250 million of long-term  debt in April 1998 were
used, in part, to reduce  short-term  debt.  Higher interest costs on additional
long-term  debt,  net of  retirements,  were offset,  in part, by lower interest
rates.  Other  interest  expense  decreased  primarily  due to lower  short-term
borrowings.  The increase in dividends on PSCo obligated mandatorily  redeemable
preferred securities of subsidiary trust holding solely subordinated  debentures
of PSCo  which  were  issued  in May 1998  (see  Note 5.  Obligated  Mandatorily
redeemable  Preferred Securities of subsidiary Trust Holding Solely Subordinated
Debentures in Item 8. FINANCIAL  STATEMENTS AND  SUPPLEMENTARY  DATA).  Interest
charges and dividends on preferred  stock  increased  $26.4 million during 1997,
when  compared  to the prior  year,  primarily  due to  interest  on  borrowings
utilized  to  finance  capital  expenditures  and the April 1997  investment  in
Yorkshire Power. These financings included the issuance of medium-term notes and
an increased level of short-term borrowings.

Liquidity and Capital Resources

Prospective Capital Requirements

      The estimated cost as of December 31, 1998, of the  construction  programs
of PSCo and its subsidiaries and other capital  requirements for the years 1999,
2000 and 2001 are shown in the table below (in millions):

                                             1999        2000      2001 
                                           -------      ------    ------
Electric
    Production..........................   $   117      $  117    $   76
    Transmission........................        16          46        23
    Distribution........................       151         108       134
Gas ....................................        79          80        82
General.................................        74          55        55
Non-utility.............................         4           2         1
                                           -------      ------    ------
      Total construction expenditures...       441         408       371
Less: AFDC..............................        13           9        10
Add: Sinking funds and debt maturities
 and refinancings ......................        89          31       140
                                                --          --       ---
      Total capital requirements........   $   517      $  430    $  501
                                           =======      ======    ======

      The  construction  programs  of PSCo and its  subsidiaries  are subject to
continuing  review  and  modification.   In  particular,   actual   construction
expenditures  may vary from the estimates due to changes in the electric  system
projected  load  growth,  the desired  reserve  margin and the  availability  of
purchased  power,  as well as  alternative  plans for meeting  PSCo's  long-term
energy needs. In addition,  PSCo's ongoing  evaluation of asset  acquisition and
divestiture   opportunities   to  support   corporate   strategies   and  future
requirements  to install  emission  control  equipment may impact actual capital
requirements (see Note 10. Commitments and Contingencies - Environmental  Issues
in Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).

Capital Sources

      At  December  31,  1998,  PSCo and its  subsidiaries  estimate  that their
1999-2001 capital  requirements,  as summarized above, and the payment of common
stock  dividends to NCE will be met with a  combination  of funds from  external
sources  and funds from  operations.  PSCo and its  subsidiaries  may meet their
external capital requirements through capital contributions by NCE, the issuance
of secured or  unsecured  long-term  and  short-term  debt and the sale of other
securities  by PSCo and its  subsidiaries.  The  financing  needs are subject to
continuing review and can change depending on market and business conditions and
changes, if any, in the construction  programs and other capital requirements of
PSCo and its subsidiaries.

                                       55
<PAGE>


Item 8. Financial Statements and Supplementary Data (PSCo)

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


TO PUBLIC SERVICE COMPANY OF COLORADO:

We have audited the accompanying  consolidated  balance sheets and statements of
capitalization  of Public Service  Company of Colorado (a Colorado  corporation)
and subsidiaries as of December 31, 1998 and 1997, and the related  consolidated
statements of income,  shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1998. These financial  statements and the
schedule referred to below are the  responsibility of the Company's  management.
Our  responsibility  is to express an opinion on these financial  statements and
schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of Public  Service  Company of
Colorado and  subsidiaries  as of December 31, 1998 and 1997, and the results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 1998,  in  conformity  with  generally  accepted  accounting
principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial  statements  taken as a whole.  The  schedule  listed  in the index of
financial  statements is presented for purposes of complying with the Securities
and  Exchange  Commission's  rules  and  is not  part  of  the  basic  financial
statements.  This schedule has been subjected to the auditing procedures applied
in our audits of the basic  financial  statements  and, in our  opinion,  fairly
states in all material  respects  the  financial  data  required to be set forth
therein in relation to the basic financial statements taken as a whole.



                                                        ARTHUR ANDERSEN LLP
Denver, Colorado
February 23, 1999


                                       56
<PAGE>

                       PUBLIC SERVICE COMPANY OF COLORADO
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (Thousands of Dollars)
                           December 31, 1998 and 1997

                                     ASSETS

                                                             1998      1997 
                                                             ----      ---- 

Property, plant and equipment, at cost:
   Electric ..........................................    $4,369,134 $4,088,447
   Gas................................................     1,171,198  1,100,003
   Steam and other....................................        71,986     78,740
   Common to all departments..........................       418,484    432,840
   Construction in progress...........................       264,752    170,503
                                                             -------    -------
                                                           6,295,554  5,870,533
   Less: accumulated depreciation ....................     2,241,165  2,145,673
                                                           ---------  ---------
     Total property, plant and equipment..............     4,054,389  3,724,860
                                                           ---------  ---------

Investments, at cost:
   Investment in Yorkshire Power (Note 2).............             -    290,845
   Note receivable from affiliate (Note 2)............       192,620          -
   Other..............................................        22,664     43,311
                                                             -------     ------
    Total investments.................................       215,284    334,156
                                                             -------    -------

Current assets:
   Cash and temporary cash investments................        19,926     18,909
   Accounts receivable, less reserve for uncollectible
     accounts ($2,254 at December 31, 1998;
     $2,272  at December 31, 1997) ...................       172,587    183,063
   Accrued unbilled revenues .........................       119,856     94,284
   Recoverable purchased gas and electric energy costs
    - net ............................................        62,761    103,197
   Materials and supplies, at average cost............        47,881     48,030
   Fuel inventory, at average cost....................        22,361     20,862
   Gas in underground storage, at cost (LIFO).........        51,779     46,576
   Prepaid expenses and other.........................        46,523     47,686
                                                             -------     ------
    Total current assets..............................       543,674    562,607
                                                             -------    -------

Deferred charges:
   Regulatory assets (Note 1).........................       269,112    310,658
   Unamortized debt expense ..........................        17,874     10,800
   Other..............................................        77,303     55,794
                                                             -------     ------
    Total deferred charges............................       364,289    377,252
                                                              -------   -------
                                                          $5,177,636 $4,998,875
                                                          ========== ========== 


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

                                       57
<PAGE>


                       PUBLIC SERVICE COMPANY OF COLORADO
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (Thousands of Dollars)
                           December 31, 1998 and 1997

                             CAPITAL AND LIABILITIES

                                                               1998      1997 
                                                               ----      ---- 



Common stock......................................       $1,302,119  $1,302,119
Retained earnings.................................          325,213     319,280
Accumulated comprehensive income..................                -       4,142
                                                            -------     -------
    Total common equity...........................        1,627,332   1,625,541

Preferred stock (Note 4):
   Not subject to mandatory redemption............                -     140,002
   Subject to mandatory redemption at par.........                -      39,253
PSCo obligated mandatorily redeemable preferred 
  securities of subsidiary trust holding solely
  subordinated debentures of PSCo (Note 5) .......          194,000           -
Long-term debt (Note 6)...........................        1,643,130   1,338,138
                                                          ---------   ---------
                                                          3,464,462   3,142,934
                                                          ---------   ---------
Noncurrent liabilities:
   Employees' postretirement benefits other than
    pensions (Note 12) ...........................           55,537      58,695
   Employees' postemployment benefits (Note 12)...           27,195      25,031
                                                            -------     -------
    Total noncurrent liabilities..................           82,732      83,726
                                                            -------     -------

Current liabilities:
   Notes payable and commercial paper (Note 7).....         402,795     348,555
   Long-term debt due within one year..............          44,481     257,160
   Preferred stock subject to mandatory redemption 
     within one year ..............................               -       2,576
   Accounts payable................................         226,712     189,998
   Dividends payable...............................          46,461      40,975
   Customers' deposits.............................          23,902      21,888
   Accrued taxes...................................          57,848      42,549
   Accrued interest................................          36,729      39,177
   Current portion of accumulated deferred income 
     taxes (Note 13) .............................            8,142      19,872
   Other...........................................          68,729      88,655
                                                            -------     -------
    Total current liabilities......................         915,799   1,051,405
                                                            -------   ---------

Deferred credits:
   Customers' advances for construction............          54,260      51,830
   Unamortized investment tax credits .............          94,459      99,355
   Accumulated deferred income taxes (Note 13).....         538,581     534,246
   Other...........................................          27,343      35,379
                                                            -------     -------
    Total deferred credits.........................         714,643     720,810
                                                            -------     -------

Commitments and contingencies (Notes 9 and 10).....      ----------  ---------- 
                                                         $5,177,636  $4,998,875
                                                         ==========  ==========



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

                                       58
<PAGE>
                       PUBLIC SERVICE COMPANY OF COLORADO
                                AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CAPTALIZATION
                (Thousands of Dollars, Except Share Information)
                           December 31, 1998 and 1997

                                                               1998      1997 
                                                               ----      ---- 
Common shareholder's equity:
   Common stock, $0.01 par value, authorized and
    outstanding 100 shares in 1998 and 1997                 $      -  $       -
   Paid in capital...................................      1,302,119  1,302,119
   Retained earnings.................................        325,213    319,280
   Accumulated comprehensive income..................              -      4,142
                                                             -------    -------
    Total common shareholder's equity................      1,627,332  1,625,541
                                                           ---------  ---------

Preferred stock (Note 4):
                         Shares Issued and Outstanding 
                         ----------------------------- 
                                   1998       1997 
                                   ----       ---- 
$100 Par Value, 
  Authorized 3,000,000 Shares
   Not subject to mandatory
    redemption
     4.20% series                    -      100,000                -     10,000
     4.25% series (includes
       $7,500 premium)               -      174,997                -     17,507
     4.50% series                    -       65,000                -      6,500
     4.64% series                    -      159,950                -     15,995
     4.90% series                    -      150,000                -     15,000
     4.90% 2nd series                -      150,000                -     15,000
     7.15% series                    -      250,000                -     25,000
                                ------      -------          -------     ------
                                     -    1,049,947                -    105,002
                                ------    ---------          -------    -------
   Subject to mandatory 
     redemption
     7.50% series                    -      216,000                -     21,600
     8.40% series                    -      202,294                -     20,229
                                ------      -------           ------     ------
                                     -      418,294                -     41,829
   Less:  Preferred stock 
     subject to mandatory
     redemption within
      one year                       -      (25,760)               -     (2,576)
                                ------      -------           ------     ------
                                     -      392,534                -     39,253
                                ------      -------           ------     ------
$25 Par Value, Authorized 
   4,000,000 Shares
   Not subject to mandatory
     redemption
     8.40% series                    -    1,400,000                -     35,000
                                ------    ---------          -------     ------

$0.01 Par Value, Authorized
   10,000,000 Shares                 -            -                -          -
                                ------       ------          -------     ------
   Total preferred stock             -    2,842,481                -    179,255
                                ------    ---------          -------    -------

PSCo obligated mandatorily redeemable preferred
 securities of subsidiary trust holding solely
 subordinated debentures of PSCo (Note 5) ...........        194,000          -

Long-term debt (Note 6):
Public Service Company of Colorado:
   First Mortgage Bonds
    6-3/4% retired July 1, 1998......................              -     25,000
    6% due January 1, 2001...........................        102,667    102,667
    6% due April 15, 2003............................        250,000          -
    8-1/8% due March 1, 2004.........................        100,000    100,000
    Pollution Control Series A and B, 5-7/8% due
      March 1, 2004 .................................         21,500     22,000
    6-3/8% due November 1, 2005......................        134,500    134,500
    7-1/8% due June 1, 2006..........................        125,000    125,000
    Pollution Control Series G, 5-5/8%
      due April 1, 2008 .............................         18,000     18,000
    Pollution Control Series F, 7-3/8% 
      due November 1, 2009 ..........................         27,250     27,250
    Pollution Control Series G, 5-1/2% 
      due June 1, 2012. .............................         50,000     50,000
    Pollution Control Series G, 5-7/8% 
      due April 1, 2014 .............................         61,500     61,500
    9-7/8% due July 1, 2020..........................         75,000     75,000
    8-3/4% due March 1, 2022.........................        150,000    150,000
    7-1/4% due January 1, 2024.......................        110,000    110,000
   Secured Medium-Term Notes, Series A and B, 
     6.02% - 9.25%, due March 4, 1998 - March 5, 2007        296,500    423,500
   Unamortized premium...............................              -          4
   Unamortized discount..............................         (4,616)    (4,670)
   Capital lease obligations, 6.68% -11.21% due in 
     installments through May 31, 2025 ..............         39,555     44,392
                                                              ------     ------
                                                          $1,556,856 $1,464,143
                                                          ---------- ----------
         The accompanying notes to consolidated financial statements are
                 an integral part of these financial statements.

                                       59
<PAGE>

                       PUBLIC SERVICE COMPANY OF COLORADO
                                AND SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF CAPTALIZATION (continued)
                (Thousands of Dollars, Except Share Information)
                           December 31, 1998 and 1997


                                                               1998      1997 
                                                               ----      ---- 
Long-term debt (continued)

PS Colorado Credit Corporation, Inc.:
   Unsecured Medium-Term Notes, Series A,
    5.86% - 6.14%, due October 13, 1998 - May 30, 2000      $100,000   $100,000

1480 Welton, Inc.:
   13.25% secured promissory note, due in installments
   through October 1, 2016 ...........................        30,755     31,155
                                                              ------     ------
                                                           1,687,611  1,595,298
Less:  maturities due within one year.................        44,481    257,160
                                                              ------    -------
    Total long-term debt..............................     1,643,130  1,338,138
                                                           ---------  ---------

Total capitalization..................................    $3,464,462 $3,142,934
                                                          ========== ==========




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

                                       60
<PAGE>



                       PUBLIC SERVICE COMPANY OF COLORADO
                                AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                             (Thousands of Dollars)
                  Years ended December 31, 1998, 1997 and 1996



                                                  1998       1997        1996
                                                  ----       ----        ----

Operating revenues:
   Electric.................................  $1,635,573  $1,485,196 $1,488,990
   Gas......................................     640,064     733,091    640,497
   Other....................................       8,449      11,356      7,951
                                                 -------      ------      -----
                                               2,284,086   2,229,643  2,137,438

Operating expenses:
   Fuel used in generation..................     212,184      198,706   195,442
   Purchased power..........................     589,637      493,902   490,428
   Gas purchased for resale.................     380,554      467,745   393,163
   Other operating and maintenance expenses.     403,292      391,177   400,008
   Depreciation and amortization............     180,913      168,451   154,631
   Taxes (other than income taxes) .........      83,994       81,496    82,899
   Income taxes (Note 13) ..................     101,494       90,813    96,331
                                                 -------      -------   -------
                                               1,952,068    1,892,290 1,812,902
                                               ---------    --------- ---------
Operating income............................     332,018      337,353   324,536

Other income and deductions:
   Merger expenses..........................         418      (18,661)  (11,210)
   Equity in earnings of Yorkshire 
     Power (Note 2) ........................       3,446       34,926         -
   Miscellaneous income and deductions -
      net (Note 15) ........................       2,535      (13,374)  (13,260)
                                                   -----      -------   -------
                                                   6,399        2,891   (24,470)

Interest charges:
   Interest on long-term debt...............     120,082      118,438    95,826
   Other interest...........................      20,849       24,117    17,238
   Allowance for borrowed funds used during
     construction ..........................     (12,328)      (6,353)   (3,344)
   Dividends on PSCo obligated mandatorily
     redeemable  preferred securities of
     subsidiary trust holding solely
     subordinated debentures of PSCo (Note 5)      9,711            -         -
                                                   -----        -----      ----
                                                 138,314      136,202   109,720
                                                 -------      -------   -------

Income before extraordinary item............     200,103      204,042   190,346
Extraordinary item - U.K. windfall tax (Note 2)        -     (110,565)        -
                                                   -----     --------   -------
Net income...................................    200,103       93,477   190,346
Dividend requirements and redemption premium
 on preferred stock .........................      5,332       11,752    11,848
                                                   -----       ------    ------
Earnings available for common stock.........    $194,771      $81,725  $178,498
                                                ========      =======  ========


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

                                       61
<PAGE>


                       PUBLIC SERVICE COMPANY OF COLORADO
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
                (Thousands of Dollars, Except Share Information)
                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                     Accumulated
                                                                                        Other
                              Common Stock, $1 par value       Paid       Retained   Comprehensive
                                   Shares         Amount     in Capital   Earnings      Income        Total 
                                   ------         ------     ----------   --------      ------        ----- 

<S>                              <C>              <C>        <C>          <C>         <C>           <C>

Balance at January 1, 1996       63,358,128     $316,791     $680,315       $346,539   $       -    $ 1,343,645
Net income/Comprehensive income           -            -            -        190,346           -        190,346
Dividends declared:
  Common stock........                    -            -            -       (135,111)          -       (135,111)
  Preferred stock, $100 par value         -            -            -         (8,889)          -         (8,889)
  Preferred stock $25 par value           -            -            -         (2,940)          -         (2,940)
Issuance of common stock:
  Employees' Savings Plan           274,934        1,374        8,420              -           -          9,794
  Dividend Reinvestment Plan        809,603        4,048       24,580              -           -         28,628
  Management Incentive Plan          58,346          292        1,427              -           -          1,719
  Acquisitions (Note 4)             317,748        1,589        9,611              -           -         11,200
Other.................                    -            -            -           (104)          -           (104)
                                    -------       ------        -----         ------     -------         ------

Balance at December 31, 1996     64,818,759      324,094      724,353        389,841           -      1,438,288
Comprehensive income:
  Net income..........                    -            -            -         93,477           -         93,477
  Foreign currency translation
    adjustment                            -            -            -              -       4,142          4,142
                                                                                                          -----
    Comprehensive income (Note 1)                                                                        97,619
Dividends declared:
  Common stock, prior to
    August 1, 1997 Merger                 -            -            -        (76,202)          -       (76,202)
  Common stock, to NCE                    -            -            -        (76,093)          -       (76,093)   
  Preferred stock, $100 par value         -            -            -         (8,803)                   (8,803)
  Preferred stock, $25 par value          -            -            -         (2,940)                   (2,940)
Issuance of common stock:
  Employees' Savings Plan           250,058         1,250       8,518              -           -         9,768
  Dividend Reinvestment Plan        488,224         2,441      16,899              -           -        19,340
  Management Incentive Plan          40,404           202         993              -           -         1,195
Merger with SPS:
  Exchange of common stock for
    NCE stock.........          (65,597,345)     (327,987)    327,987              -           -             -
  Dividend of subsidiaries'
    stock to NCE............              -             -     (49,912)             -           -       (49,912)
Contribution of capital by 
    NCE (Note 4)                          -             -     273,300              -           -       273,300
Other.................                    -             -         (19)             -           -           (19)
                                     ------        ------        ----        -------     -------          ----

Balance at December 31, 1997            100             -   1,302,119        319,280       4,142     1,625,541
Comprehensive income:
  Net income..........                    -             -           -        200,103           -       200,103
  Foreign currency translation
    adjustment                            -             -           -              -       5,260         5,260
  Sale of NCI to NC Enterprises           -                                               (9,402)       (9,402)
                                                                                                        ------
      Comprehensive income (Note 1)                                                                    195,961
Dividends declared
  Common stock, to NCE                    -             -           -       (188,845)          -      (188,845)
  Preferred stock, $100 par value         -             -           -         (4,166)          -        (4,166)
  Preferred stock, $25 par value          -             -           -         (1,166)          -        (1,166)
  Other...............                    -             -           -              7           -             7
                                    -------        ------     -------         ------     -------         -----

Balance at December 31, 1998            100       $     -  $1,302,119      $ 325,213     $     -    $1,627,332    
                                        ===       =======  ==========      =========     =======    ==========
</TABLE>


(1)Authorized  shares of common stock were 100 at December 31, 1998 and 1997 and
160  million  at  December  31,  1996.  Common  stock,  par value was $5 through
September 18, 1997.  Effective  September 19, 1997,  common stock, par value was
changed to $0.01.
         The accompanying notes to consolidated financial statements are
                 an integral part of these financial statements.

                                       62
<PAGE>

                       PUBLIC SERVICE COMPANY OF COLORADO
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Thousands of Dollars)
                  Years ended December 31, 1998, 1997 and 1996


                                                     1998       1997     1996
                                                    -----       ----     ----
Operating activities:
   Net income...................................    $200,103  $ 93,477 $190,346
   Adjustments to reconcile net income to net
    cash provided by operating activities:
     Extraordinary item - U.K. windfall tax
      (Note 2) .................................           -   110,565        -
     Depreciation and amortization..............     186,620   173,047  159,400
     Amortization of investment tax credits.....      (4,896)   (5,219)  (7,256)
     Deferred income taxes......................       7,092    37,390   60,899
     Equity in earnings of Yorkshire Power......      (3,446)  (34,926)       -
     Allowance for equity funds used during
      construction .............................           -         6     (757)
     Change in accounts receivable..............      21,540   (15,378) (88,680)
     Change in inventories......................      (6,553)   (2,163)  20,542
     Change in other current assets.............       7,937   (52,914) (31,169)
     Change in accounts payable.................       9,148    (5,413)  88,473
     Change in other current liabilities........      22,957   (15,870) (36,615)
     Change in deferred amounts.................     (18,289)  (21,913) (19,550)
     Change in noncurrent liabilities...........        (995)    3,367   (9,779)
     Other......................................           -      (144)   1,760
                                                     -------   -------  -------
       Net cash provided by operating activities     421,218   263,912  327,614

Investing activities:
   Construction expenditures....................    (504,727) (352,273)(321,162)
   Allowance for equity funds used during
     construction ..............................           -        (6)     757
   Proceeds from disposition of property, plant 
     and equipment .............................       9,102     3,187   20,454
   Investment in Yorkshire Power (Note 2).......           -  (362,342)       -
   Payment received on note receivable from NC 
     Enterprises (Note 2) ......................     100,000         -        -
   Payment for purchase of companies, net of 
     cash acquired (Note 3) ....................           -         -    3,649
   Transfer of subsidiaries to NCE (Note 1).....           -    (2,229)       -
   Purchase of other investments................      (1,345)  (19,224) (11,485)
   Sale of other investments....................       4,101    11,162      664
                                                     -------   -------  -------
       Net cash used in investing activities....    (392,869) (721,725)(307,123)

Financing activities:
   Proceeds from sale of common stock (Note 4)..           -    20,517   30,115
   Contribution of capital by NCE...............           -   273,300        -
Proceeds from sale of PSCo obligated mandatorily
   redeemable preferred securities (Note 5).....     187,700         -        -
   Proceeds from sale of long-term debt (Note 6)     247,025   412,220  217,415
   Redemption of long-term debt.................    (157,737) (205,550) (83,356)
   Short-term borrowings - net..................      66,195   127,530  (43,325)
   Redemption of preferred stock................    (181,824)     (665)  (1,376)
   Dividends on common stock (Notes 4 and 15)...    (180,430) (148,279)(133,394)
   Dividends and redemption premium on preferred
     stock .....................................      (8,261)  (11,757) (11,857)
                                                      ------   -------  ------- 

       Net cash (used in) provided by financing
        activities .............................     (27,332)  467,316  (25,778)
                                                     -------   -------  -------

       Net increase (decrease) in cash and 
         temporary cash investments ............       1,017     9,503   (5,287)
       Cash and temporary cash investments at
         beginning of year .....................      18,909     9,406   14,693
                                                      ------     -----   ------
       Cash and temporary cash investments at
           end of year .........................     $19,926   $18,909  $ 9,406
                                                     =======   =======  =======



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



                                       63

<PAGE>


Item 7.  Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations (SPS)

      The following  narrative  analysis  discusses  SPS's results of operations
comparing the years ending  December 31, 1998,  December 31, 1997 and the fiscal
year ending  August 31,  1996.  SPS merged with PSCo  effective  August 1, 1997.
Effective with the Merger, Quixx and UE, previously  wholly-owned  subsidiaries,
were transferred  through the sale by SPS of all of the outstanding common stock
of such  subsidiaries  at net book value,  to NC  Enterprises,  an  intermediate
holding company of NCE. The 1997 statements of income and cash flows reflect the
results of operations of Quixx and UE through July 31, 1997.

      SPS  changed  its fiscal  year in early  1997 and then filed a  Transition
Report on Form 10-K for the  period  September  1, 1996 to  December  31,  1996.
Additional  information has been presented where  meaningful,  however,  certain
information  has  been  omitted  pursuant  to  General   Instructions   I(2)(a).
Discussion  related to  Commitments  and  Contingencies  is covered within NCE's
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations. See FORWARD LOOKING INFORMATION.

Earnings Available for Common Stock

      Earnings available for common stock were $115.0 million, $75.6 million and
$103.3 million during 1998,  1997 and 1996,  respectively.  The increase in 1998
earnings  was  primarily  due to higher  electric  sales,  lower  operation  and
maintenance  expenses,  the recognition of merger and business integration costs
during 1997 and the  write-off of Quixx's and UE's  investments  in the Carolina
Energy  Project  in  1997.  1997  earnings  were  negatively   impacted  by  the
recognition of merger and business  integration  costs, the write-off of Quixx's
and UE's  investments in the Carolina Energy Project in 1997 and the recognition
of a $11.7  million  gain on the sale of certain  water  rights by Quixx in 1996
(see Note 3.  Acquisitions  and  Divestitures  Item 8. FINANCIAL  STATEMENTS AND
SUPPLEMENTARY DATA).

      The $9.4 million  decrease in earnings  during the Transition  Period,  as
compared to the same period in 1995,  was  primarily due to the write-off of the
BCH project in December 1996 (see Note 3.  Acquisitions and Divestitures in Item
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).

Electric Operations

      Substantially  all of SPS's  operating  revenues  result  from the sale of
electric energy.  The principal  factors  impacting  revenues are the amount and
price of energy sold. The following  table details the annual change in electric
operating revenues and energy costs as compared to the preceding fiscal year (in
thousands):

                                    Increase (Decrease) From Prior Year
                                         1998       1997
                                         ----       ----
Electric operating revenues:
 Retail...........................     $21,513    $50,743
 Wholesale........................      15,350     14,382
 Other (including unbilled revenues)   (46,031)    (4,167)
                                       -------     ------
  Total revenues..................      (9,168)    60,958
Fuel used in generation...........     (40,972)    56,076
Purchased power...................       8,654     (3,509)
                                       -------    -------
  Net increase in electric margin.     $23,150    $ 8,391
                                       =======    =======

                                       64
<PAGE>


  The following table compares electric Kwh sales by major customer classes.

                             Millions of Kwh Sales % Change From Prior Year
                                1998     1997          1998     1997
                                ----     ----          ----     ----
Residential ..............     3,169    2,987           6.1%     4.1%
Commercial  ..............     3,051    2,990           2.0      3.6
Industrial  ..............     8,367    8,135           2.9      4.1
Public Authority .........       630      583           8.1      2.1
                              ------    -----
  Total Retail............    15,217   14,695           3.6      3.9
Wholesale.................     8,075    7,004          15.3      3.8
                              ------   -----
Total.....................    23,292   21,699           7.3      3.9
                              ======   ======

      Electric  operating  revenues decreased $9.2 million or 1.0% in 1998, when
compared to 1997, primarily due to lower deferred fuel revenues  attributable to
the pass through to customers of lower fuel costs,  the  recognition  in 1997 of
revenues associated with the anticipated  recovery of the Thunder Basin judgment
and rate  reductions  for  guaranteed  Merger  savings,  $5.8  million  in 1998,
compared to $1.5 million in 1997.  This decrease was offset,  in part, by higher
electric  sales due to the hotter  weather  during the summer of 1998 and a 1.4%
increase in customer  growth and  additional  revenues  of  approximately  $16.9
million  recorded in connection  with the  settlement of the 1985 FERC rate case
(See  Note  9.   Regulatory   Matters  in  Item  8.  FINANCIAL   STATEMENTS  AND
SUPPLEMENTARY DATA.).

      Electric  operating revenues increased $61.0 million or 6.8% in 1997, when
compared to 1996,  primarily due to the pass through to customers of higher fuel
costs and costs related to the Texas jurisdictional portion of the Thunder Basin
judgment, a portion of which were recorded as an operating expense and increased
electric sales. Under the various state regulatory approvals, SPS is required to
provide credits to retail customers over five years for one-half of the measured
non-fuel  operation and maintenance  expense savings  associated with the Merger
case (See Note 9. Regulatory Matters, Merger Related Rate Reductions, in Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.).

      Fuel used in generation  expense  decreased $41.0 million or 8.7% in 1998,
when  compared to 1997,  primarily  due to lower  prices of coal and natural gas
offset,  in part, by increased  generation  levels  required to serve retail and
wholesale  customers.  The  decrease  in coal  costs  was  primarily  due to the
expiration of a coal supply contract in 1997 and negotiation with a new supplier
in 1998 and lower transportation costs. The cost of natural gas increased due to
generation at the new Cunningham  Station  combustion turbine unit. Fuel used in
generation  expense  increased  $56.1 million or 13.4% in 1997, when compared to
the prior year,  primarily  due to  increased  generation  levels at SPS's power
plants and higher  prices of natural gas as SPS purchased  approximately  40% of
its gas supply requirements on the spot market during 1997.

      Purchased  power  increased $8.7 million during 1998, when compared to the
same period in 1997,  primarily  due to an increase in spot market prices and an
increase in demand  requirements  resulting from increased  wholesale and retail
sales.  Purchased  power  decreased $3.5 million in 1997, when compared to 1996,
primarily  due to the  increased  availability  and  efficiency  of SPS's  power
plants. SPS generates substantially all of its power for sale to its firm retail
and  wholesale  customers  and  sells  non-firm  energy as the  market  demands.
Similarly,  SPS purchases  low-cost non-firm energy when available and as needed
to meet customer requirements.

      SPS has fuel cost  adjustment  mechanisms  which recognize the majority of
the effects of changes in fuel used in generation and purchased  power costs and
allow  recovery  of such costs on a timely  basis.  As a result,  the changes in
revenues associated with these mechanisms in 1998 and 1997, when compared to the
respective preceding year, had little impact on net income. The recovery of fuel
and purchase power costs is discussed  further in Note 9. Regulatory  Matters in
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


                                       65
<PAGE>


Other Operating Revenues

      Other operating revenues decreased $18.9 million in 1998 and $13.5 million
in 1997,  when  compared to the prior year,  due to the August 1, 1997,  sale of
Quixx and UE, as discussed above.  Other operating revenues in 1997 include only
seven months of Quixx and UE operations as compared to twelve months in 1996.

Non-Fuel Operating Expenses

      Other operating and maintenance  expenses  decreased $28.1 million in 1998
as compared to 1997.  Excluding the seven months of expenses  recognized in 1997
for UE and Quixx and the $12.1  million  Thunder  basin costs  judgement  costs,
other operating and maintenance  expenses decreased $2.4 million.  This decrease
is primarily due to lower  maintenance  costs at the Company's  power plants and
employee benefit costs. Other operating and maintenance  expenses increased $1.6
million in 1997 as compared to 1996.  This increase was due to the Thunder Basin
judgment  costs,  discussed  above,  offset in part, by lower labor and employee
benefit costs attributable to staffing  reductions in connection with the Merger
and SPS's cost containment efforts.

      Depreciation  and  amortization  expense  increased  $8.3  million in 1998
primarily due to $7.6 million of  additional  depreciation  expense  recorded in
1998, in connection with the settlements related to the 1985 wholesale rate case
and the  depreciation  of  property  additions.  Depreciation  and  amortization
expense  increased  $0.6 million in 1997  primarily due to the  depreciation  of
property additions.

      Income taxes  increased  $16.9 million in 1998 and decreased $16.5 million
in 1997,  as  compared to the prior  year,  primarily  due to changes in pre-tax
income.  Income tax expense for 1997 and 1996 include the effects of recognizing
certain merger and executive severance costs as non-deductible.

Other Income and Deductions

      Other income and deductions  increased  $34.2 million in 1998, as compared
to 1997,  primarily due to the 1997 write-off of the investments in the Carolina
Energy Project  (which totaled  approximately  $16.1  million),  the absences of
merger and business integration expenses in 1998 and lower income and deductions
attributable  to Quixx and UE.  Higher  interest  income was  recognized in 1998
related to the note receivable from NC Enterprises for the sale of Quixx and UE.
Other income and deductions  decreased $31.9 million in 1997, as compared to the
prior year, primarily due to the write-off of investments in the Carolina Energy
Project by Quixx and UE, the  recognition  of the $11.7 million gain on the sale
of  certain  water  rights  by Quixx  in 1996 and  higher  merger  and  business
integration  expenses  (see Note 3.  Acquisitions  and  Divestitures  in Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA).

