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

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 1999

                                       OR

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

                    For the Transition Period from ________ to _______

Commission               Registrant, State of Incorporation,  I.R.S. Employer
File Number              Address and Telephone Number         Identification No.
-----------              ----------------------------         ------------------
1-1443                   Central and South West Corporation       51-0007707
                         (A Delaware Corporation)
                         1616 Woodall Rodgers Freeway
                         Dallas, Texas 75202-1234
                         (214) 777-1000

0-346                    Central Power and Light Company          74-0550600
                         (A Texas Corporation)
                         539 North Carancahua Street
                         Corpus Christi, Texas 78401-2802
                         (361) 881-5300

0-343                    Public Service Company of Oklahoma       73-0410895
                         (An Oklahoma Corporation)
                         212 East 6th Street
                         Tulsa, Oklahoma 74119-1212
                         (918) 599-2000

1-3146                   Southwestern Electric Power Company      72-0323455
                         (A Delaware Corporation)
                         428 Travis Street
                         Shreveport, Louisiana 71156-0001
                         (318) 673-3000

0-340                    West Texas Utilities Company             75-0646790
                         (A Texas Corporation)
                         301 Cypress Street
                         Abilene, Texas 79601-5820
                         (915) 674-7000


<PAGE>


Securities Registered Pursuant To Section 12(B) Of The Act:
<TABLE>
<CAPTION>

                                                                                   Name of Each Exchange
Registrant                           Title of Each Class                           on Which Registered
<S>                                  <C>                                           <C>

Central and South West Corporation   Common Stock, $3.50 Par Value                 New York Stock Exchange, Inc.
                                                                                   Chicago Stock Exchange, Inc.

CPL Capital I                        8.00% Cumulative Quarterly Income Preferred   New York Stock Exchange, Inc.
                                     Securities, Series A, Liquidation Preference
                                     $25 per Preferred Security

PSO Capital I                        8.00% Trust Originated Preferred Securities   New York Stock Exchange, Inc.
                                     Series A, Liquidation Preference $25 per
                                     Preferred Security

SWEPCO Capital I                     7.875% Trust Preferred Securities, Series A,  New York Stock Exchange, Inc.
                                     Liquidation amount $25 per Preferred
                                     Security
</TABLE>

Securities Registered Pursuant To Section 12(G) Of The Act:
<TABLE>
<CAPTION>

Registrant                                      Title of Each Class
<S>                                             <C>

Central Power and Light Company                 Cumulative Preferred Stock, $100 Par Value

Public Service Company of Oklahoma              Cumulative Preferred Stock, $100 Par Value

Southwestern Electric Power Company             Cumulative Preferred Stock, $100 Par Value

West Texas Utilities Company                    Cumulative Preferred Stock, $100 Par Value
</TABLE>

      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 and (2) have been  subject to such filing
requirements for the past 90 days. Yes (X) No ( )

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

Central and South West Corporation [X], Central Power and Light Company [X],
Public Service Company of Oklahoma [X], Southwestern Electric Power Company,[X]
and West Texas Utilities Company [X]

      Aggregate  market  value of the  Common  Stock of  Central  and South West
Corporation  at March 13, 2000 held by  non-affiliates  was  approximately  $3.3
billion.  Number  of  shares  of Common  Stock  outstanding  at March 13,  2000:
212,652,493. Central and South West Corporation is the sole holder of the common
stock of Central Power and Light Company,  Public  Service  Company of Oklahoma,
Southwestern Electric Power Company and West Texas Utilities Company.

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



<PAGE>


                                        1
                                TABLE OF CONTENTS

GLOSSARY OF TERMS................................................i

FORWARD-LOOKING INFORMATION......................................v

PART I

 ITEM 1. BUSINESS ...............................................1
 ITEM 2. PROPERTIES .............................................26
 ITEM 3. LEGAL PROCEEDINGS ......................................27
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ....28

 PART II

 ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED
   STOCKHOLDER MATTERS ..........................................2-1
 ITEM 6. SELECTED FINANCIAL DATA ................................2-2
      Registrants
 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
   CONDITION AND RESULTS OF OPERATIONS ..........................2-2
   Registrants
 ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
   MARKET RISK...................................................2-2
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............2-2
   Registrants
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
   ACCOUNTING AND FINANCIAL DISCLOSURE ..........................2-155

PART III

  ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS ..3-1
  ITEM 11. EXECUTIVE COMPENSATION ...............................3-10
  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
   MANAGEMENT ...................................................3-26
  ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .......3-29

  PART IV

  ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
   ON FORM 8-K ..................................................4-1


                                       i
<PAGE>


GLOSSARY OF TERMS
The  following  abbreviations  or  acronyms  used in this Form 10-K are  defined
below:

Abbreviation or Acronym         Definition
AEP.....................American Electric Power Company, Inc.
AEP Merger .............Proposed Merger between AEP and CSW where CSW would
                        become a wholly owned subsidiary of AEP
AFUDC ..................Allowance for funds used during construction
AIP.....................Annual Incentive Plan
ALJ ....................Administrative Law Judge
Alpek ..................Alpek S.A. de C.V.
Altamira................CSW International cogeneration project in Altamira,
                        Tamaulipas, Mexico
Anglo Iron..............Anglo Iron and Metal, Inc.
APBO....................Accumulated Postretirement Benefit Obligation
Arkansas Commission ....Arkansas Public Service Commission
Bankruptcy Code.........Title 11 Of The United States Bankruptcy Code, as
                        amended
BP Amoco................BP Amoco plc
Btu ....................British thermal unit
Burlington Northern ....Burlington Northern Railroad Company
C3 Communications ......C3 Communications, Inc., Austin, Texas (formerly CSW
                        Communications, Inc.)
CAAA ...................Clean Air Act/Clean Air Act Amendments
Cajun ..................Cajun Electric Power Cooperative, Inc.
Cash Balance Plan ......CSW's tax-qualified Cash Balance Retirement Plan
CEO ....................Chief Executive Officer
CERCLA .................Comprehensive Environmental Response, Compensation and
                        Liability Act of 1980
ChoiceCom ..............CSW/ICG ChoiceCom, L.P., a terminated joint venture
                        between C3 Communications and ICG Communications, Inc.
CLECO ..................Central Louisiana Electric Company, Inc.
CPL ....................Central Power and Light Company, Corpus Christi, Texas
CPL 1997 Final Order ...Final orders received from the Texas Commission in CPL's
                        rate case Docket No. 14965, including both the order
                        received on September 10, 1997 and the revised order
                        received on October 16, 1997
CSW ....................Central and South West Corporation, Dallas, Texas
CSW Credit .............CSW Credit, Inc., Dallas, Texas
CSW Energy .............CSW Energy, Inc., Dallas, Texas
CSW Energy Services ....CSW Energy Services, Inc., Dallas, Texas
CSW International ......CSW International, Inc., Dallas, Texas
CSW Investments ........CSW Investments, an unlimited company organized in the
                        United Kingdom through which CSW International owns
                        SEEBOARD
CSW Leasing ............CSW Leasing, Inc., Dallas, Texas
CSW Services ...........Central and South West Services, Inc., Dallas, Texas and
                        Tulsa, Oklahoma
CSW System .............CSW and its subsidiaries
CSW UK Finance Company..An unlimited company organized in the United Kingdom
                        through which CSW International owns CSW Investments
CSW UK Holdings.........An unlimited  company  organized in the United Kingdom
                        through which CSW International owns CSW UK Finance
                        Company
CSW U.S. Electric
   System...............CSW and the U.S. Electric Operating Companies
DeSoto..................Parish of DeSoto, State of Louisiana pollution control
                        revenue bond issuing authority
DGEGS ..................Director General of Electricity and Gas Supply
DHMV ...................Dolet Hills Mining Venture
Diversified Electric ...CSW Energy and CSW International
DOE ....................United States Department of Energy
ECOM ...................Excess cost over market
EDC.....................Energy Delivery Company
EITF....................Emerging Issues Task Force
EITF 97-4...............Deregulation of the Pricing of Electricity - Issues
                        Related to the Application of SFAS Nos. 71 and 101
El Paso ................El Paso Electric Company
EMF ....................Electric and magnetic fields
EnerACT.................EnerACT(TM), Energy Aggregation and Control Technology
Energy Policy Act ......National Energy Policy Act of 1992
EnerShop ...............EnerShopsm Inc., Dallas, Texas
EPA ....................United States Environmental Protection Agency
EPS ....................Earnings per share of common stock
ERCOT ..................Electric Reliability Council of Texas
ERISA ..................Employee Retirement Income Security Act of 1974, as
                        amended
ESPS....................Electric Supply Pension Scheme
Exchange Act ...........Securities Exchange Act of 1934, as amended
EWG ....................Exempt Wholesale Generator
FCC.....................Federal Communications Commission
FERC ...................Federal Energy Regulatory Commission
FMB ....................First mortgage bond

                                       ii
<PAGE>


GLOSSARY OF TERMS (continued)
The  following  abbreviations  or  acronyms  used in this Form 10-K are  defined
below:

Abbreviation or Acronym          Definition
FUCO ...................Foreign utility company as defined by the Holding
                        Company Act
Guadalupe...............Guadalupe-Blanco River Authority pollution control
                        revenue bond issuing authority
HL&P ...................Houston Lighting & Power Company
Holding Company Act ....Public Utility Holding Company Act of 1935, as amended
HVdc ...................High-voltage direct-current
IPP ....................Independent power producer
IBEW ...................International Brotherhood of Electrical Workers
ISO ....................Independent system operator
ITC ....................Investment tax credit
Joint Proxy Statement...The Notice of Annual Meeting and Joint Proxy Statement
                        of American Electric Power Company, Inc. and Central and
                        South West Corporation
July 1999 SWEPCO Plan...The  amended plan of  reorganization  for Cajun filed by
                        the Members Committee and SWEPCO on July 28, 1999 with
                        the U.S. Bankruptcy Court for the Middle District of
                        Louisiana
KW .....................Kilowatt
KWH ....................Kilowatt-hour
LIBOR...................London Inter-Bank Overnight Rate
LIFO ...................Last-in first-out (inventory accounting method)
Louisiana Commission ...Louisiana Public Service Commission
LTIP ...................Amended and Restated 1992 Long-Term Incentive Plan
Matagorda ..............Matagorda County Navigation District Number One (Texas)
                        pollution control revenue bond issuing authority
Mcfs ...................Thousand cubic feet of gas
MD&A ...................Management's Discussion and Analysis of Financial
                        Condition and Results of Operations
MDEQ ...................Mississippi Department of Environmental Quality
MGP ....................Manufactured gas plant or coal gasification plant
Mirror CWIP ............Mirror construction work in progress
Mississippi Power ......Mississippi Power Company
MMbtu ..................Million Btu
MW .....................Megawatt
MWH ....................Megawatt-hour
Named Executive
  Officers..............The CEO and the four most highly compensated Executive
                        Officers, as defined by regulation
National Grid ..........National Grid Group plc
NEIL ...................Nuclear Electric Insurance Limited
NLRB ...................National Labor Relations Board
NRC ....................Nuclear Regulatory Commission
OASIS ..................Open access same time information system
OEFA....................Oklahoma Environmental Finance Authority pollution
                        control revenue bond issuing authority
OFGEM...................Office of Gas and Electricity Markets
Oklahoma Commission ....Corporation Commission of the State of Oklahoma
Oklaunion ..............Oklaunion Power Station Unit No. 1
OPEB ...................Other postretirement benefits (other than pension)
PCB ....................Polychlorinated biphenyl
PCRB....................Pollution control revenue bond
PGC.....................Power Generation Company
Phillips................Phillips Petroleum Company
PowerShare .............CSW's PowerShareSM Dividend Reinvestment and Stock
                        Purchase Plan
PRP ....................Potentially responsible party
PSO ....................Public Service Company of Oklahoma, Tulsa, Oklahoma
PSO 1997 Rate Settlement
  Agreement.............Joint stipulation agreement reached by PSO and other
                        parties to settle PSO's rate inquiry
PURPA...................Public Utility Regulatory Policies Act of 1978
QF......................Qualifying Facility as defined in PURPA
RCRA....................Federal Resource Conservation and Recovery Act of 1976
Red River...............Red River Authority of Texas pollution control revenue
                        bond issuing authority
Registrant(s) ..........CSW, CPL, PSO, SWEPCO and WTU
RESCTA .................Retail Electric Supplier Certified Territory Act
REP.....................Retail Electric Provider
Retirement Savings Plan.CSW's employee retirement savings plan
Rights Plan ............Stockholders Rights Agreement between CSW and CSW
                        Services, as Rights Agent
RTO.....................Region Transmission Organization
Sabine..................Sabine River Authority of Texas pollution control
                        revenue bond issuing authority
SAR ....................Stock Appreciation Right
SEC ....................United States Securities and Exchange Commission
SEEBOARD ...............SEEBOARD Group plc, Crawley, West Sussex, United Kingdom
SEEBOARD U.S.A..........CSW's investment in SEEBOARD consolidated and converted
                        to U.S. Generally Accepted Accounting Principles

                                      iii
<PAGE>


GLOSSARY OF TERMS (continued)
The  following  abbreviations  or  acronyms  used in this Form 10-K are  defined
below:

Abbreviation or Acronym         Definition
SERP....................Special Executive Retirement Plan
SFAS....................Statement of Financial Accounting Standards
SFAS No. 34.............Capitalization of Interest Cost
SFAS No. 52 ............Foreign Currency Translation
SFAS No. 71 ............Accounting for the Effects of Certain Types of
                        Regulation
SFAS No. 87.............Employers' Accounting for Pensions
SFAS No. 88.............Employers' Accounting for Settlements and Curtailments
                        of Defined Pension Plans and for Termination Benefits
SFAS No. 101............Regulated Enterprises - Accounting for the
                        Discontinuation of Application of SFAS No. 71
SFAS No. 106 ...........Employers' Accounting for Postretirement Benefits Other
                        than Pensions
SFAS No. 115 ...........Accounting for Certain Investments in Debt and Equity
                        Securities
SFAS No. 121............Accounting for the Impairment of Long-Lived Assets and
                        for Long-Lived Assets to Be Disposed Of
SFAS No. 123 ...........Accounting for Stock-Based Compensation
SFAS No. 130 ...........Reporting Comprehensive Income
SFAS No. 131 ...........Disclosure about Segments of an Enterprise and Related
                        Information
SFAS No. 132 ...........Employers' Disclosures about Pensions and Other
                        Postretirement Benefits
SFAS No. 133 ...........Accounting for Derivative Instruments and Hedging
                        Activities
SFAS No. 137............Deferral of the Effective Date of Statement No. 133
SPP ....................Southwest Power Pool
Siloam Springs..........City of Siloam Springs, Arkansas pollution control
                        revenue bond issuing authority
STP ....................South Texas Project nuclear electric generating station
STPNOC .................STP Nuclear Operating Company, a non-profit Texas
                        corporation, jointly owned by CPL, HL&P, City of Austin,
                        and City of San Antonio
SWEPCO .................Southwestern Electric Power Company, Shreveport,
                        Louisiana
Texas Commission .......Public Utility Commission of Texas
Texas Electric Operating
   Companies............CPL, SWEPCO and WTU
Texas Legislation.......Texas Senate Bill 7 relating to deregulation of electric
                        utility industry
Titus County............Titus County Fresh Water Supply District No. 1 pollution
                        control revenue bond issuing authority
TNRCC...................Texas Natural Resource Conservation Commission
Transok.................Transok, Inc. and subsidiaries
Trust Preferred
  Securities............Collective term for securities issued by business trusts
                        of CPL, PSO and SWEPCO classified on the balance  sheet
                        as "Certain  Subsidiary (or  CPL/PSO/SWEPCO)-obligated,
                        mandatorily  redeemable preferred securities of
                        subsidiary trusts holding solely Junior Subordinated
                        Debentures of such Subsidiaries (or CPL/PSO/SWEPCO)"
U.K. Electric...........SEEBOARD U.S.A.
Union Pacific ..........Union Pacific Railroad Company
U.S. Electric Operating Companies or
     U.S. Electric .....CPL, PSO, SWEPCO and WTU
UWUA....................Utility Workers Union of America
Vale ...................Empresa De Electricidade Vale Paranapanema SA, a
                        Brazilian Electric Distribution Company
Valero..................Valero Refining Company-Texas, Valero Refining Company
                        and Valero Energy Company
WTU ....................West Texas Utilities Company, Abilene, Texas
Yorkshire ..............Yorkshire plc, a regional electricity company in the
                        United Kingdom

                                       iv
<PAGE>


FORWARD-LOOKING INFORMATION

This  report  made by CSW and its U.S.  Electric  Operating  Companies  contains
forward-looking  statements  within the meaning of Section  21E of the  Exchange
Act. Although CSW and each of its subsidiaries  believe that their  expectations
are based on reasonable  assumptions,  any such  statements may be influenced by
factors that could cause actual outcomes and results to be materially  different
from those  projected.  Important  factors  that could cause  actual  results to
differ materially from those in the forward-looking  statements include, but are
not limited to:

-    increased competition and electric utility industry restructuring in the
     United States,
-    the  impact  of the  proposed  AEP  Merger,  including  any  regulatory
     conditions imposed on the merger or the inability to consummate the AEP
     Merger, or other merger and acquisition activity,
-    federal and state regulatory developments and changes in law which may have
     a substantial adverse impact on the value of CSW System assets,
-    the impact of general economic changes in the United States and in
     countries in which CSW either currently has made or in the future may make
     investments,
-    timing and adequacy of rate relief,
-    adverse changes in electric load and customer growth,
-    climatic changes or unexpected changes in weather patterns,
-    changing fuel prices,  generating plant and distribution facility
     performance,
-    decommissioning costs associated with nuclear generating  facilities,
-    costs associated with any year 2000 computer-related failure(s) either
     within the CSW System or supplier failures that adversely affect the CSW
     System,
-    uncertainties in foreign operations and foreign laws affecting CSW's
     investments in those countries,
-    the effects of retail competition in the natural gas and electricity
     distribution and supply businesses in the United Kingdom, and
-    the timing and success of efforts to develop domestic and international
     power  projects.

In the  non-utility  area,  the  previously  mentioned  factors  apply  and also
include, but are not limited to:

-    the ability to compete effectively in new areas, including
     telecommunications and other energy-related services, and
-    evolving federal and state regulatory legislation and policies that may
     adversely  affect  those  industries  generally  or  the  CSW  System's
     business in areas in which it operates.

                                       v
<PAGE>


PART I

ITEM 1. BUSINESS.

      CSW,  incorporated  under the laws of Delaware in 1925, is a  Dallas-based
public utility  holding  company  registered  under the Holding Company Act. CSW
owns  all of the  outstanding  shares  of  common  stock  of the  U.S.  Electric
Operating Companies, CSW Services, CSW Credit, CSW Energy, CSW International, C3
Communications,  EnerShop,  and CSW Energy Services,  and indirectly owns all of
the  outstanding  share  capital of SEEBOARD.  In addition,  CSW owns 80% of the
outstanding  shares of common stock of CSW  Leasing.  In 1999,  CSW's  operating
segments,  including its four registrants that form the U.S.  Electric  segment,
contributed the following percentages to aggregate operating revenues, operating
income and net income.



                                             U.S.     U.K.
                     CPL  PSO  SWEPCO  WTU   Electric Electric Other    Total
                     ----------------------------------------------------------
   Operating         26%  13%    17%    8%     64%     31%       5%     100%
   Revenues
   Operating         35%  15%    14%    8%     72%     23%       5%     100%
   Income
   Net Income (1)    37%  15%    18%    7%     77%     24%      (1)%    100%
      (1) Net Income before Extraordinary Items

      The  relative  contributions  of the  U.S.  Electric,  U.K.  Electric  and
Diversified  Electric  segments  and  other  non-utility   subsidiaries  to  the
aggregate operating  revenues,  operating income and net income differ from year
to year due to  variations  in weather,  fuel  costs,  timing and amount of rate
changes  and other  factors,  including  but not  limited to changes in business
conditions  and the results of non-utility  businesses.  Sales of electricity by
the U.S.  Electric  Operating  Companies  tend to increase  during warmer summer
months and, to a lesser extent,  cooler winter months,  because of higher demand
for  power.  The sale of  electricity  by the  U.K.  Electric  segment  tends to
increase  during colder winter months because of a higher demand for power.  For
additional detail related to CSW's reportable  business segments,  see ITEM 8. -
NOTE 14. BUSINESS SEGMENTS. For financial results showing CSW's seasonality, see
ITEM 8. - NOTE 19. QUARTERLY INFORMATION.

      The CSW System is subject to the jurisdiction of the SEC under the Holding
Company Act with respect to the issuance,  acquisition  and sale of  securities,
the acquisition  and sale of utility assets,  the acquisition of or any interest
in any other  business and accounting  practices,  including  certain  affiliate
transactions,  and other matters.  See RATES AND REGULATION  below,  and ITEM 7.
MD&A for additional information regarding the Holding Company Act.


PROPOSED AEP MERGER

      Background Information
      On December 22, 1997, CSW and AEP announced that their boards of directors
had  approved a  definitive  merger  agreement  for a tax-free,  stock-for-stock
transaction   creating  a  company  with  a  total  market   capitalization   of
approximately  $28 billion at that time. At December 31, 1999,  the total market
capitalization  of the combined  company would have been $19 billion ($9 billion
in equity;  $10 billion in debt).  The combined company will serve more than 4.7
million customers in 11 states and approximately 4 million customers outside the
United States.  On May 27, 1998, AEP  shareholders  approved the issuance of the
additional shares of stock required to complete the merger. On May 28, 1998, CSW
stockholders approved the merger. On December 16, 1999, the AEP merger agreement
was amended to extend the date of the  agreement to June 30,  2000,  after which
either party may terminate the agreement.


                                       1
<PAGE>

      Under the merger  agreement,  each common  share of CSW will be  converted
into 0.6 share of AEP common stock.  Based upon AEP's closing price  immediately
prior to the merger announcement, this represented a premium of 20% over the CSW
closing price, and AEP would have issued  approximately $6.6 billion in stock to
CSW  stockholders to complete the  transaction.  At December 31, 1999, AEP would
have issued  approximately $4.1 billion in stock to CSW stockholders to complete
the  transaction.  CSW plans to continue to pay  dividends  on its common  stock
until the  closing of the AEP Merger at  approximately  the same times and rates
per share as in 1999,  subject to the continuing  evaluation of CSW's  earnings,
financial condition and other factors by the CSW board of directors.

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

      AEP and CSW anticipate net savings related to the merger of  approximately
$2  billion  over a  10-year  period  from the  elimination  of  duplication  in
corporate and administrative  programs,  greater  efficiencies in operations and
business processes,  increased purchasing  efficiencies,  and the combination of
the two work forces.  AEP and CSW continue to seek  opportunities for additional
savings and anticipate significant additional savings will be achieved after the
merger.

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

      The merger agreement  contains  covenants and agreements that restrict the
manner in which the parties may operate their  respective  businesses  until the
time of closing of the merger. In particular,  without the prior written consent
of AEP,  CSW may not  engage in a number of  activities  that  could  affect its
sources  and  uses of  funds.  Pending  closing  of the  merger,  CSW's  and its
subsidiaries'  strategic investment activity,  capital expenditures and non-fuel
operating and  maintenance  expenditures  are restricted to specific agreed upon
projects or agreed upon  amounts.  In  addition,  prior to  consummation  of the
merger,  CSW and its  subsidiaries  are  restricted  from: (i) issuing shares of
common stock other than pursuant to employee benefit plans;  (ii) issuing shares
of  preferred  stock or  similar  securities  other than to  refinance  existing
obligations or to fund permitted investment or capital  expenditures;  and (iii)
incurring indebtedness other than pursuant to existing credit facilities, in the
ordinary   course  of  business  or  to  fund  permitted   projects  or  capital
expenditures.  These  restrictions  are not expected to limit the ability of CSW
and its subsidiaries to make investments and expenditures in amounts  previously
budgeted. (The foregoing statements constitute forward-looking statements within
the  meaning of Section  21E of the  Exchange  Act.  Actual  results  may differ
materially  from such  projected  information  due to changes in the  underlying
assumptions. See FORWARD-LOOKING INFORMATION).

      Merger Regulatory Approval
      The merger is  conditioned,  among  other  things,  upon the  approval  of
several state and federal regulatory agencies. In order to be closed, the merger
must satisfy many conditions,  including the condition that it must be accounted
for as a  pooling  of  interests.  The  parties  may not  waive  some  of  these
conditions.  AEP and CSW  have  initiated  the  process  of  seeking  regulatory
approvals,  but there can be no assurance  as to when,  on what terms or whether
the required approvals will be received.  The proposed AEP Merger has a targeted
completion  date  in the  second  quarter  of  2000.  However,  there  can be no
assurance that the AEP Merger will be consummated.

      See ITEM 7. MD&A and ITEM 8. - NOTE 15. PROPOSED AEP MERGER.


                                       2
<PAGE>


U.S. ELECTRIC

      The  U.S.  Electric  Operating  Companies  generate,  purchase,  transmit,
distribute and sell  electricity.  The U.S. Electric  Operating  Companies serve
approximately  1.8  million  customers  in one of the largest  combined  service
territories in the United States covering  approximately 152,000 square miles in
portions of Texas, Oklahoma,  Louisiana and Arkansas. The customer base includes
a mix of residential,  commercial and diversified industrial customers.  CPL and
WTU  operate in portions of south and  central  west  Texas,  respectively.  PSO
operates in portions of eastern and southwestern  Oklahoma,  and SWEPCO operates
in portions of northeastern Texas,  northwestern Louisiana and western Arkansas.
Information concerning each of the U.S. Electric Operating Companies for 1999 is
presented in the following table.

<TABLE>
<CAPTION>

                                             Estimated
                                Estimated     Service      Average              Rural Electric
             State and Year     Population   Territory    Number of   Municipal   Cooperatives
Registrant   Incorporation       Served     (sq. miles)   Customers   Customers      Served
      ----------------------------------------------------------------------------------------
<S>          <C>                <C>          <C>          <C>         <C>       <C>

 CPL         Texas - 1945       1,830,000     44,000       661,100        1             4
 PSO         Oklahoma - 1913    1,113,000     30,000       490,900        2             2
 SWEPCO      Delaware - 1912      942,000     25,000       421,900        3             9
 WTU         Texas - 1927         387,000     53,000       189,100        4            13
</TABLE>

      The largest cities in CPL's service  territory are Corpus Christi,  Laredo
and  McAllen.   The  economic   base  of  CPL's   service   territory   includes
manufacturing,   mining,  agricultural,   transportation  and  public  utilities
sectors. Major activities in these sectors include oil and gas extraction,  food
processing,  apparel, metal refining,  chemical and petroleum refining, plastics
and machinery  equipment.  Contracts  with  substantially  all large  industrial
customers  provide for both demand and energy charges.  Demand charges  continue
under such contracts even during periods of reduced  industrial  activity,  thus
mitigating the effect of reduced activity on operating income.

      The largest cities in PSO's service  territory are Tulsa,  Lawton,  Broken
Arrow and Bartlesville.  The economic base of PSO's service  territory  includes
petroleum products,  manufacturing and agriculture.  The principal industries in
the  territory  include  natural gas and oil  production,  oil  refining,  steel
processing,  aircraft  maintenance,  paper  manufacturing  and timber  products,
glass, chemicals, cement, plastics, aerospace manufacturing,  telecommunications
and rubber goods.

      The largest cities in SWEPCO's  service  territory are  Shreveport/Bossier
City,  Longview and Texarkana.  The economic base of SWEPCO's service  territory
includes  mining,   manufacturing,   chemical  products,   petroleum   products,
agriculture  and tourism.  The principal  industries  in the  territory  include
natural gas and oil production,  petroleum  refining,  manufacturing of pulp and
paper,  chemicals,  food processing and metal  refining.  The territory also has
several military installations, colleges and universities.

      The largest cities in WTU's service  territory are Abilene and San Angelo.
The economic base of WTU's service territory includes  agricultural  businesses,
such as the production of cattle,  sheep, goats,  cotton,  wool, mohair and feed
crops.  Significant  gains have been made in  economic  diversification  through
value added processing of these products. The natural resources of the territory
include  oil,  natural  gas,  sulfur,   gypsum  and  ceramic  clays.   Important
manufacturing and processing plants served by WTU produce  cottonseed  products,
oil products, electronic equipment,  precision and consumer metal products, meat
products,  gypsum  products and carbon fiber  products.  The territory  also has
several military installations and state correctional institutions.

      The U.S.  Electric  Operating  Companies operate on an interstate basis to
facilitate exchanges of power. PSO and WTU are interconnected through the 200 MW
North HVdc transmission interconnection located at Vernon, Texas. SWEPCO and CPL
are  interconnected  through the 600 MW East HVdc  transmission  interconnection
located at Pittsburg, Texas.


                                       3
<PAGE>

      CPL and WTU are  members of the ERCOT  power grid that  operates in Texas.
Other ERCOT members  include  Texas  Utilities  Electric  Company,  HL&P,  Texas
Municipal Power Agency, Lower Colorado River Authority, the municipal systems of
San  Antonio,  Austin  and  Brownsville,  the South  Texas and  Medina  Electric
Cooperatives, and several other interconnected systems and cooperatives. PSO and
SWEPCO  are  members  of the SPP power  grid  that  includes  12  investor-owned
utilities,  7  municipalities,  7  cooperatives,  3 state agencies and 1 federal
agency as well as IPPs and power marketers  operating in the states of Arkansas,
Kansas, Louisiana,  Oklahoma and parts of Mississippi,  Missouri, New Mexico and
Texas.  ERCOT members  interchange  power and energy with one another on a firm,
economy and emergency basis, as do the members of the SPP.

      CSW Services performs,  at cost,  various  accounting,  engineering,  tax,
legal, financial,  electronic data processing,  centralized economic dispatching
of electric power and other services for the CSW System,  primarily for the U.S.
Electric  Operating  Companies.   The  U.S.  Electric  Operating  Companies  are
functionally  organized  into  power  generation,  energy  delivery  and  energy
services business units, which are centrally managed by CSW Services. Currently,
CSW is developing  management  information systems to report segment information
along these business lines. See RECENT  DEVELOPMENTS AND TRENDS - Texas Business
Separation  Plan  for  an  explanation of  CSW's  future plans to  unbundle  its
vertically integrated electric services.


U.K. ELECTRIC

      SEEBOARD  is one of the 12  regional  electricity  companies  formed  as a
result of the restructuring  and subsequent  privatization of the United Kingdom
electricity industry in 1990. CSW acquired indirect control of SEEBOARD in April
1996.  SEEBOARD's  principal  businesses  are the  distribution  and  supply  of
electricity. In addition, SEEBOARD is engaged in other businesses, including gas
supply, electricity generation, and electrical contracting.

      SEEBOARD's  service  area  covers  approximately  3,000  square  miles  in
Southeast England. The service area extends from the outlying areas of London to
the English  Channel,  and  includes  large towns such as  Kingston-upon-Thames,
Croydon, Crawley, Maidstone,  Ashford and Brighton, as well as substantial rural
areas.  The area has a  population  of  approximately  4.7  million  people with
significant portions of the area, such as south London, having a high population
density.  Over the past 25 years,  the services sector of the area's economy has
grown in  importance,  while the  industrial  sector has declined.  Considerable
commercial  development  has  occurred in a number of towns in the area over the
last ten years,  in  particular  in the areas  around  Gatwick  Airport  and the
English Channel ports.

      In 1998,  the  electricity  market in the U.K.  began a phased  opening of
competition, allowing domestic and small business customers in selected areas to
choose their electric  suppliers.  During 1999,  competition was extended to the
entire country.  SEEBOARD became one of the first regional electricity companies
to compete in the open  marketplace,  with part of its service area being opened
to  competition  in October 1998.  SEEBOARD is actively  competing to retain its
existing customers and win new customers in other regions.

      In a joint  venture,  SEEBOARD  Powerlink won a 30-year  contract for $1.6
billion  to  operate,   maintain,  finance  and  renew  the  high-voltage  power
distribution  network of the London Underground,  the largest  metropolitan rail
system in the world.  SEEBOARD  Powerlink will be responsible  for  distributing
high voltage  electricity supply to all 270 London  Underground  stations and to
some 250 miles of the rail system's track.  SEEBOARD's partners in the Powerlink
consortium   are  an   international   electrical   engineering   group  and  an
international cable and construction group.

      On June 30, 1999,  SEEBOARD  purchased the 50% interest in Beacon Gas held
by BP Amoco. Beacon Gas was a joint venture between SEEBOARD and BP Amoco set up
for the supply of gas.


                                       4
<PAGE>

      See RATES AND  REGULATION - U.K.  ELECTRIC and ITEM 8. NOTE 2.  LITIGATION
AND  REGULATORY  PROCEEDINGS  -  Regulatory  Price  Proposal  for  SEEBOARD  for
additional  information  related to scheduled  changes in SEEBOARD's  prices and
expected effects thereof.


OTHER CSW BUSINESS OPERATIONS

      CSW continually seeks opportunities to expand its non-utility  business in
areas related to energy and energy services.  This expansion  frequently  occurs
through  strategic  domestic and international  acquisitions,  through marketing
initiatives  inside and outside of the service  territories of the U.S. Electric
Operating  Companies and through new business  investments.  Acquisitions of any
new assets, or development of any new business opportunities,  must meet defined
criteria,  including the potential to lower CSW System costs, increase long-term
efficiency and  competitiveness,  and provide an acceptable return on investment
to CSW. See ITEM 7. MD&A,  PROPOSED AEP MERGER and ITEM 8. NOTE 15. PROPOSED AEP
MERGER for information related to covenants and restrictions on certain business
activities.

      Diversified Electric

      CSW Energy
      CSW Energy  presently  owns  interests in seven  operating  power projects
totaling 1,308 MW which are located in Colorado,  Florida and Texas. In addition
to  these  projects,  CSW  Energy  has  other  projects  in  various  stages  of
development.

      CSW Energy  began  construction  in August  1998 of a 500 MW power  plant,
known as Frontera,  in the Rio Grande Valley,  near the city of Mission,  Texas.
The natural  gas-fired  facility began simple cycle  operation of 330 MW in July
1999 and is  scheduled  to  commence  combined  cycle  operation  in early 2000.
Pursuant to AEP's and CSW's stipulated agreement with several intervenors in the
state of Texas related to the AEP Merger, CSW Energy may sell 250 MW of Frontera
upon completion of the merger, subject to certain conditions.  See ITEM 7. MD&A,
PROPOSED  AEP MERGER  and ITEM 8. NOTE 15.  PROPOSED  AEP MERGER for  additional
information.

      CSW Energy  also has  entered  into an  agreement  with  Eastman  Chemical
Company to  construct  and operate a 440 MW  cogeneration  facility in Longview,
Texas.  This  facility  will  be  known  as  the  Eastex  Cogeneration  Project.
Construction  of the facility began in the fourth quarter of 1999, with expected
operation in early 2001.  CSW Energy will sell excess  electricity  generated by
the plant in the wholesale electricity market.

      In October 1999, GE Capital  Structured Finance Group purchased 50% of the
equity  ownership  of Sweeny  Cogeneration  Limited  Partnership.  CSW  Energy's
after-tax  earnings from the proceeds of the transaction were  approximately $33
million.  The  agreement  between CSW Energy and GE Capital  Structured  Finance
Group provides for additional  payments to CSW Energy subject to completion of a
planned expansion of the Sweeny cogeneration facility,  which may be operational
in the fourth quarter of 2000.

      CSW International
      CSW International  pursues investment  opportunities in EWGs and FUCOs and
currently holds investments in the United Kingdom, Mexico and South America.

      CSW  International  and its 50% partner,  Scottish  Power plc have entered
into a joint venture to construct and operate the South Coast power  project,  a
400 MW combined cycle gas turbine power station in Shoreham, United Kingdom. CSW
International has guaranteed  approximately  (pound)19 million of the (pound)190

                                       5
<PAGE>

million  construction  financing.   Both  the  guarantee  and  the  construction
financing are  denominated in pounds  sterling.  The U.S.  dollar  equivalent at
December  31, 1999 would be $31 million and $308 million  respectively,  using a
conversion  rate  of  (pound)1.00  equals  $1.62.  The  permanent  financing  is
unconditionally guaranteed by the project.  Construction of the project began in
March 1999, and commercial operation is expected to begin in late 2000.

      Through  November  1999,  CSW  International  had  purchased  a 36% equity
interest in Vale for $80 million.  In 1998, CSW International also extended $100
million of debt  convertible  into  equity in Vale.  In  December  of 1999,  CSW
International  converted  $69 million of that $100  million of debt into equity,
thereby  raising  its  equity  interest  in  Vale  to  44%.  CSW   International
anticipates converting the remaining debt to equity over the next two years. See
ITEM  7.  MD&A  -  DIVERSIFIED  ELECTRIC  -  CSW  International  for  additional
information about these investments.

      As of December 31, 1999,  CSW  International  had invested $110 million in
common stock of a Chilean electric company.

      Energy Services

      C3 Communications
      C3  Communications  has two active  business  units,  C3  Networks  and C3
Utility  Automation.  C3 Networks  offers  wholesale,  high capacity,  long-haul
regional and metropolitan fiber and collocation  services to  telecommunications
carriers and Internet service providers in Texas and Louisiana.

      C3 Networks has  approximately  1,500 miles of fiber  network in Texas and
Louisiana  and offers  collocation  services to carriers  and  Internet  service
providers through sites in Dallas,  Houston,  Austin, San Antonio,  Abilene, San
Angelo,  Corpus  Christi,  Harlingen,  Laredo,  and  McAllen,  Texas and  Tulsa,
Oklahoma.

      C3 Communications  plans to expand existing Texas and Louisiana routes and
to expand its fiber  network to  include  Oklahoma  and  Arkansas.  The  network
expansion  is expected to include  additional  sites in  Victoria,  Longview and
Bryan,  Texas;  Shreveport  and Monroe,  Louisiana;  Lawton and  Oklahoma  City,
Oklahoma and Fayetteville and Fort Smith, Arkansas. C3 Communications also plans
to add  two  additional  products  to its  offerings:  cost-effective,  reliable
wholesale Internet access and wholesale managed modem services.

      C3 Utility  Automation  services  include meter  reading,  validation  and
settlement services; automated meter reading equipment sales and leasing; energy
information   services  and   equipment   sales  and   services.   In  1999,  C3
Communications  launched  a new  energy  information  service,  PurView(TM).  In
addition, EnerACT(TM) advisory services, was transferred from EnerShop to better
align products and marketing. PurView(TM) is a service for collecting meter data
and  interactively  viewing  and  analyzing  consumption  information  over  the
Internet.  EnerACT(TM),  transferred from EnerShop, is an energy information and
advisory  service  for  multi-site  building  owners  and  managers  who want to
increase  property  value,  control  operating  expenses and prepare for utility
deregulation.  Additionally,  C3 Utility Automation shifted away from efforts to
sell  large-scale   capital  intensive   mass-market   automated  meter  reading
deployments in favor of more  distributed  methods for collecting meter data and
providing energy  information  services.  While currently  providing service for
over 90,000 direct access customers in California,  C3  Communications  plans to
leverage its  experience  providing  meter data services by expanding into eight
other  states  where  electric  restructuring  allows  competition  for metering
services.

      C3  Communications  believes that  electric  industry  restructuring  will
continue to fuel  interest in its energy  information  services.  Evaluation  of
partnerships  and  acquisitions  will also be a key  element  of  growth  for C3
Communications  in 2000. The foregoing  statement  constitutes a forward-looking
statement  within the meaning of Section 21E of the Exchange Act. Actual results

                                       6
<PAGE>

may differ  materially  from such  projected  information  due to changes in the
underlying assumptions. See FORWARD-LOOKING INFORMATION.

      EnerShop
      EnerShop's  two product  lines in 1999 were  performance  contracting  and
EnerACT(TM)   advisory   services  until  August  1999,  when   EnerACT(TM)  was
transferred to C3 Communications to better align products and marketing.

      EnerShop  continues to provide  energy  services to customers in Texas and
Louisiana that are designed to help reduce  customers'  operating  costs through
increasing  energy  efficiency  and  improving  equipment  operations.  EnerShop
utilizes  the skills of local trade  allies in offering  services  that  include
energy and facility analysis, project management,  engineering design, equipment
procurement and construction and performance monitoring.

      Business Ventures
      The CSW Services'  Business Ventures is comprised of companies that pursue
energy-related businesses. Projects include providing energy management systems,
electric  substation  automation  software and the marketing and distribution of
electric bikes and associated accessories under the TotalEV(TM) name.

      In late 1997,  CSW Energy  Services  was  launched to explore the electric
utility industry's  emerging retail supply markets as they were deregulated on a
state-by-state basis. In January 1999, CSW Energy Services announced that it was
ceasing its business as a retail electric  supplier and that it would assign its
existing electricity supply contracts to other suppliers or terminating them. In
the fourth quarter of 1999, the CSW Business  Ventures group's  investment in an
energy-related  company that provides staffing services for nuclear power plants
was transferred from PSO to CSW Energy Services.

      Other Diversified
      CSW Credit was originally formed to purchase,  without recourse,  accounts
receivable from the U.S. Electric Operating  Companies to reduce working capital
requirements. In addition, because CSW Credit's capital structure is more highly
leveraged than that of the U.S. Electric Operating Companies, CSW's overall cost
of capital is lower.  Subsequent  to its  formation,  CSW Credit's  business has
expanded to include the purchase,  without recourse, of accounts receivable from
certain  non-affiliated  utilities,  subject to  limitations  imposed by the SEC
under the Holding Company Act.

      CSW Leasing, Inc. is a  subsidiary which  is 80%  owned by CSW,  and makes
investments in leveraged leases of transportation equipment.


COMPETITION AND INDUSTRY CHALLENGES

      Competitive  forces at work in the electric utility industry are affecting
the CSW  System  and  electric  utilities  generally.  Current  legislative  and
regulatory  initiatives  are aimed at creating  greater  competition in both the
wholesale and retail markets in the future.  See ITEM 8. NOTE 2.  LITIGATION AND
REGULATORY PROCEEDINGS - Electric Utility Restructuring  Legislation for further
information.  As  competition  in the  industry  increases,  the  U.S.  Electric
Operating  Companies will have the  opportunity to seek new customers and at the
same  time  will  be  at  risk  of  losing   customers  to  other   competitors.
Additionally,  the U.S.  Electric  Operating  Companies will continue to compete
with suppliers of alternative forms of energy, such as natural gas, fuel oil and
coal,  some of which  may be  cheaper  than  electricity.  As a whole,  the U.S.
Electric  Operating  Companies believe that their prices for electricity and the
quality and  reliability of their service  currently place them in a position to
compete effectively in the marketplace.  In light of these anticipated  changes,
CSW continues to seek  opportunities to expand its business  operations that are
not regulated by state utility commissions (The foregoing statement  constitutes
a  forward-looking  statement  within the meaning of Section 21E of the Exchange

                                       7
<PAGE>

Act. Actual results may differ materially from such projected information due to
changes in the underlying assumptions. See FORWARD-LOOKING INFORMATION).

      To address the anticipated changes in the electric utility industry and to
properly align its business  operations with its non-regulated  activities,  CSW
manages its  business  operations  in five  distinct  lines of  business.  These
business  lines fall into both the regulated and  non-regulated  categories.  In
addition,  given the expected  restructuring  of the utility  industry,  certain
aspects  of  the  business  lines  will   eventually   cease  to  be  regulated.
Consequently,  CSW's  operating  structure is designed to  accommodate  both the
current business environment as well as the anticipated future environment.  The
five  business  lines are: (i) power  generation;  (ii) energy  delivery;  (iii)
energy   services;    (iv)   international    energy    operations;    and   (v)
telecommunications.  Currently, CSW is developing management information systems
to report segment information along these business lines.

      Code of Conduct Under Customer Choice
      Legislation  was enacted in Arkansas and Texas in 1999 to restructure  the
electric utility  industry in those states.  These two new laws require that the
CSW System begin to operate its utilities as separate power generation entities,
retail electric  providers and  transmission and  distribution  entities.  Power
generation  entities  and  retail  electric  providers  will  be  non-regulated;
transmission  and  distribution  entities will  continue to be regulated.  On or
before  September 1, 2000,  the Texas  operations  of each of the U.S.  Electric
Operating  Companies will separate  their  regulated and  non-regulated  utility
activities.

      The  purpose of these  laws and the  separation  they  impose is to create
financial  and  informational  firewalls  between  regulated  and  non-regulated
activities of the CSW System so that competitive sensitive information cannot be
shared by regulated and non-regulated entities.

      In order to comply with the new Texas and Arkansas laws,  the  Registrants
will follow a "code of  conduct,"  which  requires  the  non-regulated  business
activities to be separate from the regulated  activities.  Transactions  between
the   regulated   and   non-regulated   activities   will  be   subject   to  an
information-sharing  "firewall" and the  requirement  to act on an  arm's-length
basis.

      For additional  information regarding competition and industry challenges,
including legislative  initiatives at both the state and federal level, see ITEM
7. MD&A - RECENT DEVELOPMENTS AND TRENDS - Competition and Industry Challenges -
Code of  Conduct  Under  Customer  Choice  and ITEM 8.  NOTE 2.  LITIGATION  AND
REGULATORY PROCEEDINGS.


RATES AND REGULATION

      The CSW System is subject to the jurisdiction of the SEC under the Holding
Company Act with respect to the issuance of securities,  certain acquisition and
divestiture  activities,  certain affiliate  transactions and other matters. The
Holding  Company Act generally  limits the  operations  of a registered  holding
company  to that  of a  single  integrated  public  utility  system,  plus  such
additional  businesses  as are  functionally  related to such  system.  The U.S.
Electric Operating  Companies have been classified as public utilities under the
Federal Power Act. Accordingly, the FERC has jurisdiction,  in certain respects,
over their  electric  utility  facilities and operations  wholesale  rates,  and
certain other matters.  The U.S. Electric Operating Companies are subject to the
jurisdiction  of  various  state  commissions  as to  retail  rates,  accounting
matters,  standards  of service  and, in some cases,  issuances  of  securities,
certification of facilities and extensions or divisions of service  territories.
For a  discussion  of  regulation  by the various  environmental  agencies  that
applies to the CSW System, see ENVIRONMENTAL MATTERS below.

                                       8
<PAGE>

U.S. Electric

      Franchises
      The U.S. Electric Operating  Companies hold franchises to provide electric
service in various  municipalities  within their service areas. These franchises
have  varying  provisions  and  expiration  dates,  including,  in  some  cases,
termination  and buy-out  provisions.  CSW considers the  franchises of the U.S.
Electric  Operating  Companies to be adequate for the conduct of their business.
However, due to electric utility restructuring legislation,  which is phasing in
competition to retail markets in Arkansas and Texas, the U.S. Electric Operating
Companies  expect  additional  competition in their franchise areas. See ITEM 7.
MD&A - Securitization of Generation-related Regulatory Assets and Stranded Costs
and ITEM 8. NOTE 2.  LITIGATION  AND REGULATORY  PROCEEDINGS - Electric  Utility
Restructuring   Legislation  for  additional  information  on  electric  utility
restructuring.

      Texas Rates - CPL, SWEPCO and WTU
      The Texas  Commission has original  jurisdiction  over retail rates in the
unincorporated   areas  of  Texas.   The   governing   bodies  of   incorporated
municipalities  have original  jurisdiction over rates within their incorporated
limits.  Municipalities  may elect,  and some have  elected,  to surrender  this
original  jurisdiction  to  the  Texas  Commission.  The  Texas  Commission  has
appellate jurisdiction over rates set by incorporated municipalities.

      In Texas,  electric service areas are approved by the Texas Commission.  A
given tract in a  utility's  overall  service  area may be  certificated  to one
utility,  to one of several  competing  electric  cooperatives or investor owned
utilities,  to one of the competing  municipal  electric  systems,  or it may be
certificated to two or more of these entities.  The Texas Commission has changed
these certificated areas only slightly since 1976.

      Effective  with the  passage of the Texas  Legislation,  in areas in which
each  certificated  retail electric utility is providing  customer  choice,  the
Texas Commission,  if requested by a retail electric utility,  shall examine all
areas  within the  service  area of the retail  electric  utility  that are also
certificated  to one or more  other  retail  electric  utilities  and  amend the
certificates so that only one retail electric utility is certificated to provide
distribution services in any such area.

      Three parties have filed  applications at the Texas Commission  requesting
authority to provide retail  electric  service in CPL's  currently  certificated
areas.  Two of the  parties  requested  that the Texas  Commission  order CPL to
permit them to use CPL's distribution  facilities,  which management believes to
be  unlawful.  Hearings on the matter were held in  December  1999,  and a final
order is  anticipated  in the second  quarter of 2000.  A third party  sought to
operate as a distribution utility serving an economic development project,  part
of which was in CPL's  certificated  territory.  CPL and the third party entered
into a settlement agreement ending the dispute. The settlement provided that the
other party could serve the area, but would  reimburse CPL on a per KW basis for
any stranded costs to the new system.

      In a separate docket, the Texas Commission has determined that three large
naval bases,  which are  currently  served as  industrial  customers by CPL, may
qualify  as  wholesale  customers.  A second  phase of the  proceeding  has been
docketed  to  analyze  all  issues  pertinent  to the bases  being  able to take
electric  service  from  other  wholesale  providers.  Among  the  issues  to be
addressed is the extent to which the U.S. Navy would have to compensate  CPL for
costs  that may be  stranded  if the naval  facilities  were to obtain  electric
service  from  another  wholesale  provider.  The  procedural  schedule has been
suspended to allow the parties time to finalize a settlement agreement.

                                       9
<PAGE>


      Oklahoma Rates - PSO
      PSO currently is subject to the  jurisdiction  of the Oklahoma  Commission
with respect to retail prices.  Pursuant to authority granted under RESCTA,  the
Oklahoma  Commission  established  service  territorial  boundary  maps  in  all
unincorporated  areas  for  all  regulated  retail  electric  suppliers  serving
Oklahoma.  In accordance with RESCTA, a retail electric  supplier may not extend
retail electric service into the certified territory of another supplier, except
to serve its own facilities or to serve a new customer with an initial full load
of 1,000 KW or more.  RESCTA  provides  that when any  territory  certified to a
retail  electric  supplier  or  suppliers  is  annexed  and  becomes  part of an
incorporated  city or town, the  certification  becomes null and void.  However,
once established in the annexed territory,  a supplier may generally continue to
serve within the annexed area. See ITEM 7. MD&A, RECENT DEVELOPMENTS AND TRENDS.

      Arkansas and Louisiana Rates - SWEPCO
      SWEPCO is subject  to the  jurisdiction  of the  Arkansas  Commission  and
Louisiana  Commission  with  respect  to  retail  rates,  as well  as the  Texas
Commission as described  above.  See ITEM 8. NOTE 2.  LITIGATION  AND REGULATORY
PROCEEDINGS - Electric  Utility  Restructuring  Legislation  for  information on
electric utility restructuring.

      Nuclear Regulation - CPL
      Ownership  of an interest in a nuclear  generating  unit  exposes CPL and,
indirectly, CSW to regulation not common to a fossil fuel generating unit. Under
the  Atomic  Energy  Act of 1954  and the  Energy  Reorganization  Act of  1974,
operation of nuclear plants is intensively regulated by the NRC, which has broad
power to impose  licensing  and  safety-related  requirements.  Along with other
federal and state agencies, the NRC also has extensive regulations pertaining to
the  environmental  aspects of nuclear  reactors.  The NRC has the  authority to
impose fines  and/or shut down a unit until  compliance  is achieved,  depending
upon its  assessment  of a  particular  situation.  For  additional  information
regarding STP, see ITEM 7. MD&A.


U.K. Electric

      SEEBOARD Rates and Franchise Area
      The  distribution  and  supply  businesses  of  SEEBOARD  are  principally
regulated  by the  Electricity  Act of 1989 and by the  conditions  contained in
SEEBOARD's public  electricity  supply license.  The public  electricity  supply
license generally continues until at least 2025, although it may be revoked upon
25 years' prior notice after 2000. In addition,  the public  electricity  supply
license  may be revoked by the United  Kingdom's  Secretary  of State in certain
specified  circumstances.  Prior to October 1998, SEEBOARD had the sole right to
supply  substantially  all of the consumers in its authorized area, except where
demand  exceeded 100 KW.  However,  since October  1998,  on a phased-in  basis,
SEEBOARD no longer has monopoly supply rights in its franchise area. At December
31,  1999,  15% of  SEEBOARD's  domestic  customers  had elected to switch to an
alternative supplier.

      Most of the income of the distribution  business is regulated by a formula
set by the DGEGS based upon,  among other  factors,  the United  Kingdom  Retail
Price Index.  The formula  generally sets a cap on the average price per unit of
electricity distributed, with allowed annual increases based upon changes in the
United  Kingdom  Retail Price Index minus a  percentage  factor set from time to
time by the  DGEGS.  The prices  charged by  SEEBOARD  in its  franchise  supply
business are also  determined from a formula set from time to time by the DGEGS.
However, as competition  increases,  the regulatory cap is likely to be removed.
The formula  provides  for a price cap  derived  from the  forecast  electricity
purchase costs, transmission charges, distribution costs and overheads, together
with an allowed margin as determined by the DGEGS.  All holders of a second-tier
license,  including SEEBOARD, who supply electricity to non-franchise  customers
must pay  charges to the host  regional  electricity  company for the use of its
distribution network.


                                       10
<PAGE>

      In  1999,  OFGEM  completed  its  review  of price  controls  for both the
distribution and supply businesses.  Despite SEEBOARD being identified as one of
the three most efficient  electricity  suppliers,  OFGEM's final  proposals will
result in  substantial  reductions  in revenue  for the  distribution  business,
effective  from April 1, 2000,  for five years.  In addition,  supply  prices to
retail  customers  will be capped  from April 1, 2000,  for two years.  Overall,
these changes to the supply  business are viewed as broadly neutral to earnings.
A year-end study of projected SEEBOARD cash flows demonstrated that the recorded
value of goodwill was not impaired by these regulatory developments. See ITEM 8.
NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for additional information related
to the review of SEEBOARD's prices.


FUEL RECOVERY - U.S. ELECTRIC

      The  recovery of fuel costs from  retail  customers  by the U.S.  Electric
Operating Companies is subject to regulation by the state utility commissions in
the states in which they  operate.  All of the  contracts  of the U.S.  Electric
Operating  Companies  with  their  wholesale  customers  contain  FERC  approved
fuel-adjustment provisions for recovery of fuel costs.

      Texas Fuel Recovery - CPL, SWEPCO and WTU
      Electric  utilities  in Texas,  including  CPL,  SWEPCO  and WTU,  are not
allowed to make  automatic  adjustments  to  recover  changes in fuel costs from
retail  customers.  A utility  is allowed  to  recover  its known or  reasonably
predictable  fuel  costs  through a fixed  fuel  factor.  The  Texas  Commission
established  procedures whereby each utility under its jurisdiction may petition
to revise its fuel factor every six months  according  to a specified  schedule.
Fuel factors may also be revised in the case of emergencies or in a general rate
proceeding.  Fuel factors are in the nature of temporary rates and the utility's
collection of revenues by such factors is subject to adjustment at the time of a
fuel reconciliation. Under these procedures, at its semi-annual adjustment date,
a utility is required to petition  the Texas  Commission  for a surcharge  or to
make a refund when it has materially under- or over-collected its fuel costs and
projects that it will continue to materially  under- or  over-collect.  Material
under- or  over-collections  including interest are defined as variances of four
percent or more of the most recent Texas  Commission  adopted  annual  estimated
fuel cost for the  utility.  A utility  does not have to revise its fuel  factor
when  requesting a surcharge or refund.  An interim  emergency fuel factor order
must be issued by the Texas  Commission  within 30 days after such  petition  is
filed by the  utility.  Final  reconciliation  of fuel  costs is made  through a
reconciliation  proceeding,  which may  contain a maximum  of three  years and a
minimum  of one year of  reconcilable  data,  and must be filed  with the  Texas
Commission  no  later  than  six  months  after  the  end  of the  period  to be
reconciled.  In addition,  a utility must include a reconciliation of fuel costs
in any  general  rate  proceeding  regardless  of the time  since  its last fuel
reconciliation proceeding. Any fuel costs that are determined to be unreasonable
in a reconciliation proceeding are not recoverable from retail customers.

      Beginning  January  1,  2002,  fuel  costs  will not be  subject  to Texas
Commission fuel reconciliation  proceedings.  Pursuant to the Texas Legislation,
after January 1, 2002,  the date that retail  customer  choice  commences,  each
electric  utility will file a final fuel  reconciliation  for the period  ending
December 31, 2001.  These final fuel balances will be included in each company's
true-up   proceeding   in  2004.   See  ITEM  7.   MD&A  -   Securitization   of
Generation-related  Regulatory  Assets  and  Stranded  Costs and ITEM 8. NOTE 2.
LITIGATION  AND  REGULATORY   PROCEEDINGS  -  Electric   Utility   Restructuring
Legislation.

      Oklahoma Fuel Recovery - PSO
      In general,  MWH sales to PSO's retail  customers  are made at rates which
include a service level fuel cost  adjustment  factor  reflecting the difference
between  projected fuel and purchased  power costs and the fuel rate embedded in
PSO's base rates.  The factors are determined twice each year and are based upon
projected  fuel,  natural gas  transportation,  and purchased  power costs.  Any
difference  between  projected and actual costs is included in the fuel recovery
calculation  for future  periods.  Oklahoma law requires that an  examination of

                                       11
<PAGE>

PSO's retail fuel cost adjustment  factor is performed  annually by the Oklahoma
Commission, which approves the utility's embedded fuel rate per KWH.

      Arkansas and Louisiana Fuel Recovery - SWEPCO
      SWEPCO's fuel recovery  mechanisms are subject to the  jurisdiction of the
Arkansas  Commission  and  the  Louisiana  Commission.   SWEPCO's  retail  rates
currently in effect in Louisiana are adjusted  based on SWEPCO's cost of fuel in
accordance  with a fuel cost  adjustment  which is applied to each billing month
based on the second  previous  month's  average cost of fuel.  Provision for any
over- or under-recovery of fuel costs is allowed under an automatic fuel clause.

      A  new  SWEPCO  fuel  adjustment   rider,  as  approved  by  the  Arkansas
Commission,  was implemented in December 1999. Under this fuel adjustment rider,
an annual fuel cost factor is developed  each year based on the previous  year's
actual fuel cost.  This factor is then  applied to each billing  month's  sales,
which allows  SWEPCO to recover fuel costs from its  customers.  Any  difference
between  actual  fuel  cost  for the  month  and  the  revenues  collected  from
customers,  including  interest,  will be included in the  determination  of the
annual factor for the following year.

      Recoverability of Fuel Costs
      Under current  regulation,  the U.S. Electric Operating  Companies recover
all their material fuel costs from their customers.  The inability of any of the
U.S. Electric Operating Companies to recover its fuel costs under the procedures
described above could have a material  adverse effect on such company's  results
of operations and financial condition.

      See ITEM 7. MD&A and ITEM 8. NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS
for further information with respect to regulatory, rate and fuel proceedings.


FUEL SUPPLY AND PURCHASED POWER - U.S. ELECTRIC

      The U.S. Electric Operating Companies' net dependable summer rating, power
generation  capabilities  and the  type of fuel  used  are set  forth in ITEM 2.
PROPERTIES.  Information  concerning  energy sources and cost data for the years
1997 through 1999 is presented in the following  tables.  In addition,  detailed
fuel cost and consumption information for 1999 is also presented.

CSW
Source of Energy (based on MW)                     1999      1998      1997
                                                 -------------------------------
Natural Gas                                         39%       38%       36%
Coal                                                38        39        41
Lignite                                              7         8         9
Nuclear                                              7         7         7
                                                 -------------------------------
Total Generated                                     91        92        93
Purchased Power                                      9         8         7
                                                 -------------------------------
Total                                              100%      100%      100%
                                                 -------------------------------
Fuel Cost data
Average Btu per net KWH                           10,470    10,514    10,405
Cost per MMbtu                                     $1.78     $1.67     $1.83
Cost per KWH generated                            1.86(cent)1.75(cent)1.90(cent)
Cost, including purchased power, as a percentage
  of revenue                                       37.8%     37.3%     38.1%


                                       12
<PAGE>


CPL
Source of Energy (based on MW)                        1999      1998      1997
                                                 -------------------------------
Natural Gas                                            49%       51%      50%
Coal                                                   20        20       18
Nuclear                                                20        21       22
                                                 -------------------------------
Total Generated                                        89        92       90
Purchased Power                                        11         8       10
                                                 -------------------------------
Total                                                 100%      100%     100%
                                                 -------------------------------
Fuel cost data
Average Btu per net KWH                             10,637    10,563   10,386
Cost per MMbtu                                       $1.72     $1.59    $1.83
Cost per KWH generated                            1.82(cent)1.68(cent)1.90(cent)
Cost, including purchased power, as a percentage
  of revenue                                         31.8%     30.3%    32.9%

PSO
Source of Energy (based on MW)
Natural Gas                                            45%       43%      39%
Coal                                                   37        43       48
                                                 -------------------------------
Total Generated                                        82        86       87
Purchased Power                                        18        14       13
                                                 -------------------------------
Total                                                 100%      100%     100%
                                                 -------------------------------
Fuel cost data
Average Btu per net KWH                             10,298    10,272   10,264
Cost per MMbtu                                       $1.96     $1.77    $1.98
Cost per KWH generated                            2.02(cent)1.82(cent)2.03(cent)
Cost, including purchased power, as a percentage
  of revenue                                         45.9%     47.1%    46.4%

SWEPCO
Source of Energy (based on MW)
Natural Gas                                            17%       15%      12%
Coal                                                   52        51       52
Lignite                                                21        23       26
                                                 -------------------------------
Total Generated                                        90        89       90
Purchased Power                                        10        11       10
                                                 -------------------------------
Total                                                 100%      100%     100%
                                                 -------------------------------
Fuel cost data
Average Btu per net KWH                             10,380    10,544   10,554
Cost per MMbtu                                       $1.66     $1.63    $1.69
Cost per KWH generated                            1.72(cent)1.72(cent)1.79(cent)
Cost, including purchased power, as a percentage
  of revenue                                         43.2%     42.7%    43.4%


WTU
Source of Energy (based on MW)
Natural Gas                                            41%       42%      37%
Coal                                                   31        33       36
                                                  ---------------------------
Total Generated                                        72        75       73
Purchased Power                                        28        25       27
                                                 ----------------------------
Total                                                 100%      100%     100%
                                                 ----------------------------
Fuel cost data
Average Btu per net KWH                             10,599    10,828   10,275
Cost per MMbtu                                       $1.98     $1.83    $1.98
Cost per KWH generated                            2.10(cent)1.98(cent)2.03(cent)
Cost, including purchased power, as a percentage
  of revenue                                         42.0%     40.2%    42.6%


                                       13
<PAGE>

                              1999 Cost            1999 Consumption
Fuel Type                    per MMbtu                (millions)
--------------------------------------------------------------------------------
                                           MMbtus         Mcfs         Tons
CSW
Natural gas                     $2.43       296            289
Coal                             1.39       272                         16
Lignite                          1.21        57                          4
Nuclear                           .42        51
Composite                        1.78

CPL
Natural gas                     $2.34       132           129
Coal                             1.36        52                         3
Nuclear                           .42        51
Composite                        1.72

PSO
Natural gas                     $2.57        81            80
Coal                             1.20        67                         4
Composite                        1.96

SWEPCO
Natural gas                     $2.46        46            44
Coal                             1.53       127                         8
Lignite                          1.21        57                         4
Composite                        1.66

WTU
Natural gas                     $2.44        37            36
Coal                             1.29        26                         1
Composite                        1.98

      Natural Gas
      CSW Services purchased approximately 289 billion cubic feet of natural gas
during 1999 for the U.S. Electric Operating  Companies,  which ranks them as the
third largest  consumer of natural gas in the United  States.  A majority of the
gas fired electric  generation  plants are connected to at least two natural gas
pipelines,  which provides  greater access to competitive  supplies and improves
reliability. Natural gas requirements for each plant are supplied by a portfolio
of long-term and short-term gas purchase and transportation agreements which are
acquired on a competitive basis and are based on market prices.

      Coal and Lignite
      The U.S.  Electric  Operating  Companies  purchase  coal  from a number of
suppliers.   In  1999,  the  U.S.   Electric   Operating   Companies   purchased
approximately  73% of their total coal purchases under long-term  contracts with
the balance procured on the spot market. The coal for the plants comes primarily
from Wyoming and Colorado mines,  which are located between 1,000 and 1,700 rail
miles from the generating plants.

      Oklaunion - CPL, PSO and WTU
      The  jointly-owned  Oklaunion  plant  purchases  coal under a coal  supply
contract with Caballo Coal Company which accounts for  approximately  64% of the
total 1999  Oklaunion  coal  requirements  for CPL, PSO and WTU with the balance
procured  on the spot  market.  As of  December  31,  1999,  CPL's  share of the
year-end  1999 coal  inventory  at  Oklaunion  was  approximately  35,000  tons,
representing  a 46-day  supply.  PSO's  share  was  approximately  75,000  tons,

                                       14
<PAGE>

representing  a 50-day  supply.  WTU's  share was  approximately  270,000  tons,
representing a 52-day supply.

      Coleto Creek - CPL
      CPL  has a coal  supply  agreement  with  Colowyo  Coal  Company  covering
approximately  50% of the coal  requirements  of its  Coleto  Creek  plant.  The
balance of the plant's coal deliveries came from spot market purchases of Powder
River  Basin and  Colorado  coal that was  delivered  under one spot market rail
transportation agreement.  Additionally,  approximately 80,000 tons of spot coal
were purchased and transported via truck to the plant. At December 31, 1999, CPL
had   approximately   556,000  tons  of  coal  in  inventory  at  Coleto  Creek,
representing a 74-day supply.

      During 2000,  CPL intends to purchase  Powder River Basin coal on the spot
market for  approximately  50% of the Coleto Creek plant  requirements  and will
transport  such coal  pursuant  to a rail  transportation  agreement  with Union
Pacific.  The remainder of CPL's coal will be purchased  from multiple  Colorado
suppliers. This coal will also be transported by Union Pacific. Union Pacific is
currently the only rail carrier with access to the Coleto Creek plant.  In 1994,
CPL instituted a proceeding at the Interstate Commerce  Commission  requesting a
reasonable rate for the 16 miles from Victoria,  Texas to Coleto Creek. Southern
Pacific Transportation Company moved to dismiss the complaint and, in a decision
issued  December  31,  1996,  the  Surface  Transportation  Board  of  the  U.S.
Department of Transportation,  successor to the Interstate Commerce  Commission,
granted the motion.  CPL appealed this decision to the U.S. Court of Appeals for
the Eighth  Circuit.  On February  10, 1999,  the U.S.  Court of Appeals for the
Eighth  Circuit  issued a ruling  upholding the Surface  Transportation  Board's
decision in the case.  Subsequently,  the Western Coal Traffic League,  of which
CPL is a member,  appealed  the  eighth  circuit  court's  decision  to the U.S.
Supreme Court.  On October 18, 1999, the U.S.  Supreme Court denied Western Coal
Traffic League's appeal, bringing the legal proceeding to a close.

      Northeastern Station - PSO
      PSO has a long-term  contract with  Kennecott  Energy  Corporation,  which
substantially  covers the coal supply for PSO's Northeastern Station coal units.
Coal  delivery  is by unit trains from mines  located in the  Gillette,  Wyoming
vicinity,  a distance of about 1,100 rail miles from the  Northeastern  Station.
PSO  owns  sufficient  railcars  for  operation  of six  unit  trains.  Coal  is
transported to the Northeastern  Station  pursuant to a long-term  contract with
Burlington  Northern.  The plant at  Northeastern  station is also  equipped  to
accept   deliveries   from  Union  Pacific.   At  December  31,  1999,  PSO  had
approximately  851,000  tons of  coal  in  inventory  at  Northeastern  Station,
representing a 71-day supply.

