<PAGE>   1
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

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

                                   FORM 10-Q

          [x]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
 
                                   -- OR --

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

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

                            TEXAS UTILITIES COMPANY


      A Texas Corporation                         I.R.S. Employer Identification
Commission File Number 1-3591                             No. 75-0705930


              ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201
                                 (214) 812-4600


                        TEXAS UTILITIES ELECTRIC COMPANY


      A Texas Corporation                         I.R.S. Employer Identification
Commission File Number 0-11442                            No. 75-1837355


              ENERGY PLAZA, 1601 BRYAN STREET, DALLAS, TEXAS 75201
                                 (214) 812-4600

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

Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.  
Yes   X         No         
   ---------      --------


COMMON STOCK OUTSTANDING AT OCTOBER 31, 1996:
Texas Utilities Company: 224,602,557 shares, without par value.
Texas Utilities Electric Company: 156,800,000 shares, without par value.

THIS COMBINED FORM 10-Q IS FILED SEPARATELY BY TEXAS UTILITIES COMPANY AND
TEXAS UTILITIES ELECTRIC COMPANY.  INFORMATION CONTAINED HEREIN RELATING TO AN
INDIVIDUAL REGISTRANT IS FILED BY THAT REGISTRANT ON ITS OWN BEHALF EXCEPT THAT
THE INFORMATION WITH RESPECT TO TEXAS UTILITIES ELECTRIC COMPANY, OTHER THAN
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF TEXAS UTILITIES ELECTRIC
COMPANY, IS FILED BY EACH OF TEXAS UTILITIES ELECTRIC COMPANY AND TEXAS
UTILITIES COMPANY.  NEITHER TEXAS UTILITIES ELECTRIC COMPANY NOR TEXAS
UTILITIES COMPANY MAKES ANY REPRESENTATIONS AS TO INFORMATION FILED BY THE
OTHER REGISTRANT.

================================================================================
<PAGE>   2

                               TABLE OF CONTENTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION                                                                                PAGE 
                                                                                                              -----
<S>       <C>                                                                                                 <C>
           Item 1.  Financial Statements                                                                      
                                                                                                              
              TEXAS UTILITIES COMPANY AND SUBSIDIARIES                                                        
                                                                                                              
                                    Condensed Statements of Consolidated Income                               
                                    Three, Nine and Twelve Months Ended September 30, 1996 and 1995 . . . . .    3
                                                                                                              
                                    Condensed Statements of Consolidated Cash Flows                           
                                    Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . .    4
                                                                                                              
                                    Condensed Consolidated Balance Sheets                                     
                                    September 30, 1996 and December 31, 1995  . . . . . . . . . . . . . . . .    5
                                                                                                              
                                                                                                              
              TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES                                               
                                                                                                              
                                    Condensed Statements of Consolidated Income                               
                                    Three, Nine and Twelve Months Ended September 30, 1996 and 1995 . . . . .    7
                                                                                                              
                                    Condensed Statements of Consolidated Cash Flows                           
                                    Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . .    8
                                                                                                              
                                    Condensed Consolidated Balance Sheets                                     
                                    September 30, 1996 and December 31, 1995  . . . . . . . . . . . . . . . .    9
                                                                                                              
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  . . . . . . . . . . . . . . . . . . . . .   11
                                                                                                              
              INDEPENDENT ACCOUNTANTS' REPORTS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   15 
                                                                                                                   
                                                                                                                   
           Item 2.  Management's Discussion and Analysis of Financial Condition and Results of                     
                    Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   17 
                                                                                                                   
                                                                                                                   
                                                                                                                   
PART II.   OTHER INFORMATION                                                                                       
                                                                                                                   
           Item 6. Exhibits and Reports on Form 8-K   . . . . . . . . . . . . . . . . . . . . . . . . . . . .   21 
                                                                                                                   
                                                                                                                   
SIGNATURES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   22 
</TABLE>    
            
            
            


                                       2
<PAGE>   3
                        PART I. FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS.

                   TEXAS UTILITIES COMPANY AND SUBSIDIARIES
                 CONDENSED STATEMENTS OF CONSOLIDATED INCOME
                                 (UNAUDITED)


<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED       NINE MONTHS ENDED     TWELVE MONTHS ENDED
                                                                SEPTEMBER 30,           SEPTEMBER 30,           SEPTEMBER 30,
                                                           ----------------------  ----------------------  ----------------------
                                                              1996        1995        1996        1995        1996        1995
                                                              ----        ----        ----        ----        ----        ----
                                                                                      THOUSANDS OF DOLLARS              
<S>                                                        <C>        <C>         <C>          <C>          <C>         <C>        
OPERATING REVENUES ....................................... $1,930,097  $1,775,669  $5,085,310  $4,373,932  $6,350,066  $5,594,620 
                                                           ----------  ----------  ----------  ----------  ----------  ---------- 
                                                                                                                                  
OPERATING EXPENSES                                                                                                                
   Fuel and purchased power ..............................    600,681     490,817   1,637,132   1,273,686   2,004,436   1,646,642 
   Operation and maintenance .............................    301,304     275,451     900,438     809,730   1,200,352   1,118,963 
   Depreciation and amortization .........................    155,664     139,778     463,417     417,937     609,299     556,081 
   Taxes other than income ...............................    128,838     126,924     390,728     396,231     531,105     540,253 
                                                           ----------  ----------  ----------  ----------  ----------  ---------- 
                                                                                                                                  
      Total operating expenses ...........................  1,186,487   1,032,970   3,391,715   2,897,584   4,345,192   3,861,939 
                                                           ----------  ----------  ----------  ----------  ----------  ---------- 
                                                                                                                                  
OPERATING INCOME .........................................    743,610     742,699   1,693,595   1,476,348   2,004,874   1,732,681 
                                                                                                                                  
                                                                                                                                  
OTHER INCOME AND (DEDUCTIONS) - NET ......................      5,570       5,207       4,778      14,283      15,078      20,785 
                                                           ----------  ----------  ----------  ----------  ----------  ---------- 
                                                                                                                                  
TOTAL INCOME .............................................    749,180     747,906   1,698,373   1,490,631   2,019,952   1,753,466 
                                                           ----------  ----------  ----------  ----------  ----------  ---------- 
                                                                                                                                  
INTEREST AND OTHER CHARGES                                                                                                        
  Interest ...............................................    193,178     172,751     610,002     526,369     789,815     701,291 
  Allowance for borrowed funds used during construction ..     (2,716)     (4,596)     (9,253)    (14,409)    (10,171)    (17,852)
  Impairment of assets ...................................       --     1,233,320        --     1,233,320        --     1,233,320 
  TU Electric obligated, mandatorily redeemable, preferred                                                                        
    securities of trusts distributions ...................      8,250        --        24,749        --        26,550        --   
  Preferred stock dividends of subsidiary ................     13,120      21,133      40,845      65,914      59,845      89,600 
                                                           ----------  ----------  ----------  ----------  ----------  ---------- 
     Total interest and other charges ....................    211,832   1,422,608     666,343   1,811,194     866,039   2,006,359 
                                                           ----------  ----------  ----------  ----------  ----------  ---------- 
                                                                                                                                  
INCOME (LOSS) BEFORE INCOME TAXES ........................    537,348    (674,702)  1,032,030    (320,563)  1,153,913    (252,893)
                                                                                                                                  
INCOME TAX EXPENSE (BENEFIT) .............................    179,365    (232,986)    345,016    (102,690)    387,671     (70,595)
                                                           ----------  ----------  ----------  ----------  ----------  ---------- 
                                                                                                                                  
CONSOLIDATED NET INCOME (LOSS) ........................... $  357,983  $ (441,716) $  687,014  $ (217,873) $  766,242  $ (182,298)
                                                           ==========  ==========  ==========  ==========  ==========  ========== 
                                                                                                                                  
Average shares of common stock outstanding (thousands) ...    224,603     225,841     225,346     225,841     225,469     225,841 
                                                                                                                                  
Earnings (loss) and dividends per share of common stock:                                                                          
   Earnings (loss) (on average shares outstanding) ....... $     1.59  $    (1.96) $     3.05  $    (0.96) $     3.40  $    (0.81)
   Dividends declared .................................... $     0.50  $     0.77  $     1.50  $     2.31  $     2.00  $     3.08 
</TABLE>       
               

    See Accompanying Notes to Condensed Consolidated Financial Statements.