      Other income and  deductions  decreased  $15.4  million in the  Transition
Period in 1996,  as compared to the same  period in 1995,  primarily  due to the
December   1996   write-off  of  Quixx's   investment  in  the  BCH  Project  of
approximately $15.5 million.

Interest Charges

      Interest  charges  increased  $1.2 million in 1998 primarily due to higher
interest  costs on  short-term  debt used for  general  corporate  requirements.
Interest  charges  increased  $6.5 million in 1997  primarily due to interest on
borrowings used to finance capital expenditures.  In October 1996,  Southwestern
Public  Service  Capital I, a wholly owned  trust,  issued $100 million of 7.85%
Trust  Preferred  Securities,  Series A, due September 1, 2036.  The expense for
these securities is shown as Dividends on SPS obligated  mandatorily  redeemable
preferred securities of subsidiary trust holding solely subordinated  debentures
of SPS. The funds from this financing were used to reduce short-term debt.


                                       66
<PAGE>


Liquidity and Capital Resources

Prospective Capital Requirements

      The estimated cost as of December 31, 1998, of the  construction  programs
of SPS and other  capital  requirements  for the years  1999,  2000 and 2001 are
shown in the table below (in millions):

                                             1999        2000      2001 
                                           -------      ------    ------
Electric
    Production..........................   $    46      $   17    $    3
    Transmission........................        29          62        69
    Distribution........................        32          56        44
General.................................        12           4         4
                                           -------      ------    ------
      Total construction expenditures...       119         139       120
Less: AFDC..............................         7           8         8
Add: Sinking funds and debt maturities 
   and refinancings ...................         90           -         - 
                                                --          --       ---
Total capital requirements..............   $   202      $  131    $  112
                                           =======      ======    ======

      The  construction  programs  of SPS are subject to  continuing  review and
modification.  In particular, actual construction expenditures may vary from the
estimates  due to changes in the electric  system  projected  load  growth,  the
desired  reserve  margin and the  availability  of purchased  power,  as well as
alternative  plans for meeting SPS's long-term energy needs. In addition,  SPS's
ongoing evaluation of asset acquisition and divestiture opportunities to support
corporate  strategies  and  future  requirements  to  install  emission  control
equipment may impact actual capital  requirements (see Note 10.  Commitments and
Contingencies  -  Environmental  Issues  in Item  8.  FINANCIAL  STATEMENTS  AND
SUPPLEMENTARY DATA).

Capital Sources

      At  December  31,  1998,   SPS  estimates   that  its  1999-2001   capital
requirements,  as summarized above, and the payment of common stock dividends to
NCE will be met with a combination of funds from external sources and funds from
operations.  SPS may meet its  external  capital  requirements  through  capital
contributions  by NCE,  the  issuance  of secured  or  unsecured  long-term  and
short-term  debt,  and the sale of other  securities.  The  financing  needs are
subject to  continuing  review and can change  depending  on market and business
conditions and changes,  if any, in the construction  programs and other capital
requirements of SPS.


                                       67
<PAGE>


Item 8. Financial Statements and Supplementary Data (SPS)

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


TO SOUTHWESTERN PUBLIC SERVICE COMPANY:

We have audited the accompanying balance sheets and statements of capitalization
of Southwestern Public Service Company (a New Mexico corporation) as of December
31, 1998 and 1997, and the related  statements of income,  shareholder's  equity
and cash flows for each of the two years in the period ended  December 31, 1998.
These  financial   statements  and  the  schedule  referred  to  below  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Southwestern  Public Service
Company as of December 31, 1998 and 1997,  and the results of its operations and
its cash flows for each of the two years in the period ended  December 31, 1998,
in conformity with generally accepted accounting principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial  statements  taken as a whole.  The  schedule  listed  in the index of
financial  statements is presented for purposes of complying with the Securities
and  Exchange  Commission's  rules  and  is not  part  of  the  basic  financial
statements.  This schedule has been subjected to the auditing procedures applied
in our audits of the basic  financial  statements  and, in our  opinion,  fairly
states in all material  respects  the  financial  data  required to be set forth
therein in relation to the basic financial statements taken as a whole.


                                                        ARTHUR ANDERSEN LLP
Denver, Colorado
February 23, 1999

                                       68
<PAGE>



                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

Southwestern Public Service Company:

We have audited the consolidated statements of income,  shareholder's equity and
cash flows for the four months ended December 31, 1996 and the year ended August
31,  1996  of  Southwestern  Public  Service  Company  and  subsidiaries.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the results of  operations  and cash flows of  Southwestern
Public  Service  Company  and  subsidiaries  for the above  stated  periods,  in
conformity with generally accepted accounting principles.


                                               DELOITTE & TOUCHE LLP
Dallas, Texas
February 28, 1997
(June 19, 1997, as to the Carolina Energy
 Limited Partnership in Note 3)


                                       69
<PAGE>


                       SOUTHWESTERN PUBLIC SERVICE COMPANY
                                 BALANCE SHEETS
                             (Thousands of Dollars)
                           December 31, 1998 and 1997

                                     ASSETS

                                                         1998          1997 
                                                         ----          ---- 

Property, plant and equipment, at cost:
   Electric .......................................   $2,665,115     $2,557,579
   Construction in progress........................      121,407        144,452
                                                         -------        -------
                                                       2,786,522      2,702,031
   Less: accumulated depreciation .................    1,057,183        987,487
                                                       ---------        -------
    Total property, plant and equipment............    1,729,339      1,714,544
                                                       ---------      ---------


Investments, at cost:
   Notes receivable from affiliate (Note 4)........      119,036        119,036
   Other...........................................        5,591          5,832
                                                           -----        -------
    Total investments..............................      124,627        124,868
                                                         -------        -------

Current assets:
   Cash and temporary cash investments.............        1,350            986
   Accounts receivable, less reserve for 
     uncollectible accounts ($1,695 at
     December 31, 1998; $2,442 at December 31, 1997)      76,190         96,548
   Accrued unbilled revenues ......................        9,373         15,468
   Recoverable electric energy costs - net.........            -         23,086
   Materials and supplies, at average cost.........       16,970         16,337
   Fuel inventory, at average cost.................        2,293          2,301
   Current portion of accumulated deferred income
      taxes (Note 13) .............................        6,113              -
   Prepaid expenses and other......................        5,248          3,367
                                                           -----        -------
    Total current assets...........................      117,537        158,093
                                                         -------        -------

Deferred charges:
   Regulatory assets (Note 1)......................      111,971        119,244
   Unamortized debt expense .......................        8,767          9,395
   Other...........................................       37,623         62,592
                                                          ------        -------
    Total deferred charges.........................      158,361        191,231
                                                         -------        -------
                                                      $2,129,864     $2,188,736
                                                      ==========     ==========



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

                                       70
<PAGE>

                       SOUTHWESTERN PUBLIC SERVICE COMPANY
                                 BALANCE SHEETS
                             (Thousands of Dollars)
                           December 31, 1998 and 1997

                             CAPITAL AND LIABILITIES

                                                         1998          1997 
                                                         ----          ---- 


Common stock.......................................   $  348,402     $  348,402
Retained earnings..................................      389,818        349,988
                                                         -------        -------
    Total common equity............................      738,220        698,390

SPS obligated mandatorily redeemable preferred 
 securities of subsidiary trust holding solely
 subordinated debentures of SPS (Note 5) ..........      100,000        100,000
Long-term debt (Note 6)............................      530,618        620,598
                                                         -------        -------
                                                       1,368,838      1,418,988
                                                       ---------      ---------

Noncurrent liabilities:
   Employees' postretirement benefits other than 
     pensions (Note 12) ...........................        5,941          3,800
   Employees' postemployment benefits (Note 12)....        3,571          2,446
                                                           -----          -----
    Total noncurrent liabilities...................        9,512          6,246
                                                           -----          -----

Current liabilities:
   Notes payable and commercial paper (Note 7).....       85,162        154,244
   Notes payable to affiliates (Note 7)............        9,000         25,160
   Long-term debt due within one year..............       90,113            173
   Accounts payable................................       64,275        107,465
   Dividends payable...............................       20,007         22,546
   Recovered electric energy costs - net...........       18,760              -
   Customers' deposits.............................        5,904          5,471
   Accrued taxes...................................       37,646         28,051
   Accrued interest................................       12,273         12,715
   Current portion of accumulated deferred income
      taxes (Note 13) .............................            -         10,740
   Other...........................................       18,011         14,658
                                                          ------        -------
    Total current liabilities......................      361,151        381,223
                                                         -------        -------

Deferred credits:
   Unamortized investment tax credits .............        5,219          5,469
   Accumulated deferred income taxes (Note 13).....      380,655        372,447
   Other...........................................        4,489          4,363
                                                           -----        -------
    Total deferred credits.........................      390,363        382,279
                                                         -------        -------

Commitments and contingencies (Notes 9 and 10).....   ----------     ----------
                                                      $2,129,864     $2,188,736
                                                      ==========     ==========



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

                                       71
<PAGE>


                       SOUTHWESTERN PUBLIC SERVICE COMPANY
                          STATEMENTS OF CAPITALIZATION
              (Thousands of Dollars, Except Per Share Information)
                           December 31, 1998 and 1997


                                                               1998      1997 
                                                               ----      ---- 

Common shareholder's equity:
   Common stock, $1 par value, authorized 200 shares 
     in 1998 and in 1997, outstanding 100 shares in
     1998 and in 1997........ ........................       $      -  $      -
   Paid in capital....................................        348,402   348,402
   Retained earnings..................................        389,818   349,988
                                                              -------   -------
    Total common shareholder's equity.................        738,220   698,390
                                                              -------   -------

Preferred stock (Note 4):
   $1 par value, 10 million shares authorized; no
    shares outstanding ...............................              -         -
                                                              -------   -------

SPS obligated mandatorily redeemable preferred securities
 of subsidiary trust holding solely subordinated 
 debentures of SPS, 4 million shares outstanding,
 7.85% (Note 5) ......................................        100,000   100,000
                                                              -------   -------
Long-term debt (Note 6):
First Mortgage Bonds:
   6-7/8% due December 1, 1999........................         90,000    90,000
   7-1/4% due July 15, 2004...........................        135,000   135,000
   6-1/2% due March 1, 2006...........................         60,000    60,000
   8-1/4% due July 15, 2022...........................         40,000    40,000
   8-1/5% due December 1, 2022........................        100,000   100,000
   8-1/2% due February 15, 2025.......................         70,000    70,000
Pollution control obligations, securing pollution 
   control revenue bonds:
   Not collateralized by First Mortgage Bonds:
    variable rate (4.30% at December 31, 1998 and 1997)
    due July 1, 2011 .................................         44,500    44,500
    variable rate (6.435% effective December 31, 1998
    and 1997) due July 1, 2016 .......................         25,000    25,000
    5-3/4% series, due September 1, 2016..............         57,300    57,300
   Less: funds held by Trustee........................           (168)     (161)
Other.................................................            112       286
Unamortized discount and premium-net..................         (1,013)   (1,154)
                                                              -------   -------
                                                              620,731   620,771
Less: maturities due within one year..................         90,113       173
                                                              -------   -------
    Total long-term debt..............................        530,618   620,598
                                                              -------   -------

Total capitalization..................................     $1,368,838 $1,418,988
                                                           ========== ==========


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


                                       72
<PAGE>


                       SOUTHWESTERN PUBLIC SERVICE COMPANY
                              STATEMENTS OF INCOME
                             (Thousands of Dollars)
        Years ended December 31, 1998, 1997 and August 31, 1996 (Note 1)



                                                      1998     1997      1996 
                                                    -------   -------  -------

Operating revenues:
   Electric.....................................    $951,187  $960,355 $899,397
   Other........................................           -    18,928   32,403
                                                     -------   -------  -------
                                                     951,187   979,283  931,800

Operating expenses:
   Fuel used in generation......................     432,127   473,099  417,023
   Purchased power..............................      23,155    14,501   18,010
   Other operating & maintenance expenses.......     138,679   166,761  165,129
   Depreciation and amortization................      78,592    70,331   69,781
   Taxes (other than income taxes) .............      47,259    46,515   45,518
   Income taxes (Note 13) ......................      65,696    48,795   65,297
                                                     -------   -------  -------
                                                     785,508   820,002  780,758
                                                     -------   -------  -------
Operating income................................     165,679   159,281  151,042

Other income and deductions:
   Merger expenses..............................      (1,208)  (15,427)  (7,878)
   Write-off of investment in Carolina Energy
     Project (Note 3) ..........................           -   (16,052)       -
   Miscellaneous income and deductions - net
     (Notes 3 and 15) ..........................       8,819     4,877   13,226
                                                       -----     -----   ------
                                                       7,611   (26,602)   5,348

Interest charges:
   Interest on long-term debt...................      46,471    46,356   47,045
   Other interest...............................       8,925     7,444    6,088
   Allowance for borrowed funds used during 
     construction ..............................      (4,943)   (4,546)  (2,516)
   Dividends on SPS obligated  mandatorily
    redeemable  preferred  securities of
    subsidiary trust holding solely subordinated
    debentures of SPS ..........................       7,850     7,850        -
                                                       -----     -----   ------
                                                      58,303    57,104   50,617
                                                     -------   -------  -------

Net income......................................     114,987    75,575  105,773
Dividend requirements on preferred stock........           -         -    2,494
                                                     -------   -------  -------
Earnings available for common stock.............    $114,987   $75,575 $103,279
                                                    ========   ======= ========


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

                                       73
<PAGE>


                       SOUTHWESTERN PUBLIC SERVICE COMPANY
                              STATEMENTS OF INCOME
                             (Thousands of Dollars)
          For the four months ended December 31, 1996 and 1995 (Note 1)



                                                           1996          1995
                                                           ----          ----
                                                                     (Unaudited)
Operating revenues:
   Electric..........................................    $295,579      $267,427
   Other.............................................      10,701        11,055
                                                         --------       -------
                                                          306,280       278,482

Operating expenses:
   Fuel used in generation...........................     141,896       119,081
   Purchased power...................................       4,900         2,756
   Other operating & maintenance expenses............      55,582        52,134
   Depreciation and amortization.....................      23,782        23,329
   Taxes (other than income taxes)...................      15,152        14,590
   Income taxes (Note 13)............................      10,987        18,963
                                                         --------       -------
                                                          252,299       230,853
                                                          -------       -------
Operating income.....................................      53,981        47,629

Other income and deductions, net:
   Merger expenses...................................      (2,019)       (2,171)
   Write-off of investment in BCH project (Note 3)...     (15,546)            -
   Miscellaneous income and deductions - net.........         759           737
                                                         --------       -------
                                                          (16,806)       (1,434)
Interest charges:
   Interest on long-term debt........................      16,302        15,106
   Other interest....................................       1,102           950
   Allowance for borrowed funds used during 
     construction ...................................        (892)         (807)
   Dividends on SPS obligated mandatorily redeemable
     preferred securities of subsidiary trust holding
     solely subordinated debentures of SPS ..........       1,526             -
                                                            -----          ----
                                                           18,038        15,249
                                                           ------        ------

Net income...........................................      19,137        30,946
Dividend requirements on preferred stock.............           -         2,373
                                                         --------       -------
Earnings available for common stock..................    $ 19,137      $ 28,573
                                                         ========      ========




                 The accompanying notes to financial statements
               are an integral part of these financial statements
                                       74
<PAGE>


                       SOUTHWESTERN PUBLIC SERVICE COMPANY
                       STATEMENTS OF SHAREHOLDER'S EQUITY
              (Thousands of Dollars, Except Share Information)
   Year ended December 31, 1998, 1997, four months ended December 31, 1996 and
                       year ended August 31, 1996 (Note 1)

<TABLE>
<CAPTION>

                               Common Stock, $1 par value                         Retained
                               Shares        Amount          Paid in Capital      Earnings      Total
                               ------        ------          ---------------      --------      -----

<S>                           <C>            <C>                <C>               <C>          <C> 
Balance at August 31, 1995..  40,917,908     40,918             306,376           373,458      720,752
Net income..................           -          -                   -           105,773      105,773
Retirements of cumulative
 preferred stock ...........           -          -               1,108              (921)         187
Dividends declared
  Common stock..............           -          -                   -           (90,020)     (90,020)
  Cumulative preferred stock           -          -                   -            (1,573)      (1,573)
                                --------     ------             -------            ------      -------

Balance at August 31, 1996..  40,917,908     40,918             307,484           386,717      735,119
Net income .................           -          -                   -            19,137       19,137
Dividends declared on 
 common stock ..............           -          -                   -           (22,504)     (22,504)
                                  ------    -------              ------           -------      -------

Balance at December 31, 1996  40,917,908     40,918             307,484           383,350      731,752
Net income..................           -          -                   -            75,575       75,575
Dividends declared
  Common stock, prior to 
   August 1, 1997 Merger ...           -          -                   -           (63,845)     (63,845)
  Common stock, to NCE......           -          -                   -           (45,092)     (45,092)
Merger with PSCo
  Exchange of common shares
  for NCE stock ............ (40,917,808)   (40,918)             40,918                 -            -    
                             -----------    -------              ------           -------      -------

Balance at December 31, 1997         100          -             348,402           349,988      698,390
Net income..................           -          -                   -           114,987      114,987
Dividends declared
  Common stock, to NCE......           -          -                   -           (75,157)     (75,157)
                                --------     ------             -------           -------      -------

Balance at December 31, 1998         100   $      -          $  348,402         $ 389,818   $  738,220
                                  ======    =======          ==========         =========   ==========

</TABLE>

Authorized shares of common stock were 200 at December 31, 1998 and 1997 and 100
million at December 31, 1996 and August 31, 1996.

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

                                       75
<PAGE>


                       SOUTHWESTERN PUBLIC SERVICE COMPANY
                            STATEMENTS OF CASH FLOWS
             (Thousands of Dollars, Except Share Information) Years
           ended December 31, 1998, 1997, and August 31, 1996 (Note 1)


                                                      1998      1997     1996
                                                      ----      -----    ----



Operating activities:
   Net income...................................    $114,987  $ 75,575 $105,773
   Adjustments to reconcile net income to net
    cash provided by operating activities
     (Note 1):
     Depreciation and amortization..............      83,103    76,929   65,448
     Write-off of investment in Carolina Energy
       Project (Note 3).........................           -    16,052        -
     Amortization of investment tax credits.....        (250)     (250)    (250)
     Deferred income taxes......................      (8,600)    3,587   16,423
     Allowance for equity funds used during
      construction .............................           -        (5)     (60)
     Change in accounts receivable..............      20,358   (39,842)  (4,697)
     Change in inventories......................        (625)      301      134
     Change in other current assets.............      27,300    (3,061)  (7,688)
     Change in accounts payable.................     (43,190)   45,683   10,024
     Change in other current liabilities........      31,699   (10,000)  (7,271)
     Change in deferred amounts.................      30,309   (48,934) (11,381)
     Other......................................       3,358       276   13,571
                                                     -------   -------  -------
       Net cash provided by operating activities     258,449   116,311  180,026

Investing activities:
   Construction expenditures....................     (92,218) (118,550)(111,986)
   Allowance for equity funds used during
     construction ..............................           -         5       60
   Cost of disposition of property, plant and
     equipment .................................      (2,897)   (2,371)       -
   Proceeds from the sale of Quixx and UE, net
     of cash disposed (Note 1) .................           -   (29,567)       -
   Purchase of other investments................        (673)   (4,639)  (1,768)
   Sale of other investments....................         820         -        -
   Acquisition of TNP properties (Note 3).......           -         -  (29,200)
                                                     -------   -------  -------
       Net cash used in investing activities....     (94,968) (155,122)(142,894)

Financing activities:
   Proceeds from sale of long-term debt.........           -         -   60,000
   Redemption of long-term debt.................        (179)  (14,986)  (4,445)
   Short-term borrowings - net..................     (85,242)  100,564   69,624
   Retirement of preferred stock................           -         -  (75,434)
   Dividends on common stock (Notes 4 and 15)...     (77,696)  (86,391) (90,020)
   Dividends on preferred stock.................           -         -   (2,494)
                                                     -------   -------  -------
       Net cash used in financing activities....    (163,117)     (813) (42,769)
                                                    --------   -------  -------
       Net increase (decrease) in cash and 
          temporary cash investments ...........         364   (39,624)  (5,637)
       Cash and temporary cash investments at
          beginning of year ....................         986    40,610   36,860
                                                         ---    ------   ------
       Cash and temporary cash investments at
          end of year                                $ 1,350   $   986  $31,223
                                                     =======   =======  =======



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

                                       76
<PAGE>


                       SOUTHWESTERN PUBLIC SERVICE COMPANY
                            STATEMENTS OF CASH FLOWS
                             (Thousands of Dollars)
              Four months ended December 31, 1996 and 1995 (Note 1)


                                                               1996     1995   
                                                               ----     ----
                                                                     (Unaudited)

Operating activities:
   Net income.........................................        $19,137   $30,946
   Adjustments to reconcile net income to net
    cash provided by operating activities (Note 1):
     Depreciation and amortization....................         22,289    21,873
     Write-off of investment in BCH Project (Note 3)..         15,546         -
     Deferred income taxes and  investment tax credits          4,806     3,166
     Allowance for equity funds used during construction         (179)      (60)
     Change in accounts receivable....................         10,180     9,402
     Change in inventories............................          1,417       928
     Change in other current assets...................         (5,674)    9,977
     Change in accounts payable.......................            628   (10,673)
     Change in other current liabilities..............        (12,487)  (11,021)
     Other............................................        (14,674)    7,627
                                                              -------   -------
       Net cash provided by operating activities......         40,989    62,165

Investing activities:
   Construction expenditures..........................        (66,031)  (44,950)
   Purchase of other investments......................         (2,297)   (3,741)
   Acquisition of TNP properties (Note 3).............              -   (29,200)
                                                              -------   -------
       Net cash used in investing activities..........        (68,328)  (77,891)

Financing activities:
   Proceeds from sale of long-term notes and bonds (Note 6)    82,300         -
   Proceeds from sale of SPS obligated mandatorily 
    redeemable preferred securities of subsidiary trust
    holding solely subordinated debentures of SPS             100,000         -
   Retirement of long-term notes and bonds............        (84,776)   (1,717)
   Short-term borrowings - net........................        (15,788)  116,250
   Retirement of preferred stock......................              -   (74,672)
   Dividends on common stock..........................        (45,010)  (45,010)
   Dividends on preferred stock.......................              -    (2,373)
                                                              -------   -------
       Net cash provided by (used in) financing activities     36,726    (7,522)
                                                               ------    ------ 
       Net increase (decrease) in cash and temporary
          cash investments ...........................          9,387   (23,248)
       Cash and temporary cash investments at beginning
          of period ..................................         31,223    36,860
                                                               ------    ------
       Cash and temporary cash investments at end of period   $40,610   $13,612
                                                              =======   =======


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

                                       77

<PAGE>



                  NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               December 31, 1998

1.  Summary of Significant Accounting Policies (NCE, PSCo and SPS)

Business, Utility Operations and Regulation

      NCE is a registered  holding company under PUHCA and its domestic  utility
subsidiaries (PSCo, SPS and Cheyenne) are engaged principally in the generation,
purchase,  transmission,  distribution  and  sale  of  electricity  and  in  the
purchase, transportation, distribution and sale of natural gas. Both the Company
and its subsidiaries are subject to the regulatory  provisions of the PUHCA. The
utility  subsidiaries  are subject to  regulation  by the FERC and state utility
commissions in Colorado,  Texas, New Mexico,  Wyoming, Kansas and Oklahoma. Over
90% of the Company's revenues are derived from its regulated utility operations.

      Regulatory Assets and Liabilities

      The Company's regulated subsidiaries prepare their financial statements in
accordance  with the provisions of Statement of Financial  Accounting  Standards
("SFAS 71"), as amended.  SFAS 71 recognizes  that accounting for rate regulated
enterprises should reflect the relationship of costs and revenues  introduced by
rate  regulation.  A  regulated  utility  may  defer  recognition  of a cost  (a
regulatory  asset) or recognize an obligation (a regulatory  liability) if it is
probable that,  through the ratemaking  process,  there will be a  corresponding
increase or decrease in revenues.  The Company believes its utility subsidiaries
will continue to be subject to rate regulation. In the event that a portion of a
subsidiaries' operations is no longer subject to the provisions of SFAS 71, as a
result of a change in  regulation or the effects of  competition,  the Company's
subsidiaries could be required to write-off their regulatory  assets,  determine
any impairment to other assets  resulting from  deregulation  and write-down any
impaired  assets to their  estimated  fair  value,  which  could have a material
adverse  effect on  NCE's,  PSCo's  and SPS's  financial  position,  results  of
operations or cash flows.

      The   following   regulatory   assets  are   reflected  in  the  Company's
consolidated balance sheets (in thousands):

1998                                        NCE           PSCo            SPS 
                                          ------         ------         ------

Income taxes (Note 13)..............      $148,499      $ 69,868       $79,116
Nuclear decommissioning costs.......        69,490        69,490             -
Employees' postretirement benefits
  other than pensions (Note 12).....        57,350        54,461         2,889
Employees' postemployment benefit
 (Note 12) .........................        24,888        24,416             -
Demand-side management costs........        37,160        31,984         5,176
Unamortized debt reacquisition costs        33,138        15,769        16,808
Early retirement costs..............         1,000             -         1,000
Thunder Basin judgment (Note 9).....           548             -           548
Other...............................         9,559         3,124         6,434
                                            ------        ------        ------
  Total.............................      $381,632      $269,112      $111,971
                                          ========      ========      ========


                                       78
<PAGE>


           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

1997                                        NCE           PSCo            SPS 
                                          ------         ------         ------

Income taxes (Note 13)..............      $162,985      $ 84,356       $ 79,161
Nuclear decommissioning costs.......        76,881        76,881              -
Employees' postretirement benefits
  other than pensions (Note 12).....        63,023        59,995          3,028
Employees' postemployment benefits
 (Note 12) .........................        24,455        23,932              -
Demand-side management costs........        42,503        38,518          3,985
Unamortized debt reacquisition costs        36,717        17,791         18,344
Early retirement costs..............         8,008         6,645          1,363
Thunder Basin judgment (Note 9).....         5,912             -          5,912
Other...............................         9,991         2,540          7,451
                                            ------        ------         ------
  Total.............................      $430,475      $310,658       $119,244
                                          ========      ========       ========

      The regulatory  assets of the Company's  regulated  subsidiaries  that are
currently  being  recovered  as of December  31, 1998 and 1997 are  reflected in
rates charged to customers  over periods  ranging from two to thirty years.  The
recovery of  regulatory  assets over the next five years is  estimated to exceed
$200  million.  Refer  to the  discussion  below or the  Notes  to  Consolidated
Financial  Statements  as  identified  in the above  table  for a more  detailed
discussion regarding recovery periods.

      Effective  July 1, 1993,  PSCo began  collecting  from customers the costs
approved by the CPUC for the decommissioning of Fort St. Vrain. This recoverable
amount  totaled  approximately  $124.4 million (plus a 9% carrying  cost).  Such
amount,  which is being  collected over a twelve-year  period,  represented  the
inflation-adjusted  estimated  remaining cost of decommissioning  activities not
previously  recognized  as  expense  at the  time  of  CPUC  approval.  PSCo  is
recovering  approximately  $13.9 million per year from its customers,  including
carrying costs.

      On January  27,  1997,  the CPUC  issued its order on PSCo's 1996 gas rate
case. The CPUC allowed  recovery of  postemployment  benefit costs on an accrual
basis under SFAS 112 and denied  amortization of the approximately  $8.9 million
regulatory asset recognized upon the adoption of SFAS 112 (see Note 12. Employee
Benefits -  Postemployment  Benefits).  PSCo has appealed in the Denver District
Court  the  decision  related  to  this  issue.  PSCo  believes  that it will be
successful on appeal and that the associated regulatory asset is realizable.  On
April 1, 1998, in connection  with PSCo's annual  electric  department  earnings
test filing,  PSCo  requested  approval to recover its  electric  jurisdictional
portion  of  the   postemployment   benefits  cost  regulatory   asset  totaling
approximately  $15 million over three years. In December 1998, the CPUC approved
a settlement  agreement on this matter which deferred the final determination of
the  regulatory  treatment  of these  costs  pending  the outcome of the current
appeal of the decision on PSCo's gas rate case.  PSCo  believes  that it will be
allowed  recovery of SFAS 112 costs on an accrual  basis.  If PSCo is ultimately
unsuccessful  in its appeal of the gas rate case decision  and/or in its request
to recover its  electric  jurisdictional  regulatory  asset,  all  unrecoverable
amounts will be written off (see Note 9. Regulatory Matters).

      Certain  costs  associated  with  PSCo's DSM  programs  are  deferred  and
recovered in rates over five to seven-year periods through the DSMCA.  Non-labor
incremental  expenses,  carrying  costs  associated  with deferred DSM costs and
incentives  associated  with  approved DSM  programs are  recovered on an annual
basis.  Costs  associated with SPS's DSM programs are also deferred and, as part
of a negotiated  settlement  agreement reached in July 1995, will be included in
rate base and cost of service in future PUCT proceedings.

      Costs  incurred to reacquire  debt prior to scheduled  maturity  dates are
deferred  and  amortized  over  the  life of the  debt  issued  to  finance  the
reacquisition, or as approved by the applicable regulatory authority.


                                       79
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

      Recovered/Recoverable Purchased Gas and Electric Energy Costs -Net

      The Company's  utility  subsidiaries  have adjustment  mechanisms in place
which currently  provide for the recovery of certain  purchased gas and electric
energy costs.  These cost adjustment  tariffs may increase or decrease the level
of  costs  recovered  through  base  rates  and  are  revised  periodically,  as
prescribed by the appropriate  regulatory  agencies,  for any difference between
the total amount collected under the clauses and the recoverable  costs incurred
(see Note 9. Regulatory Matters).

      Other Property

      Property,  plant and equipment  includes  approximately  $18.4 million and
$25.4 million, respectively, for costs associated with the engineering design of
the future  Pawnee 2  generating  station and certain  water  rights  located in
southeastern  Colorado,  also obtained for a future generating station.  PSCo is
earning a return on these investments based on its weighted average cost of debt
in accordance with a CPUC rate order.

Non-utility Subsidiaries and International Investments

      The  Company's  non-utility   subsidiaries  are  principally  involved  in
energy-related  businesses  including  the  following:  engineering,  design and
construction management,  non-regulated energy services, including gas and power
marketing,  the management of real estate and certain life  insurance  policies,
the financing of certain  current assets of PSCo and investments in cogeneration
facilities,  electric  wholesale  generators and a foreign utility company.  The
Company's  international  investments are subject to regulation in the countries
in which such  investments  are made (see Note 2.  Investment in Yorkshire Power
and U.K.  Windfall  Tax).  Financial  statements  of  foreign  subsidiaries  are
translated into U.S.  dollars at current rates,  except for revenues,  costs and
expenses,  which are  translated at average  current rates during each reporting
period.

Consolidation and Financial Statement Presentation

      The Company  follows the  practice of  consolidating  the  accounts of its
majority owned and controlled  subsidiaries.  The Company  recognizes  equity in
income from its unconsolidated investments accounted for under the equity method
of accounting.  All intercompany  items and  transactions  have been eliminated.
Certain  prior year  amounts  have been  reclassified  to conform to the current
year's presentation.

      Effective August 1, 1997,  following the receipt of all required state and
Federal  regulatory  approvals,  PSCo and SPS  merged in a  tax-free  "merger of
equals"   transaction  and  became   wholly-owned   subsidiaries  of  NCE.  Each
outstanding share of PSCo common stock was canceled and converted into the right
to receive  one share of NCE common  stock,  and each  outstanding  share of SPS
common stock was canceled  and  converted  into the right to receive 0.95 of one
share of NCE  common  stock.  The  Merger  was  accounted  for as a  pooling  of
interests.   Effective  with  the  Merger,   certain   utility  and  non-utility
subsidiaries were transferred within NCE's common controlled  subsidiaries.  The
common stock of Quixx and UE, former SPS subsidiaries,  were transferred through
the sale by SPS of the  common  stock of such  subsidiaries  at net book  value,
aggregating  approximately  $119.0  million,  to NC  Enterprises in exchange for
notes payable of NC Enterprises.  Subsidiaries  of PSCo (Cheyenne,  WGI, e prime
and  Natural  Fuels)  were  transferred  by a  declaration  of a dividend of the
subsidiaries' stock, at net book value, aggregating approximately $49.9 million,
to NCE. NCE subsequently made a capital  contribution of the e prime and Natural
Fuels common stock, at net book value, aggregating  approximately $29.5 million,
to NC Enterprises.

      On April 22, 1997, SPS changed its fiscal year from a twelve-month  period
ending  August  31 to  twelve-month  period  ending  December  31.  SPS  filed a
Transition  report on Form 10-K for the period September 1, to December 31, 1996
("Transition  Period"). The fiscal year periods presented in SPS's statements of
income and cash flows are for the  twelve-months  ending  December  31, 1998 and
1997 and August 31, 1996.