      Welsh and Flint Creek - SWEPCO
      The long-term coal supply for SWEPCO's Welsh plant and its 50% owned Flint
Creek plant is provided under a contract with Cyprus Amax Minerals Company. Coal
under this contract is mined near Gillette,  Wyoming,  a distance of about 1,500
and 1,100 miles,  respectively,  from the Welsh and Flint Creek plants.  Coal is
delivered  to the plants under rail  transportation  contracts  with  Burlington
Northern and the Kansas City Southern  Railroad  Company,  which expire on dates
ranging between 2001 and 2006.  SWEPCO owns or leases,  under long-term  leases,
sufficient  railcars and spares for the operation of 15 unit trains.  SWEPCO has
supplemented  its railcar  fleet from time to time with  short-term  leases.  At
December 31, 1999,  SWEPCO had coal inventories of approximately  1,479,000 tons
at Welsh,  representing a 74-day supply, and approximately 556,000 tons at Flint
Creek,  representing  a  74-day  supply.  See  ITEM 8.  NOTE 2.  LITIGATION  AND
REGULATORY  PROCEEDINGS and NOTE 3.  COMMITMENTS AND CONTINGENT  LIABILITIES for
additional information.

      Pirkey and Dolet Hills - SWEPCO
      SWEPCO has acquired  lignite leases  covering  approximately  27,000 acres
near the Henry W. Pirkey  power  plant.  Sabine  Mining  Company is the contract
miner of these  reserves.  At December 31, 1999,  approximately  280,000 tons of
lignite were in SWEPCO's  inventory at the Pirkey  plant  representing  a 22-day
supply.  Another 25,000 acres are jointly leased in equal portions by SWEPCO and
CLECO in the Dolet Hills area of Louisiana near the Dolet Hills Power Plant. The

                                       15
<PAGE>

DHMV is the contract miner for these reserves.  At December 31, 1999, SWEPCO had
160,000 tons of lignite in inventory  at the Dolet Hills plant,  representing  a
28-day supply.  SWEPCO  believes the acreage under lease in these areas contains
sufficient  reserves  to cover  the  anticipated  lignite  requirements  for the
estimated useful lives of the lignite-fired  units. For a discussion  related to
SWEPCO Dolet Hills  litigation  see ITEM 8. NOTE 2.  LITIGATION  AND  REGULATORY
PROCEEDINGS - SWEPCO Lignite Mining Agreement Litigation.

      Nuclear Fuel - CPL
      The  supply of fuel for STP  involves  a  complex  process.  This  process
includes the  acquisition  of uranium  concentrate,  the  conversion  of uranium
concentrate to uranium hexafluoride, the enrichment of uranium hexafluoride into
the isotope U235,  the  fabrication  of the enriched  uranium into fuel rods and
incorporation  of fuel rods into fuel  assemblies.  The fuel  assemblies are the
final  product  loaded into the reactor  core.  This process  requires that fuel
decisions  be made years in advance  of the actual  need to refuel the  reactor.
Fuel requirements for STP are being handled by the STPNOC.

      Outages are necessary approximately every 18 months for refueling. Because
STP's fuel costs are significantly lower than any other CPL units, CPL's average
fuel costs are  expected to be higher  whenever a STP unit is out of service for
refueling or maintenance.

      CPL and the  other STP  participants  have  entered  into  contracts  with
suppliers for 100% of the uranium concentrate required for the operation of both
STP units through December 2002, with additional contracts to provide 54% of the
uranium concentrate needed for STP through 2004. In addition,  CPL and the other
STP  participants  have entered into  contracts  with  suppliers for 100% of the
nuclear fuel  conversion  service  required for the  operation of both STP units
through October 2001,  with additional  contracts to provide at least 40% of the
conversion  service  needed for STP  through  2005.  Enrichment  contracts  were
secured for a 30-year  period from the initial  operation of each unit.  The STP
participants  have  canceled  the  enrichment  contract for  requirements  after
October 2000. The  participants  believe that other,  lower cost options will be
available in the future.  CPL and the other STP  participants  have entered into
contracts  to provide  for 100% of  enrichment  services  from  October  2000 to
December 2004, with  additional  contracts to provide at least 40% of enrichment
services through 2006. Also, fuel fabrication  services have been contracted for
operation  through  2005 for Unit 1 and  2006 for Unit 2.  Although  CPL and the
other STP  owners  cannot  predict  the  availability  of  uranium  and  related
services,  CPL  and  the  other  STP  owners  do not  currently  expect  to have
difficulty  obtaining  uranium and related  services  required for the remaining
years of STP operation.

      The Energy Policy Act has  provisions for the recovery of a portion of the
costs associated with the  decommissioning  and  decontamination  of the gaseous
diffusion plants used in the enrichment process. These costs are being recovered
on the basis of enrichment services purchased by utilities from the DOE prior to
October 1992. The total annual assessment for all domestic  utilities is limited
to $150 million per federal fiscal year through October 2007. The STP assessment
will be approximately $2.0 million each year with CPL's share being 25.2% of the
annual STP assessment.

      The Nuclear  Waste  Policy Act of 1982,  as amended,  required  the DOE to
develop a permanent high level waste disposal  facility for the storage of spent
nuclear fuel by 1998. The DOE last  estimated  that the permanent  facility will
not be  available  until 2010.  The DOE will take  possession  of all spent fuel
generated at STP as a result of a contract CPL and other STP  participants  have
entered  into  with  the  DOE.  STP has  on-site  storage  facilities  with  the
capability to store all the spent  nuclear fuel  generated by the STP units over
their lives.  Therefore,  the DOE delay in providing the disposal  facility will
not affect the operation of the STP units. Under provisions of the Nuclear Waste
Policy Act of 1992, a one-mill per KWH assessment on  electricity  generated and
sold from nuclear reactors funds the DOE waste disposal program.

      Risks of substantial  liability  could arise from the operation of STP and
from the use, handling,  disposal and possible radioactive  emissions associated
with nuclear fuel. While CPL carries  insurance,  the  availability,  amount and

                                       16
<PAGE>

coverage  is limited and may become more  limited in the future.  The  available
insurance  may not cover all types or amounts  of loss or  expense  which may be
experienced  in  connection  with the  ownership  of STP.  See  ITEM 8.  NOTE 3.
COMMITMENTS  AND  CONTINGENT  LIABILITIES  for  information  relating to nuclear
insurance.

      Governmental Regulation
      The  price  and  availability  of each of the  foregoing  fuel  types  are
significantly affected by governmental  regulation.  Any inability in the future
to obtain adequate fuel supplies or adoption of additional  regulatory  measures
restricting the use of such fuels for the generation of electricity might affect
the U.S. Electric Operating Companies' ability to economically meet the needs of
their  customers.  Such  regulatory  measures  could  require the U.S.  Electric
Operating  Companies  to  supplement  or  replace,  prior to normal  retirement,
existing  generating  capability  with units  using other  fuels.  This would be
difficult  to  accomplish   quickly,   would  require   substantial   additional
expenditures for construction and could have a significant adverse effect on the
financial  condition  and  results of  operations  of CSW and/or any of the U.S.
Electric Operating Companies.

      The  Registrants  are unable to  predict  the  future  cost of fuel.  (The
foregoing statements constitute forward-looking statements within the meaning of
Section 21E of the Exchange Act. Actual results may differ  materially from such
projected  information  due  to  changes  in  the  underlying  assumptions.  See
FORWARD-LOOKING  INFORMATION).  See ITEM 7. MD&A and ITEM 8. NOTE 2.  LITIGATION
AND REGULATORY PROCEEDINGS for additional information concerning fuel costs.

      Power Purchases and Sales
      The  U.S.  Electric  Operating  Companies  serve  various  municipalities,
electric cooperatives and public power authorities.  The U.S. Electric Operating
Companies exchange power with various neighboring electric systems and engage in
electric  interchanges with each other. In addition,  they contract with certain
suppliers,  including power  marketers and  independent  power producers for the
purchase  or sale of  capacity,  firm  energy,  responsive  reserves  and  other
wholesale services.

      CPL - Wholesale Customers
      Certain  CPL  wholesale  customers  have given  notice of their  intent to
terminate  their  contracts when they expire in 2001 through 2004.  During 1999,
these customers represented 3% of CPL's total electric operating revenues.


ENVIRONMENTAL MATTERS

      The CSW  System is  subject to  regulation  with  respect to air and water
quality,   solid  waste  standards  and  other  environmental   matters.   These
authorities have continuing  jurisdiction in most cases to require modifications
in facilities  and  operations.  Any such changes in  environmental  statutes or
regulations could require substantial additional  expenditures to modify the CSW
System's  facilities and operations and could have a material  adverse effect on
the results of operations and financial  condition of CSW and/or any of the U.S.
Electric   Operating   Companies.   Violations  of  environmental   statutes  or
regulations   can  result  in  fines  and  other  costs.   See   FORWARD-LOOKING
INFORMATION.

      EMFs
      Research is ongoing whether  exposure to EMFs may result in adverse health
effects.  Although earlier studies  suggested some correlation  between EMFs and
adverse   health   effects,   the  research  to  date  has  not   established  a
cause-and-effect  relationship  between  EMFs and adverse  health  effects  from
electric lines.  Recently,  more  comprehensive  studies have failed to show any
correlation.  CSW  cannot  predict  the  impact on CSW or the  electric  utility
industry if further  investigations  or  proceedings  were to establish that the
present  electricity  delivery  system  is  contributing  to  increased  risk or
incidence of health problems.

                                       17
<PAGE>

      Other Environmental Matters
      From  time  to  time  the  Registrants   become  aware  of  various  other
environmental  issues or are named as  parties to various  other  legal  claims,
actions,  complaints  or other  proceedings  related to  environmental  matters.
Management  does  not  expect  disposition  of any  such  pending  environmental
proceedings  to have a material  adverse  effect on the results of operations or
financial condition of CSW and/or any of the U.S. Electric Operating Companies.

      See ITEM 7. MD&A, ITEM 8. NOTE 2. LITIGATION  AND  REGULATORY  PROCEEDINGS
and NOTE 3.  COMMITMENTS AND CONTINGENT  LIABILITIES for additional  information
relating to environmental matters.


U.S. ELECTRIC ENVIRONMENTAL MATTERS

      Air Quality
      Air  quality  standards  and  emission  limitations  are  subject  to  the
jurisdiction  of state  regulatory  authorities  in each  state in which the CSW
System  operates,  with oversight by the EPA. In accordance with  regulations of
these state authorities,  permits are required for all generating units on which
construction  is  commenced  or  which  are  substantially  modified  after  the
effective date of the applicable regulations.

      In 1990,  the U.S.  Congress  amended  the  Clean  Air  Act.  CAAA  places
restrictions   on  the  emission  of  sulfur   dioxide  from  gas-,   coal-  and
lignite-fired  generating plants.  Beginning in the year 2000, the U.S. Electric
Operating  Companies will be required to hold allowances in order to emit sulfur
dioxide.  The EPA issues allowances to owners of existing generating units based
on  historical  operating  conditions.  Based  on the CSW U.S.  Electric  System
facilities plan, CSW believes that the allowances of the U.S. Electric Operating
Companies  are  adequate to meet their needs  through  2008.  Public and private
markets are developing for trading of excess allowances.

      The CAAA also  directed the EPA to issue  regulations  governing  nitrogen
oxide emissions and requiring government studies to determine what controls,  if
any,  should be imposed on utilities to control  toxic air  emissions.  The acid
rain rules have not been released.  Accordingly, the impact of any such rules on
CSW and the U.S. Electric Operating Companies cannot be determined at this time.

      Under the CAAA rules for nitrogen  oxide control for coal units,  the U.S.
Electric  Operating  Companies have elected alternate  standards for their units
under an optional provision  regarding emission limits.  This will eliminate any
capital expenses through 2007, if the alternate standards are met.

      Texas  passed  legislation  in  1999  to  have  older  units,  which  were
grandfathered  under the CAAA, operate under permits and reduce emissions by 50%
based on 1997 emission levels. The U.S. Electric Operating Companies' compliance
cost for Texas  grandfathered  units are  estimated to be from $3 million to $10
million.  Approximately  $1.6  million  has  been  spent on  compliance  through
December 31,  1999.  The deadline for  compliance  with the  legislation  on the
grandfathered units is May 2003.

      The EPA recently promulgated  revised,  more stringent ambient air quality
standards  for ozone and  particulates.  While  these  standards  do not mandate
emission constraints or reductions for facilities such as electricity generating
power plants,  they may result in more areas being designated as  non-attainment
for these two  pollutants.  States  will be required  to develop  strategies  to
achieve  compliance in these areas,  strategies  that may include lower emission
levels for electricity  generating power plants,  possibly including  facilities
within the CSW System. The impact, if any, on CSW or the U.S. Electric Operating
Companies  cannot yet be  determined,  but the impact could be to  significantly
raise operations and maintenance costs of the U.S. Electric Operating Companies.


                                       18
<PAGE>

      At the Kyoto,  Japan  Conference on Global  Warming held in December 1997,
U.S.  representatives  agreed to a treaty which could require new limitations on
"greenhouse  gases"  from  power  plants.  CSW and the U.S.  Electric  Operating
Companies could be affected if this treaty,  in its present form, is approved by
the United  States  Congress.  The impact,  if any, on CSW or the U.S.  Electric
Operating  Companies  cannot be determined  because most of the  greenhouse  gas
emission  reduction  would  come  from coal  generation  that  would  have to be
switched  to natural  gas or  retired.  During  1999,  50% of the U.S.  Electric
Operating Companies' MWH generation and 33% of its installed generating capacity
at December 31, 1999 was coal and lignite.

      Water Quality
      Water  quality  is  subject  to the  jurisdiction  of  each  of the  state
regulatory authorities in which the U.S. Electric Operating Companies operate as
well as the  EPA.  These  authorities  have  jurisdiction  over  all  wastewater
discharges into state waters,  establish water quality standards and issue waste
control  permits  covering  discharges  which might  affect the quality of state
waters.  The EPA has  jurisdiction  over point  source  discharges  through  the
National  Pollutant  Discharge  Elimination System provisions of the Clean Water
Act.

      RCRA and CERCLA
      The RCRA and the Arkansas, Louisiana, Oklahoma and Texas solid waste rules
provide for  comprehensive  control of all solid wastes from generation to final
disposal.  The appropriate  state regulatory  authorities in the states in which
the U.S. Electric Operating  Companies operate have received  authorization from
the EPA to administer the RCRA solid waste control program for their  respective
states.

      The operations of the U.S.  Electric  Operating  Companies,  like those of
other  utility  systems,  generally  involve the use and disposal of  substances
subject to environmental  laws. CERCLA,  the federal  "Superfund" law, addresses
the cleanup of sites  contaminated by hazardous  substances.  Superfund requires
that PRPs fund  remedial  actions  regardless  of fault or the  legality of past
disposal activities. PRPs include owners and operators of contaminated sites and
transporters and/or generators of hazardous substances. Many states have similar
laws. Theoretically,  any one PRP can be held responsible for the entire cost of
a cleanup. Typically, however, cleanup costs are allocated among PRPs.

      CSW's   subsidiaries   incur   significant   costs   for   the   handling,
transportation,  storage  and  disposal of  hazardous  and  non-hazardous  waste
materials.  Unit costs for waste classified as hazardous exceed by a substantial
margin unit costs for waste classified as non-hazardous.

      The U.S.  Electric  Operating  Companies,  like other electric  utilities,
produce combustion and other generation by-products,  such as ash, sludge, slag,
low-level  radioactive waste and spent nuclear fuel. The U.S. Electric Operating
Companies own distribution poles treated with creosote or other substances.  The
EPA currently  exempts coal combustion  by-products from regulation as hazardous
wastes.  Distribution  poles treated with creosote or other  substances  are not
expected to exhibit characteristics that would cause them to be hazardous waste.
In connection with their operations,  the U.S. Electric Operating Companies also
have used  asbestos,  PCBs and  materials  classified  as  hazardous  waste.  If
additional  by-products or other materials generated or used by companies in the
CSW U.S.  Electric System were  reclassified as hazardous  wastes,  or other new
laws or regulations concerning hazardous wastes were put into effect, CSW System
disposal and remedial costs could increase materially.

      EPA Toxic Release Inventory Initiative
      Beginning July 1, 1999, the EPA requires electric  utilities to report the
amount of certain chemicals  released by coal-fired power plants under its Toxic
Release Inventory  Initiative.  The regulations  currently require nearly 30,000
facilities nationwide to report their annual emissions of certain chemicals. The
Toxic Release Inventory  Initiative  allows the public to access  information on
the types  and  quantities  of listed  chemicals  that are  released.  The Toxic
Release  Inventory  regulations  require  reports on the  amounts  of  materials
disposed of, transferred offsite, recovered and recycled.

                                       19
<PAGE>


U.K. ELECTRIC ENVIRONMENTAL MATTERS

      SEEBOARD's  operations  are subject to  regulation  with  respect to water
quality standards and other environmental  matters by various authorities within
the United Kingdom. Under certain  circumstances,  these authorities may require
modifications  to SEEBOARD's  facilities and operations  and/or impose fines and
other costs for violations of applicable statutes and regulations.  From time to
time  SEEBOARD  is made aware of various  environmental  issues or is named as a
party to various legal claims, actions,  complaints or other proceedings related
to  environmental  matters.  Management does not expect  disposition of any such
pending  environmental  proceedings  to have a material  adverse effect on CSW's
consolidated results of operations or financial condition.

OPERATING INFORMATION - CSW SYSTEM

CSW
(excludes SEEBOARD)
                                                      1999    1998      1997
                                                  ---------------------------
Kilowatt-hour sales (millions)
Residential                                         18,997  19,757    17,995
Commercial                                          15,641  15,554    14,546
Industrial                                          21,232  21,481    21,087
Other retail                                         1,936   1,906     1,705
                                                  ---------------------------
Sales to retail customers                           57,806  58,698    55,333
Sales for resale                                     8,996   8,296     7,824
                                                  ---------------------------
Total                                               66,802  66,994    63,157
                                                  ---------------------------

Average number of electric customers (thousands)
Residential                                          1,500   1,480     1,462
Commercial                                             227     218       214
Industrial                                              21      22        23
Other retail                                            15      15        13
                                                  ---------------------------
Total                                                1,763   1,735     1,712
                                                  ---------------------------


Revenue per KWH
Residential                                       6.64(cent)6.60(cent)6.96(cent)
Commercial                                            5.74    5.71     6.13
Industrial                                            3.76    3.62     3.85
Sales for Resale                                      3.43    3.16     3.11

Peak Load and Capability
   Net system capability (MW) (1)                   15,525  14,839    14,290
   Maximum coincident system demand (MW)            14,066  13,718    13,105
   Percentage increase in peak demand over prior
     period                                           2.5%    4.7%      3.9%
   Generation at time of peak (MW)                  13,220  13,012    12,817
   Percent of peak demand generated                  94.0%   94.9%     97.8%
   Net purchases at time of peak (MW)                  846     706       288
   Percent of net purchases at time of peak           6.0%    5.2%      2.2%
   Date of maximum coincident system demand       August12 July 27   July 28


The preceding table sets forth: (i) the net system capability, including the net
amounts  of  contracted  purchases  and  contracted  sales,  at the time of peak
demand;  (ii) the  maximum  coincident  system  demand on a one-hour  integrated
basis, exclusive of sales to other electric utilities;  and (iii) the respective
amounts and percentages of peak demand generated and net purchases and sales.

(1)   Excludes  85 MW of  system  capability  in  storage  in 1998 and 310 MW of
      system  capability in storage and 156 MW of system capability under repair
      in 1997.

                                       20
<PAGE>


CPL

                                                       1999     1998     1997
                                                  ---------------------------
Kilowatt-hour sales (millions)
Residential                                           7,248    7,167    6,771
Commercial                                            5,256    5,122    4,846
Industrial                                            8,219    8,350    7,999
Other retail                                            580      553      486
                                                  ---------------------------
Sales to retail customers                            21,303   21,192   20,102
Sales for resale                                      1,813    1,867    1,737
                                                  ---------------------------
Total                                                23,116   23,059   21,839
                                                  ---------------------------


Average number of electric customers
Residential                                         563,200  550,000  538,700
Commercial                                           88,200   82,000   79,700
Industrial                                            5,300    5,500    5,600
Other                                                 4,400    4,500    3,900
                                                  ---------------------------
Total                                               661,100  642,000  627,900
                                                  ---------------------------


Revenue per KWH
Residential                                       7.46(cent)7.35(cent)7.99(cent)
Commercial                                              7.49    7.37     8.26
Industrial                                              4.02    3.71     4.13
Sales for resale                                        4.18    3.57     4.06


Peak Load and Capability
   Net system capability (MW) (1)                     4,773    4,542    4,319
   Maximum coincident system demand (MW)              4,454    4,537    4,232
   Percentage increase/(decrease) in peak demand     (1.8)%     7.2%     4.6%
over prior period
   Generation at time of peak (MW)                    4,200    3,688    4,227
   Percent of peak demand generated                   94.3%    81.3%    99.9%
   Net purchases at time of peak (MW)                   254      849        5
   Percent of net purchases at time of peak            5.7%    18.7%     0.1%
   Date of maximum coincident system demand        August 5 August 13 August 20

The preceding table sets forth: (i) the net system capability, including the net
amounts  of  contracted  purchases  and  contracted  sales,  at the time of peak
demand;  (ii) the  maximum  coincident  system  demand on a one-hour  integrated
basis, exclusive of sales to other electric utilities;  and (iii) the respective
amounts and percentages of peak demand generated and net purchases and sales.

(1)  Excludes 60 MW of system capability in storage in 1997.


                                       21

<PAGE>


PSO

                                                      1999     1998      1997
                                                 -----------------------------
Kilowatt-hour sales (millions)
   Residential                                       5,336    5,772     5,054
   Commercial                                        5,057    5,091     4,698
   Industrial                                        4,972    4,873     4,714
   Other retail                                        251      265       192
                                                 -----------------------------
   Sales to retail customers                        15,616   16,001    14,658
   Sales for resale                                  1,005      861       958
                                                 -----------------------------
   Total                                            16,621   16,862    15,616
                                                 -----------------------------


Average number of electric customers
   Residential                                     427,600  423,300   419,600
   Commercial                                       56,800   56,100    55,300
   Industrial                                        4,900    5,000     5,100
   Other                                             1,600    1,600     1,400
                                                 -----------------------------
   Total                                           490,900  486,000   481,400
                                                 -----------------------------


Revenue per KWH
   Residential                                    5.52(cent)5.70(cent)5.88(cent)
   Commercial                                        4.48      4.64     4.82
   Industrial                                        3.24      3.34     3.44
   Sales for Resale                                  3.90      3.18     3.23


Peak Load and Capability
   Net system capability (MW) (1)                    4,022    4,042     3,882
   Maximum coincident system demand (MW)             3,800    3,683     3,474
   Percentage increase in peak demand over            3.2%     6.0%      3.4%
prior period
   Generation at time of peak (MW)                   3,732    3,048     3,376
   Percent of peak demand generated                  98.2%    82.8%     97.2%
   Net purchases at time of peak (MW)                   68      635        98
   Percent of net purchases at time of peak           1.8%    17.2%      2.8%
   Date of maximum coincident system demand      August 11 September 4 July 28


The preceding table sets forth: (i) the net system capability, including the net
amounts  of  contracted  purchases  and  contracted  sales,  at the time of peak
demand;  (ii) the  maximum  coincident  system  demand on a one-hour  integrated
basis, exclusive of sales to other electric utilities;  and (iii) the respective
amounts and percentages of peak demand generated and net purchases and sales.

(1)  Excludes 85 MW of system capability in storage in 1998 and 250 MW of system
     capability in storage in 1997.


                                       22

<PAGE>


SWEPCO

                                                      1999     1998     1997
                                                  ---------------------------
Kilowatt-hour sales (millions)
   Residential                                       4,735    5,052    4,549
   Commercial                                        4,033    4,039    3,780
   Industrial                                        6,807    6,929    6,968
   Other retail                                        474      467      445
                                                  ---------------------------
   Sales to retail customers                        16,049   16,487   15,742
   Sales for resale                                  7,522    6,449    6,791
                                                  ---------------------------
   Total                                            23,571   22,936   22,533
                                                  ---------------------------


Average number of electric customers
   Residential                                     360,600  358,600  356,600
   Commercial                                       52,800   51,800   50,800
   Industrial                                        5,600    5,800    5,800
   Other                                             2,900    2,800    2,700
                                                  ---------------------------
   Total                                           421,900  419,000  415,900
                                                  ---------------------------


Revenue per KWH
   Residential                                    6.22(cent)6.23(cent)6.37(cent)
   Commercial                                         4.91     4.90     5.08
   Industrial                                         3.75     3.66     3.78
   Sales for Resale                                   2.29     2.17     2.16


Peak Load and Capability
   Net system capability (MW)                        5,028    4,559    4,636
   Maximum coincident system demand (MW)             4,463    4,372    4,157
   Percentage increase in peak demand over prior      2.1%     5.2%     3.5%
period
   Generation at time of peak (MW)                   3,970    4,414    3,839
   Percent of peak demand generated                  89.0%   101.0%    92.4%
   Net purchases (sales) at time of peak (MW)          493     (42)      318
   Percent of net purchases (sales) at time of       11.0%   (1.0)%     7.6%
peak
   Date of maximum coincident system demand       August 11  July 29  July 28


The preceding table sets forth: (i) the net system capability, including the net
amounts  of  contracted  purchases  and  contracted  sales,  at the time of peak
demand;  (ii) the  maximum  coincident  system  demand on a one-hour  integrated
basis, exclusive of sales to other electric utilities;  and (iii) the respective
amounts and percentages of peak demand generated and net purchases and sales.

                                       23
<PAGE>



WTU

                                                     1999      1998       1997
                                               --------------------------------
Kilowatt-hour sales (millions)
   Residential                                      1,679     1,766      1,622
   Commercial                                       1,295     1,302      1,223
   Industrial                                       1,234     1,329      1,406
   Other retail                                       630       621        580
                                               --------------------------------
   Sales to retail customers                        4,838     5,018      4,831
   Sales for resale                                 2,784     2,622      2,504
                                               --------------------------------
   Total                                            7,622     7,640      7,335
                                               --------------------------------


Average number of electric customers
   Residential                                    148,300   147,600    146,900
   Commercial                                      28,900    28,400     27,800
   Industrial                                       5,500     5,800      6,000
   Other                                            6,400     6,200      6,000
                                               --------------------------------
   Total                                          189,100   188,000    186,700
                                               --------------------------------


Revenue per KWH
   Residential                                   7.89(cent) 7.60(cent)7.68(cent)
   Commercial                                       6.08       5.85      5.99
   Industrial                                       4.23       3.89      4.05
   Sales for Resale                                 3.71       3.72      3.55


Peak Load and Capability
   Net system capability (MW) (1)                   1,702     1,696      1,453
   Maximum coincident system demand (MW)            1,508     1,591      1,481
   Percentage increase/(decrease) in peak          (5.2)%      7.4%       3.3%
demand over prior period
   Generation at time of peak (MW)                  1,350     1,357        865
   Percent of peak demand generated                 89.5%     85.3%      58.4%
   Net purchases at time of peak (MW)                 158       234        616
   Percent of net purchases at time of peak         10.5%     14.7%      41.6%
   Date of maximum coincident system demand     August 19  August 3 September 17

The preceding table sets forth: (i) the net system capability, including the net
amounts  of  contracted  purchases  and  contracted  sales,  at the time of peak
demand;  (ii) the  maximum  coincident  system  demand on a one-hour  integrated
basis, exclusive of sales to other electric utilities;  and (iii) the respective
amounts and percentages of peak demand generated and net purchases and sales.

(1)  Excludes 156 MW of system capability under repair in 1997.



                                       24
<PAGE>



EMPLOYEES

      The total  number of  employees in the CSW System at December 31, 1999 was
10,928 as shown in the table below.  Of the employees  listed below,  575 of the
positions at PSO and 789 of the positions at SWEPCO are covered under collective
bargaining  agreements  with the IBEW. In addition,  2,245 employees at SEEBOARD
are covered by collective  bargaining  agreements with several different unions.
For information  related to ongoing union negotiations at PSO, reference is made
to ITEM 7. MD&A.

                        CSW SYSTEM EMPLOYEES

               CPL                                 1,558
               PSO                                 1,127
               SWEPCO                              1,377
               WTU                                   907
                                              -----------
                    U.S. Electric Total            4,969
                                              -----------
               U.K. Electric                       3,828
               Diversified Electric                  215
               Other (including CSW Services)      1,911
                                              -----------
                                                  10,923
                                              -----------


                                       25
<PAGE>


ITEM 2. PROPERTIES.

U.S. ELECTRIC

      The total capacity (MW, net dependable  summer rating) of each of the U.S.
Electric Operating Companies,  as of December 31, 1999 is shown in the following
table. The U.S. Electric  Operating Company properties are all located in either
Arkansas, Louisiana, Oklahoma or Texas.

                             Natural  Coal MW Lignite  Nuclear   Other     Total
Company           Stations(a) Gas MW             MW       MW     MW(b)     MW(c)
--------------------------------------------------------------------------------
CPL                      12    3,188     686             630       6       4,510
PSO                       8    2,867   1,008                      25       3,900
SWEPCO                    9    1,795   1,848    842                        4,485
WTU                      11    1,005     377                      11       1,393
                  --------------------------------------------------------------
CSW                      40    8,855   3,919    842      630      42      14,288
                  --------------------------------------------------------------

(a)  CSW owns 38 power  stations.  CPL,  PSO and WTU each  reflect  their  joint
     ownership of the  Oklaunion  power  station in their  respective  ownership
     count.
(b)  Some plants have the capability to burn oil in combination with gas.
     However, the use of oil  in  facilities  primarily  designed  to  burn  gas
     results in increased maintenance expense and a slight reduction in
     capacity.  PSO and WTU have 25 MW and 11 MW, respectively, of facilities
     primarily designed to burn oil. CPL has 6 MW of hydroelectric generation.
(c)  Data reflects only the U.S. Electric Operating Companies' portion of plants
     which are jointly owned with non-affiliates.  For additional information
     concerning jointly owned facilities see ITEM 8. NOTE 6.  JOINTLY OWNED
     ELECTRIC UTILITY PLANT.

All of the generating  facilities  described  above are located on land owned by
the  U.S.  Electric  Operating  Companies  or,  in the  case  of  jointly  owned
facilities,  jointly  with  other  participants.  The  U.S.  Electric  Operating
Companies' electric transmission and distribution  facilities are mostly located
over or under  highways,  streets and other public  places or property  owned by
others,  for which  permits,  grants,  easements or licenses  have been obtained
(which the U.S. Electric  Operating  Companies  believe to be satisfactory,  but
without  examination  of  underlying  land  titles).  The  principal  plants and
properties of the U.S. Electric Operating  Companies are subject to the liens of
the first mortgage indentures under which the U.S. Electric Operating Companies'
FMBs are issued.



                                       26

<PAGE>


DIVERSIFIED ELECTRIC

      In  addition  to  the  generating  facilities  described  above,  CSW  has
ownership interests in other electrical generating facilities,  both foreign and
domestic.  Information concerning these facilities at December 31,1999 is listed
below.

                                                    Capacity Ownership
                            Company       Location   Total   Interest  Status
                            -------------------------------------------------
Operating Facilities - United States
Brush II                    CSW Energy    Colorado      68      47%        QF
Ft. Lupton                  CSW Energy    Colorado     272      50%        QF
Mulberry                    CSW Energy    Florida      120      50%        QF
Orange Cogen                CSW Energy    Florida      103      50%        QF
Newgulf                     CSW Energy     Texas        85     100%       EWG
Sweeny (1)                  CSW Energy     Texas       330      50%        QF
Frontera (2)                CSW Energy     Texas       330     100%       EWG
                                                   ---------
                                                     1,308
                                                   ---------
Operating Facilities -
International
                            CSW           United
Medway                      International Kingdom      675      37.5%     n/a
                            CSW
Altamira                    International Mexico       109      50%      FUCO
                                                   ---------
                                                       784
                                                  ---------

(1)During 2000,  additional  development  at the Sweeny  facility is expected to
   add approximately 150 MW to current capacity.
(2)Frontera was operational during the summer of 1999 with a capacity of 330 MW.
   During the fourth quarter of 1999,  construction continued to bring the plant
   to combined  cycle  operation in the second quarter of 2000 at which time the
   facility is expected to have a capacity of 500 MW.


CAPITAL EXPENDITURES

      The CSW System, including the U.S. Electric Operating Companies, maintains
a continuing  construction program, the nature and extent of which is based upon
current and  estimated  demands  upon the system.  In  addition,  the CSW System
requires capital to invest in new enterprises, either through equity investments
or loans to  projects,  when deemed  appropriate.  See ITEM 7. MD&A for detailed
information related to historical and projected capital  expenditures.  See ITEM
7. MD&A - PROPOSED  AEP MERGER and ITEM 8. NOTE 15. - PROPOSED  AEP MERGER for a
discussion of capital expenditures limitations related to the AEP Merger.


ITEM 3. LEGAL PROCEEDINGS.

      The  Registrants  are  parties  to  various  legal  claims,   actions  and
complaints  arising in the normal  course of  business  which are not  described
herein.  Management  does not  expect  disposition  of these  matters  to have a
material  adverse  effect on any of the  Registrants'  results of  operations or
financial  condition.  See ITEM 1.  BUSINESS,  ITEM 7.  MD&A and ITEM 8. NOTE 2.
LITIGATION AND REGULATORY PROCEEDINGS for information relating to pending legal,
environmental and regulatory proceedings.

                                       27
<PAGE>


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

CSW         None.
CPL         None.
PSO         None.
SWEPCO      None.
WTU         None.



                                       28
<PAGE>



PART II


ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
            MATTERS.

CSW COMMON STOCK INFORMATION
<TABLE>
<CAPTION>

                              1999                                1998
                    Market Price     Dividends         Market Price       Dividends
                   High       Low      Paid          High        Low        Paid
                 ------------------------------   -----------------------------------
<S>              <C>        <C>       <C>            <C>        <C>         <C>

First Quarter     $28       $23 7/16    43.5(cent)   $27 13/16  $26  1/4    43.5(cent)
Second Quarter     26 3/16   23 5/16    43.5           27  5/8   25  5/8    43.5
Third Quarter      23 1/2    20 7/8     43.5           28  3/4   25  1/4    43.5
Fourth Quarter     22 1/2    19 9/16    43.5           30  1/16  27  3/8    43.5

</TABLE>

      CSW's common  stock is traded under the ticker  symbol "CSR" and listed on
the New York Stock Exchange, Inc. and Chicago Stock Exchange, Inc. Market prices
were  obtained from the  composite  listing of all closing  prices on CSW common
stock trades as reported on Bloomberg Financial Commodities News.

      CSW plans to  continue  to pay  dividends  on its common  stock  until the
closing of the AEP Merger at approximately the same times and rates per share as
were paid during  1999,  subject to  continuing  evaluation  of CSW's  earnings,
financial  condition,   and  other  factors  by  the  CSW  board  of  directors.
Traditionally,  the CSW board of directors has declared  dividends to be payable
on the last business day of February, May, August and November.

      In  January  2000,  CSW's  board of  directors  elected  to  maintain  the
quarterly  dividend for the quarter ended December 31, 1999, payable on March 1,
2000, to  stockholders of record on February 5, 2000, at $0.435 per share, or an
indicated rate of $1.74 per year. As a result,  CSW  anticipates  the payment of
the second quarter  dividend to  shareholders  of record on or about May 5, 2000
unless the merger closes prior to that date.

      There were approximately 53,000 record holders of CSW's common stock as of
March 13, 2000. See ITEM 8. NOTE 12. COMMON STOCK for  information on CSW common
stock.


U.S. ELECTRIC COMMON STOCK INFORMATION


      All of the  outstanding  shares  of  common  stock  of the  U.S.  Electric
Operating Companies are owned by CSW. Consequently, there is no market for their
common stock. Cash dividends  declared and paid by the U.S.  Electric  Operating
Companies  to CSW on  their  respective  common  stock  for  1999  and  1998 are
presented in the following table.

                           CPL          PSO        SWEPCO         WTU
                      -----------------------------------------------------
                                          (thousands)

      1999              $148,000      $65,000     $96,000       $28,000
      1998               249,000       69,000     120,000        40,000


Reference is made to the page numbers in the table below for the location of the
following items:


                                      2-1
<PAGE>


ITEM 6.     SELECTED FINANCIAL DATA.

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS.

ITEM 7a.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
            See ITEM 7.  MD&A - RISK MANAGEMENT and ITEM 8. NOTE 1. SUMMARY OF
            SIGNIFICANT ACCOUNTING POLICIES, NOTE 7. FINANCIAL INSTRUMENTS and
            NOTE 18. SOUTH AMERICAN INVESTMENTS.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                                                        Page Number
                                            CSW    CPL    PSO    SWEPCO    WTU
                                           -------------------------------------
Selected Financial Data                     2-4   2-101   2-115   2-129    2-143
Combined MD&A (1)                           2-5    2-5     2-5     2-5      2-5
    Results of Operations                   2-36  2-102   2-116   2-130    2-144
Quantitative and Qualitative Disclosures    2-2    2-2     2-2     2-2      2-2
  About Market Risk
Financial Statements and Supplementary Data 2-40  2-105   2-119   2-133    2-146
Report of Independent Public Accountants    2-96  2-112   2-126   2-140    2-153
Report of Management                        2-99  2-113   2-127   2-141    2-154


(1)   CSW combines the MD&A sections of the  Registrants  except for the Results
      of Operations which are located at the page numbers indicated in the table
      above.


                                      2-2
<PAGE>














                             CENTRAL AND SOUTH WEST
                                   CORPORATION




                                      2-3
<PAGE>



SELECTED FINANCIAL DATA

      The  following  selected  financial  data for each of the five years ended
December  31 is  provided  to  highlight  significant  trends  in the  financial
condition and results of operations for CSW. CSW reported an extraordinary  loss
at SWEPCO and WTU in 1999  resulting  from  legislation  enacted in Arkansas and
Texas under which the electric  generation portion of CPL's,  SWEPCO's and WTU's
business in those  states no longer meet the  criteria to apply SFAS No. 71. CSW
also  recorded an  extraordinary  item at CPL in 1999 for the loss on reacquired
debt from two debt issues related to generation assets and the discontinuance of
SFAS No. 71. CSW recorded the United Kingdom  windfall  profits tax in the third
quarter of 1997 as an extraordinary  item. CSW sold Transok in 1996.  Accounting
rules  require  the  classification  of both the sale and the  actual  operating
results  prior to such sale as  discontinued  operations.  In  addition to these
reclassifications,  certain other financial statement items for prior years have
been reclassified to conform to the 1999 presentation.

                                  1999 (1)  1998 (1)   1997 (1)     1996    1995
                                ------------------------------------------------
                                   (millions, except per share and ratio data)
INCOME STATEMENT DATA
Revenues                            $5,537    $5,482    $5,268    $5,155  $3,143
Income from continuing
  operations                           469       440       329       297     377
Income before extraordinary items      469       440       329       429     402
Net income for common stock            455       440       153       429     402
Basic and diluted EPS from
  continuing operations              $2.21     $2.07     $1.55     $1.43   $1.97

Basic and diluted EPS before
  extraordinary items                $2.21     $2.07     $1.55     $2.15   $2.20

Basic and diluted EPS                $2.14     $2.07     $0.72     $2.07   $2.10
Dividends paid per share of
  common stock                       $1.74     $1.74     $1.74     $1.74   $1.72
Average common shares
  outstanding                       212.6     212.4      212.1     207.5   191.7

BALANCE SHEET DATA
Assets                            $14,162   $13,897    $13,616   $13,512 $14,055
Long-term obligations (2)           4,156     4,273      4,424     4,237   4,134
Capitalization ratios
     Common stock equity             47%        45%       44%       46%      42%
     Preferred stock                 --          2         2         4        4
     Trust Preferred Securities       4          4         4        --       --
     Long-term debt                  49         49        50        50       54


(1)See CENTRAL AND SOUTH WEST CORPORATION - RESULTS OF OPERATIONS for
   factors affecting earnings.
(2)Long-term  obligations include long-term debt, Trust Preferred Securities and
   preferred stock subject to mandatory redemption.

                                      2-4
<PAGE>


REGISTRANTS' COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND CENTRAL AND SOUTH WEST CORPORATION'S RESULTS OF OPERATIONS

      Reference is made to CSW's Consolidated  Financial  Statements and related
Notes to  Consolidated  Financial  Statements and Selected  Financial  Data. The
information  contained  therein  should  be read  in  conjunction  with,  and is
essential in understanding,  the following discussion and analysis.  The RESULTS
OF OPERATIONS of CSW and the U.S.  Electric  Operating  Companies  precede their
financial statements.


OVERVIEW

      The electric  utility  industry is changing rapidly as it is becoming more
competitive.  In anticipation of increasing  competition and fundamental changes
in the industry,  CSW's  management is implementing a strategic plan designed to
help position CSW to be competitive in this rapidly changing  environment and in
developing a global energy business.

      CSW has undertaken key initiatives in the  implementation  of this overall
strategy.  The  centerpiece of these  initiatives is the proposed merger between
AEP and CSW that was  announced  in  December  1997  pursuant to which CSW would
become a wholly owned  subsidiary  of AEP.  The  proposed  merger would join two
companies which are low cost providers of electricity and is expected to achieve
greater  economies  of scale than either  company  could  achieve on its own. In
addition,  CSW  International  continues to make  investments  in South America.
These  initiatives  are  discussed  in more detail  below and  elsewhere in this
report.  See RECENT  DEVELOPMENTS  AND  TRENDS -  PROPOSED  AEP MERGER and OTHER
INITIATIVES - DIVERSIFIED ELECTRIC.

      Most states  have  considered  the  adoption  of various  legislative  and
regulatory  initiatives to restructure the electric  utility  industry and enact
retail competition,  and several states,  like Texas and Arkansas,  have already
passed  legislation  that  requires  the  implementation  of retail  access  for
customers. In response to these changes, the CSW System is developing strategies
to  appropriately  deal with the changing  environment.  For example,  the Texas
Electric Operating  Companies have recently filed an unbundling plan in response
to legislation  recently enacted in Texas. See RECENT  DEVELOPMENTS AND TRENDS -
Industry Restructuring Initiatives in Arkansas,  Oklahoma,  Louisiana and Texas,
Texas  Business   Separation  Plan  and  Securitization  of   Generation-related
Regulatory Assets and Stranded Costs.

      CSW believes that compared to other electric utilities,  the CSW System is
well   positioned  to  capitalize  on  the   opportunities   resulting  from  an
increasingly deregulated and competitive market for the generation, transmission
and distribution of electricity. The CSW System should benefit from economies of
scale by virtue of its size and is a reliable and relatively  low-cost  provider
of electric power in its service area.  Specifically,  CSW will seek competitive
advantages through its diverse and stable customer base,  competitive prices for
electricity,  diversified  fuel mix,  extensive  transmission  interconnections,
diversity of regulation and financial  flexibility.  See RECENT DEVELOPMENTS AND
TRENDS  for  additional   information.   (The  foregoing   discussion   contains
forward-looking  statements  within the meaning of Section  21E of the  Exchange
Act. Actual results may differ materially from such projected information due to
changes in the underlying assumptions. See FORWARD-LOOKING INFORMATION).


                                      2-5
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

      Overview of Operating, Investing and Financing Activities
      Net cash  inflows from operating activities decreased $139 million to $803
million for the twelve month period ended December 31, 1999 compared to the same
period last year due primarily to increased  payments on accounts payable,  less
favorable fuel recovery positions and higher levels of fuel inventories  related
to year 2000 contingency plans.  Partially offsetting the decrease in cash flows
from operating  activities was a lower change in accounts  receivable balance in
1999  compared  to 1998.  Further  offsetting  the  decrease  in cash flows from
operating  activities  was the absence in 1999 of a refund paid to CPL customers
in 1998.

      Net cash outflows from investing activities increased $123 million to $758
million  during the twelve  months ended  December 31, 1999 compared to the same
period a year ago. The increase in net cash outflows from  investing  activities
was due primarily to higher levels of construction  spending in 1999 at the U.S.
Electric Operating Companies and SEEBOARD.  Also contributing to the increase in
cash outflows from investing  activities were two transactions  that occurred in
1998: (1) the sale of a portion of C3 Communication's interest in ChoiceCom and,
(2)  the  payment  by CSW  International's  Altamira  partner,  Alpek,  of a 50%
obligation related to the power plant project. The increase in net cash outflows
from investing  activities was partially  offset by cash inflows  related to the
sale of a 50% interest in CSW Energy's Sweeny plant.  Also partially  offsetting
the increase in cash outflows from investing  activities was the absence in 1999
of CSW International loans to Vale.

      Net cash inflows from  financing  activities  for the twelve  months ended
December 31, 1999 were $71 million,  a $296 million increase  compared to a cash
outflow of $225  million for the same period in 1998.  The  increase in net cash
flows from financing  activities  was due primarily to higher  proceeds from the
issuance of long-term debt and a higher level of change in short-term debt. Also
contributing  to the increase in cash inflows from financing  activities was the
absence in 1999 of the repayment of a $60 million variable rate bank loan at CSW
Services  and the  redemption  of $28  million  of  preferred  stock at  SWEPCO.
Partially  offsetting  the  increase in net cash  inflows was a higher  level of
long-term debt maturities and reacquisitions in 1999 compared to 1998 as well as
the redemption of $160 million of preferred stock at CPL.

      The non-cash  impacts of exchange rate  differences on the  translation of
foreign currency  denominated assets and liabilities were recorded on a separate
line on the cash flow statement.

      Internally Generated Funds
      Internally  generated  funds,  which consist of cash flows from  operating
activities  less common and preferred stock  dividends,  should meet most of the
capital requirements of the CSW System.  However,  CSW's strategic  initiatives,
including  expanding  CSW's core  electric  utility and  non-utility  businesses
through acquisitions or otherwise,  may require additional capital from external
sources.  For a description  of certain  restrictions  on CSW's ability to raise
capital from external sources, see ITEM 7. MD&A, PROPOSED AEP MERGER and ITEM 8.
NOTE 15. PROPOSED AEP MERGER. Productive investment of net funds from operations
in excess of capital  expenditures and dividend payments is necessary to enhance
the long-term value of CSW for its investors.  CSW is continually evaluating the
best use of internally generated funds, which totaled $426 million, $564 million
and $343  million  for  1999,  1998  and  1997,  respectively.  The  amounts  of
internally  generated  funds  for the  U.S.  Electric  Operating  Companies  are
detailed in the following table.

                                      2-6
<PAGE>



                                                   1999        1998       1997
                                                --------------------------------
                                                           (millions)
CPL
Internally Generated Funds                         $147        $183       $172
Construction Expenditures Provided by
  Internally Generated Funds                         70%        148%       136%

PSO
Internally Generated Funds                          $47        $124        $62
Construction Expenditures Provided by
  Internally Generated Funds                         46%        180%        78%

SWEPCO
Internally Generated Funds                          $59        $105       $108
Construction Expenditures Provided by
  Internally Generated Funds                         53%        127%       100%

WTU
Internally Generated Funds                          $38         $20        $69
Construction Expenditures Provided by
  Internally Generated Funds                         77%         53%       217%

      On December 2, 1999,  OFGEM  published its final price  proposals from its
United  Kingdom  electricity  distribution  review.  OFGEM has proposed  revenue
reductions in SEEBOARD's  distribution  business of 21%. In addition,  OFGEM has
proposed  the  reallocation  of  a  further  12%  of  costs  out  of  SEEBOARD's
distribution business into its supply business. These proposals were accepted on
December 20, 1999,  and will take effect on April 1, 2000,  and remain in effect
for five years.  OFGEM's  proposals  will reduce net income for  SEEBOARD in the
year 2000 by approximately $40 million, dependent upon the level of further cost
reductions that can be achieved, and by approximately $60 million in 2001. CSW's
net income from SEEBOARD U.S.A.,  its United Kingdom business segment,  was $113
million for the twelve months ended December 31, 1999.

      OFGEM's price  proposals for SEEBOARD will have a material  adverse effect
on the future results of operations of SEEBOARD  U.S.A.  and CSW, but are not be
expected to adversely affect the financial condition of CSW.

      Capital Expenditures
      The CSW System's need for capital results  primarily from its construction
of  facilities  to  provide  reliable  electric  service to its  customers.  The
historical  capital  requirements  of the CSW System have been primarily for the
construction  of electric  utility plant.  However,  current  projected  capital
expenditures are expected to be primarily for existing production,  transmission
and  distribution  systems and for  various  non-utility  investments.  The U.S.
Electric Operating  Companies maintain a continuing  construction  program,  the
nature and extent of which is based upon current and  estimated  future  demands
upon  the  system.  Planned  construction  expenditures  for the  U.S.  Electric
Operating Companies for the next three years are primarily to improve and expand
production, transmission and distribution facilities. These improvements will be
required to meet the  anticipated  needs of new  customers and the growth in the
requirements of existing customers.  These improvements will be funded primarily
through  internally  generated  funds.  However,  some long-term  financing will
likely be required.

      CSW regularly  evaluates its capital spending policies and generally seeks
to fund only those projects and investments that management  believes will offer
satisfactory returns in the current environment.  Consistent with this strategy,
the CSW  System  is  likely  to  continue  to  make  additional  investments  in
energy-related and non-utility  businesses and will continue to search for other
electric  utility  properties to acquire.  Primary  sources of capital for these
expenditures are long-term debt, trust preferred  securities and preferred stock
issued by the U.S. Electric Operating  Companies,  long-term and short-term debt
issued by CSW, as well as internally generated funds. Historically, the issuance

                                      2-7
<PAGE>

of common  stock by CSW has also been a source of  capital.  CSW  Energy and CSW
International  typically use various forms of non-recourse  project financing to
provide a portion of the capital required for their respective  projects as well
as utilizing long-term debt for other investments.  Although CSW and each of the
U.S.  Electric  Operating  Companies  expect  to  fund  the  majority  of  their
respective  capital  expenditures  for their existing  utility  systems  through
internally  generated  funds,  for any  significant  investment or  acquisition,
additional funds from the capital markets may be required.  For a description of
certain restrictions on CSW's ability to make investments and raise capital from
external  sources,  including  through the issuance of common stock, see ITEM 7.
MD&A PROPOSED AEP MERGER and ITEM 8. NOTE 15. PROPOSED AEP MERGER.

      The  historical  and estimated  capital  expenditures  for the CSW System,
including the U.S. Electric Operating  Companies,  SEEBOARD and other operations
are shown in the CAPITAL  EXPENDITURES  table. The amounts include  construction
expenditures  for the U.S.  Electric  Operating  Companies and, for SEEBOARD and
CSW's other operations,  construction  expenditures and net equity  investments.
The  majority  of the  capital  expenditures  for the  U.S.  Electric  Operating
Companies  for 1997 through  1999 were spent on  transmission  and  distribution
facilities.  It is  anticipated  that  the  majority  of the  estimated  capital
expenditures  for 2000 through  2002 will be for  production,  transmission  and
distribution  facilities.  For a description  of certain  restrictions  on CSW's
ability to make capital  expenditures,  including through the issuance of common
stock,  see  PROPOSED  AEP  MERGER.  (The  table and  statements  below  contain
forward-looking  information  within the meaning of Section 21E of the  Exchange
Act. Actual results may differ materially from such projected information due to
changes in the underlying assumptions. See FORWARD-LOOKING INFORMATION).

                                    CAPITAL EXPENDITURES
                                                    Estimated Expenditures
                1997      1998      1999           2000       2001      2002
--------------------------------------------    --------------------------------
                                 (millions including AFUDC)

CSW             $901      $669      $774        $1,071       $817       $643
CPL              130       127       215           229        266        191
PSO               82        71       105           174        121         86
SWEPCO           110        86       113           159        163        137
WTU               33        38        50            55         71         72

         Estimated capital expenditures for 2000 - 2002 do not include
                 expenditures for acquisition-type investments.

      Although CSW does not believe that the U.S. Electric  Operating  Companies
will require substantial  additions of generating capacity over the next several
years, the U. S. Electric's  internal  resource plan presently  anticipates that
any  additional  capacity  needs will come from a variety  of sources  including
power purchases.

      Inflation
      Annual  inflation  rates,  as measured by the U. S. Consumer  Price Index,
have averaged approximately 2.0% during the three years ended December 31, 1999.
CSW believes that  inflation,  at this level,  does not materially  affect CSW's
results of operations or financial position.  However, under existing regulatory
practice,  only the historical cost of plant is recoverable from customers. As a
result,  cash flows designed to provide  recovery of historical  plant costs may
not be adequate to replace plant in future years.

      Financial Structure, Shelf Registrations and Credit Ratings
      As of December 31, 1999, the capitalization ratios  of CSW were 47% common
stock equity,  4% Trust  Preferred  Securities  and 49% long-term  debt.  CSW is
committed  to  maintaining   financial  flexibility  through  a  strong  capital
structure and favorable  securities  ratings in order to access capital  markets

                                      2-8
<PAGE>

opportunistically or when required. CSW continually monitors the capital markets
for opportunities to lower its cost of capital through  refinancing  activities.
The  estimated  embedded  cost of long-term  debt for CSW and the U.S.  Electric
Operating Companies at December 31, 1999, is shown below.

                    CSW                   7.0%
                    CPL                   6.4
                    PSO                   6.4
                    SWEPCO                6.9
                    WTU                   6.6

      CSW can issue common stock,  either through the purchase and reissuance of
shares from the open  market or by issuing  original  shares,  to fund its LTIP,
stock  option plan,  PowerShare  plan and  Retirement  Savings  Plan.  CSW began
funding  these plans  through open market  purchases  on April 1, 1997.  CPL has
shelf  registration  statements on file for the issuance of up to $60 million of
FMBs and up to $75  million of  preferred  stock.  PSO has a shelf  registration
statement on file for the issuance of up to $35 million of senior notes.  SWEPCO
has a shelf  registration  statement  on file  for  the  issuance  of up to $250
million of senior  notes,  of which $150 million was issued in the first quarter
of 2000.  For a description  of certain  restrictions  on CSW's ability to raise
capital from external sources, see PROPOSED AEP MERGER.

      The current securities ratings for each of the Registrants is presented in
the following  table,  including the  securities  rating on the Trust  Preferred
Securities issued by CPL Capital I, PSO Capital I and SWEPCO Capital I.

                                       Moody's   Duff & Phelps Standard & Poor's
                                       ---------------------------------------
CPL
 First mortgage bonds                      A3           A             A
 Senior unsecured                         Baa1         A-            A-
 Preferred stock                          Baa1        BBB+          BBB+
 Trust preferred (CPL Capital I)          Baa1        BBB+          BBB+
 Junior subordinated deferrable
   Interest debentures                    Baa2         --            --

PSO
 First mortgage bonds                      A1          AA-           AA-
 Senior unsecured                          A2          A+             A
 Preferred stock                           a3          A+            A-
 Trust preferred (PSO Capital I)           a2          A+            A-
 Junior subordinated deferrable
   Interest debentures                     A3          --            --

SWEPCO
 First mortgage bonds                      Aa3          AA            AA-
 Senior unsecured                           A1          AA-            A
 Preferred stock                            a1          AA-           A-
 Trust preferred (SWEPCO Capital I)        aa3          AA-           A-
 Junior subordinated deferrable
   Interest debentures                      A2          --            --

WTU
 First mortgage bonds                       A2          A+             A
 Senior unsecured                           A3          --            A-
 Preferred stock                            a3           A           BBB+

CSW
 Commercial paper                          P-2          D-2           A-2

These  securities  ratings  may be revised or  withdrawn  at any time,  and each
rating should be evaluated independently of any other rating.


                                      2-9
<PAGE>

      Long-Term Financing
      On May 1, 1999, $100 million of CPL's 7.50% Series JJ FMBs matured, and on
December 1, 1999,  $25 million of CPL's 7.125% Series DD FMBs  matured.  In June
1999, CPL reacquired $25 million of its 7.50% Series II FMBs, due April 1, 2023,
and in November  and December  1999,  CPL called $75 million of its money market
preferred  stock and $85 million of its Series A and Series B  preferred  stock,
each at par.

      In November 1999, CPL issued $200 million of unsecured floating rate notes
maturing  November 23, 2001 and callable at par November 23, 2000.  The interest
rate will reset quarterly at the then current three-month LIBOR plus 0.60%.

      The reacquisition,  redemptions and maturities were funded with short-term
debt and with proceeds from the issuance of the floating rate notes.

      In November and December 1999,  Matagorda County Navigation District No. 1
(Texas) sold for the benefit of CPL $111.7 million of 4.90% Series 1999A and $50
million of 4.95% Series 1999B  unsecured tax exempt  PCRBs.  The bonds mature in
2030 but will be subject to remarketing and an interest rate reset in two years.
The proceeds were used to refund $111.7 million  aggregate  principal  amount of
outstanding  7.50% Series T due December 15, 2014 and will be used to refund $50
million aggregate  principal amount of outstanding 7.50% Series AA due March 21,
2020.

      On January 1, 1999, $25 million of PSO's 7.25% Series K, FMBs matured.  In
July 1999, the Oklahoma  Development  Finance  Authority sold for the benefit of
PSO $33.7  million of 4.875%  unsecured  tax exempt  PCRBs.  The bonds mature in
fifteen years but will be subject to  remarketing  and an interest rate reset in
five years.  In August  1999,  the proceeds  were used to refund  $33.7  million
aggregate  principal  amount  of  outstanding  Oklahoma   Environmental  Finance
Authority 5.9% Series A bonds due December 1, 2007.

      On  September  1, 1999,  $40  million  of  SWEPCO's  6.125%  Series W FMBs
matured.

      On February 16, 2000,  CPL sold $150  million of unsecured  floating  rate
notes.  The bonds will have a two-year  final maturity of February 22, 2002, but
may be redeemed at par after one year. The interest rate will reset quarterly at
the then current  three-month  LIBOR plus 0.45%. The initial rate, which was set
February 18,  2000,  was 6.56%.  Net proceeds of $149.6  million will be used to
refund  $100  million  of FMBs  maturing  April 1, 2000 and  repay a portion  of
short-term  debt. CPL is replacing FMBs with unsecured debt, which provides more
financial flexibility as CPL unbundles its electric operations.

      In the first  quarter  of 2000,  SWEPCO  sold $150  million  of  unsecured
floating rate notes.  The notes will have a two-year  final maturity at March 1,
2002,  but may be redeemed at par after one year.  The interest  rate will reset
quarterly at the then current  three-month  LIBOR plus 0.23%.  The initial rate,
which was set March 1, 2000,  was 6.34%.  Net proceeds of $149.6 million will be
used to refund $45 million of FMBs  maturing  April 1, 2000 and  repayment  of a
portion of outstanding short-term indebtedness.

      Short-Term Financing and Accounts Receivable Factoring
      The CSW System uses  short-term debt, primarily  commercial paper, to meet
fluctuations  in working capital  requirements  and other interim capital needs.
CSW has established a system money pool to coordinate  short-term borrowings for
certain of its subsidiaries, primarily the U.S. Electric Operating Companies. In
addition,  CSW  also  incurs  borrowings  for  other  subsidiaries  that are not
included in the money pool. As of December 31, 1999,  CSW had  revolving  credit
facilities  totaling $1.4 billion to back up its commercial  paper  program.  At

2-10
<PAGE>

December 31, 1999, CSW had $1.3 billion  outstanding  in short-term  borrowings.
The maximum amount of short-term  borrowings  outstanding during the year, which
had a weighted  average  interest  yield for the year of 5.5%,  was $1.4 billion
during December 1999.  Information  concerning short-term borrowings for each of
the U.S. Electric Operating Companies is presented in the following table.

                                      Borrowing
                      Borrowing     Limit at date
                      Limit at       of Maximum      Maximum    Date of Maximum
                 December 31, 1999    Borrowed       Borrowed       Borrowed
                 --------------------------------------------------------------
                                             (millions)

CPL                    $600            $600           $322    December 31, 1999
PSO                     300             300             79       April 30, 1999
SWEPCO                  250             250            141    December 31, 1999
WTU                     165             165             26        March 3, 1999

      CSW Credit  purchases,  without recourse,  the accounts  receivable of the
U.S. Electric Operating  Companies and certain  non-affiliated  electric utility
companies.  The sale of accounts receivable provides the U.S. Electric Operating
Companies with cash  immediately,  thereby  reducing  working  capital needs and
revenue  requirements.  In addition,  CSW Credit's  capital  structure  contains
greater leverage than that of the U.S. Electric  Operating  Companies,  so CSW's
cost of  capital is  lowered.  CSW Credit  issues  commercial  paper to meet its
financing  needs. At December 31, 1999, CSW Credit had a $1.2 billion  revolving
credit agreement,  secured by the assignment of its receivables,  to back up its
commercial paper program,  which had $754 million outstanding.  The $1.2 billion
facility will expire on June 23, 2000.

      The maximum amount of such commercial paper  outstanding  during the year,
which had a  weighted  average  interest  yield  for the year of 5.3%,  was $1.0
billion  during  August  1999.  The  average  and  year-end  amounts of accounts
receivable  sold during 1999 by the U.S.  Electric  Operating  Companies  to CSW
Credit are shown in the following table.

                                     1999       1999
                                   Average   End of Year
                                  -----------------------
                                        (millions)

              CPL                     $139       $107
              PSO                       78         61
              SWEPCO                    97         73
              WTU                       44         26

      CSW Energy and CSW International
      CSW Energy has  authority  from the SEC to expend up to $250  million  for
general development  activities related to qualifying facilities and independent
power  facilities.  CSW Energy may seek specific  authority to spend  additional
amounts on certain projects  subject to limitations  contained in the AEP merger
agreement.  See ITEM 8. NOTE 3.  COMMITMENTS AND CONTINGENT  LIABILITIES,  for a
discussion  of CSW's  investments  and  commitments  in CSW Energy  projects  at
December 31, 1999.

      In January  1997,  CSW received  authority  from the SEC under the Holding
Company Act to spend an amount up to 100% of consolidated  retained  earnings on
EWG or FUCO  investments,  subject to certain  restrictions.  As of December 31,
1999, CSW had invested an amount equal to 54% of consolidated retained earnings,
as defined by Rule 53 of the Holding  Company Act, on EWG and FUCO  investments.
For a  description  of  certain  restrictions  on the  ability  of CSW  and  its

                                      2-11
<PAGE>

subsidiaries  to make  capital  expenditures  in respect of QFs and  independent
power facilities and to make EWG and FUCO investments, see PROPOSED AEP MERGER.


RECENT DEVELOPMENTS AND TRENDS

PROPOSED AEP MERGER

      On December 22, 1997, CSW and AEP announced that their boards of directors
had  approved a  definitive  merger  agreement  for a tax-free,  stock-for-stock
transaction. The combined company would serve more than 4.7 million customers in
11 states and  approximately 4 million  customers  outside the United States. On
May 27, 1998, AEP shareholders approved the issuance of the additional shares of
stock  required  to complete  the  merger.  On May 28,  1998,  CSW  stockholders
approved the merger.  On December 16, 1999, the merger  agreement was amended to
extend the term of the agreement to June 30, 2000.  After June 30, 2000,  either
party may terminate the merger agreement if the merger has not been consummated.

      AEP is subject  to the  information  requirements  of the  Securities  and
Exchange Act of 1934, as amended, and in accordance therewith, files reports and
other information with the SEC. For additional  information  related to AEP, see
AEP's Current  Reports on Form 8-K, its  Quarterly  Reports on Form 10-Q and its
Annual Report on Form 10-K and the documents referenced therein.

      Under the AEP merger agreement, each common share of CSW will be converted
into 0.6 share of AEP common stock. CSW stockholders  will own approximately 40%
of the combined  company.  CSW plans to continue to pay  dividends on its common
stock  until the closing of the AEP Merger at  approximately  the same times and
rates  per  share as in 1999,  subject  to the  continuing  evaluation  of CSW's
earnings, financial condition and other factors by the CSW board of directors.

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

      AEP and CSW anticipate net savings related to the merger of  approximately
$2  billion  over a  10-year  period  from the  elimination  of  duplication  in
corporate and administrative  programs,  greater  efficiencies in operations and
business processes, increased purchasing efficiencies and the combination of the
two work forces.  As a result of the approved  settlement and agreement with the
state commissions in CSW and AEP's respective service  territories,  AEP and CSW
have agreed to guarantee that  approximately 55% of those savings will be passed
through to their  customers.  AEP and CSW  continue  to seek  opportunities  for
additional  savings and expect to realize  significant  additional savings based
upon the work of the  merger  transitions  teams  over the last two  years.  The
preceding discussion constitutes  forward-looking information within the meaning
of Section 21E of the Exchange Act.  Actual results may differ  materially  from
such projected information. See FORWARD-LOOKING INFORMATION.

      The  electric  systems of AEP and CSW will  operate on an  integrated  and
coordinated  basis as required by the Holding  Company  Act. AEP and CSW project
fuel savings of  approximately  $98 million over a 10-year period resulting from
the coordinated operation of the combined company,  which will be passed through
to customers.

      The AEP merger agreement  contains  covenants and agreements that restrict
the manner in which the parties may operate their  respective  businesses  until
the time of closing of the merger.  In  particular,  without  the prior  written
consent of AEP, CSW may not engage in a number of  activities  that could affect
its sources  and uses of funds.  Pending  closing of the  merger,  CSW's and its

                                      2-12
<PAGE>

subsidiaries'  strategic investment activity,  capital expenditures and non-fuel
operating  and  maintenance  expenditures  are limited to  specific  agreed upon
projects and in agreed upon amounts.  In addition,  prior to consummation of the
merger, CSW and its subsidiaries are restricted from:

-  Issuing shares of common stock other than pursuant to employee benefit
   plans;

-  Issuing  shares  of  preferred  stock or  similar  securities  other  than to
   refinance  existing  obligations or to fund  permitted  investment or capital
   expenditures; and

-  Incurring indebtedness other than pursuant to existing credit facilities,  in
   the ordinary  course of business,  or to fund  permitted  projects or capital
   expenditures. These limitations do not preclude CSW and its subsidiaries from
   making investments and expenditures in amounts previously budgeted.

      Cook Nuclear Plant
      On June 25, 1999, AEP announced a  comprehensive  plan to restart the idle
Cook  nuclear  power  plant.  Unit 2 is  scheduled to return to service in April
2000, and Unit 1 is scheduled to return to service in September 2000. AEP stated
that its announcement  follows a comprehensive  systems  readiness review of all
operating  systems at Cook nuclear  power plant and a  cost/benefit  analysis of
whether  to  restart  the  plant  or shut it down  completely.  Plant  officials
originally shut down both units of the facility, located in Bridgman,  Michigan,
in September 1997 because of questions raised during a design  inspection by the
NRC.  AEP  estimated  that  its  costs  to  restart  the idle  plant  should  be
approximately  $574  million,  of which  $373  million  has been  spent  through
December 31, 1999.

      On February 24,  2000,  AEP  announced a  three-week  delay in the planned
April 1, 2000 restart.  The delay is due to issues encountered during testing of
equipment necessary for core reload and power operations of its Cook Unit 2. The
testing process  continues and may still encounter  additional  items that could
extend the delay.

      Merger Regulatory Approvals
      The merger is  conditioned,  among  other  things,  upon the  approval  of
several state and federal  regulatory  agencies.  Some of the merger  conditions
cannot be waived.

      State Regulatory Commissions
      The U.S.  Electric  Operating  Companies  have  received  approval for the
merger  from  their  respective   state  regulatory   commissions  in  Arkansas,
Louisiana, Oklahoma and Texas.

      FERC
      On April 30, 1998,  AEP and CSW jointly  filed a request with the FERC for
approval of their proposed  merger.  On May 25, 1999, AEP and CSW announced they
had reached a settlement  with the FERC trial staff  resolving  competition  and
rate issues that related to the proposed  merger.  On July 13, 1999, AEP and CSW
reached an  additional  settlement  with the FERC trial staff  resolving  energy
exchange  pricing  issues.  The  settlements  were  submitted  to the  FERC  for
approval. Hearings at the FERC concluded on July 19, 1999. On November 23, 1999,
the ALJ who presided over the FERC merger hearing issued a recommendation to the
FERC that the merger be approved  and found that the  proposed  merger is in the
public interest.

      On March 15, 2000, the FERC conditionally approved the merger.  Conditions
placed on the merger include:


                                      2-13
<PAGE>

-        Transfer  operational  control  of  AEP's  east  and west  transmission
         systems to a  fully-functioning,  FERC-approved  regional  transmission
         organization  by December  15, 2001,  which is the same  implementation
         date  included in the FERC's  general  order for regional  transmission
         organizations that applies to all transmission-owning utilities.