                                      3

<PAGE>   4




                   TEXAS UTILITIES COMPANY AND SUBSIDIARIES
               CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
                                 (UNAUDITED)


<TABLE>
<CAPTION>

                                                                                                            NINE MONTHS ENDED
                                                                                                               SEPTEMBER 30,  
                                                                                                       -------------------------
                                                                                                          1996           1995
                                                                                                          ----           ----
                                                                                                           THOUSANDS OF DOLLARS
<S>                                                                                                    <C>            <C>         
CASH FLOWS FROM OPERATING ACTIVITIES
   Consolidated net income (loss) ..................................................................   $  687,014     $ (217,873)
   Adjustments to reconcile consolidated net income (loss) to cash provided by operating activities:                             
     Depreciation and amortization (including amounts charged to fuel) .............................      579,123        534,265 
     Deferred federal income taxes-- net ...........................................................      155,333       (250,969)
     Federal investment tax credits-- net ..........................................................      (17,504)       (17,015)
     Allowance for equity funds used during construction ...........................................       (1,292)            43 
     Impairment of assets ..........................................................................         --        1,233,320 
     Changes in operating assets and liabilities:                                                                                
       Receivables .................................................................................     (136,206)      (110,407)
       Inventories .................................................................................       19,667         29,249 
       Accounts payable ............................................................................       74,429         34,170 
       Interest and taxes accrued ..................................................................       53,861         63,961 
       Other working capital .......................................................................      (31,961)       (38,532)
       Over/(under)-recovered fuel revenue-- net of deferred taxes .................................      (41,077)        60,543 
       Other-- net .................................................................................       52,532        (16,280)
                                                                                                       ----------     ---------- 
         Cash provided by operating activities .....................................................    1,393,919      1,304,475 
                                                                                                       ----------     ---------- 
                                                                                                                                 
CASH FLOWS FROM FINANCING ACTIVITIES                                                                                             
   Issuances of securities:                                                                                                      
     First mortgage bonds ..........................................................................      244,225        333,905 
     Other long-term debt ..........................................................................      300,000        300,000 
   Retirement of long-term debt, preferred stock and common stock ..................................     (884,194)      (790,413)
   Change in notes payable .........................................................................     (227,240)      (122,089)
   Common stock dividends paid .....................................................................     (338,761)      (521,759)
   Debt premium, discount, financing and reacquisition expenses ....................................      (41,532)       (67,890)
                                                                                                       ----------     ---------- 
         Cash used in financing activities .........................................................     (947,502)      (868,246)
                                                                                                       ----------     ---------- 
                                                                                                                                 
CASH FLOWS FROM INVESTING ACTIVITIES                                                                                             
   Construction expenditures .......................................................................     (321,365)      (307,254)
   Allowance for equity funds used during construction (excluding amount for nuclear fuel) .........          719            (43)
   Change in construction receivables/payables-- net ...............................................          994           (317)
   Non-utility property-- net ......................................................................       (6,431)       (66,260)
   Nuclear fuel (excluding allowance for equity funds used during construction) ....................      (50,712)       (19,886)
   Other investments ...............................................................................     (102,804)       (35,899)
                                                                                                       ----------     ---------- 
         Cash used in investing activities .........................................................     (479,599)      (429,659)
                                                                                                       ----------     ---------- 
                                                                                                                                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............................................................       43,888           --   
                                                                                                       ----------     ---------- 
                                                                                                                                 
NET CHANGE IN CASH AND CASH EQUIVALENTS ............................................................       10,706          6,570 
                                                                                                                                 
CASH AND CASH EQUIVALENTS-- BEGINNING BALANCE ......................................................       24,853          7,426 
                                                                                                       ----------     ---------- 
CASH AND CASH EQUIVALENTS-- ENDING BALANCE .........................................................   $   35,559     $   13,996 
                                                                                                       ==========     ========== 
</TABLE>




    See Accompanying Notes to Condensed Consolidated Financial Statements.

                                       


                                      4

<PAGE>   5




                   TEXAS UTILITIES COMPANY AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                                    ASSETS



<TABLE>
<CAPTION>
                                                                          SEPTEMBER 30,    DECEMBER 31,
                                                                               1996           1995
                                                                           (UNAUDITED)
                                                                          -------------    -----------  
                                                                              THOUSANDS OF DOLLARS
<S>                                                                        <C>             <C>         
UTILITY PLANT 
    In service:
     Production ........................................................   $16,730,737     $16,661,053  
     Transmission ......................................................     1,601,668       1,592,610  
     Distribution ......................................................     5,593,202       5,333,396  
     General ...........................................................       495,487         466,474  
                                                                           -----------     -----------  
       Total ...........................................................    24,421,094      24,053,533  
     Less accumulated depreciation .....................................     5,993,583       5,562,190  
                                                                           -----------     -----------  
       Utility plant in service, less accumulated depreciation .........    18,427,511      18,491,343  
    Construction work in progress ......................................       231,075         271,033  
    Nuclear fuel (net of accumulated amortization: 1996 -- $352,238,000;                                
      1995-- $295,390,000) .............................................       261,173         266,735  
    Held for future use ................................................        24,588          25,096  
                                                                           -----------     -----------  
       Utility plant, less accumulated depreciation and amortization ...    18,944,347      19,054,207  
    Less reserve for regulatory disallowances ..........................     1,308,460       1,308,460  
                                                                           -----------     -----------  
       Net utility plant ...............................................    17,635,887      17,745,747  
                                                                           -----------     -----------  
INVESTMENTS                                                                                             
    Non-utility property ...............................................       428,851         422,421  
    Other investments ..................................................       711,070         617,583  
                                                                           -----------     -----------  
       Total investments ...............................................     1,139,921       1,040,004  
                                                                           -----------     -----------  
                                                                                                        
CURRENT ASSETS                                                                                          
    Cash in banks ......................................................        35,559          24,853  
    Special deposits ...................................................         3,177          19,455  
    Accounts receivable:                                                                                
     Customers .........................................................       416,109         275,275  
     Other .............................................................        50,006          51,735  
     Allowance for uncollectible accounts ..............................        (8,397)         (5,965) 
    Inventories -- at average cost:                                                                     
     Materials and supplies ............................................       199,579         200,145  
     Fuel stock ........................................................       108,894         128,028  
    Prepayments ........................................................        80,398          55,528  
    Deferred federal income taxes ......................................        49,371          84,410  
    Other current assets ...............................................        18,186          14,924  
                                                                           -----------     -----------  
       Total current assets ............................................       952,882         848,388  
                                                                           -----------     -----------  
DEFERRED DEBITS                                                                                         
    Unamortized regulatory assets ......................................     1,870,465       1,901,310  
    Other deferred debits ..............................................        88,813          73,087  
                                                                           -----------     -----------  
       Total deferred debits ...........................................     1,959,278       1,974,397  
    Less reserve for regulatory disallowances ..........................        72,685          72,685  
                                                                           -----------     -----------  
       Net deferred debits .............................................     1,886,593       1,901,712  
                                                                           -----------     -----------  
               Total ...................................................   $21,615,283     $21,535,851  
                                                                           ===========     ===========  
</TABLE>



    See Accompanying Notes to Condensed Consolidated Financial Statements.