                                       80
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Revenue Recognition

      The Company's utility  subsidiaries accrue for estimated unbilled revenues
for services  provided  after the meters were last read on a cycle billing basis
through the end of each year.

Risk Management

      The Company and its  subsidiaries  have  initiated  the  utilization  of a
variety of energy  contracts,  both financial and commodity based, in the energy
trading and energy non-trading  operations to reduce their exposure to commodity
price risk.  These  contracts  consist mainly of commodity  futures and options,
index or fixed price swaps and basis swaps.

      Energy contracts entered into for the trading operations are accounted for
using the mark-to-market method of accounting.  Under mark-to-market accounting,
natural gas and power trading  contracts,  including both physical  transactions
and  financial  instruments,  are  recorded at fair value and  recognized  as an
increase  or  decrease  to  purchased  power or cost of gas sold  upon  contract
execution.  Changes in the market value of the portfolio are recognized as gains
or losses in the period of change and the resulting  unrealized gains and losses
are  recorded  as  other  current  assets  and  liabilities.  Such  amounts  are
recognized  as net  positions  in the  consolidated  balance  sheets  and income
statements as NCE and its subsidiaries  have master netting  agreements in place
with counterparties.

      Energy  contracts are also  utilized in the Company and its  subsidiaries'
non-trading  operations  to reduce  commodity  price risk.  Hedge  accounting is
applied only if the  contract  reduces the price risk of the  underlying  hedged
item and is designated as a hedge at its inception.  Gains and losses related to
qualifying  hedges of firm commitments or anticipated  transactions are deferred
and  recognized  as a  component  of  purchased  power or cost of gas sold  when
settlement occurs. If, subsequent to being hedged,  underlying  transactions are
no longer likely to occur, the related gains and losses are recognized currently
in income  (see Note 8.  Financial  Instruments  - Risk  Management  for further
discussion of the Company's risk management activities).

Comprehensive Income

      The  Company  and  its  subsidiaries  adopted  SFAS  No.  130,  "Reporting
Comprehensive  Income,"  effective  January 1, 1998. This statement  establishes
standards for the reporting and display of comprehensive income (net income plus
all other changes in net assets from  non-owner  sources) and its  components in
financial  statements.  Other comprehensive income for NCE and PSCo was reported
in the consolidated  Statements of Shareholders'  Equity and consists of foreign
currency translation adjustments related to the investment in Yorkshire Power.

Basic and Diluted Earnings Per Share

      Effective in calendar year 1997,  the FASB issued SFAS No. 128,  "Earnings
per Share" ("SFAS 128") requiring presentation of basic and diluted earnings per
share. Basic earnings per share is based upon the weighted average common shares
outstanding  during the year.  Diluted earnings per share reflects the potential
dilution  that could occur if  securities  or other  agreements  to issue common
stock were exercised or converted into common stock.  Diluted earnings per share
is  based  upon  the  weighted  average  common  and  common  equivalent  shares
outstanding  during each year.  Employee  stock options are the  Company's  only
common stock equivalents. There are no other potentially dilutive securities.

                                       81
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


                                            For the year ended December 31, 1998
                                             Income       Shares      Per Share
                                          (Numerator) (Denominator)    Amount
                                          ----------  ------------    ------
                                                   (in thousands)
Basic EPS
  Net income................................    $341,957     111,859     $ 3.06
                                                                         ======

Effect of Dilutive Securities:
  Common stock options......................          -          149
                                                -------      -------

Diluted EPS
  Net income and assumed conversion.........    $341,957     112,008     $ 3.05
                                                ========     =======     ======

      SFAS 128 had no effect on the Company's 1997 and 1996 reported  earnings
per share information.

      Approximately  780,000 common stock options were outstanding  during 1998,
but were not included in the  computation of diluted  earnings per share because
the options'  exercise  prices were greater than the average market price of the
common stock.

Income Taxes

      The  Company  and  its   subsidiaries   file   consolidated   Federal  and
consolidated  and separate state income tax returns.  Income taxes are allocated
to the subsidiaries based on separate company  computations of taxable income or
loss. Investment tax credits have been deferred and are being amortized over the
service lives of the related property.  Deferred taxes are provided on temporary
differences  between  the  financial  accounting  and tax  bases of  assets  and
liabilities  using the tax rates which are in effect at the  balance  sheet date
(see Note 13. Income Taxes).

Stock-based Compensation

      The Company uses the intrinsic  value based method of accounting for its
stock-based  compensation  plan (see Note 12.  Employee  Benefits -  Incentive
Compensation).

Temporary Cash Investments and Statements of Cash Flows

      For purposes of the consolidated statements of cash flows, the Company and
its subsidiaries consider all temporary cash investments to be cash equivalents.
These temporary cash  investments are securities  having original  maturities of
three  months or less or having  longer  maturities  but with put dates of three
months or less.  At  December  31,  1998,  approximately  $14.3  million of cash
balances are  restricted  for  operational  uses as they have been committed for
investments in cogeneration projects.

      Income  Taxes and  Interest  (Excluding  Amounts  Capitalized)  Paid (in
thousands):

NCE                                              1998        1997        1996 
                                               -------     -------     -------

Income taxes ...............................   $135,776    $ 99,938   $117,121
Interest....................................   $249,405    $230,507   $197,073


PSCo                                             1998        1997        1996 
                                               -------     -------     -------

Income taxes, including amounts paid to NCE    $114,340   $ 75,439    $ 66,871
Interest....................................   $188,443   $172,470    $144,533

                                       82
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SPS                                              1998        1997        1996 
                                               -------     -------     -------

Income taxes, including amounts paid to NCE     $69,111     $37,752    $50,250
Interest....................................    $55,739     $56,486    $52,540

      Non-cash Transactions:

      Shares of NCE's common  stock in 1998 and PSCo's  common stock in 1997 and
1996  (222,387  in 1998,  250,058 in 1997 and  274,934  in 1996),  valued at the
market price on date of issuance (approximately $10 million for each year), were
issued to a savings  plan of the Company.  The  estimated  issuance  values were
recognized in other operating expenses during the respective preceding years.

      Effective March 31, 1998, PSCo sold its common stock  investment in NCI to
NC  Enterprises,  an NCE  subsidiary.  PSCo received as  consideration a 20-year
promissory  note  from NC  Enterprises  in the  amount of  approximately  $292.6
million (see Note 2. Investment in Yorkshire Power and U.K. Windfall Tax).

      Stock issuances and the dividend of subsidiaries' stock in connection with
the Merger discussed above were non-cash financing and investing  activities and
are not reflected in the consolidated statements of cash flows.

      During 1996, PSCo exchanged  shares of its common stock in connection with
the acquisition of TOG and TOP (see Note 3. Acquisitions and Divestitures).

Property and Depreciation

      Property, plant and equipment is stated at original cost. Replacements and
capital   improvements,   representing  units  of  property,   are  capitalized.
Maintenance  and  repairs of  property  and  replacements  of items of  property
determined  to be less than a unit of  property  are  charged to  operations  as
maintenance expense.  The cost of units of property retired,  together with cost
of removal, less salvage, is charged to accumulated depreciation.

      Depreciation  expense, for financial  accounting purposes,  is computed on
the  straight-line  basis  based on the  estimated  service  lives  and costs of
removal of the various classes of property. Depreciation expense, expressed as a
percentage of average  depreciable  property,  for NCE, PSCo and SPS ranged from
approximately  2.7%-2.9% for the years ended  December 31, 1998,  1997 and 1996.
For income tax  purposes,  the  Company  and its  subsidiaries  use  accelerated
depreciation and other elections provided by the tax laws.

Allowance for Funds Used During Construction

      AFDC,  as  defined  in the  system  of  accounts  prescribed  by the FERC,
represents the net cost during the period of construction of borrowed funds used
for  construction  purposes  and a reasonable  rate on funds  derived from other
sources. AFDC does not represent current cash earnings.  The Company's regulated
subsidiaries capitalize AFDC as a part of the cost of utility plant.

Gas in Underground Storage (NCE and PSCo)

      Gas in underground  storage is accounted for under the last-in,  first-out
("LIFO")  cost method.  The  estimated  replacement  cost of gas in  underground
storage at December 31, 1998 and 1997,  exceeded the LIFO cost by  approximately
$13.0 million and $36.0 million, respectively.


                                       83
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Cash Surrender Value of Life Insurance Policies (NCE and PSCo)

      The  following  amounts  related  to COLI  contracts,  issued by one major
insurance company,  are recorded as a component of Investments,  at cost, on the
consolidated balance sheets (in thousands):

                                                             1998        1997 
                                                             ----        ---- 

Cash surrender value of contracts.....................      $461,752    $408,425
Borrowings against contracts..........................       458,104     405,285
                                                             -------     -------
   Net investment in life insurance contracts.........      $  3,648    $  3,140
                                                            ========    ========

      Refer to Note 10. "Commitments and Contingencies", for discussion of
certain tax matters.

Management Estimates

      The  preparation  of financial  statements,  in conformity  with generally
accepted  accounting  principles,  requires  management  to make  estimates  and
assumptions  that affect the reported  amounts of assets and liabilities and the
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

2.  Investment in Yorkshire Power and U.K. Windfall Tax (NCE and PSCo)

Acquisition

      During  the second  quarter  of 1997,  Yorkshire  Power,  a joint  venture
initially  equally  owned  by  PSCo  and  AEP,  acquired  indirectly  all of the
outstanding   ordinary  shares  of  Yorkshire   Electricity,   a  U.K.  regional
electricity  company.  NCI accounts for its investment in Yorkshire  Power using
the equity  method.  Yorkshire  Power's  results of  operations  include 100% of
Yorkshire  Electricity's results since the April 1, 1997 acquisition date. NCI's
equity in earnings of Yorkshire Power is 50%, the same as its ownership share.

      Effective March 31, 1998, PSCo sold its common stock  investment in NCI to
NC Enterprises, an NCE subsidiary.  NCI's primary investment is Yorkshire Power.
PSCo received as consideration a 20-year  promissory note from NC Enterprises in
the  amount of  approximately  $292.6  million.  Annual  interest  payments  are
required for the first three years  followed by principal and interest  payments
for the remaining  seventeen  years. The interest rate on the note is 7.02%. NCE
intends to make additional  capital  contributions  to NC Enterprises to provide
the necessary cash flow  requirements to make payments on the promissory note to
PSCo. In October 1998, NCE contributed $100 million to NC Enterprises, which was
used to reduce the principle balance of the promissory note to PSCo.

U.K. Windfall Tax

      In July  1997,  the U.K.  government  enacted a  windfall  tax on  certain
privatized  business  entities,  payable in two  installments  with the first in
December  1997  and  the  second  in  December  1998.  The  windfall  tax  was a
retroactive  adjustment to the privatization  value based on  post-privatization
profits  during  the 1992 to 1995  period.  During  the third  quarter  of 1997,
Yorkshire Power recorded an extraordinary  charge of approximately  $221 million
(135 million pounds sterling) for this windfall tax. The Company's share of this
tax was approximately $110.6 million.


                                       84
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Investment in Ionica

      During the second  quarter of 1998,  Yorkshire  Power  recognized  a $54.7
million   after-tax   impairment  of  its  investment  in  Ionica,   a  wireless
telecommunications  company, upon the May 22, 1998,  announcement by Ionica that
negotiations  for release of lines of credit  from  existing  providers  of bank
facilities had been  unsuccessful.  In November of 1998,  Ionica was placed into
receivership  and an  administrator  was appointed to oversee its operations and
distribute its remaining  assets.  Due to the complexity of Ionica operations it
may take  considerable  time to complete  this  process.  Yorkshire  Electricity
continues  to assess  the  recoverability  of the  remaining  book value of this
investment (approximately $7 million at December 31, 1998).

Generation Sale

      In the fourth quarter of 1998,  Yorkshire Power recognized a $42.1 million
after-tax gain on the sale of its generation  assets.  This included the sale of
its 75% interest in Regional Power Generators,  Ltd., which owned a 272-megawatt
combined cycle, gas fired plant located in North  Lincolnshire,  England and the
sale of other generation capacity. Proceeds from these sales were used to reduce
the debt of Yorkshire Power. Yorkshire Electricity is focusing its main business
on the distribution and supply of electricity and the supply of natural gas.

      Summarized  income  statement  information for the year ended December 31,
1998 and from the date of  acquisition,  April 1, 1997 to December 31, 1997,  is
presented below (in millions):

                                                   1998            1997 
                                            ------------------   -------
                                              Year     3 Months
                                              Ended      Ended     (NCE
                                           December 31, March 31,   and
                                              (NCE)       (PSCo)   PSCo)    
                                              -----       ------   -----    

    Yorkshire Power:
      Operating revenues...............     $2,281.7  $  663.2   $1,492.9
                                            --------  --------   --------

      Operating income.................        324.9      65.5      202.3
                                            --------  --------   --------

      Income before extraordinary item.         76.9       6.9       69.8
                                            --------  --------   --------

      Extraordinary item - U.K.
        windfall tax                               -         -     (221.1)
                                            --------    ------     ------

      Net income (loss)................     $   76.9  $    6.9   $ (151.3)
                                            ========  ========   ========

    NCI's equity in earnings (losses):
      Equity in earnings of Yorkshire 
        Power                               $   38.5  $    3.5   $   34.9
      Extraordinary item - U.K.
        windfall tax                               -        -      (110.6)
                                               -----      ----     ------

                                            $   38.5  $    3.5   $  (75.7)
                                            ========  ========   ========


                                       85
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

      NCI's  investment  in  Yorkshire  Power at December  31, 1998 and 1997 was
approximately  $333 million and $290 million,  respectively.  Summarized balance
sheet  information  for  Yorkshire  Power as of December  31, 1998 and 1997,  is
presented below (in millions):

                                                    1998     1997 
    Assets:
      Property, plant and equipment............    $1,602   $1,645
      Current assets...........................       552      602
      Goodwill (net)...........................     1,547    1,602
      Other assets.............................       295      293
                                                   ------   ------
                                                   $3,996   $4,142
                                                   ======   ======
    Capitalization and Liabilities:
      Common shareholders' equity..............    $  655   $  542
      Long-term debt...........................     2,121      704
      Other non-current liabilities............       413      489
      Current liabilities......................       807    2,407
                                                   ------   ------
                                                   $3,996   $4,142
                                                   ======   ======

      The  unaudited pro forma  financial  information  presented  below for NCE
assumes  that  Yorkshire  Power was  acquired on January 1, 1997.  The pro forma
adjustments include recognition of equity in the estimated earnings of Yorkshire
Power, an adjustment for interest expense on debt associated with the investment
in Yorkshire Power and related income taxes. The estimated earnings of Yorkshire
Power were based on historical earnings of Yorkshire  Electricity,  prior to its
acquisition by Yorkshire Power,  adjusted for the estimated  effects of purchase
accounting (including the amortization of goodwill), conversion to United States
generally  accepted  accounting  principles,  interest expense on debt issued by
Yorkshire Power associated with the acquisition and related income taxes.  Sales
of electricity are affected by seasonal  weather  patterns and,  therefore,  the
results of Yorkshire Power/Yorkshire  Electricity will not be distributed evenly
during the year. Equity in earnings of Yorkshire Power has been converted at the
average  exchange  rates for the year ended  December  31, 1997 and December 31,
1996, of $1.639/pound and $1.561/pound, respectively.

      Based on the  above  assumptions,  shown  below  is  unaudited  pro  forma
financial  information  for the  years  ended  December  31,  1997  and 1996 (in
millions, except per share amounts):

                                                      NCE Earnings         
                                             Available for
                                             common stock     EPS-Basic (1)  
                                              1997   1996     1997    1996
                                              ----   ----     ----    ----

Net income before extraordinary item...      $261.5 $272.3    $2.50   $2.64
                                                              =====   =====

Pro forma adjustments:

  Equity in earnings of
   Yorkshire Power, net of
   U.S. tax benefits (2)...............      (10.1)   19.3

  Interest expense, net of tax.........       (3.5)  (13.8)
                                             -----  ------

Pro forma result.......................      $247.9 $ 277.8   $2.37   $2.70
                                             ====== =======   =====   =====

  (1) Based on the weighted average number of common shares  outstanding for the
      period.
  (2) The years ending December 31, 1997 and 1996 amounts  include $24.0 million
     and  $18.9   million   ($17.9   million  and  $11.7   million   after-tax),
     respectively,  of write-offs related to certain computer development costs,
     acquisition   expenses  and  costs   incurred  for  the   preparation   for
     deregulation.


                                       86

<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

      The unaudited pro forma  financial  information  presented  below for PSCo
assumes that NCI was sold to NC Enterprises  effective  January 1, 1997. NCI was
formed  in  connection  with  the  investment  in  Yorkshire  Power  and  had no
operations  during the first  three  months of 1997.  The pro forma  adjustments
represent  the  removal  of NCI's  net  income  from PSCo and the  inclusion  of
interest  income,  net of  tax,  from  the  promissory  note  to  PSCo  from  NC
Enterprises.

      Based  upon the above  assumptions,  shown  below is  unaudited  pro forma
financial  information  for the  years  ended  December  31,  1998  and 1997 (in
millions):

                                                               PSCo Earnings
                                                              1998    1997
                                                              ----    ----

Net income before extraordinary item.....................    $200.1  $204.0

Pro forma adjustments:

  NCI's net income before extraordinary item.............      (2.8)  (35.9)
  Interest income from promissory note, net of tax.......       3.2     9.5
                                                              -----   -----

Pro forma result.........................................    $200.5  $177.6
                                                             ======  ======

3. Acquisition and Divestiture of Investments

Acquisition of Planergy (NCE)

      Effective  April 1, 1998,  the  Company  acquired  all of the  outstanding
common stock of Falcon Seaboard Energy Services,  Inc.  ("Planergy") and assumed
other outstanding debt.  Planergy includes Planergy,  Inc. and Planergy Services
and is primarily engaged in energy  consulting,  energy  efficiency  management,
conservation programs and mass-market  services.  Such acquisition was accounted
for using the  purchase  method and the  acquired  assets and  liabilities  were
valued at their  estimated  fair  market  values as of the date of  acquisition.
Planergy  has  been  consolidated  as a  subsidiary  of NC  Enterprises  in  the
Company's consolidated financial statements.

Carolina Energy Limited Partnership Investment (NCE and SPS)

      The Carolina Energy Partnership, a waste-to-energy  cogeneration facility,
was  originally  scheduled to be completed  in 1997,  but was halted  pending an
independent analysis of the project's  engineering and financial viability.  The
banks  providing  debt  financing to the project  withheld  funds for  continued
construction.   Quixx,  UE,  other  equity  owners,  senior  creditors  and  the
construction  contractor  were  unable to  restructure  the  project on mutually
agreeable  terms and the senior  creditors took  possession of the assets of the
facility.  In June 1997, Quixx wrote-off its investment of  approximately  $13.6
million in the Carolina Energy Partnership.  Additionally,  UE wrote-off its net
investment of approximately $2.4 million in this same partnership. Quixx holds a
one-third ownership interest,  including a 1% general partnership  interest,  in
the  partnership.  UE's net  investment  in the  partnership  was  comprised  of
subordinated  debt,  the  related  interest  receivable,  as well  as  fees  for
engineering services.

BCH Energy Limited Partnership Investment (NCE and SPS)

      Quixx  holds a 49%  limited  partnership  interest  in BCH Energy  Limited
Partnership  which owned a  waste-to-energy  cogeneration  facility located near
Fayetteville,  North Carolina.  Limited commercial  operation of the BCH project
began  in June  1996;  however,  the  facility  did  not  achieve  the  expected
performance  level. An effort was made to restructure the project but it was not
possible to achieve the required  improvements on economically  viable terms. In
late 1996,  senior  creditors took possession of the assets of the facility.  In
December 1996,  Quixx wrote-off its investment of  approximately  $16 million in
this project.


                                       87
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Quixx Underground Water Rights (NCE and SPS)

      During  1996,  Quixx sold a portion of its  underground  water  rights for
approximately  $14 million.  Quixx  recognized an after-tax  gain on the sale of
these water  rights of  approximately  $11.7  million,  which is  reflected,  in
Miscellaneous income and deductions - net for the year ended December 31, 1996.

Acquisition  of Texas-Ohio  Gas, Inc. and Texas-Ohio  Pipeline,  Inc. (NCE and
PSCo)

      Effective September 1, 1996, e prime acquired all of the outstanding stock
of TOG and TOP in exchange for a  combination  of common stock of PSCo and cash.
Such  acquisitions were accounted for using the purchase method and the acquired
assets and  liabilities  were valued at their estimated fair market values as of
the date of acquisition.  These companies are primarily engaged in gas brokering
and marketing activities and interstate gas transmission and are subsidiaries of
e prime.

Acquisition of TNP Properties (SPS)

      In September  1995,  SPS purchased  properties of TNP located in the Texas
Panhandle  area for  $29.2  million.  The  purchase  added  approximately  8,000
customers and was accounted for using the purchase method. Cost recovery of this
amount was allowed by the PUCT through a rate surcharge over a ten-year period.

4. Capital Stock (NCE, PSCo and SPS)

Shareholder Rights

      On April 30, 1997, the Board of Directors  declared that a dividend of one
right  for each  Common  Share  be paid on the  effective  date of the  business
combination  among the Company,  PSCo and SPS to  shareholders  of record of the
common shares issued and  outstanding at the close of business on the day before
the effective date of the business combination.  Each right represents the right
to  purchase  one  one-hundredth  of a share of  Series  A Junior  Participating
Preferred Stock at a price of $100 per one  one-hundredth  share.  Additionally,
the Board of Directors created a Series A Junior Participating  Preferred Stock,
$1 par value,  and reserved 2.6 million shares for issuance upon exercise of the
Rights.  In the event any person or group  acquires 10% or more of the Company's
common stock,  the holders of the rights  generally will be entitled to receive,
upon exercise, common stock of the Company having a value equal to two times the
exercise  price of the right.  In addition,  the Board of Directors  may, at its
option  after a person or group  acquires  10% or more of the  Company's  common
stock,  exchange  all or part of the rights for shares of the  Company's  common
stock.  In the event that the Company is acquired in a merger or other  business
combination  or 50% or more of the Company's  assets or earning power is sold or
transferred, the holders of the rights have the right to receive, upon exercise,
common  stock of the  acquiring  company  having a value  equal to two times the
exercise  price of the right.  The  Company  may redeem the rights at a price of
$0.001  per  right at any time  prior to the tenth  day  following  the date any
person or group acquires 10% or more of the Company's  common stock.  The rights
expire 10 years after the record date,  unless earlier  redeemed or exchanged by
the Company.

Common Stock Issuances

      In November 1998,  NCE issued 2.5 million shares of common stock.  The net
proceeds  totaling $117.0 million were used for general  corporate  purposes and
the  retirement of short-term  debt.  In December  1997,  NCE issued 5.9 million
shares of common  stock,  resulting in net proceeds  (after  deducting  issuance
costs)  totaling  approximately  $251.4  million.  The proceeds from the sale of
stock  were  used  for  general  corporate  purposes,  including  retirement  of
short-term  debt and a capital  contribution to PSCo. PSCo used such proceeds to
retire short-term debt.

                                       88
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Preferred Stock of NCE

      NCE has 20 million shares of preferred stock  authorized.  At December 31,
1998, the Company has not issued any of the preferred stock.

Preferred Stock of Subsidiaries
                                          December 31, 1998    December 31, 1997
                                        Shares       Amount  Shares     Amount
                                        ------       ------  ------     ------ 
                                               (in thousands)     (in thousands)
PSCo cumulative preferred stock,
 $100 par value, 3 million shares
  authorized:
  Issued and outstanding:
   Not subject to mandatory 
     redemption (1):
     4.20% series...................           -         -    100,000  $ 10,000
     41/4% series (includes $7,500
      premium) .....................           -         -    174,997    17,507
     41/2% series...................           -         -     65,000     6,500
     4.64% series...................           -         -    159,950    15,995
     4.90% series...................           -         -    150,000    15,000
     4.90% 2nd series...............           -         -    150,000    15,000
     7.15% series...................           -         -    250,000    25,000
                                          ------   -------    -------   -------
     Total..........................           -         -  1,049,947  $105,002
                                          ======   ======= ==========  ========

   Subject to mandatory redemption (2):
     7.50% series ..................           -         -    216,000  $ 21,600
     8.40% series...................           -         -    202,294    20,229
                                          ------   -------    -------   -------
                                               -         -    418,294    41,829
   Less: Preferred stock subject to
     mandatory redemption within 
     one year.......................           -         -    (25,760)   (2,576)
                                          ------   -------    -------   -------
       Total........................           -         -    392,534  $ 39,253
                                          ======   =======    =======  ========
PSCo cumulative preferred stock,
 $25 par value, 4 million shares
 authorized:
  Issued and outstanding:
  Not subject to mandatory redemption (1):
     8.40% series...................           -         -  1,400,000  $ 35,000
                                          ======   =======  =========  ========

PSCo cumulative preferred stock,
 $0.01 par value,
  10 million shares authorized with
   no shares outstanding (3) .......           -         -          -  $      -
                                           =====      ====      =====  ========

SPS cumulative preferred stock, $1
 par value,
  10 million shares authorized with
   no shares outstanding (4) ........          -         -          -  $      -
                                            ====      ====       ====  ========

(1) On June 10, 1998, PSCo redeemed all of the preferred stock,  $100 par value,
at a value of $101 per share plus  accrued  dividends  and all of the  preferred
stock, $25 par value, at a value of $25.25 per share plus accrued dividends.

(2) On June 10, 1998, PSCo redeemed all  outstanding  shares of the 7.50% series
subject to mandatory redemption for $101.50 per share plus accrued dividends and
all of the 8.40% series  subject to mandatory  redemption  for $101.75 per share
plus accrued  dividends.  In 1997,  PSCo  repurchased  6,598 shares of the 8.40%
cumulative  preferred  series  subject to mandatory  redemption.  In 1996,  PSCo
repurchased  13,760 shares of the 8.40%  cumulative  preferred series subject to
mandatory redemption.

(3) On July 10,  1998,  the  shareholders  of PSCo  approved an amendment to the
Restated Articles of Incorporation to replace the existing authorized  preferred
stock and to provide for a class of 10 million  authorized  shares of  preferred
stock,  $0.01 par value. This preferred stock may be issued from time to time in
such series and having such designations,  preferences, limitations and relative
rights as the Board of Directors may determine.

(4) On January 31, 1996,  the  shareholders  of SPS approved an amendment to the
Restated Articles of Incorporation to replace the existing authorized  preferred
stock and to provide for a class of 10 million  authorized  shares of  preferred
stock,  $1.00 par value. This preferred stock may be issued from time to time in
such series and having such designations,  preferences, limitations and relative
rights as the Board of Directors may determine.


                                       89
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

5. Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts
Holding Solely Subordinated Debentures (NCE, PSCo and SPS)

      In May 1998,  PSCo Capital Trust I, a wholly-owned  trust of PSCo,  issued
7,760,000  shares of its 7.60% Trust  Originated  Preferred  Securities for $194
million.  The sole asset of the trust is $200 million principal amount of PSCo's
7.60% Deferrable Interest Subordinated Debentures, due June 30, 2038. Holders of
the securities are entitled to receive quarterly  dividends at an annual rate of
7.60% of the liquidation  preference value of $25. The securities are redeemable
at the option of PSCo on and after May 11, 2003 at 100% of the principal  amount
outstanding plus accrued interest.  In addition to PSCo's  obligations under the
Subordinated Debentures,  PSCo has agreed, pursuant to a guarantee issued to the
trust and the provisions of the trust  agreement  establishing  the trust,  on a
subordinated  basis,  payment of distributions on the preferred  securities (but
not if the trust does not have sufficient funds to pay such  distributions)  and
to  pay  all  of  the  expenses  of  the  trust   (collectively,   the  "Back-up
Undertakings").  Considered together, the Back-up Undertakings constitute a full
and unconditional guarantee by PSCo of the trust obligations under the preferred
securities.  The proceeds from the sale of the 7.60% Trust Originated  Preferred
Securities  were  used to  redeem  all  $181.8  million  of  PSCo's  outstanding
preferred stock on June 10, 1998, and for general corporate purposes.

      In October 1996,  Southwestern  Public  Service  Capital I, a wholly-owned
trust of SPS,  issued  $100  million of its 7.85%  Trust  Preferred  Securities,
Series A. The sole asset of the trust is $103 million  principal amount of SPS's
7.85% Deferrable  Interest  Subordinated  Debentures,  Series A due September 1,
2036.  The  securities  are redeemable at the option of SPS on and after October
21, 2001 at 100% of the principal amount plus accrued  interest.  In addition to
SPS's obligations under the Subordinated Debentures, SPS has agreed, pursuant to
a  guarantee  issued  to  the  trust,  the  provisions  of the  trust  agreement
establishing  the trust and a  related  expense  agreement  to  guarantee,  on a
subordinated  basis,  payment of distributions on the preferred  securities (but
not if the trust does not have sufficient funds to pay such  distributions)  and
to pay all of the  expenses  of the  trust.  Considered  together,  the  Back-up
Undertakings  constitute a full and unconditional  guarantee by SPS of the trust
obligations under the preferred securities. The proceeds from the sale were used
to reduce short-term debt.


                                       90
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

6. Long-Term Debt of Subsidiaries (NCE, PSCo and SPS)
                                                             1998        1997
                                                             ----        ----
                                                              (in thousands)
   First Mortgage Bonds:
     6-3/4% retired July 1, 1998........................   $      -    $ 25,000
     6-7/8% due December 1, 1999........................     90,000      90,000
     6.00% due January 1, 2001..........................    102,667     102,667
     7-7/8% due April 1, 2003...........................      4,000       4,000
     6.00% due April 15, 2003...........................    250,000           -
     8-1/8% due March 1, 2004...........................    100,000     100,000
     5-7/8% due March 1, 2004...........................     21,500      22,000
     7-1/4% due July 15, 2004...........................    135,000     135,000
     6-3/8% due November 1, 2005........................    134,500     134,500
     6-1/2% due March 1, 2006...........................     60,000      60,000
     7-1/8% due June 1, 2006............................    125,000     125,000
     5-5/8% due April 1, 2008...........................     18,000      18,000
     7-3/8% due November 1, 2009........................     27,250      27,250
     5-1/2% due June 1, 2012............................     50,000      50,000
     5-7/8% due April 1, 2014...........................     61,500      61,500
     9-7/8% due July 1, 2020............................     75,000      75,000
     Variable rate (4.05% and 3.80% at December 31, 1998
       and 1997) due September 1, 2021..................      7,000       7,000
     8-3/4% due March 1, 2022...........................    150,000     150,000
     8-1/4% due July 15, 2022...........................     40,000      40,000
     8.20% due December 1, 2022.........................    100,000     100,000
     7-1/4% due January 1, 2024.........................    110,000     110,000
     7.50% due January 1, 2024..........................      8,000       8,000
     8.50% due February 15, 2025........................     70,000      70,000
     Variable rate (4.05% and 3.80% at December 31, 1998
       and 1997) due March 1, 2027......................     10,000      10,000
     Secured Medium-Term Notes, 6.02% - 9.25%, due March
       4, 1998 - March 5, 2007..........................    296,500     423,500
   Other secured long-term debt 13.25%, due in 
     installments through October 1, 2016...............     30,755      31,155
   Pollution control obligations, securing pollution 
     control revenue bonds:
     Not collateralized by First Mortgage Bonds:
       Variable rate (4.30% at December 31, 1998 and 
        1997), due July 1, 2011 ........................     44,500      44,500
       Variable rate (6.435% effective at December 31,
        1998 and 1997), due July 1, 2016................     25,000      25,000
       5-3/4% series, due September 1, 2016.............     57,300      57,300
     Less: funds held by Trustee:.......................       (168)       (161)
   Unsecured Medium-Term Notes:
       5.86% - 6.14% due October 13, 1998 - May 30, 2000    100,000     100,000
   Capital lease obligations, 4.21% - 11.21% due in 
     installments through May 31, 2025..................     39,751      44,747
   Other................................................      6,284         286
   Unamortized discount and premium - net...............     (5,629)     (5,820)
                                                            -------      ------
                                                          2,343,710   2,245,424
Less: maturities due within one year....................    138,165     257,469
                                                            -------     -------
                                                         $2,205,545  $1,987,955
                                                         ==========  ==========

      The First  Mortgage  Bonds include all debt  (including  First  Collateral
Trust Bonds) issued by the Company's utility subsidiaries under various mortgage
indentures.  Substantially all properties of the Company's utility subsidiaries,
other than expressly  excepted  property,  are subject to the liens securing the
First  Mortgage  Bonds.  Additionally,  the SPS  Indenture  provides for certain
restrictions on the payment of dividends by SPS.