-        Two interim  transmission-related  mitigation  measures  consisting  of
         market monitoring and independent  calculation and posting of available
         transmission   capacity  to  monitor  the   operation   of  AEP's  east
         transmission system.

-        Divestiture  of 550  MW of  generating capacity  comprised of 300 MW of
         capacity  in  SPP and  250  MW of capacity  in  ERCOT.  The  FERC  will
         require  AEP  and  CSW to divest their entire ownership interest in the
         generating facilities  that are  to be  divested.   Alternatively,  AEP
         and CSW  may choose  to divest  the same or  greater amount of capacity
         from different  generating  plants  in their   entirety.  However, such
         generating  plants must  be of  similar  cost,  operation  and location
         characteristics of generating plants AEP and CSW originally proposed.

-        AEP and CSW must complete  divestiture  of the ERCOT  capacity by March
         15, 2001 and  divestiture of the SPP capacity  by July 1, 2002.

      The  FERC  found  that  certain  energy  sales  in SPP and  ERCOT would be
reasonable and effective interim  mitigation  measures until  completion of  the
required SPP and ERCOT divestitures.  The FERC will require the proposed interim
energy sales to be in effect when the merger is consummated.

      AEP and CSW must notify the FERC by March 30, 2000 whether they accept the
condition  that  they  transfer   operational   control  of  their  transmission
facilities  to  a   fully-functioning,   FERC-approved   regional   transmission
organization  by  December  15,  2001 and the  condition  requiring  the interim
mitigation measures. If AEP and CSW accept the conditions, then AEP and CSW must
make a compliance  filing at least 60 days prior to  consummation  of the merger
describing their plan to implement the interim mitigation measures. AEP and CSW
intend to make this compliance filing on a date that would  permit completion of
the merger in the second quarter of 2000.  AEP and CSW believe  they can address
the conditions.

      NRC
      On June 19, 1998, CPL filed a license  transfer  application  with the NRC
requesting  the NRC's  consent  to the  indirect  transfer  of  control of CPL's
interests in the NRC licenses issued for STP from CSW to AEP. CPL would continue
to own its  25.2%  interest  in STP,  and  CPL's  name  would  remain on the NRC
operating  license.  On November 5, 1998, the NRC approved the license  transfer
application  with a condition  that the merger must be completed by December 31,
1999. The NRC has extended the condition relating to completion of the merger to
June 30, 2000.

      Other Federal
      On October 13, 1998, AEP and CSW jointly filed an application with the SEC
for approval of the proposed merger.  The SEC merger filing requests approval of
the merger and related  transactions and outlines the expected  combined company
benefits of the merger to AEP and CSW  customers and  shareholders.  Since then,
AEP and CSW have filed several  amendments to the  application.  Several parties
have filed petitions opposing the proposed merger at the SEC which have not been
withdrawn.

      On July 29, 1999,  applications  were made with the FCC to  authorize  the
transfer  of control of  licenses  of several  CSW  entities to AEP. In February
2000,  the FCC  authorized  the  transfer  which  will  be  effective  upon  the
completion of the proposed merger.


                                      2-14
<PAGE>

      On July 26,  1999,  AEP and CSW  submitted  filings to the  Department  of
Justice  under the  Hart-Scott-Rodino  Antitrust  Improvements  Act of 1976.  On
February 2, 2000,  AEP and CSW announced  that their  proposed  merger  received
antitrust clearance from the Department of Justice.

      United Kingdom
      CSW  has a 100%  interest  in  SEEBOARD,  and AEP  has a 50%  interest  in
Yorkshire.  The proposed merger of CSW into AEP would result in common ownership
of these United  Kingdom  entities.  On January 25, 2000,  the United  Kingdom's
Department  of Trade and Industry  approved  the common  ownership of the United
Kingdom entities that would result from the proposed merger,  subject to certain
conditions  concerning the separate  operation of their respective  distribution
and supply businesses.

      Other
      On April 20,  1999,  AEP reached a  settlement  with the  Indiana  Utility
Regulatory  Commission staff addressing  matters  pertinent to Indiana regarding
the proposed  merger.  The Indiana Utility  Regulatory  Commission  approved the
settlement  on  April  26,  1999.  The  settlement  agreement  resulted  from an
investigation  of the  proposed  merger  between  AEP and CSW  initiated  by the
Indiana Utility Regulatory Commission.

      On April 21, 1999,  AEP and CSW announced  that they had reached  separate
settlements  with six wholesale  customers  that address  issues  related to the
proposed merger.

      On April 28, 1999,  AEP and CSW announced  that they ratified a settlement
agreement with local unions of the IBEW  representing  employees of AEP and CSW.
The  settlement  agreement  covered issues related to the pending merger between
AEP and CSW. As part of the  settlement,  the IBEW local  unions have  withdrawn
their opposition to the merger.

      On May 26, 1999,  AEP and CSW announced that they had reached a settlement
agreement  with the  Kentucky  Attorney  General and several  AEP  customers  in
Kentucky  addressing  matters pertinent to Kentucky regarding the pending merger
between AEP and CSW. The Kentucky  Public  Service  Commission  has approved the
settlement.

      On August  6,  1999,  AEP  announced  that it had  ratified  a  settlement
agreement  with local  unions of the UWUA  representing  employees  of AEP.  The
settlement agreement covered issues raised in the pending merger between AEP and
CSW.  As part of the  settlement,  the UWUA  local  unions  will not  oppose the
merger.

      On October  21,  1999,  the Public  Utility  Commission  of Ohio  issued a
decision  stating  that it will notify the FERC that it is no longer  opposed to
AEP's proposed merger with CSW and that it will no longer seek conditions to the
merger.

      AEP and CSW also have reached settlements with the Missouri Public Service
Commission,  the  Michigan  Public  Service  Commission  and  various  wholesale
customers and intervenors in the FERC merger proceeding.

      Completion of the Merger
      AEP and CSW have  targeted  consummation  of the AEP  Merger in the second
quarter  of 2000.  The  merger is  conditioned,  among  other  things,  upon the
approval  of  several  state  and  federal  regulatory  agencies.  All  of  such
approvals, except from the SEC, have been obtained. The transaction must satisfy
many  conditions,  including  the  condition  that it must be accounted for as a
pooling of interests.  The parties may not waive some of these  conditions.  AEP
and CSW continue the process of seeking regulatory  approvals,  but there can be


                                      2-15
<PAGE>

no assurance as to when, on what terms or whether the required approvals will be
received.  After  June 30,  2000,  either  CSW or AEP may  terminate  the merger
agreement  if all of the  conditions  to its  obligation  to close have not been
satisfied. There can be no assurance that the AEP Merger will be consummated.

      Merger Costs
      As of December 31, 1999,  CSW had deferred $43 million in costs related to
the AEP  Merger on its  consolidated  balance  sheet,  which  will be charged to
expense if AEP and CSW do not complete their proposed  merger.  If the merger is
consummated,  such costs would be recovered in rates  pursuant to merger sharing
provisions contained in the state settlement agreements.

      See ITEM 8. NOTE 15. PROPOSED AEP MERGER.

COMPETITION AND INDUSTRY CHALLENGES

      Competitive  forces at work in the electric utility industry are affecting
the CSW System and other electric utilities,  generally.  Increased  competition
facing  electric  utilities  is  driven  by  complex  economic,   political  and
technological factors. These factors have resulted in legislative and regulatory
initiatives  that are likely to result in even greater  competition  at both the
wholesale  and retail  levels in the  future.  As  competition  in the  industry
increases,  the U.S. Electric  Operating  Companies will have the opportunity to
seek new customers and at the same time be at risk of losing  customers to other
competitors.  Additionally,  the U.S. Electric Operating Companies will continue
to compete with suppliers of alternative  forms of energy,  such as natural gas,
fuel oil and coal, some of which may be less expensive than electricity.  In the
United  Kingdom,  the  franchised  electricity  supply  business  opened to full
competition on a phased-in basis beginning  October 1998. As a result,  SEEBOARD
is able to seek new customers  while  risking the loss of existing  customers to
other competitors.  CSW believes that,  overall,  its prices for electricity and
the quality and  reliability of its service  currently place it in a position to
compete  effectively  in  the  energy  marketplace.   (The  foregoing  statement
constitutes a forward-looking statement within the meaning of Section 21E of the
Exchange  Act.  Actual  results  may  differ   materially  from  such  projected
information due to changes in the underlying  assumptions.  See  FORWARD-LOOKING
INFORMATION).  See RATES AND  REGULATORY  MATTERS  for a  discussion  of several
current issues affecting the CSW System.

      Electric industry  restructuring and the development of competition in the
generation and sale of electric power requires  resolution of several  important
issues, including, but not limited to:

-     Who  will  bear  the  costs  of  prudent  utility  investments  or past
      commitments incurred under traditional  cost-of-service regulation that
      will not be economically viable in a competitive environment, sometimes
      referred to as stranded costs;

-     Whether all customers have access to the benefits of competition;

-     How, and by whom, the rules of competition will be established;

-     What the impact of deregulation will be on conservation, environmental
      protection and other regulator-imposed programs; and

-     How transmission system reliability will be ensured.

      The  degree  of  risk to CSW and the  U.S.  Electric  Operating  Companies
associated  with  various  federal and state  restructuring  proposals  aimed at
resolving  any or all of these  issues  will  vary  depending  on many  factors,

                                      2-16
<PAGE>

including the proposals'  competitive position and treatment of stranded utility
investment,  primarily at CPL,  resulting from such proposals.  In CSW's service
territory,  the states of Arkansas and Texas have passed legislation  addressing
most of these issues  while work  continues on the  remaining  issues.  The U.S.
Electric  Operating  Companies  believe  they  are  in  a  position  to  compete
effectively in a deregulated,  more competitive marketplace.  However, if events
and  circumstances  arise in the future that would indicate all costs previously
incurred are not recoverable from customers,  then the U.S.  Electric  Operating
Companies  may  be  required  by  existing  accounting  standards  to  recognize
potentially  significant losses from unrecovered costs. (The foregoing statement
constitutes a forward-looking statement within the meaning of Section 21E of the
Exchange  Act.  Actual  results  may  differ   materially  from  such  projected
information due to changes in the underlying  assumptions.  See  FORWARD-LOOKING
INFORMATION).  See Regulatory Accounting for additional information. See ITEM 8.
NOTE 2. LITIGATION AND REGULATORY  PROCEEDINGS - Electric Utility  Restructuring
Legislation for information on electric utility restructuring.

      Wholesale Electric Competition in the United States
      The Energy  Policy Act,  which was enacted in 1992,  significantly altered
the way in which  electric  utilities  compete.  The Energy  Policy Act  created
exemptions from regulation under the Holding Company Act and permits  utilities,
including registered utility holding companies and non-utility companies, to own
EWGs.

      EWGs are  wholesale  power  producers  that are free from most federal and
state regulation,  including  restrictions  under the Holding Company Act. These
provisions  enable broader  participation in wholesale power markets by reducing
regulatory hurdles to such participation.

      The Energy  Policy Act also allows the FERC, on a  case-by-case  basis and
with certain restrictions,  to order wholesale  transmission access and to order
electric utilities to enlarge their transmission systems. A FERC order requiring
a transmitting  utility to provide wholesale  transmission  service must include
provisions  generally that permit the utility to recover from the FERC applicant
all of the costs incurred in connection with the  transmission  services and any
enlargement of the transmission system and associated services.

      Wholesale  energy  markets,  including the market for  wholesale  electric
power, have been  increasingly  competitive since enactment of the Energy Policy
Act. The U.S. Electric Operating  Companies must compete in the wholesale energy
markets  with other public  utilities,  cogenerators,  QFs,  EWGs and others for
sales of electric power.  While CSW believes the Energy Policy Act will continue
to make the wholesale markets more competitive, CSW is unable to predict how the
Energy Policy Act will ultimately impact the U.S. Electric Operating Companies.

      FERC Orders No. 888 and No. 889
      The FERC issued Order No. 888 in 1996,  which is the final comparable open
access  transmission  service rule. The provisions of FERC Order No. 888 provide
for comparable  transmission  service between  utilities and their  transmission
customers by requiring  utilities to take transmission  service under their open
access tariffs for wholesale  sales and purchases and by requiring  utilities to
rely on the same transmission information that their transmission customers rely
on to make wholesale purchases and sales.

      In addition,  the Texas Commission  adopted amendments to its transmission
rule in 1999 that  requires  100% postage  stamp pricing in ERCOT which began in
September  1999.  Postage  stamp  pricing is fixed rate  pricing  regardless  of
transmission  distance  traveled.  CPL  and  WTU  began  recording  transmission
revenues and expenses in  accordance  with the Texas  Commission's  transmission
rule on January 1, 1997.


                                      2-17
<PAGE>

      In 1996, the FERC issued Order No. 889 requiring transmitting utilities to
establish and operate an OASIS for the  dissemination  of information  regarding
available transfer  capability for their respective  transmission  systems.  The
OASIS is an on-line  information system that provides the same information about
the  utility's  transmission  system  to all  transmission  customers.  The U.S.
Electric Operating  Companies utilize,  and participate in the OASIS systems for
ERCOT and SPP.  FERC Order No. 889 also created  standards of conduct  requiring
utilities to operate any wholesale  power sales business  separately  from their
transmission  operations.  The  standards of conduct are designed to ensure that
utilities and their  affiliates,  as sellers of power, do not have  preferential
access to information about wholesale transmission prices and availability.

      Independent System Operators
      On December 20, 1999, the FERC issued Order No. 2000 relating to RTOs.
FERC Order No. 2000 describes the characteristics that an RTO should have as
well as the functions an RTO should perform.  Every jurisdictional utility
must file at the FERC either:

-  A proposal to participate in an RTO;

-  A petition asking whether a proposed transmission entity would qualify
   as an RTO, or

-  An alternative  filing  describing the utility's efforts to participate in an
   RTO and the reasons those efforts were unsuccessful.

      Such filings must be made by October 15, 2000 for  utilities  that are not
members of a FERC  approved ISO.  Utilities  that are members of a FERC approved
ISO have until January 15, 2001, to file with the FERC demonstrating  compliance
of their ISOs with FERC Order 2000.  On December 30, 1999,  the SPP filed at the
FERC a proposal for recognition as an ISO and an RTO. In addition,  on September
7, 1999, the SPP submitted various tariff revisions to the FERC that resulted in
an SPP open access  tariff  offering all of the services  required by FERC Order
No. 888 as of February 1, 2000.

      Retail  Electric  Competition  in  the  United  States
      Most  states  have  considered the  adoption of  various  legislative  and
regulatory  initiatives to restructure the electric  utility  industry and enact
retail  competition,  and several  states have already passed  legislation  that
requires the implementation of retail access for customers.

      Industry Restructuring Initiatives in Arkansas, Oklahoma, Louisiana and
      Texas
      Several initiatives to restructure the electric utility industry and enact
retail competition  legislation have been undertaken in the four states in which
the U.S. Electric Operating Companies operate. Arkansas, Oklahoma and Texas have
enacted restructuring legislation.

      Arkansas
      In April 1999,  legislation was enacted for electric utility restructuring
in Arkansas. Some major provisions of that legislation include:

-        Retail competition begins January 1, 2002. The Arkansas  Commission can
         delay implementation, but not beyond June 30, 2003.

-        Companies with transmission lines must operate those facilities through
         a transmission organization approved by FERC.


                                      2-18
<PAGE>

-        A one-year  rate freeze after  restructuring  will be  implemented  for
         default  service  customers of companies that do not apply for stranded
         cost  recovery.  A  three-year  rate  freeze  will be  implemented  for
         companies with stranded costs.

-        The Arkansas Commission has authority to address market power issues.

      Oklahoma
      In  1997,  the  Oklahoma  legislature  passed  restructuring   legislation
 providing  for retail  access by July 1, 2002.  That  legislation  called for a
 number of  studies  to be  completed  on a  variety  of  restructuring  issues,
 including  independent system operator,  technical,  financial,  transition and
 consumer issues.  The study on independent system operator issues was completed
 in January 1998.

      In  1998,  the  Oklahoma   Legislature   passed  Senate  Bill  888,  which
 accelerated  the schedule for  completion of the  remaining  studies to October
 1999. Those studies were conducted under the direction of the Legislative Joint
 Electric  Utility Task Force.  The task force  organized  the study effort into
 several working groups,  which were directed to evaluate  assigned  issues.  On
 October  1,  1999,  the  task  force  completed  its  report  to  the  Oklahoma
 Legislature  based on the work  performed by these working  groups.  The report
 primarily  is a  compilation  of the  positions  taken by the  various  parties
 participating  in the  working  groups.  The  information,  in the  report,  is
 expected  to be used in the  development  of  additional  industry  legislation
 during the 2000 legislative session.

      Several additional  electric industry  restructuring bills have been filed
 in  the  2000  Oklahoma  Legislative  session.  The  proposed  bills  generally
 supplement  the  industry  restructuring   legislation  previously  enacted  in
 Oklahoma. CSW is unable to predict what, if any, additional legislation will be
 passed on industry restructuring.

      Louisiana
      In 1998, a special  legislative  committee created by the Louisiana Senate
 studied  the  impact  of  retail  competition  on the  state of  Louisiana.  No
 legislation  was enacted as a result of that effort.  In addition,  during 1998
 and  1999,   the   Louisiana   Commission   conducted  a  proceeding  to  study
 restructuring  and retail  competition.  Since the  Louisiana  Commission  is a
 constitutionally  created body, it can implement industry  restructuring on its
 own without additional  legislation.  Parties submitted comments,  and hearings
 were held on a number of specific restructuring topics. Also, as a part of that
 proceeding,  utilities  filed rate  unbundling  information  with the Louisiana
 Commission staff.

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

      Texas
      On June 18,  1999,  legislation  was  signed  into law in Texas  that will
restructure the electric utility industry in that state. The new law gives Texas
customers of  investor-owned  utilities the opportunity to choose their electric
provider  beginning January 1, 2002. The legislation also provides a rate freeze
until  that date  followed  by a 6% rate  reduction  for  residential  and small

                                      2-19
<PAGE>

commercial customers,  additional rate reductions for low income customers and a
number of  customer  protections.  Rural  electric  cooperatives  and  municipal
electric systems can choose whether to participate in retail competition.

      Some of the key provisions of the legislation include:

-        Each  utility  must  unbundle its  business  activities  into  a retail
         electric provider,  a power  generation  company and a transmission and
         distribution  utility.  Beginning January 1, 2002,  retail customers of
         investor-owned electric companies will  be able to choose  their retail
         electric  provider.   The affiliated  retail electric  provider  of the
         utility  that serves  the customer  on December 31, 2001 will serve the
         customer    unless  the   customer  chooses  another   retail  electric
         provider.   Delivery  of  the  electricity  will  continue  to  be  the
         responsibility  of  the transmission  and distribution  utility company
         at regulated prices.

-        Retail electric  cooperatives and municipal electric systems can choose
         whether to participate in retail competition.

-        Investor-owned utilities must freeze their rates effective September 1,
         1999,   through   the  start  of   competition   on  January  1,  2002.
         Investor-owned  utilities  at  January  1,  2002 will  lower  rates for
         residential and small commercial  customers by 6%. This reduced rate is
         known  as the  "Price  to  Beat,"  which  will be  available  to  those
         customers for five years.

-        The  legislation  establishes  a system  benefit  fund  for  low-income
         customer  assistance,  customer  education and to offset  reductions in
         school property tax revenues.  The fund will be funded through a charge
         on retail electric providers that can be set by the Texas Commission up
         to $0.65 per MWH.

-        Electric utilities are allowed to recover all of their net, verifiable,
         non-mitigable  stranded  costs that otherwise may not be recoverable in
         the future  competitive  market. A majority of those regulatory  assets
         and stranded costs can be recovered through securitization,  which is a
         financing to recover generation-related  regulatory assets and stranded
         costs  through the use of debt that lowers the carrying  cost of assets
         compared to conventional utility financing methods.

-        Each year during the 1999  through 2001 rate freeze  period,  utilities
         with stranded costs are required to apply any earnings in excess of the
         most  recently  approved cost of capital (if issued on or after January
         1, 1992) to reduce stranded  costs.  Utilities  without  stranded costs
         must  either  flow  such  amounts  back to  customers  or make  capital
         expenditures to improve  transmission or distribution  facilities or to
         improve air quality.

-        The affiliated power generation  company of the utility that serves the
         customer on December 31, 2001 will be required to auction  entitlements
         to at least 15% of its generating  capacity for five years or until 40%
         of the residential and small  commercial  consumption of electricity in
         the utility's service area is provided by nonaffiliated retail electric
         providers.

-        Grandfathered   power   plants,   those  built  or  started   prior  to
         implementation  of the  Texas  Clean  Air  Act  of  1972,  must  reduce
         emissions  of  nitrogen  oxide by 50% and sulfur  dioxide by 25% by May
         2003. The law also requires an additional  2,000 MW of renewable  power
         generation in Texas by 2009 from retail electric providers, municipally
         owned utilities and electric cooperatives.


                                      2-20
<PAGE>

-        A legislative  oversight  committee will monitor the implementation and
         effectiveness    of   electric   utility    restructuring    and   make
         recommendations for any necessary further legislative action.

      The  Texas  Commission  has  established  numerous  rulemakings  and other
processes  to  address  various  issues   associated   with  the   restructuring
legislation and to provide for further guidance regarding  implementation of the
restructuring.

      Restructuring Readiness
      CSW  has  initiated  a  restructuring  readiness  effort  to  prepare  for
competition in the states served by the U.S. Electric Operating Companies.  This
effort includes the development and implementation of a business separation plan
and the system and process  changes  required to prepare  for  competition.  The
business  separation plan filed with the Texas  Commission in January,  2000, is
discussed  below.  An analysis of the  processes  and systems in place and those
needed in the future has been completed, and CSW is beginning the implementation
phase of the restructuring readiness effort.

      Texas Business Separation Plan
      On January 10,  2000,  CSW filed with the Texas  Commission  its  business
separation  plan  required  by  the  Texas   Legislation  on  electric   utility
restructuring.  The business  separation plan describes the approach proposed by
CSW to unbundle the business  activities of each of its Texas Electric Operating
Companies  into  three  entities:  the  PGC,  the EDC and the REP.  Under  CSW's
business  separation  plan, all three new entities would continue to be owned by
CSW.  The PGC would own a CPL PGC and a WTU PGC.  The EDC would own CPL, WTU and
SWEPCO EDCs. Although the plan is directed to meet the requirements of the Texas
Legislation,  CSW expects the plan will also meet the restructuring requirements
anticipated to be  enacted in Arkansas,  Louisiana  and  Oklahoma.

      As  a  result of  rulings by the Texas Commission on March 16, 2000, CSW's
unbundling will include full  structural  separations for CPL and WTU by January
1, 2002.  This includes the structural  separation of the management and control
of the EDCs from the PGCs as well as the creation of a separate REP. For CPL and
WTU,  unbundling will require that legal  ownership of generation,  transmission
and  distribution  assets will be separated and  transferred to or vested in new
entities  , the CPL and WTU PGCs and EDCs,  respectively.  The CPL and WTU EDC's
would be regulated utilities under Texas law. Office systems,  computer systems,
accounting  systems and similar  equipment  would be segregated  and an employee
code of conduct would restrict  information  exchanges  between employees of the
regulated  entities  and  the  other  business  units.  Because  SWEPCO  also is
regulated in Arkansas and Louisiana,  the Texas Commission deferred its decision
on the  appropriate  separation  for SWEPCO  until  interested  parties  have an
opportunity to discuss issues that could result in a separation  plan acceptable
in each state.  CSW believes that its total cost to restructure  the CSW System,
which  includes  costs  for  the  EDC,  PGC  and  REP,  in  implementing  retail
competition in its service  territory is approximately  $200 million,  including
refinancing  costs of  approximately  $70 million.  Recognition  in rates of the
Texas  jurisdictional  EDC  portion  of these  costs will be sought in the Texas
Electric  Operating  Companies'  cost  unbundling  filings to establish  new EDC
regulated rates during the year 2000.

      Code of Conduct Under Customer Choice
      Legislation  was enacted in Arkansas and Texas in 1999 to restructure  the
electric utility  industry in those states.  These two new laws require that the
CSW System begin to operate its utilities as separate power generation entities,
retail electric  providers and  transmission and  distribution  entities.  Power
generation  entities  and  retail  electric  providers  will  be  non-regulated;
transmission  and  distribution  entities will  continue to be regulated.  On or
before  September  1,  2000,  the Texas  operations  portion of each of the U.S.
Electric  Operating  Companies will  functionally  separate their  regulated and
non-regulated utility activities.


                                      2-21
<PAGE>

      The  purpose of these  laws and the  separation  they  impose is to create
financial  and  informational  firewalls  between  regulated  and  non-regulated
activities of the CSW System so that competitive sensitive information cannot be
shared by regulated and non-regulated entities.

      In order to comply with the new Arkansas and Texas laws,  the  Registrants
will follow a "code of  conduct,"  which  requires  the  non-regulated  business
activities to be separate from the regulated  activities.  Transactions  between
the regulated and non-regulated activities are subject to an information-sharing
"firewall" and the requirement to act on an arm's-length basis.

      Other
      Management   cannot  predict  the  ultimate  outcome  of  the  initiatives
concerning restructuring and retail competition in Arkansas, Louisiana, Oklahoma
and  Texas,  or their  ultimate  impact  on  results  of  operations,  financial
condition,  or  competitive  position  of CSW and the  U.S.  Electric  Operating
Companies.

      Holding Company Act and Electric Industry Restructuring Legislation
      In 1995,  the SEC issued a  report to the  U.S. Congress advocating repeal
of the Holding Company Act, which restricts certain  activities of CSW and other
registered holding companies,  finding the Holding Company Act anachronistic and
duplicative of other federal and state regulatory regimes.

      HR 2944, "The Electricity  Competition and Reliability  Act," was reported
by the House Commerce  Subcommittee  on Energy and Power on October 27, 1999. If
enacted,  the  legislation  would repeal the Holding  Company Act twelve  months
after the bill is signed into law and  clarifies  that states have the authority
to order retail competition without a federal mandate.

      The U.S. Congress  continues to consider  legislative  initiatives,  which
provide  for the  restructuring  and/or  deregulating  of the  electric  utility
industry. Several similar bills have been introduced in the 106th Congress. Most
of the bills seek to clarify state  authority to mandate retail  choice,  repeal
the Holding  Company Act, repeal the Public Utility  Regulatory  Policies Act of
1978,  expand FERC authority over public power  entities,  address  transmission
reliability and other issues.  Management cannot predict the ultimate outcome of
any legislative initiatives.

      Regulatory Accounting
      Consistent with industry practice and the provisions of SFAS No. 71, which
allows for the recognition of regulatory  assets,  the U.S.  Electric  Operating
Companies have recognized  significant  regulatory assets and liabilities.  As a
result of  legislation  passed in  Arkansas  and Texas,  the retail  electricity
generation  business of CPL, SWEPCO and WTU, in those  jurisdictions,  no longer
meets the criteria to apply SFAS No. 71.  Instead,  the  principles  of SFAS No.
101, as interpreted by EITF 97-4,  have been applied.  Management  believes that
CPL,  SWEPCO and WTU currently  meet the criteria for following  SFAS No. 71 for
the remainder of their electric utility business.

      Additional  non-cash write-offs of regulatory assets and liabilities would
be required if additional  portions of the electric utility business of the U.S.
Electric  Operating  Companies no longer meet the criteria for applying SFAS No.
71, absent a means of recovering such assets or settling such  liabilities.  For
additional  information  regarding regulatory  accounting,  reference is made to
ITEM 8. NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

                                      2-22
<PAGE>


      Securitization of Generation-related  Regulatory Assets and Stranded Costs
      Electric utilities  under  the  Texas  Legislation  are allowed to recover
generation-related  regulatory  assets and stranded costs that otherwise may not
be  recoverable  in the future  competitive  market.  All or a majority of those
costs can be refinanced through  securitization,  which is a financing structure
designed  to  provide  lower  financing  costs  than is  available  through  the
conventional  utility cost of capital model.  The  securitized  amounts are then
recovered through a non-bypassable  wires charge. On October 18, 1999, CPL filed
an  application  with the Texas  Commission  to securitize  approximately  $1.27
billion of its retail generation-related regulatory assets and approximately $47
million in other qualified costs. The Texas Commission held hearings on December
7 and 8, 1999 on CPL's securitization application.

      On  February  10,  2000,  the  Texas  Commission  tentatively  approved  a
settlement,  which will permit CPL to securitize  approximately  $764 million of
regulatory  assets.  The Texas Commission is expected to grant final approval by
March 27, 2000. If approval is received from the Texas  Commission,  CPL expects
to issue the  securitization  bonds in 2000,  depending on market conditions and
the timing of any appeals of the Texas Commission order.

      The  settlement  calls  for  CPL  to  reduce  its  proposed  amount  to be
securitized  from $1.27  billion to  approximately  $764  million of  regulatory
assets plus an estimated $29 million of other  qualified  costs.  The settlement
also calls for $290 million of the amount originally requested to be included in
the  calculation  of  stranded  costs  in  CPL's  April  2000  transmission  and
distribution  cost filing.  This filing will establish  stranded costs, of which
75% can be securitized and 25% can be recovered through a competitive transition
charge.

      The  securitization  amount was  reduced by $186  million  from the amount
originally  requested to reflect customer  benefits  associated with accumulated
deferred  income taxes.  CPL previously had proposed to flow these benefits back
to customers over a 14-year term of the bonds.

      CPL could issue the bonds associated with securitization as early as April
2000,  depending on timing of receipt of a  non-appealable  financing order from
the Texas  Commission  and  depending  on market  conditions.  A second phase of
securitization  could  occur  when  the  Texas  Commission  makes a  preliminary
determination of stranded costs,  currently  expected to occur in the first half
of 2001. CPL's stranded costs are subject to a final  determination by the Texas
Commission in 2004.

      Under the provisions of EITF 97-4, CPL's generation-related net regulatory
assets were  transferred to the  transmission  and  distribution  portion of the
business  and  will be  amortized  as they  are  recovered  through  charges  to
customers.  Management  currently  believes  all  generation-related  regulatory
assets for CPL will be recovered  as provided  under the Texas  Legislation.  If
future  events were to occur that made the  recovery  of these  assets no longer
probable,  CPL would write-off any  non-recoverable  portion of such assets as a
non-cash charge to earnings.

      CPL believes it will also have stranded costs, which are the excess of net
book  value of  generation  assets as  defined  over the  market  value of those
assets.  CPL's amount of regulatory  assets and stranded  costs are subject to a
final  determination  by the Texas  Commission  in 2004.  The Texas  Legislation
provides  that all such finally  determined  stranded  costs will be  recovered.
Since  SWEPCO  and  WTU  are  not  expected  to have  net  stranded  costs,  all
generation-related  non-recoverable  net regulatory  assets were written off and
are reflected on their  statements of income as an  extraordinary  loss in 1999.
See ITEM 8. NOTE 16. EXTRAORDINARY ITEMS.


                                      2-23
<PAGE>

      CPL,  SWEPCO  and WTU  performed  an  accounting  impairment  analysis  of
generation  assets under SFAS No. 121 at September 30, 1999, and concluded there
was no  impairment of  generation  assets at that time.  An impairment  analysis
involves  estimating  future net cash flows arising from the use of an asset. If
the net cash flows  exceed  the net book  value of the  asset,  then there is no
impairment  of the asset  for  accounting  purposes.  CPL,  SWEPCO  and WTU will
continue to review their assets for potential impairment if events or changes in
circumstances indicate the carrying cost of an asset may not be recoverable.

      Beginning  January  1,  2002,  fuel  costs  will not be  subject  to Texas
Commission fuel reconciliation proceedings.  Consequently,  CPL, SWEPCO, and WTU
will file a final fuel reconciliation with the Texas Commission reconciling fuel
costs  through the period  December 31, 2001.  These final fuel balances will be
included in each company's true-up proceeding in 2004.

      CPL - Wholesale Customers
      Certain  CPL  wholesale  customers  have given  notice of their  intent to
terminate  their  contracts when they expire in 2001 through 2004.  During 1999,
these customers represented 3% of CPL's total electric operating revenues.

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

      In October  1998,  PSO  received an adverse  ruling from a NLRB ALJ on the
union's  unfair labor  practice  charge  against PSO. The ALJ ruled that PSO did
negotiate  in good faith but that PSO's  position  on some issues was too harsh,
and  therefore  the December 1996  implementation  of PSO's then final  proposal
should be rolled back and  employees  made whole from that date.  The ALJ upheld
PSO's  right  to  cease  collecting  union  dues  through  payroll   deductions.
Additionally,  the ALJ ruled that PSO improperly solicited employees to withdraw
from the union.  In December 1998, PSO appealed the ALJ's ruling to the NLRB. In
June  1999,  PSO made a  settlement  offer to the union to resolve  the  pending
charges  against PSO. The union  rejected this offer and indicated it would wait
for a ruling from the NLRB before deciding on further action. Should PSO receive
an adverse  ruling  from the NLRB,  PSO will have the option of  appealing  that
decision to a circuit  court.  At this time,  PSO cannot  predict  the  ultimate
outcome  of the  NLRB  matter.  However,  PSO  believes  that it will not have a
material adverse effect on its results of operations or financial condition. The
preceding discussion constitutes  forward-looking information within the meaning
of Section 21E of the Exchange Act.  Actual results may differ  materially  from
such projected information. See FORWARD-LOOKING INFORMATION.

      WTU Changes in Operations
      On February 22, 2000,  WTU  announced  that as a result of an  operational
review,  the WTU Merchandise  Program was being discontinued as of September 30,
2000,  since the  merchandise  program no longer fits WTU's  business  strategy.
Under the merchandise  program,  WTU sold electric appliances and other items at
local offices across the WTU service territory.


                                      2-24
<PAGE>

      WTU also announced that as part of the operational  review,  bill payments
and other traditional customer transactions would no longer be accepted at local
offices as of September 30, 2000. Due to improvements in technology,  WTU offers
bill payment service through the Internet as well as other  alternative  payment
programs.

      WTU  estimates  that 65  employees  will be  affected  by the  changes  in
operations,  including 49 merchandise employees.  Although WTU has not completed
its  analysis,  the cost of these  changes  is not  expected  to have a material
adverse effect on WTU's results of operations or financial condition.

      SEEBOARD - Third Party Pension Litigation
      In the U.K.,  National  Grid and National  Power PLC have been involved in
continuing  litigation  regarding their use of actuarial  surpluses disclosed in
the 1992 and 1995 valuations of the electricity industry's  occupational pension
plan, the ESPS. A High Court decision in favor of the National Grid and National
Power PLC was  appealed.  On February 10, 1999,  the U.K.  Court of Appeal ruled
that the particular  arrangements made by these  corporations to dispose of part
of the surplus  were  invalid  due to  procedural  defects.  This  decision  was
confirmed at a later hearing of the U.K.  Court of Appeal held in May 1999.  The
National Grid has appealed to the House of Lords, the highest court of appeal in
the U.K.,  and a decision  is  expected  in late 2000 or early  2001.  The final
outcome of this appeal cannot presently be determined.

      SEEBOARD  employees are members of the ESPS, and SEEBOARD has made similar
use of  actuarial  surpluses  disclosed  in the 1992 and 1995  valuations.  As a
result of subsequent  legal  clarification  of certain  issues  arising from the
hearing  held in May 1999,  the  potential  impact of the ruling on SEEBOARD has
increased.  The amount of the payments  cancelled by SEEBOARD in  recognition of
these  surpluses  amounts to  approximately  $78 million,  excluding any accrued
interest.

      The U.K. Court of Appeal did not order the National Grid or National Power
PLC to make payment into the ESPS, and the court  indicated that any requirement
to make such  payments  would be harsh since the  relevant  sections of the ESPS
already  have a surplus.  In the event the court  decides a payment by  SEEBOARD
into the ESPS is  necessary,  such a payment  is  likely  to  create  additional
pension  fund  surplus,  which  SEEBOARD  would be able to utilize over the next
several years to reduce pension expense.

      Management  is unable  currently to predict the amount of any payment that
it may be required to make to ESPS,  but the payment  should not have a material
adverse affect on CSW's results of operations or financial condition.

      The foregoing discussion  constitutes  forward-looking  information within
the  meaning of Section  21E of the  Exchange  Act.  Actual  results  may differ
materially from such projected information. See FORWARD - LOOKING INFORMATION.


RATES AND REGULATORY MATTERS

U.S. ELECTRIC

      CPL Rate Review - Docket No 14965
      In  November  1995,  CPL filed  with the  Texas  Commission  a request  to
increase  its retail base rates by $71 million.  On October 16, 1997,  the Texas
Commission  issued the CPL 1997 Final Order which lowered the annual retail base
rates of CPL by  approximately  $19  million,  or 2.5%,  from  CPL's  rate level
existing  prior to May 1996. The Texas  Commission  also included a "glide path"
rate  methodology  in the CPL 1997 Final Order  pursuant  to which CPL's  annual

                                      2-25
<PAGE>

rates  were  reduced by $13  million  beginning  May 1, 1998 with an  additional
reduction of $13 million on May 1, 1999.

      CPL  filed an  appeal of the CPL 1997  Final  Order to the State  District
Court of Travis County to raise  several  issues  related to the rate case.  The
primary  issues  include:  (i) the  classification  of $800  million of invested
capital in STP as ECOM which was also  assigned  a lower  return on equity  than
non-ECOM  property;  (ii) the Texas  Commission's  use of the "glide  path" rate
reduction  methodology applied on May 1, 1998 and May 1, 1999; and (iii) the $18
million of  disallowed  affiliate  expenses  from CSW  Services.  As part of the
appeal, CPL sought a temporary  injunction to prohibit the Texas Commission from
implementing the "glide path" rate reduction  methodology.  The court denied the
temporary  injunction and the "glide path" rate reduction was implemented in May
1998 and May 1999.  Hearings on the appeal were held during the third quarter of
1998, and a judgment was issued in February 1999 affirming the Texas  Commission
order,  except for a consolidated  tax issue in the amount of $6 million,  which
was  remanded to the Texas  Commission.  CPL filed an appeal of this most recent
order to the Third  District of Texas Court of Appeals and  management is unable
to predict how the final resolution of these issues will ultimately affect CSW's
and CPL's results of operations and financial condition.

      On May 4, 1999,  AEP and CSW announced  that they had reached a stipulated
agreement with the General Counsel of the Texas Commission and other intervenors
in the state of Texas related to the AEP/CSW merger case.  The Texas  Commission
approved the AEP Merger in early  November 1999. If the AEP Merger is ultimately
consummated,  CSW will withdraw its appeal with respect to the "glide path" rate
reduction  methodology  as  discussed  above as issue  "(ii)" but will  continue
seeking the appeal of issues  "(i) and (iii)" as  discussed  above.  See ITEM 8.
NOTE 15. PROPOSED AEP MERGER for a discussion of the stipulated agreement.

      See ITEM 8. NOTE 2. LITIGATION AND REGULATORY  PROCEEDINGS for information
on the CPL 1997 Final Order.

      SWEPCO Louisiana Rate Review
      In December  1997,  the  Louisiana  Commission  announced  it would review
SWEPCO's  rates  and  service.  In  October  1999,  SWEPCO  and the staff of the
Louisiana  Commission  reached an Agreement and Stipulation,  which was filed on
October 14, 1999. The  significant  provisions of the Agreement and  Stipulation
are as follows:

-     SWEPCO's Louisiana retail  jurisdictional  revenues were reduced by $11
      million, effective with the December 1999 billing cycle;

-     SWEPCO is allowed to earn an 11.1% return on common equity;

-     SWEPCO is allowed to recover certain regulatory assets totaling $7.1
      million;

-     SWEPCO will be subject to a two-year base rate freeze, which includes
      force majeure provisions; and

-     SWEPCO will be allowed to increase depreciation rates for transmission,
      distribution and generation plant.

      The  Louisiana  Commission  approved  the  Agreement  and  Stipulation  in
 November 1999 which was implemented in December 1999.


                                      2-26
<PAGE>

      SWEPCO Arkansas Rate Review
      In July 1998, the Arkansas Commission began a review of SWEPCO's earnings.
On July 30, 1999,  SWEPCO  entered into a settlement  agreement with the general
staff of the Arkansas Commission and the Arkansas Attorney General's Office. The
settlement  agreement  reduces SWEPCO's Arkansas annual revenues by $5.4 million
or 3%.  Additionally,  the stipulation and settlement  agreement  provides for a
10.75%  return on common  equity,  an increase  in  depreciation  rates,  and an
agreement by SWEPCO not to seek recovery of generation-related stranded costs.

      On September 23, 1999, the Arkansas  Commission  issued an order approving
the  stipulation  and settlement  agreement.  On October 25, 1999,  SWEPCO filed
compliance rate tariffs with the Arkansas Commission,  which are consistent with
the Arkansas  Commission order. The provisions of the settlement  agreement were
implemented in December 1999.

      Other
      Reference is made to ITEM 8. NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS
for information regarding fuel proceedings at CPL, SWEPCO and WTU.


U.K. ELECTRIC

      SEEBOARD Recent Regulatory Actions
      Following the commencement of the phased-in  opening of the United Kingdom
domestic and small business  electricity market to competition,  since September
1998, many customers are now able to choose their electricity supplier. SEEBOARD
competes  for  customers in its own area as well as  throughout  the rest of the
United  Kingdom.  The DGEGS has  allowed a  significant  portion  of the  system
development  costs  associated  with  the  introduction  of  competition  to  be
recovered  by  the  regional  electricity  companies  through  a  charge  to all
customers  over the  next  five  years.  The  DGEGS  has  also  announced  price
restraints which set a maximum amount that existing electricity supply companies
can charge their domestic and small business customers,  taking into account its
view of future electricity purchase costs. For SEEBOARD,  these price restraints
reduced  prices in real terms by 6% for the  regulatory  year  ending  March 31,
1999, and a further 3% for the following regulatory year ending March 31, 2000.

       Regulatory Price Proposal for SEEBOARD
      On December 2, 1999,  OFGEM  published its final price  proposals from its
United  Kingdom  electricity  distribution  review.  OFGEM has proposed  revenue
reductions in SEEBOARD's  distribution  business of 21%. In addition,  OFGEM has
proposed  the  reallocation  of  a  further  12%  of  costs  out  of  SEEBOARD's
distribution business into its supply business. These proposals were accepted on
December 20, 1999,  and will take effect on April 1, 2000,  and remain in effect
for five years.  OFGEM's  proposals  will reduce net income for  SEEBOARD in the
year 2000 by approximately $40 million, dependent upon the level of further cost
reductions that can be achieved, and by approximately $60 million in 2001. CSW's
net income from SEEBOARD U.S.A.,  its United Kingdom business segment,  was $113
million for the twelve months ended December 31, 1999.

      OFGEM's price  proposals for SEEBOARD will have a material  adverse effect
on the future results of operations of SEEBOARD  U.S.A.  and CSW, but are not be
expected to adversely affect the financial condition of CSW.

      OFGEM also published the final price proposals for the electricity  supply
price review.  OFGEM has  recommended  that the price cap for charges  levied to
electricity  supply domestic and small business customers should be extended for

                                      2-27
<PAGE>

two years from April 1, 2000.  Overall,  these  proposals are expected to have a
broadly neutral effect on the results of SEEBOARD U.S.A.

      In the  fourth  quarter of 1999,  a rating  agency  downgraded  SEEBOARD's
credit rating to BBB+ due to recent U.K. regulatory action.

      The foregoing discussion  constitutes  forward-looking  information within
the  meaning of Section  21E of the  Exchange  Act.  Actual  results  may differ
materially from such projected information. See FORWARD-LOOKING INFORMATION.


OTHER INITIATIVES

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


      DIVERSIFIED ELECTRIC

      CSW Energy
      CSW Energy  presently  owns  interests in seven  operating  power projects
totaling 1,308 MW which are located in Colorado,  Florida and Texas. In addition
to  these  projects,  CSW  Energy  has  other  projects  in  various  stages  of
development.

      CSW Energy  began  construction  in August  1998 of a 500 MW power  plant,
known as Frontera,  in the Rio Grande Valley,  near the city of Mission,  Texas.
The natural  gas-fired  facility began simple cycle  operation of 330 MW in July
1999 and is  scheduled  to  commence  combined  cycle  operation  in early 2000.
Pursuant to AEP's and CSW's stipulated agreement with several intervenors in the
state of Texas related to the AEP Merger, CSW Energy may sell 250 MW of Frontera
upon completion of the merger. See ITEM 7. - MD&A,  PROPOSED AEP MERGER and ITEM
8. NOTE 15. PROPOSED AEP MERGER for additional information.

      CSW Energy  also has  entered  into an  agreement  with  Eastman  Chemical
Company to  construct  and operate a 440 MW  cogeneration  facility in Longview,
Texas.  This  facility  will  be  known  as  the  Eastex  Cogeneration  Project.
Construction  of the facility began in the fourth quarter of 1999, with expected
operation in early 2001. Excess electricity  generated by the plant will be sold
by CSW Energy in the wholesale electricity market.


                                      2-28
<PAGE>

      In October 1999, GE Capital  Structured Finance Group purchased 50% of the
equity  ownership  of Sweeny  Cogeneration  Limited  Partnership.  CSW  Energy's
after-tax  earnings from the proceeds of the transaction were  approximately $33
million and were recorded in the fourth quarter of 1999.  The agreement  between
CSW Energy and GE Capital  Structured Finance Group also provides for additional
payments to CSW Energy,  subject to  completion  of a planned  expansion  of the
Sweeny cogeneration facility,  which may be operational in the fourth quarter of
2000.

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

      CSW International
      CSW International was organized to pursue investment opportunities in EWGs
and FUCOs and currently  holds  investments  in the United  Kingdom,  Mexico and
South America.

      CSW  International  and its 50% partner,  Scottish  Power plc have entered
into a joint venture to construct and operate the South Coast power  project,  a
400 MW combined cycle gas turbine power station in Shoreham, United Kingdom. CSW
International has guaranteed  approximately  (pound)19 million of the (pound)190
million  construction  financing.   Both  the  guarantee  and  the  construction
financing are  denominated in pounds  sterling.  The U.S.  dollar  equivalent at
December  31, 1999 would be $31 million and $308 million  respectively,  using a
conversion  rate  of  (pound)1.00  equals  $1.62.  The  permanent  financing  is
unconditionally guaranteed by the project.  Construction of the project began in
March 1999, and commercial operation is expected to begin in late 2000.

      Through  November  1999,  CSW  International  had  purchased  a 36% equity
interest in Vale for $80 million.  CSW International  also extended $100 million
of debt  convertible  into  equity  in Vale  in  1998.  In  December  1999,  CSW
International  converted  $69 million of that $100 million into equity,  thereby
raising  its  equity  interest  in Vale to 44%.  CSW  International  anticipates
converting the remaining debt into equity over the next two years.

      In  January  1999,  amid  market  instability,  the  Brazilian  government
abandoned its policy of pegging the  Brazilian  Real in a range against the U.S.
dollar.  This action resulted in a 49% devaluation of the Brazilian  currency by
the end of December 1999.  Vale is unfavorably  affected by the  devaluation due
primarily to the revaluation of foreign denominated debt.

      CSW International has a put option, which, if exercised,  requires Vale to
purchase CSW  International  shares at a minimum price equal to the U.S.  dollar
equivalent  of the  purchase  price  for  Vale.  As a result  of the put  option
arrangement,  CSW International's investment carrying amount will not be reduced
below the put option value unless there is deemed to be a permanent  impairment.
Pursuant  to  this  arrangement,   CSW  International  will  not  recognize  its
proportionate  share of any future earnings until its proportionate share of any
losses of Vale is  recognized.  At December  31,  1999,  CSW  International  had
deferred  losses,  after tax, of  approximately  $21 million related to its Vale
investment.  CSW  International  views  its  investment  in Vale as a  long-term
investment,  which has significant long-term value.  Management will continue to
closely  evaluate  the  changes in the  Brazilian  economy and its impact on CSW
International's investment in Vale.

      As of December 31, 1999,  CSW  International  had invested $110 million in
common stock of a Chilean  electric  company.  The  investment  is classified as
securities available for sale and accounted for by the cost method. Based on the
current market value of the shares and the year-end  foreign  exchange rate, the
value of the  investment at December 31, 1999 was $62 million.  The reduction in

                                      2-29
<PAGE>

the carrying value of this investment has been reflected in Other  Comprehensive
Income in CSW's  Consolidated  Statements of  Stockholders'  Equity.  Management
views its  investment in Chile as a long-term  investment  strategy and believes
this  investment  continues to have  significant  long-term value and that it is
recoverable.  Management  will  continue to closely  evaluate the changes in the
South American economy and its impact on CSW  International's  investment in the
Chilean electric company.

      In addition to these projects, CSW Energy and CSW International have other
projects in various stages of development. CSW, CSW Energy and CSW International
have provided  letters of credit and  guarantees on behalf of CSW Energy and CSW
International  projects  of  approximately  $62  million,  $41  million and $233
million, respectively, as of December 31, 1999.

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


      ENERGY SERVICES

      C3 Communications
      C3  Communications  has two active  business  units,  C3  Networks  and C3
Utility  Automation.  C3 Networks  offers  wholesale,  high capacity,  long-haul
regional and metropolitan fiber and collocation  services to  telecommunications
carriers and Internet service providers in Texas and Louisiana.

      C3 Networks has  approximately  1,500 miles of fiber  network in Texas and
Louisiana  and offers  collocation  services to carriers  and  Internet  service
providers through sites in Dallas,  Houston,  Austin, San Antonio,  Abilene, San
Angelo,  Corpus  Christi,  Harlingen,  Laredo,  and  McAllen,  Texas and  Tulsa,
Oklahoma.

      In 1999, C3 Utility Automation launched a new energy information  service,
PurView(TM).  In addition,  EnerACT(TM)  advisory  services was transferred from
EnerShop to better align  products and  marketing.  PurView(TM) is a service for
collecting  meter data and  interactively  viewing,  manipulating  and analyzing
consumption information over the Internet.  EnerACT(TM) is an energy information
and advisory service for multi-site building owners and managers.

      C3  Communications  believes that electric utility industry  restructuring
will continue to fuel interest in its energy information services. Evaluation of
partnerships  and  acquisitions  will also be a key  element  of  growth  for C3
Communications  in 2000. The foregoing  statement  constitutes a forward-looking
statement  within the meaning of Section 21E of the Exchange Act. Actual results
may differ  materially  from such  projected  information  due to changes in the
underlying assumptions. See FORWARD-LOOKING INFORMATION).

      EnerShop
      EnerShop's  two product  lines in 1999 were  performance  contracting  and
EnerACT(TM)   advisory   services  until  August  1999,  when   EnerACT(TM)  was
transferred to C3 Communications to better align products and marketing.

      EnerShop  continues to provide  energy  services to customers in Texas and
Louisiana that help reduce  customers'  operating costs through increased energy
efficiencies and improved equipment operations.  EnerShop utilizes the skills of
local  trade  allies in  offering  services  that  include  energy and  facility

                                      2-30
<PAGE>

analysis,  project  management,  engineering design,  equipment  procurement and
construction and performance monitoring.

      Business Ventures
      The CSW Services'  Business Ventures is comprised of companies that pursue
energy-related businesses. Projects include providing energy management systems,
electric  substation  automation  software and the marketing and distribution of
electric bikes and associated accessories under the TotalEV name.

      In late 1997,  CSW Energy  Services  was  launched to explore the electric
utility industry's  emerging retail supply markets as they were deregulated on a
state-by-state basis. In January 1999, CSW Energy Services announced that it was
ceasing its business as a retail electric  supplier and that it would assign its
existing  electricity  supply contracts to other suppliers or terminate them. In
the fourth quarter of 1999, the CSW Business  Ventures group's  investment in an
energy-related  company that provides staffing services for nuclear power plants
was transferred from PSO to CSW Energy Services.


SOUTH TEXAS PROJECT

      CPL owns 25.2% of STP, a two-unit nuclear power plant that is located near
Bay City,  Texas.  Reliant Energy Resources  Corporation owns 30.8%, the City of
San Antonio owns 28.0%, and the City of Austin owns 16.0% of STP. STP Unit 1 was
placed in service in August  1988,  and STP Unit 2 was placed in service in June
1989. In November 1997,  STPNOC assumed the duties of STP operator.  Each of the
four STP co-owners are represented on the STPNOC board of directors.

      STP Unit 1 and Unit 2 were removed  temporarily  from service  during 1999
for scheduled refueling and ten-year  inspection  outages.  During 1999, Units 1
and 2 operated at net capacity factors of 88.0% and 89.4%, respectively.

      For additional information regarding STP and the accounting for the
decommissioning of STP, see ITEM 8. NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES and ITEM 8. NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS.


ENVIRONMENTAL MATTERS

      The  operations of the CSW System,  like those of other  utility  systems,
generally  involve the use and disposal of substances  subject to  environmental
laws.  CERCLA,  the  federal  "Superfund"  law,  addresses  the cleanup of sites
contaminated by hazardous substances. Superfund requires that PRPs fund remedial
actions  regardless of fault or the legality of past disposal  activities.  PRPs
include  owners and  operators of  contaminated  sites and  transporters  and/or
generators of hazardous substances.  Many states have similar laws. Legally, any
one PRP can be held  responsible  for the  entire  cost of a  cleanup.  Usually,
however, cleanup costs are allocated among PRPs.

      The U.S.  Electric  Operating  Companies  are  subject to various  pending
claims  alleging  that they are PRPs under  federal or state  remedial  laws for
investigating  and  cleaning  up  contaminated   property.   CSW  believes  that
resolution of these claims,  individually  or in the aggregate,  will not have a
material  adverse  effect  on  CSW's or any U.S.  Electric  Operating  Company's
results of  operations  or  financial  condition.  Although the reasons for this
expectation  differ  from  site to  site,  factors  that are the  basis  for the
expectation for specific sites include the volume and/or type of waste allegedly

                                      2-31
<PAGE>

contributed by the U.S.  Electric  Operating  Company,  the estimated  amount of
costs allocated to the U.S. Electric  Operating Company and the participation of
other parties. (The foregoing statements constitute  forward-looking  statements
within the meaning of Section 21E of the Exchange Act. Actual results may differ
materially  from such  projected  information  due to changes in the  underlying
assumptions.  See FORWARD-LOOKING  INFORMATION).  See ITEM 8. NOTE 2. LITIGATION
AND  REGULATORY  PROCEEDINGS  and ITEM 8.  NOTE 3.  COMMITMENTS  AND  CONTINGENT
LIABILITIES for additional discussion regarding environmental matters.

      The EPA recently promulgated  revised,  more stringent ambient air quality
standards  for ozone and  particulates.  While  these  standards  do not mandate
emission constraints or reductions for facilities such as electricity generating
power plants,  they may result in more areas being designated as  non-attainment
for these two  pollutants.  States  will be required  to develop  strategies  to
achieve  compliance in these areas,  strategies  that may include lower emission
levels for electricity  generating power plants,  possibly including  facilities
within the CSW System. The impact, if any, on CSW or the U.S. Electric Operating
Companies cannot yet be determined, but the impact could be significant.

      At the Kyoto,  Japan  Conference on Global  Warming held in December 1997,
U.S.  representatives  agreed to a treaty which could require new limitations on
"greenhouse  gases"  from  power  plants.  CSW and the U.S.  Electric  Operating
Companies could be affected if this treaty,  in its present form, is approved by
the United  States  Congress.  The impact,  if any, on CSW or the U.S.  Electric
Operating  Companies  cannot be determined  because most of the  greenhouse  gas
emission  reduction  would  come  from coal  generation  that  would  have to be
switched  to natural  gas or  retired.  During  1999,  50% of the U.S.  Electric
Operating  Companies' MWH generation of which,  at December 31, 1999, 33% of its
installed generating capacity was coal and lignite.


RISK MANAGEMENT

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

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

      In response  to the  development  of a more  competitive  electric  energy
market, CSW has received regulatory approval, which authorizes the U.S. Electric
Operating  Companies to conduct a pilot program  offering power sales agreements
at tariffed  rates with a fixed fuel cost.  To offset the  commodity  price risk
associated with these contracts, CSW has purchased natural gas swaps and futures
contracts.  These arrangements cover estimated natural gas deliveries  beginning
in January 2000 and  continuing  for the remainder of 2000.  Natural gas volumes
purchased  to serve these  contracts,  for which CSW has secured swap or futures
contracts, represents approximately 1% of annual natural gas purchases.


                                      2-32
<PAGE>

      Based on year-end contractual  commitments,  CSW's natural gas futures and
swap contracts and electricity  forward  contracts that are sensitive to changes
in commodity  prices  include fair value of assets of $157,260 and fair value of
liabilities  of $396,440.  These swap and future  contracts  hedge their related
commodity price exposure for 2000.  Cash outflows on the swap agreements  should
be offset by increased  margins on electricity sales to customers under tariffed
rates with fixed fuel costs. The electricity  forward  contracts hedge a portion
of CSW's energy  requirements  through February 2000. The average contract price
for forward  purchases is $30 per MWH and $2.32 per MMbtu. The average price for
natural gas futures contracts is $2.47 per MMbtu and $2.37 per MMbtu for swaps.

      SEEBOARD has entered into contracts for  differences to reduce exposure to
fluctuations  in the price of electricity  purchased  from the United  Kingdom's
electricity power pool. This pool was established at privatization of the United
Kingdom's  electric  industry  for  the  bulk  trading  of  electricity  between
generators  and  suppliers.  At  December  31,  1999,  the  gross  value of such
contracts for differences was  approximately 83% of the expected power purchases
for 2000.

      CSW has, at times,  been exposed to currency and interest rate risks which
reflect the floating  exchange rate that exists between the U.S.  dollar and the
British pound.  CSW has utilized certain risk management tools to manage adverse
changes in exchange  rates and to facilitate  financing  transactions  resulting
from CSW's  acquisition of SEEBOARD.  At December 31, 1999, CSW had positions in
two cross currency swap  contracts.  The following  table  presents  information
relating to these  contracts.  The fair value of cross  currency  swaps  reflect
third party valuations  calculated using  proprietary  pricing models.  Based on
these  valuations,  CSW's position in these cross currency swaps  represented an
unrealized  loss of $41.8 million at December 31, 1999.  This unrealized loss is
offset by unrealized gains related to the underlying  transactions being hedged.
CSW expects to hold these contracts to maturity. At current exchange rates, this
liability is included in long-term debt on CSW's consolidated balance sheet at a
carrying value of approximately $418 million.

                                               Expected          Expected Cash
                                             Cash Inflows          Outflows
Contract                 Maturity Date     (Maturity Value)     (Market Value)
--------------------------------------------------------------------------------
                                                        (millions)
Cross currency swaps    August 1, 2001           $200                $213
Cross currency swaps    August 1, 2006           $200                $229

      For information related to currency risk in South America see OTHER
INITIATIVES, DIVERSIFIED ELECTRIC, CSW International and ITEM 8. NOTE 18.
SOUTH AMERICAN INVESTMENTS.  For information on commodity contracts see ITEM
8. NOTE 7. FINANCIAL INSTRUMENTS.


OTHER MATTERS

      Year 2000
      On a system-wide  basis, CSW initiated and implemented a year 2000 project
to prepare  internal  computer systems and applications for the year 2000. These
systems and applications  include  management  information  systems that support
business   operations  such  as  customer   billing,   payroll,   inventory  and
maintenance.    Other   systems   with    computer-based    controls   such   as
telecommunications,  elevators,  building  environmental  management,  metering,
plant, transmission,  distribution and substations were included in this project
as well.


                                      2-33
<PAGE>

      Cost to Address Year 2000 Issues
      As of December 31, 1999, cost incurred for the year 2000 project  amounted
to  approximately  $33  million,  including  $21  million  in  1999.   Remaining
activities are expected to cost an additional $3 million in the first quarter of
2000.

      In the first  quarter  of 1999,  a  software  version  upgrade  to provide
contract management features to the materials management  information system was
deferred  until 2000 in order to minimize  risk.  The  financial  impact of this
deferral was minimal,  as minor  enhancements  to the current design provided an
alternative,  interim solution for the needed functionality. The deferred system
upgrade is now  scheduled  for  implementation  in the May to November 2000 time
frame. No other planned CSW computer  information  system projects were affected
by the year 2000 project,  even though a moratorium was  implemented  during the
month of December 1999 to further  minimize risk.  Accordingly,  no estimate was
made for the financial  impact of any future projects  foregone due to resources
allocated to the year 2000 project.

      Contingency Plans
      Contingency plans have been in place in CSW's domestic electric  operation
for years to address problems  resulting from weather.  These plans were updated
to  include  year 2000  issues.  Contingency  planning  is  engineered  into the
transmission and  distribution  systems as it is designed with the capability to
bypass  failed  equipment.  A margin of power  generation  reserve above what is
needed is normally maintained. This reserve is a customary operating contingency
plan that allows CSW to operate  normally  even when a power plant  unexpectedly
quits operating.  Backup supplies of fuels are normally  maintained at CSW power
plants.  Natural  gas plants  have fuel oil as a backup and  multiple  pipelines
provide redundant supplies.  At coal plants about 40 to 45 days of extra coal is
kept on hand.

      SEEBOARD also has well established  contingency  plans to address problems
resulting  from  weather.   These  plans  are  covered  effectively  within  the
distribution  and customer  service  business  areas and were updated to include
year 2000 scenarios.

      Transition Results to Date
      The results of the readiness  activities  described in the foregoing  have
all been positive. The CSW System completed the year 2000 transition without any
year 2000 related electric system problems. The business support systems in each
of CSW and its  subsidiaries  also made the transition from 1999 to 2000 without
any year 2000 related  impact on the  operations  they support or the  customers
they serve.  CSW continues to closely monitor its electric and business  support
systems.

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

NEW ACCOUNTING STANDARDS

      SFAS No. 133 as amended by SFAS No. 137
      SFAS No.  133 as amended by SFAS No.  137 is  effective  for fiscal  years
beginning  after June 15, 2000 or January 1, 2001,  for calendar year  entities.
SFAS No.  133  replaces  existing  pronouncements  and  practices  with a single
integrated  accounting  framework for  derivatives  and hedging  activities  and
eliminates previous inconsistencies in generally accepted accounting principles.
SFAS No. 133 expands the accounting definition of derivatives, which had focused
on  freestanding  contracts  (futures,  forwards,  options and swaps) to include
embedded  derivatives  and many commodity  contracts.  All  derivatives  will be
reported on the balance  sheet either as an asset or liability  measured at fair
value.  Changes in a  derivative's  fair value will be  recognized  currently in

                                      2-34
<PAGE>

earnings unless specific hedge accounting  criteria are met. CSW has established
a project team to implement SFAS No. 133. CSW has not yet quantified the effects
of adopting SFAS No. 133 on its financial  statements,  although  application of
SFAS No. 133 could  increase  volatility  in  earnings  and other  comprehensive
income. See NOTE 17. NEW ACCOUNTING STANDARDS.


                                      2-35

<PAGE>



CENTRAL AND SOUTH WEST CORPORATION
RESULTS OF OPERATIONS

      Reference is made to CSW's  Consolidated  Financial  Statements,  Notes to
Consolidated  Financial  Statements  and  Selected  Financial  Data.  Referenced
information   should  be  read  in   conjunction   with,  and  is  essential  to
understanding,  the following discussion and analysis.  CSW's results fluctuate,
in part, with the weather. Also, other than certain one-time items, as discussed
throughout  the results of  operations,  CSW's income  statement line items as a
percentage  of total  revenues  remain fairly  consistent,  due primarily to the
regulatory  environment in which CSW operates. The preceding discussion contains
forward-looking  information  within the meaning of Section 21E of the  Exchange
Act. Actual results may differ materially from such projected information due to
changes in the underlying assumptions. See FORWARD-LOOKING INFORMATION.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND 1998

      CSW's  earnings  increased  to $455  million in 1999 from $440  million in
1998.  CSW's return on average common stock equity was 12.8% in 1999 compared to
12.4% in 1998. The primary  reason for the higher  earnings and higher return on
average common stock equity was the previously planned sale of 50% of CSW's 100%
equity  ownership  interest  in  a  cogeneration  partnership.  CSW's  after-tax
earnings  recorded  in the  fourth  quarter  of 1999  from the  proceeds  of the
transaction were $33 million. Earnings also increased due to the absence in 1999
of a charge for  accelerated  capital  recovery  of STP and the absence of asset
write-offs at several of CSW's business segments recorded in 1998.

      Partially  offsetting  the  higher  earnings  was  higher  operations  and
maintenance  expense at  SEEBOARD,  CSW Energy and the U.S.  Electric  Operating
Companies.  Also  partially  offsetting  the  higher  earnings  was a charge  to
earnings  at CPL,  SWEPCO and WTU that was made to reflect  the excess  earnings
provision of the Texas  Legislation  enacted in 1999.  Another factor  partially
offsetting  higher 1999  earnings  was the  extraordinary  loss  resulting  from
legislation enacted in Texas and Arkansas under which the electricity generation
portion of CPL's,  SWEPCO's  and WTU's  business in those states no longer meets
the  criteria  to  apply  SFAS No.  71.  See ITEM 7.  MD&A -  Securitization  of
Generation-related  Regulatory  Assets  and  Stranded  Cost,  ITEM  8.  NOTE  2.
LITIGATION  AND  REGULATORY   PROCEEDINGS  -  Electric   Utility   Restructuring
Legislation and NOTE 16. EXTRAORDINARY ITEMS for additional information.

Operating  revenues  increased $55 million in 1999 compared to 1998. The revenue
variances are shown in the following table.

                             1999 REVENUE VARIANCES
                  Increase (decrease) from prior year, millions

                  U.S. Electric
                       KWH Sales, Weather-Related        $(64)
                       KWH Sales, Growth and Usage         65
                       Fuel Revenue                        37
                       Sales for Resale                    22
                       Other Electric                     (24)
                                                    ------------
                                                           36
                  United Kingdom                          (64)
                  Other Diversified                        83
                                                    ------------
                                                          $55
                                                    ------------

                                      2-36
<PAGE>

      U.S.  Electric revenues  increased $36 million,  or 1% in 1999 compared to
1998. Retail U.S.  Electric revenues  increased due to higher customer usage and
growth and higher  off-system  sales. An increase in fuel revenues due to higher
fuel prices and purchased power expense,  discussed  below,  also contributed to
the higher  revenues.  Milder weather in 1999 when compared to the previous year
partially  offset  the  increase  in  revenues.  MWH  sales  decreased  1.5% due
primarily to a decrease in sales to the  residential  customer class as a result
of the milder weather.

      United Kingdom revenues decreased $64 million in 1999 compared to 1998 due
to lower sales volumes in the business market and the loss of domestic customers
following  the  opening  of  the  electricity   market  to   competition.   Also
contributing  to the  decrease  in U.K.  electric  revenues  were the absence in
revenues in 1999 from SEEBOARD's  retail business,  which was sold in June 1998,
and unfavorable  British pound to U.S.  dollar  exchange rate  movements.  Other
diversified  revenues  increased  $83  million  in 1999  compared  to  1998  due
primarily to increased business activity at CSW Energy.

      During 1999 and 1998, the U.S. Electric Operating  Companies generated 86%
and 92% of their electric energy requirements,  respectively. U.S. Electric fuel
expense  decreased  $14 million in 1999  compared to 1998 due primarily to a $41
million  decrease in the recovery of deferred  fuel costs that  resulted  from a
significant  difference  in fuel  factors  used to  recover  fuel  expense  from
customers at PSO. The decrease in fuel expense was offset in part by an increase
in fuel  prices to $1.78 per  MMbtu in 1999 from  $1.67 per MMbtu in 1998.  U.S.
Electric purchased power expense increased $46 million,  or 41% due primarily to
an increase in economy energy purchases.

      United  Kingdom cost of sales  decreased  $71 million in 1999  compared to
1998 due primarily to a lower level of sales of  electricity  and the absence in
1999 of cost of sales for SEEBOARD's  retail  business and a lower British pound
to U.S. dollar exchange rate compared to 1998.