                                      5

<PAGE>   6




                   TEXAS UTILITIES COMPANY AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                        CAPITALIZATION AND LIABILITIES

<TABLE>
<CAPTION>
                                                                                           SEPTEMBER 30, DECEMBER 31,
                                                                                               1996         1995
                                                                                           (UNAUDITED)
                                                                                           -----------   -----------
                                                                                             THOUSANDS OF DOLLARS
<S>                                                                                        <C>           <C>      
CAPITALIZATION
  Common stock, without par value -- net:
      Authorized shares -- 500,000,000
      Outstanding shares: 1996-- 224,602,557;  1995-- 225,841,037.......................   $ 4,785,001   $ 4,806,912
  Retained earnings ....................................................................     1,252,721       924,444
  Cumulative currency translation adjustment ...........................................        40,619           397
                                                                                           -----------   -----------
         Total common stock equity .....................................................     6,078,341     5,731,753
  Preferred stock:
      Not subject to mandatory redemption ..............................................       464,427       489,695
      Subject to mandatory redemption ..................................................       250,844       263,196
  TU Electric obligated, mandatorily redeemable, preferred securities of trusts ........       381,259       381,476
  Long-term debt, less amounts due currently ...........................................     8,657,685     9,174,575
                                                                                           -----------   -----------
         Total capitalization ..........................................................    15,832,556    16,040,695
                                                                                           -----------   -----------




CURRENT LIABILITIES 
  Notes payable:
      Commercial paper .................................................................       225,000       321,990
      Banks ............................................................................       143,890       275,000
  Long-term debt due currently .........................................................       391,924        61,321
  Accounts payable .....................................................................       376,146       300,726
  Dividends declared ...................................................................       124,550       125,929
  Customers' deposits ..................................................................        81,440        76,963
  Taxes accrued ........................................................................       233,190       167,951
  Interest accrued .....................................................................       153,885       165,277
  Over-recovered fuel revenue ..........................................................        52,663       115,858
  Other current liabilities ............................................................        78,467       101,566
                                                                                           -----------   -----------
          Total current liabilities ....................................................     1,861,155     1,712,581
                                                                                           -----------   -----------

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
  Accumulated deferred federal income taxes ............................................     2,786,847     2,669,808
  Unamortized federal investment tax credits ...........................................       595,412       622,786
  Other deferred credits and noncurrent liabilities ....................................       539,313       489,981
                                                                                           -----------   -----------
          Total deferred credits and other noncurrent liabilities ......................     3,921,572     3,782,575


COMMITMENTS AND CONTINGENCIES

                                                                                           -----------   -----------
               Total ...................................................................   $21,615,283   $21,535,851
                                                                                           ===========   ===========
</TABLE>




    See Accompanying Notes to Condensed Consolidated Financial Statements.


                                      6

<PAGE>   7




              TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
                 CONDENSED STATEMENTS OF CONSOLIDATED INCOME
                                 (UNAUDITED)


<TABLE>
<CAPTION>

                                                              THREE MONTHS ENDED       NINE MONTHS ENDED      TWELVE MONTHS ENDED  
                                                                 SEPTEMBER 30,           SEPTEMBER 30,           SEPTEMBER 30,     
                                                           ----------------------   ----------------------   ---------------------- 
                                                              1996       1995          1996        1995          1996        1995 
                                                              ----       ----          ----        ----          ----        ---- 
                                                                                     THOUSANDS OF DOLLARS                        
<S>                                                        <C>         <C>          <C>         <C>          <C>         <C>        
OPERATING REVENUES ....................................... $1,787,412  $1,761,378   $4,694,520  $4,336,395   $5,918,587  $5,545,186 
                                                           ----------  ----------   ----------  ----------   ----------  ---------- 
OPERATING EXPENSES                                                                                                                
  Fuel and purchased power ...............................    553,077     508,811    1,510,370   1,325,640    1,881,821   1,715,602 
  Operation and maintenance ..............................    263,929     260,098      793,286     768,800    1,073,520   1,062,088 
  Depreciation and amortization ..........................    140,991     137,388      419,788     410,816      558,583     546,836 
  Federal income taxes ...................................    185,294     200,133      383,125     335,157      430,283     370,211 
  Taxes other than income ................................    121,851     120,781      369,605     377,803      503,847     516,073 
                                                           ----------  ----------   ----------  ----------   ----------  ---------- 
    Total operating expenses .............................  1,265,142   1,227,211    3,476,174   3,218,216    4,448,054   4,210,810 
                                                           ----------  ----------   ----------  ----------   ----------  ---------- 
                                                                                                                                  
OPERATING INCOME .........................................    522,270     534,167    1,218,346   1,118,179    1,470,533   1,334,376 
                                                           ----------  ----------   ----------  ----------   ----------  ---------- 
OTHER INCOME (LOSS)                                                                                                               
  Allowance for equity funds used during construction ....        373        --          1,272         (58)       7,988       1,534 
  Impairment of assets ...................................       --      (486,350)        --      (486,350)        --      (486,350)
  Other income and (deductions)-- net ....................      6,272       3,213        1,362       8,255        1,732      11,091 
  Federal income taxes ...................................     (2,236)    169,047       15,183     167,455       17,090     166,527 
                                                           ----------  ----------   ----------  ----------   ----------  ---------- 
    Total other income (loss) ............................      4,409    (314,090)      17,817    (310,698)      26,810    (307,198)
                                                           ----------  ----------   ----------  ----------   ----------  ---------- 
                                                                                                                                  
TOTAL INCOME .............................................    526,679     220,077    1,236,163     807,481    1,497,343   1,027,178 
                                                           ----------  ----------   ----------  ----------   ----------  ---------- 
                                                                                                                                  
                                                                                                                                  
INTEREST AND OTHER  CHARGES                                                                                                       
  Interest on mortgage bonds .............................    122,285     128,920      369,762     401,067      495,671     538,954 
  Interest on other long-term debt .......................      6,205      12,880       22,858      34,302       32,627      42,309 
  Other interest .........................................     13,215      14,700       67,948      42,367       84,082      55,677 
  TU Electric obligated, mandatorily redeemable,                                                                                  
    preferred securities of trusts distributions .........      8,250        --         24,749        --         26,550        --   
  Allowance for borrowed funds used during construction...     (2,714)     (4,595)      (9,246)    (14,404)     (10,161)    (17,845)
                                                           ----------  ----------   ----------  ----------   ----------  ---------- 
    Total interest and other charges .....................    147,241     151,905      476,071     463,332      628,769     619,095 
                                                           ----------  ----------   ----------  ----------   ----------  ---------- 
                                                                                                                                  
                                                                                                                                  
CONSOLIDATED NET INCOME ..................................    379,438      68,172      760,092     344,149      868,574     408,083 
                                                                                                                                  
PREFERRED STOCK DIVIDENDS ................................     13,120      21,133       40,845      65,914       59,845      89,600 
                                                           ----------  ----------   ----------  ----------   ----------  ---------- 
CONSOLIDATED NET INCOME AVAILABLE FOR                                                                                             
  COMMON STOCK ........................................... $  366,318  $   47,039   $  719,247  $  278,235   $  808,729  $  318,483 
                                                           ==========  ==========   ==========  ==========   ==========  ========== 

</TABLE>
             
    See Accompanying Notes to Condensed Consolidated Financial Statements.