      The Red River Authority of Texas has issued certain obligations,  based on
long-term  installment  sale  agreements  executed  by SPS,  that  relate to the
pollution control  facilities  installed at SPS's coal-fueled  generating units.
SPS's payments under the pollution control obligations are pledged to secure the
Red River Authority Pollution Control Revenue Bonds.


                                       91
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

      The annual maturities and sinking fund requirements  during the five years
subsequent to December 31, 1998 are (in thousands):

          Year           Maturities     Sinking Fund Requirements       Total
          ----           ----------     -------------------------       -----
NCE       1999             $138,165              $  560              $138,725
          2000              131,721               1,310               133,031
          2001              140,969               1,310               142,279
          2002               16,806               2,810                19,616
          2003              281,848               2,810               284,658

PSCo      1999             $ 44,481              $  500              $ 44,981
          2000              131,656               1,250               132,906
          2001              140,969               1,250               142,219
          2002               16,806               2,750                19,556
          2003              281,848               2,750               284,598

SPS       1999             $ 90,113              $    -              $ 90,113
          2000                    -                   -                     -
          2001                    -                   -                     -
          2002                    -                   -                     -
          2003

      The sinking fund requirements  relate to PSCo and Cheyenne and they expect
to satisfy  substantially  all of their sinking fund  obligations  in accordance
with  the  terms of their  respective  indentures  through  the  application  of
property additions. SPS has no significant sinking fund requirements.

7. Short-term Borrowing Arrangements (NCE, PSCo and SPS)

Notes Payable and Commercial Paper

       Information  regarding  notes payable and commercial  paper for the years
ended  December 31, 1998 and 1997 is as follows (in thousands,  except  interest
rates):

                                                             1998        1997 
NCE
   Notes payable to banks...............................   $ 36,437    $147,500
   Commercial paper.....................................    487,957     440,843
                                                            -------     -------
                                                           $524,394    $588,343
                                                           ========    ========

Weighted average interest rate at year end..............      5.57%       5.74%

PSCo
   Notes payable to banks...............................   $      -    $ 50,000
   Commercial paper.....................................    402,795     286,599
   Note payable to affiliates (by NCI to Quixx).........          -      11,956
                                                            -------     -------
                                                           $402,795    $348,555
                                                           ========    ========

Weighted average interest rate at year end..............      5.72%       5.78%

SPS
   Commercial paper.....................................   $ 85,162    $154,244
   Note payable to affiliates (UE)......................      9,000       9,000
   Note payable to affiliates (Quixx)...................          -      16,160
                                                            -------     -------
                                                           $ 94,162    $179,404
                                                           ========    ========

Weighted average interest rate at year end..............      5.50%       5.60%


                                       92
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Bank Lines of Credit and Compensating Bank Balances

      In August  1997,  NCE entered  into a $225 million  credit  facility  with
several  banks.  Originally,  the credit  facility  provided for $100 million of
direct  borrowings  by NCE  until  the  outstanding  common  stock of  PSCCC,  a
wholly-owned  subsidiary of PSCo, was  transferred to NCE. On June 30, 1998, the
credit facility was amended to eliminate the PSCCC common stock  restriction and
to provide for $200 million of direct  borrowings by NCE. In addition,  Cheyenne
was added as a borrower of up to $25 million  with an NCE  guaranty.  The credit
facility  expires  August 11, 2002.  As of December  31, 1998,  NCE had used $37
million.

      PSCo and its subsidiaries have entered into a credit facility with several
banks  providing  $300  million in  committed  bank lines of credit.  The credit
facility, which is used primarily to support the issuance of commercial paper by
PSCo and PSCCC,  alternatively provides for direct borrowings  thereunder.  1480
Welton,  Inc. and PSRI are provided  access to the credit  facility  with direct
borrowings   guaranteed  by  PSCo.  The  facility  expires  November  17,  2000.
Additionally,  PSCo  has a  credit  facility  which  provides  $150  million  in
committed  lines  of  credit  and  expires  on June 25,  1999.  SPS has a credit
facility  which  provides  $200  million in  committed  bank lines of credit and
expires  February 26, 1999. As of December 31, 1998,  PSCo had used $404 million
and SPS had used $86 million.

      Borrowings permitted under the committed bank lines of credit totaled $705
million at December 31, 1998.  Arrangements by the Company and its  subsidiaries
for committed  lines of credit are  maintained by a combination  of fee payments
and compensating balances.

      PSCo and SPS may borrow under uncommitted preapproved lines of credit upon
request;  however,  the  banks  have no firm  commitment  to  make  such  loans.
Individual PSCo  arrangements  for uncommitted  bank lines of credit totaled $50
million  at  December  31,  1997,  of which  all were  used.  None  were used or
outstanding as of December 31, 1998.

8.  Financial Instruments (NCE, PSCo and SPS)

Fair Value of Financial Instruments

      The following  tables present the carrying  amounts and fair values of the
Company's and subsidiaries'  significant  financial  instruments at December 31,
1998  and  1997.  The  carrying  amount  of  all  other  financial   instruments
approximates  fair  value.  SFAS  No.  107,  "Disclosures  about  Fair  Value of
Financial  Instruments," defines the fair value of a financial instrument as the
amount at which  the  instrument  could be  exchanged  in a current  transaction
between willing parties, other than in a forced or liquidation sale.
<TABLE>
<CAPTION>
                                               1998                  1997     
                                          ----------------     -----------------
                                          Carrying     Fair    Carrying     Fair
                                          Amount       Value   Amount      Value
NCE                                                  (in thousands)
<S>                                    <C>         <C>         <C>         <C>
Investments, at cost.................  $   35,885  $   35,256  $   36,936  $  36,072
Preferred stock of subsidiaries
 subject to mandatory redemption ....           -           -      41,829     42,893
PSCo and SPS obligated mandatorily
 redeemable preferred securities of
 subsidiary trust holding solely
 subordinated debentures of SPS and
 PSCo ...............................     294,000      308,250    100,000    104,752
Long-term debt of subsidiaries.......   2,343,710    2,434,249  2,245,424  2,251,523

PSCo

Investments, at cost.................   $  30,355  $    31,324  $  36,936 $   36,072
Preferred stock subject to mandatory
 redemption .........................           -            -     41,829     42,893
PSCo obligated mandatorily redeemable
 preferred securities of subsidiary
 trust holding solely subordinated
 debentures of PSCo .................     194,000      204,000          -          -
Long-term debt.......................   1,687,611    1,590,226  1,595,298  1,604,160
</TABLE>

                                       93
<PAGE>

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

                                               1998                  1997     
                                          ----------------     ---------------
                                          Carrying     Fair    Carrying   Fair
                                          Amount       Value    Amount    Value
                                          ------       -----    ------    -----
SPS                                                  (in thousands)

Investments, at cost...................   $5,530   $ 3,932     $    -   $    -
SPS obligated mandatorily redeemable 
  preferred securities of subsidiary
  trust holding solely subordinated
  debentures of SPS ...................   100,000  104,250     100,000  104,752
Long-term debt.........................   620,731  661,823     620,771  625,348

      The fair value of the debt and equity securities  included in Investments,
at cost,  is  estimated  based on quoted  market  prices for the same or similar
investments.  The debt  securities  are classified as  held-to-maturity  and the
equity securities are classified as  available-for-sale.  The unrealized holding
gains and losses for these debt and equity securities are not significant.

      The PSCo and SPS obligated mandatorily redeemable preferred securities and
long-term  debt are  based  on  quoted  market  prices  of the  same or  similar
instruments.  Since PSCo, SPS and Cheyenne are subject to regulation,  any gains
or losses  related to the  difference  between the carrying  amount and the fair
value of these  financial  instruments  would not be realized  by the  Company's
shareholders.

      The  fair  value  estimates   presented  herein  are  based  on  pertinent
information available to management as of December 31, 1998 and 1997. These fair
value  estimates  have not been  comprehensively  revalued for purposes of these
financial  statements since that date, and current  estimates of fair values may
differ significantly from the amounts presented herein.

Off-Balance-Sheet Financial Instruments

      NCE has entered in to a  construction  contract  guarantee  which  assures
Quixx's  performance  under  its  engineering,   procurement,  and  construction
contract with Borger Energy Associates,  L.P. ("BEA").  Quixx, which owns 45% of
BEA, is constructing a 230 Mw cogeneration facility at a Phillips Petroleum site
near Borger,  Texas. The maximum  aggregate amount of this guarantee at December
31, 1998 was $88.4 million.  This maximum  amount  decreases to $25.0 million at
commercial  operation of the facility,  currently  estimated in March 1999,  and
remains  in effect  for a period of no longer  than 24 months  before  expiring.
Based upon the current state of construction of the facility,  this guarantee is
not expected to have any financial impact on NCE.

      As of December 31, 1998,  NCE had $59.9 million of guarantees  outstanding
to e prime.  These guarantees were made to facilitate e prime's energy marketing
and trading activities.  Also, e prime, inc. has guaranteed obligations relating
to the sale and  purchase  of energy  and  capacity  for TOG.  These  guarantees
totaled $13.3 million at December 31, 1998.

      In  connection  with an  agreement  for the sale of  electric  power,  SPS
guaranteed  certain  obligations  of a  customer  totaling  $48  million.  These
obligations related to the construction of certain utility property that, in the
event of default by the customer, would revert to SPS.

      NCE and YGSC have  guaranteed 50% of amounts  financed under a $32 million
Credit  Agreement among Young Storage and various lending  institutions  entered
into on June 27, 1995. This debt financing is for the development,  construction
and operation of an  underground  natural gas storage  facility in  northeastern
Colorado. (see Note 3. Acquisitions and Divestitures).

      NC Enterprises has guarantees  totaling $10 million of New Century Cadence
as of December 31, 1998. These guarantees relate to the capital requirements and
operations  of Cadence  Network  LLC,  in which New  Century  Cadence is a 33.3%
partner.

                                       94
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Risk Management

Energy Financial Contracts - Trading

      The  Company  and  its  subsidiaries  use  the  mark-to-market  method  of
accounting  for energy  trading  activities  and  recognized a gain related to e
prime's  power  trading  activities  and a loss related to e prime's gas trading
activities.  These gains and losses were  recognized as part of purchased  power
and gas purchased for resale, respectively,  and totaled less than $500,000. The
following  table  displays  the  mark-to-market  values  of the  energy  trading
financial  instruments of the Company and its  subsidiaries at December 31, 1998
and the average value for the period then ended.

                                       Assets                Liabilities     
                  Net Notional   Average  Dec. 31, 1998  Average  Dec. 31, 1998
                     Amount       Value       Value       Value       Value
                     ------       -----       -----       -----       -----
                                    (in thousands)          (in thousands)
Natural Gas (Mmbtus) 30,000       $ 335       $ 467      $ 344        $ 489
Power (Mwhs)         61,800         149         426        256          795

      In  addition,  PSCo  and SPS did not  hold any  energy  trading  financial
instruments  at  December  31,  1998.  There  were no energy  trading  financial
instruments held by NCE and its subsidiaries at December 31, 1997.

Energy Financial Contracts - Other than Trading

      Various energy financial  instruments are used by NCE and its subsidiaries
as hedging mechanisms against future contractual energy related obligations. The
weighted  average  maturity  of these  instruments  is less  than one  year.  At
December  31,  1998,  the  Company,  as part of e prime's  retail gas  marketing
business,  held notional long volumetric positions of approximately 14.2 million
Mmbtus of natural gas related to these financial  instruments  which had related
unrealized losses of approximately  $6.4 million.  At December 31, 1997, e prime
held notional long volumetric  positions of approximately $5.2 million Mmbtus of
natural gas related to these financial  instruments which had related unrealized
losses of approximately $0.7 million. In addition, PSCo and SPS did not hold any
energy financial instruments at December 31, 1998.

Financial Derivatives - Interest Rates

      SPS has an  interest  rate swap  agreement,  which,  in effect,  fixes the
interest  rate on a $25  million  notional  amount at  6.435%.  Amounts  paid or
received  under this  agreement  are  accrued as interest  rates  change and are
recognized over the life of the agreement as an adjustment to interest  expense.
SPS is  exposed  to  interest  rate  risk  in the  event  of  nonperformance  by
counterparties; however, SPS does not anticipate such nonperformance.

Credit Risk

      In addition to the risks discussed  above,  NCE and its  subsidiaries  are
exposed to credit risk in its risk management activities. Credit risk relates to
the risk of loss resulting  from the  nonperformance  of a  counterparty  of its
contractual  obligations.  As the Company  continues to expand its gas and power
marketing  and trading  activities,  the  Company's  exposure to credit risk and
counterparty  default may increase.  NCE and its  subsidiaries  maintain  credit
policies intended to minimize overall credit risk.

      NCE and its  subsidiaries  conduct  standard  credit review for all of its
counterparties.  The Company employs  additional credit risk control  mechanisms
when  appropriate,   such  as  letters  of  credit,   parental   guarantees  and
standardized master netting agreements that allow for offsetting of positive and
negative  exposures.  The credit exposure is monitored and, when necessary,  the
activity with a specific  counterparty  is limited until credit  enhancement  is
provided.

                                       95
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Concentration of Credit Risk - Accounts Receivable

      No individual customer or group of customers engaged in similar activities
represents  a  material  concentration  of credit  risk to the  Company  and its
subsidiaries.

9. Regulatory Matters (NCE, PSCo and SPS)

Electric Utility Matters

PSCo Performance Based Regulatory Plan

      PSCo's  base  electric  rates are  based on  traditional  cost of  service
ratemaking principles.  The CPUC established a performance based regulatory plan
in  connection  with the  CPUC's  decision  to  approve  the  Merger.  The major
components of this regulatory plan include the following:

  -   an annual electric  department  earnings test with the sharing of earnings
      in excess of an 11% return on equity for the calendar years 1997-2001;
  -   a Quality of Service Plan ("QSP")  designed with  performance  measures to
      effectively  penalize  or reward  PSCo  based on the  quality  of  service
      provided to retail customers; and
  -   an Incentive  Cost  Adjustment  ("ICA") which  provides for the sharing of
      energy costs and savings relative to an annual target cost/delivered Kwh.

      The  sharing  of  earnings  in excess of an 11%  return on equity  for the
calendar years 1997-2001 are as follows:
                  Electric Department           Sharing of Excess Earnings
                  Return on Equity             Customers       Shareholders
                  ----------------             ---------       ------------
                       11-12%                     65%              35%
                       12-14%                     50%              50%
                       14-15%                     35%              65%
                      over 15%                   100%               0%

      The QSP  provides  for  bill  credits  if PSCo  does not  achieve  certain
performance measures relating to electric  reliability,  customer complaints and
telephone response to inquiries. For 1997, the QSP provided for up to $3 million
of rewards for its  performance  and PSCo's actual reward totaled  approximately
$1.5  million.  During the third  quarter  of 1998,  PSCo  reached a  settlement
agreement  with  the CPUC  Staff  and the OCC  which  modified  the bill  credit
structure for 1998 electric  reliability and eliminated the reward structure for
the years 1999  through  2001.  Approval of this  modification  was  obtained in
November 1998.

      In April 1998,  PSCo filed with the CPUC its  proposed  Performance  Based
Regulatory Plan adjustment for calendar year 1997. This adjustment  provides the
means for  implementing  the sharing  mechanism  for the  customers'  portion of
earnings over PSCo's  authorized  return on equity threshold  resulting from the
1997  earnings  test,  net of QSP  rewards.  PSCo  recorded  a  customer  refund
obligation of $15.1 million for the 1997 earnings test. In July 1998, PSCo began
refunding a portion of this amount to  customers  through  bill  credits.  As of
December 31, 1998, PSCo recorded an estimated refund obligation of approximately
$8.1 million for the 1998 earnings test.

     Additionally,  a $6 million  annual  electric rate reduction was instituted
October 1, 1996,  followed by an  additional  $12 million  annual  electric rate
reduction  effective with the implementation of new retail gas rates on February
1, 1997.  PSCo  agreed to freeze  base  electric  rates  after the  Merger  rate
reductions for the period through December 31, 2001 with the flexibility to make
certain other rate changes,  including  those necessary for the recovery of DSM,
QF capacity costs and  decommissioning  costs. The freeze in base electric rates
does not  prohibit  PSCo from  filing a general  rate case or deny any party the
opportunity to initiate a complaint or show cause proceeding.


                                       96
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

PSCo FERC Rate Case

      PSCo filed a rate case with the FERC on December  29,  1995,  requesting a
slight  overall  rate  increase  (less  than  1%) from  its  wholesale  electric
customers.  This filing, among other things,  requested approval for recovery of
OPEB costs under SFAS 106,  postemployment  benefit costs under SFAS 112 and new
depreciation  rates based on the Company's most recent  depreciation  study.  In
March 1997, the FERC issued an order accepting for filing and suspending certain
proposed rate changes.  Settlement  agreements were reached with all parties and
filed with the FERC,  which,  resulted in a slight decrease in rates overall.  A
final order accepting the settlement agreements was received in June 1997.

SPS Merger Related Rate Reductions

      Under the  various  regulatory  commission  approvals,  SPS is required to
provide  credits to  customers  over five  years for  one-half  of the  measured
non-fuel  operation and maintenance  expense savings associated with the Merger.
SPS will provide  guaranteed  minimum annual  credits to retail  customers of $3
million in Texas, $100,000 in Oklahoma and $10,000 in Kansas and $1.5 million to
wholesale customers.

      Under a settlement  reached with the NMPRC,  effective  December 30, 1998,
SPS  discontinued  the merger  savings  credit of $1.2 million per year with the
implementation of new retail rates in New Mexico as discussed below.

SPS Electric Cost Adjustment Mechanisms

      Substantially  all fuel and  purchased  power costs are  recoverable  from
utility customers,  as determined on a jurisdictional basis, using approved cost
adjustment  mechanisms.  As a result  of  amendments  during  1998 to  contracts
between the coal  supplier  to SPS and the  railroad  company it  employs,  coal
transportation costs are projected to decline  significantly for the period from
November  1998  through  December  2002.  These  savings  will be  passed  on to
customers.

Texas

      The PUCT's  regulations  require  periodic  examination  of SPS's fuel and
purchased  power costs,  the  efficiency  of the use of such fuel and  purchased
power, fuel acquisition and management  policies and purchase power commitments.
SPS is required to file an  application  for the  Commission to  retrospectively
review,  at least every three years,  the operations of a utility's  electricity
generation  and  fuel  management  activities.  In  June  1998,  SPS  filed  its
reconciliation  for the  generation  and  fuel  management  activities  totaling
approximately  $690 million,  for the period from January 1995 through  December
1997.   For  this  same  period,   SPS  had   approximately   $21.4  million  in
underrecovered  fuel costs  associated with the Texas retail  jurisdiction.  The
Company has also  requested the  prospective  sharing of margins from  wholesale
non-firm sales.  The outcome of this fuel  reconciliation  proceeding is pending
and a hearing has been set for June 1999.

      SPS was named as a defendant in a case entitled Thunder Basin Coal Co. vs.
Southwestern  Public Service Co. In November,  1994, the jury returned a verdict
in favor of Thunder Basin and awarded  damages of  approximately  $18.8 million.
SPS  appealed the judgment  and, in January  1997,  that Court found in favor of
Thunder  Basin and upheld the  judgment.  In February  1997,  SPS  recorded  the
liability  for the judgment  including  interest and court costs.  The amount of
approximately $22.3 million was paid in April 1997.

     During 1996 and 1997, SPS obtained conditional approval to collect portions
of the Thunder Basin  judgment from  wholesale  customers  from the FERC and the
NMPRC issued an order granting recovery of the New Mexico retail  jurisdictional
portion  of the  judgment.  In May 1997,  SPS  filed a request  with the PUCT to
surcharge  undercollected fuel and purchased power expenses, which included $9.1
million of the Thunder Basin  judgment.  The PUCT issued a decision which denied
recovery of the judgment  through a surcharge on the grounds that the costs were
not classified as

                                       97
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

fuel costs.  In 1997,  SPS  expensed  approximately  $12.1  million of the Texas
retail  jurisdictional  portion of the Thunder Basin  judgment and recognized an
equal amount as deferred  revenue in anticipation of future recovery through the
pending fuel reconciliation proceeding.

      SPS believes that recovery of the Thunder Basin costs for the Texas retail
jurisdiction  will be approved in the pending  fuel  reconciliation  proceeding.
Under the PUCT  regulations,  a utility may recover  eligible  fuel  expenses or
fuel-related  expenses,  which result in benefits to  customers  that exceed the
costs that  customers  would  otherwise  have to pay.  The  Thunder  Basin costs
resulted in total net savings to customers of approximately  $8.5 million,  with
approximately   $4.6   million  net  savings   attributable   to  Texas   retail
jurisdictional customers.

New Mexico

      In October  1997,  the NMPRC  approved  a fixed fuel  factor for SPS's New
Mexico retail  jurisdiction,  effective January 1998. This employs an over/under
fuel collection calculation made on a monthly basis. SPS is required to petition
for a change in the fixed fuel factor if the over/under recovery balance reaches
$5 million. In addition, on an annual basis SPS files with the NMPRC a report of
SPS's fuel and purchase  power  costs,  which  includes  the current  over/under
recovery  balance and proposed  rate changes to refund or surcharge the balance.
The methodology of the over/under calculation,  plus interest, is similar to the
Texas  fixed  fuel  factor   calculation.   Previously,   New  Mexico's   retail
jurisdictional  electric  rates applied a monthly fuel factor.  In January 1999,
SPS  implemented  new annual fixed fuel cost  recovery  factors to reflect lower
fuel costs primarily as a result of the aforementioned  coal transportation cost
settlement between SPS's coal supplier and the railroad company.

SPS Rate Cases

New Mexico

      In November 1997, the NMPRC issued an order  investigating SPS's rates. In
the order, the NMPRC  determined that because of the rapid changes  occurring in
the  electric  industry  the NMPRC would  require rate case filings by the major
electricity  suppliers who have not adopted a plan to provide retail open access
and customer  choice of  suppliers.  SPS made a  compliance  filing in May 1998,
which proposed a $1.7 million annual rate reduction for certain retail customers
in New  Mexico and  incorporated  the $1.2  million  guaranteed  minimum  annual
credits,  discussed  above.  In October  1998,  SPS entered into an  uncontested
stipulation  agreement  settling the rate  investigation  case.  As part of this
settlement,  SPS  instituted  a  $6  million  annual  reduction  in  base  rates
(discontinuing  the $1.2  million in  guaranteed  minimum  annual  credits)  for
certain retail customers.  Additionally,  SPS implemented full  normalization in
its accounting  for income taxes with recovery of the New Mexico  jurisdictional
portion of the tax regulatory  asset over 16.8 years.  On November 30, 1998, the
NMPRC approved the stipulation and the rate reduction became effective  December
30, 1998.

Wholesale - FERC

      In 1989,  the FERC issued its final order  regarding a 1985 wholesale rate
case. SPS appealed certain portions of that order that related to recognition of
rates of the  reduction  of the  federal  income tax rates from 46% to 34%.  The
United  States  Court  of  Appeals  remanded  the  case,  directing  the FERC to
reconsider  SPS's claim.  Negotiated  settlements  with certain  customers  were
reached,  and  approved  by the  FERC,  in 1993 and  1995,  with  SPS  receiving
approximately  $10  million,  including  interest.  Settlement  agreements  were
reached with the two remaining  customers  during 1998 and approved by the FERC.
In connection with these  settlements,  SPS recorded $16.9 million of additional
revenues and $7.6 million of additional depreciation expense.


                                       98
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Cheyenne Electric Cost Adjustment Mechanism

      Cheyenne  filed  for an  increase  in its ECA  rates of  approximately  $3
million and new rates became effective January 1, 1999. This increase,  however,
is being contested and hearings are scheduled for March 1999.

Gas Utility Matters

PSCo Rate Cases

      On June 5, 1996, PSCo filed a retail rate case with the CPUC requesting an
annual increase in its jurisdictional  gas department  revenues of approximately
$34  million.   In  early  1997,  the  CPUC  approved  an  overall  increase  of
approximately $18 million with an 11.25% return on equity, effective February 1,
1997 and as  modified  on May 15,  1997.  The CPUC  disallowed  the  recovery of
certain  postemployment  benefit  costs under SFAS 112 and  imputed  anticipated
merger  related  savings net of costs  related to the gas business  (see Note 1.
Summary of  Significant  Accounting  Policies).  PSCo filed a petition  with the
Denver  District Court appealing the CPUC's  decision.  The District Court judge
requested oral arguments in the proceeding.  The Company  anticipates a decision
during 1999.

      In  November  1998,  PSCo  filed a  retail  gas  rate  case  with the CPUC
requesting  an annual  increase in rates of  approximately  $23.4  million.  The
request for a rate increase reflects revenues for additional plant investment, a
12.0% return on equity and the recovery of incremental year 2000 costs (see Note
5.  Commitments  and   Contingencies  -  Year  2000  Costs).   The  recovery  of
postemployment benefit costs was not included in this request pending a decision
from the Denver District Court, as discussed  above.  Hearings are set for April
1999. The new rates, if approved, would become effective July 1, 1999.

Cheyenne Rate Case

      In May 1997,  Cheyenne filed an  application  with the WPSC for an overall
annual increase in retail gas revenues of approximately $1.25 million.  The WPSC
approved an increase in retail gas revenues of approximately $1.19 million, with
an 11.71% return on equity, effective October 1, 1997.

10. Commitments and Contingencies (NCE, PSCo and SPS)

Environmental Issues

      The Company  and its  subsidiaries  are  subject to various  environmental
laws, including  regulations governing air and water quality and the storage and
disposal of hazardous or toxic wastes. The Company and its subsidiaries  assess,
on an ongoing basis,  measures to ensure  compliance  with laws and  regulations
related  to air and water  quality,  hazardous  materials  and  hazardous  waste
compliance and remediation activities.

Environmental Site Cleanup

      As  described  below,  PSCo has  been or is  currently  involved  with the
cleanup of contamination from certain hazardous substances.  In many situations,
PSCo is  pursuing  or intends to pursue  insurance  claims and  believes it will
recover some portion of these costs  through  such claims.  Additionally,  where
applicable, PSCo is pursuing, or intends to pursue, recovery from other PRPs and
through the rate regulatory  process.  To the extent any costs are not recovered
through the options listed above, PSCo would be required to recognize an expense
for such unrecoverable amounts.

      Under the CERCLA,  the U.S. EPA identified,  and a Phase II  environmental
assessment  revealed,  low  level,   widespread   contamination  from  hazardous
substances at the Barter Metals Company ("Barter") properties located in central
Denver.  For an  estimated  30 years,  PSCo  sold  scrap  metal  and  electrical
equipment to Barter for  reprocessing.  PSCo has  completed  the cleanup of this
site at a cost of approximately  $9 million and has received  responses from the
Colorado Department of Public Health and Environment  ("CDPHE")  indicating that
no further action is required related to these  properties.  On January 3, 1996,
in a lawsuit by PSCo against its insurance providers,  the Denver District Court

                                       99
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

entered  final  judgment  in favor of PSCo in the  amount  of $5.6  million  for
certain  cleanup  costs at Barter.  Several  appeals and cross appeals have been
filed  by one of the  insurance  providers  and  PSCo in the  Colorado  Court of
Appeals.  The insurance  provider has posted  supersedeas bonds in the amount of
$9.7 million ($7.7 million  attributable  to the Barter  judgment).  On July 10,
1997,  the Colorado  Court of Appeals  overturned  the  previously  awarded $7.7
million judgment on the basis that the jury had not been properly  instructed by
the Judge regarding a narrow issue associated with certain policies. Previously,
PSCo had received  certain  insurance  settlement  proceeds from other insurance
providers for Barter and other  contaminated  sites and a portion of those funds
remains  to be  allocated  to this site by the trial  court.  Both  sides of the
litigation  filed  petitions for certiorari to the Colorado  Supreme Court which
granted a hearing on several  issues,  although the matter is still pending.  In
addition,  in August  1996,  PSCo  filed a  lawsuit  against  four PRPs  seeking
recovery of certain Barter related costs.  Settlement has been achieved with two
smaller PRP's.  On December 16, 1997,  the U. S. District Court awarded  summary
judgment in favor of the remaining PRPs, on the basis that PSCo failed to follow
CERCLA guidelines in the cleanup. On January 15, 1998, PSCo appealed the summary
judgment to the U.S. Court of Appeals,  which is still  pending.  In March 1998,
PSCo sold the  remaining  Barter  properties,  and the total  proceeds were $1.1
million.

      PCB presence was identified in the basement of an historic office building
located in downtown Denver.  The Company was negotiating the future cleanup with
the current  owners;  however,  in October 1993, the owners filed a civil action
against  PSCo in the Denver  District  Court.  The action  alleged that PSCo was
responsible  for the PCB  releases and  additionally  claimed  other  damages in
unspecified  amounts.  In August  1994,  the  Denver  District  Court  entered a
judgment  approving a $5.3  million  offer of  settlement  between  PSCo and the
building owners  resolving all claims.  In December 1995, PSCo filed  complaints
against all applicable  insurance carriers in the Denver District Court. In June
1997,  the Court  ruled in favor of the  carriers  on summary  judgment  motions
addressing late notice and other issues. In August 1997, PSCo filed an appeal of
the decision with the Colorado  Court of Appeals,  which is still  pending.  One
carrier was  excluded  from the summary  judgment;  subsequently,  that  carrier
received  approval to be dismissed on the same basis as the other  carriers.  In
March 1998,  PSCo reached a settlement  with another carrier who was not part of
the Denver District Court action.  In December 1998, the CPUC approved  recovery
of the electric  jurisdictional  net costs totaling  approximately  $3.1 million
through PSCo's electric department  earnings test over a five-year  amortization
period.

      In addition to these sites, PSCo has identified  several other sites where
clean up of hazardous substances may be required.  While potential liability and
settlement costs are still under  investigation  and negotiation,  PSCo believes
that the resolution of these matters will not have a material  adverse effect on
PSCo's financial position, results of operations or cash flows. PSCo will pursue
the  recovery  of all  significant  costs  incurred  for such  projects  through
insurance claims and/or the rate regulatory process.

Other Environmental Matters

      Under the Clean Air Act  Amendments of 1990  ("CAAA"),  coal-fueled  power
plants are required to reduce SO2 and NOx emissions to specified  levels through
a phased  approach.  PSCo and SPS's  facilities  must  comply  with the Phase II
requirements,  which  will be  effective  in the  year  2000.  Currently,  these
regulations  permit  compliance  with SO2  emission  limitations  by  using  SO2
allowances  allocated  to  plants  by the EPA,  using  allowances  generated  by
reducing  emissions at existing  plants and by using  allowances  purchased from
other  companies.  The Company  expects to meet the Phase II emission  standards
placed on SO2 through the  combination of: a) the use of low sulfur coal, b) the
operation of air quality control equipment on certain generation facilities, and
c) allowances issued by the EPA and purchased from other companies. In addition,
PSCo will be required to modify  certain  boilers by the year 2000 to reduce the
NOx emissions in order to comply with Phase II requirements. The estimated Phase
II costs for these future plant  modifications  to meet NOx  requirements  total
approximately  $2.5  million  and  pertain to PSCo's  Cherokee  Unit 1 and 2 and
Arapahoe Unit 3.

      PSCo has announced its  intention to spend  approximately  $211 million on
its Denver and Boulder  Metro area  coal-fueled  power plants to further  reduce
such emissions below the required  regulatory  levels  discussed above, but will
only do so if the following  three  conditions are met: 1) the Colorado  General
Assembly  and the  CPUC  approve  recovery  of  these  costs,  2)  PSCo  obtains
flexibility  in  operating  the  plants,  and 3) PSCo is  assured  the  emission
reduction  plan is


                                      100
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

sufficient  to meet future  state  requirements  for 15 years.  Legislation  was
passed and signed into law during the second  quarter of 1998.  During the third
quarter of 1998, PSCo and the CDPHE entered into a voluntary emissions reduction
agreement  under the  legislation.  In  November  1998,  the  Company  filed for
recovery  of these  costs  with the  CPUC.  The  voluntary  emissions  reduction
agreement will be effective only if the CPUC approves a cost recovery  mechanism
acceptable to PSCo.

Hayden Steam Electric Generating Station

      In May 1996,  PSCo and the other joint owners of Hayden Station reached an
agreement  resolving  violations  alleged in complaints  filed by a conservation
organization,  the  CDPHE and the EPA  against  the  joint  owners.  PSCo is the
operator  and owns an average  undivided  interest of  approximately  53% of the
station's two generating  units. In connection  with the  settlement,  the joint
owners of the Hayden station were required to install emission control equipment
of approximately $130 million (PSCo's portion is approximately $70 million). The
settlement  included  stipulated future penalties for failure to comply with the
terms  of the  agreement,  including  specific  provisions  related  to  meeting
construction  deadlines  associated with the installation of additional emission
control  equipment  and  complying  with  particulate,  SO2  and  NOx  emissions
limitations.  In  August  1996,  the U.S.  District  Court for the  District  of
Colorado  entered the  settlement  agreement,  which  effectively  resolved this
litigation. Installation of this emission control equipment is in process and on
schedule in accordance with the settlement  agreement.  The initial installation
of some equipment at Unit 1 was completed in late 1998.