      Other operating expense increased $27 million in 1999 compared to 1998 due
in part to increased  expenses at SEEBOARD.  Expenses increased at SEEBOARD as a
result of additional  operating costs from SEEBOARD's Powerlink joint venture to
operate and  maintain the  electricity  assets for the London  Underground  Rail
System  as  well  as  increased  expenses   associated  with  operating  in  the
competitive  electricity  market in the United Kingdom.  CSW Energy's  operating
expenses also increased as a result of increased business activity at several of
its  plants.  Operating  expenses  increased  at  the  U.S.  Electric  Operating
Companies due primarily to a settlement with a transmission service provider and
increased power plant operating costs. Maintenance expense increased $31 million
due primarily to increased  expenses  associated with the 10-year  inspection of
STP Unit 1 and 2, higher scheduled  maintenance at other CSW System power plants
and higher tree trimming expenses.

      Depreciation  and amortization  expense  increased $31 million in 1999 due
primarily  to  accelerated  capital  cost  recovery  under the  excess  earnings
provisions  of the  Texas  Legislation,  as well  as  increases  in  depreciable
property.

      Other  income and  deductions  increased  to $59  million in 1999 from $42
million in 1998 due primarily to gains from the sale of  investments at SEEBOARD
and interest income  recognized by CSW Energy related to the Sweeny power plant.
The gain was offset,  in part,  by the absence in 1999 of the gain from the sale
of  investments  by  C3  Communications  in  1998.  Long-term  interest  expense
decreased $11 million in 1999 due primarily to the maturity and reacquisition of
long-term debt.

      The extraordinary losses resulted from legislation enacted in Arkansas and
Texas under which the  electricity  generation  portion of CPL's,  SWEPCO's  and
WTU's business in those states no longer meet the criteria to apply SFAS No. 71.

                                      2-37
<PAGE>

These legislative  changes resulted in an extraordinary  loss at SWEPCO and WTU,
which had a cumulative  effect of decreasing  net income by $8.0 million.  These
legislative  changes  also  resulted  in an  extraordinary  loss  at CPL of $6.0
million associated with a loss on reacquired debt and the discontinuance of SFAS
No. 71.See ITEM 7. MD&A - Securitization of Generation-related Regulatory Assets
and Stranded  Costs.and ITEM 8. NOTE 2. LITIGATION AND REGULATORY  PROCEEDINGS -
Electric Utility Restructuring Legislation, and NOTE 16. EXTRAORDINARY ITEMS for
additional information.


COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1997

      CSW's  earnings  increased  to $440  million in 1998 from $153  million in
1997.  CSW's return on average common stock equity was 12.4% in 1998 compared to
4.2% in 1997.  The primary  reason for the higher  earnings and higher return on
average  common  stock  equity was the  absence  in 1998 of the  accrual of $176
million for the one-time United Kingdom windfall profits tax. Hotter than normal
summer  weather and  increased  customer  growth and usage at the U.S.  Electric
Operating  Companies  were also factors in the  increase in earnings  over 1997.
Additionally,  the sale of a telecommunications partnership interest in 1998 and
a decrease in the United Kingdom  corporate tax rate contributed to the earnings
increase. The absence of the impact of CSW's final settlement of litigation with
El Paso in 1997  contributed  to the increase in earnings in 1998 as well.  Also
contributing  to the  increase in earnings was the absence in 1998 of the effect
of both the PSO 1997 Rate Settlement Agreement and the CPL 1997 Final Order. See
ITEM 8. NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for additional information
on the CPL 1997 Final Order and the PSO 1997 Rate Settlement Agreement. See ITEM
8. NOTE 16.  EXTRAORDINARY  ITEMS for  additional  information  on the  windfall
profits  tax.  Partially  offsetting  the  higher  earnings  was  a  charge  for
accelerated  capital  recovery of STP and asset  write-offs  at several of CSW's
business segments.

Operating  revenues increased $214 million in 1998 compared to 1997. The revenue
variances are shown in the following table.

                             1998 REVENUE VARIANCES
                 Increase (decrease) from prior year, millions

                 U.S. Electric
                      KWH Sales, Weather-Related           $72
                      KWH Sales, Growth and Usage           53
                      Fuel Revenue                          31
                      Sales for Resale                       6
                      Other Electric                         5
                                                     -----------
                                                           167
                 United Kingdom                           (101)
                 Other Diversified                         148
                                                     -----------
                                                          $214
                                                     -----------

      U.S. Electric revenues increased $167 million,  or 5%, in 1998 compared to
1997. Retail MWH sales increased 6% with increases in all customer classes. U.S.
Electric  revenues  increased due primarily to higher MWH sales  resulting  from
hotter than normal summer weather and increased  customer  usage and growth.  An
increase in fuel revenues due to an increase in fuel expense,  discussed  below,
also contributed to the higher revenues.  United Kingdom revenues decreased $101
million,  or 5%, in 1998 compared to 1997 due to the loss of revenues associated
with the sale of its retail stores in the second  quarter of 1998 and the effect
of price control on the supply business.  Other diversified  revenues  increased
$148 million in 1998 compared to 1997 due  primarily to increased  revenues from
CSW Energy, CSW Credit and EnerShop.


                                      2-38
<PAGE>

      During 1998 and 1997 the U.S. Electric Operating  Companies  generated 92%
and 93% of their electric energy requirements,  respectively. U.S. Electric fuel
expense  increased  $13  million  in 1998  compared  to 1997  due  primarily  to
increased  generation  offset in part by a decrease  in fuel prices to $1.67 per
MMbtu  in 1998  from  $1.83  per  MMbtu in 1997.  United  Kingdom  cost of sales
decreased  $87 million in 1998  compared to 1997 due  primarily to lower cost of
sales associated with the sale of SEEBOARD's retail stores and a decrease in the
cost of purchased power reflecting lower business volumes.

      Other operating expense increased $48 million in 1998 compared to 1997 due
in part to a CSW Energy power plant that went into service in February 1998. The
increase in other operating expense was offset in part by the absence in 1998 of
the  settlement  of  litigation  with El Paso which  increased  other  operating
expense $35 million in 1997.  Further offsetting the increase in other operating
expense in 1998 was the absence of the $12 million  impact of the CPL 1997 Final
Order and the $4 million impact of the PSO 1997 Rate Settlement  Agreement.  See
ITEM 8. NOTE 2. LITIGATION AND REGULATORY PROCEEDINGS for additional information
on the CPL 1997 Final  Order and the PSO 1997 Rate  Settlement  Agreement.  Also
partially offsetting the increase in other operating expense was reduced pension
expense  in 1997  resulting  from  changes  made to the  pension  plan for CSW's
domestic employees. See ITEM 8. NOTE 5. BENEFIT PLANS for additional information
related to the changes in the pension plan.

      Depreciation and amortization expense increased $24 million, or 5% in 1998
due primarily to accelerated  recovery of ECOM property recorded in 1998 related
to the CPL 1997 Final Order, a charge for accelerated  capital  recovery of STP,
as well as increases in depreciable  property.  Income tax expense increased $52
million due primarily to higher pre-tax income.

      Other  income and  deductions  increased  to $42  million in 1998 from $32
million in 1997 due  primarily to the sale of a  telecommunications  partnership
interest. Long-term interest expense decreased $22 million in 1998 due primarily
to the prepayment of a $60 million variable rate bank loan due December 1, 2001;
the  maturity of $200  million of CPL FMBs on October 1, 1997 and $28 million of
CPL FMBs on  January  1,  1998;  and the  redemption  of $91  million of FMBs of
certain of the U.S. Electric Operating  Companies on September 1, 1998. See ITEM
8. NOTE 8. LONG-TERM DEBT for additional  information on the redemption of these
securities.  Short-term  debt was used to prepay the variable  rate bank loan in
two $30 million installments on January 28, 1998 and April 27, 1998.  Short-term
borrowings  and internal cash  generation  were used to fund the  maturities and
redemption of the  previously  mentioned  FMBs.  Short-term  and other  interest
expense  increased  $35 million in 1998 when  compared to 1997 due  primarily to
higher  levels  of  short-term  borrowings.  Distributions  on  Trust  Preferred
Securities  increased  interest  and other  charges by $10 million in 1998.  The
Trust  Preferred  Securities were  outstanding for all of 1998,  while they were
outstanding  for  only  part of  1997.  See ITEM 8.  NOTE  10.  TRUST  PREFERRED
SECURITIES for additional information on these securities.



                                      2-39

<PAGE>


Consolidated Statements of Income
Central and South West Corporation
--------------------------------------------------------------------------------
                                               For the Years Ended December 31,
                                               ---------------------------------
                                                1999       1998     1997
                                               --------   -------  --------
                                           ($ in millions, except share amounts)
Operating Revenues
    U.S. Electric                              $ 3,524    $ 3,488  $ 3,321
    United Kingdom                               1,705      1,769    1,870
    Other diversified                              308        225       77
                                               --------   -------  --------
                                                 5,537      5,482    5,268
                                               --------   -------  --------
Operating Expenses and Taxes
    U.S. Electric fuel                           1,176      1,190    1,177
    U.S. Electric purchased power                  157        111       89
    United Kingdom cost of sales                 1,133      1,204    1,291
    Other operating                              1,056      1,029      981
    Maintenance                                    200        169      152
    Depreciation and amortization                  552        521      497
    Taxes, other than income                       193        189      195
    Income taxes                                   204        203      151
                                               --------    ------- --------
                                                 4,671      4,616    4,533
                                               --------    ------- --------
Operating Income                                   866        866      735
                                               --------    ------- --------

Other Income and Deductions
    Other                                           78         60       26
    Non-operating income taxes                     (19)       (18)       6
                                               --------    ------- --------
                                                    59         42       32
                                               --------    ------- --------
Income Before Interest and Other Charges           925        908      767
                                               --------    ------- --------

Interest and Other Charges
    Interest on long-term debt                     300        311      333
    Distributions on Trust Preferred Securities     27         27       17
    Interest on short-term debt and other          119        121       86
    Preferred dividend requirements of subsidiaries  7          8       12
    Gain (Loss) on reacquired preferred stock        3          1      (10)
                                               --------    ------- --------
                                                   456        468      438
                                               --------    ------- --------

Income before Extraordinary Items                  469       440       329
                                               --------   -------  --------

Extraordinary loss - Discontinuance of SFAS
  No. 71(net of tax of $5)                          (8)       --        --
Extraordinary loss - Loss on Reacquired Debt
  (net of tax of $3)                                (6)       --        --
Extraordinary loss - United Kingdom windfall
  profits tax                                       --        --      (176)
                                               --------   -------  --------

Net Income for Common Stock                      $ 455      $ 440    $ 153
                                               ========    ======= ========

Average Common Shares Outstanding                212.6      212.4    212.1

Basic and Diluted EPS before Extraordinary Items $2.21      $2.07    $1.55
Basic and Diluted EPS from Extraordinary Items   (0.07)        --    (0.83)
                                               --------    ------- --------
Basic and Diluted EPS                            $2.14      $2.07    $0.72
                                               ========    ======= ========

Dividends Paid per Share of Common Stock         $1.74      $1.74    $1.74
                                               ========    ======= ========

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


                                      2-40
<PAGE>

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

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

Beginning Balance -- January 1, 1997      $740     $1,022    $1,967          $73       $3,802
   Sale of common stock                      3         17        --           --           20
   Common stock dividends                   --         --      (369)          --         (369)
                                                                                       -------
                                                                                        3,453
   Comprehensive Income:
      Foreign currency translation adjustment
        (net of tax of $23)                 --         --        --          (48)         (48)
      Unrealized loss on securities
        (net of tax of $0.3)                --         --        --           (1)          (1)
      Minimum pension liability (net of
         tax of $0.3)                       --         --        --           (1)          (1)
      Net Income                            --         --       153           --          153
                                                                                       -------
         Total comprehensive income                                                       103
                                         ------------------------------------------    -------
Ending Balance -- December 31, 1997       $743     $1,039    $1,751          $23       $3,556
                                         ==========================================    =======

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

   Comprehensive Income:
      Foreign currency translation
        adjustment (net of tax of $2)        --        --        --            7            7
      Unrealized loss on securities
        (net of tax of $8)                   --        --        --          (14)         (14)
      Adjustment for gain included in net
        income (net of tax $4)               --        --        --           (7)          (7)
      Minimum pension liability (net of
        tax of $0.6)                         --        --        --           (1)          (1)
      Net Income                             --        --       440           --          440
                                                                                       -------
         Total comprehensive income                                                       425

                                         ------------------------------------------    -------
Ending Balance -- December 31, 1998        $744    $1,049    $1,823           $8       $3,624
                                         ==========================================    =======

Beginning Balance -- January 1, 1999       $744    $1,049    $1,823           $8       $3,624
   Sale of common stock                      --         1        --           --            1
   Common stock dividends                    --        --      (370)          --         (370)
   Other                                     --         1        (2)          --           (1)
                                                                                       -------
                                                                                        3,254
   Comprehensive Income:
      Foreign currency translation
        adjustment (net of tax of $15)       --        --        --          (28)         (28)
      Minimum pension liability (net of
        tax of $0.7)                         --        --        --            2            2
      Net Income                             --        --       455           --          455
                                                                                       -------
         Total comprehensive income                                                       429

                                         ------------------------------------------    -------
Ending Balance -- December 31, 1999        $744    $1,051    $1,906         ($18)      $3,683
                                         ==========================================    =======
</TABLE>

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


2-41
<PAGE>

Consolidated Balance Sheets
Central and South West Corporation
------------------------------------------------------------------------
                                                              As of December 31,
                                                            --------------------
                                                              1999       1998
                                                            ---------  ---------
                                                                 (millions)
ASSETS
Fixed Assets
    Electric
        Production                                             $ 5,901   $ 5,887
        Transmission                                             1,663     1,594
        Distribution                                             4,896     4,681
        General                                                  1,437     1,380
        Construction work in progress                              205       166
        Nuclear fuel                                               227       207
                                                               -------   -------
                                                                14,329    13,915
    Other diversified                                              353       333
                                                               -------   -------
                                                                14,682    14,248
  Less - Accumulated depreciation and amortization               6,008     5,652
                                                               -------   -------
                                                                 8,674     8,596
                                                               -------   -------
Current Assets
    Cash and temporary cash investments                            270       157
    Special deposits for reacquisition of long-term debt            50        --
    Accounts receivable                                          1,140     1,110
    Materials and supplies, at average cost                        149       191
    Electric utility fuel inventory                                129        90
    Under-recovered fuel costs                                      52         4
    Notes receivable                                                53       109
    Prepayments and other                                           84        90
                                                               -------   -------
                                                                 1,927     1,751
                                                               -------   -------
Deferred Charges and Other Assets
    Regulatory assets                                              219     1,113
    Regulatory assets designated for securitization                953        --
    Other non-utility investments                                  454       432
    Securities available for sale                                   62        66
    Benefit costs                                                  202       185
    Goodwill                                                     1,330     1,402
    Other                                                          341       352
                                                               -------   -------
                                                                 3,561     3,550
                                                               -------   -------
                                                               $14,162   $13,897
                                                               =======   =======






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


2-42
<PAGE>

Consolidated Balance Sheets
Central and South West Corporation
---------------------------------------------------------------------------
                                                       As of December 31,
                                                     ----------------------
                                                      1999          1998
                                                     --------      --------
CAPITALIZATION AND LIABILITIES                             (millions)
Capitalization
    Common stock:   $3.50 par value
        Authorized shares:   350.0 million shares
        Issued and outstanding: 212.6 million shares
          in 1999 and 212.6 million shares in 1998     $ 744         $ 744
    Paid-in capital                                    1,051         1,049
    Retained earnings                                  1,906         1,823
    Accumulated other comprehensive income               (18)            8
                                                     --------      --------
                                                       3,683  47%    3,624  45%
                                                     ------------- -------------

    Preferred Stock                                       18  --%      176   2%
    Certain Subsidiary-obligated, mandatorily redeemable
       preferred securities of subsidiary trusts holding
       solely Junior Subordinated Debentures of such
       Subsidiaries                                      335   4%      335   4%
    Long-term debt                                     3,821  49%    3,938  49%
                                                     ------------- -------------
          Total Capitalization                         7,857 100%    8,073 100%
                                                     ------------- -------------

Current Liabilities
    Long-term debt due within twelve months              256           169
    Short-term debt                                    1,346           811
    Short-term debt - CSW Credit                         754           749
    Loan notes                                            24            32
    Accounts payable                                     581           624
    Accrued taxes                                        187           190
    Accrued interest                                      64            84
    Other                                                175           218
                                                     --------      --------
                                                       3,387         2,877
                                                     --------      --------
Deferred Credits
    Accumulated deferred income taxes                  2,431         2,410
    Investment tax credits                               254           267
    Other                                                233           270
                                                     --------      --------
                                                       2,918         2,947
                                                     --------      --------
                                                     $14,162       $13,897
                                                     ========      ========








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

2-43
<PAGE>

Consolidated Statements of Cash Flows
Central and South West Corporation
--------------------------------------------------------------------------------
                                                For the Years Ended December 31,
                                                --------------------------------
                                                  1999        1998         1997
                                                 --------    ------      -------
                                                          (millions)
OPERATING ACTIVITIES
    Net income for common stock                  $ 455       $ 440       $ 153
    Non-cash Items and Adjustments
        Depreciation and amortization              580         552         529
        Deferred income taxes and investment
         tax credit                                 24         (56)        110
        Preferred stock dividends                    7           8          12
        Gain on reacquired preferred stock           3           1         (10)
        Charges for investments and assets          --          39          53
        Extraordinary loss - Discontinuance of
          SFAS No. 71                                8          --          --
        Extraordinary loss - Loss on Reacquired
          Debt                                       6          --          --
        Gain on sale of investments                (35)        (13)         --
    Changes in Assets and Liabilities
        Accounts receivable                        (49)       (187)       (140)
        Accounts payable                           (19)         69          59
        Accrued taxes                               --          20        (153)
        Fuel recovery                              (75)        109         (37)
        Fuel inventory                             (38)        (25)         37
        Other                                      (64)        (15)        113
                                                  -----       -----       -----
                                                   803         942         726
                                                  -----       -----       -----
INVESTING ACTIVITIES
    Construction expenditures                     (639)       (492)       (507)
    Disposition of plant                            (1)         (5)          6
    CSW Energy/CSW International projects         (182)       (184)       (382)
    Cash proceeds from sale of investments          80          56          --
    Other                                          (16)        (10)        (21)
                                                  -----       -----       -----
                                                  (758)       (635)       (904)
                                                  -----       -----       -----
FINANCING ACTIVITIES
    Common stock sold                                1          11          20
    Proceeds from issuance of long-term debt       500         154          --
    Reacquisition/Maturity of long-term debt      (342)       (182)       (253)
    Redemption of preferred stock                 (160)        (28)       (114)
    Trust Preferred Securites sold                  --          --         323
    Special deposits for reacquisitions of
      long-term debt                               (50)         --          --
    Other financing activities                     (41)         (4)         (3)
    Change in short-term debt                      541         202         414
    Payment of dividends                          (378)       (378)       (383)
                                                  -----       -----       -----
                                                    71        (225)          4
                                                  -----       -----       -----

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

Net Change in Cash and Cash Equivalents            113          82        (179)
Cash and Cash Equivalents at Beginning of Year     157          75         254
                                                  -----       -----       -----
Cash and Cash Equivalents at End of Year         $ 270       $ 157       $  75
                                                  =====       =====       =====

SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized       $ 466       $ 446       $ 413
                                                  =====       =====       =====
    Income taxes paid                            $ 175       $ 258       $ 412
                                                  =====       =====       =====




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


                                      2-44
<PAGE>


CENTRAL AND SOUTH WEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Nature of Operations
      CSW is a registered  holding company under the Holding Company Act subject
to  regulation  by the  SEC.  The U.S.  Electric  Operating  Companies  are also
regulated by the SEC under the Holding Company Act.

      The principal  business of the U.S.  Electric  Operating  Companies is the
generation,  transmission,  and distribution of electric power and energy. These
companies  are subject to regulation by the FERC under the Federal Power Act and
follow the Uniform System of Accounts  prescribed by the FERC.  They are subject
to further regulation with regard to rates and other matters by state regulatory
commissions as follows: CPL and WTU are subject to the Texas Commission;  PSO is
subject to the  Oklahoma  Commission;  and  SWEPCO is  subject to the  Arkansas,
Louisiana, Oklahoma and Texas Commissions.

      The  principal  business  of SEEBOARD  is the  distribution  and supply of
electricity  and  gas in  South  East  England.  SEEBOARD  is  subject  to  rate
regulation by the DGEGS.

      In addition to electric utility operations,  CSW has subsidiaries involved
in a variety of business  activities.  CSW Energy and CSW  International  pursue
cogeneration and other energy-related  ventures. CSW Credit factors the accounts
receivable of affiliated and non-affiliated companies. C3 Communications pursues
telecommunications  projects.  CSW Leasing has investments in leveraged  leases.
EnerShop offers  energy-management  services. CSW Energy Services pursued retail
energy  markets  outside of CSW's  traditional  service  territory,  until these
activities  were  discontinued in early 1999. In the fourth quarter of 1999, CSW
Energy Services began operating a staffing services company for electric utility
nuclear power plants, which was previously a PSO investment.

      The more significant  accounting policies of the CSW System are summarized
below.

      Principles of Consolidation
      The consolidated  financial statements include the accounts of CSW and its
subsidiary  companies.  The consolidated  financial  statements for CPL, PSO and
SWEPCO include their  respective  capital trusts.  All significant  intercompany
transactions have been eliminated.

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

      Fixed Assets and Depreciation
      U.S.   Electric   fixed  assets  are  stated  at  the  original   cost  of
construction,  which  includes the cost of  contracted  services,  direct labor,
materials,  overhead  items and  allowances  for  borrowed and equity funds used
during  construction.  SEEBOARD's fixed assets are stated at their original fair

                                      2-45
<PAGE>

market value which existed on the date of acquisition  plus the original cost of
property acquired or constructed since the acquisition, less disposals.

      Provisions for depreciation of plant are computed using the  straight-line
method,  generally  at  individual  rates  applied  to the  various  classes  of
depreciable  property.  The annual average  consolidated  composite rates of the
Registrants are presented in the following table.

                         CSW       CPL       PSO     SWEPCO      WTU
                      --------------------------------------------------
           1999         3.3%      3.1%      3.1%      3.3%      3.3%
           1998         3.4%      3.0%      3.1%      3.3%      3.2%
           1997         3.4%      3.0%      3.3%      3.2%      3.3%

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

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

      CPL estimates its portion of the costs of  decommissioning  STP to be $289
million in 1999 dollars based on a study  completed in 1999. CPL is accruing and
recovering these  decommissioning  costs through rates based on the service life
of STP at a rate of $8.2  million  per  year.  The funds  are  deposited  with a
trustee  under the terms of an  irrevocable  trust  and are  reflected  in CPL's
consolidated   balance  sheets  as  Nuclear   decommissioning   trust,   with  a
corresponding amount accrued in Accumulated depreciation.  On CSW's consolidated
balance sheets,  the irrevocable trust is included in Deferred Charges and Other
Assets, Other, with a corresponding amount accrued in Accumulated  depreciation.
In CSW's and CPL's consolidated  statements of income, the income related to the
irrevocable  trust is recorded in Other Income and  Deductions,  Other. In CPL's
consolidated   statements  of  income,  the  interest  expense  related  to  the
irrevocable trust is recorded in Interest  Charges,  Interest on short-term debt
and other.  In CSW's  consolidated  statements  of income the  interest  expense
related to the  irrevocable  trust is recorded in  Interest  and Other  Charges,
Interest on short-term  debt and other.  At December 31, 1999, the nuclear trust
balance was $86.1 million.

      Electric Revenues and Fuel
      The  U.S.  Electric   Operating   Companies  record  revenues  based  upon
cycle-billings.  Electric service  provided  subsequent to billing dates through
the end of each calendar month are accrued for by estimating  unbilled  revenues
in accordance with industry standards.

      CPL,  SWEPCO  and WTU  recover  retail  fuel  costs  in  Texas  as a fixed
component of rates whereby  over-recoveries of fuel are payable to customers and
under-recoveries may be billed to customers after Texas Commission approval. The
cost  of  fuel  is  charged  to  expense  as  incurred,   with   resulting  fuel
over-recoveries  and  under-recoveries  recorded as regulatory  liabilities  and
assets.  PSO recovers  fuel costs in Oklahoma  through  service  level fuel cost
adjustment  factors,  and SWEPCO  recovers  fuel costs in Arkansas and Louisiana
through automatic fuel recovery mechanisms.  The application of these mechanisms
varies by jurisdiction.  See ITEM 1. BUSINESS, FUEL RECOVERY - U.S. Electric and
ITEM 8. NOTE 2. LITIGATION AND REGULATORY  PROCEEDINGS,  for further information
about fuel recovery.


                                      2-46
<PAGE>

      CPL, PSO and WTU recover  fuel costs  applicable  to wholesale  customers,
which are regulated by the FERC,  through an automatic fuel  adjustment  clause.
SWEPCO  recovers fuel costs  applicable to wholesale  customers  through formula
rates.

      CPL amortizes  direct nuclear fuel costs to fuel expense on the basis of a
ratio of the  estimated  energy  used in the core to the energy  expected  to be
derived from such fuel  assembly  over its life in the core. In addition to fuel
amortization,  CPL also records nuclear fuel expense as a result of other items,
including  spent fuel  disposal fees assessed on the basis of net MWHs sold from
STP and DOE special assessment fees for  decontamination  and decommissioning of
the enrichment facilities on the basis of prior usage of enrichment services.

      Accounts Receivable
      CSW Credit purchases,  without recourse,  the billed and unbilled accounts
receivable of the U.S. Electric Operating  Companies and certain  non-affiliated
public utility companies.

      Regulatory Assets and Liabilities
      For their regulated  activities,  the U.S.  Electric  Operating  Companies
follow SFAS No. 71,  which  defines the  criteria  for  establishing  regulatory
assets and regulatory liabilities. See ITEM 8. NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS - Electric Utility Restructuring Legislation for a discussion of the
continued  application of SFAS No. 71 to the Texas Electric Operating Companies.
Regulatory  assets represent  probable future revenue to the company  associated
with  certain  costs,  which  will  be  recovered  from  customers  through  the
ratemaking process.  Regulatory liabilities represent probable future refunds to
customers.  The regulatory  assets are currently being recovered in rates or are
probable of being recovered in rates.  The unamortized  balances are included in
the table below.
<TABLE>
<CAPTION>

                               CSW       CPL(1)        PSO       SWEPCO      WTU
                             --------  ----------------------------------------------
                            (millions)                (thousands)
<S>                          <C>      <C>           <C>         <C>        <C>

As of December 31, 1999
   Regulatory Assets
     Deferred plant costs      $491    $482,447        $--        $--      $8,354(4)
     Mirror CWIP asset          257     256,595         --         --          --
     Income tax related
       regulatory assets, net   318     356,370         --      7,128          --
     Deferred restructuring
       and rate case costs       22       8,451(2)      --      7,383       6,530(4)
     OPEBs                        2          --      1,838         --          --
     Under-recovered fuel costs  52      30,911      6,469(3)      --      14,652
     Loss on reacquired debt    133      78,334     14,880     25,539      14,700
     Fuel settlement              7          --         --      7,130(5)       --
     Other                       11      11,110         --         --         162
                             --------  ---------    -------    -------    -------
                             $1,293  $1,224,218    $23,187    $47,180     $44,398
                             ========  =========    =======    =======    =======
   Regulatory Liabilities
     Refunds due customers      $15        $(55)       $--     $9,367     $6,000
     Income tax related
      regulatory liabilities,
      net                        --          --     32,826         --     13,057

                             --------  ----------------------------------------------
                                $15        $(55)   $32,826     $9,367    $19,057
                             ========  ==============================================
</TABLE>

      Note:  The footnote references to the table above are found on the
             following page.


                                      2-47
<PAGE>
<TABLE>
<CAPTION>

                               CSW       CPL         PSO       SWEPCO      WTU
                             --------  ----------------------------------------------
                             (millions)                (thousands)
<S>                          <C>       <C>         <C>        <C>        <C>

As of December 31, 1998
   Regulatory Assets
     Deferred plant costs      $497    $482,447        $--        $--    $14,910(4)
     Mirror CWIP asset          257     256,702         --         --         --
     Income tax related
      regulatory assets, net    308     360,482         --         --         --
     Deferred restructuring
      and rate case costs        26      16,236(2)      --         --      9,765(4)
     OPEBs                        2          --      2,333         --         --
     Under-recovered fuel costs   4          --         --         --      3,980

     Loss on reacquired debt    153      78,944     15,943     36,803     21,307
     Fuel settlement             14          --         --     13,746(5)      --
     Other                       10       9,159         --         --      1,196
                             --------  ----------------------------------------------
                             $1,271  $1,203,970    $18,276   $ 50,549    $51,158
                             ========  ==============================================
   Regulatory Liabilities
     Refunds due customers      $22      $ (498)   $15,240(3)  $7,239      $(329)
     Income tax related
      regulatory liabilities,
      net                        --          --     35,818      4,931     12,088
                             --------  ----------------------------------------------
                                $22       $(498)   $51,058    $12,170    $11,759
                             ========  ==============================================
</TABLE>

   (1)See discussion of Securitization in ITEM 8. NOTE 2. LITIGATION AND
      REGULATORY PROCEEDINGS.
   (2)Earning no return, amortized by the end of 2000.
   (3)Earning no return, amortized over twelve-month period,
      recalculated twice each year.
   (4)Earning no return, amortized through 2001.
   (5)Earning no return, amortized by the end of 2006.

      Under provisions of the Texas  Legislation,  CPL filed an application with
the  Texas  Commission  to  securitize   generation-related  regulatory  assets.
Management  believes the  unamortized  regulatory  asset amounts at December 31,
1999 will either be recovered  through:  (1) regulated  rates; (2) stranded cost
recovery;  or (3)  FERC  jurisdictional  rates.  The  legislation  provides  for
securitization of 100% of regulatory  assets and 75% of ECOM.  Regulatory assets
in the amount of $763.7  million have been  approved for  securitization  by the
Texas  Commission,  and a draft order has been prepared in this case.  The Texas
Commission  has  indicated  that it expects to issue a final order in late March
2000.  The  settlement  also calls for $290  million  of the  amount  originally
requested  to be included in the  calculation  of stranded  costs in CPL's March
2000 transmission and distribution cost filing.  The  securitization  amount was
reduced by $186 million from the amount originally requested to reflect customer
benefits  associated with accumulated  deferred income taxes. CPL previously had
proposed to flow these  benefits  back to customers  over the 14-year bond term.
See ITEM 7. MD&A  Securitization  of  Generation-related  Regulatory  Assets and
Stranded  Costs and ITEM 8. NOTE 2.  LITIGATION  AND  REGULATORY  PROCEEDINGS  -
Electric   Utility   Restructuring   Legislation   for  a  discussion  of  CPL's
securitization application and the Texas Legislation.

      Discontinuance of SFAS No. 71
      Application  of SFAS No. 71 was  discontinued  in 1999 for CPL's and WTU's
generation  business in Texas and SWEPCO's  generation  business in Arkansas and
Texas  resulting  from  legislation  passed in those states.  See ITEM 7. MD&A -
Securitization  of  Generation-related  Regulatory Assets and Stranded Costs and
ITEM 8.  NOTE  2.  LITIGATION  AND  REGULATORY  PROCEDURES  -  Electric  Utility
Restructuring  Legislation  for  additional  information.  The  following  table
summarizes  the net assets  included in Electric  Utility  Plant related to each
company's  generation  plant  for  which  the  application  of SFAS  No.  71 was
discontinued, compared to total assets at December 31, 1999.


                                      2-48
<PAGE>



                        Generation Net Assets
          Company             For Which            Total Assets
                           SFAS No. 71 Was
                             Discontinued
      ------------------------------------------------------------
                              (millions)
      CPL                      $1,872                $4,848
      SWEPCO                      226                 2,108
      WTU                         168                   861

      Goodwill Resulting from SEEBOARD Acquisition
      The acquisition of SEEBOARD was accounted for as a purchase
combination.  The  purchase  price has been  allocated  and is  reflected in the
consolidated  financial  statements.  The goodwill,  resulting from the SEEBOARD
acquisition,  is being  amortized on a  straight-line  basis over 40 years.  The
unamortized  balance of the  SEEBOARD  goodwill  at  December  31, 1999 was $1.3
billion.  CSW continually  evaluates  whether  circumstances  have occurred that
indicates the remaining useful life of goodwill warrants revision.

      Long-Term Contract
      In a  joint  venture,  SEEBOARD  Powerlink  won a  30-year,  $1.6  billion
contract  to  operate,  maintain,  finance  and  renew  the  high-voltage  power
distribution network of the London Underground.  Revenues from this contract are
recognized  under the  percentage of completion  method in line with progress on
defined contract segments.

      Foreign Currency Translation
      The financial  statements of SEEBOARD U.S.A.,  which are included in CSW's
consolidated  financial statements,  have been translated from British pounds to
U.S.  dollars in accordance  with SFAS No. 52. All asset and liability  accounts
are  translated  at the exchange  rate at the end of the period,  and all income
statement  items are  translated at the weighted  average  exchange rate for the
applicable  period.  All the  resulting  translation  adjustments  are  recorded
directly  to  "Accumulated  other  comprehensive  income" on CSW's  Consolidated
Balance  Sheets.  Cash flow  statement  items are translated at a combination of
average,  historical  and current  exchange  rates.  The non-cash  impact of the
changes  in  exchange  rates on cash and cash  equivalents,  resulting  from the
translation  of  items  at the  different  exchange  rates,  is  shown  on CSW's
Consolidated  Statements  of Cash Flows in "Effect of exchange  rate  changes on
cash and cash equivalents."

      One British pound equals the following U.S. dollar amounts:

                                                1999        1998         1997
                                             ---------   ----------  -----------
      At December 31                           $1.62        $1.66       $1.65

      Weighted average for the
      2 months ended December 31               $1.62        $1.66       $1.58


      See ITEM 8. NOTE 18. SOUTH AMERICAN INVESTMENTS for information  regarding
CSW's investments in Brazil and Chile.

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

                                      2-49
<PAGE>

      Risk Management
      CSW has, at times,  been exposed to currency and interest rate risks which
reflect the floating  exchange rate that exists between the U.S.  dollar and the
British pound. CSW has utilized certain risk management  tools,  including cross
currency swaps, foreign currency futures and foreign currency options, to manage
adverse  changes in  exchange  rates and to  facilitate  financing  transactions
resulting from CSW's acquisition of SEEBOARD.

      SEEBOARD has entered into contracts for  differences to reduce exposure to
fluctuations  in the price of electricity  purchased  from the United  Kingdom's
electricity power pool. This pool was established at privatization of the United
Kingdom's  electric  industry  for  the  bulk  trading  of  electricity  between
generators and suppliers.

      CSW accounts for these transactions as hedge transactions and any gains
or losses associated with the risk management tools are recognized in the
financial statements at the time the hedge transactions are settled. CSW
believes its credit risk in these contracts is negligible.  See ITEM 7. MD&A,
RISK MANAGEMENT, ITEM 8. NOTE 7. FINANCIAL INSTRUMENTS; NOTE 17. NEW
ACCOUNTING STANDARDS and ITEM 8. NOTE 18. SOUTH AMERICAN INVESTMENTS for
additional information.

      Securities Available for Sale
      CSW accounts for its  investments in equity  securities in accordance with
SFAS No. 115. The investments have been designated as available for sale, and as
a result are stated at fair value.  Unrealized  holding gains and losses, net of
related taxes, are included in Accumulated other  comprehensive  income on CSW's
Consolidated  Balance Sheets.  Information related to these securities available
for sale as of December 31, 1999 is presented in the following table.

                                  Original     Unrealized Holding
                                   Cost         Gains / (Losses)      Fair Value
                 ---------------------------------------------------------------
                                                  (millions)

  Securities available for sale    $110             $(48)                $62

      As of December 31, 1999,  CSW  International  has invested $110 million in
stock of a Chilean electric company.  The investment is classified as securities
available for sale and  accounted for by the cost method.  Based on the year-end
market  value  of the  shares  and  foreign  exchange  rates,  the  value of the
investment  at December 31, 1999 is $62 million.  The  reduction in the carrying
value of this investment has been reflected in Accumulated  other  comprehensive
income in CSW's Consolidated Balance Sheets.  Management views its investment in
Chile as a long-term  investment strategy and believes this investment continues
to have significant long-term value and that it is recoverable.  Management will
continue to closely  evaluate the changes in the South American  economy and its
impact on CSW  International's  investment in the Chilean electric company.  See
ITEM 8. NOTE 18. SOUTH AMERICAN INVESTMENTS.

      Inventory
      CPL,  PSO and WTU utilize the LIFO method for the  valuation of all fossil
fuel  inventories.  SWEPCO continues to utilize the weighted average cost method
pending  approval of the  Arkansas  Commission  to utilize the LIFO  method.  At
December  31,  1999,  none of the U.S.  Electric  Operating  Companies  had LIFO
reserves.  LIFO reserves are the excess of the inventory  replacement  cost over
the carrying amount on the balance sheet.

                                      2-50
<PAGE>


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

      Components of Other Comprehensive Income
      The  following  table  provides the  components  that comprise the balance
sheet amount in Accumulated other comprehensive income.

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

         Foreign Currency Adjustments             $6      $34      $27
         Unrealized Losses on Securities         (20)     (20)       1
         Minimum Pension Liability                (4)      (6)      (5)
                                              ---------------------------
                                                $(18)      $8      $23
                                              ---------------------------

      Segment Reporting
      CSW has adopted SFAS No. 131, which requires disclosure of select
financial information by business segment as viewed by the chief operating
decision-maker.  See ITEM 8. NOTE 14. BUSINESS SEGMENTS.

      Reclassification
      Certain  financial  statement items for prior years have been reclassified
to conform to the 1999 presentation.


2.    LITIGATION AND REGULATORY PROCEEDINGS

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

      Electric  Utility  Restructuring   Legislation
      On  June  18,  1999,  legislation  was  signed into law in Texas that will
restructure  the  electric  utility industry in the state.   The new law,  among
other things,

-   gives Texas customers of investor-owned utilities the opportunity to
    choose their electric provider beginning January 1, 2002;

-   provides for the recovery of stranded costs, which are defined as the excess
    of net book value of  generation  assets  over the defined  market  value of
    those assets;


                                      2-51
<PAGE>

-   requires reductions in nitrogen oxide and sulfur dioxide emissions;

-   provides a rate freeze until January 1, 2002 followed by a 6% rate reduction
    for residential and small commercial customers, an additional rate reduction
    for low-income customers and a number of customer protections; and

-   sets certain limits on capacity owned and controlled by power generation
    companies.

      Rural  electric  cooperatives  and municipal  electric  systems can choose
 whether to participate in retail  competition.  Delivery of the  electricity at
 regulated prices will continue to be the  responsibility  of the local electric
 transmission and distribution  utility company.  Each utility must unbundle its
 business activities into a retail electric provider, a power generation company
 and a transmission and distribution utility.

      CPL, SWEPCO and WTU filed their business  separation or "unbundling" plans
with the Texas  Commission on January 10, 2000.  The filing gives an overview of
how the Texas Electric  Operating  Companies  could separate into three separate
companies to meet the requirements of the Texas Legislation.  Specifically,  the
filing  describes the financial  aspects of separating the companies,  lists the
functions  each of the new business  entities  will  perform,  describes how the
companies will physically  separate their  operations,  discusses the accounting
aspects,  describes how the companies will handle  competitive  energy services,
and introduces interim and permanent codes of conduct. The main issues the Texas
Commission  will  determine  in this case are whether  CSW's  proposed  business
separation  method and the proposed code of conduct are in  compliance  with the
Texas Legislation. Other separation issues will be presented in a March 31, 2000
cost  unbundling  filing.  CPL,  SWEPCO  and WTU  expect an order from the Texas
Commission on this case in the second quarter of 2000.

      During 1999, legislation was also enacted in Arkansas that will ultimately
restructure  the  electric  utility  industry in that state.  SWEPCO will file a
business unbundling plan in Arkansas in mid-2000.

      The financial  statements of the U.S.  Electric  Operating  Companies have
historically  reflected the effects of applying the requirements of SFAS No. 71.
Pursuant to those  requirements,  the U.S.  Electric  Operating  Companies  have
recorded  regulatory  assets  and  liabilities  (probable  future  revenues  and
refunds) to reflect the economic effect of cost-based regulation. When a company
determines  that its  operations or a segment of its  operations no longer meets
the criteria for applying SFAS No. 71, it is required to apply the  requirements
of SFAS No. 101. Pursuant to those requirements and further guidance provided in
EITF 97-4, a company is required to write-off  regulatory assets and liabilities
related to deregulated  operations,  unless recovery of such amounts is provided
through rates to be collected in a continuing regulated portion of the company's
operations.  Additionally,  it is required to  determine if any plant assets are
impaired under SFAS No. 121.

      As a result  of the  scheduled  deregulation  of  generation  in Texas and
Arkansas,  CSW concluded that it should  discontinue the application of SFAS No.
71 for the Texas  generation  portion  of the  business  for CPL and WTU and the
Texas and  Arkansas  jurisdictional  portions  of the  generation  business  for
SWEPCO.  Consequently,  WTU recorded an extraordinary charge to earnings of $5.5
million and SWEPCO recorded an extraordinary  charge to earnings of $3.0 million
to reflect the effects of  discontinuing  the  application of SFAS No. 71 and to
write-off net regulatory assets that are not probable of recovery.

      The  discontinuance  of SFAS No. 71 for CPL did not result in a net charge
to earnings as such net  regulatory  assets,  pursuant to the  legislation,  are
expected to be recovered from  transmission and distribution  customers  through
rates that will continue to be regulated.


                                      2-52
<PAGE>

      Electric utilities who have stranded costs under the Texas Legislation are
allowed to recover  generation-related  regulatory assets that otherwise may not
be  recoverable  in the future  competitive  market.  All or a majority of those
costs can be refinanced through  securitization,  which is a financing structure
designed  to  provide  lower  financing  costs  than is  available  through  the
conventional  utility cost of capital model.  The  securitized  amounts are then
recovered through a non-bypassable  wires charge. On October 18, 1999, CPL filed
an  application  with the Texas  Commission  to securitize  approximately  $1.27
billion of its retail generation-related regulatory assets and approximately $47
million in other qualified costs. CPL expects to issue the securitization  bonds
in 2000,  depending  on market  conditions  and the  timing of an order from the
Texas  Commission.  Hearings were held in December 1999. CPL reached  settlement
agreements  which resolved all issues except the role of the Texas  Commission's
financial advisor.

      On  Feburary  10,  2000,  the  Texas  Commission  tentatively  approved  a
settlement,  which will permit CPL to securitize  approximately  $764 million of
regulatory  assets.  The Texas Commission is expected to grant final approval by
March 27, 2000. The settlement calls for CPL to reduce its proposed amount to be
securitized  from $1.27  billion to  approximately  $764  million of  regulatory
assets plus an estimated $29 million of other  qualified  costs.  The settlement
also calls for $290 million of the amount originally requested to be included in
the  calculation  of  stranded  costs  in  CPL's  March  2000  transmission  and
distribution  cost filing.  This filing will establish  stranded costs, of which
75% can be securitized and 25% can be recovered through a competitive transition
charge.  The  securitization  amount was reduced by $186 million from the amount
originally  requested to reflect customer  benefits  associated with accumulated
deferred  income taxes.  CPL previously had proposed to flow these benefits back
to customers over the 14-year bond term. A second phase of securitization  could
occur when the Texas  Commission  makes a preliminary  determination of stranded
costs,  currently  expected to occur in the first half of 2001. A non-bypassable
charge will be used to recover additional unsecuritized stranded cost amounts.

      Under the provisions of EITF 97-4, CPL's generation-related net regulatory
assets were  transferred to the  transmission  and  distribution  portion of the
business  and  will be  amortized  as they  are  recovered  through  charges  to
customers.  Management  currently  believes  all  generation-related  regulatory
assets for CPL will be recovered as provided under Texas Legislation.  If future
events were to occur that made the recovery of these assets no longer  probable,
CPL would  write-off  any  non-recoverable  portion of such assets as a non-cash
charge to earnings.

      The  discontinuance  of SFAS No. 71 for CPL's and WTU's  Texas  generation
business and SWEPCO's Texas and Arkansas generation business requires that these
businesses  no longer defer costs or recognize  liabilities  strictly  resulting
from the  actions  of a  regulator.  For  example,  operations  and  maintenance
expenditures will be expensed as incurred regardless of regulatory treatment. In
addition,  the equity component of allowance for funds used during  construction
can no longer be accrued for generation-related  capital projects.  Instead, the
businesses will be required to follow the interest  capitalization rules in SFAS
No. 34. SFAS No. 71 also allowed for the deferral of the loss on any  reacquired
debt. In December 1999, CPL incurred a loss totaling  approximately $8.5 million
that was expensed as an extraordinary item, since CPL is no longer able to apply
the provisions of SFAS No. 71 to its Texas generation-related operations.

      CPL's  amount of  regulatory  assets and  stranded  costs are subject to a
final  determination  by the Texas  Commission  in 2004.  The Texas  Legislation
provides  that all such finally  determined  stranded  costs will be  recovered.
Since  SWEPCO  and  WTU  are  not  expected  to have  net  stranded  costs,  all
generation-related  non-recoverable  net regulatory  assets were written off and
reflected on the statement of income as an extraordinary  loss. See ITEM 8. NOTE
16. EXTRAORDINARY ITEMS.


                                      2-53
<PAGE>

      Additionally,  CPL,  SWEPCO and WTU  performed  an  accounting  impairment
analysis of  generation  assets  under SFAS No. 121 and  concluded  there was no
impairment of generation  assets at that time. An impairment  analysis  involves
estimating  future net cash flows  arising from the use of an asset.  If the net
cash flows exceed the net book value of the asset,  then there is no  impairment
of the asset for  accounting  purposes.  CPL,  SWEPCO and WTU will  continue  to
review  their  assets  for   potential   impairment  if  events  or  changes  in
circumstances indicate the carrying amount of an asset may not be recoverable.

      The Texas Legislation also provides that each year during the 1999 through
2001 rate freeze period, utilities with stranded costs are required to apply any
earnings in excess of the most recently  approved cost of capital in a company's
last rate case (if issued on or after January 1, 1992) to reduce stranded costs.
As a result,  CPL recorded a net charge to earnings of $12.0 million for 1999 to
reflect the impact of this  provision.  Utilities  without  stranded  costs must
either flow such amounts back to customers or make capital  expenditures,  at no
charge to customers,  to improve  transmission or distribution  facilities or to
improve air quality.  As a result, WTU recorded a net charge to 1999 earnings of
$3.9 million and SWEPCO  recorded a net charge of $4.2 million to 1999  earnings
from the effect of the excess earnings under the Texas Legislation.  The charges
were  based  on  estimates  for the  current  year  and  are  subject  to  final
determination by the Texas Commission.

      Beginning  January  1,  2002,  fuel  costs  will not be  subject  to Texas
Commission fuel reconciliation proceedings.  Consequently,  CPL, SWEPCO, and WTU
will file a final fuel reconciliation with the Texas Commission reconciling fuel
costs  through the period  December 31, 2001.  These final fuel balances will be
included in each company's true-up proceeding in 2004.

      CSW  continues  to analyze  the impact of the  electric  utility  industry
restructuring  legislation on the U.S. Electric Operating  Companies.  The Texas
Commission has established numerous task forces, including  representatives from
CPL,  SWEPCO  and WTU,  to  address  various  issues  associated  with the Texas
Legislation and to provide guidance regarding implementation of restructuring.

      As previously discussed,  as a result of the Texas Legislation,  CPL filed
its  application  for   securitization  on  October  18,  1999  with  the  Texas
Commission.  CPL, SWEPCO and WTU filed business  separation plans with the Texas
Commission on January 10, 2000, and will file excess  earnings  reports and cost
unbundling plans in March 2000 and CPL will file its ECOM report in March 2000.

      Also see ITEM 7. MD&A - RECENT  DEVELOPMENTS AND TRENDS,  Electric Utility
Restructuring Legislation for a discussion on restructuring legislation.

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

      CPL  filed an  appeal of the CPL 1997  Final  Order to the State  District
Court of Travis County to raise  several  issues  related to the rate case.  The
primary  issues  include:  (i) the  classification  of $800  million of invested
capital in STP as ECOM which was also  assigned  a lower  return on equity  than
non-ECOM  property;  (ii) the Texas  Commission's  use of the "glide  path" rate

                                      2-54
<PAGE>

reduction methodology applied on May 1, 1998 and 1999; and (iii) the $18 million
of disallowed  affiliate expenses from CSW Services.  As part of the appeal, CPL
sought a temporary injunction to prohibit the Texas Commission from implementing
the "glide path" rate  reduction  methodology.  The court  denied the  temporary
injunction and the "glide path" rate  reduction was  implemented in May 1998 and
May 1999. Hearings on the appeal were held during the third quarter of 1998, and
a judgment was issued in February  1999  affirming the Texas  Commission  order,
except  for a  consolidated  tax issue in the  amount of $6  million,  which was
remanded to the Texas Commission.

      CPL filed an appeal of this most  recent  order to the Third  District  of
Texas  Court of  Appeals  and  management  is  unable to  predict  how the final
resolution  of these issues will  ultimately  affect CSW's and CPL's  results of
operations and financial  condition.  On May 4, 1999, AEP and CSW announced that
they had reached a stipulated  agreement  with the General  Counsel of the Texas
Commission  and other  intervenors  in the state of Texas related to the AEP/CSW
merger case.  The Texas  Commission  approved  the AEP Merger in early  November
1999. If the AEP Merger is ultimately consummated,  CSW will withdraw its appeal
with respect to the "glide path" rate reduction  methodology as discussed  above
as issue "(ii)" but will  continue  seeking the appeal of issues "(i) and (iii)"
as discussed  above. See ITEM 8. NOTE 15. PROPOSED AEP MERGER and ITEM 7. MD&A -
PROPOSED AEP MERGER for a discussion on the stipulated agreement.

      See ITEM 7. MD&A - RATES AND REGULATORY MATTERS,  CPL Rate Review - Docket
No. 14965 for a discussion of the CPL 1997 Final Order.

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

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

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


                                      2-55
<PAGE>

      The  deferred  accounting  amounts  are  included  in  the  amounts  to be
securitized as part of the settlement amount approved by the Texas Commission in
its October 18, 1999 securitization filing. See ITEM 7. MD&A - Securitization of
Generation-related Regulatory Assets and Stranded Costs.

      CPL Fuel Reconciliation
      On December 31, 1998,  CPL filed with the Texas  Commission an application
to reconcile  fuel costs and to request  authorization  to carry the  reconciled
balance forward into the next reconciliation  period.  During the reconciliation
period of July 1, 1995  through June 30, 1998,  CPL incurred  $828.5  million in
eligible fuel and fuel-related expenses. The Texas jurisdictional  allocation of
such fuel and fuel-related expenses is $783.4 million.

      In  addition to  requesting  reconciliation  of its fuel and  fuel-related
expenses for the reconciliation  period, CPL requested  authority from the Texas
Commission to recover the reward earned during the  reconciliation  period under
the performance  standard adopted in the CPL 1997 Final Order for CPL's share of
STP. The Texas  Commission  adopted a three-year  average capacity factor of 83%
performance  standard for STP in that order.  During the reconciliation  period,
STP operated at a net capacity  factor of 93.1%,  resulting in a reward of $19.2
million.

      CPL requested  authority to recover the Texas portion of 50% of the reward
by including  1/36th of this amount in Texas retail  eligible  fuel expense each
month for the three-year  period following the Texas  Commission's  order in the
fuel  reconciliation  case. CPL further requested authority to apply the amounts
of the reward  recovered  through  Texas retail  eligible  fuel  expense  toward
additional  amortization of its STP deferred  accounting  regulatory  asset. The
remaining  50% of the reward  would be  "banked"  to be used  against  potential
future penalties or other disallowance of fuel costs.  Hearings were held before
an ALJ in June  1999.  In  July  1999,  all  parties  reached  a  settlement  in
principle.   The  settlement   resolves  all  disputed  issues  and  includes  a
disallowance  of $7.44  million  recorded  in the  third  quarter  of 1999.  The
settlement  provides for no STP performance  reward either now or in the future.
The Texas Commission  issued its final order on September 23, 1999 approving the
settlement.

      CPL Fuel Factor Filing
      In January 2000, CPL filed with the Texas  Commission an  Application  for
Authority to implement an increase in fuel factors of $55.4 million, or 16.5% on
an annual basis effective with the March 2000 billing month.  Additionally,  CPL
proposed to  implement an interim fuel  surcharge  of $36.5  million,  including
accumulated interest over a six-month period to collect its under-recovered fuel
costs  beginning in April 2000.  CPL entered into a settlement  providing for an
increase  in fuel  factors of $43.3  million or 12.9% and a  surcharge  of $24.7
million. The settlement will be implemented in March and April 2000.

      CPL Municipal Franchise Fee Litigation
      In May 1996,  the City of San Juan,  Texas  filed a class  action  suit in
Hidalgo County, Texas District Court on behalf of all cities served by CPL based
upon CPL's alleged  underpayment  of municipal  franchise  fees. The plaintiffs'
third amended petition, filed in January 2000, asserts various contract and tort
claims against CPL as well as certain audit rights.  The third amended  petition
seeks  actual  damages  of up to $200  million,  punitive  damages of up to $100
million and attorneys'  fees. CPL filed a  counterclaim  for any  overpayment of
franchise fees it may have made as well as its attorneys' fees. CPL also filed a
motion to transfer venue to Nueces County, Texas, and a plea to the jurisdiction
and  pleas  in  abatement  asserting  that  the  Texas  Commission  has  primary
jurisdiction over the claims. In May 1996 and December 1996,  respectively,  the
Cities of Pharr,  Texas and San Benito,  Texas  filed  individual  suits  making
claims  virtually  identical to those claimed by the City of San Juan.  The suit
filed by the City of San Benito has been voluntarily dismissed.


                                      2-56
<PAGE>

      In January 1997,  CPL filed an original  petition at the Texas  Commission
requesting  the  Texas  Commission  to  declare  its  jurisdiction   over  CPL's
collection  and payment of municipal  franchise  fees. In April 1997,  the Texas
Commission   issued  a  declaratory   order  in  which  it  declined  to  assert
jurisdiction  over the claims of the City of San Juan.  CPL  appealed  the Texas
Commission's decision to the Travis County, Texas District Court, which affirmed
the Texas  Commission  ruling on February 19, 1999.  CPL appealed this ruling to
the Austin Court of Appeals;  oral argument was heard on this appeal in November
1999.

      After the Texas  Commission's  order,  the Hidalgo  County  District Court
overruled CPL's plea to the  jurisdiction  and plea in abatement.  In July 1997,
the Hidalgo  County  District  Court entered an order  certifying  the case as a
class action. CPL appealed this order to the Corpus Christi Court of Appeals. In
February 1998,  the Corpus  Christi Court of Appeals  affirmed the trial court's
order  certifying  the class.  CPL appealed the Corpus  Christi Court of Appeals
ruling to the Texas Supreme  Court,  which  declined to hear the case. In August
1998,  the Hidalgo  County  District  Court  ordered the case to  mediation  and
suspended all proceedings pending the completion of the mediation. The mediation
was completed in December 1998, but the case was not resolved.

      On January 5, 1999, a class notice was mailed to each of the cities served
by CPL.  Over 90 of the 128  cities  declined  to  participate  in the  lawsuit.
However, CPL has pledged that if any final, non-appealable court decision in the
litigation awards a judgement against CPL for a franchise underpayment, CPL will
extend  the  principles  of  that   decision,   with  regard  to  the  franchise
underpayment,  to the cities that decline to participate in the litigation.  The
plaintiffs filed a motion to extend the time for the cities to decide whether to
participate  in the lawsuit.  In December  1999,  the court ruled that the class
would consist of 30 cities,  and the  plaintiffs'  motion to extend the time for
the cities to participate in the lawsuit was withdrawn.  The City of Weslaco has
recently joined as an additional class representative.

      Although  CPL  believes  that it has  substantial  defenses to the cities'
claims and intends to defend  itself  against the cities'  claims and pursue its
counterclaims  vigorously,  CPL cannot  predict  the  outcome  of the  municipal
franchise  fee  litigation  or its  impact on CPL's  results  of  operations  or
financial position.

      CPL Anglo Iron Litigation
      In April 1998,  CPL was sued by Anglo Iron in the United  States  District
Court for the  Southern  District  of Texas,  Brownsville  Division,  for claims
arising  from the  clean-up  of a site  owned  and  operated  by  Anglo  Iron in
Harlingen,  Texas. Anglo Iron sought reimbursement pursuant to CERCLA and common
law  contribution  and  indemnity  for alleged  response and  clean-up  costs of
$328,139 and damages of $150,000 for "loss of fair market value" of the site. In
1999, the parties settled the case for $137,500, and the case was dismissed with
prejudice.

      CPL Sinton Landfill Litigation
      CPL,  along with over 30 others,  was named as a defendant in the district
court in San Patricio  County,  Texas.  The  plaintiffs  are  approximately  500
current and former  landowners  in the vicinity of a landfill  site near Sinton,
Texas. Each plaintiff alleges $10 million property damage and personal injury as
a result of alleged  contamination  from the site.  Plaintiffs made a collective
settlement demand upon CPL for $1.1 million.  In January 1999, in exchange for a
de minimus sum, CPL reached an agreement with Browning Ferris Industries,  Inc.,
the operator of the site, to indemnify CPL for any judgment or settlement amount
that CPL may owe to the  plaintiffs  in this case,  as well as CPL's  attorney's
fees  incurred  after the  agreement.  In August 1999,  the trial court  granted
summary  judgment for CPL. The plaintiffs  appealed the summary judgment ruling.
Management  believes that the ultimate resolution of this matter will not have a
material adverse impact on CSW's or CPL's consolidated  results of operations or
financial condition.


                                      2-57
<PAGE>

      CPL Valero Litigation
      In April  1998,  Valero  filed suit  against CPL in Nueces  County,  Texas
District Court, alleging claims for breach of contract and negligence.  Valero's
suit  seeks in excess of $11  million  as  damages  for  property  loss and lost
profits allegedly  incurred after an interruption of electricity to its facility
in Corpus Christi, Texas in April 1996. The parties held a settlement conference
in August 1999, but no progress was made toward settlement of the case. The case
is  currently  in  discovery.  Management  cannot  predict  the  outcome of this
litigation. However, management believes that CPL has valid defenses to Valero's
claims and intends to defend the matter  vigorously.  Management  also  believes
that the claims are covered by  insurance  and that the ultimate  resolution  of
this  matter  will  not  have a  material  adverse  impact  on  CSW's  or  CPL's
consolidated results of operations or financial condition.

      CPL and WTU Complaint versus Texas Utilities Electric Company (Docket
      No. 17285)
      A joint complaint filed by CPL and WTU with the Texas Commission  asserted
that  since  January  1,  1997,  Texas  Utilities   Electric  Company  had  been
effectively  double charging for  transmission  service within ERCOT. A proposal
for decision received in February 1998 recommended approval of a proposal by CPL
and WTU to reduce by $15.5 million  annually their  payments to Texas  Utilities
Electric Company.  The Texas Commission approved the proposal in September 1998.
Although Texas Utilities  Electric  Company  appealed the Texas Commission final
order,  it refunded $26.6 million to CPL and WTU in November 1998.  Prior to the
Texas Commission's  September 1998 decision, the $15.5 million annual payment to
Texas Utilities  Electric Company was allocated to the U.S.  Electric  Operating
Companies.  As a result of this order,  the payment  continues to be recorded on
CPL's and WTU's books as a  reduction  to ERCOT  transmission  expense and there
will be no future expenses recorded on the books of PSO and SWEPCO.

      On  November  15,  1999,  CPL and WTU  reached  a  settlement  with  Texas
Utilities Electric Company. This settlement resulted in the execution of two new
Transmission  Service Agreements  retroactive to January 1, 1997. As a result of
this settlement, all pending litigation between Texas Utilities Electric Company
and CSW will be terminated and Texas  Utilities  Electric  Company will withdraw
its  appeal in  Docket  No.  17285.  CPL and WTU  agreed to pay Texas  Utilities
Electric Company $12 million during 2000. The $12 million  liability was accrued
on CPL's and WTU's books  during the fourth  quarter of 1999.  CPL accrued  $6.4
million and WTU accrued  $5.6  million.  In addition,  the two new  Transmission
Service  Agreements require CPL and WTU to pay for export  transmission  service
along with the ERCOT transmission charges approved by the Texas Commission.

      Transmission Coordination Agreement
      The transmission  coordination  agreement  provides the means by which the
U.S. Electric  Operating  Companies plan, operate and maintain the four separate
transmission systems as a single unit. The agreement also establishes the method
by which the U.S. Electric Operating  Companies allocate revenues received under
open  access  transmission  tariffs.  In  August  1998,  the FERC  accepted  the
transmission  coordination  agreement  for  filing,  suspended  it for a nominal
period, and made it effective  retroactive to January 1, 1997, subject to refund
and  investigation.  In the fourth quarter of 1998, the U.S. Electric  Operating
Companies and supporting  intervenor  signatories  filed an uncontested offer of
settlement.  The FERC issued an order on June 18, 1999,  accepting  the offer of
settlement. The FERC further ordered that appropriate refunds be made to reflect
the terms of the  revised  transmission  coordination  agreement.  In the second
quarter  of 1999,  the FERC also  issued an order  accepting  the U.S.  Electric
Operating Companies' compliance filing of their open access transmission tariff.
The FERC  previously had ordered the  compliance  filing to review the method by
which certain open access  transmission  tariff customers were to be charged for
transmission  service.  As a result of that order,  certain changes were made in
the  transmission  coordination  agreement  related to the allocation of certain
open access transmission  tariff revenues.  Each U.S. Electric Operating Company
will be allocated  revenue in proportion to each  company's  respective  revenue
requirement   for  the  service  it  provides  under  the  revised  open  access
transmission  tariff.  The  U.S.  Electric  Operating  Companies  requested  and

                                      2-58
<PAGE>

received  from the FERC a deferral  of their  refund  obligation  until the FERC
issues an order accepting the revised transmission coordination agreement.

      On  October  29,  1999,  CSW filed  with the FERC a  revised  transmission
coordination agreement. The revised transmission coordination agreement includes
changes  to the  original  transmission  coordination  agreement  to ensure  the
above-mentioned  allocation of revenues to each U.S. Electric Operating Company.
In 1999, each of the U.S. Electric  Operating  Companies  recorded the estimated
impact of the reallocation of open access  transmission  tariff revenues,  which
increased CSW's income before taxes by approximately $2.4 million.  The earnings
increase was related to additional  non-affiliated  revenues  resulting from the
open access  transmission  tariff.  On December 16, 1999,  the FERC accepted the
revised transmission coordination agreement,  which is retroactive to January 1,
1997.

      PSO Rate Review
      In July 1996, the Oklahoma Commission staff filed an application seeking a
review of PSO's earnings and in July 1997  recommended a rate reduction of $76.8
million for PSO.

      On  October  23,  1997,  the  Oklahoma  Commission  issued  a final  order
approving a stipulated  agreement  with parties to settle the rate inquiry.  The
PSO 1997 Rate Settlement Agreement called for PSO to lower its retail base rates
beginning  with the December 1997 billing cycle by  approximately  $35.9 million
annually,  or a 5.3% decrease below the then current level of retail rates. Part
of the rate  reduction  included a reduction in annual  depreciation  expense of
approximately $10.9 million. In addition, the PSO 1997 Rate Settlement Agreement
resulted in PSO making a one-time  $29 million  refund to  customers in December
1997.

       The PSO 1997 Rate  Settlement  Agreement also called for PSO to eliminate
or  amortize  before its next rate filing  approximately  $41 million in certain
deferred assets,  approximately  $26 million of which had been expensed in 1996.
The remaining $15 million of deferred  assets,  which included  approximately $9
million of costs incurred for customer  energy  management  incentive  programs,
were written off in 1997. The financial  impact of the PSO 1997 Rate  Settlement
Agreement  on PSO's 1997  results of  operations  was a reduction in revenues of
$31.5  million and a reduction  in expenses of $4.1 million  which  included the
write-off of the previously mentioned deferred assets.

      The PSO 1997 Rate  Settlement  Agreement  resulted  in a material  adverse
effect on PSO's  results  of  operations  for 1997  that will have a  continuing
impact because of the rate decrease.  However,  it reduced significant risks for
PSO related to this regulatory proceeding and should allow PSO's rates to remain
competitive for the foreseeable future.

      PSO PCB Cases
      PSO was named a defendant in petitions filed in state court in Oklahoma in
1996. The petitions allege that the plaintiffs suffered personal injury and fear
future  injury  as  a  result  of  contamination  by  PCBs  from  a  transformer
malfunction  that occurred in April 1982 at the Page Belcher Federal Building in
Tulsa,  Oklahoma.  Each of the plaintiffs  seeks actual and punitive  damages in
excess of $10,000.  Other claims arising from this incident were settled and the
suits  dismissed.  During 1999,  eleven cases were settled for a nominal  amount
covered  by PSO's  insurance,  and two  cases  were  dismissed  for  failure  to
prosecute. At December 31, 1999, nine cases remain pending.  Management believes
that PSO has  defenses  to the  remaining  cases  and  intends  to  defend  them
vigorously.  Management believes that the remaining claims, excluding claims for
punitive damages,  are covered by insurance and that the ultimate  resolution of
the remaining lawsuits will not have a material effect on CSW's or PSO's results
of operations or financial condition.


                                      2-59
<PAGE>

      SWEPCO Louisiana Rate Review
      In December  1997,  the  Louisiana  Commission  announced  it would review
SWEPCO's  rates  and  service.  In  October  1999,  SWEPCO  and the staff of the
Louisiana  Commission  reached an agreement and stipulation,  which was filed on
October 14, 1999. The  significant  provisions of the agreement and  stipulation
follow:

-     SWEPCO's Louisiana retail  jurisdictional  revenues were reduced by $11
      million, effective with the December 1999 billing cycle;

-     SWEPCO is allowed to earn an 11.1% return on common equity;

-     SWEPCO is allowed to recover certain regulatory assets totaling $7.1
      million;

-     SWEPCO will be subject to a two-year base rate freeze, which includes
      force majeure provisions; and

-     SWEPCO will be allowed to increase depreciation rates for transmission,
      distribution and general plant.

      The  Louisiana  Commission  approved  the  agreement  and  stipulation  in
 November 1999, which was implemented in December 1999.

      SWEPCO Arkansas Rate Review
      In July 1998, the Arkansas Commission began a review of SWEPCO's earnings.
On July 30, 1999,  SWEPCO  entered into a settlement  agreement with the general
staff of the Arkansas Commission and the Arkansas Attorney General's Office. The
settlement  agreement reduces SWEPCO's Arkansas annual revenues by $5.4 million,
or 3%.  Additionally,  the stipulation and settlement  agreement  provides for a
10.75%  return on common  equity,  an increase  in  depreciation  rates,  and an
agreement by SWEPCO not to seek recovery of generation-related stranded costs.

      On September 23, 1999, the Arkansas  Commission  issued an order approving
the  stipulation  and settlement  agreement.  On October 25, 1999,  SWEPCO filed
compliance rate tariffs with the Arkansas Commission,  which are consistent with
the Arkansas  Commission order. The provisions of the settlement  agreement were
implemented in December 1999.

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

      On  December  8,  1997,  SWEPCO and the other  parties to the  proceedings
before  the Texas  Commission  filed a  settlement  on all  issues  except as to
whether  transmission  equalization  payments should be included in fuel or base
revenues.  The  settlement  resulted in a decrease of the  under-recovered  fuel
costs, and the resulting surcharge recovery, by $6.0 million, which was recorded
in 1997.  The  settlement  also provides  that  SWEPCO's  fuel and  fuel-related
expenses  during the  reconciliation  period were  reasonable  and necessary and

                                      2-60
<PAGE>

recoverable as fuel expense. Also, the settlement provides that SWEPCO's actions
in  litigating  and  renegotiating  certain fuel  contracts,  together  with the
prices, terms and conditions of the renegotiated contracts, were prudent.