                                      7
<PAGE>   8




              TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
               CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
                                 (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                                   NINE  MONTHS ENDED
                                                                                                      SEPTEMBER 30,
                                                                                                -------------------------
                                                                                                   1996            1995
                                                                                                   ----            ----
                                                                                                   THOUSANDS OF DOLLARS
<S>                                                                                             <C>            <C>        
CASH FLOWS FROM OPERATING ACTIVITIES
   Consolidated net income ..................................................................   $  760,092     $  344,149 
   Adjustments to reconcile consolidated net income to cash provided by operating activities:                             
     Depreciation and amortization (including amounts charged to fuel) ......................      513,157        511,400 
     Deferred federal income taxes-- net ....................................................      125,822          8,019 
     Federal investment tax credits-- net ...................................................      (16,323)       (15,834)
     Allowance for equity funds used during construction ....................................       (1,272)            58 
     Impairment of assets ...................................................................         --          486,350 
     Changes in operating assets and liabilities:                                                                         
       Receivables ..........................................................................     (107,196)      (106,004)
       Inventories ..........................................................................        9,172          1,345 
       Accounts payable .....................................................................       55,465         (6,323)
       Interest and taxes accrued ...........................................................      119,803         50,287 
       Other working capital ................................................................      (35,257)       (29,308)
       Over/(under)-recovered fuel revenue-- net of deferred taxes ..........................      (41,077)        60,543 
       Other-- net ..........................................................................       13,355          8,873 
                                                                                                ----------     ---------- 
         Cash provided by operating activities ..............................................    1,395,741      1,313,555 
                                                                                                ----------     ---------- 
CASH FLOWS FROM FINANCING ACTIVITIES                                                                                      
   Issuances of securities:                                                                                               
     First mortgage bonds ...................................................................      244,225        333,905 
     Other long-term debt ...................................................................         --          300,000 
   Retirement of long-term debt and preferred stock .........................................     (814,695)      (771,852)
   Change in notes receivable-- affiliates ..................................................      (36,622)       (24,851)
   Change in notes payable-- commercial paper ...............................................      (96,990)      (122,089)
   Preferred stock dividends paid ...........................................................       80,645        (68,228)
   Common stock dividends paid ..............................................................     (366,912)      (540,960)
   Debt premium, discount, financing and reacquisition expenses .............................      (38,623)       (67,890)
                                                                                                ----------     ---------- 
         Cash used in financing activities ..................................................   (1,028,972)      (961,965)
                                                                                                ----------     ---------- 
                                                                                                                          
                                                                                                                          
                                                                                                                          
CASH FLOWS FROM INVESTING ACTIVITIES                                                                                      
   Construction expenditures ................................................................     (266,411)      (292,315)
   Allowance for equity funds used during construction (excluding amount for nuclear fuel) ..          699            (58)
   Change in construction receivables/payables-- net ........................................         (994)          (427)
   Non-utility property-- net ...............................................................         --               36 
   Nuclear fuel (excluding allowance for equity funds used during construction) .............      (50,712)       (19,886)
   Other investments ........................................................................      (39,306)       (32,691)
                                                                                                ----------     ---------- 
         Cash used in investing activities ..................................................     (356,724)      (345,341)
                                                                                                ----------     ---------- 
                                                                                                                          
NET CHANGE IN CASH AND CASH EQUIVALENTS .....................................................       10,045          6,249 
                                                                                                                          
CASH AND CASH EQUIVALENTS-- BEGINNING BALANCE ...............................................       22,633          6,699 
                                                                                                ----------     ---------- 
CASH AND CASH EQUIVALENTS-- ENDING BALANCE ..................................................   $   32,678     $   12,948 
                                                                                                ==========     ========== 
</TABLE>





    See Accompanying Notes to Condensed Consolidated Financial Statements.

                                       


                                      8

<PAGE>   9




              TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                                    ASSETS

<TABLE>
<CAPTION>

                                                                            SEPTEMBER 30,   DECEMBER 31,
                                                                                1996           1995
                                                                             (UNAUDITED)
                                                                            -------------   ------------
                                                                                 THOUSANDS OF DOLLARS
<S>                                                                         <C>             <C>         
ELECTRIC PLANT 
    In service:
     Production .........................................................    $15,775,829     $15,699,488
     Transmission .......................................................      1,595,375       1,586,547
     Distribution .......................................................      4,403,903       4,229,794
     General ............................................................        426,505         407,897
                                                                             -----------     -----------
       Total ............................................................     22,201,612      21,923,726
     Less accumulated depreciation ......................................      5,466,192       5,075,428
                                                                             -----------     -----------
       Electric plant in service, less accumulated depreciation .........     16,735,420      16,848,298
    Construction work in progress .......................................        193,479         236,913
    Nuclear fuel (net of accumulated amortization:  1996 -- $352,238,000;
      1995-- $295,390,000) ..............................................        261,173         266,735
    Held for future use .................................................         24,588          25,096
                                                                             -----------     -----------
       Electric plant, less accumulated depreciation and amortization ...     17,214,660      17,377,042
    Less reserve for regulatory disallowances ...........................      1,308,460       1,308,460
                                                                             -----------     -----------
       Net electric plant ...............................................     15,906,200      16,068,582
                                                                             -----------     -----------


INVESTMENTS
    Non-utility property ................................................        332,234         332,234
    Other investments ...................................................        143,194         103,888
                                                                             -----------     -----------
       Total investments ................................................        475,428         436,122
                                                                             -----------     -----------


CURRENT ASSETS
    Cash in banks .......................................................         32,678          22,633
    Special deposits ....................................................            552             527
    Notes receivable-- affiliates .......................................         38,978           2,356
    Accounts receivable:
     Customers ..........................................................        331,846         212,165
     Other ..............................................................         25,667          34,906
     Allowance for uncollectible accounts ...............................         (7,160)         (3,914)
    Inventories -- at average cost:
     Materials and supplies .............................................        179,901         179,001
     Fuel stock .........................................................         72,817          82,889
    Prepayments .........................................................         51,577          31,225
    Deferred federal income taxes .......................................         60,393          79,629
    Other current assets ................................................          2,832           1,455
                                                                             -----------     -----------
       Total current assets .............................................        790,081         642,872
                                                                             -----------     -----------


DEFERRED DEBITS
    Unamortized regulatory assets .......................................      1,851,367       1,879,369
    Other deferred debits ...............................................         59,362          49,114
                                                                             -----------     -----------
       Total deferred debits ............................................      1,910,729       1,928,483
    Less reserve for regulatory disallowances ...........................         72,685          72,685
                                                                             -----------     -----------
       Net deferred debits ..............................................      1,838,044       1,855,798
                                                                             -----------     -----------

            Total .......................................................    $19,009,753     $19,003,374
                                                                             ===========     ===========
</TABLE>


    See Accompanying Notes to Condensed Consolidated Financial Statements.