Craig Steam Electric Generating Station

      In October 1996, a conservation organization filed a complaint in the U.S.
District  Court  pursuant to provisions of the Federal Clean Air Act (the "Act")
against the joint owners of the Craig Steam Electric  Generating Station located
in western Colorado. Tri-State Generation and Transmission Association,  Inc. is
the operator of the Craig station and PSCo owns an undivided  interest (acquired
in April 1992) in each of two units at the station totaling  approximately 9.7%.
The plaintiff alleged that: 1) the station exceeded the 20% opacity  limitations
in excess of 14,000 six minute  intervals  during the period  extending from the
first  quarter of 1991  through  the second  quarter of 1996,  and 2) the owners
failed to operate the  station in a manner  consistent  with good air  pollution
control  practices.  The complaint  seeks,  among other things,  civil  monetary
penalties and injunctive relief. The Act provides for penalties of up to $25,000
per day per  violation,  but the level of  penalties  imposed in any  particular
instance is discretionary. Settlement discussions were held in 1998, although no
settlement  was  achieved.  There have been no further  settlement  discussions.
Resolution of this matter may require the  installation  of additional  emission
control  equipment.  Management does not believe that this potential  liability,
the future impact of this  litigation on plant  operations,  or any related cost
will have a material  adverse impact on PSCo's  financial  position,  results of
operations or cash flows.

Fort St. Vrain Defueling and Decommissioning

      In 1989, PSCo announced its decision to end nuclear operations at Fort St.
Vrain.   Defueling  of  the  reactor  to  the  Independent  Spent  Fuel  Storage
Installation  ("ISFSI") was completed in June 1992. In March 1996,  PSCo and the
decommissioning   contractors   announced  that  the  physical   decommissioning
activities  at the  facility  had been  completed.  The final  site  survey  was
completed  in late October  1996.  On August 5, 1997,  the NRC  approved  PSCo's
request to terminate the Part 50 license.  This  concluded  the  decommissioning
activities as the  facilities  and the site was released for  unrestricted  use.
PSCo is currently operating a gas-fired combined cycle steam generation plant at
this facility.

      On February 9, 1996, PSCo and the DOE entered into an agreement  resolving
all the  defueling  issues.  As part of this  agreement,  PSCo has agreed to the
following:  1) the DOE assumed title to the fuel currently  stored in the ISFSI,
2) the DOE will assume title to the ISFSI and will be responsible for the future
defueling and decommissioning of the facility, 3) the DOE agreed to pay PSCo $16
million  for the  settlement  of  claims  associated  with the  ISFSI,  4) ISFSI
operating and maintenance costs,  including  licensing fees and other regulatory
costs, will be the  responsibility of the DOE, and 5) PSCo provided to the DOE a
full and complete  release of claims  against the DOE resolving all  contractual
disputes  related to  storage/disposal  of Fort St. Vrain spent nuclear fuel. On
December 17, 1996,  the DOE submitted a

                                      101
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

request to the NRC to transfer the title of the ISFSI. The NRC is reviewing this
request and PSCo anticipates approval in early 1999.

      As a result  of the DOE  settlement,  coupled  with a  complete  review of
expected  remaining  decommissioning  costs and establishment of the anticipated
refund to customers, pre-tax earnings were positively impacted for 1997 and 1996
by  approximately $5 million and $16 million,  respectively.  In accordance with
the 1991 CPUC approval to recover certain decommissioning costs, 50% of any cash
amounts received from the DOE as part of a settlement,  net of costs incurred by
PSCo,  including  legal fees,  is to be refunded  or credited to  customers.  At
December 31, 1998, a $4.7 million  refund to customers  has been recorded on the
consolidated balance sheet.

      Under  the   Price-Anderson   Act,  PSCo  remains   subject  to  potential
assessments  levied in response to any  nuclear  incidents  prior to early 1994.
PSCo continues to maintain primary  commercial  nuclear  liability  insurance of
$100  million for the Fort St.  Vrain site and the  adjoining  ISFSI.  PSCo also
maintains   coverage   of  $20.4   million  to  provide   property   damage  and
decontamination protection in the event of an accident involving the ISFSI.

Leyden Gas Storage Facility

      During August 1998, a Jefferson County, Colorado District Court jury found
PSCo liable for  approximately  $1.8 million for the reduction in land value and
related  damages  resulting from the  allegations  that natural gas had migrated
from the Leyden Gas Storage facility.  PSCo appealed the judgment.  The affected
land is located north of, but not immediately adjacent to, the storage facility.
Additionally,  PSCo has requested  condemnation  authorization for a buffer zone
from the Colorado Oil and Gas Conservation Commission.

Fuel Purchase Requirements

Coal Purchases and Transportation

      PSCo and SPS have in place  various  long-term  contracts for the purchase
and  transportation of coal (and with respect to SPS, the processing of coal for
deliveries  to its bunkers)  which are used in the  generation  of  electricity.
These  contracts  expire on various dates through 2017 and at December 31, 1998,
the  total  estimated   obligations,   based  on  1998  prices,  for  PSCo  were
approximately $729.2 million, and for SPS were approximately $1.2 billion.

Gas Purchases and Transportation

      PSCo  and  Cheyenne  have  long-term  contracts  for  the  purchase,  firm
transportation  and  storage of natural  gas.  These  contracts,  excluding  the
thirty-year  contract  with  Young  Storage  which has been  accounted  for as a
capital lease, are primarily used to support distribution of natural gas and the
majority of these  contracts  expire on various  dates through 2002. At December
31,  1998,  PSCo  has  minimum  annual   obligations  under  such  contracts  of
approximately  $167 million in 1999 declining  thereafter for a total  estimated
commitment of approximately $245 million. The combined PSCo and Cheyenne minimum
annual  obligation at December 31, 1998,  under such contracts is  approximately
$169 million in 1999 declining  thereafter for a total  estimated  commitment of
approximately  $248  million.  SPS does not have any  long-term  contracts  with
minimum obligations.

Purchased Power

      PSCo, SPS and Cheyenne have entered into agreements with utilities and QFs
for  purchased  power to meet  system  load  and  energy  requirements,  replace
generation from  company-owned  units under maintenance and during outages,  and
meet operating reserve obligations.

      PSCo and SPS have various  pay-for-performance  contracts  with QFs having
expiration dates through the year 2022. In general,  these contracts provide for
capacity payments, subject to the QFs meeting certain contract obligations,  and
energy  payments based on actual power taken under the  contracts.  The capacity
and energy  costs

                                      102
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

are  recovered   through  base  rates  and  other  cost   recovery   mechanisms.
Additionally,  the Company's  regulated utilities have long-term purchased power
contracts with various regional  utilities expiring through 2018. Total capacity
and energy  payments  associated  with such contracts for NCE were $490 million,
$477 million, and $473 million;  for PSCo such payments were $439 million,  $452
million and $453  million;  and, for SPS such  payments  were $23  million,  $15
million and $20 million in 1998, 1997 and 1996, respectively.

      At December 31, 1998, the estimated future payments for capacity that NCE,
PSCo and SPS are obligated to purchase, subject to availability,  are as follows
(in thousands):

                                                            Regional
                                                   QFs     Utilities     Total
                                                   ---     ---------     -----
NCE
  1999..............................        $  156,489   $  182,969  $  339,458
  2000..............................           153,808      163,990     317,798
  2001..............................           151,903      142,301     294,204
  2002..............................           139,656      130,534     270,190
  2003..............................           128,171      119,397     247,568
  2004 and thereafter...............         1,053,855    1,018,503   2,072,359
                                             ---------   ----------   ---------
   Total............................        $1,783,882   $1,757,694  $3,541,576
                                            ==========   ==========  ==========

PSCo
  1999..............................        $  140,445   $  166,620  $  307,065
  2000..............................           137,497      155,227     292,724
  2001..............................           135,323      142,301     277,624
  2002..............................           122,802      130,534     253,336
  2003..............................           111,035      119,397     230,432
  2004 and thereafter...............           758,917    1,018,504   1,777,421
                                               -------    ---------   ---------
   Total............................        $1,406,019   $1,732,583  $3,138,602
                                            ==========   ==========  ==========

SPS
  1999..............................          $ 16,044      $ 7,923    $ 23,967
  2000..............................            16,311            -      16,311
  2001..............................            16,580            -      16,580
  2002..............................            16,854            -      16,854
  2003..............................            17,136            -      17,136
  2004 and thereafter...............           294,938            -     294,938
                                               -------      -------     -------
   Total............................          $377,863      $ 7,923    $385,786
                                              ========      =======    ========

      Historically,  all  minimum  coal,  coal  transportation,  natural gas and
purchased power requirements have been met.

System Purchase Option

      SPS and the City of Las Cruces,  New Mexico  ("the  City")  entered into a
System Purchase Option and Rate Agreement in August 1994,  which grants the City
the  option  to  sell  to SPS the  electric  utility  system  serving  the  City
(including distribution, subtransmission and transmission facilities), which the
City plans to acquire  from El Paso  Electric  Company  ("EPE") by  purchase  or
through condemnation proceedings.  The agreement has a three-year term beginning
at the time the City acquires the facilities and ending no later than January 1,
2002. The purchase price which would be paid by SPS would be equal to the amount
required to retire all  outstanding  debt  incurred by the City in acquiring the
facilities plus the City's reasonable costs in acquiring the facilities. SPS has
the right to terminate the agreement if, in SPS's sole discretion, it determines
that any proposed  condemnation  award is excessive  or upon the  occurrence  of
certain other events.  The agreement also provides that, if the City abandons or
dismisses condemnation  proceedings as a consequence of SPS's termination of the
agreement, SPS

                                      103
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

will reimburse the City for one-half of its reasonable  litigation  expenses and
for any of EPE's damages and  litigation  expenses that the City is obligated to
pay by final court order. It is anticipated that the City will file a in suit in
State  District  Court in 1999  seeking to  condemn  the  electric  distribution
facilities of EPE. In conjunction  with the  agreement,  the NMPRC has initiated
Case 2651 to investigate  whether the agreement  constitutes a security,  or the
guarantee  of a  security,  under the New Mexico  Public  Utility  Act.  SPS has
responded  to the  Commission's  Order to Show  Cause and does not  believe  the
agreement  to be a  security  or the  guarantee  of a  security.  A hearing  was
conducted in Case 2651 in July 1997.  On November 24, 1998,  the NMPRC issued an
order dismissing the investigation.

Other
      In  connection  with an  agreement  for the sale of  electric  power,  SPS
guaranteed  certain  obligations of a customer  totaling $48 million at December
31, 1997.  These  obligations are related to the construction of certain utility
property  that,  in the event of default by the  customer,  would revert to SPS.
Additionally,  the Company and its subsidiaries have commitments  related to the
purchase of materials, plant and equipment additions, DSM expenditures and other
various items resulting from the normal course of business.

Tax Matters

      PSRI, a subsidiary  of PSCo,  owns and manages  permanent  life  insurance
policies  on certain  past and present  employees.  These  corporate  owned life
insurance  ("COLI")  policies  were entered into prior to July 1, 1986. In 1996,
Congress  passed  legislation  to phase out the tax  benefits  with certain COLI
policies,   however,  the  Company's  policies  were  grandfathered  under  this
legislation.  In August  1998,  the IRS issued a Notice of  Proposed  Adjustment
proposing to disallow the 1993 and 1994  deductions of interest  expense related
to policy loans on the COLI policies  totaling  approximately  $54.6 million.  A
Request for Technical  Advice was filed with the IRS National  Office on January
15, 1999, with respect to the proposed adjustment.

      Management plans to vigorously  contest this issue.  PSCo has not recorded
any  provision  for  income tax or  interest  expense  related  to this  matter.
Management believes that the Company's tax deduction of interest expense on life
insurance  policy loans was in full compliance with IRS regulations and believes
that the  resolution of this matter will not have a material  adverse  impact on
PSCo's financial position, results of operations or cash flows.

Year 2000 Issue

      The Y2K issue is a result of a universal programming standard that records
dates as six  digits,  e.g.,  mm/dd/yy,  using  only the last two digits for the
year. Any automated system software or firmware that uses two-digit fields could
understand  the year 2000 as the year 1900 if the issue is not  corrected.  This
situation  is not  limited to  computers;  it has the  potential  to affect many
systems,  components and devices,  which have embedded computer chips, which may
be, date  sensitive.  The Y2K issue could  result in a major  system  failure or
miscalculations  and  does  impact  many  NCE  systems  considered  critical  or
important to the  Company's  business  operations.  Systems  posing the greatest
business risks to the Company include power generation and distribution systems,
telecommunications  systems,  energy trading  systems and billing  systems.  The
Company is  addressing  all  potential  Y2K  failure  points  identified  in its
critical  automated systems to maintain service to its customers and to mitigate
legal and financial risks.

      In 1997,  the Company  established  the Y2K Program  Office to oversee all
corporate-wide  Y2K  initiatives.   These  initiatives  encompass  all  computer
software,  embedded systems, as well as contingency planning.  Teams of internal
and external  specialists  were  established  to  inventory  and assess and test
critical  computer programs and automated  operational  systems and modify those
that may not be Y2K compliant.  The inventory phase and assessment  phase for IT
systems  were  completed  in  1998.  Additionally,   approximately  77%  of  the
remediation  and testing phase for all critical IT systems was completed in 1998
with the remaining  remediation  and testing planned to be completed by June 30,
1999. For non-IT systems, which exist primarily in the generation, 

                                      104
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

transmission  and  distribution  areas  of  the  business,   the  inventory  and
assessment phases are complete.  Remediation and testing for non-IT systems were
approximately 46% complete at December 31, 1998;the  remainder is expected to be
completed by September 30, 1999. Systems critical to the generation and delivery
of energy are expected to be completed by June 30, 1999.

      The Company  has  identified  third  parties,  with which it has  material
business relationships including  interconnected  utilities,  telecommunications
service  providers,  fuel  and  water  suppliers,  equipment  suppliers,  leased
facilities  and  financial  institutions.  Subject  matter  experts,  along with
functional managers,  continue to evaluate the current list of third parties and
have ongoing discussions with these and other critical suppliers about their Y2K
readiness and contingency planning efforts.

      The Company  currently expects to incur costs of approximately $25 million
to modify its computer  software,  hardware and other automated  systems used in
operations enabling proper data processing relating to the year 2000 and beyond.
This includes approximately $19 million for inventory,  assessment,  remediation
and testing and approximately $6 million for the replacement of automated system
components.  Furthermore, the Company expects to spend approximately $15 million
in capital expenditures for the accelerated replacement of certain non-compliant
IT systems,  which are expected to be  implemented  by September  30, 1999.  The
majority  of all Y2K  costs  will be  incurred  by PSCo and SPS.  A  significant
portion of the costs incurred to address the Company's Y2K issues will represent
the redeployment of existing information  technology resources.  The table below
details the actual costs incurred  through  December 31, 1998, and the estimated
costs to be incurred during 1999 (in millions).

                                              Actual Costs  Estimated  Estimated
                                             1998 and Prior   1999      Total
                                             --------------   ----      -----

      Operating expenses....................   $  8.2        $ 11.1    $ 19.3
      Capital expenditures .................      7.1          13.4      20.5

      Yorkshire Power has also undertaken  activities to address Y2K issues. The
estimated  proportionate share of Yorkshire Power's incremental Y2K costs (costs
which would not have been required in the normal  course of business)  that will
flow through to the  Company's  earnings as a result of such  activities  is not
expected  to have a material  impact on the  financial  condition  or results of
operations of the Company.

      The most  reasonably  likely  worst  case  scenario  resulting  during Y2K
critical  dates is a loss of  production  capacity from certain of the Company's
generating units, along with loss of a portion of the communication  system that
is critical to generation and distribution  control.  If this were to occur, the
Company's  operating  utilities  may be  required  to  "island"  (separate  from
neighboring  interconnected utilities) their generation and distribution systems
in their service  territories.  As part of this  scenario,  difficulty  could be
encountered with the restart of generating  units. The overall blackout recovery
plan for NCE is designed so that this most reasonably likely worst case scenario
would be addressed and electricity  restored.  Critical  components of this plan
have been and continue to be tested to provide  assurance  that the Company will
be prepared for risks which could result from the Y2K millennium change.

      If correction or replacement of non-compliant systems are not completed on
a timely basis,  the Y2K issues may have a material  impact on the operations of
the Company and its subsidiaries. Management, however, does not anticipate these
activities  will  have a  material  adverse  impact on the  financial  position,
results of operations or cash flows of the Company or its subsidiaries.

Leasing Program

      The Company's  subsidiaries lease various equipment and facilities used in
the  normal  course of  business,  some of which are  accounted  for as  capital
leases.  Expiration of the capital  leases range from 1999 to 2025. The net book
value of property  under capital  leases was $39.8 million and $39.6 million for
NCE and PSCo, 

                                      105
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

respectively  at December 31, 1998 and $44.7  million and $44.4  million for NCE
and PSCo,  respectively,  at December 31, 1997.  Assets  acquired  under capital
leases are recorded as property at the lower of  fair-marketvalue or the present
value of future lease payments and are amortized over their actual contract term
in accordance with practices  allowed by regulators.  The related  obligation is
classified  as long-term  debt.  Executory  costs are excluded  from the minimum
lease payments.

      The majority of the operating  leases are under a leasing program that has
initial  noncancellable  terms of one year,  while  the  remaining  leases  have
various terms. These leases may be renewed or replaced. No material restrictions
exist in these leasing  agreements  concerning  dividends,  additional  debt, or
further leasing. Rental expense for 1998, 1997 and 1996 was $15.5 million, $36.2
million and $26.9 million,  respectively,  for NCE; $12.2 million, $31.1 million
and $25.0 million,  respectively,  for PSCo; and $2.4 million,  $4.3 million and
$3.7 million,  respectively,  for SPS.  SPS's rental  expense for the Transition
Period was $1.2 million.

      Estimated  future  minimum  lease  payments at December 31,  1998,  are as
follows (in thousands):

Capital Leases
                                                          NCE        PSCo 
                                                          ---        ---- 
1999 ..............................................    $ 8,020     $ 7,890
2000...............................................      5,158       5,092
2001...............................................      5,035       5,035
2002...............................................      4,820       4,820
2003...............................................      4,646       4,646
All years thereafter...............................     71,711      71,711
                                                       -------     -------
    Total future minimum lease payments                 99,390      99,194
    Less amounts representing interest.............     59,639      59,639
                                                       -------     -------
    Present value of net minimum lease payments....    $39,751     $39,555
                                                       =======     =======

Operating Leases
                                              NCE        PSCo         SPS 
                                              ---        ----         --- 
1999..................................     $13,512     $10,451     $ 2,292
2000..................................      10,647       8,012       2,195
2001..................................       5,450       3,297       1,860
2002..................................         499         347          31
2003..................................         379         245          26
All years thereafter.................        7,752       7,313          52
                                           -------     -------     -------
    Total future minimum lease payments    $38,239     $29,665     $ 6,456   
                                           =======     =======     =======

Employee Matters

      The Company and its subsidiaries are engaged in certain employment related
litigation and intend to contest, or are actively  contesting,  all such claims,
and believe that the ultimate outcome will not have a material adverse impact on
the  financial  position,  results of operations or cash flows of the Company or
its subsidiaries.

Union Contracts

PSCo

      The current  Collective  Bargaining  Agreement is a  three-year  agreement
extending  from June 1, 1997 through May 31, 2000 with wage  increases of 3%, 3%
and  3.25%  beginning  in each  year  of the  agreement  1997,  1998  and  1999,
respectively. Approximately 1,946 employees, or 62% of PSCo's total workforce at
December  31,  1998,  are  represented  by  the  International   Brotherhood  of
Electrical Workers, ("IBEW"), Local 111.


                                      106
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SPS

      The current  Collective  Bargaining  Agreement is a  three-year  agreement
extending from November 1, 1996 through  November 1, 1999 with wage increases of
3% in each year of the agreement.  Approximately 805 employees,  or 60% of SPS's
total workforce at December 31, 1998, are represented by the IBEW, Local 602.

11.  Jointly-Owned Electric Utility Plants (NCE and PSCo)

      The Company's investments in jointly-owned plants (PSCo participation) and
its ownership percentages as of December 31, 1998, are (in thousands):

                                      Plant               Construction
                                       in     Accumulated    Work in
                                     Service Depreciation   Progress Ownership %

   Hayden Unit 1................   $ 70,191    $ 31,785     $  2,841      75.50
   Hayden Unit 2................     58,257      35,518       11,191      37.40
   Hayden Common Facilities.....     23,411         720        1,350      53.10
   Craig Units 1 & 2............     57,660      25,985           50       9.72
   Craig Common Facilities 
     Units 1 & 2 ...............     10,990       3,388           30       9.72
   Craig Common Facilities
      Units 1,2 & 3 ............      8,773       3,698            1       6.47
   Transmission Facilities,
     Including Substations .....     79,722      24,703           92   42.0-73.0
                                     ------      ------          ---
                                   $309,004    $125,797     $ 15,555
                                   ========    ========     ========

      These assets include  approximately  320 Mw of net  dependable  generating
capacity.  PSCo is responsible for its proportionate share of operating expenses
(reflected  in PSCo's and the Company's  consolidated  statements of income) and
construction  expenditures.  The  increase  in plant in  service in 1998 and the
construction  work in  progress  amounts  for Hayden  Unit 1,  Hayden Unit 2 and
Hayden  Common  Facilities  include  construction  expenditures  for  installing
emission control equipment for these facilities as discussed in Note 10.

12. Employee Benefits (NCE, PSCo and SPS)

      The FASB issued SFAS  No.132,  "Employers'  Disclosures  about  Pensions &
Other  Postretirement  Benefits",  effective  for 1998.  This  standard does not
change  the   measurement   or   recognition  of  costs  for  pension  or  other
postretirement plans but rather standardizes disclosures.

Pensions

      The Company and its  subsidiaries  maintain tax qualified  noncontributory
defined  benefit  pension  plans which cover  substantially  all  employees.  At
December  31,  1998,  there  were  5,839,  3,118,  and 1,276  NCE,  PSCo and SPS
employees, respectively, participating in these plans. NCE, as the plan sponsor,
has overall responsibility for directly allocating such costs of each individual
plan to each of the participating  employers.  This allocation was determined by
the plans' actuary based on benefit obligations for active participants.

      Plan  assets are held in a master  trust.  Plan  assets are stated at fair
value and are comprised  primarily of corporate  debt and equity  securities,  a
real estate fund and government securities held either directly or in commingled
funds. The Company's funding policy is to contribute annually, at a minimum, the
amount necessary to satisfy the IRS funding standards.

      A comparison  of the  actuarially  computed  benefit  obligation  and plan
assets at December 31, 1998 and 1997,  is presented in the  following  table (in
thousands).


                                      107
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

                                          1998         1997 
                                          ----         ---- 
Change in Benefit Obligation

Obligation at January 1............    $  991,973    $  919,452
Service cost.......................        23,902        18,418
Interest cost......................        66,735        68,327
Plan amendments *..................       (60,014)            -
Actuarial loss.....................        52,416        42,460
Benefit payments...................       (61,221)      (54,412)
Curtailment........................             -        (2,272)
                                           ------        ------
Obligation at December 31..........    $1,013,791    $  991,973
                                       ==========    ==========

Change in Fair Value of Plan Assets

Fair value of plan assets at January 1 $1,131,270    $  996,085
Actual return on plan assets.......       168,872       189,597
Benefit payments...................       (61,221)      (54,412)
                                          -------       -------
Fair value of plan assets at
  December 31 .....................    $1,238,921    $1,131,270
                                       ==========    ==========

Funded Status

Funded status at December 31.......    $  255,130    $  139,297
Unrecognized transition asset......       (30,871)      (38,109)
Unrecognized prior-service cost (credit)  (33,073)       26,477
Unrecognized gain..................      (120,838)     (111,190)
                                         --------      --------
NCE prepaid pension asset..........    $   40,348     $  16,475
                                       ==========     =========
PSCo  prepaid pension asset........    $   15,089     $   9,925
                                       ==========     =========
SPS  prepaid pension asset.........    $   24,611     $   7,243
                                       ==========     =========

* Effective  July 1, 1998, a new cash balance plan was  established  by NCE. The
NCE board of directors approved amendments to the existing pension plans and the
plan  assets  and  obligation  for  all   non-bargaining   unit  employees  were
transferred into this plan.

                                           1998        1997
                                           ----        ----
Significant assumptions:
  Discount rate                           6.75%        7.0%
  Expected long-term increase
   in compensation level                   4.0%        4.0%

      Cumulative  variances  between actual experience and assumptions for costs
and returns on assets,  outside of a 10%  corridor of the greater of plan assets
and  obligations,  are  amortized  over the average  remaining  service lives of
employees in the plans.

      The  components  of net periodic  pension cost (credit) are as follows (in
thousands):

NCE                                           1998        1997     1996 
---                                          -------     ------   -----

Service cost...............................  $ 23,902   $ 18,418  $21,226
Interest cost..............................    66,735     68,327   66,503
Expected return on plan assets.............  (103,928)   (89,567) (75,723)
Curtailment................................         -        126        -
Amortization of transition asset...........    (7,238)    (7,238)  (7,238)
Amortization of prior-service cost (credit)      (464)     2,431    2,440
Amortization of net gain...................    (2,880)    (2,395)    (801)
                                             -------      ------   ------
NCE net periodic pension cost (credit).....  $(23,873)  $ (9,898) $ 6,407
                                             ========   ========  =======
PSCo net periodic pension cost (credit)....  $ (5,093)  $  2,318  $ 6,856
                                             ========   ========  =======
SPS net periodic pension cost (credit).....  $(15,175)  $(10,968) $   855
                                             ========   ========  =======


                                      108
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


                                                                  SPS
                                                              Transition
1996                                          PSCo       SPS    Period  
----                                         ------    ------   --------

Service cost............................... $ 14,317  $  6,846  $ 2,390
Interest cost..............................   46,497    20,266    7,066
Expected return on plan  assets............  (53,739)  (20,984)  (8,263)
Amortization of transition asset...........   (3,674)   (3,564)  (1,188)
Amortization of prior-service cost.........    2,304       136       45
Amortization of net loss (gain)............    1,151    (1,845)     (59)
                                             -------   -------   ------
Net periodic pension cost.................. $  6,856  $    855   $   (9)
                                            ========  ========   ======

                                               1998     1997         1996    
                                             -------   ------    ------------
                                                                 PSCo     SPS   
                                                                 ----     ---   
Significant assumptions:
  Discount rate............................     7.0%   7.5-8.0%  7.25%    8.0%
  Expected long-term increase in 
   compensation level .....................     4.0%  4.25-6.0%   4.0%    6.0%
  Expected weighted average long-term rate
   of return on assets ....................     9.5%      9.75%  9.75%    8.0%

      Additionally,   the  Company  maintains  noncontributory  defined  benefit
supplemental   retirement  income  plans   ("Supplemental   Plan")  for  certain
qualifying  executive  personnel.  The  Supplemental  Plan benefits are paid out
of/or funded through the Company's general fund.

Defined Contribution Plans

      The Company and its subsidiaries maintain defined contribution plans which
cover  substantially  all employees.  Total  contributions to these plans by the
Company and its subsidiaries  were  approximately  $12 million in 1998, 1997 and
1996.

Postretirement Benefits Other Than Pensions

      The Company and its  subsidiaries  provide certain  postretirement  health
care and life  insurance  benefits for  substantially  all  employees  who reach
retirement  age while  working for the  Company.  PSCo,  SPS,  NCS and other NCE
affiliates  participate in these plans. NCE, as the plan sponsor,  will continue
to reflect the costs of these  plans in  accordance  with SFAS 106 and  directly
allocate such costs to each of the participating  employers.  Historically,  the
Company  recorded the cost of these benefits for these plans on a  pay-as-you-go
basis.  The  Company's  subsidiaries  have adopted  SFAS 106 which  requires the
accrual,  during the years that an employee  renders service to the Company,  of
the expected cost of providing  these  benefits to the employee.  The Company is
amortizing the transition obligations for these plans over a period of 20 years.

      Plan  assets  are  stated at fair  value and are  comprised  primarily  of
corporate debt and equity securities,  a real estate fund, government securities
and other short-term investments held either directly or in commingled funds.

      PSCo adopted SFAS 106 based on a level of expense determined in accordance
with the CPUC.  PSCo  transitioned  to full  accrual  accounting  for OPEB costs
between  January 1, 1993 and December 31, 1997,  consistent  with the accounting
requirements for rate regulated enterprises.  All OPEB costs deferred during the
transition period will be amortized on a straight line basis over the subsequent
15 years.

      Additionally, certain state agencies, which regulate the Company's utility
subsidiaries,  have issued guidelines related to the recovery or funding of OPEB
costs.  SPS is  required  to fund  SFAS  106  costs  for  Texas  and New  Mexico
jurisdictional  amounts collected in rates and PSCo and Cheyenne are required to
fund SFAS 106 costs in  irrevocable  external  trusts which are dedicated to the
payment of these postretirement benefits.


                                      109
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

      A comparison  of the  actuarially  computed  benefit  obligation  and plan
assets at December 31, 1998 and 1997,  is presented in the  following  table (in
thousands):

                                         1998        1997
                                         ----        ----
Change in Benefit Obligation

Obligation at January 1............    $376,685    $350,354
Service cost.......................       4,917       6,120
Interest cost......................      26,503      26,537
Plan amendments....................     (14,346)          -
Actuarial loss.....................      20,310      16,627
Benefit payments...................     (16,874)    (21,253)
Curtailment........................           -      (1,700)
                                         ------     -------
Obligation at December 31..........    $397,195    $376,685
                                       ========    ========

Change in Fair Value of Plan Assets

Fair value of plan assets at January 1 $112,324    $ 88,673
Actuarial return on plan assets....      14,158       1,423
Employer contributions.............      26,928      28,908
Employee contributions.............         535       1,886
Benefit payments...................      (7,717)     (8,566)
                                        -------     -------
Fair value of plan assets at
 December 31 ......................    $146,228    $112,324
                                       ========    ========

Funded Status

Funded status at December 31.......    $250,967    $264,361
Unrecognized transition obligation.    (212,648)   (227,724)
Unrecognized prior-service credit..      13,588           -
Unrecognized gain..................       9,825      26,079
                                         ------      ------
NCE accrued benefit cost...........    $ 61,732    $ 62,716
                                       ========    ========
PSCo accrued benefit cost..........    $ 55,537    $ 58,695
                                       ========    ========
SPS accrued benefit cost...........    $  5,941    $  3,800
                                       ========    ========

                                        1998        1997 
                                        ----        ---- 
Significant assumptions:
  Discount rate                         6.75%        7.0%
  Expected long-term increase in
   compensation level                    4.0%        4.0%


                                      110
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

      The components of net periodic  postretirement benefit cost are as follows
(in thousands):

NCE                                           1998        1997       1996 
---                                          ------      ------      -----
Service cost...............................  $  4,917    $  6,121  $  8,191
Interest cost..............................    26,503      26,537    27,998
Expected return on plan assets.............   (10,767)     (8,078)   (6,233)
Curtailment................................         -       3,323         -
Amortization of transition obligation......    15,076      14,992    15,388
Amortization of prior-service cost (credit)      (757)          -         -
Amortization of net gain...................      (786)     (1,162)      (90)
Net periodic postretirement benefit costs..    34,186      41,733    45,254
OPEB expense recognized in accordance with
 current regulations ......................   (39,859)    (36,351)  (37,981)
Increase (decrease) in regulatory
 asset (Note 1) ..........................     (5,673)      5,382     7,273
Regulatory asset at beginning of year......    63,023      57,641    50,368
                                              -------      ------    ------
Regulatory asset at end of period..........  $ 57,350    $ 63,023  $ 57,641
                                             ========    ========  ========

                                                   1998             1997      
                                             ----------------   --------------
                                              PSCo        SPS      PSCo    SPS
                                              ----        ---      ----    ---
Net periodic postretirement benefit costs..  $ 26,044   $3,295  $29,025  $8,199
OPEB expense recognized in accordance with
  current regulations .....................   (31,578)  (3,434) (23,479) (8,363)
Increase (decrease) in regulatory
  asset (Note 1) ..........................    (5,534)    (139)    5,546   (164)
Regulatory asset at beginning of year......    59,995    3,028    54,449  3,192
                                              -------   ------   -------  -----
Regulatory asset at end of period..........  $ 54,461   $2,889   $59,995 $3,028
                                             ========   ======   =======  =====

                                                                  SPS
                                                                Transition
1996                                          PSCo       SPS     Period  
----                                         ------    ------   ---------
Service cost...............................  $ 6,928  $ 1,266   $  419
Interest cost..............................   22,982    5,109    1,608
Expected return on plan assets.............   (4,500)  (1,589)    (674)
Amortization of transition obligation......   12,710    2,674      892
Amortization of net gain...................        -        -      (87)
                                             -------   ------   ------
Net periodic postretirement benefit costs..   38,120    7,460    2,158
OPEB expense recognized in accordance with
 current regulations ......................  (31,271)  (6,715)  (2,230)
                                             -------   ------   ------
Increase in regulatory asset (Note 1)......    6,849      745      (72)
Regulatory asset at beginning of year......   47,600    2,519    3,264
                                             -------   ------   ------
Regulatory asset at end of period..........  $54,449   $3,264   $3,192
                                             =======   ======   ======

                                               1998     1997       1996    
                                             -------   ------   -----------
                                                                PSCo    SPS   
                                                                ----    ---   
Significant assumptions:
  Discount rate............................    7.0%   7.5-8.0%  7.25%   8.0%
  Expected long-term increase in 
    compensation level ....................    4.0%   4.0-6.0%   4.0%   6.0%
  Expected weighted average long-term rate
    of return on assets ...................    9.5%   9.75%     9.75%   8.0%

      The assumed  health care cost trend rate for 1998 is 8.5%,  decreasing  to
4.5% in 2007 in 0.5% annual increments. A 1% increase in the assumed health care
cost trend rate would have the following effects (in thousands):
<TABLE>
<CAPTION>
                                                   NCE                          PSCo                       SPS
                                        1% Increase   1% Decrease   1% Increase   1% Decrease   1% Increase     1% Decrease
                                        -----------    ----------   -----------   -----------   -----------     -----------

<S>                                     <C>            <C>             <C>           <C>            <C>            <C>
Effect on total of 
 service and interest cost
 components of net periodic
 postretirement benefit cost.........   $ 3,300         $ (2,600)        $ 2,364     $(1,911)       $  787         $  (634)

Effect on the accumulated 
 postretirement benefit obligation...   $38,200         $(31,300)        $27,290     $(22,509)      $9,414         $(7,681)
</TABLE>


                                      111
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Postemployment Benefits

      The Company and its  subsidiaries  provide  certain  benefits to former or
inactive  employees  after  employment  but  before  retirement  (postemployment
benefits).  At December  31,  1998,  the Company  has  recorded a $31.3  million
liability on the consolidated  balance sheet,  using an assumed discount rate of
6.75%.  The costs of the benefit were  historically  recorded on a pay-as-you-go
basis  prior  to the  adoption  of SFAS  112 in  1994,  which  required  accrual
accounting.  PSCo and Cheyenne  recorded  regulatory assets upon the adoption of
SFAS 112 in anticipation  of obtaining  future rate recovery of these costs (see
Note 1.  Summary  of  Significant  Accounting  Policies  Regulatory  Assets  and
Liabilities).  PSCo  received  FERC  approval  in 1997 to recover  the  electric
wholesale  jurisdictional  portion of its regulatory asset and Cheyenne received
WPSC  approval  in 1997 to  recover  its gas  jurisdictional  portion.  The CPUC
allowed  recovery  of  postemployment  benefit  costs  on an  accrual  basis  in
connection with PSCo's 1996 gas rate case, but denied PSCo's request to amortize
its approximately  $8.9 million regulatory asset (gas  jurisdictional)  portion.
PSCo has  appealed to the Denver  District  Court the  decision  related to this
issue.  A  final  determination  on  the  recovery  of  PSCo's  retail  electric
jurisdictional  portion  has not been made.  Management  believes it is probable
that the Company will receive the required regulatory approvals to recover these
costs in the future.