      On April 8, 1998,  the ALJ issued a proposal  for decision  regarding  the
only  outstanding  issue,   recommending  that  SWEPCO  be  allowed  to  include
transmission equalization expense in eligible fuel expense. On May 19, 1998, the
Texas  Commission  reversed  the  ALJ  and  ordered  an  earnings  reduction  of
approximately  $1.8 million,  recorded in the second quarter of 1998. On June 8,
1998,  SWEPCO  filed a motion for  rehearing  on the  transmission  equalization
issue,  which was denied through operation of law. After the Texas  Commission's
order  on May 19,  1998,  SWEPCO  had  still  under-recovered  its fuel and fuel
related expenses. On July 1, 1998, the Texas Commission issued an order allowing
SWEPCO to surcharge its Texas retail  customers $6.9 million of  under-recovered
fuel and fuel-related  expenses and associated interest.  The surcharge began in
July 1998 and ended in June  1999.  SWEPCO  has filed an appeal  regarding  this
matter in the State District Court of Travis County, Texas. Management is unable
to predict the ultimate outcome of this litigation.  However,  SWEPCO has agreed
to withdraw  the appeal if the AEP Merger is  consummated.  See ITEM 8. NOTE 15.
PROPOSED AEP MERGER for additional information.

      SWEPCO Interim Fuel Refund
      On August 24, 1999, SWEPCO filed an application at the Texas Commission to
make an interim refund of fuel cost  over-recoveries of $7.5 million received by
SWEPCO from its Texas retail jurisdictional customers. The application requested
that the refund be made in October  1999.  On September  20, 1999, a stipulation
between  all  parties  was filed  with the  Texas  Commission,  which  preserved
SWEPCO's  application to refund $7.5 million to SWEPCO's Texas retail customers.
An order granting interim approval to make the refund in October 1999 was issued
by the hearing  examiner on September 24, 1999.  SWEPCO began  implementing  the
refund on customer  bills during the first  billing  cycle of October  1999.  On
October 21,  1999,  the Texas  Commission  issued a final  order which  affirmed
approval to refund the fuel cost over-recoveries.

      SWEPCO Lignite Mining Agreement Litigation
      SWEPCO and CLECO are each a 50% owner of Dolet Hills Power  Station Unit 1
and  jointly  own  lignite  reserves  in the Dolet  Hills  area of  northwestern
Louisiana.  In 1982,  SWEPCO and CLECO entered into a lignite  mining  agreement
with the DHMV,  a  partnership  for the mining and  delivery  of lignite  from a
portion of these reserves.

      On April 15,  1997,  SWEPCO  and CLECO sued DHMV and its  partners  in the
United States  District Court for the Western  District of Louisiana  seeking to
enforce various obligations of DHMV to SWEPCO and CLECO under the lignite mining
agreement,  including  provisions  relating  to the  quality  of  the  delivered
lignite,  pricing, and mine reclamation practices.  On June 15, 1997, DHMV filed
an answer denying the allegations in the suit and filed a counterclaim asserting
various  contract-related claims against SWEPCO and CLECO. SWEPCO and CLECO have
denied  the  allegations  contained  in the  counterclaims.  On January 8, 1999,
SWEPCO and CLECO  amended  the claims  against  DHMV in the lawsuit to include a
request that the lignite mining agreement be terminated.  The parties engaged in
unsuccessful settlement discussions in the third quarter of 1999 and early 2000.
The trial date is May 22, 2000.

      Although  SWEPCO  cannot  predict  the  ultimate  outcome of this  matter,
management  believes that the resolution of this matter will not have a material
effect on SWEPCO's results of operations or financial condition.

                                      2-61
<PAGE>


      Withdrawal of SWEPCO Cajun Asset Proposal
      Cajun filed a  petition for reorganization  under Chapter 11 of the United
States  Bankruptcy Code on December 21, 1994 under the supervision of the United
States  Bankruptcy  Court for the Middle District of Louisiana.  Both SWEPCO and
Louisiana  Generating LLC had filed  competing plans of  reorganization  for the
non-nuclear assets of Cajun with the bankruptcy court.

      On August 26, 1999, SWEPCO,  together with the Cajun Members Committee and
Washington-St.  Tammany Electric Cooperative,  reached a settlement agreement to
withdraw  the  jointly  filed  July  1999  SWEPCO  Plan  to  acquire  all of the
non-nuclear assets of Cajun. SWEPCO had deferred  approximately $13.0 million in
costs related to the Cajun acquisition on its consolidated  balance sheet. Under
the settlement agreement,  SWEPCO received $7.5 million on November 8, 1999. The
remaining  balance was written off in the third quarter of 1999,  resulting in a
$3.7 million after tax charge to earnings.

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

      In September 1999, WTU filed with the Texas  Commission an application for
authority to implement an increase in fuel factors of $13.5  million or 12.2% on
an annual  basis.  Additionally,  WTU  proposed  to  implement  an interim  fuel
surcharge  of $6.5  million,  including  accumulated  interest  over a six-month
period to collect its under-recovered  fuel costs. WTU proposed to implement the
revised fuel factors with its December 1999 cycle billing.  On November 4, 1999,
the Texas Commission approved WTU's application. The order allows an increase in
fuel  factors of 12.2% on an annual  basis  beginning  in the billing  cycle for
December   1999  and  to   surcharge   customers  to  recover  $6.5  million  of
under-recovered  fuel costs and associated  interest for six months beginning in
the billing cycle for January 2000.

      Regulatory Price Proposal for SEEBOARD
      On December 2, 1999,  OFGEM  published its final price  proposals from its
United  Kingdom  electricity  distribution  review.  OFGEM has proposed  revenue
reductions in SEEBOARD's  distribution  business of 21%. In addition,  OFGEM has
proposed  the  reallocation  of  a  further  12%  of  costs  out  of  SEEBOARD's
distribution business into its supply business. These proposals were accepted on
December 20, 1999 and will take effect from April 1, 2000,  and remain in effect
for five years.  OFGEM's  proposals  will reduce net income for  SEEBOARD in the
year 2000 by approximately $40 million, dependent upon the level of further cost
reductions that can be achieved, and by approximately $60 million in 2001. CSW's
net income from SEEBOARD U.S.A.,  its United Kingdom business segment,  was $113
million for the twelve months ended December 31, 1999.

      OFGEM also published the final price proposals for the electricity  supply
price review.  OFGEM has  recommended  that the price cap for charges  levied to
electricity  supply domestic and small business customers should be extended for
two years from April 1, 2000.  Overall,  these  proposals are expected to have a
broadly neutral effect on the results of SEEBOARD U.S.A.

      The foregoing discussion  constitutes  forward-looking  information within
the  meaning of Section  21E of the  Exchange  Act.  Actual  results  may differ
materially from such projected information. See FORWARD-LOOKING INFORMATION.

                                      2-62
<PAGE>


      CSW Energy, Texas-New Mexico Power Company Phillips Litigation
      In  May 1997, equipment  operated by an an unrelated third party allegedly
came  in  contact with  a  Texas-New  Mexico  Power  Company  transmission  line
rendering   Texas-New  Mexico  Power  Company's  Old  Ocean  switching   station
inoperable.   As a result,  Phillips'  refinery, located in  Sweeny, Texas, lost
power.

      In October  1997,  Phillips  filed suit  against  Texas-New  Mexico  Power
Company in the District Court of Brazoria County, Texas seeking  damages in
excess of $36 million  associated  with the loss of power to its refinery in
Sweeny, Texas.  Texas-New Mexico Power Company denies any liability to Phillips.

      In June 1999, Sweeny Cogeneration Limited Partnership was notified  that
Texas-New  Mexico Power  Company had joined Sweeny Cogeneration Limited
Partnership as a third  party defendant to the pending litigation.   Texas-New
Mexico Power Company is claiming  that during the construction of Sweeny
Cogeneration  Limited  Partnership's cogeneration facility, adjacent to Phillips
refinery,  Sweeny  Cogeneration  Limited Partnership  modified Texas-New  Mexico
Power Company's equipment which was supplying  power to the Phillips  refinery.
In this connection, Texas-New Mexico Power Company alleges that Sweeny
Cogeneration Limited Partnership was negligent in the construction of the
cogeneration facility.

      Sweeny Cogeneration Limited Partnership believes these allegations are
without merit and intends to contest vigorously any claims made against it by
Phillips or Texas-New Mexico Power Company.  Management is unable to predict the
ultimate outcome of this pending litigation.  If Texas-New Mexico Power Company
prevailed in the litigation, then CSW could experience a material adverse effect
on its results of operations but not on its financial condition.

      Other
      The  Registrants  are party to various  other  legal  claims,  actions and
complaints arising in the normal course of business.  Management does not expect
disposition  of  these  matters  to  have  a  material  adverse  effect  on  the
Registrants' results of operations or financial condition.


3. COMMITMENTS AND CONTINGENT LIABILITIES

      Construction and Capital Expenditures

      It is estimated that CSW, including the U.S. Electric Operating Companies,
SEEBOARD  and other  operations,  will  spend  approximately  $1,071  million in
capital   expenditures   (but  excluding   capital  that  may  be  required  for
acquisitions) during 2000. Substantial  commitments have been made in connection
with these  programs.  See ITEM 7. MD&A - LIQUIDITY  AND CAPITAL  RESOURCES  for
expected use of these expenditures.

CPL - $229 million  PSO - $174 million  SWEPCO - $159 million  WTU - $55 million

      Fuel and Related Commitments

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

      SWEPCO Henry W. Pirkey Power Plant
      In connection  with the South  Hallsville  lignite mining contract for its
Henry W. Pirkey Power Plant,  SWEPCO has agreed,  under certain  conditions,  to
assume the  obligations of the mining  contractor.  As of December 31, 1999, the
amount  SWEPCO  may have to assume  is $69  million,  which is the  contractor's
actual obligation outstanding at December 31, 1999.

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

                                      2-63
<PAGE>

guarantees of mine  reclamation in the amount of $85 million.  Since SWEPCO uses
self-bonding,  the guarantee  provides for SWEPCO to commit to use its resources
to complete the  reclamation in the event the work is not completed by the third
party  miner.  At December 31, 1999 the cost to reclaim the mine is estimated to
be approximately $36 million.

      Other Commitments and Contingencies

      CPL Nuclear Insurance
      In  connection  with the  licensing  and operation of STP, the owners have
purchased nuclear property and liability  insurance coverage as required by law,
and have executed indemnification agreements with the NRC in accordance with the
financial protection requirements of the Price-Anderson Act.

      The Price-Anderson Act, a comprehensive  statutory  arrangement  providing
limitations  on nuclear  liability and  governmental  indemnities,  is in effect
until August 1, 2002. The limit of liability  under the  Price-Anderson  Act for
licensees of nuclear power plants is $8.92 billion per incident, effective as of
December  1997.  The owners of STP are insured for their share of this liability
through a  combination  of private  insurance  amounting  to $200  million and a
mandatory  industry-wide program for self insurance totaling $9.145 billion. The
maximum  amount  that each  licensee  may be  assessed  under the  industry-wide
program of self insurance following a nuclear incident at an insured facility is
$83.9 million per reactor,  for any one nuclear  incident payable at $10 million
per year per  reactor.  An  additional  surcharge  of 5% of the  maximum  may be
payable if the total amount of public  claims and legal costs exceeds the limit.
CPL and each of the other STP owners are subject to such assessments,  which CPL
and the  other  owners  have  agreed  will be  allocated  on the  basis of their
respective  ownership  interests in STP. For purposes of these assessments,  STP
has two licensed reactors. CPL owns 25.2% of each reactor.

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

      CPL purchases,  for its own account, a NEIL I Business Interruption and/or
Extra Expense  policy.  This  insurance  will  reimburse CPL for extra  expenses
incurred  for  replacement  generation  or  purchased  power as the  result of a
covered  accident that shuts down production at one or both of the STP Units for
more than 23 consecutive weeks. In the event of an outage which is the result of
the same accident,  insurance will reimburse CPL up to 80% of the recovery.  The
maximum amount  recoverable  for a single unit outage is $133.8 million for both
Units 1 and 2. CPL is subject to an additional assessment of up to $1.54 million
for the  current  policy  year in the  event  that  insured  losses at a nuclear
facility covered under the NEIL I policy exceed the accumulated  funds available
under the policy.  CPL renewed its current NEIL I Business  Interruption  and/or
Extra Expense policy on October 1, 1999.

      SWEPCO Rental and Lease Commitments
      SWEPCO has entered  into various  financing  arrangements  primarily  with
respect  to coal  transportation  and  related  equipment  which are  treated as
operating leases for rate-making  purposes.  At December 31, 1999, leased assets
of $45.7 million, less accumulated  amortization of $45.7 million, were included
in Electric  Utility Plant on the Consolidated  Balance Sheets,  and at December
31, 1998,  leased assets were $45.7 million,  less  accumulated  amortization of
$41.4 million.

                                      2-64
<PAGE>

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

      A feasibility  study was  conducted to evaluate  remedial  strategies  and
costs associated with cleanup activities. SWEPCO and Mississippi Power agreed to
a buyout agreement for the amount of $1.5 million, in which SWEPCO received full
indemnification  for any liabilities  associated with  contamination  and/or any
clean-up efforts.

      SWEPCO Marshall Street Site
      SWEPCO  owns a  tract  of  land  known  as the  Marshall  Street  site  in
Shreveport,  Louisiana,  which was previously a MGP site. The City of Shreveport
may  acquire  the  Marshall  Street  site from  SWEPCO to expand its  convention
center.  In  1999,   environmental   testing  was  performed  at  the  site  and
contaminants  were  discovered  that  could  be  related  to a  MGP.  SWEPCO  is
negotiating  with the City of Shreveport to determine  under what terms the city
may  acquire  the  Marshall  Street  site and who  would  pay for any  potential
clean-up  costs  related  to the site.  In the fourth  quarter  of 1999,  SWEPCO
accrued  $4.0  million for  SWEPCO's  portion of any  potential  clean-up  costs
related to the Marshall Street site.

      SWEPCO  Wilkes Power Plant Copper Limit Compliance
     The EPA has  issued to SWEPCO's Wilkes power plant, an administrative order
for wastewater permit violations  related to copper limits.  Planned  compliance
activities,  including  activities  that have been  conducted to  determine  the
source of copper,  were presented by SWEPCO to the EPA during an  administrative
meeting,  held on August  13,  1998.  SWEPCO  and the EPA  negotiated  a $41,500
penalty pending final approval from the EPA.

      Clean Air Provisions of the Texas Legislation
      The Texas  Legislation  requires that  grandfathered  electric  generating
facilities  be permited to reduce  emission  levels 50% and  provides for a cost
recovery mechanism.  Final regulations are still being developed.  The estimated
total costs to comply  with the  expected  regulations  are  approximately  $4.2
million,  $4.8  million and $10 million for CPL,  SWEPCO and WTU,  respectively.
Expenditures have begun to meet the requirements of the legislation.

      Proposed Regional Control Strategy Regulations
      The TNRCC released for comment  proposed  regulations  that, if adopted as
proposed,  would  require  reductions in nitrogen  oxide  emissions for existing
permited electric generating  facilities in the East Texas Region in addition to
the Clean Air provisions of the Texas  Legislation  discussed  above.  The final
regulations  could be issued in April  2000 with an  implementation  date of May
2003. The current  estimate for  compliance  with the proposed rules could be as
much as $38  million  for CPL and $151  million  for SWEPCO in capital  projects
costs and as much as $3 million for CPL and $11 million for SWEPCO in additional
annual operating costs.


                                      2-65
<PAGE>

      The foregoing discussion  constitutes  forward-looking  information within
the  meaning of Section  21E of the  Exchange  Act.  Actual  results  may differ
materially from such projected information. See FORWARD-LOOKING INFORMATION.

      SEEBOARD London Underground Commitment
      SEEBOARD has committed  (pound)57  million,  or $92 million  (converted at
(pound)1.00 equals $1.62), for costs associated with its contract related to the
London  Underground  transportation  system.  In  1998,  SEEBOARD,  through  its
subsidiary,  SEEBOARD  Powerlink,  signed a $1.6 billion,  30-year contract as a
joint venture partner to operate,  maintain,  finance and renew the high-voltage
power distribution network of the London Underground.

      SEEBOARD - Third Party Pension Litigation
      In the U.K.,  National  Grid and National  Power PLC have been involved in
continuing  litigation  regarding their use of actuarial  surpluses disclosed in
the 1992 and 1995 valuations of the electricity industry's  occupational pension
plan, the ESPS. A High Court decision in favor of the National Grid and National
Power PLC was  appealed.  On February 10, 1999,  the U.K.  Court of Appeal ruled
that the particular  arrangements made by these  corporations to dispose of part
of the surplus  were  invalid  due to  procedural  defects.  This  decision  was
confirmed at a later hearing of the U.K.  Court of Appeal held in May 1999.  The
National Grid has appealed to the House of Lords, the highest court of appeal in
the U.K.,  and a decision  is  expected  in late 2000 or early  2001.  The final
outcome of this appeal cannot presently be determined.

      SEEBOARD  employees are members of the ESPS, and SEEBOARD has made similar
use of  actuarial  surpluses  disclosed  in the 1992 and 1995  valuations.  As a
result of subsequent  legal  clarification  of certain  issues  arising from the
hearing  held in May 1999,  the  potential  impact of the ruling on SEEBOARD has
increased.  The amount of the payments  cancelled by SEEBOARD in  recognition of
these  surpluses  amounts to  approximately  $78 million,  excluding any accrued
interest.

      The U.K. Court of Appeal did not order the National Grid or National Power
PLC to make payment into the ESPS, and the court  indicated that any requirement
to make such payments  would be extreme since the relevant  sections of the ESPS
are already in surplus. In the event that the court finally decides a payment by
SEEBOARD  into the  ESPS is  necessary,  such a  payment  is  likely  to  create
additional  pension  fund  surplus,  which the  company  should  then be able to
utilize over the next several years to reduce pension expense.

      Management  is unable  currently to predict the amount of any payment that
it may be required to make to ESPS,  but the payment  should not have a material
adverse affect on CSW's results of operations or financial condition.

      The foregoing discussion  constitutes  forward-looking  information within
the  meaning of Section  21E of the  Exchange  Act.  Actual  results  may differ
materially from such projected information. See FORWARD-LOOKING INFORMATION.

      Diversified Electric - Commitments and Contingencies
      In June 1998, the 330 MW Sweeny cogeneration facility, an entity 50% owned
by CSW Energy,  obtained permanent project financing.  The $149 million of debt,
with an effective  interest rate of 7.4%, is  unconditionally  guaranteed by the
project and is  non-recourse  to CSW Energy and CSW.  Concurrently,  the project
repaid its outstanding note to CSW Energy for construction financing.


                                      2-66
<PAGE>

      In October 1999, GE Capital  Structured Finance Group purchased 50 percent
of the equity ownership of Sweeny Cogeneration Limited Partnership. CSW Energy's
after-tax  earnings from the proceeds of the transaction were  approximately $33
million and were recorded in the fourth quarter of 1999.  The agreement  between
CSW Energy and GE Capital  Structured Finance Group also provides for additional
payments  to CSW Energy  subject to  completion  of a planned  expansion  of the
Sweeny cogeneration facility.

      CSW Energy  began  construction  in August  1998 of a 500 MW power  plant,
known as Frontera,  in the Rio Grande Valley,  near the city of Mission,  Texas.
The natural  gas-fired  facility began simple cycle  operation of 330 MW in July
1999 and is  scheduled  to  commence  combined  cycle  operation  in early 2000.
Pursuant to AEP's and CSW's stipulated agreement with several intervenors in the
state  of  Texas  related  to the AEP  Merger,  CSW  Energy  may  sell 250 MW of
Frontera.  See ITEM 8. NOTE 15.  PROPOSED AEP MERGER and ITEM 7. MD&A,  PROPOSED
AEP MERGER for a discussion including timing of sale.

      CSW  International  and its 50% partner,  Scottish  Power plc have entered
into a joint venture to construct and operate the South Coast power  project,  a
400 MW combined cycle gas turbine power station in Shoreham, United Kingdom. CSW
International has guaranteed  approximately  (pound)19 million of the (pound)190
million  construction  financing.   Both  the  guarantee  and  the  construction
financing are  denominated in pounds  sterling.  The U.S.  dollar  equivalent at
December  31, 1999 would be $31 million and $308 million  respectively,  using a
conversion  rate  of  (pound)1.00  equals  $1.62.  The  permanent  financing  is
unconditionally guaranteed by the project.  Construction of the project began in
March 1999, and commercial operation is expected to begin in late 2000.

      CSW Energy's Colorado  facilities are cogeneration  plants with steam as a
by-product of its electricity generation.  In February 2000, notice was received
that  the  lessee  of  the   facilities   utilizing  the  steam  had  filed  for
reorganization  under Chapter 11 of the Bankruptcy  Code,  which could result in
the lessee rejecting the leases. Should that occur,  management is positioned to
pursue other lease  arrangements.  Management  believes the  resolution  of this
matter will not have a material adverse effect on CSW's results of operations or
financial condition.

      CSW, CSW Energy and CSW International  have provided letters of credit and
guarantees  on  behalf  of  CSW  Energy  and  CSW   International   projects  of
approximately $62 million,  $41 million, and $233 million,  respectively,  as of
December 31, 1999.


                                      2-67
<PAGE>


4.          INCOME TAXES

      CSW files a  consolidated  United  States  federal  income  tax return and
participates  in a tax  sharing  agreement  with its  subsidiaries.  Income  tax
includes United States federal income taxes,  applicable  state income taxes and
SEEBOARD's United Kingdom  corporation taxes. Total income taxes differ from the
amounts computed by applying the United States federal statutory income tax rate
to income before taxes for a number of reasons which are presented in the INCOME
TAX RATE  RECONCILIATION  table  below.  Information  concerning  income  taxes,
including total income tax expense, the reconciliation between the United States
federal statutory tax rate and the effective tax rate and significant components
of deferred income taxes follow.
<TABLE>
<CAPTION>

                                     --------------------------------------------------
INCOME TAX EXPENSE                     CSW          CPL       PSO      SWEPCO     WTU
                                                  -------------------------------------
1999                                 (millions)                 (thousands)
<S>                                    <C>        <C>       <C>       <C>       <C>

   Current (1)                          $177      $89,112   $20,777   $60,169   $3,328
   Deferred (1)                           40       19,990    15,198   (17,098)  12,222
   Deferred ITC (2)                      (13)      (5,207)   (1,791)   (4,565)  (1,275)
                                     --------------------------------------------------
                                         204      103,895    34,184    38,506   14,275
Included in Other Income and Deductions
   Current                                18       (5,604)   (2,215)   (4,826)     858
   Deferred                                1          318        --        --       --
                                     --------------------------------------------------
                                          19       (5,286)   (2,215)   (4,826)     858

Included in Extraordinary Item            (8)      (2,971)       --    (1,621)  (2,941)

                                     --------------------------------------------------
                                        $215      $95,638   $31,969   $32,059  $12,192
                                     --------------------------------------------------
1998
Included in Operating Expenses and Taxes
Current (1)                             $253     $128,942   $52,587   $64,463  $28,542
Deferred (1)                             (38)      (8,253)   (1,693)  (11,850)  (6,578)
Deferred ITC (2)                         (12)      (3,858)   (1,795)   (4,631)  (1,321)
                                     --------------------------------------------------
                                         203      116,831    49,099    47,982   20,643
Included in Other Income and Deductions
   Current                                18       (2,204)      (93)   (1,868)    (454)
                                     --------------------------------------------------
                                          18       (2,204)      (93)   (1,868)    (454)

                                     --------------------------------------------------
                                        $221     $114,627   $49,006   $46,114  $20,189
                                     --------------------------------------------------
1997
Included in Operating Expenses and Taxes
   Current (1)                           $47      $43,600   $14,543   $46,358  $11,765
   Deferred (1)                          117       35,263     8,498    (1,984)    (954)
   Deferred ITC (2)                      (13)      (4,819)   (2,278)   (4,662)  (1,321)
                                     --------------------------------------------------
                                         151       74,044    20,763    39,712    9,490
Included in Other Income and Deductions
   Current                                --       (4,271)   (2,230)   (1,962)    (471)
   Deferred                               (6)        (779)      (50)     (260)      --
                                     --------------------------------------------------
                                          (6)      (5,050)   (2,280)   (2,222)    (471)
                                     --------------------------------------------------
                                        $145      $68,994   $18,483   $37,490   $9,019
                                     --------------------------------------------------
</TABLE>

(1)Approximately  $3  million,  $14  million  and $30  million of CSW's  Current
   Income Tax Expense was  attributable  to SEEBOARD  U.S.A.  operations and was
   recognized as United Kingdom corporation tax expense for 1999, 1998 and 1997,
   respectively.  In  addition,  approximately  $16  million,  $9 million and $7
   million  of  CSW's  Deferred  Income  Tax  Expense  in 1999,  1998 and  1997,
   respectively, was attributed to SEEBOARD U.S.A.
(2)ITC  deferred  in prior  years are  included  in income over the lives of the
   related properties.

                                      2-68
<PAGE>


<TABLE>
<CAPTION>

                                     --------------------------------------------------
INCOME TAX RATE RECONCILIATION         CSW          CPL       PSO      SWEPCO     WTU
                                                  -------------------------------------
1999                                 (millions)                 (thousands)
<S>                                    <C>       <C>        <C>      <C>       <C>

Income before taxes attributable to:
   Domestic operations                  $541
   Foreign operations                    128
                                     --------
Income before taxes                     $669     $267,812   $94,573  $115,715  $38,964

Tax at U.S. statutory rate              $234      $93,734   $33,101   $40,500  $13,637
Differences
   Amortization of ITC                   (13)      (5,207)   (1,791)   (4,565)  (1,275)
   Regulated flowthrough items             5        6,736       292    (2,011)    (246)
   Consolidated tax savings               --       (6,243)   (2,031)   (2,617)    (275)
   Non-deductible goodwill amortization   12           --        --        --       --
   Foreign tax benefits                  (28)          --        --        --       --
   State income taxes, net of Federal
    income tax benefit                    13        6,965     3,110     2,924       --
   Adjustments                           (19)      (5,460)   (2,627)     (621)     480
   Other                                  11        5,113     1,915    (1,551)    (129)
                                     --------------------------------------------------
                                        $215      $95,638   $31,969   $32,059  $12,192
                                     --------------------------------------------------
Effective rate                          32%          36%       34%       28%       31%

1998
Income before taxes attributable to:
   Domestic operations                  $558
   Foreign operations                    112
                                     --------
Income before taxes                     $670     $276,277  $125,849  $144,217  $58,004

Tax at U.S. statutory rate              $235      $96,697   $44,047   $50,476  $20,301
Differences
   Amortization of ITC                   (12)      (3,858)   (1,795)   (4,631)  (1,321)
   Mirror CWIP                            10       10,055        --        --       --
   Other regulated flowthrough items       5        8,051    (1,437)   (2,302)     208
   Consolidated tax savings               --       (2,120)      229    (1,994)  (1,147)
   Non-deductible goodwill amortization   12           --        --        --       --
   Foreign tax benefits                  (41)          --        --        --       --
   State income taxes, net of Federal
     income tax benefit                    8           --     4,473     3,308       --
   Adjustments                            14        5,493     3,977    (2,526)    (779)
   Other                                 (10)         309      (488)    3,783    2,927
                                     --------------------------------------------------
                                        $221     $114,627   $49,006   $46,114  $20,189
                                     --------------------------------------------------
Effective rate                          33%          41%       39%       32%       35%

1997
Income before taxes attributable to:
   Domestic operations                  $327
   Foreign operations                    147
                                     --------
Income before taxes                     $474     $197,465   $64,689   $130,392 $30,480

Tax at U.S. statutory rate              $166      $69,113   $22,641    $45,637 $10,668
Differences
   Amortization of ITC                   (13)      (4,819)   (2,278)   (4,662)  (1,321)
   Mirror CWIP                             5        4,647        --        --       --
   Other regulated flowthrough items       3        5,622    (1,740)   (1,373)     421
   Consolidated tax savings               --       (4,868)   (1,685)   (2,703)    (739)
   Non-deductible goodwill amortization   12           --        --        --       --
   Foreign tax benefits                  (19)          --        --        --       --
   State income taxes, net of Federal
     income tax benefit                    5           --     1,596     2,993       --
   Adjustments                            (4)      (1,361)   (1,324)     (633)    (177)
   Other                                 (10)         660     1,273    (1,769)     167
                                     --------------------------------------------------
                                        $145      $68,994   $18,483   $37,490   $9,019
                                     --------------------------------------------------
Effective tax rate                      31%          35%       29%       29%       30%
</TABLE>


                                      2-69
<PAGE>


<TABLE>
<CAPTION>

                                     --------------------------------------------------
DEFERRED INCOME TAXES (1)               CSW          CPL       PSO      SWEPCO     WTU
                                                  -------------------------------------
1999                                 (millions)                 (thousands)
<S>                                   <C>        <C>       <C>       <C>      <C>

Deferred Income Tax Liabilities
   Depreciable utility plant          $1,944     $798,381  $308,497  $389,680 $153,027
   Deferred plant costs                    3           --        --        --    2,923
   Mirror CWIP asset                       1        1,028        --        --       --
   Income tax related regulatory
     assets                              156      113,436     9,085    27,698    5,580
   Regulatory assets designated for
     securitization                      332      332,198        --        --       --
   Other                                 280       89,321    32,852    38,799   14,697
                                     --------------------------------------------------
                                       2,716    1,334,364   350,434   456,177  176,227

Deferred Income Tax Assets
   Income tax related regulatory
     liability                           (95)     (39,108)  (21,782)  (24,332) (10,149)
   Unamortized ITC                       (91)     (46,657)  (14,533)  (21,279)  (8,863)
   Alternative minimum tax carryforward  (11)          --        --        --       --
   Other                                (106)     (11,554   (30,537)  (31,654)  (6,816)
                                     --------------------------------------------------
                                        (303)     (97,319)  (66,852)  (77,265) (25,828)
                                     --------------------------------------------------
Net Accumulated Deferred Income Taxes  $2,413  $1,237,045  $283,582  $378,912 $150,399
                                     --------------------------------------------------

Net Accumulated Deferred Income
Taxes
   Noncurrent                         $2,430   $1,234,942  $302,727  $380,495 $148,746
   Current                               (17)       2,103   (19,145)   (1,583)   1,653
                                     --------------------------------------------------
                                      $2,413   $1,237,045  $283,582  $378,912 $150,399
                                     --------------------------------------------------

DEFERRED INCOME TAXES (1)

1998
Deferred Income Tax Liabilities
   Depreciable utility plant          $1,936     $812,335  $299,659  $409,779 $141,627
   Deferred plant costs                  174      168,856        --        --    5,219
   Mirror CWIP asset                      90       89,846        --        --       --
   Income tax related regulatory assets  224      165,263    10,086    37,738   11,072
   Other                                 257       72,123    21,881    35,851   18,076
                                     --------------------------------------------------
                                       2,681    1,308,423   331,626   483,368  175,994
Deferred Income Tax Assets
   Income tax related regulatory
     liability                          (117)     (39,095)  (23,940)  (38,251) (15,303)
   Unamortized ITC                       (96)     (48,480)  (15,226)  (22,964)  (9,309)
   Alternative minimum tax
     carryforward                        (11)          --        --        --       --
   Other                                 (75)          --   (27,068)  (28,357) (11,017)
                                     --------------------------------------------------
                                        (299)     (87,575)  (66,234)  (89,572) (35,629)

                                     --------------------------------------------------
Net Accumulated Deferred Income Taxes  $2,382   $1,220,848  $265,392 $393,796 $140,365
                                     --------------------------------------------------

Net Accumulated Deferred Income
Taxes
   Noncurrent                         $2,410   $1,221,561  $277,181  $398,664 $140,731
   Current                               (28)        (713)  (11,789)   (4,868)    (366)
                                     --------------------------------------------------
                                      $2,382   $1,220,848  $265,392  $393,796 $140,365
                                     --------------------------------------------------
</TABLE>

(1)Other than  excess  foreign  tax  credits,  CSW did not have other  valuation
   allowances  recorded  against other  deferred tax assets at December 31, 1999
   and 1998 due to a favorable earnings history.   At December 31, 1999, CSW had
   $117  million  of  foreign tax credits, for which a 100% valuation  allowance
   has been provided.  At December 31, 1998, CSW had $145 million of foreign tax
   credits, for which a 100% valuation allowance has been provided.

   CSW has not provided for U.S. federal income and foreign withholding taxes on
   $62 million of non-U.S.  subsidiaries'  undistributed earnings as of December
   31, 1999,  because such earnings are intended to be reinvested  indefinitely.

                                      2-70
<PAGE>

   If these  earnings  were  distributed,  foreign  tax  credits  should  become
   available  under current law to reduce or eliminate the resulting U.S. income
   tax liability.

5.    BENEFIT PLANS


 Cash Balance and Non-qualified Pension Plans

      CSW  maintains a tax  qualified,  non-contributory  defined  benefit  cash
balance  pension plan  covering  substantially  all CSW  employees in the United
States.  Under the cash balance formula,  each  participant has an account,  for
recordkeeping  purposes only, to which credits are allocated annually based on a
percentage of the participant's pay. The applicable  percentage is determined by
age and years of vested service the  participant  has with CSW as of December 31
of each year.  The fair value of the plan assets are measured as of September 30
of each year. Pension plan assets consist primarily of stocks and short-term and
intermediate-term fixed income investments.

      In addition,  CSW has a  non-qualified  excess benefit  pension plan. This
plan is available to all pension plan participants who are entitled to receive a
pension  benefit  from CSW  which is in  excess of the  limitations  imposed  on
benefits by the Internal Revenue Code through the qualified plan.

      As the plan sponsor, CSW will continue to reflect the cost of  the pension
plans according to the provisions of SFAS No. 87 and allocate such costs to each
of the participating  employers.  SFAS No. 132, adopted by CSW in 1998,  amended
the  disclosure  requirements  of SFAS  No.  87 and SFAS  No.  88 and have  been
incorporated in the following disclosures.


      U.K. Pension Plans

      The  majority  of  SEEBOARD's  employees  joined a  pension  plan  that is
administered for the United Kingdom's electricity  industry.  The assets of this
plan are held in a separate trustee-administered fund that is actuarially valued
every three years.  SEEBOARD and its participating  employees both contribute to
the plan.  Subsequent  to July 1, 1995,  new  employees  were no longer  able to
participate in that plan. Instead,  two new pension plans were made available to
new employees, both of which are also separate trustee-administered plans.


      CSW Retirement Savings Plan

      The CSW System  Retirement  Savings  Plan is a defined  contribution  plan
offered to all full time employees and certain part time employees who meet plan
eligibility requirements. Company contributions to this plan totaled $15 million
in 1999, $15 million in 1998 and $11 million in 1997.
<TABLE>
<CAPTION>

                                               1999                          1998
Pension Retirement Plans              CSW      U.S.      U.K.         CSW    U.S.    U.K.
                                     TOTAL     PLANS     PLANS       TOTAL   PLANS   PLANS
                                   ------------------------------   ------------------------
Change in Benefit Obligations               (millions)                     (millions)
<S>                                 <C>        <C>       <C>        <C>       <C>   <C>

Benefit obligation at beginning of
 year                                 $2,111     $ 991   $ 1,120    $ 1,978   $ 955 $ 1,023
Service cost                              35        21        14         36      22      14
Interest cost                            123        65        58        137      69      68
Plan participants' contributions           3         -         3          3       -       3
Amendments                                 7         -         7         58       -      58
Foreign currency translation adjustment  (26)        -       (26)         9       -       9
Acquisitions                               -         -         -          7       -       7
Actuarial (gain) loss                    (11)      (47)       36         11      11       -
Benefits paid                           (129)      (63)      (66)      (128)    (66)    (62)
                                   ------------------------------   ------------------------
Benefit obligation at end of year    $ 2,113     $ 967   $ 1,146    $ 2,111   $ 991 $ 1,120
                                   ------------------------------   ------------------------
</TABLE>


                                      2-71
<PAGE>
<TABLE>
<CAPTION>

                                               1999                          1998
Pension Retirement Plans              CSW      U.S.      U.K.         CSW    U.S.    U.K.
                                     TOTAL     PLANS     PLANS       TOTAL   PLANS   PLANS
                                   ------------------------------   ------------------------
Change in Plan Assets                       (millions)                    (millions)
<S>                                  <C>       <C>       <C>        <C>     <C>      <C>

Fair value of plan assets at
  beginning of year                  $ 2,326   $ 1,014   $ 1,312    $ 2,290 $ 1,109 $ 1,181
Actual return on plan assets             274       122       152        143     (30)    173
Employer contributions                     9         2         7          7       1       6
Plan participants' contributions           3         -         3          3       -       3
Foreign currency translation adjustment  (33)        -       (33)        11       -      11
Benefits paid                           (129)      (63)      (66)      (128)    (66)    (62)
                                   ------------------------------   ------------------------
Fair value of plan assets at end
 of year                             $ 2,450   $ 1,075   $ 1,375    $ 2,326 $ 1,014 $ 1,312
                                   ------------------------------   ------------------------


Reconciliation of Funded Status
Funded status at end of year           $ 337     $ 108     $ 229      $ 214    $ 23   $ 191
Unrecognized:
    Transition obligation                  8         8         -         10      10       -
    Prior service cost                   (64)      (75)       11        (77)    (81)      4
    Actuarial (gain) loss                (88)       88      (176)        26     159    (133)
                                   ------------------------------   ------------------------
Prepaid benefit cost                   $ 193     $ 129      $ 64      $ 173   $ 111    $ 62
                                   ------------------------------   ------------------------

Amounts Recognized in Balance Sheet
Prepaid benefit cost                   $ 209     $ 145      $ 64      $ 188   $ 126    $ 62
Additional minimum liability             (23)      (23)        -        (25)    (25)      -
Intangible asset                           -         -         -          2       2       -
Accumulated other comprehensive expense    7         7         -          8       8       -
                                   ------------------------------   ------------------------
Net amount recognized on balance sheet $ 193     $ 129      $ 64      $ 173   $ 111    $ 62
                                   ------------------------------   ------------------------

Other comprehensive expense(income)
  attributable to change in additional
  minimum liability recognition        $  (2)    $  (2)     $  -      $   1   $   1    $  -

</TABLE>


Additional Information for Plans With
Unfunded Accumulated Benefit Obligations

                                          Non Qualified Plan
                                   ------------------------------
                                             (thousands)

                                      1999                1998
                                   ----------          ----------
Projected benefit obligation        $ 24,676            $ 27,379
Accumulated benefit obligation        22,875              25,137
Plan assets at fair value                  -                   -



                                      2-72

<PAGE>
Pension Retirement Plans
                                              CSW         U.S.        U.K.
Components of Net Periodic Benefit Costs     TOTAL        PLANS       PLANS
                                          -------------------------------------
1999                                                   (millions)
Service cost                                  $ 35        $ 21        $ 14
Interest cost                                  123          65          58
Expected return on plan assets                (167)        (98)        (69)
Amortization of:
    Unrecognized transition obligation           2           2           -
    Prior service cost                          (6)         (6)          -
                                          -------------------------------------
Net periodic benefit cost                    $ (13)      $ (16)        $ 3
                                          -------------------------------------

Weighted-average assumptions as of year end
Discount rate                                                7.50%       6.00%
Expected return on plan assets                               9.00%       6.50%
Rate of compensation increase                                4.96%       4.00%


                                                   U.S. PLANS
                                 ----------------------------------------------
                                   CPL        PSO        SWEPCO        WTU
                                 ----------------------------------------------
                                                  (thousands)
Service cost                      $ 4,510      $ 3,304     $ 3,943     $ 2,346
Interest cost                      14,108       10,336      12,334       7,338
Expected return on plan assets    (21,885)     (16,035)    (19,135)    (11,384)
Amortization of:
    Unrecognized transition
      obligation                      338          248         296         176
    Prior service cost             (1,341)        (982)     (1,172)       (697)
                                 ----------------------------------------------
Net periodic benefit cost        $ (4,270)    $ (3,129)   $ (3,734)   $ (2,221)
                                 ----------------------------------------------


                                                 CSW         U.S.        U.K.
                                                TOTAL        PLANS       PLANS
                                             -----------------------------------
1998                                                       (millions)
Service cost                                     $ 36        $ 22        $ 14
Interest cost                                     137          69          68
Expected return on plan assets                   (174)        (97)        (77)
Amortization of:
    Unrecognized transition obligation              2           2           -
    Prior service cost                             (6)         (6)          -
                                             -----------------------------------
Net periodic benefit cost                        $ (5)      $ (10)        $ 5
                                             -----------------------------------

Weighted-average assumptions as of year end
Discount rate                                                6.75%       5.50%
Expected return on plan assets                               9.00%       6.25%
Rate of compensation increase                                4.96%       3.50%


                                                  U.S. PLANS
                                   ---------------------------------------------
                                      CPL        PSO        SWEPCO        WTU
                                   ---------------------------------------------
                                                    (thousands)
Service cost                      $ 4,537      $ 3,485     $ 4,109     $ 2,352
Interest cost                      14,693       11,283      13,302       7,614
Expected return on plan assets    (21,107)     (16,211)    (19,111)    (10,940)
Amortization of:
    Unrecognized transition
     obligation                       328          252         297         170
    Prior service cost             (1,301)        (999)     (1,178)       (674)
                                   ---------------------------------------------
Net periodic benefit cost        $ (2,850)    $ (2,190)   $ (2,581)   $ (1,478)
                                   ---------------------------------------------

                                      2-73
<PAGE>
Pension Retirement Plans
                                               CSW         U.S.        U.K.
Components of Net Periodic Benefit Costs      TOTAL        PLANS       PLANS
                                           -------------------------------------
1997                                                     (millions)
Service cost                                  $ 34        $ 20        $ 14
Interest cost                                  139          66          73
Expected return on plan assets                (173)        (92)        (81)
Amortization of:
    Unrecognized transition obligation           2           2           -
    Prior service cost                          (6)         (6)          -
    Net actuarial (gain) loss                    1           1           -
                                           -------------------------------------
Net periodic benefit cost                     $ (3)       $ (9)        $ 6
                                           -------------------------------------



Weighted-average assumptions as of year end
Discount rate                                                7.50%       6.75%
Expected return on plan assets                               9.00%       7.25%
Rate of compensation increase                                5.46%       4.75%


                                                  U.S. PLANS
                                  ----------------------------------------------
                                    CPL        PSO        SWEPCO        WTU
                                  ----------------------------------------------
                                                    (thousands)
Service cost                       $ 4,602      $ 3,421     $ 4,260     $ 2,488
Interest cost                       15,085       11,214      13,965       8,156
Expected return on plan assets     (21,410)     (15,892)    (19,839)    (11,597)
Amortization of:
    Unrecognized transition
     obligation                        328          252         297         170
    Prior service cost              (1,301)        (999)     (1,178)       (674)
                                  ----------------------------------------------
Net periodic benefit cost         $ (2,696)    $ (2,004)   $ (2,495)   $ (1,457)
                                  ----------------------------------------------



         As  permitted,  the   amortization  of  any   prior  service  cost   is
determined using  a  straight-line  amortization  of  the cost over the  average
remaining service period  of employees  expected to  receive benefits  under the
plan.


         Post-retirement Benefits Other Than Pensions
         CSW, including each of the U.S. Electric Operating  Companies,  adopted
SFAS No. 106 effective January 1, 1993. The transition obligation established at
adoption is being  amortized over twenty years,  with thirteen years  remaining.
Prior to 1993,  these  benefits  were  accounted for on a  pay-as-you-go  basis.
Pursuant to an order by the Oklahoma  Commission,  PSO  established a regulatory
asset of  approximately  $5  million  in 1993  for the  difference  between  the
pay-as-you-go  basis  and the  costs  determined  under  SFAS  No.  106.  PSO is
recovering the amortization of this regulatory asset over a ten year period.


                                      2-74
<PAGE>
<TABLE>
<CAPTION>

Post- Retirement Benefits Other Than Pensions          Total CSW          CPL         PSO       SWEPCO       WTU
                                                      -------------   -----------------------------------------------
                                                       (millions)           (thousands)
<S>                                                    <C>             <C>           <C>        <C>         <C>
Change in Benefit Obligation
1999
Benefit obligation at beginning of year                      $ 275       $ 81,339    $ 67,688   $ 62,347    $ 36,157
Service cost                                                    11          2,670       1,934      2,215       1,318
Interest cost                                                   18          5,323       4,423      4,089       2,367
Plan participants' contributions                                 2            459         347        341         242
Actuarial (gain) loss                                          (19)        (5,015)     (4,091)    (3,732)     (2,729)
Benefits paid                                                  (21)        (6,492)     (5,625)    (4,706)     (2,848)
                                                      -------------   -----------------------------------------------
Benefit obligation at end of year                            $ 266       $ 78,284    $ 64,676   $ 60,554    $ 34,507
                                                      -------------   -----------------------------------------------

1998
Benefit obligation at beginning of year                      $ 241       $ 72,991    $ 61,434   $ 54,214    $ 32,516
Service cost                                                     8          2,201       1,616      1,781       1,132
Interest cost                                                   17          5,290       4,450      3,941       2,358
Plan participants' contributions                                 1            228         195        186         119
Amendments                                                      (5)        (1,569)     (1,322)    (1,204)       (717)
Actuarial (gain) loss                                           28          6,928       5,299      6,701       2,883
Benefits paid                                                  (15)        (4,730)     (3,984)    (3,272)     (2,134)
                                                      -------------   -----------------------------------------------
Benefit obligation at end of year                            $ 275       $ 81,339    $ 67,688   $ 62,347    $ 36,157
                                                      -------------   -----------------------------------------------

Change in Plan Assets
1999
Fair value of plan assets at beginning of year               $ 164       $ 46,538    $ 42,728   $ 39,876    $ 21,475
Actual return on plan assets                                    23          7,447       5,828      4,899       3,342
Employer contributions                                          25          6,860       5,552      5,244       3,116
Plan participants' contributions                                 2            459         347        341         242
Benefits paid                                                  (21)        (6,492)     (5,625)    (4,706)     (2,848)
                                                      -------------   -----------------------------------------------
Fair value of plan assets at end of year                     $ 193       $ 54,812    $ 48,830   $ 45,654    $ 25,327
                                                      -------------   -----------------------------------------------

1998
Fair value of plan assets at beginning of year               $ 158       $ 44,168    $ 43,366   $ 39,630    $ 20,411
Actual return on plan assets                                     3            201       2,190        487         202
Employer contributions                                          17          6,671         961      2,845       2,877
Plan participants' contributions                                 1            228         195        186         119
Benefits paid                                                  (15)        (4,730)     (3,984)    (3,272)     (2,134)
                                                      -------------   -----------------------------------------------
Fair value of plan assets at end of year                     $ 164       $ 46,538    $ 42,728   $ 39,876    $ 21,475
                                                      -------------   -----------------------------------------------

Reconciliation of Funded Status
1999
Funded status at end of year                                 $ (73)      $(23,472)   $(15,846)  $(14,900)   $ (9,180)
Unrecognized:
    Transition obligation                                      117         37,708      32,872     25,568      15,922
    Actuarial (gain) loss                                      (44)       (14,236)    (17,026)   (10,668)     (6,742)
                                                      -------------   -----------------------------------------------
Prepaid (accrued) benefit cost                                 $ -            $ -         $ -        $ -         $ -
                                                      -------------   -----------------------------------------------

1998
Funded status at end of year                                $ (111)      $(34,801)   $(24,960)  $(22,471)   $(14,682)
Unrecognized:
    Transition obligation                                      126         40,608      35,400     27,535      17,147
    Actuarial (gain) loss                                      (15)        (5,807)    (10,440)    (5,064)     (2,465)
                                                      -------------   -----------------------------------------------
Prepaid (accrued) benefit cost                                 $ -            $ -         $ -        $ -         $ -
                                                      -------------   -----------------------------------------------

</TABLE>
                                      2-75
<PAGE>
<TABLE>
<CAPTION>

Post- Retirement Benefits Other Than Pensions          Total CSW          CPL         PSO       SWEPCO       WTU
                                                      -------------   -----------------------------------------------
                                                       (millions)     (thousands)
<S>                                                      <C>             <C>          <C>        <C>        <C>

Amounts Recognized in Balance Sheet
1999
Prepaid benefit costs                                       $ 3          $ 113        $ 78      $ 206       $ 115
Accrued benefit (liability)                                  (3)          (113)        (78)      (206)       (115)
                                                       -------------   -----------------------------------------------
Net amount recognized                                       $ -            $ -         $ -        $ -         $ -
                                                       -------------   -----------------------------------------------

1998
Prepaid benefit costs                                       $ 2           $ 19        $ 83      $ 121        $ 74
Accrued benefit (liability)                                  (2)           (19)        (83)      (121)        (74)
                                                       -------------   -----------------------------------------------
Net amount recognized                                       $ -            $ -         $ -        $ -         $ -
                                                       -------------   -----------------------------------------------

Components of Net Periodic Benefit Cost
1999
Service cost                                               $ 11        $ 2,670     $ 1,934    $ 2,215     $ 1,318
Interest cost                                                18          5,323       4,423      4,089       2,367
Expected return on plan assets                              (13)        (3,308)     (3,369)    (3,358)     (1,533)
Amortization of:
    Transition obligation                                     9          2,900       2,528      1,967       1,225
    Net actuarial (gain) loss                                               10
                                                       -------------   -----------------------------------------------
Net periodic benefit cost                                  $ 25        $ 7,595     $ 5,516    $ 4,913     $ 3,377
                                                       -------------   -----------------------------------------------
</TABLE>


Weighted-average assumptions as of year end
Discount rate                                              7.5%
Expected return on plan assets                             9.0%
Health care cost trend rate                                6.0% Ultimate rate of
                                                                    5.0% in 2001
<TABLE>
<CAPTION>


                                                        Total CSW         CPL         PSO       SWEPCO       WTU
                                                       -------------   -----------------------------------------------
                                                        (millions)     (thousands)
<S>                                                      <C>           <C>         <C>        <C>          <C>

1998
Service cost                                                $ 8        $ 2,201     $ 1,616    $ 1,781     $ 1,132
Interest cost                                                17          5,290       4,450      3,941       2,358
Expected return on plan assets                              (12)        (3,237)     (3,401)    (3,387)     (1,497)
Amortization of:
    Transition obligation                                     9          2,900       2,528      1,967       1,225
    Net actuarial (gain) loss                                (2)          (555)       (824)      (629)       (216)
                                                       -------------   -----------------------------------------------
Net periodic benefit cost                                  $ 20        $ 6,599     $ 4,369    $ 3,673     $ 3,002
                                                       -------------   -----------------------------------------------

</TABLE>

Weighted-average assumptions as of year end
Discount rate                                             6.75%
Expected return on plan assets                            9.00%
Health care cost trend rate                               6.50% Ultimate rate of
                                                                 5.0% in 2001

                                      2-76
<PAGE>
<TABLE>
<CAPTION>

Post- Retirement Benefits Other Than Pensions           Total CSW         CPL         PSO       SWEPCO       WTU
                                                       -------------   -----------------------------------------------
Components of Net Periodic Benefit Cost                 (millions)     (thousands)
<S>                                                       <C>          <C>          <C>       <C>          <C>

1997
Service cost                                                $ 8        $ 2,076     $ 1,694    $ 1,771     $ 1,120
Interest cost                                                18          5,663       4,794      4,190       2,564
Expected return on plan assets                              (10)        (2,739)     (2,998)    (2,787)     (1,257)
Amortization of:
    Transition obligation                                     9          2,900       2,528      1,967       1,225
    Net actuarial (gain) loss                                (1)          (162)       (365)      (181)
                                                       -------------   -----------------------------------------------
Net periodic benefit cost                                  $ 24        $ 7,738     $ 5,653    $ 4,960     $ 3,652
                                                       -------------   -----------------------------------------------
</TABLE>

Weighted-average assumptions as of year end
Discount rate                                              7.50%
Expected return on plan assets                             9.00%
Health care cost trend rate                                7.00%  Ultimate rate
                                                                   of 5.0% in
                                                                   2001

<TABLE>
<CAPTION>

Effect of 1% Change in Assumed Health                   Total CSW         CPL         PSO       SWEPCO       WTU
                                                       -------------   -----------------------------------------------
  Care Cost Trend Rate                                 (millions)     (thousands)
<S>                                                       <C>          <C>          <C>         <C>        <C>

1% Increase
  Service cost plus interest cost                           $ 4        $ 1,096       $ 801      $ 871       $ 524
  APBO                                                       28          8,162       6,404      6,404       3,693

1% Decrease
  Service cost plus interest cost                          $ (3)        $ (917)     $ (678)    $ (727)     $ (437)
  APBO                                                      (24)        (7,070)     (5,584)    (5,538)     (3,192)

</TABLE>

         As permitted,  the amortization of any prior service cost is determined
using  a straight-line  amortization  of  the  cost  over  the average remaining
service period of employees expected to receive benefits under the plan.



                                      2-77
<PAGE>

6.  JOINTLY OWNED ELECTRIC UTILITY PLANT

      The U.S.  Electric  Operating  Companies  are  parties  to  various  joint
ownership agreements with other non-affiliated entities. Such agreements provide
for the joint  ownership  and  operation  of  generating  stations  and  related
facilities,  whereby each  participant  bears its share of the project costs. At
December 31, 1999, the U.S. Electric Operating Companies had undivided interests
in five  such  generating  stations  and  related  facilities  as  shown  in the
following table.
<TABLE>
<CAPTION>

                                 CPL        SWEPCO       SWEPCO        SWEPCO      CSW(1)
                                 STP      Flint Creek    Pirkey      Dolet Hills  Oklaunion
                            Nuclear Plant  Coal Plant Lignite Plant Lignite Plant Coal Plant
                            ----------------------------------------------------------------
                                                     ($ millions)
<S>                           <C>           <C>           <C>           <C>        <C>

      Plant in service          $2,352       $82          $435           $231      $400
      Accumulated depreciation     746        52           204             99       143
      Plant capacity-MW          2,501       528           675            650       690
      Participation               25.2%     50.0%         85.9%          40.2%     78.1%
      Share of capacity-MW         630       264           580            262       539
</TABLE>

   (1) CPL,  PSO and WTU have  joint  ownership  agreements  with each other and
   other  non-affiliated   entities.  Such  agreements  provide  for  the  joint
   ownership and operation of Oklaunion Power Station. Each participant provided
   financing  for its share of the  project,  which was  placed  in  service  in
   December 1986.  CPL's 7.8%,  PSO's 15.6% and WTU's 54.7%  ownership  interest
   represents  CSW's 78.1%  participation in the plant. The statements of income
   reflect CPL's, PSO's and WTU's respective  portions of the operating costs of
   Oklaunion Power Station. The total investments, including AFUDC, in Oklaunion
   Power  Station for CPL,  PSO and WTU were $37  million,  $81 million and $282
   million, respectively, at December 31, 1999. Accumulated depreciation was $13
   million, $36 million and $94 million for CPL, PSO and WTU,  respectively,  at
   December 31, 1999.


7.          FINANCIAL INSTRUMENTS

      The following  methods and assumptions were used to estimate the following
fair values of each class of financial  instruments  for which it is practicable
to estimate  fair value.  The fair value does not affect any of the  liabilities
unless the issues are redeemed prior to their maturity dates.

      Cash,  temporary cash investments,  accounts  receivable,  other financial
      instruments and short-term debt
      The fair  value equals the carrying amount as stated on the balance sheets
due to the short maturity of those instruments.

      Securities available for sale
      The fair  values,  which  are  based on  quoted  market prices,  equal the
carrying amounts  as stated on the balance  sheet as prescribed by SFAS No. 115.
See ITEM 8. NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

      Long-term debt
      The fair value of long-term  debt is estimated  based on the quoted market
prices for the same or similar issues or on the current rates offered to CSW for
debt of the same remaining maturities.

                                      2-78
<PAGE>


      Trust Preferred Securities
      The fair  value of the  Trust  Preferred  Securities  are  based on quoted
market prices on the New York Stock Exchange.

      Long-term debt and preferred  stock due within 12 months
      The  fair  value of  current maturities  of long-term  debt and  preferred
stock due within 12 months are  estimated  based on quoted market prices for the
same or similar  issues or on the current rates  offered for  long-term  debt or
preferred stock with the same or similar remaining redemption provisions.
<TABLE>
<CAPTION>

CARRYING VALUE AND
ESTIMATED FAIR VALUE         CSW           CPL        PSO       SWEPCO       WTU
                          ----------   ----------------------------------------------
                          (millions)                     (thousands)
<S>                        <C>          <C>          <C>        <C>         <C>
Long-term debt
   1999 carrying amount      $3,821     $1,304,541   $364,516   $495,973    $263,686
            fair value        3,828      1,285,083    358,437    491,759     258,220
   1998 carrying amount       3,938      1,225,706    384,064    543,741     303,519
            fair value        4,025      1,223,502    405,163    546,450     323,202

Trust Preferred
Securities
   1999 carrying amount         335        150,000     75,000    110,000          --
            fair value          290        129,360     63,390     97,372          --
   1998 carrying amount         335        150,000     75,000    110,000          --
            fair value          345        154,875     77,640    112,772          --

Long-term debt and
preferred stock due
within 12 months
   1999 carrying amount         256        150,000     20,000     45,595      40,000
            fair value          256        150,000     20,000     45,595      40,000
   1998 carrying amount         169        125,000         --     43,932          --
            fair value          169        125,000         --     43,932          --
</TABLE>

      Commodity Contracts
      CSW utilizes  commodity  forward  contracts  which contain  pricing and/or
volume terms designed to stabilize  market risk associated with  fluctuations in
the price of natural gas used in generation and electric  energy sold under firm
commitments with certain of our customers.

      During 1999 and 1998,  CSW did not utilize any contracts  for  commodities
that would be  classified as a financial  instrument  under  generally  accepted
accounting  principles,  since physical  delivery of natural gas and electricity
may,  and  most  frequently  does,  occur  pursuant  to these  contracts.  These
contracts are, however, the major part of CSW's risk management program.

      Based on year-end contractual  commitments,  CSW's natural gas futures and
swap contracts and electricity  forward  contracts that are sensitive to changes
in commodity  prices  include fair value of assets of $157,260 and fair value of
liabilities  of $396,440.  These swap and future  contracts  hedge their related
commodity price exposure for 2000.  Cash outflows on the swap agreements  should
be offset by increased  margins on electricity sales to customers under tariffed
rates with fixed fuel costs. The electricity  forward  contracts hedge a portion
of CSW's energy  requirements  through February 2000. The average contract price
for forward  purchases is $30 per MWH and $2.32 per MMbtu. The average price for
natural gas futures contracts is $2.47 per MMbtu and $2.37 MMbtu for swaps.

      Cross-currency swaps and SEEBOARD's electricity contracts for differences
      The  fair  value of  cross currency swaps  reflect  third-party valuations
calculated using proprietary  pricing models.  Based on these valuations,  CSW's
position in these cross currency swaps  represented an unrealized  loss of $41.8
million at December 31, 1999. This unrealized loss is offset by unrealized gains

                                      2-79
<PAGE>

related to the underlying  transactions  being hedged. CSW expects to hold these
contracts to maturity. The fair value of SEEBOARD's contracts for differences is
not determinable due to the absence of a trading market.

                                              Expected        Expected Cash
                                            Cash Inflows        Outflows
Contract                Maturity Date     (Maturity Value)   (Market Value)
-----------------------------------------------------------------------------
                                                     (millions)
Cross currency swaps   August 1, 2001           $200              $213
Cross currency swaps   August 1, 2006           $200              $229


8.    LONG-TERM DEBT

      The CSW System's  long-term debt outstanding as of the end of the last two
years is presented in the following table.

         Maturities              Interest Rates             December 31,
      From          To          From          To          1999        1998
  -----------------------------------------------------------------------------
                                                             (millions)
  Secured bonds
  2001          2025             5.25%       7.75%      $1,452       $1,824

  Unsecured bonds
  2001          2030             3.33%(1)    8.88%       1,701        1,359

  Notes and Lease
  Obligations
  2001          2021             5.91%       9.25%         672          765

  Unamortized discount                                      (4)         (10)
                                                      -------------------------
                                                        $3,821       $3,938
                                                      -------------------------
  (1) Variable rate.
  --------------------------

      The mortgage indentures, as amended and supplemented, securing FMBs issued
by the U.S.  Electric  Operating  Companies,  constitute a direct first mortgage
lien on substantially all electric utility plants.  The U.S. Electric  Operating
Companies may offer  additional  FMBs,  medium-term  notes and other  securities
subject to market conditions and other factors.

      CSW's year end weighted  average cost of long-term debt was 7.0% for 1999,
7.3% for 1998 and 7.2% for  1997.  For  additional  information  about  the U.S.
Electric   Operating   Companies'   long-term  debt,  see  their  Statements  of
Capitalization in the Financial Statements.

      Annual Requirements
      Certain series of outstanding FMBs have annual sinking fund  requirements,
which  are  generally  1% of the  amount  of  each  such  series  issued.  These
requirements  may be, and generally have been,  satisfied by the  application of
net  expenditures  for  bondable  property in an amount equal to 166-2/3% of the
annual requirements. Certain series of pollution control revenue bonds also have
sinking  fund  requirements.  At December  31,  1999,  the annual  sinking  fund
requirements and annual maturities (including sinking fund requirements) for all
long-term debt for the next five years are presented in the following table.


2-80
<PAGE>


                            CSW        CPL       PSO      SWEPCO      WTU
                          --------------------------------------------------
                          (millions)           (thousands)
                                   -----------------------------------------
      Sinking fund
      Requirements

      2000                      $1       $--       $--      $595       $--
      2001                       1        --        --       595        --
      2002                       1        --        --       595        --
      2003                       1        --        --       595        --
      2004                       1        --        --       595        --

      Annual Maturities

      2000                    $256  $150,000   $20,000   $45,595   $40,000
      2001                     421        --    20,000       595        --
      2002                     151   115,000        --       595    35,000
      2003                     388    50,000   100,000    55,595        --
      2004                     271   100,000    50,000    40,595    80,000

      Dividends
      At December  31,  1999,  approximately  $1.5  billion of CSW's  subsidiary
companies'  retained  earnings were  available for payment of cash  dividends by
such  subsidiaries  to CSW.  The  amounts of  retained  earnings  available  for
dividends  attributable  to each of the U.S.  Electric  Operating  Companies  at
December 31, 1999.

CPL - $764 million  PSO - $142 million  SWEPCO - $288 million WTU - $116 million

      Long-term Debt

      CPL
      On February 16, 2000,  CPL sold $150  million of unsecured  floating  rate
notes.  The notes will have a two-year  final maturity of February 22, 2002, but
may be redeemed at par after one year. The interest rate will reset quarterly at
the then current  three-month  LIBOR plus 0.45%. The initial rate, which was set
February 18,  2000,  was 6.56%.  Net proceeds of $149.6  million will be used to
refund  $100  million  of FMBs  maturing  April 1, 2000 and  repay a portion  of
short-term  debt. CPL is replacing FMBs with unsecured debt, which provides more
financial flexibility as CPL unbundles its electric operations.

      On May 1, 1999,  $100 million of CPL's 7.50% Series JJ FMBs matured and on
December 1, 1999,  $25 million of CPL's 7.125% Series DD FMBs  matured.  In June
1999, CPL reacquired $25 million of its 7.50% Series II FMBs due April 1, 2023.

      In November 1999, CPL issued $200 million of unsecured floating rate notes
maturing  November 23, 2001 and callable at par November 23, 2000.  The interest
rate will reset quarterly at the then current three-month LIBOR plus 0.60%.

      In November and December  1999,  Matagorda  sold,  for the benefit of CPL,
$111.7  million of 4.90%  Series  1999A and $50  million of 4.95%  Series  1999B
unsecured  tax  exempt  PCRBs.  The bonds  mature in 2030 but will be subject to
remarketing  and an interest rate reset in two years.  The proceeds were used to
refund $111.7 million  aggregate  principal amount of outstanding 7.50% Series T
due December 15, 2014 and will be used to refund $50 million aggregate principal
amount of outstanding 7.50% Series AA due March 21, 2020.


                                      2-81
<PAGE>

      In September 1998, CPL reacquired $36 million principal amount outstanding
of Series L FMBs, in its entirety, at a call price of 100.53.

      PSO
      In July 1999,  the Oklahoma  Development  Finance  Authority  sold for the
benefit of PSO $33.7 million of 4.875%  unsecured tax exempt  pollution  control
revenue  refunding  bonds. The bonds mature in fifteen years but will be subject
to  remarketing  and an interest rate reset in five years.  In August 1999,  the
proceeds  were  used to  refund  $33.7  million  aggregate  principal  amount of
outstanding Oklahoma Environmental Finance Authority (PSO Project) 5.9% Series A
bonds due December 1, 2007.

      In September 1998, PSO reacquired $25 million principal amount outstanding
of Series K and $30 million  principal  amount  outstanding of Series L FMBs, in
their entirety, at call prices of 100 and 100.77, respectively.

      SWEPCO
      In the first  quarter  of 2000,  SWEPCO  sold $150  million  of  unsecured
floating rate notes.  The bonds will have a two-year  final maturity of March 1,
2002,  but may be redeemed at par after one year.  The interest  rate will reset
quarterly at the then current  three-month  LIBOR plus 0.23%.  The initial rate,
which was set March 1, 2000,  was 6.34%.  Net proceeds of $149.6 million will be
used to refund  $45  million  of FMBs  maturing  April 1, 2000 and to repay of a
portion of outstanding short-term indebtedness.

      On  September  1, 1999,  $40  million  of  SWEPCO's  6.125%  Series W FMBs
matured.

      The  reacquisitions  and maturities  were funded with  short-term debt and
with proceeds from the issuance of the floating rate notes.

      Reference is made to ITEM 7. MD&A,  LIQUIDITY  AND CAPITAL  RESOURCES  for
further  information  related  to  long-term  debt,  including  new  issues  and
reacquisitions of long-term debt during 1999.


9.    PREFERRED STOCK

      The outstanding  preferred stock of the U.S. Electric Operating  Companies
as of the end of the last two years is presented in the following table.

                                                                Current
                                    Dividend   December 31, Redemption Price
                                      Rate
                                   From   To   1999   1998      From - To
                                  --------------------------------------------
                                                (millions)
Not subject to mandatory
redemption
     182,907 shares                 4.00% -     $18    $19  $103.19 - $107.00
                                     5.00%
                                    Auction      --    160
   Issuance expenses/premiums                    --     (3)
                                               -------------
                                                $18   $176
                                               -------------
Total authorized shares
     6,405,000

      All of the outstanding  preferred stock is redeemable at the option of the
U.S. Electric Operating Companies upon 30 days' notice at the current redemption
price per share.  During  November and December  1999, CPL called $75 million of

                                      2-82
<PAGE>

its money  market  preferred  stock and $85 million of its Series A and Series B
preferred  stock at par. During 1997,  SWEPCO redeemed $1.2 million  pursuant to
its annual  sinking fund  requirement.  During 1997,  each of the U.S.  Electric
Operating  Companies   reacquired  a  significant  portion  of  its  outstanding
preferred  stock.  As a result of differences  between the dividend rates on the
reacquired  securities and prevailing market rates, CSW realized an overall gain
of approximately $10 million on the transactions. This gain is shown separately,
as Gain on Reacquired Preferred Stock, on the Consolidated Statements of Income.

      CPL
      The  dividends  on CPL's $160 million  auction and money market  preferred
stocks are adjusted every 49 days,  based on current market rates.  The dividend
rates averaged 4.3%, 4.4% and 4.3% during 1999, 1998 and 1997, respectively.  In
November and December 1999, CPL called $75 million of its money market preferred
stock and $85  million of its Series A and Series B Auction  Preferred  Stock at
par.

      SWEPCO
      On April 1, 1998,  SWEPCO called the remaining  274,010 shares of its $100
par  value  6.95%  preferred  stock.  SWEPCO  used  short-term  debt to fund the
redemption.

      For additional  information about the U.S. Electric  Operating  Companies'
preferred  stock,  see  their  Statements  of  Capitalization  in the  Financial
Statements.