                                      9

<PAGE>   10



              TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                        CAPITALIZATION AND LIABILITIES

<TABLE>
<CAPTION>

                                                                                    SEPTEMBER 30, DECEMBER 31,
                                                                                       1996           1995
                                                                                    (UNAUDITED)
                                                                                    -----------   -----------
                                                                                      THOUSANDS OF DOLLARS
<S>                                                                                 <C>           <C>        
CAPITALIZATION 
    Common stock without par value:
      Authorized shares -- 180,000,000
      Outstanding shares-- 156,800,000 ..........................................   $ 4,732,305   $ 4,732,305
    Retained earnings ...........................................................     1,419,929     1,067,593
                                                                                    -----------   -----------
          Total common stock equity .............................................     6,152,234     5,799,898
    Preferred stock:
      Not subject to mandatory redemption .......................................       464,427       489,695
      Subject to mandatory redemption ...........................................       250,844       263,196
    TU Electric obligated, mandatorily redeemable, preferred securities of trusts       381,259       381,476
    Long-term debt, less amounts due currently ..................................     6,355,266     7,212,070
                                                                                    -----------   -----------
          Total capitalization ..................................................    13,604,030    14,146,335
                                                                                    -----------   -----------




CURRENT LIABILITIES
    Notes payable-- commercial paper ............................................       225,000       321,990
    Long-term debt due currently ................................................       374,061        43,458
    Accounts payable:
      Affiliates ................................................................       109,936       101,722
      Other .....................................................................       155,659       109,402
    Dividends declared ..........................................................       134,552        13,210
    Customers' deposits .........................................................        69,181        63,564
    Taxes accrued ...............................................................       268,219       142,364
    Interest accrued ............................................................       135,763       141,815
    Over-recovered fuel revenue .................................................        52,663       115,858
    Other current liabilities ...................................................        44,597        63,716
                                                                                    -----------   -----------
          Total current liabilities .............................................     1,569,631     1,117,099
                                                                                    -----------   -----------

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
    Accumulated deferred federal income taxes ...................................     2,963,210     2,869,049
    Unamortized federal investment tax credits ..................................       583,271       609,466
    Other deferred credits and noncurrent liabilities ...........................       289,611       261,425
                                                                                    -----------   -----------
          Total deferred credits and other noncurrent liabilities ...............     3,836,092     3,739,940


COMMITMENTS AND CONTINGENCIES

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

            Total ...............................................................   $19,009,753   $19,003,374
                                                                                    ===========   ===========
</TABLE>








    See Accompanying Notes to Condensed Consolidated Financial Statements.






                                      10
<PAGE>   11

                    TEXAS UTILITIES COMPANY AND SUBSIDIARIES
               TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.  GENERAL

THE COMPANY AND TU ELECTRIC

    Basis of Presentation -- The condensed consolidated financial statements of
Texas Utilities Company (Company) and its subsidiaries and Texas Utilities
Electric Company and its subsidiaries (TU Electric) have been prepared on the
same basis as those in the 1995 Annual Reports of the Company and TU Electric
on Form 10-K and, in the opinion of the Company or TU Electric, as the case may
be, all adjustments (constituting only normal recurring accruals) necessary to
a fair presentation of the results of operation and financial position have
been included therein.  The statements are presented pursuant to the rules and
regulations of the Securities and Exchange Commission.  Certain information and
footnote disclosures normally included in annual consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations.

    These condensed consolidated financial statements, and notes thereto,
should be considered in conjunction with the consolidated financial statements,
and the notes thereto, of the Company and TU Electric included in the 1995
Annual Reports of the Company and TU Electric on Form 10-K, and the information
under Management's Discussion and Analysis of Financial Condition and Results
of Operation herein.  The Company and TU Electric each believes that its
respective disclosures are adequate to make the information presented not
misleading.  Certain financial statement items have been reclassified to
conform to the current period presentation.

    Impairment of Assets -- In September 1995, the Company and TU Electric
recorded the impairment of several non-performing assets in accordance with 
the early adoption of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" which prescribes a methodology for assessing and measuring
impairments in the carrying value of certain assets.

    Use of Estimates -- The preparation of the Company's and TU Electric's
condensed consolidated financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions about future events that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the balance
sheet dates and the reported amounts of revenue and expense during the periods
covered by the condensed consolidated financial statements.  In the event
estimates and/or assumptions prove to be different from actual amounts,
adjustments are made to reflect more current information in subsequent periods.
No material adjustments were made to previous quarter estimates during the
current period.

THE COMPANY

    Consolidation -- The condensed consolidated financial statements include
the Company and all of its subsidiaries (System Companies):


TU Electric                                  Texas Utilities Services Inc.
Texas Utilities Australia Pty. Ltd.          Texas Utilities Properties Inc.
Southwestern Electric Service Company        Texas Utilities Communications Inc.
Texas Utilities Fuel Company                 Basic Resources Inc.
Texas Utilities Mining Company               Chaco Energy Company


    All significant intercompany items and transactions have been eliminated in
consolidation.

TU ELECTRIC

    Consolidation -- The condensed consolidated financial statements of TU
Electric include all of its subsidiaries, all of which are business trusts.
All significant intercompany items and transactions have been eliminated in
consolidation.





                                       11
<PAGE>   12
                    TEXAS UTILITIES COMPANY AND SUBSIDIARIES
               TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


2.  SHORT-TERM FINANCING

THE COMPANY AND TU ELECTRIC

    In April 1996, the Company and TU Electric entered into two new credit
agreements (Credit Agreements) with a group of commercial banks.  The Credit
Agreements, for each of which the Company pays a fee, have three facilities.
Borrowings under these facilities will be used for working capital and other
corporate purposes, including commercial paper backup.  Facility A provides for
short-term borrowings of up to $375,000,000 at a variable interest rate and
terminates  April 25, 1997.  Facility B  provides for short-term borrowings of
up to $875,000,000 at a variable interest rate and terminates April 26, 2001.
The Company's borrowings under Facilities A and B are limited to an aggregate
of $750,000,000 outstanding at any one time.  Facility C is a separate
five-year, unsecured long-term loan to the Company in the principal amount of
$300,000,000.

3.  CAPITALIZATION

THE COMPANY

COMMON STOCK

    In June 1996, the Company purchased and retired 1,238,480 shares of its
issued and outstanding common stock.

LONG-TERM DEBT

    In April 1996, the Company borrowed $300,000,000 pursuant to Facility C of
the Credit Agreements discussed in Note 2.  The proceeds were used to refinance
outstanding indebtedness of the Company.  Facility C matures April 26, 2001.
The Company may choose to use either or both of two methods of calculating a
variable interest rate for portions of the long-term loan.  At September 30, 
1996, the interest rate for the entire amount of the long-term loan was 5.89%.

TU ELECTRIC

PREFERRED STOCK

    At September 30, 1996 and December 31, 1995, TU Electric had 17,000,000
shares of preferred stock authorized by its articles of incorporation of which
7,204,379 and 7,609,103 shares were issued and outstanding, respectively.

    During the nine months ended September 30, 1996, TU Electric redeemed or
purchased 279,724 shares of preferred stock with annual dividend rates ranging
from 6.50% to 7.98%.  In addition, TU Electric redeemed 125,000 shares on May
1, 1996, and 125,000 shares on November 1, 1996, of its $9.64 Cumulative
Preferred Stock which fulfills its mandatory redemption requirements, with
respect to preferred stock, until May 1, 1997.

LONG-TERM DEBT

    In September 1996, the Brazos River Authority issued $111,215,000 aggregate
principal amount of Pollution Control Revenue Bonds due June 1, 2030
collateralized by TU Electric's First Mortgage Bonds.  In March 1996, the
Brazos River Authority, the Sabine River Authority of Texas and the Trinity
River Authority of Texas issued $133,010,000 aggregate principal amount of
Pollution Control Revenue Bonds due March 1, 2026 collateralized by TU
Electric's First Mortgage Bonds.  All such bonds have variable interest rates
and are subject to mandatory tender and remarketing from time to time.   Should
remarketing fail, in certain circumstances, the purchase of the bonds upon
tender is supported by standby bond purchase agreements.  Scheduled payments of
interest and principal at maturity or on mandatory redemption, upon the
occurrence of certain events, are supported by municipal bond insurance
policies. Interest rates on all of the bonds are currently determined daily.
At September 30, 1996, such rates ranged from 3.80% to 4.10%.