Incentive Compensation

      The  Company  and  its  subsidiaries  have  Incentive  Compensation  Plans
("Incentive Plans"), which provide for annual and long-term incentive awards for
key  employees.  Approximately  5  million  shares  of  common  stock  have been
authorized  for these  Incentive  Plans for the  issuance of  restricted  shares
and/or stock options,  with certain  vesting and/or exercise  requirements.  The
Company recognizes compensation expense for restricted stock awards based on the
fair value of the Company's  common stock on the date of grant,  consistent with
SFAS 123. Cash,  restricted  stock and stock option awards were made under these
plans during 1998, 1997 and 1996.

      The  Company  applies  Accounting  Principles  Board  Opinion  No.  25  in
accounting for its stock-based  compensation and,  accordingly,  no compensation
cost is recognized  for the issuance of stock  options as the exercise  price of
the options equals the  fair-market  value of the Company's  common stock at the
date of grant. Assuming compensation cost for the Company, PSCo and SPS had been
determined  consistent  with SFAS 123 using the  fair-value  based  method,  the
Company's net income would have been reduced by  approximately  $1.1 million and
$2.8 million in 1998 and 1997,  respectively,  which would have reduced earnings
per share by approximately $0.01 and $0.03,  respectively.  The net income would
have been  reduced by an  insignificant  amount with no impact on  earnings  per
share for 1996.


                                      112
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

SFAS 123's method of accounting for stock-based  compensation plans has not been
applied to  options  granted  prior to January 1, 1995,  and as a result the pro
forma  compensation  cost may not be  representative  of that to be  expected in
future  years.  A summary of the  Company's  stock options at December 31, 1998,
1997 and 1996 and changes  during the years then ended is presented in the table
below:
<TABLE>
<CAPTION>
                                    NCE*                    PSCo                         SPS     
                              ---------------           ---------------              ---------------
                                       Weighted-                   Weighted-                      Weighted-
                                       Average                     Average                        Average
                              Shares   Exercise Price    Shares    Exercise Price     Shares    Exercise Price
                              ------   --------------    ------    --------------     ------    --------------
<S>                         <C>           <C>            <C>           <C>            <C>         <C>
1998
Outstanding at beginning
 of year                    2,085,632     $   41.10
Granted                       570,200         47.55
Exercised                     187,198         34.61
Forfeited                      38,607         45.10
                               ------
Outstanding at end of year  2,430,027         43.07
                            =========  
Exercisable at end of year  1,650,088         40.99
                            =========
Weighted-average fair value
of options granted                         $   4.40

1997
Outstanding at beginning
 of year                      477,783      $  31.46      441,227       $31.38         38,480      $30.80
Granted                     1,690,147         43.32       62,100        39.00          2,147       37.24
Exercised                      78,647         30.34       40,404        29.57          3,666       30.81
Forfeited                       3,651         33.41        3,651        33.41              -           -
Converted to NCE options at
Merger date                         -             -      459,272        32.56         36,961       32.70
                               ------       -------      -------
Outstanding at end of year  2,085,632         41.10            -         -                 -           -
                            =========         =====         ====                       =====
Exercisable at end of year    431,071         32.66            -         -                 -           -
                            =========         =====         ====                       =====

Weighted-average fair value
of options granted                          $  5.45                   $  4.23                     $ 3.70

1996
Outstanding at beginning 
  of year                     407,117        $29.78      347,931      $ 29.33         62,301      $30.78
Granted                       158,270         35.13      158,270        35.13              -           -
Exercised                      74,303         30.87       51,673        30.21         21,647       30.76
Forfeited                      13,301         32.48       13,301        32.84              -           -
                               ------                     ------                       -----
Outstanding at year
 of year                      477,783         31.46      441,227        31.38         40,654       30.79
                              =======                     =======                     ======

Exercisable at end of year    158,970         29.05      158,970        29.05              -           -
                              =======                    =======                       =====

Weighted-average fair value
of options granted                           $ 4.31                   $  4.31                     $    -

SPS Transition Period
Outstanding at beginning of year                                                      40,654      $ 30.79
Granted.                                                                                   -            -
Exercised                                                                              2,174        30.69
Forfeited                                                                                  -            -
                                                                                       -----
Outstanding at year of year                                                           38,480        30.80
                                                                                      ======
Exercisable at end of year                                                                 -
                                                                                      ======
</TABLE>

* For 1997 and 1996 the  amounts  reflect the  conversion  of SPS and PSCo stock
options to NCE stock options.

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   Option-Pricing   Model  with  the   following   weighted-average
assumptions:
                                                    1998       1997      1996
                                                 --------   --------   --------
Expected  option life.....................       10 years   10 years  10 years
Stock volatility..........................          13.8%      13.3%    11.95%
Risk-free interest rate...................          5.08%      6.15%     6.21%
Dividend yield............................           5.4%       5.4%      5.8%

                                      113
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

      Additionally,  NCE, PSCo and SPS have other plans,  which provide for cash
awards to all employees  based on the  achievement of corporate  goals, of which
certain  goals were met in each of the last three years.  The  expenses  accrued
under the  incentive  programs for the years 1998,  1997 and 1996 are as follows
(in millions of dollars):

                                               1998      1997     1996 
                                              -------   ------   -----

NCE........................................    $ 11.3    $ 4.2  $ 10.9
PSCo.......................................       3.4      2.7     7.8
SPS........................................       1.9      1.1     3.1

In  accordance  with  the  terms  of  the  Company's  Incentive  Plans,  certain
unexercisable  stock options,  restricted stock awards and dividend  equivalents
became  exercisable  or  vested on the  effective  date of the  Merger.  The NCE
Omnibus Incentive Plan, which was adopted in 1997,  contains a change in control
provision  under which all  stock-based  awards,  such as options and restricted
shares, will vest 100% and all cash-based awards will be paid out immediately in
cash as if the performance  objectives have been achieved  through the effective
date of the change in control.

13.  Income Taxes (NCE, PSCo and SPS)

      The  provisions  for  income  taxes for NCE and PSCo for the  years  ended
December 31, 1998,  1997 and 1996,  and for SPS for the years ended December 31,
1998,  1997 and August 31, 1996 and for the four months ended  December 31, 1996
consist of the following (in thousands of dollars):

            1998                                NCE          PSCo          SPS
                                                ---          ----          ---
Current income taxes:
   Federal..........................         $126,122     $91,122     $71,954
   State............................            8,448       8,176       2,592
                                             --------     -------     -------
Total current income taxes..........          134,570      99,298      74,546
                                             --------     -------     -------
Deferred income taxes:
   Federal..........................            5,433       6,014      (8,266)
   State............................              815       1,078        (334)
                                             --------     -------     -------
   Total deferred income taxes......            6,248       7,092      (8,600)
                                             --------     -------     -------

Investment tax credits - net........           (5,222)     (4,896)       (250)
                                             --------     -------     -------

Total provision for income taxes....         $135,596     $101,494    $65,696
                                             ========     ========    =======


            1997                                NCE          PSCo          SPS
                                                ---          ----          ---
Current income taxes:
   Federal..........................         $ 82,337     $55,041     $43,401
   State............................            4,872       3,601       2,057
                                             --------     -------     -------
Total current income taxes..........           87,209      58,642      45,458
                                             --------     -------     -------
Deferred income taxes:
   Federal..........................           45,537      31,548       3,045
   State............................            6,674       5,842         542
                                             --------     -------     -------
   Total deferred income taxes......           52,211      37,390       3,587
                                             --------     -------     -------

Investment tax credits - net........           (5,501)     (5,219)       (250)
                                             --------     -------     -------

Total provision for income taxes....         $133,919     $90,813     $48,795
                                             ========     =======     =======

                                      114
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

            1996                                NCE          PSCo          SPS
                                                ---          ----          ---
Current income taxes:
   Federal..........................         $ 79,365     $41,737     $46,435
   State............................            2,832         951       2,689
                                             --------     -------     -------
     Total current income taxes.....           82,197      42,688      49,124
                                             --------     -------     -------
Deferred income taxes:
   Federal..........................           70,964      53,612      15,776
   State............................            7,998       7,287         647
                                             --------     -------     -------
   Total deferred income taxes......           78,962      60,899      16,423
                                             --------     -------     -------

Investment tax credits - net........           (7,506)     (7,256)       (250)
                                             --------     -------     -------

Total provision for income taxes....         $153,653     $96,331     $65,297
                                             ========     =======     =======

                                          Four Months Ending December 31,
            SPS - Transition Period           1996           1995   
                                          ---------       ---------
                                                          (unaudited)
Current income taxes:
   Federal..........................      $  5,991        $14,799
   State............................           190            998
                                          --------        -------
     Total current income taxes.....         6,181         15,797
                                          --------        -------
Deferred income taxes:
   Federal..........................         4,697          3,117
   State............................           192            132
                                          --------        -------
   Total deferred income taxes......         4,889          3,249
                                          --------        -------

Investment tax credits - net........           (83)           (83)
                                          --------        -------

Total provision for income taxes....      $ 10,987        $18,963
                                          ========        =======

      A reconciliation  of the statutory U.S. income tax rates and the effective
tax rates follows (in thousands):
<TABLE>
<CAPTION>

            1998
                                        NCE           PSCo              SPS     
                                        ---           ----              ---     
<S>                                  <C>       <C>    <C>       <C>   <C>        <C>
Tax computed at U.S. statutory 
  rate on pre-tax accounting income  $169,010  35.0%  $105,559  35.0% $ 63,239   35.0%
Increase (decrease) in tax from:
  Allowance for funds used
   during construction.........        (6,072) (1.3)    (4,315) (1.4)  (1,730)   (1.0)
  Amortization of investment tax 
   credits ....................        (5,221) (1.1)    (4,896) (1.6)    (250)   (0.1)
   State income taxes, net of 
     Federal income tax  benefit        6,010   1.2      6,015   2.0    1,468     0.8
  Cash surrender value of life
   insurance policies..........       (14,553) (3.0)   (14,478) (4.8)     (76)    -
  Amortization of prior 
    flow-through amounts ......        10,509   2.2     10,446   3.5        -     -
  Merger related costs -
    non-deductible ............         1,482   0.3          -     -      562     0.3
  Foreign tax credit...........       (15,457) (3.2)    (1,363) (0.5)       -     -
  International treaty tax relief     (12,806) (2.7)    (1,129) (0.4)       -     -
  Other-net....................         2,694   0.7      5,655   1.9    2,483     1.4
                                        -----  ----     ------  ----    ------   ----
   Total income taxes..........      $135,596  28.1%  $101,494  33.7% $65,696    36.4
                                     ========  ====   ========  ===== =======   =====
</TABLE>


                                      115
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
            1997
                                        NCE           PSCo              SPS     
                                        ---           ----              ---     
<S>                                  <C>       <C>    <C>       <C>   <C>        <C>
Tax computed at U.S. statutory
 rate on pre-tax accounting
 income.........................     $142,506  35.0%  $103,199  35.0% $43,529    35.0%
Increase (decrease) in tax from:
  Allowance for funds used
   during construction.........        (2,220) (0.6)    (2,222) (0.8)      (2)     -
  Amortization of investment tax
   credits ....................        (5,501) (1.4)    (5,219) (1.8)    (250)   (0.2)
   State income taxes, net of 
    Federal income tax  benefit         6,617   1.6      5,250   1.8    1,689     1.4
  Cash surrender value of life
   insurance policies..........       (12,952) (3.2)   (12,876) (4.4)     (76)   (0.1)
  Amortization of prior
   flow-through amounts .......        10,509   2.6     10,483   3.6        -     -
  Merger related costs - 
   non-deductible .............         8,274   2.0      4,921   1.7    3,352     2.7
  Foreign tax credit...........        (7,043) (1.7)    (7,043) (2.4)       -     -
  International treaty tax relief      (6,309) (1.4)    (6,309) (2.1)       -     -
  Other-net....................            38   0.0        629   0.2      553     0.4
                                        -----  -----    ------  ----   ------   -----
   Total income taxes..........      $133,919  32.9%  $ 90,813  30.8% $48,795    39.2% 
                                     ========  ====   ========  ====  =======    =====
</TABLE>
<TABLE>
<CAPTION>
            1996
                                        NCE           PSCo              SPS     
                                        ---           ----              ---     
<S>                                  <C>       <C>    <C>       <C>   <C>       <C>
Tax computed at U.S. statutory
 rate on pre-tax accounting 
 income... ....................      $153,287  35.0%  $100,337  35.0% $59,874   35.0%
Increase (decrease) in tax from:
  Allowance for funds used
   during construction.........        (1,685) (0.3)    (1,438) (0.5)    (248)  (0.1)
  Amortization of investment tax
   credits ....................        (7,506) (1.7)    (7,256) (2.5)    (250)  (0.1)
   State income taxes, net of 
   Federal income tax benefit           6,579   1.5      5,356   1.9    1,748    0.9
  Cash surrender value of life
   insurance policies..........       (11,265) (2.6)   (11,265) (3.9)     (76)   -
  Amortization of prior 
   flow-through amounts .......        10,509   2.4     10,509   3.6        -    -
  Merger related costs -
   non-deductible .............         4,258   1.0      2,574   0.9     2,006   1.2
  Other-net....................          (524) (0.2)    (2,486) (0.9)    2,243   1.3
                                        -----  -----    ------  ----     -----   ---
   Total income taxes..........      $153,653  35.1%  $ 96,331  33.6%  $65,297  38.2% 
                                     ========  ====   ========  =====  =======  ====
</TABLE>
            SPS Transition Period      Four Months Ending December 31,
                                        1996           1995     
                                   -------------  --------------
                                                    (unaudited)
Tax computed at U.S. statutory
 rate on pre-tax accounting
 income... .....................    $10,544  35.0%  $17,468   35.0%
Increase (decrease) in tax from:
  Allowance for funds used
   during construction.........        (144) (0.5)     (180)  (0.4)
  Amortization of investment tax
    credits ...................         (83) (0.3)      (83)  (0.2)
  State income taxes, net of
  Federal income tax benefit...         123   0.4       649    1.3
  Merger related costs - 
   non-deductible .............         488   1.6       620    1.2
  Other-net....................          59   0.3       489    1.1
                                      -----   ---       ---   ----
   Total income taxes..........     $10,987  36.5%  $18,963   38.0%
                                    =======  ====   =======  ======

      The Company and its regulated  subsidiaries have historically provided for
deferred income taxes to the extent allowed by their regulatory agencies whereby
deferred taxes were not provided on all differences  between financial statement
and taxable income (the flow-through method). At December 31, 1998, PSCo and SPS
are fully normalized for FERC jurisdictional  purposes. For state jurisdictional
purposes, PSCo is fully normalized in Colorado and Wyoming, respectfully and SPS
is fully normalized in Texas,  Oklahoma,  and New Mexico (see Note 9. Regulatory
Matters -SPS Electric Cost adjustment  Mechanisms).  SPS is fully  normalized to
the extent allowed by its regulators in Kansas,  with flow-through  treatment of
certain temporary differences. To give effect to temporary differences for which
deferred taxes were not previously  required to be provided,  a regulatory asset
was recognized.  The regulatory asset represents temporary differences primarily
associated with prior flow-through amounts and the equity component of allowance
for funds used during  construction,  net of  temporary  differences  related to
unamortized  investment tax credits and excess  deferred  income taxes that have
resulted  from  historical  reductions  in tax  rates  (see Note 1.  Summary  of
Significant Accounting Policies).

                                      116
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

      The tax effects of significant temporary differences representing deferred
tax  liabilities  and assets as of December 31, 1998 and 1997 are as follows (in
thousands in dollars):

            1998                                NCE          PSCo          SPS
                                                ---          ----          ---
Deferred income tax liabilities:
  Accelerated depreciation and 
    amortization ...................        $ 762,538    $ 471,776    $ 280,949
  Plant basis differences (prior
    flow-through) ..................          150,210       98,208       52,383
  Allowance for equity funds used 
    during construction ............           74,903       45,137       29,664
  Pensions..........................           29,915       35,053       (6,648)
  Other.............................          114,456       64,045       36,169
                                             --------      -------     --------
   Total............................        1,132,022      714,219      392,517
Deferred income tax assets:
  Investment tax credits............           61,912       58,315        2,925
  Contributions in aid of construction         87,685       84,720        2,172
  Other.............................           33,147       24,461       12,878
                                             --------      -------     --------
   Total............................          182,744      167,496       17,975
                                             --------      -------     --------
Net deferred income tax liability...        $ 949,278     $546,723     $374,542
                                             ========     ========     ========

            1997                                NCE          PSCo        SPS
                                                ---          ----        ---
Deferred income tax liabilities:
  Accelerated depreciation and
    amortization ...................        $ 724,879    $ 432,453    $ 278,566
  Plant basis differences (prior
   flow-through) ...................          173,523      118,332       54,384
  Allowance for equity funds used
   during construction .............           77,925       46,715       31,103
  Pensions..........................           31,832       33,105       (1,693)
  Other.............................          116,912       75,143       39,424
                                             --------      -------     --------
   Total............................        1,125,071      705,748      401,784
Deferred income tax assets:
  Investment tax credits............           65,111       61,333       3,065
  Contributions in aid of construction         72,424       69,560       2,172
  Other.............................           37,804       20,737      13,360
                                             --------      -------    --------
   Total............................          175,339      151,630      18,597
                                             --------      -------    --------
Net deferred income tax liability...         $949,732      $554,118   $383,187
                                             ========      ========   ========

      As of  December  31,  1998,  the  consolidated  group  does  not  have any
cumulative  Federal  or state  tax  credits  which  have not  been  realized.  A
valuation  allowance  has not been  recorded  as the  Company  expects  that all
deferred  income  tax assets  will be  realized  in the  future.  The  Company's
management  intends to  reinvest  indefinitely,  its  earnings  from the foreign
operations of Yorkshire  Power.  According,  deferred income taxes have not been
provided on any cumulative amount of unremitted earnings.


                                      117
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Note 14.  Business Segment Information (NCE, PSCo and SPS)

NCE:
      NCE has three  reportable  segments:  electric  utility,  gas  utility and
international. The electric utility segment consists primarily of the activities
of the three  regulated  operating  companies that provide  wholesale and retail
electric service in the states of Colorado,  Texas, New Mexico,  Wyoming, Kansas
and Oklahoma.  The gas utility segment  consists  primarily of the activities of
three regulated operating companies providing retail gas service in the state of
Colorado and Wyoming.  The international  segment consists of equity investments
in foreign  operations held by NCI since 1997.  Revenues from operating segments
below the quantitative thresholds are included in the all other category.  Those
primarily  include a company involved in  non-regulated  power and gas marketing
activities  throughout the United States; a company that invests in and develops
cogeneration  and  energy  related  projects;  a  company  that  is  engaged  in
engineering, design construction management and other miscellaneous services and
a  company  engaged  in  energy   consulting,   energy  efficiency   management,
conservation programs and mass market services.

      The accounting policies of the segments are the same as those described in
Note 1. Summary of Significant Accounting Policies. NCE evaluates performance by
each legal entity based on profit or loss  generated from the product or service
provided. NCE segment information is as follows (in thousands):

                     Electric       Gas                      All
    1998             Utility      Utility  International    Other       Total 
                     --------     -------  -------------    -----       -----
Revenues:
 External customers. $2,626,644  $653,438    $      -    $330,823    $3,610,905
 Intersegment.......        316     5,281           -      75,209        80,806
Electric margin.....  1,339,201         -           -       1,087     1,340,288
Gas margin..........          -   265,971           -      12,722       278,693
Equity in earnings of
  nonconsolidated
  subsidiaries .......        -         -      38,127      (2,026)       36,101
Interest charges and
  preferred dividend
  requirements .......  153,462    28,589         745      15,530       198,326
Income taxes..........  164,189    14,273     (15,817)    (12,075)      150,570
Depreciation &
 amortization ........  216,288    43,889         121       8,445       268,743
Segment profit (loss)   278,726    29,859      51,978       9,396       369,959
Segment assets......  4,777,189   973,263     333,069     482,560     6,566,081
Construction 
 expenditures .......   412,005    99,038           -      97,929       608,972

                     Electric       Gas                      All
    1997             Utility      Utility  International    Other       Total 
                     --------     -------  -------------    -----       -----
Total 
Revenues:
 External customers. $2,450,498  $640,248    $      -    $251,779    $3,342,525
Intersegment........        293     3,825           -      25,819        29,937
Electric margin.....  1,269,080         -           -         987     1,270,067
Gas margin..........          -   268,423           -       4,882       273,305
Equity in earnings of
  nonconsolidated
  subsidiaries .....          -         -      35,499      (1,333)       34,166
Interest charges and
 preferred dividend
 requirements ......    151,718    27,376         186      14,168       193,448
Income taxes........    146,621    18,555      (1,186)    (26,875)      137,115
Depreciation & 
  amortization          193,877    39,833          89       9,279       243,078
Segment profit (loss)   215,712    27,034      35,946       1,746       280,438
Segment assets......  4,770,091 1,060,633     290,845      90,401     6,211,970
Construction
  expenditures .....    365,219   105,894           -       4,384       475,497


                                      118
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

                     Electric       Gas                      All
    1996             Utility      Utility  International    Other       Total 
                     --------     -------  -------------    -----       -----
Total 
Revenues:
 External customers. $2,408,733  $571,329    $      -    $116,972    $3,097,034
Intersegment........        733         -           -       7,008         7,741
Electric margin.....  1,270,520         -           -         157     1,270,677
Gas margin..........          -   239,521           -       7,813       247,334
Equity in earnings of
  nonconsolidated
  subsidiaries .....          -         -           -         389           389
Interest charges and
 preferred dividend
 requirements ......    141,380    23,665           -      14,759       179,804
Income taxes........    163,657    12,913           -     (22,917)      153,653
Depreciation &
 amortization ......    182,667    34,166           -       8,032       224,865
Segment profit (loss)   239,442    17,356           -      13,862       270,660
Segment assets......  4,529,294   933,666           -     135,362     5,598,322
Construction 
 expenditures ......    357,201    96,842           -         925       454,968

Reconciliations:                            1998        1997        1996  
                                          --------    --------    --------
Revenues
   Total revenues for reportable
     segments                           $3,280,398   $3,090,746   $2,980,062
   Intersegment revenue............         80,806       29,937        7,741
   Other revenues..................        330,507      251,779      116,972
   Elimination of intersegment revenues    (80,806)     (29,937)      (7,741)
                                            ------     --------       ------
      Total consolidated revenues..     $3,610,905   $3,342,525   $3,097,034
                                        ==========   ==========   ==========

Profit or Loss
   Total profit for reportable segments $  360,563   $  278,692   $  256,798
   Other profit (loss).............          9,396        1,743       13,862
   Other unallocated amounts.......        (28,002)     (18,954)       3,643
   Elimination of intercompany profit            -            6       (1,962)
                                             -----        -----       ------
      Income before extraordinary item  $  341,957   $  261,487   $  272,341
                                        ==========   ==========   ==========

Assets
   Total assets for reportable
     segments                           $6,083,521   $6,121,049   $5,462,960
   Other assets....................        482,559       90,401      135,362
   Unallocated assets..............      1,105,884    1,109,696    1,019,120
                                         ---------    ---------    ---------
      Total consolidated assets....     $7,671,964   $7,321,146   $6,617,442
                                        ==========   ==========   ==========

                                          Segment                 Consolidated
Other Significant Items                    Totals     Adjustments   Totals 
                                           ------     -----------   ------ 
          1998
   Interest charges & preferred 
     dividends ....................     $  198,326    $  6,473    $ 204,799
   Income taxes....................        150,570     (14,974)     135,596
   Depreciation and amortization...        268,743           -      268,743
   Equity in earnings of
     unconsolidated subsidiaries...         36,101           -       36,101
   Construction expenditures.......        608,972           -      608,972

          1997
   Interest charges & preferred 
     dividends ....................     $  193,448    $ 13,182    $ 206,630
   Income taxes....................        137,115      (3,196)     133,919
   Depreciation and amortization...        243,078           -      243,078
   Equity in earnings of
     unconsolidated subsidiaries...         34,166           -       34,166
   Construction expenditures.......        475,497           -      475,497

                                      119
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


                                           Segment              Consolidated
          1996                             Totals     Adjustments      Totals 
                                           ------     -----------      ------ 
   Interest charges & preferred
     dividends ....................     $  179,804    $ (4,708)    $ 175,096
   Income taxes....................        153,653           -       153,653
   Depreciation and amortization...        224,865           -       224,865
   Equity in earnings of
     unconsolidated subsidiaries...            389           -           389
   Construction expenditures.......        454,968           -       454,968

PSCo:
      PSCo has three reportable  segments:  electric utility,  gas utility,  and
international.  During 1998, the electric utility segment consists  primarily of
the activities of PSCo's regulated  operations that provide wholesale and retail
electric service in the state of Colorado. For the years ended December 31, 1997
and 1996,  this segment also  included  Cheyenne's  regulated  operations in the
state of Wyoming. During 1998, the gas utility segment consists primarily of the
activities of PSCo's  regulated gas operations in Colorado.  For the years ended
December  31, 1997 and 1996,  this segment also  included  Cheyenne's  regulated
operations in the state of Wyoming and WGI's regulated  operations in the states
of Colorado and Wyoming. Revenues from operating segments below the quantitative
thresholds  are included in the all other  category.  Those  segments  primarily
include a real estate company which owns certain real estate  interests of PSCo,
a company which owns and manages  permanent life  insurance  policies on certain
past and present employees and a finance company that finances certain of PSCo's
current assets.

      The accounting policies of the segments are the same as those described in
Note 1. Summary of Significant  Accounting Policies.  PSCo evaluates performance
by each  legal  entity  based on profit or loss  generated  from the  product or
service provided. PSCo segment information is as follows (in thousands):

                     Electric      Gas                          All
       1998          Utility      Utility     International    Other     Total
                     --------     --------    -------------   -------    -----
Total    
Revenues from
 external customers. $1,635,573  $ 640,064    $      -    $  8,449   $2,284,086
Electric margin.....    833,752          -           -           -      833,752
Gas margin..........          -    259,509           -           -      259,509
Equity in earnings of
  Yorkshire Power...          -          -       3,446           -        3,446
Interest charges and
 preferred dividend
 requirements ......     93,579      27,745        192      14,291      135,807
Income taxes........     97,924      13,997        427     (10,854)     101,494
Depreciation &
 amortization ......    135,876      43,036         40       1,961      180,913
Segment profit......    166,066      29,207      2,799      15,015      213,087
Segment assets......  2,981,154     944,456          -     433,417    4,359,027
Construction
  expenditures .....    313,825      95,692          -      95,211      504,728


                                      120
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

                     Electric      Gas                          All
       1997           Utility    Utility     International     Other    Total
                     --------    --------    -------------     -----    ------
Total    
Revenues from
 external customers. $1,485,196  $733,091     $      -    $ 11,356   $2,229,643
Electric margin.....    792,588         -            -           -      792,588
Gas margin..........          -   265,346            -           -      265,346
Equity in earnings of
  Yorkshire Power...          -         -       34,926           -       34,926
Interest charges and
 preferred dividend
 requirements .......    92,684    26,980          186      13,885      133,735
Income taxes........     92,930    18,496       (1,186)    (19,427)      90,813
Depreciation &
 amortization ......    125,418    38,983           89       3,961      168,451
Segment profit......    137,899    25,813       35,946      14,091      213,749
Segment assets......  2,955,537 1,027,060      290,845      55,212    4,328,654
Construction 
  expenditures .....    246,015   103,957            -       2,301      352,273

                     Electric      Gas                         All
       1996           Utility    Utility     International    Other     Total
                     --------    --------    -------------    -----     ------
Total    
Revenues from
 external customers. $1,488,990  $640,497    $      -    $  7,951    $2,137,438
Electric margin.....    803,120         -           -           -       803,120
Gas margin..........          -   239,521           -       7,813       247,334
Interest charges and
 preferred dividend
 requirements ......     87,001    23,665           -      14,115       124,781
Income taxes........    106,615    12,913           -     (23,197)       96,331
Depreciation &
  amortization .....    116,802    34,166           -       3,663       154,631
Segment profit......    151,139    17,356           -      11,900       180,395
Segment assets......  2,840,481   930,474           -      71,109     3,842,064
Construction
 expenditures ......    223,395    96,842           -         925       321,162

Reconciliations:                            1998        1997        1996  
                                          --------    --------    --------
Revenues
   Total revenues for reportable
     segments                           $2,275,637   $2,218,287   $2,129,487
   Other revenues..................          8,449       11,356        7,951
                                             -----       ------        -----
      Total consolidated revenues..     $2,284,086   $2,229,643   $2,137,438
                                        ==========   ==========   ==========

Profit or Loss
   Total profit or loss for reportable
    segments                              $198,072    $199,658      $179,679
   Other profit or loss............         15,015      14,091        11,926
   Other unallocated amounts.......        (18,316)    (21,458)      (13,107)
   Elimination of intersegment profit            -          (1)            -  
                                             -----      ------          ----
      Income before extraordinary item    $194,771    $192,290      $178,498    
                                          ========    ========      ========

Assets
   Total assets for reportable segments $3,925,610  $4,273,442    $3,770,955
   Other assets....................        433,417      55,212        71,109
   Other unallocated amounts.......        818,609     666,079       730,584
                                          --------    --------      --------
      Consolidated total...........     $5,177,636  $4,994,733    $4,572,648
                                        ==========  ==========    ==========


                                      121
<PAGE>
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


                                          Segment                 Consolidated
Other Significant Items                    Totals     Adjustments   Totals 
          1998
   Interest charges & preferred
     dividends ....................       $135,807     $ 7,839    $143,646
   Income taxes....................        101,494           -     101,494
   Depreciation and amortization...        180,913           -     180,913
   Equity in earnings of Yorkshire
     Power ........................          3,446           -       3,446
     Construction expenditures.....        504,727           -     504,727

          1997
   Interest charges & preferred
     dividends .....................      $133,735     $14,219    $147,954
   Income taxes....................         90,813           -      90,813
   Depreciation and amortization...        168,451           -     168,451
   Equity in earnings of Yorkshire
     Power .......................          34,926           -      34,926
   Construction expenditures.......        352,273           -     352,273

          1996
   Interest charges & preferred
    dividends .....................       $124,781     $(3,213)   $121,568
   Income taxes....................         96,331           -      96,331
   Depreciation and amortization...        154,631           -     154,631
   Construction expenditures.......        321,162           -     321,162

SPS:
     SPS operates in the regulated electric utility industry providing wholesale
and  retail  electric  service in the states of Texas,  New  Mexico,  Kansas and
Oklahoma.  Revenues from external  customers  for this  reportable  segment were
$951.2 million,  $979.3  million,  $931.8  million,  $306.3 million,  and $278.5
million for the fiscal years ended  December 31, 1998,  1997 and August 31, 1996
and for the four months ended December 1996 and 1995,  respectively.  During the
fiscal  years ended  December 31, 1997 and August 31,  1996,  operating  results
included the  activities of Quixx and UE,  subsidiaries  that were  subsequently
transferred to NC Enterprises  in connection  with the Merger.  Neither of these
two segments has ever met any of the  quantitative  thresholds  for  determining
reportable segments.