10.   TRUST PREFERRED SECURITIES

      The  following  Trust  Preferred  Securities  issued  by the  wholly-owned
statutory  business  trusts of CPL, PSO and SWEPCO were  outstanding at December
31,  1999.  They are  classified  on the  balance  sheets as CPL,  PSO or SWEPCO
Obligated,  Mandatorily  Redeemable  Preferred  Securities of Subsidiary  Trusts
Holding   Solely  Junior   Subordinated   Debentures  of  CPL,  PSO  or  SWEPCO,
respectively.
<TABLE>
<CAPTION>

                                                    Amount      Description of Underlying
Business Trust        Security            Units   (millions)    Debentures of Registrant
-----------------------------------------------------------------------------------------
<S>                <C>                 <C>          <C>      <C>

CPL Capital I       8.00%, Series A     6,000,000    $150    CPL,    $154.6 million, 8.00%, Series A
PSO Capital I       8.00%, Series A     3,000,000      75    PSO,     $77.3 million, 8.00%, Series A
SWEPCO Capital I   7.875%, Series A     4,400,000     110    SWEPCO, $113.4 million,7.875%, Series A
                                     ---------------------
                                       13,400,000    $335
                                     ---------------------
</TABLE>

      Each of the business  trusts will be treated as a subsidiary of its parent
company. The only assets of the business trusts are the subordinated  debentures
issued  by  their  parent  company  as  specified  above.  In  addition  to  the
obligations under their  subordinated  debentures,  each of the parent companies
has  also  agreed  to  a  security   obligation  which  represents  a  full  and
unconditional guarantee of its capital trust obligation.


11.   SHORT-TERM FINANCING

      The CSW System uses short-term debt,  primarily  commercial paper, to meet
fluctuations  in working capital  requirements  and other interim capital needs.
CSW has established a money pool to coordinate short-term borrowings for certain
subsidiaries  and also  incurs  borrowings  outside  the  money  pool for  other
subsidiaries.  As of December  31, 1999,  CSW had  revolving  credit  facilities
totaling $1.4 billion to backup its commercial  paper  program.  At December 31,
1999,  CSW had $1.3 billion  outstanding in short-term  borrowings.  The maximum
amount of such short-term  borrowings  outstanding  during the year, which had a

                                      2-83
<PAGE>

weighted  average  interest  yield for the year of 5.5%, was $1.4 billion during
December 1999.

      CSW  Credit,  which  does  not  participate  in  the  money  pool,  issues
commercial paper on a stand-alone  basis. At December 31, 1999, CSW Credit had a
$1.2 billion revolving credit agreement that is secured by the assignment of its
receivables  to back up its  commercial  paper  program  which had $754  million
outstanding.  The maximum amount of such commercial paper outstanding during the
year, which had a weighted average interest yield for the year of 5.3%, was $1.0
billion during August 1999.


12.   COMMON STOCK

      CSW's basic  earnings  per share of common  stock are computed by dividing
net income for common stock by the average  number of common shares  outstanding
for the  respective  periods.  Diluted  earnings per share reflect the potential
dilution that could occur if all options outstanding under CSW's stock incentive
plan were  converted  to common  stock and then  shared in the income for common
stock.  CSW's basic earnings per share equalled  diluted  earnings per share for
each of the years 1997-1999.  CSW's dividends per common share reflect per share
amounts paid for each of the periods.

      CSW can issue common stock,  either through the purchase and reissuance of
shares from the open market or by issuing original  shares,  through the LTIP, a
stock option plan,  PowerShare  and  Retirement  Savings Plan. CSW began funding
these plans through open market purchases,  effective April 1, 1997. Information
concerning common stock activity issued through the LTIP, the stock option plan,
PowerShare and the Retirement Savings Plan is presented in the following table.
<TABLE>
<CAPTION>

                                       1999               1998                1997
                                  -----------------------------------------------------
<S>                                <C>               <C>                 <C>

  Number of new shares issued           41                 372                 765
   (thousands)
  Range of stock price for new    $23 1/8 - $26 7/16 $25 5/8 - $30 1/16  $21 1/4 - $25 5/8
    shares
  New common stock equity               $1                 $10                 $20
  (millions)
</TABLE>


13.   STOCK-BASED COMPENSATION PLANS

      CSW has a key employee  incentive  plan.  This plan is accounted for under
Accounting Principles Board Opinion No. 25, under which no compensation cost has
been recognized.  Had compensation cost for this plan been determined consistent
with SFAS No. 123, pro forma calculations of CSW's and each of the U.S. Electric
Operating  Companies'  net  income for common  stock and  earnings  per share as
required  by SFAS No.  123 would not have  changed  significantly  from  amounts
reported.

      Because  the SFAS No. 123  method of  accounting  has not been  applied to
options  granted prior to January 1, 1995, the resulting pro forma  compensation
cost may not be representative of that to be expected in future years.

      CSW may grant  options  for up to 4.0 million  shares of CSW common  stock
under the stock option plan.  Under the stock option plan,  the option  exercise
price equals the stock's market price on the date of grant. The grant vests over
three years,  one-third on each of the three  anniversary dates of the grant and
expires 10 years  after the  original  grant  date.  CSW has granted 2.8 million
shares through  December 31, 1999. A summary of the status of CSW's stock option
plan at December 31, 1999,  1998, and 1997 and the changes during the years then
ended is presented in the following table.

                                      2-84
<PAGE>


<TABLE>
<CAPTION>

                             1999                           1998                        1997
                     -------------------------------------------------------------------------------------
                                    Weighted                      Weighted                     Weighted
                      Shares         Average         Shares        Average       Shares         Average
                     (thousands)  Exercise Price   (thousands) Exercise Price  (thousands)  Exercise Price
<S>                    <C>             <C>           <C>            <C>           <C>           <C>

Outstanding at
  beginning of year    1,446            $24            1,902          $24          1,412           $26
Granted                   --             --               --           --            694            21
Exercised                (37)            23             (337)          24             --            --
Canceled                 (30)            26             (119)          24           (204)           28
                     ----------                      ----------                   ---------
Outstanding at end
  of year              1,379             24            1,446           24          1,902            24


Exercisable at end     1,178        not applicable     1,010      not applicable   1,162      not applicable
  of year
</TABLE>


                                      2-85

<PAGE>



14.   BUSINESS SEGMENTS

      CSW's business  segments at December 31, 1999,  included U.S. Electric and
U.K. Electric.  Eight additional  non-utility companies are included with CSW in
Other and Reconciling Items (CSW Energy, CSW  International,  C3 Communications,
EnerShop, CSW Energy Services, CSW Credit, CSW Leasing and CSW Services).  CSW's
business segment information is presented in the following tables.


                                 U.S.      U.K.    Other  Reconciling  CSW
                               Electric Electric  Segments  Items   Consolidated
                               -------------------------------------------------
                                                    (millions)
1999
Operating revenues                $3,524   $1,705    $342     $(34)   $5,537
Depreciation and amortization        400      128      24        --      552
Interest income                       10        6      92       (54)      54
Interest expense                     196      105     159       (54)     406
Operating income tax expense         191        6       7        --      204
Net income from equity method
  subsidiaries                        --       --      --        --       --
Income before extraordinary item     370      113     508      (522)     469
Extraordinary loss -
  discontinuance of SFAS  No. 71      (8)      --      --        --       (8)
Extraordinary loss - loss on
  reacquired debt                     (6)      --      --        --       (6)
Total assets                       9,391    3,024   7,217    (5,470)  14,162
Investments in equity method
  subsidiaries                        17       --      --        --       17
Capital expenditures                 474      153     138        --      765

1998
Operating revenues                $3,488   $1,769    $258      $(33)  $5,482
Depreciation and amortization        399       95      27        --      521
Interest income                        6        6      73       (55)      30
Interest expense                     197      116     160       (57)     416
Operating income tax expense         235        1     (33)       --      203
Net income from equity method
  subsidiaries                       (1)      --      --        --       (1)
Income before extraordinary item     374      117     441      (492)     440
Total assets                       9,151    3,032   6,656    (4,942)  13,897
Investments in equity method
  subsidiaries                        15       --      --        --       15
Capital expenditures                 313      106     100        --      519

1997
Operating revenues                $3,321   $1,870    $112      $(35)  $5,268
Depreciation and amortization        389       92      16        --      497
Interest income                        8       12      34       (34)      20
Interest expense                     212      120     105       (23)     414
Operating income tax expense         144       31     (24)       --      151
Net income from equity method
  subsidiaries                        (1)      --      --        --       (1)
Income before extraordinary item     289      117     149      (226)     329
Extraordinary loss U.K.
  windfall profits tax                --     (176)     --        --     (176)
Total assets                       9,337    2,931   6,267    (4,919)  13,616
Investments in equity method
  subsidiaries                        15       --      --        --       15
Capital expenditures                 346      126     279        --      751

Products and Services
The U.S. Electric Operating  Companies'  products and services primarily consist
of the  generation,  transmission  and  distribution  of  electricity.  The U.K.
Electric  segment's primary lines of business are the supply and distribution of
electricity. CSW is currently developing computer systems to provide information
by product and services rather than by legal entity.


                                      2-86
<PAGE>


Geographic Areas

                                        Revenues
                    ----------------------------------------------------
                     United       United                        CSW
                     States       Kingdom    Other Foreign  Consolidated
                    ----------------------------------------------------
                                        (millions)
1999                 $3,828        $1,705            $4        $5,537
1998                  3,705         1,769             8         5,482
1997                  3,390         1,870             8         5,268


                                     Long-Lived Assets
                    ----------------------------------------------------
                     United       United                        CSW
                     States       Kingdom    Other Foreign  Consolidated
                    ----------------------------------------------------
                                        (millions)

1999                 $7,850       $2,499           $257        $10,606
1998                  7,831        2,530            201         10,562
1997                  7,801        2,551            254         10,606


15.   PROPOSED AEP MERGER

      On December 22, 1997, CSW and AEP announced that their boards of directors
had  approved a  definitive  merger  agreement  for a tax-free,  stock-for-stock
transaction. The combined company would serve more than 4.7 million customers in
11 states and  approximately 4 million  customers  outside the United States. On
May 27, 1998, AEP shareholders approved the issuance of the additional shares of
stock  required  to complete  the  merger.  On May 28,  1998,  CSW  stockholders
approved the merger.  On December 16, 1999, the merger  agreement was amended to
extend the term of the agreement to June 30, 2000.  After June 30, 2000,  either
party may terminate the merger agreement if the merger has not been consummated.

      AEP is subject  to the  information  requirements  of the  Securities  and
Exchange Act of 1934, as amended, and in accordance therewith, files reports and
other information with the SEC. For additional  information  related to AEP, see
AEP's Current  Reports on Form 8-K, its  Quarterly  Reports on Form 10-Q and its
Annual Report on Form 10-K and the documents referenced therein.

      Under the AEP merger agreement, each common share of CSW will be converted
into 0.6 share of AEP common stock. CSW stockholders  will own approximately 40%
of the combined  company.  CSW plans to continue to pay  dividends on its common
stock  until the closing of the AEP Merger at  approximately  the same times and
rates per share as in 1999, subject to continuing  evaluation of CSW's earnings,
financial condition and other factors by the CSW board of directors.

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

      AEP and CSW anticipate net savings related to the merger of  approximately
$2  billion  over a  10-year  period  from the  elimination  of  duplication  in
corporate and administrative  programs,  greater  efficiencies in operations and
business processes, increased purchasing efficiencies and the combination of the
two work forces.  As a result of the approved  settlement and agreement with the
state commissions in CSW and AEP's respective service  territories,  AEP and CSW
have agreed to guarantee that  approximately 55% of those savings will be passed
through to their  customers.  AEP and CSW  continue  to seek  opportunities  for
additional  saving and expect to realize  significant  additional  savings based
upon the work of the  merger  transitions  teams  over the last two  years.  The

                                      2-87
<PAGE>

preceding discussion constitutes  forward-looking information within the meaning
of Section 21E of the Exchange Act.  Actual results may differ  materially  from
such projected information. See FORWARD-LOOKING INFORMATION.

      The  electric  systems of AEP and CSW will  operate on an  integrated  and
coordinated  basis as required by the Holding  Company  Act. AEP and CSW project
fuel savings of  approximately  $98 million over a 10-year period resulting from
the coordinated operation of the combined company,  which will be passed through
to customers.

      The AEP merger agreement  contains  covenants and agreements that restrict
the manner in which the parties may operate their  respective  businesses  until
the time of closing of the merger.  In  particular,  without  the prior  written
consent of AEP, CSW may not engage in a number of  activities  that could affect
its sources  and uses of funds.  Pending  closing of the  merger,  CSW's and its
subsidiaries'  strategic investment activity,  capital expenditures and non-fuel
operating  and  maintenance  expenditures  are limited to  specific  agreed upon
projects and in agreed upon amounts.  In addition,  prior to consummation of the
merger, CSW and its subsidiaries are restricted from:

-  Issuing shares of common stock other than pursuant to employee benefit
   plans;

-  Issuing  shares  of  preferred  stock or  similar  securities  other  than to
   refinance  existing  obligations or to fund  permitted  investment or capital
   expenditures; and

-  Incurring indebtedness other than pursuant to existing credit facilities,  in
   the ordinary  course of business,  or to fund  permitted  projects or capital
   expenditures. These limitations do not preclude CSW and its subsidiaries from
   making investments and expenditures in amounts previously budgeted.

      Cook Nuclear Plant
      On June 25, 1999, AEP announced a  comprehensive  plan to restart the idle
Cook  nuclear  power  plant.  Unit 2 is  scheduled to return to service in April
2000, and Unit 1 is scheduled to return to service in September 2000. AEP stated
that its announcement  follows a comprehensive  systems  readiness review of all
operating  systems at Cook nuclear  power plant and a  cost/benefit  analysis of
whether  to  restart  the  plant  or shut it down  completely.  Plant  officials
originally shut down both units of the facility, located in Bridgman,  Michigan,
in September 1997 because of questions raised during a design  inspection by the
NRC.  AEP  estimated  that  its  costs  to  restart  the idle  plant  should  be
approximately  $574  million,  of which  $373  million  has been  spent  through
December 31, 1999.

      On February 24,  2000,  AEP  announced a  three-week  delay in the planned
April 1, 2000 restart.  The delay is due to issues encountered during testing of
equipment necessary for core reload and power operations of its Cook Unit 2. The
testing process  continues and may still encounter  additional  items that could
extend the delay.

      Merger Regulatory Approvals
      The merger is  conditioned,  among  other  things,  upon the  approval  of
several state and federal  regulatory  agencies.  Some of the merger  conditions
cannot be waived by the parties.

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

                                      2-88
<PAGE>

a proposed merger regulatory plan. The stipulated  agreement calls for SWEPCO to
reduce  rates  through  a net  merger  savings  rider  for its  Arkansas  retail
customers by $6 million over the five-year  period  following  completion of the
merger.  The Arkansas  Commission  order notes the  possibility  of decisions in
other jurisdictions  adversely affecting provisions of the stipulated agreement.
Consequently,  the  Arkansas  Commission  conditioned  its  final  order  on its
consideration   of   approval   of  the  merger  in  other   state  and  federal
jurisdictions.

      Louisiana
      On May 15, 1998,  AEP and CSW jointly  filed a request with the  Louisiana
Commission for approval of the proposed merger and for a finding that the merger
is in the public interest.

      On  September  27, 1999,  the  Louisiana  Commission  issued a final order
granting  conditional  approval  of the pending  merger  between AEP and CSW. In
granting  approval,   the  Louisiana   Commission  also  approved  a  stipulated
settlement with the Louisiana Commission staff. Under the stipulated settlement,
AEP and CSW have  agreed  to share  with  SWEPCO's  Louisiana  customers  merger
savings  created as a result of the merger  over the eight years  following  its
completion.  A savings mechanism will be implemented to calculate merger savings
annually.  AEP and CSW estimate that the customer rate credits in Louisiana will
total more than $18 million  during that  eight-year  period.  During the second
year  following  completion  of the  merger,  customers  will begin  receiving a
monthly rate credit for 50% of calculated  merger  savings.  This credit will be
updated  annually  and  continue  for the  remainder  of the  eight-year  period
following the merger's completion.

      Oklahoma
      On August 14, 1998,  AEP and CSW jointly filed a request with the Oklahoma
Commission for approval of their proposed merger.

      An amended  application was filed with the Oklahoma Commission on February
25, 1999. On May 11, 1999, the Oklahoma  Commission approved the proposed merger
between  AEP and CSW.  The  approval  follows a partial  settlement  between the
Oklahoma  Commission  Utility Division Staff, the Oklahoma  Commission  Consumer
Services Division, the Office of the Attorney General for Oklahoma, PSO, AEP and
CSW.  The  Oklahoma  Commission  order was  appealed by the  Municipal  Electric
Systems of Oklahoma, Inc. and the Oklahoma Association of Electric Cooperatives.
On October 13, 1999,  the Oklahoma  Supreme  Court  dismissed  the appeal of the
Oklahoma Association of Electric Cooperatives.  The Municipal Electric System of
Oklahoma,  Inc.  withdrew  its appeal and the Oklahoma  Association  of Electric
Cooperatives  filed a motion to dismiss  its appeal of the  Oklahoma  Commission
order approving the merger.

      Under the partial settlement agreement, AEP and CSW would:

-  Share merger savings with Oklahoma customers as well as AEP
   shareholders, effective with the merger closing;

-  Not increase Oklahoma base rates prior to January 1, 2003;

-  File by December 31, 2001 with the FERC an application to join a
   regional transmission organization; and

-  Establish additional quality of service standards for PSO's retail customers.
   Oklahoma's  share of the $50.2 million in guaranteed  net merger savings over
   the first five years after the merger is  consummated  would be split between
   Oklahoma   customers  and  AEP   shareholders,   with   customers   receiving
   approximately 55% of the savings.


                                      2-89
<PAGE>

      The Oklahoma  Commission has withdrawn its opposition to the merger at the
FERC.

      Texas
      On April 30,  1998,  AEP and CSW  jointly  filed a request  with the Texas
Commission for a finding that the merger is in the public interest.

      On May 4, 1999, AEP and CSW announced a proposed  settlement  with several
intervenor  groups for the proposed  merger  between AEP and CSW. The settlement
would result in combined rate  reductions  totaling $221 million over a six-year
period for Texas customers of the three CSW Texas Electric  Operating  Companies
if the merger is completed as planned and issues are  resolved  associated  with
the three CSW Texas Electric  Operating  Companies rate and fuel  reconciliation
proceedings.

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

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

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

      Hearings  on the merger in Texas  began  August 9, 1999 and  concluded  on
August 10, 1999. As the hearings  began,  settlements  were reached with all but
one of the parties in the case. The settling parties are all wholesale  electric
customers  of  the  three  CSW  Texas  electric  operating  companies,  and  the
settlements  call for the  withdrawal  of their  opposition to the merger in all
regulatory approval proceedings.  On October 1, 1999, an ALJ for the Texas State
Office of  Administrative  Hearings issued a proposal for decision  recommending
that the Texas Commission approve the pending merger between AEP and CSW. In the
proposal for decision, the ALJ determined that, consistent with the terms of the
proposed settlement,  the merger is in the public interest. On November 2, 1999,
the Texas Commission approved the proposed merger with AEP.

      FERC
      On April 30, 1998,  AEP and CSW jointly  filed a request with the FERC for
approval of their proposed  merger.  On May 25, 1999, AEP and CSW announced they
had reached a settlement  with the FERC trial staff  resolving  competition  and
rate issues that related to the proposed  merger.  On July 13, 1999, AEP and CSW
reached an  additional  settlement  with the FERC trial staff  resolving  energy
exchange  pricing  issues.  The  settlements  were  submitted  to the  FERC  for
approval. Hearings at the FERC concluded on July 19, 1999. On November 23, 1999,
the ALJ who presided over the FERC merger hearing issued a recommendation to the
FERC that the merger be approved  and found that the  proposed  merger is in the
public interest.


                                      2-90
<PAGE>

      On March 15, 2000, the FERC conditionally approved the merger.  Conditions
placed on the merger include:

-        Transfer  operational  control  of  AEP's  east  and west  transmission
         systems to a  fully-functioning,  FERC-approved  regional  transmission
         organization  by December  15, 2001,  which is the same  implementation
         date  included in the FERC's  general  order for regional  transmission
         organizations that applies to all transmission-owning utilities.

-        Two interim  transmission-related  mitigation  measures  consisting  of
         market monitoring and independent  calculation and posting of available
         transmission   capacity  to  monitor  the   operation   of  AEP's  east
         transmission system.

-        Divestiture  of 550  MW of  generating capacity  comprised of 300 MW of
         capacity  in  SPP and  250  MW of capacity  in  ERCOT.  The  FERC  will
         require  AEP  and  CSW to divest their entire ownership interest in the
         generating facilities  that are  to be  divested.   Alternatively,  AEP
         and CSW  may choose  to divest  the same or  greater amount of capacity
         from different  generating  plants  in their   entirety.  However, such
         generating  plants must  be of  similar  cost,  operation  and location
         characteristics of generating plants AEP and CSW originally proposed.

-        AEP and CSW must complete  divestiture  of the ERCOT  capacity by March
         15, 2001 and  divestiture of the SPP capacity  by July 1, 2002.

      The  FERC  found  that  certain  energy  sales  in SPP and  ERCOT would be
reasonable and effective interim  mitigation  measures until  completion of  the
required SPP and ERCOT divestitures.  The FERC will require the proposed interim
energy sales to be in effect when the merger is consummated.

      AEP and CSW must notify the FERC by March 30, 2000 whether they accept the
condition  that  they  transfer   operational   control  of  their  transmission
facilities  to  a   fully-functioning,   FERC-approved   regional   transmission
organization  by  December  15,  2001 and the  condition  requiring  the interim
mitigation measures. If AEP and CSW accept the conditions, then AEP and CSW must
make a compliance  filing at least 60 days prior to  consummation  of the merger
describing their plan to implement  the interim mitigation measures. AEP and CSW
intend to make this compliance filing  on a date that would permit completion of
the merger in the second quarter of 2000.  AEP and CSW believe they  can address
the conditions.

      NRC
      On June 19, 1998, CPL filed a license  transfer  application  with the NRC
requesting  the NRC's  consent  to the  indirect  transfer  of  control of CPL's
interests in the NRC licenses issued for STP from CSW to AEP. CPL would continue
to own its  25.2%  interest  in STP,  and  CPL's  name  would  remain on the NRC
operating  license.  On November 5, 1998, the NRC approved the license  transfer
application  with a condition  that the merger must be completed by December 31,
1999. The NRC has extended the condition relating to completion of the merger to
June 30, 2000.

      Other Federal
      On October 13, 1998, AEP and CSW jointly filed an application with the SEC
for approval of the proposed merger.  The SEC merger filing requests approval of
the merger and related  transactions and outlines the expected  combined company
benefits of the merger to AEP and CSW  customers and  shareholders.  Since then,
AEP and CSW have filed four amendments to the application.  Several parties have
filed  petitions  opposing  the  proposed  merger at the SEC which have not been
withdrawn.

      On July 29, 1999,  applications  were made with the FCC to  authorize  the
transfer  of control of  licenses  of several  CSW  entities to AEP. In February
2000, the FCC approved the transfer  which will be effective upon  completion of
the proposed merger.


                                      2-91
<PAGE>

      On July 26,  1999,  AEP and CSW  submitted  filings to the  Department  of
Justice  under the  Hart-Scott-Rodino  Antitrust  Improvements  Act of 1976.  On
February 2, 2000,  AEP and CSW announced  that their  proposed  merger  received
antitrust clearance from the Department of Justice.

      United Kingdom
      CSW  has a 100%  interest  in  SEEBOARD,  and AEP  has a 50%  interest  in
Yorkshire.  The proposed merger of CSW into AEP would result in common ownership
of these United  Kingdom  entities.  On January 25, 2000,  the United  Kingdom's
Department  of Trade and Industry  approved  the common  ownership of the United
Kingdom entities that would result from the proposed merger,  subject to certain
conditions  concerning the separate  operation of their respective  distribution
and supply businesses.

      Other
      On April 20,  1999,  AEP reached a  settlement  with the  Indiana  Utility
Regulatory  Commission staff addressing  matters  pertinent to Indiana regarding
the proposed  merger.  The Indiana Utility  Regulatory  Commission  approved the
settlement  on  April  26,  1999.  The  settlement  agreement  resulted  from an
investigation  of the  proposed  merger  between  AEP and CSW  initiated  by the
Indiana Utility Regulatory Commission.

      On April 21, 1999,  AEP and CSW announced  that they had reached  separate
settlements  with six wholesale  customers  that address  issues  related to the
proposed merger.

      On April 28, 1999,  AEP and CSW announced  that they ratified a settlement
agreement with local unions of the IBEW  representing  employees of AEP and CSW.
The  settlement  agreement  covered issues related to the pending merger between
AEP and CSW. As part of the  settlement,  the IBEW local  unions have  withdrawn
their opposition to the merger.

      On May 26, 1999,  AEP and CSW announced that they had reached a settlement
agreement  with the  Kentucky  Attorney  General and several  AEP  customers  in
Kentucky  addressing  matters pertinent to Kentucky regarding the pending merger
between AEP and CSW. The Kentucky  Public  Service  Commission  has approved the
settlement.

      On August  6,  1999,  AEP  announced  that it had  ratified  a  settlement
agreement  with local  unions of the UWUA  representing  employees  of AEP.  The
settlement agreement covered issues raised in the pending merger between AEP and
CSW.  As part of the  settlement,  the UWUA  local  unions  will not  oppose the
merger.

      On October  21,  1999,  the Public  Utility  Commission  of Ohio  issued a
decision  stating  that it will notify the FERC that it is no longer  opposed to
AEP's proposed merger with CSW and that it will no longer seek conditions to the
merger.

      AEP and CSW also have reached settlements with the Missouri Public Service
Commission,  the  Michigan  Public  Service  Commission  and  various  wholesale
customers and intervenors in the FERC merger proceeding.

      Completion of the Merger
      AEP and CSW have  targeted  consummation  of the AEP  Merger in the second
quarter  of 2000.  The  merger is  conditioned,  among  other  things,  upon the
approval  of  several  state  and  federal  regulatory  agencies.  All  of  such
approvals, except from the SEC, have been obtained. The transaction must satisfy
many  conditions,  including  the  condition  that it must be accounted for as a
pooling of interests.  The parties may not waive some of these  conditions.  AEP

                                      2-92
<PAGE>

and CSW continue the process of seeking regulatory  approvals,  but there can be
no assurance as to when, on what terms or whether the required approvals will be
received.  After  June 30,  2000,  either  CSW or AEP may  terminate  the merger
agreement  if all of the  conditions  to its  obligation  to close have not been
satisfied. There can be no assurance that the AEP Merger will be consummated.

      Merger Costs
      As of December 31, 1999,  CSW had deferred $43 million in costs related to
the AEP  Merger on its  consolidated  balance  sheet,  which  will be charged to
expense if AEP and CSW do not complete their proposed  merger.  If the merger is
consummated,  such costs would be recovered in rates  pursuant to merger sharing
provisions contained in the state settlement agreements.


16.   EXTRAORDINARY ITEMS

      Texas Electric Operating Companies Discontinuance of SFAS No. 71
      The discontinuance of SFAS No. 71 in 1999 for  SWEPCO's Arkansas and Texas
generation   business  and  WTU's  Texas  generation  business  created  certain
write-offs for those companies, which are categorized as extraordinary losses on
their income statements.  The extraordinary loss at SWEPCO was $3.0 million. The
extraordinary  loss at WTU was $5.5 million.  The extraordinary  loss in 1999 at
CPL was $5.5 million as a result of the write-off of losses on the reacquisition
of long-term debt associated with generation-related assets. See ITEM 8. NOTE 2.
LITIGATION  AND  REGULATORY   PROCEEDINGS  -  Electric   Utility   Restructuring
Legislation for additional discussion of discontinuing SFAS No. 71.

      United Kingdom Windfall Profits Tax
      In the general  election  held in the United  Kingdom on May 1, 1997,  the
United  Kingdom's Labour Party won control of the government with a considerable
majority.  Prior to the general election, the Labour Party had announced that if
elected,  it would impose a windfall  profits tax on certain  industries  in the
United Kingdom,  including the privatized utilities, to fund a variety of social
improvement  programs.  On July 2, 1997, the one-time  windfall  profits tax was
introduced in the Labour  Party's  budget and the  legislation  enacting the tax
subsequently  was passed during the third quarter of 1997.  Accordingly,  during
the third quarter of 1997,  SEEBOARD U.S.A.  accrued,  as an extraordinary item,
(pound)109.5 million (or $176 million when converted at (pound)1.00 = $1.61) for
a one-time windfall profits tax enacted by the United Kingdom government.

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


17.   NEW ACCOUNTING STANDARDS

      SFAS No. 133 as amended by SFAS No. 137
      SFAS No.  133 as amended by SFAS No.  137 is  effective  for fiscal  years
beginning  after June 15, 2000 or January 1, 2001,  for calendar year  entities.
SFAS No.  133  replaces  existing  pronouncements  and  practices  with a single
integrated  accounting  framework for  derivatives  and hedging  activities  and
eliminates previous inconsistencies in generally accepted accounting principles.
SFAS No. 133 expands the accounting definition of derivatives, which had focused
on  freestanding  contracts  (futures,  forwards,  options and swaps) to include
embedded  derivatives  and many commodity  contracts.  All  derivatives  will be
reported on the balance  sheet either as an asset or liability  measured at fair
value.  Changes in a  derivative's  fair value will be  recognized  currently in

                                      2-93
<PAGE>

earnings unless specific hedge accounting  criteria are met. CSW has established
a project team to implement SFAS No. 133. CSW has not yet quantified the effects
of adopting SFAS No. 133 on its financial  statements,  although  application of
SFAS No. 133 could  increase  volatility  in  earnings  and other  comprehensive
income. See ITEM 7. MD&A - NEW ACCOUNTING STANDARDS.


18.   SOUTH AMERICAN INVESTMENTS

      Through  November  1999,  CSW  International  had  purchased  a 36% equity
interest in Vale for $80 million.  CSW International  also extended $100 million
of debt  convertible  to  equity  in Vale in 1998.  In  December  of  1999,  CSW
International  converted  $69 million of the $100 million  into equity,  thereby
raising the equity interest to 44%. CSW International anticipates converting the
remaining debt into equity over the next two years.

      In  January  1999,  amid  market  instability,  the  Brazilian  government
abandoned  its policy of  pegging  the  Brazilian  Real in a range  against  the
dollar.  This action resulted in a 49% devaluation of the Brazilian  currency by
the end of December 1999.  Vale is unfavorably  affected by the  devaluation due
primarily to the revaluation of foreign denominated debt.

      CSW International has a put option, which, if exercised,  requires Vale to
purchase CSW  International  shares at a minimum price equal to the U.S.  dollar
equivalent  of the  purchase  price  for  Vale.  As a result  of the put  option
arrangement,  management  has  concluded  that  CSW  International's  investment
carrying  amount will not be reduced  below the put option value unless there is
deemed to be a permanent impairment. Pursuant to the put option arrangement, CSW
International will not recognize its proportionate  share of any future earnings
until its proportionate  share of any losses of Vale is recognized.  At December
31, 1999, CSW International had deferred losses, after tax, of approximately $21
million related to its Vale investment.  CSW International  views its investment
in Vale as a long-term investment,  which has significant long-term value and is
recoverable.  Management  will  continue to closely  evaluate the changes in the
Brazilian economy and its impact on CSW International's investment in Vale.

      As of December 31, 1999,  CSW  International  had invested $110 million in
stock of a Chilean electric company.  The investment is classified as securities
available for sale and  accounted  for by the cost method.  Based on the current
market value of the shares and the year end foreign  exchange rate, the value of
the  investment  at December  31, 1999 was $62  million.  The  reduction  in the
carrying  value of this  investment  has been  reflected in Other  Comprehensive
Income in CSW's  Consolidated  Statements of  Stockholders'  Equity.  Management
views its  investment in Chile as a long-term  investment  strategy and believes
this  investment  continues to have  significant  long-term value and that it is
recoverable.  Management  will  continue to closely  evaluate the changes in the
South American economy and its impact on CSW  International's  investment in the
Chilean electric company.


                                      2-94
<PAGE>



19.   QUARTERLY INFORMATION (UNAUDITED)

      The following unaudited quarterly  information includes, in the opinion of
management all  adjustments  necessary for a fair  presentation of such amounts.
Information for quarterly  periods is affected by seasonal  variations in sales,
rate changes, timing of fuel expense recovery and other factors.

      QUARTER ENDED                               1999        1998
      -----------------------------------------------------------------
                                               (millions, except EPS)
      March 31
      Operating Revenues                           $1,225      $1,257
      Operating Income                                147         163
      Net Income for Common Stock                      45          60
      Basic and Diluted EPS                         $0.21       $0.28

      June 30
      Operating Revenues                           $1,319      $1,344
      Operating Income                                206         214
      Net Income for Common Stock                     103         107
      Basic and Diluted EPS                         $0.49       $0.50

      September 30
      Operating Revenues                           $1,618      $1,581
      Operating Income                                335         344
      Income before Extraordinary Item                230         233
      Extraordinary Loss                               (8)         --
      Net Income for Common Stock                     222         233
      Basic and Diluted EPS before
        Extraordinary Item                          $1.08       $1.10
      Basic and Diluted EPS from
        Extraordinary Loss                         ($0.04)        $--
      Basic and Diluted EPS                         $1.04       $1.10

      December 31
      Operating Revenues                           $1,375      $1,300
      Operating Income                                178         145
      Income before Extraordinary Item                 91          40
      Extraordinary Loss                               (6)         --
      Net Income for Common Stock                      85          40
      Basic and Diluted EPS before
        Extraordinary Item                          $0.43       $0.19
      Basic and Diluted EPS from
        Extraordinary Loss                         ($0.03)        $--
      Basic and Diluted EPS                         $0.40       $0.19

      Total
      Operating Revenues                           $5,537      $5,482
      Operating Income                                866         866
      Income before Extraordinary Item                469         440
      Extraordinary Loss                              (14)         --
      Net Income for Common Stock                     455         440
      Basic and Diluted EPS before
        Extraordinary Item                          $2.21       $2.07
      Basic and Diluted EPS from
        Extraordinary Loss                         ($0.07)        $--
      Basic and Diluted EPS                         $2.14       $2.07


                                      2-95
<PAGE>


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of Central and South West
Corporation:

      We have audited the  accompanying  consolidated  balance sheets of Central
and South West Corporation (a Delaware  corporation) and subsidiary companies as
of  December  31,  1999 and 1998,  and the related  consolidated  statements  of
income,  stockholders' equity and cash flows, for each of the three years in the
period  ended   December  31,  1999.   These   financial   statements   are  the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial  statements based on our audits.  We did not audit
the financial  statements of CSW UK Holdings  (1999) and CSW UK Finance  Company
(1998 and 1997) which  statements  reflect total assets and total revenues of 20
percent and 31 percent in 1999, 22 percent and 32 percent in 1998 and 22 percent
and 35 percent in 1997, respectively,  of the related consolidated totals. Those
statements  were audited by other  auditors whose reports have been furnished to
us, and our  opinion,  insofar as it relates to the amounts  included  for those
entities, is based solely on the reports of the other auditors.

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

      In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the  financial  position of Central and South West  Corporation  and  subsidiary
companies as of December 31, 1999 and 1998, and the results of their  operations
and their cash flows for each of the three  years in the period  ended  December
31, 1999, in conformity with  accounting  principles  generally  accepted in the
United States.






Arthur Andersen LLP

Dallas, Texas
February 25, 2000



                                      2-96
<PAGE>


AUDITOR'S REPORT TO THE MEMBERS OF CSW UK HOLDINGS

      We have  audited the  consolidated  balance  sheets of CSW UK Holdings and
subsidiaries  as of 31 December 1999 and the related  consolidated  statement of
earnings  and  statements  of  cash  flows  for  the  year  then  ended.   These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audit.

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

      In our opinion,  the consolidated  financial  statements referred to above
present  fairly,  in all material  respects,  the  financial  position of CSW UK
Holdings and subsidiaries at 31 December 1999 and the result of their operations
and cash flows for the year then ended in  conformity  with  generally  accepted
accounting principles in the United Kingdom.

      Generally  accepted  accounting  principles in the United  Kingdom vary in
certain significant  respects from generally accepted  accounting  principles in
the United States.  Application of generally accepted  accounting  principles in
the United States would have affected  results of operations  and  shareholders'
equity as of and for the year ended 31 December 1999 to the extent summarised in
Note 23 to the consolidated financial statements.






KPMG Audit Plc
Chartered Accountants                                                     London
Registered Auditor                                               17 January 2000




                                      2-97
<PAGE>


AUDITOR'S REPORT TO THE MEMBERS OF CSW UK FINANCE COMPANY

      We have audited the consolidated  balance sheets of CSW UK Finance Company
and  subsidiaries  as of 31 December 1998 and 1997 and the related  consolidated
statement  of earnings  and  statements  of cash flows for the years then ended.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audit.

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

      In our opinion,  the consolidated  financial  statements referred to above
present  fairly,  in all material  respects,  the  financial  position of CSW UK
Finance Company and subsidiaries at 31 December 1998 and 1997 and the results of
their  operations  and cash flows for the years then  ended in  conformity  with
generally accepted accounting principles in the United Kingdom.

      Generally  accepted  accounting  principles in the United  Kingdom vary in
certain significant  respects from generally accepted  accounting  principles in
the United States.  Application of generally accepted  accounting  principles in
the United States would have affected  results of operations  and  shareholders'
equity as of and for the years  ended 31  December  1998 and 1997 to the  extent
summarised in Note 23 to the consolidated financial statements.






KPMG Audit Plc
Chartered Accountants                                            London, England
Registered Auditor                                               18 January 1999




                                      2-98
<PAGE>


REPORT OF MANAGEMENT

      Management is responsible for the  preparation,  integrity and objectivity
of the consolidated  financial  statements of Central and South West Corporation
and subsidiary  companies as well as other information  contained in this annual
report. The consolidated  financial  statements have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis and,
in some cases,  reflect  amounts  based on the best  estimates  and judgments of
management  giving  due  consideration  to  materiality.  Financial  information
contained  elsewhere  in this  annual  report  is  consistent  with  that in the
consolidated financial statements.

      The  consolidated   financial   statements  have  been  audited  by  CSW's
independent  public  accountants  who  were  given  unrestricted  access  to all
financial  records  and  related  data,  including  minutes of all  meetings  of
stockholders,  the board of directors and  committees of the board.  CSW and its
subsidiaries  believe  that  representations  made  to  the  independent  public
accountants  during  their  audit were  valid and  appropriate.  The  reports of
independent public accountants are presented elsewhere in this report.

      CSW,  together  with its  subsidiary  companies,  maintains  a  system  of
internal controls to provide reasonable assurance that transactions are executed
in accordance with management's  authorization,  that the consolidated financial
statements  are  prepared  in  accordance  with  generally  accepted  accounting
principles  and  that  the  assets  of CSW and  its  subsidiaries  are  properly
safeguarded against  unauthorized  acquisition,  use or disposition.  The system
includes a documented  organizational  structure and division of responsibility,
established  policies  and  procedures  including a policy on ethical  standards
which  provides that the  companies  will maintain the highest legal and ethical
standards, and the careful selection, training and development of our employees.

      Internal auditors  continuously  monitor the effectiveness of the internal
control  system  following  standards  established  by the Institute of Internal
Auditors. Actions are taken by management to respond to deficiencies as they are
identified. The board, operating through its audit committee, which is comprised
entirely  of  directors  who  are  not  officers  or  employees  of  CSW  or its
subsidiaries, provides oversight to the financial reporting process.

      Due to the inherent limitations in the effectiveness of internal controls,
no internal control system can provide  absolute  assurance that errors will not
occur. However,  management strives to maintain a balance,  recognizing that the
cost of such a system should not exceed the benefits derived.

      CSW and its  subsidiaries  believe  that,  in all material  respects,  its
system of internal  controls over financial  reporting and over  safeguarding of
assets  against  unauthorized   acquisition,   use  or  disposition   functioned
effectively as of December 31, 1999.






E. R. Brooks                 Glenn D. Rosilier               Lawrence B. Connors
Chairman and                 Executive Vice President and    Controller
Chief Executive Officer      Chief Financial Officer


                                      2-99
<PAGE>

                             CENTRAL POWER AND LIGHT
                                     COMPANY



                                    2-100 CPL
<PAGE>


SELECTED FINANCIAL DATA

      The  following  selected  financial  data for each of the five years ended
December  31 is  provided  to  highlight  significant  trends  in the  financial
condition and results of operations for CPL. The extraordinary loss was a result
of a loss  associated with the  reacquisition  of  production-related  long-term
debt.  Certain financial  statement items for prior years have been reclassified
to conform to the most recent period presented.
<TABLE>
<CAPTION>

                                    1999 (1)     1998 (1)    1997 (1)      1996      1995
                                                (thousands, except ratios)
<S>                                <C>         <C>         <C>         <C>         <C>

INCOME STATEMENT DATA
Revenues                           $1,482,475  $1,406,117  $1,376,282  $1,300,688  $1,073,469
Income before extraordinary item      188,405     161,650     128,471     147,051     206,447
Extraordinary loss on reacquired debt  (5,517)         --          --          --          --
Net Income for Common Stock           173,194     154,479     121,350     133,488     191,978

BALANCE SHEET DATA
Assets                              4,847,850   4,736,189   4,897,380   4,919,014   4,976,494
Long-term obligations (2)           1,454,541   1,375,706   1,536,336   1,413,805   1,612,705
Capitalization ratios
     Common stock equity                   48%         46%         45%         46%         43%
     Preferred stock                       --           6           5           8           8
     Trust Preferred Securities             5           5           5          --          --
     Long-term debt                        47          43          45          46          49
Ratio of earnings to fixed charges
 (SEC Method)                            3.41        3.21        2.48        2.86        2.63
</TABLE>

(1) See  CENTRAL  POWER AND LIGHT  COMPANY - RESULTS  OF  OPERATIONS  for major
    factors affecting earnings.
(2) Long-term obligations include long-term debt and Trust Preferred Securities.


                                   2-101 CPL
<PAGE>

CENTRAL POWER AND LIGHT COMPANY
RESULTS OF OPERATIONS

      Reference  is made to CPL's  Consolidated  Financial  Statements,  related
Notes  to  Consolidated   Financial  Statements  and  Selected  Financial  Data.
Referenced  information  should be read in conjunction with, and is essential to
understanding, the following discussion and analysis.


COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND 1998

      CPL's net  income  for  common  stock  increased  $18.5  million to $173.2
million  during 1999 from $154.7 million in 1998. The increase was primarily the
result of higher  non-fuel-related  revenues  partially offset by an increase in
other  operating  and  maintenance   expenses.   Also,  lower  depreciation  and
amortization  expenses,  lower income tax expenses  and lower  interest  charges
contributed to the increase in net income for common stock.

      Electric  operating  revenues  increased  $76.4 million,  or 5% in 1999 as
compared to 1998.  Fuel-related  revenues  increased $44.2 million due to higher
fuel and  purchased  power  expenses as  discussed in the  following  paragraph.
Non-fuel-related  revenues  increased  $32.2 million due mainly to higher retail
MWH sales resulting from increased customer demand offset in part by lower sales
attributable  to milder weather in 1999 and lower base rates  resulting from the
CPL  1997  Final  Order.   Additionally,   non-fuel-related  revenues  increased
resulting from changes to CSW's  transmission  coordination  agreement offset in
part by the absence in 1999 of a transmission  service  agreement  adjustment in
1998. See ITEM 8. NOTE 2.  LITIGATION AND REGULATORY  PROCEEDINGS - Transmission
Coordination Agreement and CPL and WTU Complaint versus Texas Utilities Electric
Company (Docket No. 17285) and CPL Rate Review - Docket No. 14965.

      Fuel expense increased to $404.0 million,  or $18.0 million higher in 1999
when compared to 1998  resulting  primarily from a rise in the average unit fuel
cost. The average unit fuel cost increased from $1.59 per MMbtu in 1998 to $1.72
per MMbtu in 1999,  resulting  primarily  from higher  spot  market  natural gas
prices. Purchased power expense rose $28.1 million in 1999 to $68.2 million when
compared to 1998.  The  increase  was due  primarily  to higher  economy  energy
purchases.

      Other  operating  expenses were $290.1 million during 1999, an increase of
$29.2  million when  compared to 1998.  The increase was due primarily to higher
outside   service   expenses   associated   with  the  Texas   Legislation   and
securitization,  as  well as  higher  transmission  expenses.  The  increase  in
transmission  expense was due primarily to the  settlement of the complaint with
Texas  Utilities  Electric  Company  and the  absence in 1999 of a  transmission
service  agreement  adjustment  made in 1998 related to the final order in Texas
Commission  Docket No.  17285.  See ITEM 8. NOTE 2.  LITIGATION  AND  REGULATORY
PROCEEDINGS  - CPL and WTU Complaint  versus Texas  Utilities  Electric  Company
(Docket No. 17285). Maintenance expenses increased $6.4 million in 1999 to $70.2
million  due  primarily  to  scheduled  power  plant  repairs  and  maintenance,
including  the  refueling  and a  10-year  inspection  of  STP  Units  1 and  2.
Depreciation and amortization  expenses decreased $7.1 million, or 4% in 1999 as
compared  to last  year  due  primarily  to the  absence  of  1999  amortization
associated with regulatory assets  designated for  securitization as well as the
absence in 1999 of an accelerated  capital  recovery  charge in 1998.  Partially
offsetting this decrease is a charge to reflect the excess earnings provision of
the Texas  Legislation and increases to depreciable  plant.  See ITEM 8. NOTE 2.
LITIGATION  AND  REGULATORY   PROCEEDINGS  -  Electric   Utility   Restructuring
Legislation and ITEM 7. MD&A  Securitization  of  Generation-related  Regulatory
Assets and Stranded Costs.

      Taxes,  other than  income  increased  $2.9  million to $73.8  million due
primarily to higher franchise tax expenses in 1999 when compared to 1998. Income
tax expense associated with utility  operations  decreased $12.9 million for the

                                   2-102 CPL
<PAGE>

year  compared  to 1998 as a  result  of  lower  taxable  income  in  1999,  the
reclassification  of certain income tax related regulatory assets designated for
securitization consistent with the Texas Legislation,  and prior year income tax
liability adjustments.  The decrease in income tax expense was offset in part by
the  income  portion of the Texas  state  franchise  taxes.  See ITEM 8. NOTE 2.
LITIGATION  AND  REGULATORY   PROCEEDINGS  -  Electric   Utility   Restructuring
Legislation.  and ITEM 7. MD&A Securitization of  Generation-related  Regulatory
Assets and Stranded Costs.

      Other income and deductions  increased $7.4 million  resulting from higher
interest income and lower non-operating income tax expense.

      Interest  charges  decreased $7.7 million for 1999,  when compared to 1998
due primarily to lower average  interest rates  associated with the maturity and
reacquisition  of  long-term  debt  during  1999 and  1998.  See ITEM 8. NOTE 8.
LONG-TERM  DEBT for  additional  information  related  to the  reacquisition  of
long-term  debt.  The  extraordinary  loss of $5.5 million was the result of the
write-off  of  unamortized   expenses   associated  with  the  reacquisition  of
production-related long-term debt. See ITEM 8. NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS - Electric  Utility  Restructuring  Legislation,  NOTE 8.  LONG-TERM
DEBT,  and NOTE 16.  EXTRAORDINARY  ITEMS.  The  redemption  of $160  million of
preferred stock resulted in a reduction of net income of $2.8 million.  See ITEM
8. NOTE 9. PREFERRED STOCK for further information.


COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1997

      Net income for common  stock  increased  $33.4  million to $154.7  million
during 1998 from $121.4  million in 1997.  This  increase  was due  primarily to
increased non-fuel revenues related to weather-related demand and the absence in
1998 of the provision  for the CPL 1997 Final Order.  The increase in net income
for common stock was  partially  offset by a reduction in base rates  associated
with the CPL 1997 Final Order.  See ITEM 8. NOTE 2.  LITIGATION  AND  REGULATORY
PROCEEDINGS for more information related to the CPL 1997 Final Order.

      Total electric operating  revenues increased $29.8 million,  or 2% in 1998
as compared to 1997. This increase was mainly  attributed to increased  non-fuel
revenue of $91.6 million, which was a result of a 3% increase in weather-related
MWH sales and the absence in 1998 of the $76.4 million provision for rate refund
in 1997. In addition,  electric  operating  revenues  increased due in part to a
transmission  service agreement  adjustment  related to the final order in Texas
Commission  Docket No.  17285.  See ITEM 8. NOTE 2.  LITIGATION  AND  REGULATORY
PROCEEDINGS  - CPL and WTU Complaint  versus Texas  Utilities  Electric  Company
(Docket No. 17285). The increase was partially offset by decreased fuel revenues
of $30.8  million  and by lower  base  rates  resulting  from the CPL 1997 Final
Order.

      Fuel and purchased power expenses decreased approximately $27.1 million in
1998 as compared to 1997.  Fuel expense  decreased  $10.7 million as a result of
lower average unit cost of fuel  declining from $1.83 per MMbtu in 1997 to $1.59
per MMbtu in 1998 due to lower spot market natural gas prices.  Purchased  power
expenses decreased approximately 29% from $56.4 million in 1997 to $40.1 million
in 1998 due to decreases in economy energy purchases.

      Other  operating  expenses were $260.8  million during 1998, a decrease of
$22.8  million  when  compared  to 1997.  The  decrease  is  primarily  due to a
transmission  service agreement  adjustment  related to the final order in Texas
Commission  Docket No.  17285.  See ITEM 8. NOTE 2.  LITIGATION  AND  REGULATORY
PROCEEDINGS  - CPL and WTU Complaint  versus Texas  Utilities  Electric  Company
(Docket No. 17285).  Also contributing to the decrease is the absence in 1998 of
a $15 million write-off of previously  capitalized energy efficiency incentives,
and rate case-related expenses.  Maintenance expenses increased $4.0 million due
primarily  to  flood  damage,   power  plant  repairs  and  storm-related   tree

                                   2-103 CPL
<PAGE>

maintenance.  Depreciation and amortization expenses increased $13.5 million, or
8% in 1998 as compared to 1997 due primarily to the accelerated recovery of ECOM
property  recorded  in 1998  related  to the CPL  1997  Final  Order  as well as
increases  in  depreciable  and  amortizable  plant.  Partially  offsetting  the
increase in depreciation and amortization  expenses was lower depreciation rates
on non-ECOM property related to the CPL 1997 Final Order.

      Taxes,  other  than  income  decreased  $12.0 million  for  1998  due to a
decrease in Texas ad valorem  taxes.  Operating  income  taxes  increased  $42.8
million for the year compared to 1997 as a result of higher pre-tax income.

      Other income and deductions  decreased  approximately  $7.5 million due to
reduced interest income  associated with lower levels of short-term  investments
in 1998 as well as reduced non-operating taxes.

      Interest charges  decreased $9.1 million during 1998 when compared to 1997
primarily as a result of the  maturity of CPL's $200 million  Series BB, 6% FMBs
in October 1997 and $28 million Series J, 6 5/8%,  FMBs that matured  January 1,
1998 and the  reacquisition  of $36 million Series L 7% FMBs in September  1998.
See ITEM 8. NOTE 8.  LONG-TERM DEBT for  additional  information  related to the
reacquisition  of long-term  debt.  The decrease was offset in part by increased
distributions  on Trust  Preferred  Securities,  which  were  outstanding  for a
portion of 1997.


                                   2-104 CPL
<PAGE>
<TABLE>
<CAPTION>

CPL
Consolidated Statements of Income
Central Power and Light Company
-------------------------------------------------------------------------------------------------------
                                                                 For the Years Ended December 31,
                                                            -------------------------------------------
                                                               1999            1998           1997
                                                            -----------     -----------    ------------
                                                                           (thousands)
<S>                                                         <C>             <C>            <C>

Electric Operating Revenues
    Residential                                              $ 540,452       $ 527,081       $ 541,169
    Commercial                                                 393,595         377,492         400,412
    Industrial                                                 330,629         309,543         330,481
    Sales for resale                                            75,836          66,680          70,461
    Other                                                      141,963         125,321          33,759
                                                            -----------     -----------    ------------
                                                             1,482,475       1,406,117       1,376,282
                                                            -----------     -----------    ------------
Operating Expenses and Taxes
    Fuel                                                       403,989         385,944         396,707
    Purchased power                                             68,155          40,062          56,475
    Other operating                                            290,074         260,843         283,640
    Maintenance                                                 70,165          63,779          59,791
    Depreciation and amortization                              177,702         184,805         171,349
    Taxes, other than income                                    73,823          70,927          82,909
    Income taxes                                               103,895         116,831          74,044
                                                            -----------     -----------    ------------
                                                             1,187,803       1,123,191       1,124,915
                                                            -----------     -----------    ------------

Operating Income                                               294,672         282,926         251,367
                                                            -----------     -----------    ------------

Other Income and (Deductions)
    Charges for investments and plant development costs             --              --          (2,060)
    Allowance for equity funds used during construction             --              51           1,724
    Other                                                        2,827          (1,495)          3,563
    Non-operating income taxes                                   5,286           2,204           5,050
                                                            -----------     -----------    ------------
                                                                 8,113             760           8,277
                                                            -----------     -----------    ------------

Income Before Interest Charges                                 302,785         283,686         259,644
                                                            -----------     -----------    ------------

Interest Charges
    Interest on long-term debt                                  87,413          93,301         105,081
    Distributions on Trust Preferred Securities                 12,000          12,000           7,533
    Interest on short-term debt and other                       19,498          19,506          20,613
    Allowance for borrowed funds used during construction       (4,531)         (2,771)         (2,054)
                                                            -----------     -----------    ------------
                                                               114,380         122,036         131,173
                                                            -----------     -----------    ------------

Income before Extraordinary Item                               188,405         161,650         128,471
Extraordinary loss on reacquired debt
    (net of tax of $2,971)                                      (5,517)             --              --
                                                            -----------     -----------    ------------

Net Income                                                     182,888         161,650         128,471
    Less:  Preferred stock dividends                             6,931           6,901           9,523
    Gain (Loss) on reacquired preferred stock                   (2,763)             --           2,402
                                                            -----------     -----------    ------------
Net Income for Common Stock                                  $ 173,194       $ 154,749       $ 121,350
                                                            ===========     ===========    ============

</TABLE>

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

                                   2-105 CPL
<PAGE>
CPL
Consolidated Statements of Retained Earnings
Central Power and Light Company
--------------------------------------------------------------------------------
                                             For the Years Ended December 31,
                                        ----------------------------------------
                                            1999           1998           1997
                                        ------------   ------------   ----------
                                                        (thousands)

Retained Earnings at Beginning of Year    $ 739,031      $ 833,282     $ 868,932
    Net income for common stock             173,194        154,749       121,350
    Deduct:  Common stock dividends         148,000        249,000       157,000
                                        ------------   ------------   ----------
Retained Earnings at End of Year          $ 764,225      $ 739,031     $ 833,282
                                        ============   ============   ==========


















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

                                   2-106 CPL
<PAGE>
CPL
Consolidated Balance Sheets
Central Power and Light Company

                                                         As of December 31,
                                                      --------------------------
                                                         1999          1998
                                                      -----------   ------------
                                                             (thousands)
ASSETS
Electric Utility Plant
    Production                                        $ 3,152,319   $ 3,146,269
    Transmission                                          566,629       527,146
    Distribution                                        1,157,091     1,090,175
    General                                               307,378       298,352
    Construction work in progress                         101,550        67,300
    Nuclear fuel                                          226,927       206,949
                                                      -----------   ------------
                                                        5,511,894     5,336,191
  Less - accumulated depreciation                       2,263,925     2,072,686
                                                      -----------   ------------
                                                        3,247,969     3,263,505
                                                      -----------   ------------
Current Assets
   Cash                                                     5,830         5,195
   Special deposits for reacquisition of long-term debt    50,000            --
   Accounts receivable                                     64,482        51,056
   Materials and supplies, at average cost                 58,196        59,814
   Fuel inventory at LIFO cost                             26,434        20,340
   Under-recovered fuel costs                              30,911            --
   Accumulated deferred income taxes                           --           713
   Prepayments and other                                    5,353         2,952
                                                      -----------   ------------
                                                          241,206       140,070
                                                      -----------   ------------
Deferred Charges and Other Assets
    Regulatory assets                                     215,302     1,099,631
    Regulatory assets designated for securitization       953,249            --
    Nuclear decommissioning trust                          86,122        65,972
    Other                                                 104,002       167,011
                                                      -----------   ------------
                                                        1,358,675     1,332,614
                                                      -----------   ------------
                                                      $ 4,847,850   $ 4,736,189
                                                      ===========   ============




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


2-107 CPL
<PAGE>
CPL
Consolidated Balance Sheets
Central Power and Light Company
<TABLE>
<CAPTION>

                                                         As of December 31,
                                                     ---------------------------
                                                       1999             1998
                                                     ---------        ---------
CAPITALIZATION AND LIABILITIES                              (thousands)
<S>                                                  <C>        <C>   <C>        <C>

Capitalization
    Common stock:  $25 par value
        Authorized shares:  12,000,000
        Issued and outstanding shares: 6,755,535     $ 168,888        $ 168,888
    Paid-in capital                                    405,000          405,000
    Retained earnings                                  764,225          739,031
                                                     ---------        ---------
       Total Common Stock Equity                     1,338,113   48%  1,312,919   46%
                                                     ---------  ----  ---------  ----
    Preferred stock                                      5,967   --%    163,204    6%

    CPL-obligated, mandatorily redeemable preferred
      securities of subsidiary trust holding solely
     Junior Subordinated Debentures of CPL             150,000    5%    150,000    5%
    Long-term debt                                   1,304,541   47%  1,225,706   43%
                                                     ---------  ----  ---------  ----
       Total Capitalization                          2,798,621  100%  2,851,829  100%
                                                     ---------  ----  ---------  ----
Current Liabilities
    Long-term debt due within twelve months            150,000          125,000
    Advances from affiliates                           322,158          160,298
    Payable to affiliates                               33,162           38,331
    Accounts payable                                    88,702           86,998
    Accrued taxes                                       41,121           46,855
    Accumulated deferred income taxes                    2,103               --
    Accrued interest                                    14,723           27,036
    Over-recovered fuel costs                               --            9,135
    Other                                               19,330           18,819
                                                     ---------        ---------
                                                       671,299          512,472
                                                     ---------        ---------
Deferred Credits
    Accumulated deferred income taxes                1,234,942        1,221,561
    Investment tax credits                             133,306          138,513
    Other                                                9,682           11,814
                                                     ---------        ---------
                                                     1,377,930        1,371,888
                                                     ---------        ---------
                                                   $ 4,847,850      $ 4,736,189
                                                     =========        =========
</TABLE>




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


                                   2-108 CPL
<PAGE>

Consolidated Statements of Cash Flows
Central Power and Light Company
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                       For the Years Ended December 31,
                                                       ----------------------------------
                                                          1999        1998        1997
                                                       -----------  ---------   ---------
                                                                  (thousands)
<S>                                                     <C>         <C>         <C>

OPERATING ACTIVITIES
    Net Income                                          $ 182,888   $161,650    $128,471
    Non-cash Items Included in Net Income
        Depreciation and amortization                     196,147    206,515     192,775
        Deferred income taxes and investment tax credits   15,101    (12,111)     29,666
        Extraordinary loss on reacquired debt               5,517         --          --
        Refund due customers                                   --    (63,713)     20,447
        Charges for investments and assets                     --     18,669       2,061
        Inventory reserve                                      --         --       3,834
    Changes in Assets and Liabilities
        Accounts receivable                               (13,426)    10,255      (8,273)
        Fuel inventory                                     (6,094)    (5,524)        645
        Material and supplies                               1,618      5,476      10,442
        Accrued interest                                  (12,313)    (1,343)     (3,187)
        Accounts payable                                    1,660     13,891      26,224
        Payables to affiliates                             (5,169)    26,341     (12,005)
        Accrued taxes                                      (5,734)    33,297     (50,649)
        Fuel recovery                                     (40,046)    52,364     (16,931)
        Other deferred credits                             (2,132)    (2,575)      2,701
        Other                                             (14,833)    (4,311)     13,419
                                                       -----------  ---------   ---------
                                                          303,184    438,881     339,640
                                                       -----------  ---------   ---------
INVESTING ACTIVITIES
    Construction expenditures                            (210,823)  (123,803)   (126,693)
    Other                                                  15,063     (7,181)      1,185
                                                       -----------  ---------   ---------
                                                         (195,760)  (130,984)   (125,508)
                                                       -----------  ---------   ---------
FINANCING ACTIVITIES
    Proceeds from issuance of long-term debt              358,887         --          --
    Retirement of long-term debt                         (125,000)   (28,000)         --
    Reacquisition of long-term debt                      (136,700)   (36,000)   (200,000)
    Special deposit for reacquisition of long-term debt   (50,000)        --          --
    Redemption of preferred stock                        (160,001)        --     (84,745)
    Proceeds from issuance of Trust Preferred Securities       --         --     144,706
    Change in advances from affiliates                    161,860     17,517      90,256
    Payment of dividends                                 (155,835)  (256,219)   (167,648)
                                                       -----------  ---------   ---------
                                                         (106,789)  (302,702)   (217,431)
                                                       -----------  ---------   ---------

Net Change in Cash and Cash Equivalents                       635      5,195      (3,299)
Cash and Cash Equivalents at Beginning of Year              5,195         --       3,299
                                                       -----------  ---------   ---------
Cash and Cash Equivalents at End of Year                  $ 5,830    $ 5,195        $ --
                                                       ===========  =========   =========

SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized (includes
      distributions on Trust Preferred Securities)      $ 125,222   $ 99,239    $116,782
                                                       ===========  =========   =========
    Income taxes paid                                    $ 78,393   $ 94,245    $ 61,509
                                                       ===========  =========   =========
</TABLE>

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

                                   2-109 CPL
<PAGE>
CPL
Consolidated Statements of Capitalization
Central Power and Light Company

                                                         As of December 31,
                                                       ------------------------
                                                         1999          1998
                                                       -----------  -----------
                                                             (thousands)
COMMON STOCK EQUITY                                    $ 1,338,113  $ 1,312,919
                                                       -----------  -----------
PREFERRED STOCK
Cumulative $100 Par Value, Authorized 3,035,000 shares

                        Number of Shares  Current
Series                  Outstanding       Redemption Price
-------------------------------------------------------------
Not Subject to Mandatory
  Redemption
    4.00%                   42,038           $105.75         4,204        4,205
    4.20%                   17,476           $103.75         1,748        1,748
Auction Money Market                                            --       75,000
Auction Series A                                                --       42,500
Auction Series B                                                --       42,500
Issuance Expense                                                15       (2,749)
                                                       -----------  -----------
                                                             5,967      163,204
                                                       -----------  -----------
TRUST PREFERRED  SECURITIES
    CPL-obligated, mandatorily redeemable preferred
     securities of subsidiary trust holding solely
     Junior Subordinated Debentures of CPL, 8.00%,
     due April 30, 2037                                    150,000      150,000
                                                       -----------  -----------
LONG-TERM DEBT
First Mortgage Bonds
    Series T, 7 1/2%, due December 15, 2014 (Matagorda) *       --      111,700
    Series AA, 7 1/2%, due March 1, 2020 (Matagorda) *      50,000       50,000
    Series CC, 7 1/4%, due October 1, 2004                 100,000      100,000
    Series DD, 7 1/8%, due December 1, 1999                     --       25,000
    Series EE, 7 1/2%, due December 1, 2002                115,000      115,000
    Series FF, 6 7/8%, due February 1, 2003                 50,000       50,000
    Series GG, 7 1/8%, due February 1, 2008                 75,000       75,000
    Series HH, 6%, due April 1, 2000                       100,000      100,000
    Series II, 7 1/2%, due April 1, 2023                    75,000      100,000
    Series JJ, 7 1/2%, due May 1, 1999                          --      100,000
    Series KK, 6 5/8%, due July 1, 2005                    200,000      200,000
Installment Sales Agreements - PCRBs  *
    Series 1993, 6%, due July 1, 2028 (Matagorda)          120,265      120,265
    Series 1995, 6.10%, due July 1, 2028 (Matagorda)       100,635      100,635
    Series 1995, variable rate, due November 1, 2015
     (Guadalupe)                                           40,890        40,890
    Series 1996, 6%, due June 1, 2020 (Red River)           6,330         6,330
    Series 1996, 6 1/8%, due May 1, 2030 (Matagorda)       60,000        60,000
    Series 1999A, 4.90%, due May 1, 2030 (Matagorda)      111,700            --
    Series 1999B, 4.95%, due May 1, 2030 (Matagorda)       50,000            --
Senior Unsecured Floating Rate Notes, 6.07125%, due
  November 23, 2001                                       200,000            --
Unamortized Discount                                         (279)       (4,114)
Amount to be Redeemed Within One Year                    (150,000)     (125,000)
                                                       -----------  -----------
                                                        1,304,541     1,225,706
                                                       -----------  -----------
TOTAL CAPITALIZATION                                   $ 2,798,621  $ 2,851,829
                                                       ===========  ===========


*Obligations incurred in connection with the sale by public authorities of
 tax-exempt PCRBs.

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

                                   2-110 CPL
<PAGE>



CENTRAL POWER AND LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      See CSW's NOTE 1.

2.    LITIGATION AND REGULATORY PROCEEDINGS
      See CSW's NOTE 2.

3.    COMMITMENTS AND CONTINGENT LIABILITIES
      See CSW's NOTE 3.

4.    INCOME TAXES
      See CSW's NOTE 4.

5.    BENEFIT PLANS
      See CSW's NOTE 5.

6.    JOINTLY OWNED ELECTRIC UTILITY PLANT
      See CSW's NOTE 6.

7.    FINANCIAL INSTRUMENTS
      See CSW's NOTE 7.

8.    LONG-TERM DEBT
      See CSW's NOTE 8.

9.    PREFERRED STOCK
      See CSW's NOTE 9.

10.   TRUST PREFERRED SECURITIES
      See CSW's NOTE 10.

11.   SHORT-TERM FINANCING
      See CSW's NOTE 11.

12.   STOCK BASED COMPENSATION PLANS
      See CSW's NOTE 13.

13.   EXTRAORDINARY ITEMS
      See CSW's NOTE 16.

14.   NEW ACCOUNTING STANDARDS
      See CSW's NOTE 17.


                                   2-111 CPL
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of Central Power and Light Company:

      We  have  audited  the  accompanying   consolidated   balance  sheets  and
consolidated  statements of capitalization of Central Power and Light Company (a
Texas  corporation  and a  wholly-owned  subsidiary  of  Central  and South West
Corporation)  and  subsidiary  company as of December 31, 1999 and 1998, and the
related consolidated  statements of income, retained earnings and cash flows for
each of the three years in the period ended December 31, 1999.  These  financial
statements  are  the   responsibility  of  Central  Power  and  Light  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

      In our opinion,  the consolidated  financial  statements referred to above
present  fairly,  in all material  respects,  the financial  position of Central
Power and Light Company and subsidiary company as of December 31, 1999 and 1998,
and the results of their  operations  and their cash flows for each of the three
years in the period ended  December  31, 1999,  in  conformity  with  accounting
principles generally accepted in the United States.





Arthur Andersen LLP

Dallas, Texas
February 25, 2000

                                   2-112 CPL
<PAGE>

REPORT OF MANAGEMENT

      Management is responsible for the  preparation,  integrity and objectivity
of the consolidated  financial statements of Central Power and Light Company and
subsidiary company as well as other information contained in this annual report.
The  consolidated  financial  statements  have been prepared in conformity  with
generally accepted  accounting  principles applied on a consistent basis and, in
some  cases,  reflect  amounts  based on the best  estimates  and  judgments  of
management,  giving due  consideration  to  materiality.  Financial  information
contained  elsewhere  in this  annual  report  is  consistent  with  that in the
consolidated financial statements.

      The  consolidated   financial   statements  have  been  audited  by  CPL's
independent  public  accountants  who  were  given  unrestricted  access  to all
financial  records  and  related  data,  including  minutes of all  meetings  of
shareholders,  the board of directors and  committees of the board.  CPL and its
subsidiary company believe that  representations  made to the independent public
accountants  during  their  audit  were  valid and  appropriate.  The  report of
independent public accountants is presented elsewhere in this report.

      CPL, together with its subsidiary company,  maintains a system of internal
controls to provide  reasonable  assurance  that  transactions  are  executed in
accordance with  management's  authorization,  that the  consolidated  financial
statements  are  prepared  in  accordance  with  generally  accepted  accounting
principles and that the assets of the companies are properly safeguarded against
unauthorized acquisition,  use or disposition.  The system includes a documented
organizational  structure and division of responsibility,  established  policies
and procedures  including a policy on ethical  standards which provides that CPL
will  maintain  the  highest  legal  and  ethical  standards,  and  the  careful
selection, training and development of our employees.