                                       12
<PAGE>   13
                    TEXAS UTILITIES COMPANY AND SUBSIDIARIES
               TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


    TU Electric redeemed, reacquired or prepaid the following long-term debt
during the nine months ended September 30, 1996:
<TABLE>
<CAPTION>
                                                                      PRINCIPAL
                                DESCRIPTION                            AMOUNT       INTEREST RATE   MATURITY
                                -----------                         ------------  ----------------  ---------
<S>                                                                 <C>           <C>               <C>
First mortgage bonds  . . . . . . . . . . . . . . . . . . . . . .   $276,595,000  7-3/8% to 10.44%  2001-2025
Taxable pollution control revenue bonds . . . . . . . . . . . . .     25,060,000   5.16% to 6.65%     2021
Pollution control revenue bonds . . . . . . . . . . . . . . . . .    169,165,000  7-3/4% to 8-1/4%    2016
Term credit agreement . . . . . . . . . . . . . . . . . . . . . .    300,000,000   5.95% to 6.09%     1997
                                                                    ------------
     Total  . . . . . . . . . . . . . . . . . . . . . . . . . . .   $770,820,000
                                                                    ============            
</TABLE>

     In October 1996, TU Electric reacquired $20,000,000 of its 7-3/8% First
Mortgage and Collateral Trust Bonds due October 1, 2025.

4.   RATE PROCEEDINGS

TU ELECTRIC

     In October 1994, TU Electric filed an application for approval by the
Public Utility Commission of Texas (PUC) of certain aspects of its Integrated
Resource Plan (IRP) for the ten-year period 1995-2004.  The IRP, developed as
an experimental pilot project in conjunction with regulatory and customer
groups, included the acquisition through a competitive bidding process of
third party-supplied demand-side management resources and renewable resources.
Hearings on this application were concluded in March 1995.  In August 1995, the
PUC remanded the case for development of a solicitation plan and to more
closely conform the TU Electric 1995 IRP to new state legislation that required
the PUC to adopt a state-wide integrated resource planning rule by September 1,
1996.  In January 1996, TU Electric filed an updated IRP with the PUC along
with a proposed plan for the solicitation of resources through a competitive
bidding process. The PUC issued its final order on TU Electric's IRP in October
1996,  making it the first plan of its kind to be approved in Texas.

5.   COMMITMENTS AND CONTINGENCIES

COOLING WATER CONTRACTS

TU ELECTRIC

     TU Electric has entered into contracts with public agencies to purchase
cooling water for use in the generation of electric energy.  In connection with
certain contracts, TU Electric has agreed, in effect, to guarantee the
principal, $32,810,000 at September 30, 1996, and interest on bonds issued to
finance the reservoirs from which the water is supplied.  The bonds mature at
various dates through 2011 and have interest rates ranging from 5-1/2% to 7%.
TU Electric is required to make periodic payments equal to such principal and
interest, including amounts assumed by a third party and reimbursed to TU
Electric.  In  addition, TU Electric is obligated to pay certain variable costs
of operating and maintaining the reservoirs.  TU Electric has assigned to a
municipality all contract rights and obligations of TU Electric in connection
with $79,865,000 remaining principal amount of bonds at September 30, 1996,
issued for similar purposes which had previously been guaranteed by TU
Electric.  TU Electric is, however, contingently liable in the unlikely event
of default by the municipality.

NUCLEAR DECOMMISSIONING AND DISPOSAL OF SPENT FUEL

TU ELECTRIC

     TU Electric has established a reserve, charged to depreciation expense and
included in accumulated depreciation, for the decommissioning of the Comanche
Peak nuclear generating station (Comanche Peak), whereby decommissioning costs
are being recovered from customers over the life of the plant and deposited in
external trust funds (included in other investments).  At September 30, 1996,
such reserve totaled $90,489,000 which includes an accrual of $13,634,000 and
$18,179,000 for the nine and twelve months ended September 30, 1996,
respectively.  As





                                       13
<PAGE>   14
                    TEXAS UTILITIES COMPANY AND SUBSIDIARIES
               TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


of September 30, 1996, the market value of deposits in the external trust for
decommissioning of Comanche Peak was $107,173,000.  Realized earnings on funds
deposited in the external trust are recognized in the reserve.  Based on a
site-specific study during 1992 using the prompt dismantlement method and
then-current dollars, decommissioning costs for Comanche Peak Unit 1, and Unit
2 and common facilities were estimated to be $255,000,000 and $344,000,000,
respectively.  Decommissioning activities are projected to begin in 2030 and
2033 for Comanche Peak Unit 1, and Unit 2 and common facilities, respectively.
TU Electric is recovering such costs based upon the 1992 study through its
rates placed in effect under Docket 11735.

     TU Electric has a contract with the United States Department of Energy for
the future disposal of spent nuclear fuel at a cost of one mill per
kilowatt-hour of Comanche Peak net generation.  The disposal fee is included in
nuclear fuel expense.

GENERAL

THE COMPANY AND TU ELECTRIC

    In addition to the above, the Company and TU Electric are involved in
various legal and administrative proceedings which, in the opinion of each,
should not have a material effect upon its financial position, results of
operation or cash flows.





                                       14
<PAGE>   15
INDEPENDENT ACCOUNTANTS' REPORT        

Texas Utilities Company:

We have reviewed the accompanying condensed consolidated balance sheet of Texas
Utilities Company and subsidiaries as of September 30, 1996, and the related
condensed statements of consolidated income for the three-month, nine-month and
twelve-month periods ended September 30, 1996 and 1995, and of consolidated
cash flows for the nine-month periods ended September 30, 1996 and 1995.  These
financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants.  A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters.  It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole.  Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Texas Utilities Company and
subsidiaries as of December 31, 1995, and the related consolidated statements
of income, retained earnings and cash flows for the year then ended (not
presented herein); and in our report dated February 29, 1996, we expressed an
unqualified opinion on those consolidated financial statements, which opinion
included an explanatory paragraph concerning Texas Utilities Company and
subsidiaries' change in accounting for the impairment of long-lived assets and
long-lived assets to be disposed of.  In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of December 31,
1995, is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.

DELOITTE & TOUCHE LLP

November 5, 1996




                                     15
<PAGE>   16
INDEPENDENT ACCOUNTANTS' REPORT

Texas Utilities Electric Company:

We have reviewed the accompanying condensed consolidated balance sheet of Texas
Utilities Electric Company and subsidiaries ( TU Electric ) as of September 30,
1996, and the related condensed statements of consolidated income for the
three-month, nine-month and twelve-month periods ended September 30, 1996 and
1995, and of consolidated cash flows for the nine-month periods ended September
30, 1996 and 1995. These financial statements are the responsibility of TU
Electric s management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants.  A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters.  It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole.  Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of TU Electric and subsidiaries as of
December 31, 1995, and the related consolidated statements of income, retained
earnings and cash flows for the year then ended (not presented herein); and in
our report dated February 29, 1996, we expressed an unqualified opinion on
those consolidated financial statements, which opinion included an explanatory
paragraph concerning TU Electric and subsidiaries  change in accounting for the
impairment of long-lived assets and long-lived assets to be disposed of.  In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1995, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.