15.  Transactions with Affiliates (PSCo and SPS)

      PSCo and SPS receive various administrative, management, environmental and
other  support  services  from NCS,  which began  operations  on May 1, 1997 and
construction services from UE. In addition, PSCo and SPS pay interest expense on
any short-term  borrowings from NCE.  Dividends on common stock declared by PSCo
and SPS are paid to NCE.

      PSCo sells firm and interruptible  transportation  services to e prime for
gas delivered into the Denver/Pueblo operating area. PSCo also receives interest
income from NC  Enterprises  on the note  receivable  related to the sale of NCI
effective  March 31, 1998 (see Note 2.  "Investment in Yorkshire  Power and U.K.
Windfall  Tax").  SPS receives  interest  income from NC Enterprises on the note
receivable  related to the sale of Quixx and UE as part of the Merger. The table
below  contains  the  various  significant  affiliate   transactions  among  the
companies and related parties for the years ended December 31, 1998 and 1997 (in
thousands).

                                        PSCo                      SPS        
                                 -------------------     --------------------
                                  1998        1997        1998        1997   
                                 -------     -------     -------     --------

Gas revenues.................    $ 5,281     $ 3,825     $     -     $      -
Operating expenses...........    197,862     108,096      63,108       36,317
Interest income..............     14,188           -       8,630        3,618
Interest expenses............      1,714         156       1,390          747
Dividends paid to NCE........    188,845      76,093      75,157       45,092
Construction services........     68,744      16,934       6,465        3,832

There were no significant related party transactions for the year ended
December 31, 1996.

                                      122
<PAGE>

16.  Quarterly Financial Data (Unaudited) (NCE, PSCo and SPS)

      The  following  summarized  quarterly  information  for  1998  and 1997 is
unaudited,  but includes all adjustments  (consisting  only of normal  recurring
accruals) which the Company  considers  necessary for a fair presentation of the
results  for  the  periods.  Information  for any one  quarterly  period  is not
necessarily  indicative of the results which may be expected for a  twelve-month
period due to seasonal and other factors (in thousands, except per share data).
<TABLE>
<CAPTION>

NCE                                                  Three Months ended        
                                             --------------------------------------------------
                1998                         March 31     June 30    September 30   December 31
              -------                        ---------    --------   ------------   -----------
<S>                                          <C>           <C>          <C>         <C>      
Operating revenues....................       $ 939,504     $ 859,621    $915,898    $ 895,882
Operating income .....................         181,837       146,666     164,173      157,825
Net income ...........................          86,149        56,593      90,772      108,443
Earnings per share of common stock 
  outstanding:
  Basic...............................           $0.78         $0.50       $0.82        $0.96
  Diluted.............................           $0.78         $0.50       $0.82        $0.95

                1997 
                ----
Operating revenues....................       $ 890,011     $ 776,742    $793,472    $ 882,300
Operating income .....................         176,000       130,336     153,168      169,721
Net income (loss).....................          78,156        34,045     (47,225)      85,946
Basic and diluted earnings per share
 of common stock outstanding:
  Income before extraordinary item....           $0.75         $0.33      $ 0.61        $0.81
  Extraordinary item  (1) ............               -             -       (1.06)           -
  Net income (loss)...................           $0.75         $0.33      $(0.45)       $0.81
</TABLE>

<TABLE>
<CAPTION>

PSCo                                                 Three Months ended        
                                             ---------------------------------------------------
                1998                         March 31     June 30    September 30    December 31
              -------                        ---------    --------   ------------    -----------
<S>                                          <C>          <C>           <C>          <C>     
Operating revenues....................       $ 644,642    $ 504,598     $541,601     $593,245
Operating income .....................          99,846       63,266       76,834       92,072
Net income............................          68,897       30,908       44,015       56,283

                1997
               ----- 
Operating revenues....................       $ 668,717    $ 533,520     $466,582     $560,824
Operating income .....................          95,981       73,271       70,372       97,729
Net income............................          62,881       30,607      (73,085)(1)   73,074
</TABLE>

<TABLE>
<CAPTION>
SPS                                                  Three Months ended        
                                             ---------------------------------------------------
                1998                         March 31     June 30    September 30    December 31
              -------                        ---------    --------   ------------    -----------
<S>                                           <C>        <C>            <C>           <C>     
Operating revenues....................        $199,732   $ 264,006      $284,648      $202,801
Operating income ...................            31,339      49,319        49,458        35,563
Net income..........................            18,139      36,917        36,929        23,002

                1997 
               -----
Operating revenues....................        $221,295   $ 243,221      $284,156      $230,611
Operating income ...................            34,457      41,744        50,976        32,104
Net income..........................            18,218       6,380 (2)    31,111        19,866

</TABLE>

(1)Includes the  extraordinary  U.K.  windfall tax  recognized in the third
   quarter 1997.
(2)Includes the write-off of Quixx's & UE's  investment  in the Carolina  Energy
   Project.


                                      123
<PAGE>



                                                                   SCHEDULE II
                          NEW CENTURY ENERGIES, INC.
                               AND SUBSIDIARIES

                VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

                 Years Ended December 31, 1998, 1997 and 1996

                                                 Additions
                                                 --------- 
                              Balance at Charged Charged to  Deductions  Balance
                              beginning    to      other      from       at end
                              of period   income accounts(1) reserves(2) of year
                              ---------   ------ ----------- ----------- -------
NCE                                              (in thousands)

Reserve deducted from related
 assets:
 Provision for uncollectible
 accounts:

   1998.......................      $5,355  $6,852    $  41  $ 7,406    $4,842
                                    ======  ======    =====  =======    ======

   1997.......................      $6,623  $5,854    $  79  $ 7,201    $5,355
                                    ======  ======    =====  =======    ======

   1996.......................      $6,218  $7,283    $ 453  $ 7,331    $6,623
                                    ======  ======    =====  =======    ======


PSCo

Reserve deducted from related
 assets:
 Provision for uncollectible
 accounts:

   1998.......................      $2,272  $5,593    $ (32) $ 5,579    $2,254
                                    ======  ======    ====== =======    ======

   1997.......................      $4,049  $5,193    $(500) $ 6,470    $2,272
                                    ======  ======    ====== =======    ======

   1996.......................      $3,630  $6,741    $ 477  $ 6,799    $4,049
                                    ======  ======    =====  =======    ======


SPS

Reserve deducted from related
 assets:
 Provision for uncollectible
 accounts:

   1998.......................      $2,442  $  400    $  (7) $ 1,140    $1,695
                                    ======  ======    ====== =======    ======

   1997.......................      $2,574  $  661    $ (62) $   731    $2,442
                                    ======  ======    ====== =======    ======

   1996 (September 1996 through
         December 1996)             $2,669  $  223    $ (13) $   305    $2,574
                                    ======  ======    =====  =======    ======

   1996 (3)...................      $2,494  $  535    $  (9) $   351    $2,669
                                    ======  ======    ====== =======    ======

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

(1)Uncollectible  accounts  subsequently  recovered,  transfers from  customers'
   deposits,  etc.,  and the  transfer  of  certain  subsidiaries'  balances  of
   $571,620 for PSCo and $69,320 for SPS in 1997.
(2) Uncollectible  accounts  written off or transferred  to other parties.
(3) Information reflects fiscal year ended August 31, 1996.


                                      124
<PAGE>


                                                                   EXHIBIT 12(a)

                      PUBLIC SERVICE COMPANY OF COLORADO
                               AND SUBSIDIARIES

                 COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
                         TO CONSOLIDATED FIXED CHARGES

           (not covered by Report of Independent Public Accountants)

<TABLE>
<CAPTION>

                                                 Year Ended December 31,      
                                        1998      1997      1996      1995     1994                                 
                                        ----      ----      ----      ----     ----                                 
                                             (in thousands, except ratios)

<S>                                   <C>        <C>       <C>       <C>       <C>
Fixed charges:
   Interest on long-term debt.......  $115,808   $114,460  $ 92,205  $ 85,832  $ 89,005
Dividends on PSCo obligated 
 mandatorily redeemable preferred
 securities.........................     9,711          -         -         -         -
   Interest on borrowings against
   COLI contracts ..................    51,664     46,082    40,160    34,717    29,786
   Other interest...................    20,849     24,117    17,238    23,392    14,235
   Amortization of debt discount and
    expense less premium                 4,274      3,987     3,621     3,278     3,126
   Interest component of rental
    expense .........................    8,233      9,012    10,649     6,729     6,888 
                                         -----      -----    ------     -----     -----

     Total .........................  $210,539    $197,658 $163,873  $153,948  $143,040
                                      ========    ======== ========  ========  ========

Earnings (before fixed charges and 
 taxes on income):
   Net income.......................  $200,103    $204,042 $190,346  $178,856  $170,269
   Fixed charges as above...........   210,539     197,658  163,873   153,948   143,040
   Provisions for Federal and state
    taxes on income, net of investment
    tax credit amortization ........   101,494      90,813   96,331    95,357    48,500 
                                       -------      ------   ------    ------    ------

     Total..........................  $512,136    $492,513 $450,550  $428,161  $361,809
                                      ========    ======== ========  ========  ========

Ratio of earnings to fixed charges..      2.43        2.49     2.75      2.78      2.53
                                         =====       =====    =====    ======     =====
</TABLE>

                                      125
<PAGE>


                                                                   EXHIBIT 12(b)

                     SOUTHWESTERN PUBLIC SERVICE COMPANY

                       COMPUTATION OF RATIO OF EARNINGS
                               TO FIXED CHARGES

          (not covered by Report of Independent Public Accountants)


<TABLE>
<CAPTION>

                                     Year Ended      Trans-       Year Ended
                                    December 31,      ition       August 31,      
                                    1998     1997    Period     1996       1995     1994
                                    ----     ----    ------     ----       ----     ----
                                          (in thousands, except ratios)

<S>                                <C>      <C>      <C>      <C>         <C>     <C>
Fixed charges:
 Interest on long-term debt.....   $44,220  $44,112  $15,556  $44,964     $ 40,645 $37,881
 Dividends on SPS obligated 
  mandatorily redeemable 
  preferred securities.........      7,850    7,850    1,526        -            -       -
 Other interest.................     8,925    7,444    1,612    6,561        3,219   3,068
 Amortization of debt discount
  and expense less premium .....     2,251    2,244      235      577          534     518
 Interest component of rental
  expense ......................       806    1,425      415    1,245        1,292   1,184     
                                       ---    -----    -----    -----        -----  ------

     Total .....................   $64,052  $63,075  $19,344  $53,347     $ 45,690  $42,651
                                   =======  =======  =======  =======     ========  =======

Earnings (before fixed charges and
  taxes on income):
 Net income.....................   $114,987 $ 75,575 $19,137  $105,773    $119,477 $102,168
 Fixed charges as above.........     64,052   63,075  19,344    53,347      45,690   42,651
 Provisions for Federal and state
  taxes on income, net of
  investment tax credit
  amortization .................     65,696   48,795  10,987    65,297      67,649   58,388
                                     ------   ------  ------    ------      ------   ------

     Total......................   $244,735 $187,445 $49,468  $224,417    $232,816 $203,207
                                   ======== ======== =======  ========    ======== ======== 

Ratio of earnings to fixed charges     3.82     2.97    2.56      4.21        5.10     4.76
                                       ====     ====    ====      ====        ====     ====
</TABLE>

                                      126
<PAGE>


Item 9.  Changes in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

      Does not apply.
                                   PART III

Item 10.  Directors and Executive  Officers of the Registrant  (NCE,  PSCo and
          SPS)

      Biographies  concerning the directors of NCE are contained  under ELECTION
OF  DIRECTORS in NCE's 1999 Proxy  Statement,  which is  incorporated  herein by
reference.  The following  table sets forth certain  information  concerning the
executive  officers  of NCE as of  December  31,  1998.  Information  concerning
directors  and executive  officers of PSCo and SPS has been omitted  pursuant to
General Instructions I(2)(c).

NEW CENTURY ENERGIES, INC.

<TABLE>
<CAPTION>
Name                 Age   Occupation/Title                                          Period
----                 ---   ----------------                                          ------

Executive Officers
------------------
<S>                   <C>                                                            <C>         
Bill D. Helton        60  Chairman of the Board, CEO and Director                    1997-Present
                          Chairman of the Board and Director                         1997-Present
                            Public Service Company of Colorado, Cheyenne Light,
                            Fuel and Power Company, NC Enterprises, Inc.,
                            New Century Services, Inc., New Century-Cadence,Inc.,
                            and e prime, inc.
                          Director, Southwestern Public Service Company              1990-Present
                          CEO, Southwestern Public Service Company                   1990-1997
                          Chairman  of the  Board,  Southwestern  Public  Service
                            Company, Quixx Corporation and Utility Engineering       1991-Present
                            Corporation
                           Director, Natural Fuels Corporation                       1997-Present
                           Director, Quixx Corporation                               1990-Present
                           Chairman of the Board and Director, Quixx Power 
                              Services, Inc.                                         1993-Present
                           Director, Utility Engineering Corporation                 1989-Present
                           Director, New Century International, Inc.                 1998-Present
                           Chairman of the Board, Natural Fuels Corporation          1998-Present
                           Chairman of the Board and Director                        1998-Present
                             New Century-Centrus, Inc. and New Century Energies          
                             Foundation
Wayne H. Brunetti (a) 56   Vice Chairman, President, COO, and Director               1997-Present
                           Vice Chairman and CEO, Public Service Company of          1997-Present
                            Colorado and Cheyenne Light, Fuel and Power Company
                           President and Director, Public Service Company of Colorado 1994-Present
                           Vice Chairman, President, CEO, and Director,              1997-Present
                             NC Enterprises, Inc., New Century Services, Inc. and
                             New Century Cadence, Inc.
                           Chairman, 1480 Welton, Inc., Green and Clear Lakes        1997-Present
                             Company, and WestGas InterState, Inc.
                           Chairman, PSR Investments, Inc. and PS Colorado Credit    1997-1998
                             Corporation
                           President and Director, 1480 Welton, Inc.                 1996-Present
                           Director, Natural Fuels Corporation                       1994-Present
                           President, Natural Fuels Corporation                      1996-1998
                           Vice Chairman, CEO, and Director, Southwestern Public     1997-Present
                             Service Company

                                      127
<PAGE>

                           Director, Cheyenne Light, Fuel and Power Co., Green and   1994-Present
                             Clear Lakes Company, and WestGas InterState, Inc.
                           Director, PSR Investments, Inc. and PS Colorado Credit    1994-1998
                             Corporation
                           Director, Young Gas Storage Company and e prime, inc.     1995-Present
                           President and Director, Fuel Resources Development Co.    1995-Present
                           President, Green and Clear Lakes Company and WestGas      1995-Present
                             InterState, Inc.
                           President, New Century International, Inc.                1997-1997
                           Director, New Century International, Inc.                 1997-Present
                           Chairman of the Board, New Century International, Inc.    1998-Present
                           President, PSR Investments, Inc. and PS Colorado Credit   1996-1998
                             Corporation
                           Director, and Yorkshire Electricity Group plc and         1997-Present
                             Yorkshire Holdings, plc and Yorkshire Power Group
                              Limited
                           Chairman of the Board, Cheyenne Light, Fuel and Power     1997-1997
                             Company and e prime, inc.
                           Vice Chairman and Director, Quixx Corporation and
                             Utility Engineering Corporation                         1997-Present
                           Director, Yorkshire Holdings plc                          1997-Present
                           Vice Chairman, Yorkshire Holdings plc                     1997-1998
                           Vice Chairman, e prime, inc.                              1997-Present
                           Vice Chairman, Yorkshire Electricity Group plc            1997-1998
                           Chairman of the Board, Yorkshire Electricity Group, plc   1998-Present
                           Chairman of the Board and Director, Yorkshire Power       1998-Present
                             Group Limited, Yorkshire Holdings plc
                           Chairman of the Board and Director                        1998-Present
                             Planergy (Delaware) Inc., Planergy Energy Services
                             Corporation, Planergy New York, Inc., Planergy
                             Power II, Inc., Planergy Services USA, Inc., Planergy
                             Services of California,  Inc.,  Planergy  Services of
                             Houston, Inc., Planergy Services of Texas, Inc.,
                             Planergy Services, Inc., Planergy, Inc., Cogeneration
                             Capital Associates Incorporated, The Planergy Group, Inc.
                           President and Director, New Century Energies Foundation   1998-Present
                           Vice Chairman, Director, President and CEO, New Century   1998-Present
                             Centrus, Inc.
Richard C. Kelly (d)  52   Executive Vice President and Chief Financial Officer      1997-Present
                           President, Treasurer, and Director                        1995-1997
                           Executive Vice President and Director, Public Service     1997-Present
                             Company of Colorado and Southwestern Public Service
                             Company
                           Chief Financial Officer, Public Service Company of        1997-1998
                             Colorado and Southwestern Public Service Company
                           Senior Vice President, Public Service Company of Colorado 1990-1997
                           Treasurer, Public Service Company of Colorado             1986-1997
                           Executive Vice President and Director, NC Enterprises,    1997-Present
                             Inc. and New Century Services, Inc.
                           Treasurer, Fuel Resources Development Co., Green and      1994-Present
                             Clear Lakes Company and WestGas InterState, Inc.
                           Treasurer, 1480 Welton, Inc. and Cheyenne Light, Fuel     1994-1998
                             and Power Company

                                      128
<PAGE>
                           Director, Texas-Ohio Gas, Inc., Texas-Ohio Pipeline,      1996-Present
                             Inc., and e prime Networks, Inc.
                           Director, Quixx Corporation, Utility Engineering          1997-Present
                             Corporation, Yorkshire Electricity Group plc,
                             Yorkshire Holdings plc, Yorkshire Power Group Limited,
                             e prime operating, inc. and e prime projects 
                             international, inc.
                           Director, 1480 Welton, Inc.                               1989-Present
                           Director, Cheyenne Light, Fuel and Power Company          1990-Present
                           Vice President, Fuel Resources Development Co.            1990-Present
                           Director, Fuel Resources Development Co.                  1991-Present
                           Director, Green and Clear Lakes Company and               1990-Present
                             Natural Fuels Corporation                               
                           Director, New Century International, Inc.                 1997-Present
                           Secretary, New Century International, Inc.                1997-1998
                           Director and Treasurer, New Century-Cadence, Inc.         1997-Present
                           Director, PSR Investments, Inc.                           1986-Present
                           Vice President, PSR Investments, Inc.                     1986-1998
                           Director, PS Colorado Credit Corporation                  1987-Present
                           Vice President, PS Colorado Credit Corporation            1987-1998
                           Director, WestGas InterState, Inc.                        1993-Present
                           Director, Young Gas Storage Company and e prime inc.      1995-Present
                           Vice President and Treasurer, Young Gas Storage Company   1995-1998
                           Secretary, Treasurer and Director, e prime                1997-Present
                              Energy Marketing, Inc.
                           President and CEO, e prime inc.                           1997-Present
                           Vice President and Treasurer, e prime, inc.               1995-1997
                           Chairman of the Board Texas-Ohio Gas, Inc., Texas-Ohio    1997-Present
                             Pipeline, Inc.
                           Chairman of the Board, and Young Gas Storage Company      1998-Present
                           Chief Financial Officer, New Century Services, Inc.,      1998-Present
                             WestGas InterState, Inc. and Green and Clear Lakes
                             Company
                           Director, Planergy (Delaware), Inc., Planergy Energy      1998-Present
                             Services Corporation, Planergy Services USA, Inc.,
                             Planergy Services of California, Inc., Planergy Services
                             of Houston, Inc., Planergy Services of Texas, Inc.,
                             Planergy Services, Inc., Planergy, Inc., Cogeneration
                             Capital Associates Incorporated
                           Vice President and Director, Planergy New York, Inc.,     1998-Present
                             Planergy Power II, Inc., The Planergy Group, Inc.
                           President and Director, NCE Communications, Inc.          1996-Present
                            (former e prime Telecom, Inc.)
                           Treasurer and Director, New Century Energies Foundation   1998-Present
                             and New Century-Centrus, Inc.
                           Management Committee Representative and Director, ep3,L.P.  1998-Present
                           Treasurer and Corporate  Secretary,  e prime  Networks,Inc. 1998-Present
Paul J. Bonavia (b)  47    Senior Vice President and General Counsel                   1997-Present
                             General Counsel, 1480 Welton, Inc., Green and Clear Lakes 1998-Present
                             Company, NC Enterprises, Inc., PSR Investments, Inc.,
                             PS Colorado Credit  Corporation,  WestGas InterState, Inc.
                           Senior Vice President and General Counsel, Cheyenne Light,  1998-Present
                             Fuel and Power Company, New Century Services, Inc.,
                             Public Service Company of Colorado and Southwestern
                             Public Service Company
                                   129
<PAGE>

                           President, General Counsel and Director, New Century        1998-Present
                             International, Inc.
                           Director, Yorkshire Power Group Limited, Yorkshire          1998-Present
                             Holdings plc and Yorkshire Electric Group plc
Brian P. Jackson (c) 40    Senior Vice President Finance and Administrative Services   1997-Present
                           Treasurer, Chief Financial Officer and Director,            1998-Present
                           1480 Welton, Inc., NC Enterprises, Inc. and Cheyenne 
                              Light, Fuel and Power Company
                           Treasurer and Chief Financial Officer, NCE                  1998-Present
                              Communications, Inc. and New Century International,
                              Inc.
                           Chairman of the Board, President, Chief Financial           1998-Present
                            Officer, and Director, PSR Investments, Inc. and PS
                            Colorado Credit Corporation
                           Treasurer, Planergy (Delaware), Inc., Planergy Energy       1998-Present
                             Services  Corporation,  Planergy  Limited,
                             Planergy New York, Inc., Planergy  Power  II,  Inc.,
                             Planergy Services USA, Inc., Planergy Services of
                             California,  Inc., Planergy Services of Houston, Inc.,
                             Planergy Services of Texas, Inc., Planergy Services,
                             Inc., Planergy, Inc., The Planergy Group, Inc.,
                             Cogeneration Capital Associates Incorporated
                           Treasurer and Director, e prime, inc.                       1998-Present
                           Senior Vice President and Chief Financial Officer,          1998-Present
                             Southwestern Public Service Company
                           Senior Vice President, Chief Financial Officer and          1998-Present
                             Director, Public Service Company of Colorado
                           Senior Vice President, New Century Services, Inc.           1998-Present
                           Management Committee Representative, Centrus,LLP            1998-Present
                           Director, New Century-Centrus, Inc.                         1998-Present
Teresa S. Madden     42    Controller                                                  1997-Present
                           Secretary                                                   1997-1998
                           Controller, Public Service Company of Colorado,             1997-Present
                             Southwestern Public Service Company and New Century
                             Services, Inc. 
                           Secretary, Public Service Company of Colorado and New       1997-1998
                             Century Services, Inc.
                           Assistant Secretary, Southwestern Public Service Company    1997-1998
                           Director, Yorkshire Power Group Limited, Yorkshire          1997-1998
                             Holdings plc and Yorkshire Electricity Group plc
                           Secretary, Fuel Resources Development Co.                   1997-Present
                           Secretary, NC Enterprises, Inc., WestGas InterState,Inc.,   1997-1998
                             e  prime,inc., Cheyenne Light, Fuel and Power Company,
                             New Century-Cadence, Inc., Texas-Ohio Pipeline, Inc.
                             and Texas-Ohio Gas, Inc.
                           Manager of Corporate Accounting, Public Service Company     1990-1997
                             of Colorado
                           Assistant Secretary, Public Service Company of Colorado     1995-1997
                             and e prime, inc.
                           Assistant Secretary, 1480 Welton, Inc., PSR Investments,    1991-1998
                             Inc., PS Colorado Credit Corporation,
                           Assistant Secretary, Cheyenne Light, Fuel and Power         1991-1997
                             Company and Fuel Resources Development Co.

                                      130
<PAGE>

                           Controller, 1480 Welton, Inc., Cheyenne Light, Fuel         1998-Present
                             and Power Company, Green and Clear Lakes Company, NC
                             Enterprises, Inc., New Century International, Inc.,
                             PSR Investments, Inc., PS Colorado Credit Corporation,
                             and WestGas InterState, Inc.
                           Assistant Secretary, Yorkshire Electricity Group plc,       1998-Present
                             Yorkshire Holdings plc, and Yorkshire Power Group Limited
James D. Steinhilper(e)49  Treasurer                                                   1997-Present
                           Treasurer, Public Service Company of Colorado and           1997-Present
                             Southwestern Public Service Company
                           Assistant Treasurer, Cheyenne Light, Fuel and Power         1997-Present
                             Company, New Century-Cadence, Inc. and WestGas
                             InterState, Inc.
                           Director of Finance and Treasurer, New Century Services,    1997-Present
                             Inc.  
                           Assistant Treasurer, 1480 Welton, Inc., Green and           1998-Present
                             Clear Lakes Company, and New Century-Centrus, Inc.
                           Treasurer and Director,  PSR  Investments,  Inc. and PS     1998-Present
                             Colorado Credit Corporation
                           Treasurer, e prime, inc. and NC Enterprises, Inc.           1997-1998
                           Group Manager, Finance, Southwestern Public Service Company 1989-1997
                           Chairman of the Board, President and Director, Borger       1998-Present
                             Funding Corporation
                           Treasurer and Assistant Secretary, KES Montego, Inc.,       1998-Present
                             Quixx Carolina, Inc., Quixx Corporation, Quixx Jamaica,
                             Inc., Quixx Power Services, Inc., Quixx WPP94, Inc., and
                             Quixxlin Corp.
                           Treasurer, Director and Assistant Secretary, Quixx Borger   1998-Present
                             Cogen, Inc., and Quixx Mustang Station, Inc.
David M. Wilks       52    Executive Vice President and Director, Public Service       1997-Present
                             Company of Colorado and New Century Services, Inc.
                           Executive Vice President and Director, New Century-         1997-1998
                             Cadence, Inc.
                           Director, Cheyenne Light, Fuel and Power Company            1997-Present
                           Director, Southwestern Public Service Company, Quixx Power  1995-Present
                             Services,  Inc., Utility Engineering  Corporation and
                             Quixx Corporation
                           President and Chief Operating Officer, Southwestern         1995-Present
                             Public Service Company
                           Senior Vice President, Southwestern Public Service          1991-1995
                             Company
                           Director, WestGas InterState, Inc. and Young Gas Storage    1998-Present
                             Company
                           Vice President and Director, New Century Energies           1998-Present
                              Foundation
Cathy J. Hart (f)    49    Secretary                                                   1998-Present
                           Secretary, 1480 Welton, Inc., Cheyenne Light, Fuel and      1998-Present
                              Power Company, Cogeneration Capital Associates
                              Incorporated, Green and Clear Lakes Company, NC
                              Enterprises, Inc., New Century International, Inc.,
                              New Century Services, Inc., New Century-Cadence,
                              Inc., New Century-Centrus, Inc., PSR Investments,
                              Inc., PS Colorado  Credit  Corporation, Planergy
                             (Delaware), Inc., Planergy Energy Services Corporation,
                              Planergy Limited,  Planergy New York, Inc., Planergy
                              Power II, Inc., Planergy Services USA, Inc., Planergy
                              Services of California, Inc., Planergy Services of
                              Houston,I nc., Planergy Services of Texas, Inc.,
                              Planergy Services, Inc., Planergy, Inc.,

                                      131
<PAGE>

                              Public Service Company of Colorado, Texas-Ohio Gas,
                              Inc., Texas-Ohio Pipeline, Inc., The Planergy Group,
                              Inc., WestGas InterState, Inc., Young Gas Storage
                              Company and e prime, inc.
                            Assistant Secretary, Southwestern Public Service Company   1998-Present
                            Manager, Corporate Communications, Public Service Company  1993-1996
                              of Colorado
Tom Petillo (g)      54     Executive Vice President, New Century Services, Inc.       1998-Present
                            President and Director, New Century International,Inc.     1997-1998
                            Executive Vice  President,  Public  Service  Company of
                              Colorado and Southwestern Public Service Company         1998-Present
                            Chairman of the Board and Director, Planergy Limited       1998-Present
                            Senior Vice President and Director,  Planergy New York,    1998-Present
                              Inc. and Planergy, Inc.
                            Vice President and Director, Cogeneration Capital          1998-Present
                              Associates Incorporated, New Century-Centrus, Inc.,
                              Planergy (Delaware), Inc., Planergy Energy Services
                              Corporation, Planergy Services USA, Inc., Planergy
                              Services of California, Inc., Planergy Services of
                              Houston,  Inc., Planergy Services of Texas, Inc. 
                              and Planergy Services, Inc.
                            President  and  Director,  Planergy  Power II, Inc. and    1998-Present
                              The Planergy Group, Inc.
                            Executive Vice President and Director, New Century-        1998-Present
                              Cadence, Inc.
Henry H. Hamilton    60     Executive Vice President and Director, Southwestern        1997-Present
                              Public Service Company, Public Service Company of
                              Colorado and New Century Services, Inc.
                            Vice President of Production, Southwestern Public Service  1987-1997
                              Company
                            Director, Quixx Power Services, Inc.                       1993-Present
                            Chairman of the Board and President and Director,          1998-Present
                              KES Montego, Inc., Quixx Borger Cogen, Inc.,
                              Quixx Carolina, Inc., Quixx Jamaica, Inc.,
                              Quixx Mustang Station, Inc., Quixx WPP94, Inc.
                               and Quixxlin Corp.
                            President, CEO, COO and Director, Quixx Corporation        1998-Present
                            President and CEO, Quixx Power Services, Inc.              1998-Present
                            Director, Utility Engineering Corporation                  1998-Present
                            CEO, Borger Funding Corporation                            1998-Present
</TABLE>

      There are no family relationships  between executive officers or directors
of the  registrants.  There are no  arrangements or  understandings  between the
executive  officers  individually  and any other person with  reference to their
being selected as officers of each  registrant.  All executive  officers of each
registrant are elected annually by the respective Board of Directors.

(a)Mr. Brunetti was President and Chief Executive Officer of Management  Systems
   International  from June 1991 through July 1994 and Executive  Vice President
   of Florida Power & Light Company from 1987 through May 1991.
(b)Mr. Bonavia was Of Counsel at LeBoeuf,  Lamb, Greene & MacRae, LLP from March
   1997 through  December 1997 and Senior Vice President at Dominion  Resources,
   Inc. from 1991 through February 1997.
(c)Mr.  Jackson was named  Treasurer  of New Century  Energies,  Inc.  effective
   January 1, 1999.  Mr.  Jackson was employed by Arthur  Andersen LLP from 1980
   through November 1997. He was a partner with the firm from 1994 through 1997.


                                      132
<PAGE>

(d)Mr.  Kelly is  Chairman  of the audit  committee  and a member of the finance
   committee of Yorkshire Electricity Group plc.
(e)Mr.  Steinhelper  was named Vice  President  of Quixx  Corporation  effective
   January 1, 1999,  and  subsequently  resigned  as  Treasurer  of New  Century
   Energies, Inc. and certain other subsidiary positions.
(f)Ms.  Hart was  self-employed  as  communications  and  marketing  consultant,
   Sydney, Australia and Denver, Colorado from June 1996 through June 1998.
(g)Mr. Petillo was Director and President,  Qualtec Quality Services,  Inc. from
   August 1992 through October 1995 and Senior Vice President of Florida Power &
   Light Company from June 1991 through December 1995.