      Internal auditors  continuously  monitor the effectiveness of the internal
control  system  following  standards  established  by the Institute of Internal
Auditors. Actions are taken by management to respond to deficiencies as they are
identified. The board, operating through its audit committee, which is comprised
entirely of directors who are not officers or employees of CPL or its subsidiary
company, provides oversight to the financial reporting process.

      Due to the inherent limitations in the effectiveness of internal controls,
no internal control system can provide  absolute  assurance that errors will not
occur. However,  management strives to maintain a balance,  recognizing that the
cost of such a system should not exceed the benefits derived.

      CPL and its  subsidiary  believe  that,  in all material  respects,  their
system of internal  controls over financial  reporting and over  safeguarding of
assets  against  unauthorized   acquisition,   use  or  disposition   functioned
effectively as of December 31, 1999.






J. Gonzalo Sandoval                                             R. Russell Davis
General Manager/President - CPL                                 Controller - CPL


                                   2-113 CPL
<PAGE>








                             PUBLIC SERVICE COMPANY
                                   OF OKLAHOMA



                                   2-114 PSO
<PAGE>


SELECTED FINANCIAL DATA

      The  following  selected  financial  data for each of the five years ended
December  31 is  provided  to  highlight  significant  trends  in the  financial
condition and results of operations for PSO. Certain  financial  statement items
for prior  years have been  reclassified  to conform to the most  recent  period
presented.
<TABLE>
<CAPTION>

                                         1999(1)    1998(1)     1997(1)       1996       1995
                                                 (thousands, except ratios)
<S>                                     <C>         <C>         <C>         <C>         <C>

INCOME STATEMENT DATA
Revenues                                $749,390    $780,159    $712,690    $735,265    $690,823
Net Income                                62,605      76,843      46,206      31,478      81,828
Net Income for Common Stock               62,392      76,630      50,053      30,662      81,012

BALANCE SHEET DATA
Assets                                 1,543,871   1,482,728   1,464,563   1,449,665   1,499,511
Long-term obligations (2)                439,516     459,064     513,703     438,369     397,945
Capitalization ratios
     Common stock equity                      52%         51%         48%         51%         54%
     Preferred stock                          --          --          --           2           2
     Trust Preferred Securities                8           8           8          --          --
     Long-term debt                           40          41          44          47          44
Ratio of earnings to fixed charges
 (SEC Method)                               3.39        4.21        2.68        2.45        4.32

</TABLE>

(1) See PUBLIC  SERVICE  COMPANY OF OKLAHOMA - RESULTS OF OPERATIONS  for major
    factors affecting earnings.
(2) Long-term obligations include long-term debt and Trust Preferred Securities.


                                   2-115 PSO
<PAGE>

PUBLIC SERVICE COMPANY OF OKLAHOMA
RESULTS OF OPERATIONS

      Reference  is made to PSO's  Consolidated  Financial  Statements,  related
Notes  to  Consolidated   Financial  Statements  and  Selected  Financial  Data.
Referenced  information  should be read in conjunction with, and is essential to
understanding, the following discussion and analysis.


COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND 1998

      PSO's net income  for  common  stock  decreased  19% during  1999 to $62.4
million from $76.6 million in 1998. The decrease  resulted  primarily from lower
non-fuel-related  revenues and higher other operating and  maintenance  expenses
offset in part by lower income tax expense.

      Electric  operating  revenues  were $749.4  million  during  1999, a $30.8
million or 4%  decrease  from  $780.2  million  in 1998.  The  decrease  was due
primarily to lower  fuel-related  revenues of $24.6 million resulting from lower
combined fuel expense and purchased  power expense as discussed in the following
paragraph. Non-fuel-related revenues decreased $16.5 million due primarily to an
8% decline in  residential  sales  attributable  to milder  weather in 1999. The
decrease in operating  revenues was partially  offset by a $6.3 million increase
in sales for resale to other  utilities  as a result of  increased  demand and a
$4.0 million increase in transmission-related  revenues resulting primarily from
changes  to CSW's  transmission  coordination  agreement.  See  ITEM 8.  NOTE 2.
LITIGATION AND REGULATORY PROCEEDINGS - Transmission Coordination Agreement.

      Fuel expense decreased $40.7 million, or 13% to $269.3 million from $310.0
million in 1998. This decline  resulted  primarily from a $52.3 million decrease
in the recovery of deferred fuel costs due to a  significant  difference in fuel
factors used to recover fuel expense from customers. The decrease in recovery of
deferred  fuel was  partially  offset by higher  average  unit fuel  costs.  The
average  unit cost of fuel  increased  from $1.77 per MMbtu in 1998 to $1.96 per
MMbtu in 1999 due primarily to higher spot market natural gas prices.  Purchased
power  expenses  increased  31% to $74.9  million in 1999 from $57.2  million in
1998.  This increase is due primarily to an increase in economy  energy and firm
contract purchases.

      Other operating expenses increased $10.7 million in 1999 to $120.1 million
from  $109.4  million  in  1998.  The  increase  was  due  primarily  to  higher
transmission  expenses  of $13.4  million  partially  offset by $4.0  million in
reduced  administrative and general expenses.  The higher transmission  expenses
resulted   primarily  from  a  $6.1  million  change  in  the  CSW  transmission
coordination  agreement,  and the absence in 1999 of a $4.0 million transmission
service  agreement  adjustment  made in 1998 related to the final order in Texas
Commission  Docket No.  17285.  See ITEM 8. NOTE 2.  LITIGATION  AND  REGULATORY
PROCEEDINGS  -  Transmission  Coordination  Agreement  and CPL and WTU Complaint
versus Texas Utilities Electric Company (Docket No. 17285).

      Maintenance  expense  of $45.8  million  in 1999 was $8.8  million  or 24%
higher than 1998 due primarily to higher production and distribution maintenance
expenses. The production maintenance expense increase of $6.8 million related to
scheduled  power  plant  maintenance  as well as the  restart  of a power  plant
generating  unit and an unscheduled  outage.  Distribution  maintenance  expense
increased $1.4 million  primarily from an increase in tree trimming  maintenance
activities in 1999.

      Income tax expense associated with utility operations of $34.2 million for
1999 was $14.9  million,  or 30% lower than 1998 due  primarily to lower taxable
income in 1999 and prior year income tax liability adjustments.

                                   2-116 PSO
<PAGE>

      Interest on long-term  debt was $2.6 million or 9% lower in 1999 than 1998
due  primarily  to the  reacquisition  of $55  million of FMBs  during the third
quarter of 1998.  An increase of $3.0 million on  short-term  debt and other was
primarily a result of  increased  short-term  borrowings  and  interest  expense
related to the changes to CSW's transmission coordination agreement. See ITEM 8.
NOTE 2.  LITIGATION  AND  REGULATORY  PROCEEDINGS  -  Transmission  Coordination
Agreement and NOTE 8. LONG-TERM DEBT.


COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1997

      Net income for common  stock  increased  53% during 1998 to $76.6  million
from $50.1 million in 1997. The increase resulted primarily from higher non-fuel
revenues,  decreased transmission expenses and the absence in 1998 of the impact
of  recording  the  effects  associated  with the  outcome  of the PSO 1997 Rate
Settlement Agreement.  The increase was offset in part by the absence in 1998 of
the $4.2 million gain on the  reacquisition of preferred stock recorded in 1997.
See  ITEM 8.  NOTE 2.  LITIGATION  AND  REGULATORY  PROCEEDINGS  for  additional
information related to the PSO 1997 Rate Settlement Agreement.

      Electric operating revenues were $780.2 million during 1998, a 9% increase
from $712.7 million for the same period in 1997. This increase was due primarily
to higher non-fuel revenues of $39.2 million and fuel-related  revenues of $28.3
million. The increase in non-fuel revenues was due primarily to a 9% increase in
retail MWH sales resulting from warmer weather as well as the absence in 1998 of
a $29.0 million  provision for rate refund.  The increase in revenues was offset
in part by  lower  base  rates  resulting  from  the PSO  1997  Rate  Settlement
Agreement and a decrease in transmission-related revenues resulting from changes
to a transmission  coordination  agreement  pending before the FERC. See ITEM 8.
NOTE 2.  LITIGATION  AND  REGULATORY  PROCEEDINGS  -  Transmission  Coordination
Agreement.  The  increase  in fuel  revenues  was due  primarily  to higher fuel
expense, as discussed below.

      Fuel expense increased $31.0 million, or 11%, during 1998 when compared to
1997 due primarily to a $43.3 million  increase in the recovery of deferred fuel
costs and a 7% increase in generation  due  primarily to higher  weather-related
demand.  The increase in fuel  expense was offset in part by lower  average unit
fuel costs.  The average unit cost of fuel declined from $1.98 per MMbtu in 1997
to $1.77 per MMbtu in 1998 due  primarily  to lower spot market  natural gas and
coal prices.  Purchased  power  expenses  increased 11% to $57.2 million in 1998
from $51.6 million in 1997. This increase was due primarily to higher off-system
and emergency energy purchases associated with higher  weather-related demand in
1998 and a plant outage in the first quarter of 1998,  partially offset by lower
cogeneration purchases.

      Other operating  expenses were $109.4 million in 1998, a decrease of $26.5
million  from $135.9  million in 1997.  The  decrease  was due  primarily to the
absence in 1998 of a  write-off  of  previously  capitalized  energy  efficiency
incentives and the write-off of rate case-related expenses, both associated with
the previously  mentioned rate settlement  agreement.  Also  contributing to the
decline in other operating expenses were lower  transmission  expenses resulting
from a transmission  service agreement  adjustment related to the final order in
Texas Commission Docket No. 17285. See ITEM 8. NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS  - CPL and WTU Complaint  versus Texas  Utilities  Electric  Company
(Docket No. 17285).  The decrease in other operating expenses was offset in part
by additional environmental expenses.

      Maintenance  expenses  increased  10% to $37.0  million in 1998 from $33.6
million  in 1997.  The  increase  was due  primarily  to higher  production  and
distribution maintenance activities.

      Depreciation  and  amortization  expense  decreased  $8.6 million,  or 11%
during 1998 when compared to the prior year.  This decrease was due primarily to
lower  depreciation  rates and the absence in 1998 of a write-off of  regulatory

                                   2-117 PSO
<PAGE>

assets,  both  resulting  from  the PSO 1997  Rate  Settlement  Agreement.  This
decrease was offset in part by higher depreciable plant.

      Taxes,  other than income,  were $29.8 million in 1998, a 4% increase from
$28.8 million in 1997 as a result of higher ad valorem tax expenses.

      Operating  income  taxes were  $49.1  million  in 1998  compared  to $20.8
million in 1997 due primarily to higher pre-tax income in 1998.

      Other income and  deductions  decreased $1.7 million in 1998 when compared
to 1997 primarily as a result of lower miscellaneous non-operating income.

      Interest charges  increased $0.9 million in 1998 when compared to the same
period in 1997 due  primarily to a full year of  distributions  in 1998 on Trust
Preferred Securities offset in part by a decrease in long-term interest expenses
in 1998 as a result of a reduction of long-term  debt  outstanding  during 1998.
See ITEM 8. NOTE 8. LONG-TERM DEBT.



                                   2-118 PSO
<PAGE>
PSO
Consolidated Statements of Income
Public Service Company of Oklahoma

                                          For the Years Ended December 31,
                                          --------------------------------
                                            1999       1998       1997
                                          ---------  ---------------------
                                          (thousands)
  Electric Operating Revenues
    Residential                           $ 294,407  $ 329,058  $ 297,265
    Commercial                              226,687    236,258    226,525
    Industrial                              161,148    162,773    161,974
    Sales for resale                         39,187     27,413     30,896
    Other                                    27,961     24,657     (3,970)
                                            -------    -------    -------
                                            749,390    780,159    712,690
                                            -------    -------    -------
Operating Expenses and Taxes
    Fuel                                    269,316    309,969    278,976
    Purchased power                          74,893     57,222     51,619
    Other operating                         120,123    109,393    135,943
    Maintenance                              45,809     36,981     33,608
    Depreciation and amortization            74,736     72,671     81,227
    Taxes, other than income                 30,519     29,816     28,778
    Income taxes                             34,184     49,099     20,763
                                            -------    -------    -------
                                            649,580    665,151    630,914
                                            -------    -------    -------
Operating Income                             99,810    115,008     81,776
                                            -------    -------    -------
Other Income and (Deductions)
    Allowance for equity funds used during
     construction                              201        860         995
    Charges for investments and plant
     development costs                          --         --        (123)
    Other                                   (1,470)    (1,044)     (1,503)
    Non-operating income taxes               2,215         93       2,280
                                            -------    -------    -------
                                               946        (91)      1,649
                                            -------    -------    -------
Income Before Interest Charges             100,756    114,917      83,425
                                            -------    -------    -------
Interest Charges
    Interest on long-term debt              26,528     29,136      30,474
    Distributions on Trust Preferred
     Securities                              6,000      6,000       3,967
    Interest on short-term debt and other    7,058      4,107       4,100
    Allowance for borrowed funds used
     during construction                    (1,435)    (1,169)     (1,322)
                                            -------    -------    -------
                                            38,151     38,074      37,219
                                            -------    -------    -------

Net Income                                  62,605     76,843      46,206
  Less:  Preferred stock dividends             213        213         364
  Gain on reacquired preferred stock            --         --       4,211
                                            -------    -------    -------
Net Income for Common Stock               $ 62,392   $ 76,630    $ 50,053
                                            =======    =======    =======



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

                                   2-119 PSO
<PAGE>
PSO
Consolidated Statements of Retained Earnings
Public Service Company of Oklahoma
--------------------------------------------------------------------------------
                                               For the Years Ended December 31,
                                              ----------------------------------
                                                 1999         1998        1997
                                              ----------  -----------   --------
                                                          (thousands)

Retained Earnings at Beginning of Year      $ 144,626     $ 136,996   $ 145,943
    Net income for common stock                62,392        76,630      50,053
    Deduct:  Common stock dividends            65,000        69,000      59,000
                                            ----------   -----------   --------
Retained Earnings at End of Year            $ 142,018     $ 144,626   $ 136,996
                                            ==========   ===========   ========








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

                                   2-120 PSO
<PAGE>
PSO
Consolidated Balance Sheets
Public Service Company of Oklahoma
-------------------------------------------------------------------------
                                                  As of December 31,
                                               --------------------------
                                                  1999          1998
                                               -----------   ------------
                                                           (thousands)
ASSETS
Electric Utility Plant
    Production                                  $ 916,889      $ 913,083
    Transmission                                  392,029        378,719
    Distribution                                  897,516        855,277
    General                                       217,368        211,124
    Construction work in progress                  35,903         33,519
                                               -----------   ------------
                                                2,459,705      2,391,722
  Less - Accumulated depreciation               1,114,255      1,082,081
                                               -----------   ------------
                                                1,345,450      1,309,641
                                               -----------   ------------
Current Assets
    Cash                                            3,077          4,670
    Accounts receivable                            34,584         32,916
    Materials and supplies, at average cost        34,289         33,006
    Fuel inventory, at LIFO cost                   24,143         16,441
    Under-recovered fuel costs                      6,469             --
    Accumulated deferred income taxes              19,145         11,789
    Prepayments and other                           1,668          2,881
                                               -----------   ------------
                                                  123,375        101,703
                                               -----------   ------------

Deferred Charges and Other Assets                  75,046         71,384
                                               -----------   ------------
                                               $ 1,543,871   $ 1,482,728
                                               ===========   ============






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

                                   2-121 PSO
<PAGE>

Consolidated Balance Sheets
Public Service Company of Oklahoma
------------------------------------------------------------------------------
                                                     As of December 31,
                                               ------------------------------
                                                  1999               1998
                                               -----------        -----------
CAPITALIZATION AND LIABILITIES                           (thousands)
Capitalization
    Common stock:   $15 par value
        Authorized shares:   11,000,000 shares
        Issued 10,482,000 shares and outstanding
          9,013,000 shares                    $157,230           $157,230
    Paid-in capital                            180,000            180,000
    Retained earnings                          142,018            144,626
                                            -----------        -----------
       Total Common Stock Equity               479,248    52%     481,856    51%
                                            ----------- ------ ----------- -----

    Preferred stock                              5,286   -- %       5,287   -- %
    PSO-obligated, mandatorily redeemable
     preferred securities of subsidiary trust
     holding solely Junior Subordinated
     Debentures of PSO                          75,000     8%      75,000     8%
    Long-term debt                             364,516    40%     384,064    41%
                                            ----------- ------ ----------- -----
       Total Capitalization                    924,050   100%     946,207   100%
                                             ----------- ------ ----------- ----

Current Liabilities
    Long-term debt due within twelve months     20,000                 --
    Advances from affiliates                    79,169             15,892
    Payables to affiliates                      34,043             33,489
    Accounts payable                            44,088             52,888
    Customer deposits                           17,752             17,368
    Accrued taxes                               18,480             23,095
    Accrued interest                             5,420              7,606
    Over-recovered fuel costs                       --             15,240
    Other                                        5,085              6,599
                                            -----------        -----------
                                               224,037            172,177
                                            -----------        -----------
Deferred Credits
    Accumulated deferred income taxes          302,727            277,181
    Investment tax credits                      37,574             39,365
    Income tax related regulatory
     liabilities, net                           32,826             35,818
    Other                                       22,657             11,980
                                            -----------        -----------
                                               395,784            364,344
                                            -----------        -----------
                                            $1,543,871         $ 1,482,728
                                            ===========        ===========






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

                                   2-122 PSO
<PAGE>
PSO
Consolidated Statements of Cash Flows
Public Service Company of Oklahoma
-----------------------------------------------------------------------------
                                             For the Years Ended December 31,
                                             --------------------------------
                                               1999       1998        1997
                                             --------  ----------  ----------
                                                       (thousands)
OPERATING ACTIVITIES
    Net Income                               $ 62,605   $ 76,843    $ 46,206
    Non-cash Items Included in Net Income
        Depreciation and amortization          77,472     75,693      85,459
        Deferred income taxes and investment
         tax credtis                           13,407    (3,488)       6,169
        Charges for investments and assets         --     4,159       12,803
        Inventory reserve                          --        --          838
    Changes in Assets and Liabilities
        Accounts receivable                    (1,668)  (13,308)     (11,190)
        Fuel inventory                         (7,702)   (5,014)       2,634
        Accounts payable                       (9,604)    4,895        1,009
        Payables to affiliates                    554    (2,314)       7,916
        Accrued taxes                          (4,615)   23,095      (12,306)
        Other deferred credits                 10,677     5,865         (585)
        Fuel recovery                         (21,709)   30,605      (12,715)
        Other                                  (6,825)   (3,938)      (4,584)
                                              -------- ----------  ----------
                                              112,592   193,093      121,654
                                             --------  ----------  ----------
INVESTING ACTIVITIES
    Construction expenditures                (103,122)  (68,897)     (79,568)
    Other                                      (8,659)   (8,271)      (6,008)
                                             --------  ----------  ----------
                                             (111,781)  (77,168)     (85,576)
                                             --------  ----------  ----------
FINANCING ACTIVITIES
    Proceeds from issuance of long-term debt   33,232        --          --
    Reacquisition of long-term debt           (33,700)  (55,231)         --
    Redemption of preferred stock                  (1)       --     (10,329)
    Proceeds from issuance of Trust Preferred
     Securities                                    --        --       72,450
    Change in advances from affiliates         63,277     11,018     (37,993)
    Payment of dividends                      (65,212)   (69,213)    (59,514)
                                             --------  ----------  ----------
                                               (2,404)  (113,426)    (35,386)
                                             --------  ----------  ----------

Net Change in Cash and Cash Equivalents        (1,593)      2,499         692
Cash and Cash Equivalents at Beginning of
   Year                                         4,670       2,171       1,479
                                             --------  ----------  ----------
Cash and Cash Equivalents at End of Year      $ 3,077     $ 4,670     $ 2,171
                                             ========  ==========  ==========

SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized
    (includes distributions on Trust
     Preferred Securities                    $ 37,081    $ 37,772    $ 35,557
                                             ========  ==========  ==========
    Income taxes paid                        $ 23,871    $ 33,712    $ 34,244
                                             ========  ==========  ==========





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

                                   2-123 PSO
<PAGE>
PSO
Consolidated Statements of Capitalization
Public Service Company of Oklahoma
--------------------------------------------------------------------------------
                                                           As of December 31,
                                                          ----------------------
                                                            1999        1998
                                                          ----------  ----------
                                                               (thousands)
COMMON STOCK EQUITY                                        $479,248    $481,856
                                                          ----------  ----------

PREFERRED STOCK
(Cumulative $100 Par Value, Authorized 700,000
    shares, redeemable at the option of PSO
    upon 30 days notice)
                           Number           Current
                           of Shares        Redemption
Series                     Outstanding       Price
----------------------------------------------------

    4.00%                   44,631          $105.75           4,463       4,464
    4.24%                    8,069          $103.19             807         807
Premium                                                          16          16
                                                          ----------  ----------
                                                              5,286       5,287
                                                          ----------  ----------

TRUST PREFERRED SECURITIES
    PSO-obligated, mandatorily redeemable preferred
        securities of subsidiary trust holding solely
        Junior Subordinated Debentures of PSO, 8.00%,
        due April 30, 2037                                   75,000      75,000
                                                          ----------  ----------

LONG-TERM DEBT
First Mortgage Bonds
    Series S, 7 1/4%, due July 1, 2003                       65,000      65,000
    Series T, 7 3/8%, due December 1, 2004                   50,000      50,000
    Series U, 6 1/4%, due April 1, 2003                      35,000      35,000
    Series V, 7 3/8%, due April 1, 2023                     100,000     100,000
    Series W, 6 1/2%, due June 1, 2005                       50,000      50,000
Medium-term Notes, 5.89%-6.43%, due December 15, 2000
    March 1, 2001                                            40,000      40,000
Installment sales agreement - PCRBs *
    Series A, 5.9%, due December 1, 2007 (OEFA)              34,700      34,700
    Series 1996, 6.0%, due June 1, 2020 (Red River)          12,660      12,660
Unamortized discount                                         (2,844)     (3,296)
Amounts to be redeemed within one year                      (20,000)         --
                                                          ----------  ----------
                                                            364,516     384,064
                                                          ----------  ----------
TOTAL CAPITALIZATION                                       $924,050    $946,207
                                                          ==========  ==========

*Obligations incurred in connection with the sale by public authorities of
  tax-exempt PCRBs.




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


                                   2-124 PSO
<PAGE>


PUBLIC SERVICE COMPANY OF OKLAHOMA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      See CSW's NOTE 1.

2.    LITIGATION AND REGULATORY PROCEEDINGS
      See CSW's NOTE 2.

3.    COMMITMENTS AND CONTINGENT LIABILITIES
      See CSW's NOTE 3.

4.    INCOME TAXES
      See CSW's NOTE 4.

5.    BENEFIT PLANS
      See CSW's NOTE 5.

6.    JOINTLY OWNED ELECTRIC UTILITY PLANT
      See CSW's NOTE 6.

7.    FINANCIAL INSTRUMENTS
      See CSW's NOTE 7.

8.    LONG-TERM DEBT
      See CSW's NOTE 8.

9.    PREFERRED STOCK
      See CSW's NOTE 9.

10.   TRUST PREFERRED SECURITIES
      See CSW's NOTE 10.

11.   SHORT-TERM FINANCING
      See CSW's NOTE 11.

12.   STOCK BASED COMPENSATION PLANS
      See CSW's NOTE 13.

13.   NEW ACCOUNTING STANDARDS
      See CSW's NOTE 17.

                                   2-125 PSO
<PAGE>


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of Public Service Company of
Oklahoma:

      We  have  audited  the  accompanying   consolidated   balance  sheets  and
consolidated  statements of capitalization of Public Service Company of Oklahoma
(an Oklahoma corporation and a wholly-owned subsidiary of Central and South West
Corporation) and subsidiary  companies as of December 31, 1999 and 1998, and the
related consolidated  statements of income, retained earnings and cash flows for
each of the three years in the period ended December 31, 1999.  These  financial
statements  are the  responsibility  of Public  Service  Company  of  Oklahoma's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

      In our opinion,  the consolidated  financial  statements referred to above
present  fairly,  in all material  respects,  the  financial  position of Public
Service Company of Oklahoma and subsidiary companies as of December 31, 1999 and
1998,  and the results of their  operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.





Arthur Andersen LLP

Dallas, Texas
February 25, 2000

                                   2-126 PSO
<PAGE>


REPORT OF MANAGEMENT

      Management is responsible for the  preparation,  integrity and objectivity
of the consolidated  financial  statements of Public Service Company of Oklahoma
and its  subsidiary  companies  as well as other  information  contained in this
annual  report.  The  consolidated  financial  statements  have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis and,  in some  cases,  reflect  amounts  based on the best  estimates  and
judgments of management,  giving due  consideration  to  materiality.  Financial
information contained elsewhere in this annual report is consistent with that in
the consolidated financial statements.

      The  consolidated   financial   statements  have  been  audited  by  PSO's
independent  public  accountants  who  were  given  unrestricted  access  to all
financial  records  and  related  data,  including  minutes of all  meetings  of
shareholders,  the board of directors and  committees of the board.  PSO and its
subsidiaries  believe  that  representations  made  to  the  independent  public
accountants  during  their  audit  were  valid and  appropriate.  The  report of
independent public accountants is presented elsewhere in this report.

      PSO,  together  with its  subsidiary  companies,  maintains  a  system  of
internal controls to provide reasonable assurance that transactions are executed
in accordance with management's  authorization,  that the consolidated financial
statements  are  prepared  in  accordance  with  generally  accepted  accounting
principles and that the assets of the companies are properly safeguarded against
unauthorized acquisition,  use or disposition.  The system includes a documented
organizational  structure and division of responsibility,  established  policies
and procedures  including a policy on ethical  standards which provides that PSO
will  maintain  the  highest  legal  and  ethical  standards,  and  the  careful
selection, training and development of our employees.

      Internal auditors  continuously  monitor the effectiveness of the internal
control  system  following  standards  established  by the Institute of Internal
Auditors. Actions are taken by management to respond to deficiencies as they are
identified. The board, operating through its audit committee, which is comprised
entirely  of  directors  who  are  not  officers  or  employees  of  PSO  or its
subsidiaries, provides oversight to the financial reporting process.

      Due to the inherent limitations in the effectiveness of internal controls,
no internal control system can provide  absolute  assurance that errors will not
occur. However,  management strives to maintain a balance,  recognizing that the
cost of such a system should not exceed the benefits derived.

      PSO and its  subsidiaries  believe that, in all material  respects,  their
system of internal  control over financial  reporting and over  safeguarding  of
assets  against  unauthorized   acquisition,   use  or  disposition   functioned
effectively as of December 31, 1999.






T. D. Churchwell                                            R. Russell Davis
President - PSO                                             Controller - PSO

2-127 PSO
<PAGE>








                              SOUTHWESTERN ELECTRIC
                                  POWER COMPANY



                                  2-128 SWEPCO
<PAGE>

SELECTED FINANCIAL DATA

      The  following  selected  financial  data for each of the five years ended
December  31 is  provided  to  highlight  significant  trends  in the  financial
condition and results of operations for SWEPCO. SWEPCO recorded an extraordinary
loss as a  result  of  legislation  passed  in  Texas  and  Arkansas  where  the
electricity generation portion of SWEPCO's business no longer meets the criteria
to apply SFAS No. 71.  Certain  financial  statement  items for prior years have
been reclassified to conform to the most recent period presented.
<TABLE>
<CAPTION>

                                         1999 (1)    1998 (1)    1997 (1)      1996       1995
                                                     (thousands, except ratios)
<S>                                      <C>         <C>         <C>         <C>         <C>

INCOME STATEMENT DATA
Revenues                                 $965,027    $952,952    $939,869    $920,786    $836,705
Income Before Extraordinary Item           86,666      98,103      92,902      66,566     117,114
Extraordinary Loss                         (3,011)         --          --          --          --
Net Income for Common Stock                83,426      96,542      92,254      63,503     113,870

BALANCE SHEET DATA
Assets                                  2,107,798   2,081,391   2,134,619   2,141,999   2,159,793
Long-term obligations (2)                 605,973     653,741     723,554     672,458     675,653
Capitalization ratios
     Common stock equity                       52%         51%         49%         50%         49%
     Preferred stock                           --          --           2           4           4
     Trust Preferred Securities                 9           8           8          --          --
     Long-term debt                            39          41          41          46          47
Ratios of earnings to fixed charges
 (SEC Method)                                2.97        3.53        3.46        2.81        3.80
</TABLE>

(1) See  SOUTHWESTERN  ELECTRIC POWER COMPANY - RESULTS OF OPERATIONS for major
    factors affecting earnings.
(2) Long-term obligations include long-term debt and Trust Preferred Securities.


                                  2-129 SWEPCO
<PAGE>

SOUTHWESTERN ELECTRIC POWER COMPANY
RESULTS OF OPERATIONS

      Reference is made to SWEPCO's Consolidated  Financial Statements,  related
Notes  to  Consolidated   Financial  Statements  and  Selected  Financial  Data.
Referenced  information  should be read in conjunction with, and is essential in
understanding, the following discussion and analysis.


COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 AND 1998

      SWEPCO's net income for common stock for 1999 was $83.4 million, which was
$13.1 million,  or 14% lower than in 1998. The decrease resulted  primarily from
increased  other  operating  and  maintenance  expenses,  the write-off of Cajun
acquisition   expenses,   increased  interest  charges  and  the  effect  of  an
extraordinary loss offset in part by increased electric operating revenues.

      Electric operating  revenues for 1999 were $965.0 million,  which is $12.1
million higher than in 1998. This increase resulted from increased  fuel-related
revenues  of $3.1  million due to higher fuel  expense  and  purchased  power as
discussed in the following  paragraph  and  increased  sales for resale to other
utilities  of $14.2  million as a result of  increased  demand.  The increase in
revenues was also affected by the absence in 1999 of a $3.9 million transmission
service  agreement  adjustment  in 1998  related  to the  final  order  in Texas
Commission  Docket No.  17285.  See ITEM 8. NOTE 2.  LITIGATION  AND  REGULATORY
PROCEEDINGS  - CPL AND WTU Complaint  versus Texas  Utilities  Electric  Company
(Docket No. 17285). Additionally,  revenues were affected by the absence in 1999
of a 1998 provision for rate refund of $5.3 million primarily in connection with
the annual determination of cost of service formula rates for SWEPCO's wholesale
customers and a reversal in 1999 of a previous provision for rate refund of $1.7
million.  Also affecting revenues was the absence in 1999 of a 1998 reduction in
fuel revenues of $3.2 million in  accordance  with a Texas  Commission  order in
SWEPCO's  fuel  reconciliation   regarding  transmission   equalization  expense
recovery.  These increases were partially  offset by decreased  non-fuel-related
revenues of $5.3  million and a $7.5  million  adjustment  related to changes to
CSW's transmission  coordination  agreement.  See ITEM 8. NOTE 2. LITIGATION AND
REGULATORY PROCEEDINGS - Transmission  Coordination Agreement.  Non-fuel-related
retail revenues were affected by a 3% decrease in retail MWH sales due primarily
to decreased  weather-related  customer demand.  Revenues in 1999 also decreased
due to a $6.5  million  charge to reflect the excess  earnings  provision of the
Texas Legislation.  See ITEM 8. NOTE 2. LITIGATION AND REGULATORY  PROCEEDINGS -
Electric Utility Restructuring Legislation.

      Fuel and purchased power expense  increased in 1999 compared to 1998. Fuel
expense  increased  $8.2 million,  or 2% due primarily to an increase in average
unit  fuel  costs and a 3%  increase  in  generation.  Average  unit fuel  costs
increased  from $1.63 per MMbtu in 1998 to $1.66 per MMbtu in 1999 due primarily
to higher spot  market  natural gas  prices.  Fuel  expense was  affected by the
absence in 1999 of a transmission  service agreement  adjustment in 1998 related
to the final order in Texas  Commission  Docket No.  17285.  See ITEM 8. NOTE 2.
LITIGATION  AND  REGULATORY  PROCEEDINGS  - CPL and WTU  Complaint  versus Texas
Utilities Electric Company (Docket No. 17285). Purchased power expenses for 1999
increased $1.9 million,  or 5%, compared to 1998 due primarily to an increase in
economy energy purchases.

      Other operating expenses for 1999 were $141.7 million, an increase of $1.2
million   compared  to  1998  as  a  result  of   increased   transmission   and
customer-related  expenses.  The  increase  was offset in part by a decrease  in
administrative and general expenses.  The increase in transmission  expenses was
due to the absence in 1999 of a  transmission  service  agreement  adjustment in
1998 related to the final order in Texas  Commission  Docket No. 17285. See ITEM
8. NOTE 2. LITIGATION AND REGULATORY  PROCEEDINGS - CPL and WTU Complaint versus

                                  2-130 SWEPCO
<PAGE>

Texas Utilities Electric Company (Docket No. 17285).  Transmission expenses were
also affected by expenses related to changes to CSW's transmission  coordination
agreement.  See  ITEM  8.  NOTE  2.  LITIGATION  AND  REGULATORY  PROCEEDINGS  -
Transmission  Coordination Agreement. The decrease in administrative and general
expenses was due  primarily to  establishment  of certain  regulatory  assets in
connection with the settlement and approval of rate  proceedings in Arkansas and
Louisiana.  See ITEM 7. MD&A - RATES AND REGULATORY  MATTERS and ITEM 8. NOTE 2.
LITIGATION AND REGULATORY  PROCEEDINGS - SWEPCO Louisiana Rate Review and SWEPCO
Arkansas Rate Review.  Administrative and general expenses were also affected by
lower employee-related expenses in 1999.

      Maintenance  expenses for 1999 were $64.2 million,  which was $13 million,
or 25%  higher  than  1998.  This  increase  was  due to  higher  power  station
maintenance,  increased  tree-trimming  maintenance  and  higher  overhead  line
maintenance.

      Depreciation  and amortization  expenses for 1999 were $102.3 million,  an
increase of $3.9 million, or 4% when compared to 1998 due primarily to increased
depreciable plant.

      Taxes,  other than income for 1999 were $53.8 million,  a decrease of $3.3
million,  or 6% below 1998.  This decrease was due primarily to lower ad valorem
taxes.

      Income tax expenses  associated with utility  operations  during 1999 were
$38.5  million,  which  decreased  $9.5 million,  or 20% compared to 1998 due to
lower taxable income and prior year income tax liability adjustments.

      Other income and deductions  decreased as a result of the write-off in the
third quarter of 1999 of Cajun acquisition expenses of $3.7 million, net of tax.
See ITEM 8. NOTE 2. LITIGATION AND REGULATORY  PROCEDURES - Withdrawal of SWEPCO
Cajun Asset Proposal.

      Interest  charges for 1999 were $58.9 million an increase of $3.8 million,
or 7% when  compared to 1998 due  primarily  to increased  levels or  short-term
borrowing and additional  interest  expense in connection  with changes to CSW's
transmission  coordination  agreement.  See  ITEM  8.  NOTE  2.  LITIGATION  AND
REGULATORY PROCEEDINGS - Transmission Coordination Agreement.

      The  extraordinary loss  of $3.0 million  was the  result  of  legislation
passed in Texas  and  Arkansas  where  the  electricity  generation  portion  of
SWEPCO's business no longer meets the criteria to apply SFAS No. 71. See ITEM 8.
NOTE 2. LITIGATION AND REGULATORY  PROCEEDINGS - Electric Utility  Restructuring
Legislation and ITEM 8. NOTE. 16. EXTRAORDINARY ITEMS.


COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 AND 1997

      Net income for common stock increased 5% during 1998 to $96.5 million from
$92.3 million in 1997. The increase resulted  primarily from increased  non-fuel
revenue and the absence in 1998 of certain operating expense charges in 1997.

      Electric operating revenues increased $13.1 million,  to $953.0 million in
1998 from $939.9  million in 1997.  The  increase  was due  primarily  to higher
non-fuel   revenues  of  $26.8   million   resulting   from  a  5%  increase  in
weather-related  MWH sales.  The  increase in electric  operating  revenues  was
offset in part by a transmission  service  agreement  adjustment  related to the
final order in Texas Commission Docket No. 17285, a provision for rate refund of
$5.3 million  primarily in connection with the annual  determination  of cost of
service  formula  rates for  SWEPCO's  wholesale  customers  and a $3.2  million
reduction  in fuel  revenues  in  accordance  with a Texas  Commission  order in
SWEPCO's  fuel  reconciliation   regarding  transmission   equalization  expense
recovery.  See ITEM 8. NOTE 2.  LITIGATION AND REGULATORY  PROCEEDINGS - CPL and

                                  2-131 SWEPCO
<PAGE>

WTU - Complaint  versus Texas  Utilities  Electric  Company  (Docket No. 17285).
Electric operating revenues were also affected by a decrease in fuel revenues of
$1.3 million.

      Fuel expense  decreased  $11.0  million for 1998 when compared to 1997 due
primarily  to a decrease  in average  unit fuel costs for natural gas from $1.69
per MMbtu in 1997 to $1.63 per  MMbtu in 1998 as a result of lower  priced  spot
market natural gas. The decrease in fuel expenses was offset in part as a result
of a transmission  service  agreement  adjustment  related to the final order in
Texas Commission Docket No. 17285. See ITEM 8. NOTE 2. LITIGATION AND REGULATORY
PROCEEDINGS  - CPL and WTU Complaint  Versus Texas  Utilities  Electric  Company
(Docket No. 17285). Fuel expense was also affected by an increase in natural gas
generation  associated  with  weather-related  demand.  Purchased  power expense
increased $9.6 million for 1998 compared to 1997 due primarily to an increase in
economy energy purchases.

      Other operating expenses decreased $16.7 million, or 11% to $140.5 million
during  1998  when  compared  to  1997.  The  decrease  is  due  primarily  to a
transmission  service agreement  adjustment  related to the final order in Texas
Commission  Docket No.  17285.  See ITEM 8. NOTE 2.  LITIGATION  AND  REGULATORY
PROCEEDINGS  - CPL and WTU Complaint  versus Texas  Utilities  Electric  Company
(Docket No.  17285).  The decrease  was also  affected by the absence in 1998 of
costs in 1997 associated with a canceled  transmission project of $10.2 million,
the write-off of previously  capitalized  energy  efficiency  incentives of $4.2
million and the write-off of obsolete  inventory of $1.2  million.  The decrease
was offset in part by  increased  expenses  in 1998  related  to a  transmission
coordination   agreement.   See  ITEM  8.  NOTE  2.  LITIGATION  AND  REGULATORY
PROCEEDINGS - Transmission Coordination Agreement.

      Maintenance  expenses  increased  $7.2  million,  or  16% as a  result  of
increased   power  station   maintenance,   wind  storm  damage  and  additional
tree-trimming maintenance expenses.

      Depreciation and amortization expense increased $3.3 million, or 3% during
1998 when  compared  to 1997 due  primarily  to  increases  in  depreciable  and
amortizable plant.  Operating income taxes increased $8.3 million,  or 21%, as a
result of increased pre-tax income.

      Other income and  deductions  decreased  $1.6 million for 1998 compared to
1997 due  primarily to the absence in 1998 of a $ 1.1 million,  net of tax, gain
on the sale of lignite properties recorded in 1997.

      Interest charges  increased $4.6 million due primarily to distributions on
Trust Preferred Securities, which were outstanding for a portion of 1997.


                                  2-132 SWEPCO
<PAGE>

SWEPCO
Consolidated Statements of Income
Southwestern Electric Power Company
--------------------------------------------------------------------------------
                                                For the Years Ended December 31,
                                                ---------------------------
                                                  1999      1998       1997
                                                --------  ---------  ---------
                                                       (thousands)
Electric Operating Revenues
    Residential                                 $294,743   $314,600   $289,723
    Commercial                                   198,222    197,737    192,115
    Industrial                                   255,038    253,458    263,207
    Sales for resale                             172,076    139,869    146,916
    Other                                         44,948     47,288     47,908
                                                --------  ---------  ---------
                                                 965,027    952,952    939,869
                                                --------  ---------  ---------
Operating Expenses and Taxes
    Fuel                                         379,597    371,414    382,404
    Purchased power                               37,371     35,483     25,928
    Other operating                              141,674    140,460    157,188
    Maintenance                                   64,241     51,219     44,038
    Depreciation and amortization                102,331     98,479     95,228
    Taxes, other than income                      53,783     57,128     55,962
    Income taxes                                  38,506     47,982     39,712
                                                --------  ---------  ---------
                                                 817,503    802,165    800,460
                                                --------  ---------  ---------

Operating Income                                 147,524    150,787    139,409
                                                 --------  ---------  ---------

Other Income and (Deductions)
    Charges for investments and plant development
     costs                                            --        --        (743)
    Allowance for equity funds used during
     construction                                     35     1,336         934
    Other                                         (6,826)     (753)      1,616
    Non-operating income taxes                     4,826     1,868       2,222
                                                --------  ---------  ---------
                                                  (1,965)    2,451       4,029
                                                --------  ---------  ---------

Income Before Interest Charges                   145,559   153,238     143,438
                                                --------  ---------  ---------

Interest Charges
    Interest on long-term debt                    38,380    39,233      40,440
    Distributions on Trust Preferred Securities    8,662     8,662       5,582
    Interest on short-term debt and other         13,800     8,591       5,736
    Allowance for borrowed funds used during
     construction                                 (1,949)   (1,351)     (1,222)
                                                --------  ---------  ---------
                                                  58,893    55,135      50,536
                                                --------  ---------  ---------

Income Before Extraordinary Item                  86,666    98,103      92,902

Extraordinary Loss (net of tax of $1,621)         (3,011)       --          --
                                                --------  ---------  ---------

Net Income                                        83,655    98,103      92,902
    Less: Preferred stock dividends                  229       705       2,467
    Gain (Loss) on reacquired preferred stock         --      (856)      1,819
                                                --------  ---------  ---------
Net Income for Common Stock                     $ 83,426  $ 96,542    $ 92,254
                                                ========  =========  =========






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

2-133 SWEPCO
<PAGE>
SWEPCO
Consolidated Statements of Retained Earnings
Southwestern Electric Power Company
--------------------------------------------------------------------------------
                                                For the Years Ended December 31,
                                                --------------------------------
                                                  1999       1998        1997
                                                ---------  ---------   ---------
                                                          (thousands)

Retained Earnings at Beginning of Year          $300,592   $324,050    $321,801
    Net income for common stock                   83,426     96,542      92,254
    Loss on reacquisition of preferred stock         --         --          (5)
    Deduct:  Common stock dividends               96,000    120,000      90,000
                                                ---------  ---------   ---------
Retained Earnings at End of Year                $288,018   $300,592    $324,050
                                                =========  =========   =========















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

                                  2-134 SWEPCO
<PAGE>
SWEPCO
Consolidated Balance Sheets
Southwestern Electric Power Company

                                                         As of December 31,
                                                      -------------------------
                                                         1999          1998
                                                      -----------   -----------
                                                             (thousands)
ASSETS

  Electric Utility Plant
    Production                                        $ 1,402,062   $ 1,397,924
    Transmission                                          484,327       474,035
    Distribution                                          958,318       916,293
    General                                               333,949       321,136
    Construction work in progress                          52,775        48,523
                                                      -----------   -----------
                                                        3,231,431     3,157,911
  Less - Accumulated depreciation                       1,384,242     1,317,057
                                                      -----------   -----------
                                                       1,847,189     1,840,854

Current Assets
    Cash and temporary cash investments                    2,018         4,444
    Accounts receivable                                   45,511        33,014
    Receivables from affiliates                            6,053         7,416
    Materials and supplies, at average cost               26,420        25,135
    Fuel inventory, at average cost                       60,844        40,238
    Accumulated deferred income taxes                      1,583         4,869
    Prepayments and other                                 16,978        16,651
                                                      -----------   -----------
                                                         159,407       131,767
                                                      -----------   -----------

Deferred Charges and Other Assets                        101,202       108,770
                                                      -----------   -----------
                                                      $ 2,107,798   $ 2,081,391
                                                      ===========   ===========





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

                                  2-135 SWEPCO
<PAGE>
SWEPCO
Consolidated Balance Sheets
Southwestern Electric Power Company
<TABLE>
<CAPTION>

                                                         As of December 31,
                                                     ---------------------------
                                                       1999              1998
                                                     ---------         ---------
CAPITALIZATION AND LIABILITIES                               (thousands)
<S>                                                  <C>        <C>    <C>       <C>

Capitalization
    Common stock:   $18 par value
        Authorized:   7,600,000 shares
        Issued and outstanding: 7,536,640 shares     $ 135,660         $ 135,660
    Paid-in capital                                    245,000           245,000
    Retained earnings                                  288,018           300,592
                                                     ---------         ---------
        Total Common Stock Equity                      668,678   52%     681,252  51%
                                                     ---------  ----   --------- ----
    Preferred stock                                      4,706   --%       4,707  --%

    SWEPCO-obligated, mandatorily redeemable
         preferred securities of subsidiary trust
         holding solely Junior Subordinated
         Debentures of SWEPCO                          110,000    9%     110,000   8%
    Long-term debt                                     495,973   39%     543,741  41%
                                                     ---------  ----   --------- ----
        Total Capitalization                         1,279,357  100%   1,339,700  100%
                                                     ---------  ----   --------- ----
Current Liabilities
    Long-term debt due within twelve months             45,595            43,932
    Advances from affiliates                           140,897            40,705
    Accounts payable                                    60,689            73,507
    Payables to affiliates                              37,353            37,795
    Customer deposits                                   14,236            13,316
    Accrued taxes                                       24,374            23,189
    Accrued interest                                     9,792            14,275
    Over-recovered fuel costs                            2,888             5,378
    Other                                               13,874            12,538
                                                     ---------         ---------
                                                       349,698           264,635
                                                     ---------         ---------
Deferred Credits
    Accumulated deferred income taxes                  380,495           398,664
    Investment tax credits                              57,649            62,213
    Other                                               40,599            16,179
                                                     ---------         ---------
                                                       478,743           477,056
                                                     ---------         ---------
                                                   $ 2,107,798       $ 2,081,391
                                                     =========         =========

</TABLE>


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


2-136 SWEPCO
<PAGE>
SWEPCO
Consolidated Statements of Cash Flows
Southwestern Electric Power Company
                                                For the Years Ended December 31,
                                                --------------------------------
                                                  1999       1998       1997
                                                ---------   ---------  ---------
                                                          (thousands)
OPERATING ACTIVITIES
    Net Income                                   $ 83,655   $ 98,103   $ 92,902
    Non-cash Items Included in Net Income
        Depreciation and amortization            107,863    104,047    100,015
        Deferred income taxes and investment
          tax credits                            (21,663)   (16,481)    (6,907)
        Extraordinary Loss related to SFAS No.71   3,011         --         --
        Charges for investments and assets            --      2,140     16,493
        Inventory reserve                             --         --      1,150
    Changes in Assets and Liabilities
        Accounts receivable                      (11,134)    41,077    (13,367)
        Fuel inventory                           (20,606)   (13,823)    29,360
        Accounts payable                         (12,240)       260     24,374
        Payables to affiliates                      (442)   (25,788)    (5,125)
        Accrued taxes                              1,185     10,305    (12,357)
        Other current liabilities                  1,336      2,987    (17,699)
        Fuel recovery                             (2,490)    18,391     (3,893)
        Other deferred credits                    24,420      8,067     (1,851)
        Other                                      2,047     (2,822)    (2,607)
                                                ---------   ---------  ---------
                                                 154,942    226,463    200,488
                                                ---------   ---------  ---------
INVESTING ACTIVITIES
    Construction expenditures                    (111,019)  (83,120)  (108,126)
    Other                                         (4,167)    (5,202)    (4,545)
                                                ---------   ---------  ---------
                                                 (115,186)  (88,322)  (112,671)
                                                ---------   ---------  ---------
FINANCING ACTIVITIES
    Redemption of preferred stock                     (1)   (27,988)   (16,043)
    Proceeds from issuance of Trust Preferred
      Securities                                      --         --    106,231
    Retirement of long-term debt                 (46,144)    (2,354)   (52,600)
    Change in advances from affiliates           100,192     15,530    (32,320)
    Payment of dividends                         (96,229)  (121,183)   (92,666)
                                                ---------   ---------  ---------
                                                 (42,182)  (135,995)   (87,398)
                                                ---------   ---------  ---------

Net Change in Cash and Cash Equivalents           (2,426)     2,146        419
Cash and Cash Equivalents at Beginning of Year     4,444      2,298      1,879
                                                ---------   ---------  ---------
Cash and Cash Equivalents at End of Year         $ 2,018    $ 4,444    $ 2,298
                                                =========   =========  =========
SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized
    (includes distributions on Trust Preferred
     Securities                                 $ 55,254   $ 50,341   $ 49,847
                                                =========  =========   =========
    Income taxes paid                           $ 55,677   $ 57,977   $ 57,715
                                                =========  =========   =========


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


                                  2-137 SWEPCO
<PAGE>
SWEPCO
Consolidated Statements of Capitalization
Southwestern Electric Power Company
----------------------------------------------------------------------------
                                                        As of December 31,
                                                       ---------------------
                                                         1999        1998
                                                       ---------   ---------
                                                           (thousands)
COMMON STOCK EQUITY                                    $ 668,678   $ 681,252
                                                       ---------   ---------

PREFERRED STOCK
Cumulative $100 Par Value, Authorized 1,860,000 shares

                        Number of Shares  Current
Series                  Outstanding       Redemption Price
----------------------------------------------------------
Not Subject to Mandatory Redemption
   5.00%                 37,727           $109.00         3,772       3,773
   4.65%                  1,907           $102.75           191         191
   4.28%                  7,386           $103.90           739         739
Premium                                                       4           4
                                                       ---------   ---------
                                                          4,706       4,707
                                                       ---------   ---------

TRUST PREFERRED SECURITIES
    SWEPCO-obligated, mandatorily redeemable preferred
        securities of subsidiary trust holding solely
        Junior Subordinated Debentures of SWEPCO,
        7.875%, due April 30, 2037                       110,000     110,000
                                                       ---------   ---------


LONG-TERM DEBT
First Mortgage Bonds
    Series V, 7 3/4%, due June 1, 2004                   40,000      40,000
    Series W, 6 1/8%, due September 1, 1999                  --      40,000
    Series X, 7%, due September 1, 2007                  90,000      90,000
    Series Y, 6 5/8%, due February 1, 2003               55,000      55,000
    Series Z, 7 1/4%, due July 1, 2023                   45,000      45,000
    Series AA, 5 1/4%, due April 1, 2000                 45,000      45,000
    Series BB, 6 7/8%, due October 1, 2025               80,000      80,000
    1976 Series A, 6.20%, due November 1, 2006 (Siloam
      Springs)*                                           5,940       6,085
    1976 Series B, 6.20%, due November 1, 2006 (Siloam
      Springs)*                                           1,000       1,000
Installment Sales Agreements - PCRBs  *
    1978 Series A, 6%, due January 1, 2008 (Titus
      County)                                            13,970      14,420
    1991 Series A, 8.2%, due August 1, 2011 (Titus
      County)                                            17,125      17,125
    1991 Series B, 6.9%, due November 1, 2004 (Titus
      County)                                            12,290      12,290
    Series 1992, 7.6%, due January 1, 2019 (DeSoto)      53,500      53,500
    Series 1996, 6.1%, due April 1, 2018 (Sabine)        81,700      81,700
Railcar lease obligations                                    --       5,549
Unamortized discount and premium                          1,043       1,004
Amount to be redeemed within one year                   (45,595)    (43,932)
                                                       ---------   ---------
                                                        495,973     543,741
                                                       ---------   ---------
TOTAL CAPITALIZATION                                $ 1,279,357 $ 1,339,700
                                                       =========   =========

*Obligations incurred in connection with the sale by public authorities of
 tax-exempt PCRBs.




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


                                  2-138 SWEPCO
<PAGE>


SOUTHWESTERN ELECTRIC POWER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      See CSW's NOTE 1.

2.    LITIGATION AND REGULATORY PROCEEDINGS
      See CSW's NOTE 2.

3.    COMMITMENTS AND CONTINGENT LIABILITIES
      See CSW's NOTE 3.

4.    INCOME TAXES
      See CSW's NOTE 4.

5.    BENEFIT PLANS
      See CSW's NOTE 5.

6.    JOINTLY OWNED ELECTRIC UTILITY PLANT
      See CSW's NOTE 6.

7.    FINANCIAL INSTRUMENTS
      See CSW's NOTE 7.

8.    LONG-TERM DEBT
      See CSW's NOTE 8.

9.    PREFERRED STOCK
      See CSW's NOTE 9.

10.   TRUST PREFERRED SECURITIES
      See CSW's NOTE 10.

11.   SHORT-TERM FINANCING
      See CSW's NOTE 11.

12.   STOCK BASED COMPENSATION PLANS
      See CSW's NOTE 13.

13.   EXTRAORDINARY ITEMS
      See CSW's NOTE 16.

14.   NEW ACCOUNTING STANDARDS
      See CSW's NOTE 17.

                                  2-139 SWEPCO
<PAGE>


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of Southwestern Electric Power
Company:

      We  have  audited  the  accompanying   consolidated   balance  sheets  and
consolidated statements of capitalization of Southwestern Electric Power Company
(a Delaware corporation and a wholly-owned  subsidiary of Central and South West
Corporation)  and  subsidiary  company as of December 31, 1999 and 1998, and the
related consolidated  statements of income, retained earnings and cash flows for
each of the three years in the period ended December 31, 1999.  These  financial
statements are the  responsibility  of  Southwestern  Electric  Power  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

      In our opinion,  the consolidated  financial  statements referred to above
present fairly, in all material respects, the financial position of Southwestern
Electric Power Company and subsidiary  company as of December 31, 1999 and 1998,
and the results of their  operations  and their cash flows for each of the three
years in the period ended  December  31, 1999,  in  conformity  with  accounting
principles generally accepted in the United States.






Arthur Andersen LLP

Dallas, Texas
February 25, 2000


                                  2-140 SWEPCO
<PAGE>

REPORT OF MANAGEMENT

      Management is responsible for the  preparation,  integrity and objectivity
of the consolidated  financial statements of Southwestern Electric Power Company
and its subsidiary company as well as other information contained in this annual
report. The consolidated  financial  statements have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis and,
in some cases,  reflect  amounts  based on the best  estimates  and judgments of
management,  giving due  consideration  to  materiality.  Financial  information
contained  elsewhere  in this  annual  report  is  consistent  with  that in the
financial statements.

      The  consolidated  financial  statements  have been  audited  by  SWEPCO's
independent  public  accountants  who  were  given  unrestricted  access  to all
financial  records  and  related  data,  including  minutes of all  meetings  of
shareholders, the board of directors and committees of the board. SWEPCO and its
subsidiary company believe that  representations  made to the independent public
accountants  during  their  audit  were  valid and  appropriate.  The  report of
independent public accountants is presented elsewhere in this report.

      SWEPCO,  together  with its  subsidiary  company,  maintains  a system  of
internal controls to provide reasonable assurance that transactions are executed
in accordance with management's  authorization,  that the consolidated financial
statements  are  prepared  in  accordance  with  generally  accepted  accounting
principles and that the assets of the companies are properly safeguarded against
unauthorized acquisition,  use or disposition.  The system includes a documented
organizational  structure and division of responsibility,  established  policies
and  procedures  including a policy on ethical  standards  which  provides  that
SWEPCO will  maintain the highest legal and ethical  standards,  and the careful
selection, training and development of our employees.

      Internal auditors  continuously  monitor the effectiveness of the internal
control  system  following  standards  established  by the Institute of Internal
Auditors. Actions are taken by management to respond to deficiencies as they are
identified. The board, operating through its audit committee, which is comprised
entirely  of  directors  who are not  officers  or  employees  of  SWEPCO or its
subsidiary, provides oversight to the financial reporting process.

      Due to the inherent limitations in the effectiveness of internal controls,
no internal control system can provide  absolute  assurance that errors will not
occur. However,  management strives to maintain a balance,  recognizing that the
cost of such a system should not exceed the benefits derived.

      SWEPCO and its subsidiary  believe that, in all material  respects,  their
system of internal  controls over financial  reporting and over  safeguarding of
assets  against  unauthorized   acquisition,   use  or  disposition   functioned
effectively as of December 31, 1999.







Michael H. Madison                                           R. Russell Davis
President - SWEPCO                                           Controller - SWEPCO


                                  2-141 SWEPCO
<PAGE>








                          WEST TEXAS UTILITIES COMPANY





                                   2-141 WTU
<PAGE>



SELECTED FINANCIAL DATA

      The  following  selected  financial  data for each of the five years ended
December  31 is  provided  to  highlight  significant  trends  in the  financial
condition and results of operations for WTU. The extraordinary loss was a result
of legislation passed in Texas where the electricity generation portion of WTU's
business no longer  meets the criteria to apply SFAS No. 71.  Certain  financial
statement  items for prior years have been  reclassified  to conform to the most
recent period presented.
<TABLE>
<CAPTION>

                                         1999 (1)    1998 (1)    1997 (1)     1996      1995
                                                   (thousands, except ratios)
<S>                                      <C>         <C>         <C>         <C>        <C>

INCOME STATEMENT DATA
Revenues                                 $439,709    $424,953    $397,778    $377,057    $319,835
Net Income Before Extraordinary Item       32,232      37,814      21,461      16,571      34,530
Extraordinary loss                         (5,461)         --          --          --          --
Net Income for Common Stock                26,667      37,710      22,402      16,307      34,266

BALANCE SHEET DATA
Assets                                    861,205     819,812     826,858     838,491     845,072
Long-term obligations                     263,686     303,519     303,350     303,182     302,702
Capitalization ratios
     Common stock equity                       49%         46%         46%         46%         46%
     Preferred stock                           --          --          --           1           1
     Long-term debt                            51          54          54          53          53
Ratio of earnings to fixed charges
 (SEC Method)                                2.89        3.33        2.21        2.05        2.63
</TABLE>

(1)  See WEST TEXAS UTILITIES  COMPANY - RESULTS OF OPERATIONS for major factors
     affecting earnings.


                                   2-143 WTU
<PAGE>

WEST TEXAS UTILITIES COMPANY
RESULTS OF OPERATIONS

      Reference  is  made  to  WTU's  Financial  Statements,  related  Notes  to
Financial Statements and Selected Financial Data. Referenced  information should
be read in conjunction  with, and is essential to  understanding,  the following
discussion and analysis.


COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND 1998

      WTU's net income for common  stock for 1999 was $26.7  million,  which was
$11.0 million,  or 29% lower than 1998. The decrease was primarily the result of
an increase in other operating  expense,  maintenance  expense and taxes,  other
than income and the effect of an  extraordinary  loss.  The decrease in earnings
was partially offset by a reduction in income tax expense as well as an increase
in electric operating revenues.

      Electric operating revenues for 1999 were $439.7 million,  which was $14.8
million or 3% higher than in 1998. Fuel-related revenues increased $13.5 million
due to  higher  net  fuel  and  purchased  power  expense  as  discussed  below.
Non-fuel-related  revenues  increased $1.3 million due to increases in wholesale
sales  and   transmission-related   revenues   related  to  CSW's   transmission
coordination   agreement.   See  ITEM  8.  NOTE  2.  LITIGATION  AND  REGULATORY
PROCEEDINGS  - CPL and WTU Complaint  versus Texas  Utilities  Electric  Company
(Docket  No.  17285).  This  increase  was  nearly  offset by a 5%  decrease  in
residential  MWH and a 7% decrease in industrial MWH sales and electric  service
rendered but not yet billed. Revenues were also lower due to a charge to reflect
the excess  earnings  provision  of the Texas  Legislation.  See ITEM 8. NOTE 2.
LITIGATION  AND  REGULATORY   PROCEEDINGS  -  Electric   Utility   Restructuring
Legislation.

      Fuel  expense  was  nearly  unchanged  in  1999  when  compared  to  1998,
increasing  to $123.3  million from $122.8  million.  The average unit fuel cost
increased  from $1.83 per MMbtu in 1998 to $1.98  MMbtu in 1999  primarily  as a
result of an increase in the spot market  price of natural  gas. As as result of
an increase in average unit fuel costs,  generation declined 5%. Purchased power
for 1999 increased to $61.5 million, which was $13.4 million, or 28% higher than
in 1998 due primarily to an unscheduled outage at a coal-fired generating plant.

      Other  operating  expenses  for 1999 were  $93.7  million,  which was $3.8
million,  or 4% higher  than in 1998 due to higher  transmission  expenses.  The
increase  in  transmission  expense  was  due  to  the  absence  in  1999  of  a
transmission  service  agreement  adjustment  made in 1998  related to the final
order in Texas  Commission  Docket No. 17285. See ITEM 8. NOTE 2. LITIGATION AND
REGULATORY  PROCEEDINGS - CPL and WTU Complaint versus Texas Utilities  Electric
Company (Docket No. 17285).

      Maintenance expense for 1999 was $19.6 million,  which was $2.9 million or
18% higher than the comparable  period in 1998 due primarily to increased  power
plant maintenance and overhead line maintenance.

      Taxes,  other than income,  for 1999 increased  $3.6 million,  or 15% when
compared to 1998 primarily due to higher state franchise tax expense.

      Income  taxes  associated  with  utility  operations  for 1999 were  $14.3
million,  which was $6.4 million, or 31% lower than in 1998 as a result of lower
taxable income in 1999 as well as prior year income tax liability adjustments.


                                   2-144 WTU
<PAGE>

      The extraordinary  loss of $5.5 million was a result of legislation passed
in Texas where the  electricity  generation  portion of WTU's business no longer
meets the  criteria  to apply SFAS No. 71.  See ITEM 8. NOTE 2.  LITIGATION  AND
REGULATORY PROCEEDINGS - Electric Utility Restructuring Legislation.


COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1997

      Net income for common stock for 1998 was $37.7  million  compared to $22.4
million for 1997,  an increase of $15.3  million,  or 68%.  The  increase in net
income was due primarily to higher non-fuel revenue. This increase was partially
offset by higher  maintenance  expenses  and income  taxes.  The increase in net
income was also offset in part by the absence in 1998 of the  recognition of the
gain on reacquired preferred stock in 1997.

      Electric  operating  revenues were $425.0 million for 1998, an increase of
$27.2 million, or 7% when compared to the year ended 1997. This increase was due
primarily to an increase in fuel and non-fuel  related  revenues of $4.5 million
and $22.7 million,  respectively.  The increase in non-fuel-related revenues was
due  primarily  to a 4% increase in retail MWH sales  resulting  from  favorable
weather-related  demand.  Included in non-fuel-related  revenues were additional
transmission-related  revenues  resulting  from  changes to open  access  tariff
transmission   and   a   transmission   coordination   agreement.    Conversely,
non-fuel-related  revenues were  decreased by a transmission  service  agreement
adjustment  related to the final order in Texas Commission Docket No. 17285. See
ITEM  8.  NOTE  2.   LITIGATION  AND   REGULATORY   PROCEEDINGS  -  Transmission
Coordination Agreement and CPL and WTU Complaint versus Texas Utilities Electric
Company  (Docket  No.  17285).   The  increase  in  fuel-related   revenues  was
attributable to higher fuel costs as discussed below.

      Fuel  expense  increased  to $122.8  million for 1998 from $119.2  million
compared to 1997 due primarily to a 6% increase in  generation.  The increase in
generation was due largely to a 4% increase in MWH sales.  Partially  offsetting
the increase was lower average unit cost of fuel.  The average unit cost of fuel
declined  from $1.98 per MMbtu in 1997 to $1.83 per MMbtu in 1998.  This decline
in the average unit costs of fuel was due primarily to lower spot market natural
gas and coal prices.  Purchased power expense declined $2.4 million,  or 5%, for
1998 compared to 1997 as a result of decreased economy energy purchases.

      Other  operating  expenses  declined $3.9 million in 1998 when compared to
1997 due  primarily to a reduction in  transmission  expenses  resulting  from a
transmission  service agreement  adjustment  related to the final order in Texas
Commission  Docket No.  17285.  See ITEM 8. NOTE 2.  LITIGATION  AND  REGULATORY
PROCEEDINGS  - CPL and WTU Complaint  Versus Texas  Utilities  Electric  Company
(Docket  No.  17285) for  additional  information  on the  transmission  service
agreement.  Additionally,  other operating  expenses also decreased due to lower
employee-related  expenses. The decrease was offset in part by higher production
related expenses resulting from the increased utilization of generating stations
to meet increased  weather-related  customer demand.  Maintenance  expenses rose
$2.7  million  from  1997  as  a  result  of  increased  unplanned  power  plant
maintenance activity.

      Operating  income  taxes  were $20.6  million  for 1998  compared  to $9.4
million in 1997 for an increase of $11.2  million as a result of higher  pre-tax
income.

      Other income and  deductions  increased $1.2 million due to an increase in
interest   income  on  temporary  cash   investments,   merchandise   sales  and
under-recovered fuel cost.