DELOITTE & TOUCHE LLP

November 5, 1996





                                     16
<PAGE>   17
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATION


    This report and other presentations made by Texas Utilities Company
(Company) or Texas Utilities Electric Company and its subsidiaries (TU
Electric) contain forward looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended.  Although the Company and
TU Electric each believes that in making any such statement its expectations
are based on reasonable assumptions, any such statement is qualified in its
entirety by reference to the following important factors that could cause the
actual results of the Company or TU Electric to differ materially from those
projected in such forward looking statement: (i) prevailing governmental
policies and regulatory actions, including those of the Federal Energy
Regulatory Commission, the Public Utility Commission of Texas, the Nuclear
Regulatory Commission, and, in the case of the Company, the Office of the
Regulator General of Victoria, Australia, with respect to allowed rates of
return, industry and rate structure, purchased power and investment
recovery, operations of nuclear generating facilities, acquisitions and
disposal of assets and facilities, operation and construction of plant
facilities, decommissioning costs, present or prospective wholesale and retail
competition, changes in tax laws and policies and changes in and compliance
with environmental and safety laws and policies, (ii) weather conditions and
other natural phenomena, (iii) unanticipated population growth or decline, and
changes in market demand and demographic pattern, (iv) competition for retail
and wholesale customers, (v) pricing and transportation of crude oil, natural
gas and other commodities, (vi) unanticipated changes in interest rates or in
rates of inflation, (vii) unanticipated changes in operating expenses and
capital expenditures, (viii) capital market conditions, (ix) competition for
new energy development opportunities, and (x) legal and administrative
proceedings and settlements.

    Certain comparisons in this Quarterly Report on Form 10-Q have been
affected by the acquisition of Texas Utilities Australia Pty. Ltd. in December
1995.

LIQUIDITY AND CAPITAL RESOURCES

    For information concerning liquidity and capital resources, see Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operation in the Company and TU Electric Annual Reports on Form 10-K for the
year 1995.  Quarterly results presented herein are not necessarily indicative
of expectations for a full year's operations because of seasonal and other
factors, including variations in maintenance and other operating expense
patterns. No significant changes or events which might affect the financial
condition of the Company and its subsidiaries (System Companies) have occurred
subsequent to year-end other than as disclosed in the reports of the Company
and TU Electric included herein .

THE COMPANY AND TU ELECTRIC

    In April 1996, the Company and TU Electric entered into two new credit
agreements (Credit Agreements) with a group of commercial banks.  The Credit
Agreements, for each of which the Company pays a fee, have three facilities.
Borrowings under these facilities will be used for working capital and other
corporate purposes, including commercial paper backup.  Facility A provides for
short-term borrowings of up to $375,000,000 at a variable interest rate and
terminates April 25, 1997.  Facility B  provides for short-term borrowings of
up to $875,000,000 at a variable interest rate and terminates April 26, 2001.
The Company's borrowings under Facilities A and B are limited to an aggregate
of $750,000,000 outstanding at any one time.  Facility C is a separate
five-year, unsecured long-term loan to the Company in the principal amount of
$300,000,000.

    In addition to the above, the Company and Texas Utilities Fuel Company have
separate arrangements for uncommitted lines of credit.  For more information
regarding short-term and long-term financings of the Company and TU Electric,
see Notes 2 and 3 to Condensed Consolidated Financial Statements.

    The System Companies expect to issue additional debt and equity securities
as needed, including (i) the possible future sale by TU Electric of up to
$350,000,000 principal amount of First Mortgage Bonds currently registered with
the Securities and Exchange Commission for offering pursuant to Rule 415 under
the Securities Act of 1933 and (ii) the possible future sale by TU Electric of
up to 250,000 shares of Cumulative Preferred Stock ($100 liquidation value)
similarly registered.  In addition, TU Electric has the ability to issue from
time to time up to $98,850,000 of First Mortgage Bonds designated as
Medium-Term Notes, Series D.





                                       17
<PAGE>   18
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATION


    In order to remain competitive, the Company and TU Electric are
aggressively managing their operating costs and capital expenditures through
streamlined business processes and are developing and implementing strategies
to address an increasingly competitive environment.  These strategies include
initiatives to improve their return on corporate assets and to maximize
shareholder value through new marketing programs, creative rate design, and new
business opportunities.  Additional initiatives under consideration include the
potential disposition or alternative utilization of existing assets and the
restructuring of strategic business units.

    While TU Electric and Southwestern Electric Service Company (SESCO) have
experienced competitive pressures in the wholesale market resulting in a small
loss of load for TU Electric since the beginning of 1993, wholesale sales
represented a relatively low percentage of TU Electric's consolidated operating
revenues for the three-, nine- and twelve-month periods ended September 30,
1996.  TU Electric and SESCO are unable to predict the extent of future
competitive developments in either the wholesale or retail markets or what
impact, if any, such developments may have on their operations.

    For other information regarding Rate Proceedings, see Note 4 to Condensed
Consolidated Financial Statements.

    Under the current regulatory environment, TU Electric and SESCO are subject
to the provisions of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" (SFAS 71).  In the
event the companies no longer meet the criteria for application of SFAS 71 due
to significant changes in regulation or competition, the companies would
discontinue the application of SFAS 71.  If a portion of either company's
operations continues to meet the criteria for application of SFAS 71, only that
portion would be subject to SFAS 71 treatment.  Should significant changes in
regulation or competition occur, TU Electric and SESCO would be required to
assess the recoverability of other assets, including plant, and, if impaired,
to write down the assets to reflect their fair market value.  Neither TU
Electric nor SESCO can predict whether or to what extent changes in the
business environment may occur requiring the partial or complete
discontinuation of SFAS 71 application.

THE COMPANY

    External funds of a permanent or long-term nature are obtained through the
issuance of common stock, preferred stock, preferred securities and long-term
debt by the System Companies.  The capitalization ratios of the Company and its
subsidiaries at September 30, 1996 consisted of approximately 55% long-term
debt, 2% TU Electric obligated, mandatorily redeemable, preferred securities of
trusts, 5% preferred stock and 38% common stock equity.

    To date in 1996, the System Companies redeemed, reacquired or made
principal payments of $916,426,000 (including $846,927,000 for TU Electric) on
long-term debt, preferred stock and common stock, including the Company's June
1996 purchase and retirement of 1,238,480 shares of its issued and outstanding
common stock.

    In April 1996, the Company borrowed $300,000,000 pursuant to Facility C of
the Credit Agreements previously discussed.  The proceeds were used to
refinance outstanding indebtedness of the Company.  Facility C matures April
26, 2001.  The Company may choose to use either or both of two methods of
calculating a variable interest rate for portions of the long-term loan.  The
current interest rate for the entire amount of the long-term loan is 5.83%.

    In April 1996, the Company announced that it had entered into a merger
agreement with Dallas-based ENSERCH Corporation (ENSERCH).  Under the terms of
the agreement, Lone Star Gas Company (Lone Star Gas) and Lone Star Pipeline
Company (Lone Star Pipeline), the local distribution and pipeline divisions of
ENSERCH, and other businesses, excluding Enserch Exploration Inc. (EEX), a
subsidiary of ENSERCH, will be acquired by a new holding company, to be named
Texas Utilities Company, which will own all of the common stock of ENSERCH and
the Company.  Shares of the Company's common stock will be automatically
converted into shares of the new holding company common stock on a one-for-one
basis in a tax-free transaction.  Lone Star Gas is one of the largest gas
distribution companies in the United States and the largest in Texas, serving
over 1.3 million customers and providing





                                       18
<PAGE>   19

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


service through over 23,500 miles of distribution mains.  Lone Star Pipeline
has one of the largest pipelines in the United States and consists of 9,200
miles of gathering and transmission pipelines in Texas.  Also included in the
acquisition are ENSERCH's subsidiaries engaged in natural gas processing,
natural gas marketing and independent power production.  The new holding
company is expected to issue approximately $550 million of the new holding
company's common stock to ENSERCH shareholders, and approximately $1.15 billion
of ENSERCH's debt and preferred stock would remain outstanding. The transaction
is subject to certain conditions which include the approval of ENSERCH's, EEX's
and the Company's shareholders, approval by the SEC and receipt by ENSERCH of a
favorable ruling from the Internal Revenue Service (IRS).  Special meetings of
the shareholders are scheduled to be held separately on November 15, 1996, for
the purpose of approving the transaction.  In September 1996, proxy statements
were mailed to ENSERCH's, EEX's and the Company's shareholders for purposes of
voting on the proposed merger.  The Texas Railroad Commission has been notified
of the proposed transaction and has indicated no objection to it.  The
transaction is also subject to review by the Antitrust Division of the U.S.
Department of Justice.  The required waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, expired in October 1996.