Item 11.  Executive Compensation

      Information  concerning executive  compensation for NCE is contained under
COMPENSATION  OF  EXECUTIVE  OFFICERS  AND  DIRECTORS  in  the  NCE  1999  Proxy
Statement,  which information is incorporated  herein by reference.  Information
concerning executive  compensation for PSCo and SPS has been omitted pursuant to
General Instruction I(2)(c).

Item 12.  Security Ownership of Certain Beneficial Owners and Management

      Information  concerning  the  security  ownership  of  the  directors  and
officers of NCE is  contained  under  ELECTION OF  DIRECTORS in NCE's 1999 Proxy
Statement,  which information is incorporated  herein by reference.  Information
concerning the security  ownership of the directors and officers of PSCo and SPS
is omitted pursuant to General Instruction I(2)(c).

Item 13.  Certain Relationships and Related Transactions

      Information  concerning  relationships  and  related  transactions  of the
directors  and  officers of NCE is contained  under  CERTAIN  RELATIONSHIPS  AND
RELATED  TRANSACTIONS  in NCE's  1999  Proxy  Statement,  which  information  is
incorporated  herein by reference.  PSCo and SPS have no information  concerning
relationships and related transactions required to be disclosed.

                                   PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)   Financial Statements, Financial Statement Schedules, and Exhibits:

   (1)Financial  Statements and Reports of Independent  Public  Accountants on
      the financial statements for NCE,
      PSCo and SPS are listed under Item 8 herein.

   (2)Financial Statement Schedules.
      Reports of  Independent  Public  Accountants as to Schedules for NCE, PSCo
      and SPS are included in the Reports of Independent  Public Accountants for
      each registrant.

   (3)Exhibits.
      Exhibits for NCE, PSCo and SPS are listed in Index to Exhibits below.

(b) Reports on Form 8-K:

     The following reports on Form 8-K were filed since the end of the third 
quarter of 1998:

     - A combined report on Form 8-K dated February 23, 1999, was filed 
       separately by NCE, PSCo and SPS on February 23, 1999.
       The item reported was Item 5. Other Events: Filing of audited financial
       statements of NCE and its subsidiaries, PSco and its subsidiaries and SPS
       for the year ended December 31, 1998.

                                      133
<PAGE>

     - A report on Form 8-K dated February 25, 1999, was filed by SPS on 
       February 25, 1999.
       The item reported was Item 5. Other Events:  filing of consent of Arthur
       Andersen LLP  and Letter on unaudited financial information of Arthur 
       Andersen LLP.

     - A report on Form 8-K dated February 25, 1999, was filed by SPS on March
       9, 1999.
       The item reported was Item 5. Other Events: Filing of Purchase Agreement.
       the Indenture and the First Supplemental Indenture realted to the sale of
       Series A Senior Notes.

     - A report on Form 8-K dated March 24, 1999, was filed by NCE on March 24,
       1999.
       The item reported was Item 5. Other Events: Filing of an Agreement and 
       Plan of Merger dated March 24, 1999, between New Century Energies, Inc.
       and Northern States Power Company and a joint press release announcing
       the proposed merger.

     - A report of Form 8-K dated March 26, 1999 was filed by NCE on March 26,
       1999.
       The item reported was Item 5. Other Events: Filing of slide presentation
       for joint meeting, NCE and Northern State Power Company held with 
       financial analysts.


                                      134
<PAGE>


                                   EXPERTS

      The  consolidated  balance  sheets of New Century  Energies,  Inc. and its
subsidiaries  as of  December  31,  1998  and  1997,  the  related  consolidated
statements of income,  shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1998, and the related financial statement
schedule,  appearing  in this Annual  Report on Form 10-K,  have been audited by
Arthur  Andersen  LLP,  independent  public  accountants,  as set forth in their
report  appearing  elsewhere  herein.  Arthur  Andersen  LLP did not  audit  the
consolidated financial statements of Southwestern Public Service Company for the
year ended December 31, 1996, included in the consolidated  financial statements
of  New  Century  Energies,   Inc.,  which  statements  reflect  total  revenues
constituting 31% in 1996, of the related  consolidated  totals. The consolidated
financial  statements and the related financial  statement  schedule,  which are
included in this Annual  Report on Form 10-K,  are  included  herein in reliance
upon the authority of said firm as experts in giving said report.

      The consolidated balance sheets and statements of capitalization of Public
Service  Company of Colorado  and its  subsidiaries  as of December 31, 1998 and
1997, the related  consolidated  statements of income,  shareholder's equity and
cash flows for each of the three years in the period  ended  December  31, 1998,
and the related financial statement schedule, appearing in this Annual Report on
Form  10-K,  have  been  audited  by Arthur  Andersen  LLP,  independent  public
accountants,  as set  forth in their  report  appearing  elsewhere  herein.  The
consolidated  financial statements and the related financial statement schedule,
which are included in this Annual  Report on Form 10-K,  are included  herein in
reliance upon the authority of said firm as experts in giving said report.

      The balance sheets and statements of capitalization of Southwestern Public
Service  Company as of December  31, 1998 and 1997,  the related  statements  of
income,  shareholder's  equity  and cash  flows for each of the two years in the
period ended December 31, 1998, and the related  financial  statement  schedule,
appearing  in this  Annual  Report on Form  10-K,  have been  audited  by Arthur
Andersen  LLP,  independent  public  accountants,  as set forth in their  report
appearing  elsewhere herein. The financial  statements and the related financial
statement  schedule,  which are included in this Annual Report on Form 10-K, are
included herein in reliance upon the authority of said firm as experts in giving
said report.


                                      135
<PAGE>


                                                                EXHIBIT 23 (a)

                  CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

      As independent public accountants,  we hereby consent to the incorporation
by  reference  of our  report  included  in this  Form  10-K,  into New  Century
Energies,  Inc.'s  previously filed  Registration  Statement (Form S-8, File No.
333-28639)  pertaining  to the Omnibus  Incentive  Plan;  New Century  Energies,
Inc.'s Registration  Statement (Form S-3, File No. 333-28637)  pertaining to the
Dividend  Reinvestment  and Cash  Payment  Plan;  New Century  Energies,  Inc.'s
Registration  Statement (Form S-3, File Nos. 333-40361 and 333-6407)  pertaining
to the  registration  of NCE  Common  Stock  and New  Century  Energies,  Inc.'s
Registration  Statement  (Form S-8,  File No.  333-58117)  pertaining to the NCE
Employee Investment Plan and NCE Employees' Savings and Stock Ownership Plan and
to all references to our Firm included in this Form 10-K.

      As independent public accountants,  we hereby consent to the incorporation
by  reference  of our report  included in this Form 10-K,  into  Public  Service
Company of Colorado's  previously filed  Registration  Statement (Form S-3, File
No. 33-62233) pertaining to the Automatic Dividend Reinvestment and Common Stock
Purchase Plan; Public Service Company of Colorado's Registration Statement (Form
S-3, File No. 33-37431) as amended on December 4, 1990,  pertaining to the shelf
registration  of Public  Service  Company of Colorado's  First  Mortgage  Bonds;
Public Service Company of Colorado's  Registration Statement (Form S-8, File No.
33-55432)  pertaining to the Omnibus  Incentive Plan;  Public Service Company of
Colorado's  Registration  Statement (Form S-3, File No. 33-51167)  pertaining to
the shelf  registration of Public Service Company of Colorado's First Collateral
Trust Bonds and Public  Service  Company of  Colorado's  Registration  Statement
(Form S-3, File No.  33-54877)  pertaining to the shelf  registration  of Public
Service  Company of  Colorado's  First  Collateral  Trust  Bonds and  Cumulative
Preferred Stock and to all references to our Firm included in this Form 10-K.

      As independent public accountants,  we hereby consent to the incorporation
by reference of our report included in this Form 10-K, into Southwestern  Public
Service Company's  previously filed  Registration  Statement (Form S-3, File No.
333-05199)  pertaining to Southwestern  Public Service Company's Preferred Stock
and  Debt  Securities;   Southwestern  Public  Service  Company's   Registration
Statement  (Form S-8,  File No.  33-27452)  pertaining  to  Southwestern  Public
Service  Company's  1989 Stock  Incentive Plan and  Southwestern  Public Service
Company's  Registration  Statement (Form S-8, File No.  33-57869)  pertaining to
Southwestern Public Service Company's Employee Investment Plan and Non-Qualified
Salary  Deferral  Plan and to all  references  to our Firm included in this Form
10-K.


                                                         ARTHUR ANDERSEN LLP

Denver, Colorado
March 29, 1999



                                      136
<PAGE>


                                                                EXHIBIT 23 (b)
                  CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

We consent to the  incorporation  by reference in  Registration  Statement No.
333-05199 on Form S-3 and  Registration  Statements No.  33-27452 and 33-57869
on Form S-8 of Southwestern Public Service Company and Registration  Statement
No.  333-28637  and  333-40361  on Form  S-3 and  Registration  Statement  No.
333-28639  on Form S-8 of New  Century  Energies,  Inc.  of our  report  dated
February  28,  1997  (June  19,  1997,  as  to  the  Carolina  Energy  Limited
Partnership in Note 3) on Southwestern  Public Service  Company,  appearing in
the Annual  Report on Form 10-K of New  Century  Energies,  Inc.  for the year
ended December 31, 1998.


                                                DELOITTE & TOUCHE  LLP
Dallas, Texas
March 29, 1999










                                                                   EXHIBIT 24
                               POWER OF ATTORNEY

      Each  director  and/or  officer  of  New  Century  Energies,  Inc.,  whose
signature  appears  herein hereby  appoints Bill D. Helton and Richard C. Kelly,
and each of them  severally,  and each director and/or officer of Public Service
Company of Colorado and  Southwestern  Public Service  Company,  whose signature
appears herein hereby appoints Wayne H. Brunetti and Brian P. Jackson,  and each
of them severally, as his or her attorney-in-fact to sign in his or her name and
behalf, in any and all capacities stated herein, and to file with the Securities
and Exchange  Commission,  any and all  amendments to this Annual Report on Form
10-K.


                                      137
<PAGE>



                          NEW CENTURY ENERGIES, INC.
                                  SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, New Century Energies,  Inc. has duly caused this report to
be signed on its behalf by the  undersigned,  thereunto  duly  authorized on the
23rd day of February, 1999.

                                          NEW CENTURY ENERGIES, INC.

                                          By   /s/Richard C. Kelly
                                          ---------------------------------
                                                Richard C. Kelly
                                          Executive Vice President and
                                             Chief Financial Officer


      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report has been signed below by the  following  persons on behalf of New Century
Energies, Inc. and in the capacities and on the date indicated.


   Signature                      Title                          Date
--------------------------------------------------------------------------------


/s/Bill D. Helton
____________________________   Principal Executive           March 24, 1999
Bill D. Helton                 Officer and Director
Chairman of the Board and
Chief Executive Officer


/s/Richard C. Kelly
_____________________________  Principal                     March 24, 1999
Richard C. Kelly               Financial Officer 
Executive Vice President and
Chief Financial Officer


/s/Teresa S. Madden
_____________________________  Principal Accounting Officer  March 24, 1999
Teresa S. Madden
Controller


                                      138
<PAGE>



   Signature                            Title                    Date
--------------------------------------------------------------------------------

/s/Bill D. Helton
__________________________________  Chairman of the Board      March 24, 1999
Bill D. Helton                      and Director

/s/ Wayne H. Brunetti
__________________________________  Vice Chairman and
Wayne H. Brunetti                   Director                   March 24, 1999

/s/C. Coney Burgess
__________________________________  Director                   March 24, 1999
C. Coney Burgess

/s/ Danny H. Conklin
__________________________________  Director                   March 24, 1999
Danny H. Conklin

/s/Giles M. Forbess
__________________________________  Director                   March 24, 1999
Giles M. Forbess

/s/Gayle L. Greer
__________________________________  Director                   March 24, 1999
Gayle L. Greer

/s/R. R. Hemminghaus
__________________________________  Director                   March 24, 1999
R. R. Hemminghaus

/s/A. Barry Hirschfeld
__________________________________  Director                   March 24, 1999
A. Barry Hirschfeld

/s/ J. Howard Mock
__________________________________  Director                   March 24, 1999
J. Howard Mock

/s/ Albert F. Moreno
__________________________________  Director                   March 24, 1999
Albert F. Moreno

/s/ Will F. Nicholson, Jr.
__________________________________  Director                   March 24, 1999
Will F. Nicholson, Jr.

/s/J. Michael Powers
__________________________________  Director                   March 24, 1999
J. Michael Powers

/s/Rodney E. Slifer
__________________________________  Director                   March 24, 1999
Rodney E. Slifer

                                      139
<PAGE>



   Signature                            Title                    Date
--------------------------------------------------------------------------------

/s/W. Thomas Stephens
__________________________________  Director                   March 24, 1999
W. Thomas Stephens

/s/Robert G. Tointon
__________________________________  Director                   March 24, 1999
Robert G. Tointon

                                      140
<PAGE>


                      PUBLIC SERVICE COMPANY OF COLORADO
                                  SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934,  Public  Service  Company of Colorado has duly caused this
report to be signed on its behalf by the undersigned,  thereunto duly authorized
on the 23td day of February, 1999.

                                          PUBLIC SERVICE COMPANY OF COLORADO

                                          By   /s/Brian P. Jackson
                                          ---------------------------------
                                                Brian P. Jackson
                                          Senior Vice President, Finance and
                                        Administrative Services, Chief Financial
                                                Officer and Treasurer


      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has been  signed  below by the  following  persons  on  behalf of Public
Service Company of Colorado and in the capacities and on the date indicated.


   Signature                      Title                          Date
--------------------------------------------------------------------------------


/s/Wayne H. Brunetti
__________________________     Principal Executive           March 24, 1999
Wayne H. Brunetti              Officer and Director
Vice Chairman, President and
Chief Executive Officer


/s/Brian P. Jackson
__________________________     Principal Financial Officer   March 24, 1999
Brian P. Jackson               and Director
Senior Vice President, Finance
and Administrative Services,
Chief Financial
Officer and Treasurer


/s/Teresa S. Madden
__________________________     Principal Accounting Officer  March 24, 1999
Teresa S. Madden
Controller


                                      141
<PAGE>



   Signature                            Title                    Date
--------------------------------------------------------------------------------

/s/ Bill. D. Helton
__________________________________  Director                   March 24, 1999
Bill. D. Helton

/s/Henry H. Hamilton
__________________________________  Director                   March 24, 1999
Henry H. Hamilton

/s/ Richard C. Kelly
__________________________________  Director                   March 24, 1999
Richard C. Kelly

/s/David M. Wilks
__________________________________  Director                   March 24, 1999
David M. Wilks


                                      142
<PAGE>


                     SOUTHWESTERN PUBLIC SERVICE COMPANY
                                  SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934,  Southwestern  Public Service Company has duly caused this
report to be signed on its behalf by the undersigned,  thereunto duly authorized
on the 23rd day of February, 1999.

                                          SOUTHWESTERN PUBLIC SERVICE COMPANY

                                          By   /s/Brian P. Jackson
                                          ---------------------------------
                                                Brian P. Jackson
                                          Senior Vice President, Finance and
                                        Administrative Services, Chief Financial
                                                Officer and Treasurer


      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report has been signed below by the following  persons on behalf of Southwestern
Public Service Company and in the capacities and on the date indicated.


   Signature                      Title                          Date
--------------------------------------------------------------------------------


/s/Wayne H. Brunetti
___________________________    Principal Executive           March 24, 1999
Wayne H. Brunetti              Officer and Director
Vice Chairman and
Chief Executive Officer


/s/Brian P. Jackson
___________________________    Principal Financial Officer   March 24, 1999
Brian P. Jackson
Senior Vice President, Finance
and Administrative Services,
Chief Financial
Officer  and Treasurer


/s/Teresa S. Madden
___________________________    Principal Accounting Officer  March 24, 1999
Teresa S. Madden
Controller

                                      143
<PAGE>



   Signature                            Title                    Date
--------------------------------------------------------------------------------

/s/Bill. D. Helton
__________________________________  Director                   March 24, 1999
Bill. D. Helton

/s/Henry H. Hamilton
__________________________________  Director                   March 24, 1999
Henry H. Hamilton

/s/ Richard C. Kelly
__________________________________  Director                   March 24, 1999
Richard C. Kelly

/s/David M. Wilks
__________________________________  Director                   March 24, 1999
David M. Wilks


                                      144
<PAGE>


                                 EXHIBIT INDEX

2  Plan  of   Acquisition,   Reorganization,   Arrangement,   Liquidation   or
Succession
NCE
2(a)1* Agreement and Plan of Merger dated March 24, 1999 (Form 8-K, March 24,
       1999, Exhibit 2.1).

2(a)2* Merger  Agreement  and Plan of  Reorganization  dated August 22, 1995
       (Form S-4, Annex I, File No. 33-64951).
PSCo
2(a)1* Merger  Agreement  and Plan of  Reorganization  dated August 22, 1995
       (Form 8-K, dated August 22, 1995, File No. 1-3280 - Exhibit 2).
SPS
2(a)1* Agreement and Plan of Reorganization dated August 22, 1995 (Form 8-K,
       Exhibit 2, dated August 22, 1995).

3 (i)  Articles of Incorporation
NCE
3(a)1* Restated  Articles of  Incorporation  dated  December 8, 1995 (Form S-4,
        Exhibit 3(a)).

PSCo
3(a)1  Amended and Restated Articles of Incorporation dated July 10, 1998.

SPS
3(a)2* Amended and Restated  Articles of  Incorporation  dated September 30,
        1997.

3 (ii)  By-Laws
NCE
3(b)1  Restated By-laws dated December 15, 1998.

PSCo
3(b)1* By-laws dated November 20, 1997.

SPS
3(b)2* By-laws dated September 29, 1997.

4 Instruments Defining the Rights of Security Holders,  Including Indentures
NCE
4(a)1* Rights Agreement, dated as of August 1, 1997, between New Century
       Energies,  Inc.  and the Bank of New York,  as Rights Agent (Form 8-K,
       August 1, 1997-Exhibit 1).
4(a)2* Amendment as of March 24, 1999 to  the  Rights   Agreement, dated as of 
       August 1, 1997, between New Century Energies, Inc.  and the Bank of New
       York (Form 8-K, March 24, 1999, Exhibit 99.2)

PSCo
4(a)1* Indenture,  dated as of December 1, 1939,  providing for the issuance
       of First Mortgage Bonds (Form 10 for 1946- Exhibit (B-1)).

4(a)2* Indentures supplemental to Indenture dated as of December 1, 1939:

                 Previous Filing:                   Previous Filing:
                   Form; Date orExhibit               Form; Date or   Exhibit
       Dated as of   File No.     No.    Dated as of    File No.        No.

      Mar. 14, 1941  10, 1946     B-2   Sept. 1, 19708-K, Sept. 1970     2
      May 14, 1941   10, 1946     B-3   Feb. 1, 1971 8-K, Feb. 1971      2
      Apr. 28, 1942  10, 1946     B-4   Aug. 1, 1972 8-K, Aug. 1972      2
      Apr. 14, 1943  10, 1946     B-5   June 1, 1973 8-K, June 1973      1

                                      145
<PAGE>

      Apr. 27, 1944  10, 1946     B-6   Mar. 1, 1974 8-K, Apr. 1974      2
      Apr. 18, 1945  10, 1946     B-7   Dec. 1, 1974 8-K, Dec. 1974      1
      Apr. 23, 1946 10-K, 1946    B-8   Oct. 1, 1975 S-7, (2-60082)   2(b)(3)
      Apr. 9, 1947  10-K, 1946    B-9   Apr. 28, 1976S-7, (2-60082)   2(b)(4)
      June 1, 1947 S-1, (2-7075) 7(b)   Apr. 28, 1977S-7, (2-60082)   2(b)(5)
      Apr. 1, 1948 S-1, (2-7671)7(b)(1) Nov. 1, 1977 S-7, (2-62415)   2(b)(3)
      May 20, 1948 S-1, (2-7671)7(b)(2) Apr. 28, 1978S-7, (2-62415)   2(b)(4)
      Oct. 1, 1948  10-K, 1948     4    Oct. 1, 1978   10-K, 1978      D(1)
      Apr. 20, 1949 10-K, 1949     1    Oct. 1, 1979 S-7, (2-66484)   2(b)(3)
      Apr. 24, 19508-K, Apr. 1950  1    Mar. 1, 1980   10-K, 1980      4(c)
      Apr. 18, 19518-K, Apr. 1951  1    Apr. 28, 1981S-16, (2-74923)   4(c)
      Oct. 1, 19518-K, Nov. 1951   1    Nov. 1, 1981 S-16, (2-74923)   4(d)
      Apr. 21, 19528-K, Apr. 1952  1    Dec. 1, 1981   10-K, 1981      4(c)
      Dec. 1, 1952S-9, (2-11120)2(b)(9) Apr. 29, 1982  10-K, 1982      4(c)
      Apr. 15, 19538-K, Apr. 1953  2    May 1, 1983   10-K, 1983      4(c)
      Apr. 19, 19548-K, Apr. 1954  1    Apr. 30, 1984S-3, (2-95814)    4(c)
      Oct. 1, 19548-K, Oct. 1954   1    Mar. 1, 1985   10-K, 1985      4(c)
      Apr. 18, 19558-K, Apr. 1955  1    Nov. 1, 1986   10-K, 1986      4(c)
      Apr. 24, 1956 10-K, 1956     1    May 1, 1987   10-K, 1987      4(c)
      May 1, 1957S-9, (2-13260)2(b)(15) July 1, 1990 S-3, (33-37431)   4(c)
      Apr. 10, 19588-K, Apr. 1958  1    Dec. 1, 1990   10-K, 1990      4(c)
      May 1, 1959 8-K, May 1959   2     Mar. 1, 1992   10-K, 1992      4(d)
      Apr. 18, 19608-K, Apr. 1960  1    Apr. 1, 199310-Q, June 30, 19934(a)
      Apr. 19, 19618-K, Apr. 1961  1    June 1, 199310-Q, June 30, 19934(b)
      Oct. 1, 19618-K, Oct. 1961   2    Nov. 1, 1993 S-3, (33-51167)  4(a)(3)
      Mar. 1, 19628-K, Mar. 1962 3(a)   Jan. 1, 1994   10-K, 1993     4(a)(3)
      June 1, 19648-K, June 1964   1    Sept. 2, 19948-K, Sept. 1994   4(a)
      May 1, 1966 8-K, May 1966   2     May 1, 199610Q, June 30, 1996 4(a)
      July 1, 19678-K, July 1967   2    Nov. 1, 1996   10-K, 1996     4(a)(3)
      July 1, 19688-K, July 1968   2    Feb. 1, 199710-Q, Mar. 31, 19974(a)
      Apr. 25, 19698-K, Apr. 1969  1    April 1, 199810-Q, Mar. 31, 19984(a)
      Apr. 21, 19708-K, Apr. 1970  1

4(b)1*  Indenture,  dated  as of  October  1,  1993,  providing  for the
        issuance of First Collateral Trust Bonds
        (Form 10-Q, September 30, 1993 - Exhibit 4(a)).

4(b)2*  Indentures supplemental to Indenture dated as of October 1, 1993:

                              Previous Filing:
                                Form; Date or          Exhibit
        Dated as of              File No.             No.
        -----------              --------            ---

        November 1, 1993     S-3, (33-51167)           4(b)(2)
        January 1, 1994      10-K, 1993                4(b)(3)
        September 2, 1994    8-K, Sept. 1994           4(b)
        May 1, 1996          10-Q, June 30, 1996       4(b)
        November 1, 1996     10-K, 1996                4(b)(3)
        February 1, 1997     10-Q, Mar. 31, 1997       4(b)
        April 1, 1998        10-Q, Mar. 31, 1998       4(b)

4(c)1*  Indenture  date May 1, 1998,  between PSCo and The Bank of New York,
        providing for the issuance of Subordinated  Debt Securities  (Form 8-K,
        May 6, 1998 - Exhibit 4.2).

4(c)2*  Supplemental Indenture dated May 11, 1998, between PSCo and The Bank
        of New York, (Form 8-K, May 6, 1998 - Exhibit 4.3).

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<PAGE>

4(c)3*  Preferred Securities Guarantee Agreement dated May 11, 1998, between
        PSCo and The Bank of New York, (Form 8-K, May 6, 1998 - Exhibit 4.4).

4(c)4*  Amended and Restated  Declaration of Trust of PSCo Capital and Trust
        I date May 11, 1998, (Form 8-K, May 6, 1998 - Exhibit 4.1).

SPS
4(a)1*  Indenture, dated as of August 1, 1946, providing for the issuance of
        First Mortgage Bonds (Registration No. 2-6910, Exhibit 7-A).

4(a)2*  Indentures supplemental to Indenture dated as of August 1, 1946:

                              Previous Filing:
                                Form; Date or          Exhibit
        Dated as of              File No.             No.
        -----------              --------            ---

        February 1, 1967          2-25983            2-S
        October 1, 1970           2-38566            2-T
        February 9, 1977          2-58209            2-Y
        March 1, 1979             2-64022            b(28)
        April 1, 1983 (two)    10-Q, May 1983        4(a)
        February 1, 1985       10-K, Aug. 1985       4(c)
        July 15, 1992 (two)    10-K, Aug. 1992       4(a)
        December 1, 1992 (two) 10-Q, Feb. 1993       4
        February 15, 1995      10-Q, May 1995        4
        March 1, 1996            333-05199           4(c)

4(b)1*  Indenture dated February 1, 1999 between SPS and the Chase Manhattan 
        Bank (Form 8-K, February 25, 1999. Exhibit B).

4(b)2*  Supplemental Indenture dated March 1, 1999, between SPS and the Chase
        Manhattan Bank (Form 8-K, February 25, 1999, Exhibit C).

4(c)1*  Standby Credit Agreement with Union Bank of Switzerland (Houston Agency)
        dated July 1, 1991 (Form 10-K, August 31, 1991 - Exhibit 4(a)).

4(d)1*  Red River  Authority  for Texas  Indenture  of Trust  dated July 1, 1991
        (Form 10-K, August 31, 1991 - Exhibit 4(b)).

4(e)1*  Indenture  dated  October 21,  1996,  between SPS and  Wilmington  Trust
        Company, (Form 10-Q, November 30, 1996 - Exhibit 4(a)).

4(f)1*  Supplemental  Indenture  dated  October  21,  1996,  between  SPS  and
        Wilmington Trust Company, (Form 10-Q, November 30, 1996 - Exhibit 4(b)).

4(g)1*  Guarantee  Agreement dated October 21, 1996,  between SPS and Wilmington
        Trust Company, (Form 10-Q, November 30, 1996 - Exhibit 4(c)).

4(h)1*  Amended and Restated Trust Agreement dated October 21, 1996,  among SPS,
        David  M.  Wilks,  as  initial  depositor,  Wilmington  Trust  Company 
        and  the administrative  trustees  named  therein  (Form 10- Q, November
        30, 1996 Exhibit 4(d)).

4(i)1*  Agreement  as to  Expenses  dated  October  21,  1996,  between SPS and
        Southwestern Public Service Capital I, (Form 10-K, December 31, 1996
        Exhibit F).

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<PAGE>

10 Material Contracts
NCE
10(a)1  Form of Key Executive Change in Control Agreement.

10(b)1*+ Employment Agreement, effective August 1, 1997, between the Company
         and Mr. Bill D. Helton (Form S-4, Annex I, File No.
         33-64951).

10(b)2*+ Employment Agreement, effective August 1, 1997, between the Company
         and Mr. Wayne H. Brunetti (Form S-4, Annex I, File No.
         33-64951).

10(b)3*+ Employment Agreement,  effective December 15, 1997, between company
         and Mr. Paul J. Bonavia (Form 10Q, September 30, 1998 - Exhibit 10(a)).

10(c)1*+ Omnibus  Incentive  Plan,  effective  August 1, 1997 (Form Def 14A,
         December 31, 1997 - Exhibit A)

10(d)1+  Directors' Voluntary Deferral Plan

10(e)1+  Supplemental Executive Retirement Plan

10(f)1+  Salary Deferral and Supplemental Savings Plan for Executive Officers

10(g)1+  Salary Deferral and Supplemental Savings Plan for Key Managers

PSCo
10(a)1*  Settlement  Agreement dated February 9, 1996 between the Company and
         the United States Department of Energy (Form 10-K,  December 31, 1995 -
         Exhibit 10(a)(1)).

10(a)2*  Settlement  Agreement dated June 27, 1979 between the Registrant and
         General Atomic Company (Form S-7, File No. 2-66484 - Exhibit 5(a)(1)).

10(a)3*  Services  Agreement  executed  June 27,  1979 and  effective  as of
         January 1, 1979 between the Registrant and General Atomic Company (Form
         S-7, File No. 2-66484 - Exhibit 5(a)(3)).

10(b)1*  Amended and Restated Coal Supply  Agreement  entered into October 1,
         1984 but made  effective as of January 1, 1976  between the  Registrant
         and Amax Inc. on behalf of its division,  Amax Coal Company (Form 10-K,
         December 31, 1984 - Exhibit 10(c)(1)).

10(b)2*  First  Amendment  to Amended and Restated  Coal Supply  Agreement
         entered into May 27, 1988 but
         made  effective  January 1, 1988 between the  Registrant  and Amax Coal
         Company (Form 10-K, December 31, 1988-Exhibit 10(c)(2).**

10(c)1*+ Supplemental   Executive   Retirement  Plan  for  Key  Management
         Employees,  as amended and restated March 26, 1991 (Form 10-K, December
         31, 1991 - Exhibit 10(e)(2)).

10(c)2*+ Executive  Savings  Plan (Form 10-K,  December  31, 1991 - Exhibit
         10(e)(5)).

10(c)3*+ Form of Key Executive Severance Agreement, as amended on August 22,
         and  November  27,  1995.  (Form  10-K,  December  31,  1995 -  Exhibit
         10(3)(4)).

SPS
10(a)1*  Coal Supply  Agreement  (Harrington  Station)  between SPS and TUCO,
         dated May 1, 1979 (Form 8-K, May 14, 1979 - Exhibit 3).

10(b)1*  Master  Coal  Service  Agreement  between  Swindell-Dressler  Energy
         Supply  Company and TUCO,  dated July 1, 1978 (Form 8-K, May 14, 1979 -
         Exhibit 5(A)).

                                      148
<PAGE>

10(c)1*  Guaranty of Master Coal Service Agreement between  Swindell-Dressler
         Energy Supply Company and TUCO (Form 8-K, May 14, 1979 - Exhibit 5(B)).

10(d)1*  Coal  Supply  Agreement  (Tolk  Station)  between SPS and TUCO dated
         April 30, 1979, as amended November 1, 1979 and December 30, 1981 (Form
         10-Q, February 28, 1982 - Exhibit 10(b)).

10(e)1*  Master Coal Service Agreement between Wheelabrator Coal Services Co.
         and TUCO dated  December  30,  1981,  as amended  November  1, 1979 and
         December 30, 1981 (Form 10-Q, February 28, 1982 - Exhibit 10(c)).

10(f)1*+ Incentive  Compensation  Plan (an  Executive  Management  Plan) as
         amended July 23, 1996 (Form 10-K, August 31, 1996 - Exhibit 10(a)).

10(g)1*+ 1989 Stock  Incentive  Plan as amended  April 23, 1996 (Form 10-K,
         August 31, 1996 - Exhibit 10(b)).

10(h)1*+ Director's  Deferred  Compensation Plan as amended January 10, 1990
         (Form 10-K, August 31, 1996 - Exhibit 10(c)).

10(i)1*+ Supplemental  Retirement Income Plan as amended July 23, 1991 (Form
         10-K, August 31, 1996 - Exhibit 10(e)).

10(j)1*+ EPS  Performance  Unit Plan dated October 27, 1992 (Form 10-K,  August
          31, 1996 - Exhibit 10(a)).

12       Statement Re Computation of Ratios
12(a)    PSCo  Computation  of Ratio of  Consolidated  Earnings to  Consolidated
         Fixed Charges is set forth at page 125 herein.

12(b)    SPS Computation of Ratio of Consolidated Earnings to Consolidated Fixed
         Charges is set forth at page 126 herein.

21       Subsidiaries of the Registrants

23(a)    Consent of Arthur Andersen LLP is set forth at page 136 herein.

23(b)    Consent of Deloitte & Touche LLP is set forth at page 137 herein.

24       Power of Attorney is set forth at page 137 herein.

27       Financial Data Schedule UT
27(a)    Financial Data Schedule for NCE as of December 31, 1998

27(b)    Financial Data Schedule for PSCo as of December 31, 1998

27(c)    Financial Data Schedule for SPS as of December 31, 1998
--------------

*   Previously filed as indicated and incorporated herein by reference.
+   Management contracts of compensatory plans or arrangements.


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