TU ELECTRIC

    The capitalization ratios of TU Electric at September 30, 1996 consisted of
approximately 47% long-term debt, 3% TU Electric obligated, mandatorily
redeemable, preferred securities of trusts, 5% preferred stock and 45% common
stock equity.

    Long-term debt financings to date in 1996 by TU Electric consisted of the
issuance of pollution control revenue bonds in the amount of $133,010,000 due
2026 and $111,215,000 due 2030.  Current interest rates on such issuances range
from 2.90% to 3.10%.  Proceeds from such financings were used for the early
redemption or reacquisition of debt and for general corporate purposes.

THE COMPANY AND TU ELECTRIC

    The re-evaluation of growth expectations, the effects of inflation,
additional regulatory requirements and the availability of fuel, labor,
materials and capital may result in changes to the estimated construction costs
and dates of completion in the Company's and TU Electric's construction
programs.  Commitments in connection with the construction program are
generally revocable subject to reimbursement to manufacturers for expenditures
incurred or other cancellation penalties.

    The Company and TU Electric each plans to seek new investment opportunities
from time to time when it concludes that such investments are consistent with
its business strategies and will likely enhance the long-term returns to
shareholders.  Other than the ENSERCH acquisition discussed above, the timing
and amounts of any specific new business investment opportunities are presently
undetermined.

RESULTS OF OPERATION

THE COMPANY AND TU ELECTRIC

    For the three-, nine- and twelve-month periods ended September 30, 1996,
the Company's consolidated net income, excluding the after-tax effect of the
1995 asset impairment representing approximately $802 million ($316 million for
TU Electric), decreased approximately 1%, and increased approximately 18% and
24% as compared to the respective periods ended September 30, 1995.  For the
Company and TU Electric, from which most of consolidated earnings is derived,
the major factor affecting earnings for the three-month period was milder
weather conditions as compared to the prior period.  For the nine- and
twelve-month periods, the major factors affecting earnings were increased
customer growth and warmer weather.





                                       19
<PAGE>   20
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATION



TU ELECTRIC

    For the three-, nine- and twelve-month periods, operating revenues
increased approximately 1%, 8% and 7%, respectively.  The following table
details the factors contributing to these changes:

<TABLE>
<CAPTION>
                                                                        INCREASE (DECREASE)
                                                      -------------------------------------------------------------
                                                      THREE MONTHS ENDED   NINE MONTHS ENDED    TWELVE MONTHS ENDED
                                                      ------------------   -----------------    -------------------
                         FACTORS                                          THOUSANDS OF DOLLARS
                         -------
<S>                                                       <C>                  <C>                    <C>     
Base rate revenue (including unbilled)  . . . . . . .     $(12,398)           $178,249               $212,165
Fuel revenue and power cost recovery factor revenue .       42,269             173,634                153,191
Other revenue . . . . . . . . . . . . . . . . . . . .       (3,837)              6,242                  8,045
                                                          --------            --------               --------
   Total operating revenues . . . . . . . . . . . . .     $ 26,034            $358,125               $373,401
                                                          ========            ========               ========
</TABLE>

    Total energy sales (including unbilled energy sales) increased
approximately 1%, 7% and 6% for the three-, nine- and twelve-month periods,
respectively.  The decrease in base rate revenue for the three-month period
reflects milder weather conditions.  Increased base rate revenue for the nine-
and twelve-month periods were primarily the result of an increase in customers
and warmer weather conditions as compared to the prior periods.

    The increase in fuel revenue for all periods was primarily due to increases
in energy sales and increases in spot market gas prices.

    Fuel and purchased power expense increased approximately 9%, 14% and 10%
for the three-month, nine-month and twelve- month periods primarily due to
increased energy sales and increased spot market gas prices as compared to the
prior periods.

    Other income and (deductions) -- net increased for the three-month period
due primarily to gains on the disposition of certain properties, and decreased
for the nine- and twelve-month periods due primarily to an increase in
non-utility property expenses, offset in part, by gains on the disposition of
certain properties.

    Interest on mortgage bonds decreased as compared to the prior periods due
to reduced interest requirements resulting from the Company's refinancing
efforts, partially offset by increased interest requirements for new issues
sold.  The decrease in interest on other long-term debt for all periods was
affected  by  the prepayment of TU Electric's promissory note to Brazos
Electric Power Cooperative in October 1995.  Other interest decreased for the
three-month period due to a decrease in average short-term borrowings.  For the
nine- and twelve-month periods, other interest charges increased due to an
interest payment related to a settlement with the IRS, offset in part, by
decreased interest on average short-term borrowings.  Preferred securities of
trusts distributions resulted from the issuance, in December 1995, of TU
Electric obligated, mandatorily redeemable, preferred securities of trusts.

    For the three-, nine- and twelve-month periods, preferred stock dividends
decreased due primarily to the partial redemption of certain series.





                                       20
<PAGE>   21
                           PART II. OTHER INFORMATION
                    TEXAS UTILITIES COMPANY AND SUBSIDIARIES
               TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

  (a)     Exhibits filed as a part of Part II are:

          4(a) -  Fifty-sixth Supplemental Indenture, dated as of September 1,
                  1996, to the Texas Utilities Electric Company Mortgage and
                  Deed of Trust, dated as of December 1, 1983, between Texas
                  Utilities Electric Company  and Irving Trust Company (now The
                  Bank of New York), Trustee.

          15   -  Letters from Deloitte & Touche LLP as to unaudited interim
                  financial information
                  15(a)   Texas Utilities Company
                  15(b)   Texas Utilities Electric Company

          27   -  Financial Data Schedules
                  27(a)   Texas Utilities Company
                  27(b)   Texas Utilities Electric Company

  (b)     Reports on Form 8-K filed since June 30, 1996 are as follows:

          None





                                       21
<PAGE>   22
                                   SIGNATURE


       Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.






                                               TEXAS UTILITIES COMPANY
                                             
                                             
                                             
                                             By     /s/ Cathryn C. Hulen   
                                                -------------------------------
                                                        Cathryn C. Hulen
                                                         Controller and
                                                  Principal Accounting Officer
                                             
                                             
Date: November 5, 1996                       

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

                                   SIGNATURE


       Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.






                                             TEXAS UTILITIES ELECTRIC COMPANY
                                             
                                             
                                             
                                             By     /s/ Cathryn C. Hulen       
                                                -------------------------------
                                                        Cathryn C. Hulen       
                                                         Controller and
                                                   Principal Accounting Officer
                                             
                                             
Date: November 5, 1996                       





                                       22
<PAGE>   23

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
                                                    
EXHIBIT                                             
   NO.                    DESCRIPTION OF EXHIBIT 
-----------               -----------------------
<S>                        <C>

  4(a)           -         Fifty-sixth Supplemental Indenture, dated as of
                           September 1, 1996, to the Texas Utilities Electric
                           Company Mortgage and Deed of Trust, dated as of
                           December 1, 1983, between Texas Utilities Electric
                           Company and Irving Trust Company (now the Bank of
                           New York), Trustee

  15             -         Letters from Deloitte & Touche LLP as to unaudited
                           interim financial information
                              15(a)  Texas Utilities Company
                              15(b)  Texas Utilities Electric Company

  27             -         Financial Data Schedules
                              27(a)  Texas Utilities Company
                              27(b)  Texas Utilities Electric Company
</TABLE>