                                   2-145 WTU
<PAGE>
WTU
Statements of Income
West Texas Utilities Company
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                      For the Years Ended December 31,
                                                      --------------------------------
                                                        1999       1998        1997
                                                      ---------   --------    --------
                                                                (thousands)
<S>                                                   <C>         <C>         <C>

Electric Operating Revenues
    Residential                                       $ 132,486   $134,204    $124,578
    Commercial                                           78,710     76,155      73,196
    Industrial                                           52,195     51,715      56,928
    Sales for resale                                    103,212     97,560      88,814
    Other                                                73,106     65,319      54,262
                                                      ---------   --------    --------
                                                        439,709    424,953     397,778
                                                      ---------   --------    --------
Operating Expenses and Taxes
    Fuel                                                123,348    122,836     119,158
    Purchased power                                      61,532     48,131      50,493
    Other operating                                      93,730     89,924      93,796
    Maintenance                                          19,604     16,666      14,013
    Depreciation and amortization                        44,789     42,750      41,592
    Taxes, other than income                             28,267     24,638      24,669
    Income taxes                                         14,275     20,643       9,490
                                                      ---------   --------    --------
                                                        385,545    365,588     353,211
                                                      ---------   --------    --------
Operating Income                                         54,164     59,365      44,567
                                                      ---------   --------    --------

Other Income and (Deductions)
    Allowance for equity funds used during
      construction                                          362        678         227
    Other                                                 2,984      1,580         766
    Non-operating income taxes                             (858)       454         471
                                                      ---------   --------    --------
                                                          2,488      2,712       1,464
                                                      ---------   --------    --------
Income Before Interest Charges                           56,652     62,077      46,031
                                                      ---------   --------    --------

Interest Charges
    Interest on long-term debt                           20,352     20,352      20,352
    Interest on short-term debt and other                 4,731      4,580       4,911
    Allowance for borrowed funds used during
      construction                                         (663)      (669)       (693)
                                                      ---------   --------    --------
                                                         24,420     24,263      24,570
                                                      ---------   --------    --------

Income Before Extraordinary Item                         32,232     37,814      21,461

Extraordinary Loss (net of tax of $2,941)                (5,461)        --          --
                                                      ---------   --------    --------

Net Income                                               26,771     37,814      21,461

    Less: Preferred stock dividends                         104        104         144
    Gain on reaquired preferred stock                        --         --       1,085
                                                      ---------   --------    --------
Net Income for Common Stock                            $ 26,667   $ 37,710    $ 22,402
                                                      =========   ========    ========

</TABLE>



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

                                   2-146 WTU
<PAGE>
WTU
Statements of Retained Earnings
West Texas Utilities Company
--------------------------------------------------------------------------------
                                                For the Years Ended December 31,
                                                --------------------------------
                                                  1999       1998        1997
                                                ---------  ---------   ---------
                                                          (thousands)

Retained Earnings at Beginning of Year          $117,189   $119,479    $123,077
    Net income for common stock                   26,667     37,710      22,402
    DeductCommon stock dividends                  28,000     40,000      26,000
                                                ---------  ---------   ---------
Retained Earnings at End of Year                $115,856   $117,189    $119,479
                                                =========  =========   =========















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

2-147 WTU
<PAGE>
WTU
Balance Sheets
West Texas Utilities Company
-------------------------------------------------------------------------------
                                                         As of December 31,
                                                      -------------------------
                                                         1999          1998
                                                      -----------   -----------
                                                            (thousands)
ASSETS

  Electric Utility Plant
    Production                                         $ 429,783     $ 429,896
    Transmission                                         220,479       213,630
    Distribution                                         403,206       382,373
    General                                              113,945       108,878
    Construction work in progress                         15,131        11,805
                                                      -----------   -----------
                                                       1,182,544     1,146,582
  Less - Accumulated depreciation                        495,847       473,503
                                                      -----------   -----------
                                                         686,697       673,079
                                                      -----------   -----------
Current Assets
    Cash                                                   3,810         2,093
    Accounts receivable                                   50,579        31,689
    Materials and supplies, at average cost               14,029        14,191
    Fuel inventory, at LIFO cost                          17,133        13,186
    Accumulated deferred income taxes                         --           366
    Under-recovered fuel costs                            14,652         3,980
    Prepayments and other                                  2,883         5,988
                                                      -----------   -----------
                                                         103,086        71,493
                                                      -----------   -----------
Deferred Charges and Other Assets
    Deferred Oklaunion costs                               8,352        14,910
    Other                                                 63,070        60,330
                                                      -----------   -----------
                                                          71,422        75,240
                                                      -----------   -----------

                                                       $ 861,205     $ 819,812
                                                      ===========   ===========









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

                                   2-148 WTU
<PAGE>
WTU
Balance Sheets
West Texas Utilities Company
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                        As of December 31,
                                                    ----------------------------
                                                      1999              1998
                                                    ----------       -----------
CAPITALIZATION AND LIABILITIES                              (thousands)
<S>                                                 <C>        <C>    <C>        <C>

Capitalization
    Common stock:   $25 par value
        Authorized:  7,800,000 shares
        Issued and outstanding: 5,488,560 shares    $ 137,214         $ 137,214
    Paid-in capital                                     2,236             2,236
    Retained earnings                                 115,856           117,189
                                                    ----------       -----------
        Total Common Stock Equity                     255,306   49%     256,639  46%
                                                    ---------- ----- ----------- ----

    Preferred stock                                     2,482      --%    2,482  --%
    Long-term debt                                    263,686   51%     303,519  54%
                                                    ---------- ----- ----------- ----
        Total Capitalization                          521,474  100%     562,640  100%
                                                    ---------- ----- ----------- ----

Current Liabilities
    Long-term debt due within twelve months            40,000                --
    Advances from affiliates                           21,408             4,573
    Payables to affiliates                             18,856            19,917
    Accounts payable                                   39,611            31,473
    Accrued taxes                                      12,458            10,031
    Accumulated deferred income taxes                   1,653                --
    Accrued interest                                    4,165             4,125
    Refund due customers                                6,000                --
    Other                                               4,799             3,797
                                                    ----------       -----------
                                                      148,950            73,916
                                                    ----------       -----------
Deferred Credits
    Accumulated deferred income taxes                 148,746           140,731
    Investment tax credits                             25,323            26,597
    Income tax related regulatory liabilities, net     13,057            12,088
    Other                                               3,655             3,840
                                                    ----------       -----------
                                                      190,781           183,256
                                                    ----------       -----------

                                                    $ 861,205         $ 819,812
                                                    ==========       ===========


</TABLE>


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

                                   2-149 WTU
<PAGE>
WTU
Statements of Cash Flows
West Texas Utilities Company
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                    For the Years Ended December 31,
                                                    ------------------------------
                                                     1999       1998       1997
                                                    --------   --------   --------
                                                             (thousands)
<S>                                                 <C>        <C>         <C>

OPERATING ACTIVITIES
    Net Income                                     $ 26,771   $ 37,814   $ 21,461
    Non-cash Items Included in Net Income
        Depreciation and amortization                44,789     43,826     43,138
        Deferred income taxes and investment tax
         credits                                     10,947     (7,899)    (2,275)
        Extraordinary loss related to SFAS No. 71     5,461         --         --
        Charges for investments and assets               --      1,527      5,296
        Inventory reserve                                --         --      1,498
    Changes in Assets and Liabilities
        Accounts receivable                         (18,890)   (21,119)    13,553
        Fuel inventory                               (3,947)      (715)     4,203
        Fuel recovery                               (10,672)     7,988     (3,007)
        Accounts payable                              8,138      1,952     (4,182)
        Payables to affiliates                       (1,061)    (1,652)     7,991
        Accrued taxes                                 2,427     (1,344)    (2,088)
        Other                                         2,299       (718)     9,658
                                                    --------   --------   --------
                                                     66,262     59,660     95,246
                                                    --------   --------   --------
INVESTING ACTIVITIES
    Construction expenditures                       (49,443)   (36,867)   (31,817)
    Other                                            (3,832)    (5,782)       261
                                                    --------   --------   --------
                                                    (53,275)   (42,649)   (31,556)
                                                    --------   --------   --------
FINANCING ACTIVITIES
    Redemption of preferred stock                        --         --     (2,724)
    Payment of dividends                            (28,105)   (40,104)   (26,184)
    Change in advances from affiliates               16,835      4,573    (14,833)
                                                    --------   --------   --------
                                                    (11,270)   (35,531)   (43,741)
                                                    --------   --------   --------

Net Change in Cash and Cash Equivalents               1,717    (18,520)    19,949
Cash and Cash Equivalents at Beginning of Year        2,093     20,613        664
                                                    --------   --------   --------
Cash and Cash Equivalents at End of Year            $ 3,810    $ 2,093   $ 20,613
                                                    ========   ========   ========

SUPPLEMENTARY INFORMATION
    Interest paid less amounts capitalized         $ 17,577   $ 17,250   $ 19,659
                                                   =========   ========   ========
    Income taxes paid                               $ 3,309   $ 29,533   $ 15,710
                                                   =========   ========   ========

</TABLE>



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

                                   2-150 WTU
<PAGE>

Statements of Capitalization
West Texas Utilities Company
--------------------------------------------------------------------------------
                                                            As of December 31,
                                                           ---------------------
                                                             1999        1998
                                                           ---------   ---------
                                                               (thousands)
COMMON STOCK EQUITY                                        $255,306    $ 256,639
                                                           ---------   ---------

PREFERRED STOCK
Cumulative $100 Par Value, Authorized 810,000 shares
                           Number           Current
                           of Shares        Redemption
Series                     Outstanding      Price
----------------------------------------------------

4.40%                       23,673          $107.00           2,367       2,367
Premium                                                         115         115
                                                           ---------   ---------
                                                              2,482       2,482
                                                           ---------   ---------


LONG-TERM DEBT
First Mortgage Bonds
    Series P, 7 3/4%, due June 1, 2007                       25,000      25,000
    Series Q, 6 7/8%, due October 1, 2002                    35,000      35,000
    Series R, 7%, due October 1, 2004                        40,000      40,000
    Series S, 6 1/8%, due February 1, 2004                   40,000      40,000
    Series T, 7 1/2%, due April 1, 2000                      40,000      40,000
    Series U, 6 3/8%, due October 1, 2005                    80,000      80,000
Installment Sales Agreements - PCRBs  *
    Series 1996, 6%, due June 1,  2020 (Red River)           44,310      44,310
Unamortized discount                                           (624)       (791)
Amount to be redeemed within one year                       (40,000)         --
                                                           ---------   ---------
                                                            263,686     303,519
                                                           ---------   ---------

TOTAL CAPITALIZATION                                       $521,474    $ 562,640
                                                           =========   =========

*Obligations incurred in connection with the sale by public authorities of
 tax-exempt PCRBs.







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

                                   2-151 WTU
<PAGE>


WEST TEXAS UTILITIES COMPANY
NOTES TO FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     See CSW's NOTE 1.

2.   LITIGATION AND REGULATORY PROCEEDINGS
     See CSW's NOTE 2.

3.   COMMITMENTS AND CONTINGENT LIABILITIES
     See CSW's NOTE 3.

4.   INCOME TAXES
     See CSW's NOTE 4.

5.   BENEFIT PLANS
     See CSW's NOTE 5.

6.   JOINTLY OWNED ELECTRIC UTILITY PLANT
     See CSW's NOTE 6.

7.   FINANCIAL INSTRUMENTS
     See CSW's NOTE 7.

8.   LONG-TERM DEBT
     See CSW's NOTE 8.

9.   PREFERRED STOCK
     See CSW's NOTE 9.

10.  SHORT-TERM FINANCING
     See CSW's NOTE 11.

11.  STOCK BASED COMPENSATION PLANS
     See CSW's NOTE 13.

12.  EXTRAORDINARY ITEMS
     See CSW's NOTE 16.

13.  NEW ACCOUNTING STANDARDS
     See CSW's NOTE 17.


                                   2-152 WTU
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of West Texas Utilities Company:

      We  have  audited  the  accompanying  balance  sheets  and  statements  of
capitalization  of West  Texas  Utilities  Company  (a Texas  corporation  and a
wholly-owned  subsidiary of Central and South West  Corporation)  as of December
31, 1999 and 1998, and the related  statements of income,  retained earnings and
cash flows for each of the three years in the period  ended  December  31, 1999.
These  financial  statements  are the  responsibility  of West  Texas  Utilities
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of West Texas Utilities Company
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period  ended  December  31,  1999,  in
conformity with accounting principles generally accepted in the United States.






Arthur Andersen LLP

Dallas, Texas
February 25, 2000

2-153 WTU
<PAGE>

REPORT OF MANAGEMENT

      Management is responsible for the  preparation,  integrity and objectivity
of the  financial  statements of West Texas  Utilities  Company as well as other
information  contained in this annual report. The financial statements have been
prepared in conformity with generally accepted accounting  principles applied on
a  consistent  basis  and,  in some  cases,  reflect  amounts  based on the best
estimates and judgments of management,  giving due consideration to materiality.
Financial  information  contained  elsewhere in this annual report is consistent
with that in the financial statements.

      The financial  statements  have been audited by WTU's  independent  public
accountants  who were given  unrestricted  access to all  financial  records and
related data,  including  minutes of all meetings of shareholders,  the board of
directors and committees of the board. WTU believes that representations made to
the  independent   public   accountants   during  their  audit  were  valid  and
appropriate. The report of independent public accountants is presented elsewhere
in this report.

      WTU  maintains  a  system  of  internal  controls  to  provide  reasonable
assurance  that  transactions  are  executed  in  accordance  with  management's
authorization,  that the financial  statements  are prepared in accordance  with
generally  accepted  accounting  principles and that the assets of the companies
are properly safeguarded against unauthorized  acquisition,  use or disposition.
The system  includes a  documented  organizational  structure  and  division  of
responsibility,  established  policies  and  procedures  including  a policy  on
ethical  standards  which  provides that WTU will maintain the highest legal and
ethical standards,  and the careful  selection,  training and development of our
employees.

      Internal auditors  continuously  monitor the effectiveness of the internal
control  system  following  standards  established  by the Institute of Internal
Auditors. Actions are taken by management to respond to deficiencies as they are
identified. The board, operating through its audit committee, which is comprised
entirely  of  directors  who are not  officers  or  employees  of WTU,  provides
oversight to the financial reporting process.

      Due to the inherent limitations in the effectiveness of internal controls,
no internal control system can provide  absolute  assurance that errors will not
occur. However,  management strives to maintain a balance,  recognizing that the
cost of such a system should not exceed the benefits derived.

      WTU  believes  that,  in all  material  respects,  its system of  internal
controls  over  financial  reporting  and over  safeguarding  of assets  against
unauthorized  acquisition,  use  or  disposition  functioned  effectively  as of
December 31, 1999.







Paul J. Brower                                               R. Russell Davis
General Manager/President - WTU                              Controller - WTU

                                   2-154 WTU
<PAGE>


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE.


CSW             None.
CPL             None.
PSO             None.
SWEPCO          None.
WTU             None.



2-155 WTU
<PAGE>


PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS.


      (a) (1) Directors of CSW,  together with certain  information with respect
to each of them, are listed below. Ages are as of March 1, 2000.

CSW or an affiliate of CSW has employed each of the executive officers listed in
the table below in an  executive  or  managerial  capacity for at least the last
five years, except as stated below.

                       Name, Age, Principal                             Year
                  Occupation, Business Experience                   First Became
                      and Other Directorships                         Director
--------------------------------------------------------------------------------

MOLLY SHI BOREN               AGE - 55                                  1991
Ms. Boren, of Norman,  Oklahoma, has been an attorney since prior
to 1994  and is a  former  Special  District  Judge  in  Pontotoc
County,  Oklahoma.  She  served as a  Director  of  Liberty  Bank
Corporation,  Tulsa,  Oklahoma,  and of Pet Incorporated prior to
and during 1994.  She is  currently  The  University  of Oklahoma
First Lady.

E. R. BROOKS                  AGE - 62                                  1988
Mr.  Brooks has served as Chairman and CEO of CSW since  February
1991.  He served as CSW's  President  from February 1991 to July,
1997.  He is also a member of the Board of  Directors  of each of
CSW's  subsidiaries,  as  well as a  Director  of  Hubbell,  Inc,
Orange,  Connecticut.  Mr.  Brooks is a Trustee of Baylor  Health
Care  Center,  Dallas,  Texas,  and  Hardin-Simmons   University,
Abilene, Texas.

DONALD M. CARLTON             AGE - 60                                  1994
In January  1996,  Mr.  Carlton  was named  President  and CEO of
Radian  International  LLC,  Austin,  Texas,  and  retired  as of
December  31,  1998.  Mr.  Carlton  served as the  President  and
Chairman of Radian  Corporation,  an  engineering  and technology
firm,  from 1969  through  December  1995.  He is a member of the
Board of Directors of Valero Energy, San Antonio,  Texas; Concert
Investment  Series  Funds,  New York,  and National  Instruments,
Austin, Texas.

T. J.  ELLIS                  AGE - 57                                 1996
Mr.  Ellis served as the  Commercial  Director of SEEBOARD plc in
1985 and became the Chief  Executive  of SEEBOARD  plc , Crawley,
West Sussex, after privatization of the United Kingdom's national
electric  distribution system. In 1996, he was appointed Chairman
and Chief  Executive of SEEBOARD plc following its acquisition by
CSW and is a  director  of  British-Borneo  Oil and  Gas  plc,  a
Director  of  the  Sussex   Chamber  of  Commerce   Training  and
Enterprise and a Director of the Brighton West Pier Trust. In the
1998 Queen's  Birthday  Honours  List, he was made a Commander of
the Order of the  British  Empire for his  services to the United
Kingdom electricity industry.

                                       3-1
<PAGE>

                        Name, Age, Principal                            Year
                  Occupation, Business Experience                   First Became
                      and Other Directorships                         Director
--------------------------------------------------------------------------------

JOE H. FOY                    AGE - 72                                  1974
Mr. Foy, retired, is currently a member of the Board of Directors
of Enron Corporation, Houston, Texas.

WILLIAM  HOWELL               AGE - 63                                  1997
Mr.  Howell  served  as  Chairman  of the  Board  of J.C.  Penney
Company,  Plano, Texas, from 1983 to January 1997 and also as its
CEO from 1983 to January 1996. He is currently  Chairman Emeritus
of J.C.  Penney  Company.  He has been  Chairman  of the Board of
Trustees of Southern Methodist  University,  Dallas, Texas, since
the summer of 1996 and serves on the Chairman's  Advisory Council
of the National Minority Suppliers  Development  Council. He is a
member of the Board of  Directors of Exxon  Corporation,  Irving,
Texas; Warner-Lambert Company, Morris Plains, New Jersey; Bankers
Trust,  New  York;  Halliburton  Company,  Dallas,  Texas and The
Williams Companies, Inc., Tulsa, Oklahoma.

ROBERT W. LAWLESS             AGE - 62                                  1991
Dr.  Lawless  served  as the  President  and  CEO of  Texas  Tech
University and Texas Tech  University  Health  Sciences Center in
Lubbock,  Texas from July, 1989 through April 1996. He has served
as the president of the University of Tulsa since May 1996. He is
a member of the Board of Directors of Salomon Smith Barney Mutual
Funds, New York.

JAMES L. POWELL               AGE - 69                                  1987
Mr. Powell has been involved in ranching and  investments  in Ft.
McKavett,  Texas  since  prior  to  1994.  He  is a  Director  of
Southwest  Bancorp of Sanderson,  Texas, a Director and member of
the Executive  Committee of National Finance Credit  Corporation,
and an Advisory Director of First National Bank, Mertzon, Texas.

RICHARD L. SANDOR             AGE - 56                                  1997
Dr.  Sandor  has  served  as  Chairman  and CEO of  Environmental
Financial  Products  Ltd.,  formerly  Centre  Financial  Products
Limited,  Chicago,  Illinois,  since  prior  to 1994  and also as
Chairman of the Board of Hedge Financial Products, Inc., Chicago,
Illinois,  since  May  1997.  He is a  member  of  the  Board  of
Directors of Sustainable Performance Group, Zurich,  Switzerland,
an  investment  company,  and is on the board of governors of The
School of the Art Institute of Chicago.

THOMAS V. SHOCKLEY, III       AGE - 53                                  1991
Mr. Shockley was elected President and Chief Operating Officer of
CSW in July  1997.  He joined  CSW as Senior  Vice  President  in
January,   1990,  and  became  an  Executive  Vice  President  in
September of that same year. Mr. Shockley continues to serve as a
Director of each of CSW's non-electric subsidiaries.

The directors and executive officers of CSW are elected to hold office until the
first meeting of CSW's Board of Directors after the respective Annual Meeting of
Stockholders  by class and year as follows:  Class I Directors (Ms.  Boren,  Mr.
Carlton,  Mr.  Ellis and Mr.  Shockley) in July 2000;  Class II  Directors  (Mr.
Brooks,  Dr. Lawless and Mr. Powell) in April 2001; and Class III Directors (Mr.
Files, Mr. Foy, Mr. Howell and Dr. Sandor) in April 2002. All outside  directors
have engaged in their  principal  occupations  listed above for a period of more
than five years, unless otherwise indicated.

                                       3-2
<PAGE>


      (a) (2)  Directors  of  each of the  U.S.  Electric  Operating  Companies,
together  with  certain  information  with  respect to each of them,  are listed
below. Ages are as of March 1, 2000.

                       Name, Age, Principal                             Year
                  Occupation, Business Experience                   First Became
                      and Other Directorships                         Director
--------------------------------------------------------------------------------

CPL

JOHN F. BRIMBERRY             AGE - 67                                  1995
CEO of Professional Insurance Agents, Inc., Victoria, Texas.

E. R. BROOKS                  AGE - 62                                  1991
Chairman  and CEO of CSW since 1991.  Director of CSW and each of
its subsidiaries. President of CSW from 1991 to 1997. Director of
Hubbell, Inc., Orange, Connecticut. Trustee of Baylor Health Care
Center,  Dallas,  Texas and Hardin-Simmons  University,  Abilene,
Texas.

GLENN FILES                   AGE - 52                                  1996
Senior Vice President of CSW since 1996. President and CEO of WTU
from 1992 to 1996.

RUBEN M. GARCIA               AGE - 68                                  1981
President  and CEO of Modem  Construction  Inc. and Modem Machine
Shop, Inc., Laredo, Texas.

ALPHONSO R. JACKSON           AGE - 54                                  1998
President of CSW-Texas since February 1998. Vice President of CSW
Energy, Inc., from 1996 to 1998. President and CEO of The Housing
Authority  of the  City of  Dallas,  Texas,  from  1989 to  1996.
Director of Chase Bank of Texas N.A., Dallas,  Texas. Director of
Chase Bank of Texas, N.A., Houston, Texas.

ROBERT A. McALLEN             AGE - 65                                  1983
Owner of Robert A. McAllen Insurance Agency, Weslaco, Texas.

PETE MORALES, JR.             AGE - 59                                  1990
President of Morales Feed Lots, Inc., Devine,  Texas. Director of
The Bank of Texas, Devine, Texas.

H. LEE RICHARDS                AGE - 66                                 1987
Chairman of the Board of Hygeia Dairy Company, Harlingen, Texas.

J. GONZALO SANDOVAL            AGE - 51                                 1992
General  Manager/President  of CPL since February  1998.  General
Manager of CPL from 1996 to 1998. Vice President,  Operations and
Engineering of CPL from 1993 to 1996.

                                       3-3
<PAGE>

                       Name, Age, Principal                             Year
                 Occupation, Business Experience                    First Became
                     and Other Directorships                          Director
--------------------------------------------------------------------------------

GERALD E. VAUGHN               AGE - 57                                 1993
Chairman  for the STPNOC since its  formation in September  1997.
Vice President, Nuclear of CSW Services since 1994.

      Each of the  directors  and  executive  officers of CPL is elected to hold
office until the first meeting of CPL's Board of Directors after the 2000 Annual
Meeting of Stockholders.  CPL's 2000 Annual Meeting of Stockholders is presently
scheduled to be held on April 13, 2000.  All outside  directors  have engaged in
their principal  occupations  listed above for a period of more than five years,
unless otherwise indicated.


PSO

E. R. BROOKS                   AGE - 62                                 1991
Chairman  and CEO of CSW since 1991.  Director of CSW and each of
its subsidiaries. President of CSW from 1991 to 1997. Director of
Hubbell, Inc., Orange, Connecticut. Trustee of Baylor Health Care
Center,  Dallas,  Texas and Hardin-Simmons  University,  Abilene,
Texas.

T. D. CHURCHWELL               AGE - 55                                 1996
President of PSO since 1996. Executive Vice President of WTU from
1993 to 1996.

HARRY A. CLARKE                AGE - 71                                 1972
General Partner and President of HAC Investments, Afton, Oklahoma.

GLENN FILES                    AGE - 52                                 1996
Senior Vice President of CSW since 1996. President and CEO of WTU
from 1992 to 1996.

PAUL K. LACKEY, JR.            AGE - 56                                 1992
President of The University of Oklahoma - Tulsa, Tulsa, Oklahoma.
Chief of Staff for the  Governor  of the State of  Oklahoma  from
1997 to 1999.  Secretary of Health and Human Services,  Executive
Director of the Office of Juvenile  Affairs,  State of  Oklahoma,
from  1995  to  1997.  Consultant,   Flint  Industries,  Inc.,  a
construction,   electronics   manufacturing,   and  environmental
services  company,  Tulsa,  Oklahoma,  during a portion  of 1995.
President, Flint Industries,  Inc. from 1986 to 1995. Director of
Bank South, Tulsa, Oklahoma.

PAULA MARSHALL-CHAPMAN         AGE - 46                                 1991
President and CEO of Bama  Companies,  a
baked goods products company, Tulsa, Oklahoma.


                                       3-4
<PAGE>

                        Name, Age, Principal                            Year
                  Occupation, Business Experience                   First Became
                      and Other Directorships                         Director
--------------------------------------------------------------------------------

WILLIAM R. McKAMEY            AGE - 53                                  1993
General Manager of PSO since 1996. Vice President,  Marketing and
Business Development of PSO from 1993 to 1996.

DR. ROBERT B. TAYLOR, JR.     AGE - 71                                  1975
Dentist, Okmulgee, Oklahoma.

Each of the directors  and  executive  officers of PSO is elected to hold office
until  the first  meeting  of PSO's  Board of  Directors  after the 2000  Annual
Meeting of Stockholders.  PSO's 2000 Annual Meeting of Stockholders is presently
scheduled to be held on April 18, 2000.  All outside  directors  have engaged in
their principal  occupations  listed above for a period of more than five years,
unless otherwise indicated.


SWEPCO

KAREN C. ADAMS                 AGE - 39                                 1996
General  Manager of SWEPCO  since 1996.  Director  of  Regulatory
Services at CSW from 1995 to 1996. Administrative Director of the
El Paso Transition Team at CSW from 1993 to 1995.

E. R. BROOKS                   AGE - 62                                 1991
Chairman  and CEO of CSW since 1991.  Director of CSW and each of
its subsidiaries. President of CSW from 1991 to 1997. Director of
Hubbell, Inc., Orange, Connecticut. Trustee of Baylor Health Care
Center,  Dallas,  Texas and Hardin-Simmons  University,  Abilene,
Texas.

JAMES E. DAVISON               AGE - 62                                 1993
President and CEO of Davison Terminal  Services,  Inc.  President
and CEO of  Davison  Motor  Company,  Inc.  President  and CEO of
Davison  Insurance  Company,  Inc. All of the above  entities are
located in Ruston,  Louisiana.  Director of Bank One,  Louisiana,
Baton Rouge, Louisiana.

GLENN FILES                    AGE - 52                                 1996
Senior Vice President of CSW since 1996. President and CEO of WTU
from 1992 to 1996.

DR. FREDERICK E. JOYCE         AGE - 65                                 1990
President  of   Chappell-Joyce   Pathology   Association,   P.A.,
Texarkana,  Texas.  President of Doctors  Diagnostic  Laboratory,
Inc., Texarkana, Texas. Director of New Boston Bank Shares, Inc.,
New Boston, Texas. Director of Century Bank, New Boston, Texas.


                                       3-5
<PAGE>

                        Name, Age, Principal                            Year
                  Occupation, Business Experience                   First Became
                      and Other Directorships                         Director
--------------------------------------------------------------------------------

JOHN M. LEWIS                 AGE - 60                                  1997
Chairman and CEO of The Bank of Fayetteville, Fayetteville, Arkansas.

MICHAEL H. MADISON            AGE - 51                                  1998
President  of SWEPCO  since  April  1998.  Programme  Director of
SEEBOARD  from  1996 to  1998.  Vice  President,  Operations  and
Engineering of SWEPCO from 1993 to 1996.

WILLIAM C. PEATROSS           AGE - 56                                  1990
President and CEO of United Title of Louisiana,  Inc. Director of
Deposit  Guaranty Bank.  Both entities are located in Shreveport,
Louisiana.

MAXINE P. SARPY               AGE - 60                                  1996
Vice  President  and Office  Manager  for Sarpy  Medical  Clinic,
Shreveport, Louisiana.

Each of the directors and executive officers of SWEPCO is elected to hold office
until the first  meeting of SWEPCO's  Board of  Directors  after the 2000 Annual
Meeting  of  Stockholders.  SWEPCO's  2000  Annual  Meeting of  Stockholders  is
presently  scheduled to be held on April 12, 2000.  All outside  directors  have
engaged in their  principal  occupations  listed above for a period of more than
five years, unless otherwise indicated.


WTU

E. R. BROOKS                   AGE - 62                                 1991
Chairman  and CEO of CSW since 1991.  Director of CSW and each of
its subsidiaries. President of CSW from 1991 to 1997. Director of
Hubbell, Inc., Orange, Connecticut. Trustee of Baylor Health Care
Center,  Dallas,  Texas and Hardin-Simmons  University,  Abilene,
Texas.

PAUL J. BROWER                 AGE - 51                                 1991
General  Manager/President  of WTU since February  1998.  General
Manager of WTU from 1996 to 1998. Vice  President,  Marketing and
Business Development of WTU from 1991 to 1996.

GLENN FILES                    AGE - 52                                 1996
Senior Vice President of CSW since 1996. President and
CEO of WTU from 1992 to 1996.

ALPHONSO R. JACKSON            AGE - 54                                 1998
President of CSW-Texas since February 1998. Vice President of CSW
Energy, Inc., from 1996 to 1998. President and CEO of The Housing
Authority  of the  City of  Dallas,  Texas,  from  1989 to  1996.
Director of Chase Bank of Texas N.A., Dallas,  Texas. Director of
Chase Bank of Texas, N.A., Houston, Texas.

                                      3-6
<PAGE>

                        Name, Age, Principal                            Year
                  Occupation, Business Experience                   First Became
                      and Other Directorships                         Director
--------------------------------------------------------------------------------

TOMMY MORRIS                  AGE - 65                                  1976
President of The Tommy Morris Agency,  an  independent  insurance
and investment agency, Abilene, Texas.

DIAN G. OWEN                  AGE - 59                                  1994
Chairperson,   Mansfeldt  Investment  Corporation,   since  1997.
Chairperson,  Dian  Graves  Owen  Foundation,  a general  purpose
private  foundation,  since 1996.  Consultant,  Owen  Healthcare,
Inc., a hospital pharmacy  management  services company from 1997
to present. Corporate Executive/Founder of Owen Healthcare, Inc.,
from 1976 to 1997.

JAMES M. PARKER               AGE - 69                                  1987
President  and CEO of J.  M.  Parker  and  Associates,  Inc.,  an
investment company,  Abilene,  Texas. Director of First Financial
Bankshares,  Inc. and First  National  Bank of Abilene,  Abilene,
Texas.

F. L. STEPHENS                AGE - 61                                  1980
Served as Chairman and CEO of Town & Country  Food Stores,  Inc.,
San Angelo, Texas until his retirement in June 1999.

Each of the directors  and  executive  officers of WTU is elected to hold office
until  the first  meeting  of WTU's  Board of  Directors  after the 2000  Annual
Meeting of Stockholders.  WTU's 2000 Annual Meeting of Stockholders is presently
scheduled to be held on March 28, 2000.  All outside  directors  have engaged in
their principal  occupations  listed above for a period of more than five years,
unless otherwise indicated.


                                       3-7
<PAGE>

(b) (1) The  following is a list of  officers,  who are not  directors,  of CSW,
together with certain information with respect to each of them:

                         Name, Age, Principal                            Year
                  Occupation, Business Experience                   First Became
                      and Other Directorships                         Director
--------------------------------------------------------------------------------
CSW

FERD C. MEYER, JR.            AGE - 60                                  1998
Executive Vice President and General Counsel since 1998.
Senior Vice President and General Counsel from 1990 to 1998.


GLENN D. ROSILIER             AGE - 52                                  1998
Executive Vice President and Chief Financial Officer since 1998.
Senior Vice President and Chief Financial Officer from 1990 to 1998.

THOMAS M. HAGAN               AGE - 55                                  1996
Senior  Vice  President,   External   Affairs  since  1996.  Vice
President,  Governmental  Relations and  Regulatory  Affairs from
1995 to 1996. Vice President, Governmental Relations from 1993 to
1995.

VENITA  MCCELLON-ALLEN        AGE - 40                                  1996
Senior  Vice   President,   Customer   Relations   and  Corporate
Development  and Assistant  Corporate  Secretary since 1996. Vice
President,  Corporate Services from 1995 to 1996. SWEPCO Division
Manager   from   1994  to   1995.   SWEPCO   Director   Corporate
Communications and Governmental Affairs from 1993 to 1994.

KENNETH C. RANEY, JR.         AGE - 48                                  1996
Vice President, Associate General Counsel and Corporate Secretary
since 1996. Vice President,  Assistant  General Counsel from 1989
to 1996.

WENDY G. HARGUS               AGE - 42                                  1996
Treasurer since 1996.  CSW Controller from 1993 to 1996.

LAWRENCE B. CONNORS           AGE - 48                                  1996
Controller since 1996. CSWS Vice President,  Administration  from
1993 to 1996.

STEPHEN J. MCDONNELL          AGE - 49                                  1998
Vice President,  AEP Merger since 1998.  Vice President,  Mergers
and  Acquisitions  from 1996 to 1998. CSWS Treasurer from 1989 to
1996.

MICHAEL D. SMITH              AGE - 48                                  1998
Vice  President,   Business   Opportunities  since  1998.  SWEPCO
President  from  1996  to  1997.  Vice  President,   Mergers  and
Acquisitions  from  1995  to  1996.  Vice  President,   Corporate
Services from 1993 to 1995.

                                       3-8
<PAGE>


(b) (2) The following is a list of officers, who are not directors,  of the U.S.
Electric Operating Companies,  together with certain information with respect to
each of them:


                        Name, Age, Principal                            Year
                  Occupation, Business Experience                   First Became
                      and Other Directorships                         Director
--------------------------------------------------------------------------------

U.S. Electric Operating Companies
WENDY G. HARGUS                AGE - 42                                 1996
Treasurer of CSW, CPL, PSO,  SWEPCO,  WTU and CSW Services  since
1996. Controller of CSW from 1993 to 1996.

R. RUSSELL DAVIS              AGE - 43                                  1994
Controller of CPL, PSO, WTU, SWEPCO and CSW Services since 1994.

CPL
BRENDA L. SNIDER              AGE - 46                                  1996
Corporate  Secretary  of CPL since 1996.  Manager of Planning and
Analysis at CPL since 1996.  Senior  Financial  Consultant at CPL
from 1994 to 1996.

PSO
LINA P. HOLM                   AGE - 59                                 1997
Corporate  Secretary and Executive  Secretary to the President of
PSO  since  1997.   Executive  Secretary  to  the  President  and
Assistant Corporate Secretary of PSO from 1992 to 1997.

SWEPCO
MARILYN S. KIRKLAND            AGE - 52                                 1995
Corporate Secretary of SWEPCO since 1995. Executive Administrator
since 1997.  Senior  Executive  Secretary to the President,  from
1992 to 1997.

WTU
MARTHA MURRAY                  AGE - 54                                 1992
Corporate Secretary of WTU since 1992.


                                       3-9
<PAGE>


ITEM 11. EXECUTIVE COMPENSATION.

Cash and Other Forms of Compensation

CSW and the U.S. Electric Operating Companies

CSW's  executive  compensation  program  has as  its  foundation  the  following
objectives:

-  Maintaining  a  total   compensation   program  consisting  of  base  salary,
   performance incentives and benefits designed to support the corporate goal of
   providing superior value to our stockholders and customers;

-  Providing  comprehensive programs  which serve to facilitate the recruitment,
   retention and motivation of qualified executives; and

-  Rewarding key  executives for achieving  financial,  operating and individual
   objectives that produce a return to CSW's  stockholders in both the long-term
   and the short-term.

      The Executive Compensation Committee of the CSW Board of Directors,  which
consists of four  independent  outside  directors,  has designed CSW's executive
compensation  programs  around  a  strong  pay-for-performance  philosophy.  The
Executive  Compensation  Committee  strives to maintain  competitive  levels, at
average, of total compensation as compared to peers in the utility industry. The
Executive  Compensation  Committee  performs its functions for the U.S. Electric
Operating  Companies as well. The U.S. Electric Operating  Companies do not have
Executive Compensation Committees nor committees performing similar functions.

      Each year, the Executive  Compensation  Committee conducts a comprehensive
review of CSW's  executive  compensation  programs.  The Executive  Compensation
Committee is assisted in these efforts by an independent consultant and by CSW's
internal staff, who provide the Executive  Compensation  Committee with relevant
information and recommendations  regarding the compensation policies,  programs,
and specific compensation practices.  This review is designed to ensure that the
programs  are in place to enable  CSW to achieve  its  strategic  and  operating
objectives  and  provide  value to its  stockholders,  CSW's  customers,  and to
document CSW's relative competitive position.

      The  Executive  Compensation  Committee  reviews  a  comparison  of  CSW's
compensation  programs  with those offered by  comparable  companies  within the
utility  industry.   For  each  component  of  compensation  as  well  as  total
compensation,  the Executive  Compensation  Committee seeks to ensure that CSW's
level of compensation for expected level of performance approximates the average
or mean for executive officers in similar positions at comparable companies.  In
most  years,  this  means  that the  level of total  compensation  for  expected
performance will be near the average for comparable companies. Performance above
or below expected levels is reflected in a corresponding increase, reduction, or
no award in the incentive portion of our compensation program.

      The   amounts   of   each  of  the   primary   components   of   executive
compensation-salary,  annual incentive plan awards and long-term  incentive plan
awards will fluctuate  according to individual,  business unit, and/or corporate
performance,  as described in detail in this report.  Corporate  performance for
these  purposes is measured  against a peer group of selected  companies  in the
utility industry. The utility peer group consists of the companies listed in the
Standard & Poor's Electric Utility Index as well as large regional  competitors.
The Executive  Compensation Committee believes that using the utility peer group
provides an objective measure to compare performance  benchmarks appropriate for
compensation purposes.

                                      3-10
<PAGE>

      CSW's executive  compensation  program includes several components serving
long-term and  short-term  objectives.  CSW also  provides its senior  executive
officers  with  benefits  under the Special  Executive  Retirement  Plan and all
executive  officers with certain executive  perquisites,  as noted later in this
section.

      In addition, CSW maintains for each of its executive officers a package of
benefits under its pension and welfare benefit plans that are generally provided
to  all  employees,  including  group  health,  life,  disability  and  accident
insurance  plans,  tax-advantaged  reimbursement  accounts,  a  defined  benefit
pension plan and the 401(k) savings plan. There is no relationship  between this
package and corporate performance.

      The following  describes the  relationship  of compensation to performance
for the principal components of executive officer compensation.

Base  Salary:  Each  executive  officer's  corporate  position  is  matched to a
comparable  position  within  the  utility  industry  and is  valued at the 50th
percentile  market level. In some cases,  these positions are common in both the
utility industry as well as general  industry.  In these cases,  comparisons are
made to both markets,  although pay decisions are influenced only by the utility
industry  data.  Once these market values are  determined,  the position is then
evaluated based on the position's overall  contribution to corporate goals. This
internal  weighting  is  combined  with  the  value  the  market  places  on the
associated job responsibilities and a salary is assigned to that position.  Each
year the  assigned  values are reviewed  against  market  conditions,  including
compensation  practices  in the utility  peer group,  inflation,  and supply and
demand in the labor markets. If these conditions change  significantly there may
be an adjustment to base salary. Finally, the results of the executive officer's
performance  over the  past  year  becomes  part of the  basis of the  Executive
Compensation  Committee's decision to approve, at its discretion,  base salaries
of executive officers.

Incentive Programs - General:  The executive  incentive programs are designed to
strike an appropriate balance between short-term  accomplishments and CSW's need
to effectively plan for and perform over the long-term.

Incentive  Programs - Annual  Incentive Plan: The AIP is a short-term bonus plan
rewarding  annual  performance.  AIP awards are determined  under a formula that
directly  ties the amount of the award with levels of  achievement  for specific
corporate and individual performance.  Business unit executives' awards are also
based  on  specific  business  unit  performance.  The  amount  of an  executive
officer's  AIP equals the  corporate  results plus  business  unit  results,  if
applicable, times their individual performance results times their target award.

      Corporate  performance  is currently  determined  by two equally  weighted
measures-earnings  per share and cash flow.  Threshold,  target and  exceptional
levels of  performance  are set by the Executive  Compensation  Committee in the
first quarter of each year. The Executive  Compensation Committee considers both
historic performance and budgeted,  or expected levels of performance in setting
these targets.

      Performance for a given business unit  represents the weighted  average of
performance  indices that measure the achievement of specific  financial  and/or
operational  goals that are set and  weighted at the  beginning  of the year for
that business unit.

      The  individual  performance  component  represents the average of results
achieved on several individual goals and a subjective  evaluation of overall job
performance.  Although  individual  performance  goals do not  repeat  corporate
performance   measures,   these  goals  are  constructed  to  support  corporate
performance goals or initiatives.


                                      3-11
<PAGE>

      If an individual fails to achieve a minimum threshold performance level on
individual  performance  goals,  that  individual does not earn an AIP award for
that year.

      Target  awards  for  executive  officers  have been fixed at 50 percent of
salary for the CEO,  President  and  Executive  and Senior Vice  Presidents,  45
percent  of salary for  Business  Unit  Presidents  and 35 percent of salary for
other officers. The award can vary from 0 to a maximum of 150 percent of target.
These targets are  established  by a review of  competitive  practice  among the
utility peer group.

      Performance  under  the AIP is  measured  or  reviewed  by each  executive
officer's  superior  officer,  or in  the  case  of the  CEO  by  the  Executive
Compensation  Committee,  with the assistance of internal staff. The results are
reviewed and are subject to approval by the  Executive  Compensation  Committee.
Under the terms of the AIP, the Executive Compensation Committee in the exercise
of its discretion,  may vary corporate or company  performance  measures and the
form of payment  for AIP awards  from  year-to-year  prior to  establishing  the
awards,  including  payment in cash or  restricted  stock,  as determined by the
Executive Compensation Committee.

      In 1999, AIP awards were  determined  based on the corporate  performance,
business unit  performance,  if  applicable,  and  individual  performance.  The
Executive  Compensation  Committee  reviewed the results of this  calculation in
determining the size of awards.

Incentive  Programs  -  Long-Term  Incentive  Plan:  Amounts  realized  by CSW's
executive  officers  under  awards  made  pursuant  to the CSW 1992 LTIP  depend
entirely  upon  corporate  performance.  The  Executive  Compensation  Committee
selects the form and amount of LTIP awards  based upon its  evaluation  of which
vehicles then are best positioned to serve as effective incentives for long-term
performance.

      Since 1992,  the Executive  Compensation  Committee has  established  LTIP
awards in the form of performance  units.  These awards provide  incentives both
for exceptional corporate performance and to encourage retention. Each year, the
Executive Compensation Committee has set a target award of a specified number of
performance  units  based on a  percentage  of salary and the stock price on the
date the award is established.

      The payout of such an LTIP award is based upon a comparison of CSW's total
stockholder   return  over  a  three-year  period,  or  "cycle,"  against  total
stockholder  returns  of  utilities  in the  utility  peer  group  over the same
three-year period. If CSW's total stockholder return for a cycle falls in one of
the top three quartiles of total  stockholder  returns  achieved at companies in
the  utility  peer  group,  CSW  will  make a  payout  to  participants  for the
three-year cycle then ending.  First, second and third quartile performance will
result in  payouts  of 150  percent,  100  percent  and 50  percent  of  target,
respectively.  Performance  in the fourth  quartile  yields no payout  under the
LTIP.

      A new three-year  performance cycle begins each year. In January 1999, the
Executive  Compensation  Committee reviewed total stockholder return results for
the  period  covering  1996-1998,  and  because  performance  was in the  fourth
quartile, no restricted stock awards were granted.

      CSW from time to time has also granted stock options and restricted  stock
under the LTIP. Stock options and restricted stock are granted at the discretion
of the Executive  Compensation  Committee.  Stock  options,  once vested,  allow
grantees to buy  specified  numbers of shares of CSW Common Stock at a specified
stock price,  which to date has been the market  price on the date of grant.  In
determining grants to date, the Executive  Compensation Committee has considered
both the number and value of options  granted by  companies  in the utility peer
group with  respect to both the number and value of options  awarded by CSW, and
the relative amounts of other long-term  incentive awards at CSW and such peers.
The executive  officers'  realization  of any value on the options  depends upon

                                      3-12
<PAGE>

stock appreciation.  No executive officer owns in excess of one percent of CSW's
Common Stock.  Further,  the amounts of LTIP awards are measured against similar
practices at other companies in the utility peer group.

Tax  Considerations:  Section  162(m) of the Internal  Revenue Code, as amended,
generally limits CSW's federal income tax deduction for compensation paid in any
taxable  year to any one of the five highest paid  executive  officers  named in
Part III of this Form 10-K to $1 million.  The limit does not apply to specified
types  of  payments,  including,  most  significantly,  payments  that  are  not
includible  in  the  employee's  gross  income,  payments  made  to  or  from  a
tax-qualified  plan,  and  compensation  that meets the  Internal  Revenue  Code
definition of performance-based compensation. Under the tax law, the amount of a
performance-based  incentive  award  must  be  based  entirely  on an  objective
formula, without any subjective  consideration of individual performance,  to be
considered performance-based.

      The Executive  Compensation  Committee has carefully considered the impact
of this law. At this time, the Executive  Compensation  Committee believes it is
in  CSW's  and  its  stockholder's   best  interest  to  retain  the  subjective
determination of individual  performance under the AIP.  Consequently,  payments
under the AIP, if any,  to the named  executive  officers  may be subject to the
limitation  imposed  by the  Internal  Revenue  Code  section  162(m).  In 1997,
stockholders  approved the restated LTIP and  re-qualified the plan for Internal
Revenue Code section 162(m) purposes.

Rationale for CEO Compensation

      In 1999, Mr. Brooks' compensation was  determined as  described  above for
all of CSW's executive officers.

      Mr. Brooks' annual salary increased in 1999 to $806,000 from $775,000. The
Executive  Compensation  Committee  reviewed Mr. Brooks' salary as a part of its
overall annual review of executive  compensation.  His salary is based on market
information for similar  positions,  as well as changes in the salaries of chief
executive officers at comparable  regional utilities (not limited to the utility
peer group).

      For 1999, CSW achieved earnings per share of $2.14. Based on corporate and
individual results Mr. Brooks' AIP for 1999, which was paid in 2000, was 150% of
target.

      In 1999,  the Executive  Compensation  Committee  established  Mr. Brooks'
target  performance units for LTIP for the 1999-2001 cycle of 19,572 units to be
paid in shares of restricted stock in 2001 if performance  measures are met. Mr.
Brooks' target amount was derived by reference to the number and value of grants
to chief executive officers at comparable companies.


CSW EXECUTIVE COMPENSATION COMMITTEE

Joe H. Foy, Chairman
Molly Shi Boren
William R. Howell
Richard L. Sandor


                                      3-13
<PAGE>




                 Comparison of Five Year Cumulative Total Return
                    Among Central and South West Corporation,
                         the Standard & Poors 500 Index
                and the Standard & Poors Electric Companies Index


GRAPH OMITTED

CSW, S&P Electric & S&P 500

Year          CSW         S&P Electric     S&P 500
----          ---         ------------     -------
1994          100              100           100
1995          131              131           138
1996          128              131           169
1997          144              166           226
1998          156              193           290
1999          123              162           351



The  total  return  performance  shown on the  graph  above  is not  necessarily
indicative of future performance.



                                      3-14
<PAGE>


CSW
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

                               Annual Compensation                  Long-Term Compensation
                      ----------------------------------  --------------------------------------------
                                                                  Awards          Payouts

                                                 Other
                                                 Annual   Restricted  Securities            All Other
                                                 Compen-     Stock    Underlying    LTIP       Compen-
Name and                    Salary     Bonus     sation     Award(s)   Options/    Payouts     sation
Principal Position    Year    ($)     ($)(1)     ($)(2)    ($)(1)(3)   SARs(#)      ($)(4)     ($)(5)
<S>                   <C>   <C>       <C>        <C>       <C>        <C>          <C>        <C>

E. R. Brooks         1999   780,961   536,558    18,346       --           --           --      23,557
 Chairman,           1998   741,345   450,000   119,057       --           --      220,748      23,263
 and CEO             1997   699,999   375,200    14,723       --       65,000           --      23,757

T. V. Shockley,III   1999   544,230   375,205     7,098       --           --           --      23,557
 President and       1998   518,462   300,000    20,921       --           --      130,928      23,263
 Chief Operating     1997   490,000   215,662     4,325       --       41,000           --      23,757
 Officer

Glenn Files          1999   393,077   283,562     5,893       --           --           --      23,557
 Senior Vice Pres.   1998   392,307   125,000    10,753       --           --       75,992      23,263
 Electric Operations 1997   374,999   143,099     8,534       --       31,000           --      23,757

Ferd. C. Meyer,Jr.   1999   350,961   259,550     5,617       --           --           --      23,557
 Executive Vice      1998   359,272   185,000     8,893       --           --      102,810      23,263
 President and       1997   345,051   157,157     3,950       --       29,000           --      21,307
 General Counsel

Glenn D. Rosilier    1999    340,962  251,872     4,738       --           --           --      23,557
 Executive Vice      1998    348,636  185,000     6,042       --           --      102,810      23,263
 President and       1997    334,751  161,055     3,594       --       28,000           --      23,757
 Chief Financial
 Officer
</TABLE>

(1)Amounts  in  these  columns  are  paid or  awarded  in a  calendar  year  for
   performance in a preceding year.
(2)The following are the 1999 perquisites and other personal benefits required
   to be identified in respect of the following Named Executive Officer: none.
(3)Grants of restricted  stock are  administered  by the Executive  Compensation
   Committee of the CSW Board of Directors, which has the authority to determine
   the  individuals  to whom  and the terms  upon which restricted stock grants,
   including the number of underlying shares, shall be made.

As of the end of 1999,  the aggregate  restricted  stock holdings of each of the
Named Executive Officers were:

                               Restricted Stock Held     Market Value at
                               At December 31, 1999     December 31, 1999
        ---------------------------------------------  ---------------------
        E. R. Brooks                   8,153                  $163,060
        T. V. Shockley, III            4,844                    96,880
        Ferd. C. Meyer, Jr.            3,799                    75,980
        Glenn D. Rosilier              3,799                    75,980
        Glenn Files                    2,904                    58,080

(4)The awards  reflected in this column are the value of restricted  shares paid
   out under the LTIP in 1998. The awards have a two-year vesting period with 50
   percent of the stock vesting on each anniversary  date. Upon vesting,  shares
   of CSW  Common  Stock are  re-issued  without  restrictions.  The  individual
   receives  dividends and may vote shares of restricted stock, even before they
   are vested. The amount reported in the Summary  Compensation Table represents
   the market value of the shares at the date of grant.
(5)Amounts  shown in this  column  consist of (i) the annual  employer  matching
   payments to CSW's Retirement Savings Plan, (ii) premiums paid per participant
   for personal  liability  insurance and (iii) average amounts of premiums paid
   per  participant in those years under CSW's  memorial gift program.  In 1999,

                                      3-15
<PAGE>

   1998  and  1997,  Messrs.  Brooks,   Shockley  ,Files,  Meyers  and  Rosilier
   participated in the memorial gift program.  See Meetings and Compensation for
   a description of CSW's memorial gift program.


U.S. ELECTRIC OPERATING COMPANIES

      The following  table sets forth the aggregate cash and other  compensation
for  services  rendered  for the  fiscal  years of 1999,  1998 and 1997  paid or
awarded to the President of each of the U.S.  Electric  Operating  Companies and
the Named Executive Officers as defined below.

      Because of the  functional  restructuring undertaken  by CSW during  1996,
certain of the  Executive  Officers of the U.S.  Electric  Operating  Companies,
Messrs.  Files, Zemanek and Verret, are not actually employed by any of the U.S.
Electric  Operating  Companies.  Instead,  they are employed by CSW Services and
manage CSW business units and perform policy-making  functions that are integral
to the U.S.  Electric  Operating  Companies.  Therefore,  these  individuals are
included in the Summary  Compensation  Table as Named Executive  Officers due to
the functional perspective regarding the management of the companies.

                           Summary Compensation Table
<TABLE>
<CAPTION>

                               Annual Compensation                  Long-Term Compensation
                      ----------------------------------  --------------------------------------------
                                                                  Awards          Payouts

                                                 Other
                                                 Annual   Restricted  Securities            All Other
Name and                                         Compen-     Stock    Underlying    LTIP       Compen-
Principal Position          Salary     Bonus     sation     Award(s)   Options/    Payouts     sation
at Registrant         Year    ($)     ($)(1)     ($)(2)    ($)(1)(3)   SARs(#)      ($)(4)     ($)(5)
<S>                   <C>   <C>       <C>        <C>       <C>        <C>          <C>        <C>


Glenn Files, Senior   1999  393,077   283,562     5,893          --         --         --       23,557
 President of CSW     1998  392,307   125,000    10,753          --         --     75,992       23,263
 Electric Operations  1997  374,999   143,099     8,534          --     31,000         --       23,757
 (4,5)
Richard H. Bremer,    1999  181,092   213,300     2,132          --         --         --    2,523,557
 Former Pres. of CSW  1998  328,154    48,642     2,499          --         --     87,818       23,263
 Energy Serv business 1997  307,462    99,993     4,648          --     26,000         --       21,357
 unit (4,5,6)
Robert L. Zemanek,    1999  283,250   184,985     3,510          --         --         --       23,557
 President of CSW     1998  294,144     9,560    49,818          --         --     81,702       23,263
 Energy Delivery      1997  283,250    89,279    10,272          --     24,000         --       23,757
 business unit (4,5)
Richard P. Verret,    1999  271,116   175,676     2,009          --         --         --        8,103
 President of CSW     1998  270,038    50,953     1,833          --         --     47,576        7,900
 Production (4,5)     1997  251,230    83,390     2,083          --     21,000         --        7,953

J. Gonzalo Sandoval   1999  138,863    29,955        --          --         --         --        7,200
General Manager/      1998  138,115     8,110        --          --         --     18,944        6,580
President of CPL (4)

T. D. Churchwell,     1999  192,500   101,063     2,209          --         --         --        8,103
 President of PSO     1998  199,904     6,738     2,359          --         --     37,942        7,900
 (4,5)                1997  192,500    53,672     2,167          --     13,000         --        6,398

Michael H. Madison,   1999  186,944    87,380     5,544          --         --         --        8,103
 President of SWEPCO  1998  178,593    53,150    28,914          --         --     18,944        7,900
 (4,5)

Paul J. Brower,       1999  141,677    29,955     5,564          --         --         --        7,200
 General Manager/     1998  138,115     2,874    15,136          --         --     18,944        6,344
 President of WTU (4)
</TABLE>

(1) Amounts  in  these  columns  are paid or  awarded  in a  calendar  year for
    performance in a preceding year.

(2) The following are the perquisites and other personal benefits required to be
    identified in respect of each Named Executive Officer:  None.


                                      3-16
<PAGE>

(3) Grants of restricted  stock are  administered  by the Executive Compensation
    Committee  of  the  CSW  Board  of  Directors,  which  has  the authority to
    determine the individuals to whom and the terms upon which restricted  stock
    grants, including the number of underlying shares, shall be made.

As of December 31, 1999, the aggregate  restricted stock holdings of each of the
Named Executive Officers are presented in the following table.

                                 Restricted Stock     Market Value at
       Name                    at December 31, 1999  December 31, 1999
       ---------------------------------------------------------------
       Glenn Files                     2,904             $58,080
       Richard H. Bremer                  --                  --
       Robert L. Zemanek               3,009              60,180
       Richard P. Verret               1,754              35,080
       J. Gonzalo Sandoval               725              14,500
       T. D. Churchwell                1,076              21,520
       Michael H. Madison                725              14,500
       Paul J. Brower                    725              14,500

(4)The awards  reflected in this column are the value of restricted  shares paid
   out under the LTIP in 1998. The awards have a two-year vesting period with 50
   percent of the stock vesting on each anniversary  date. Upon vesting,  shares
   of CSW  Common  Stock are  re-issued  without  restrictions.  The  individual
   receives  dividends and may vote shares of restricted stock, even before they
   are vested. The amount reported in the Summary  Compensation Table represents
   the market value of the shares at the date of grant.

(5)Amounts  shown in this column  consist of: (i) the annual  employer  matching
   payments to CSW's Retirement Savings Plan; (ii) premiums paid per participant
   for personal liability insurance;  and (iii) average amounts of premiums paid
   per  participant in those years under CSW's  memorial gift program.  In 1999,
   1998 and 1997, Messrs. Bremer, Files and Zemanek participated in the memorial
   gift  program.  See  Meetings and  Compensation  for a  description  of CSW's
   memorial gift program.  In 1999,  $2,500,000  was paid to Mr. Bremer upon his
   resignation.

(6)Mr. Bremer  was President of the  CSW Energy Services  business unit until he
   resigned in 1999.

Option/SAR Grants

No stock options or appreciation  rights were granted to any officer or director
of CSW or the U.S. Electric Operating Companies in 1999.


CSW
Option/SAR Exercises and Year-End Value Table

      Shown below is information  regarding option/SAR exercises during 1999 and
unexercised  options/SARs  as of  December  31,  1999,  for the Named  Executive
Officers.

                                      3-17

<PAGE>



Aggregated Option/SAR Exercises in 1999
and Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>

                                                Number of Securities         Value of Unexercised
                                      Value    Underlying Unexercised           In-the-Money
                   Shares Acquired   Realized Options/SARs at Year End     Options/SARs at Year End
Name                On Exercise        ($)    Exercisable/Unexercisable   Exercisable/Unexercisable(1)
-----------------  ---------------  --------- -------------------------   ----------------------------
<S>                      <C>           <C>        <C>                               <C>

E. R. Brooks              --            --         86,842/21,667                     --/--
T. V. Shockley, III       --            --         69,564/13,667                     --/--
Glenn Files               --            --         44,319/10,334                     --/--
Ferd. C. Meyer, Jr.       --            --          42,556/9,667                     --/--
Glenn D. Rosilier         --            --          51,555/9,334                     --/--
</TABLE>


(1)   Calculated  based upon the  difference  between the closing price of CSW's
      Shares on the New York Stock  Exchange  on December  31, 1999  ($20.00 per
      share) and the exercise price per share of the  outstanding  unexercisable
      and exercisable options ($20.750, $24.813 and $29.625, as applicable).


U.S. ELECTRIC OPERATING COMPANIES
Option/SAR Exercises and Year-End Value Table

      Shown below is information  regarding option/SAR exercises during 1999 and
unexercised  options/SARs at December 31, 1999 for the Named Executive  Officers
for the U.S. Electric Operating Companies.

                     Aggregated Option/SAR Exercises in 1999
                      and Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>

                                               Number of Securities         Value of Unexercised
                                      Value    Underlying Unexercised           In-the-Money
                   Shares Acquired   Realized Options/SARs at Year End     Options/SARs at Year End
Name                On Exercise        ($)    Exercisable/Unexercisable   Exercisable/Unexercisable(1)
---------------    ---------------  --------- -------------------------   ----------------------------
<S>                      <C>           <C>        <C>                               <C>

Glenn Files               --            --         44,319/10,334                    --/--
Richard H. Bremer       33,233       $107,880          --/--                        --/--
Robert L. Zemanek         --            --         41,430/8,000                     --/--
Richard P. Verret         --            --         10,135/7,000                     --/--
J. Gonzalo Sandoval       --            --          2,916/--                        --/--
T. D. Churchwell          --            --         13,601/4,334                     --/--
Michael H. Madison        --            --          6,802/3,667                     --/--
Paul J. Brower            --            --          7,145/--                        --/--
</TABLE>

(1)Calculated  based upon the  difference  between  the  closing  price of CSW's
   Shares on the New York Stock Exchange on December 31, 1999 ($20.00 per share)
   and the  exercise  price  per  share  of the  outstanding  unexercisable  and
   exercisable options ($20.750, $24.813 and $29.625, as applicable).


                                      3-18
<PAGE>


CSW
Long-Term Incentive Plan Awards in 1999

      The following table shows information  concerning awards made to the Named
Executive Officers for CSW during 1999 under the LTIP:
<TABLE>
<CAPTION>

                                                          Estimated Future Payouts under
                                                            Non-Stock Price Based Plans

                                        Performance or
                        Number of        Other Period
                     Shares, Units or  Until Maturation   Threshold   Target   Maximum
   Name                Other Rights       Or Payout          ($)        ($)      ($)
   ----              ----------------  ----------------   ---------   ------   -------
   <S>                  <C>                 <C>             <C>       <C>      <C>
   E. R. Brooks          19,572             2 years          --       391,440  587,160
   T. V.  Shockley, III  11,689             2 years          --       233,780  350,670
   Glenn Files            8,442             2 years          --       168,840  253,260
   Ferd. C. Meyer, Jr.    7,576             2 years          --       151,520  227,280
   Glenn D. Rosilier      7,360             2 years          --       147,200  220,800
</TABLE>

(1)   Vesting period for awards paid at end of three-year cycle.

      Payouts of the awards are contingent  upon CSW achieving a specified level
of total stockholder return, relative to a peer group of utility companies,  for
a three-year period or cycle and exceeding a certain defined minimum  threshold.
If the Named Executive Officer's employment is terminated during the performance
period for any reason  other  than  death,  total and  permanent  disability  or
retirement, then the award is canceled. The LTIP contains provision-accelerating
awards  upon a change in control of CSW.  If a change in control of CSW  occurs,
all options and SARs become fully  exercisable and all  restrictions,  terms and
conditions  applicable to all  restricted  stock are deemed lapsed and satisfied
and all performance  units are deemed to have been fully earned,  as of the date
of the change in control.  The LTIP also contains provisions designed to prevent
circumvention of the above acceleration  provisions through coerced  termination
of an  employee  prior to a change  in  control.  See  Cash and  Other  Forms of
Compensation - CSW for additional discussion of the terms of the LTIP.


U.S. Electric Operating Companies
Long-term Incentive Plan Awards in 1999

      The following table shows information  concerning awards made to the Named
Executive Officers during 1999 under the CSW LTIP.

<TABLE>
<CAPTION>

                                                          Estimated Future Payouts under
                                                            Non-Stock Price Based Plans

                                        Performance or
                        Number of        Other Period
                     Shares, Units or  Until Maturation   Threshold   Target   Maximum
   Name                Other Rights       Or Payout          ($)        ($)      ($)
   ----              ----------------  ----------------   ---------   ------   -------
   <S>                  <C>                 <C>             <C>       <C>      <C>
Glenn Files              8,442              2 years          --      168,840    253,260
Robert L. Zemanek        6,131              2 years          --      122,620    183,930
Richard P. Verret        5,823              2 years          --      116,460    174,690
J. Gonzalo Sandoval       --                2 years          --         --        --
Richard H. Bremer         --                2 years          --         --        --
T. D. Churchwell         2,778              2 years          --       55,560    83,340
Michael H. Madison       2,482              2 years          --       49,640    74,460
Paul J. Brower            --                2 years          --         --        --
</TABLE>

 (1) Vesting period for awards paid at end of three year cycle.


                                      3-19
<PAGE>

      Payouts of these  awards are  contingent  upon CSW  achieving  a specified
level  of  total  stockholder  return,  relative  to a  peer  group  of  utility
companies,  for a three-year  period,  or cycle, and exceeding a certain defined
minimum  threshold.  If the Named Executive  Officer's  employment is terminated
during  the  performance  period  for any reason  other  than  death,  total and
permanent  disability or  retirement,  then the award is canceled.  The CSW LTIP
contains a provision  accelerating  awards upon a change in control of CSW. If a
change in control of CSW occurs,  all options and SARs become fully  exercisable
and all  restrictions,  terms and conditions  applicable to all restricted stock
are deemed lapsed and satisfied  and all  performance-based  units are deemed to
have been fully  earned,  as of the date of the change in control.  The CSW LTIP
also  contains  provisions  designed  to  prevent  circumvention  of  the  above
acceleration  provisions  through coerced  termination of an employee prior to a
change in control.

Cash Balance Retirement Plan

      The CSW System maintains the Cash Balance Plan for eligible employees.  In
addition,  the CSW System maintains the SERP, a non-qualified ERISA excess plan,
that primarily  provides  benefits that cannot be payable under the Cash Balance
Plan  because of  maximum  limitations  imposed  on such  plans by the  Internal
Revenue Code.  Under the cash balance  formula,  each participant has an account
for  recordkeeping  purposes  only, to which dollar amount credits are allocated
annually  based  on a  percentage  of the  participant's  pay.  Pay for the Cash
Balance  Plan  includes  base  pay,  bonuses,  overtime,  and  commissions.  The
applicable  percentage is determined by the age and years of vesting service the
participant  has with CSW and its  affiliates as of December 31 of each year (or
as of the participant's termination date, if earlier). The following table shows
the applicable percentage used to determine dollar amount credits at the age and
years of service indicated.

                   Sum of Age plus
                  Years of Service      Applicable Percentage
               ------------------------------------------------
                         <30                    3.0%
                        30-39                   3.5%
                        40-49                   4.5%
                        50-59                   5.5%
                        60-69                   7.0%
                     70 or more                 8.5%

      As of December 31, 1999, the sum of age plus years of service of the Named
Executive  Officers  for CSW for the cash  balance  formula is as  follows:  Mr.
Brooks,  100; Mr. Shockley,  77; Mr. Files, 80; Mr. Meyer, 78; and Mr. Rosilier,
75.
      As of December 31, 1999, the sum of age plus years of service of the Named
Executive  Officers  for the  U.S.  Electric  Operating  Companies  for the cash
balance formula are as follows:  Mr. Zemanek,  77; Mr. Verret, 80; Mr. Sandoval,
76, Mr. Churchwell, 76; Mr. Madison, 79; Mr. Brower, 73.

      All dollar amount  balances in the accounts of  participants  earn a fixed
rate of interest,  which is also  credited  annually.  The  interest  rate for a
particular  year is the average rate of return of the 30-year  Treasury Rate for
November of the prior year. For 1999, the interest rate was 5.25%. For 2000, the
interest  rate  is  6.15%.  Interest  continues  to be  credited  as long as the
participant's balance remains in the plan.

      At retirement or other  termination of employment,  an amount equal to the
vested  balance  (including  qualified  and SERP  benefit)  then credited to the
account is payable to the  participant  in the form of an  immediate or deferred
lump sum or annuity.  Benefits,  (both from the Cash  Balance Plan and the SERP)

                                      3-20
<PAGE>

under the cash balance formula, are not subject to reduction for Social Security
benefits or other offset amounts.  The estimated  annual benefit payable to each
of the Named  Officers as a single life annuity at age 65 under the Cash Balance
Plan and the SERP is:

      CSW
      E.R. Brooks                         $467,246
      T.V. Shockley, III                   244,999
      Ferd. C. Meyer, Jr.                  146,311
      Glenn D. Rosilier                    255,520
      Glenn Files                          279,398


      U.S. Electric Operating Companies
      Robert L. Zemanek                   $241,035
      Richard P. Verret                    177,290
      Richard H. Bremer                         --
      J. Gonzalo Sandoval                   98,903
      T.D. Churchwell                      108,313
      Michael H. Madison                   124,924
      Paul J. Brower                        81,665


      These projections are based on the following assumptions:  (1) participant
remains  employed  until age 65; (2) salary  used is base pay paid for  calendar
year 1999  assuming no future  increases  plus bonus at 1999 target  level;  (3)
interest  credit at 6.15% for 2000 and future years;  and (4) the  conversion of
the lump-sum cash balance to a single life annuity at normal  retirement  age is
based on an interest rate of 6.15% and the 1983 Group Annuity  Mortality  Table,
which sets forth generally accepted life expectancies.

      In addition,  certain  employees  who were 50 or over and had completed at
least 10 years of service as of July 1, 1997,  also  continue  to earn a benefit
using the prior  pension  formula.  For CSW, at  commencement  of benefits,  Mr.
Brooks,  Mr. Shockley and Mr. Meyer have a choice of their accrued benefit using
the cash  balance  formula  or their  accrued  benefit  using the prior  pension
formula. For the U.S. Electric Operating Companies, at commencement of benefits,
Mr. Verret and Mr.  Churchwell  have a choice of their accrued benefit using the
cash balance formula or their accrued  benefit using the prior pension  formula.
Once the  participant  selects  either the earned benefit under the cash balance
formula or the earned benefit under the prior pension formula,  the other earned
benefit is no longer available.


                                      3-21
<PAGE>


      The table below shows the estimated  combined  benefits  payable from both
the prior  pension  formula  and the SERP  based on  retirement  age of 65,  the
average  compensation  shown,  the years of credited  service  shown,  continued
existence of the prior pension formula without substantial change and payment in
the form of a single life annuity.

                            Annual Benefits After
                     Specified Years of Credited Service
          Average
       Compensation      15           20           25      30 or more
       ----------------------------------------------------------------

          $100,000     $25,050     $33,333      $41,667      $50,000
           150,000      37,575      50,000       62,500       75,000
           200,000      50,100      66,667       83,333      100,000
           250,000      62,625      83,333      104,167      125,000
           300,000      75,150     100,000      125,000      150,000
           350,000      87,675     116,667      145,833      175,000
           450,000     112,725     150,000      187,500      225,000
           550,000     137,775     183,333      229,167      275,000
           650,000     162,825     216,667      270,833      325,000
           750,000     187,875     250,000      312,500      375,000
           850,000     212,500     283,333      357,000      425,000
           950,000     237,975     316,667      395,833      475,000

      Benefits  payable  under  the prior  pension  formula  are based  upon the
participant's  years of credited  service (up to a maximum of 30 years),  age at
retirement,  and  covered  compensation  earned by the  participant.  The annual
normal  retirement  benefit payable under the prior pension formula and the SERP
are based on 1.67 percent of "Average Compensation" times the number of years of
credited service  (reduced by no more than 50 percent of a participant's  age 62
or  later  Social  Security   benefit).   "Average   Compensation"   is  covered
compensation  for the prior  pension  formula  and  equals  the  average  annual
compensation,  reported as salary in the Summary  Compensation Table, during the
36 consecutive months' highest pay during the 120 months prior to retirement.

      Respective  years of credited  service and ages,  as of December 31, 1999,
for the  following  officers of CSW,  who  continue to earn a benefit  under the
prior pension formula are: Mr. Brooks,  38 and 62, Mr.  Shockley,  23 and 54 and
Mr.  Meyer,  30 and 60.  Respective  years of credited  service and ages,  as of
December 31, 1999,  for the following  officers of the U.S.  Electric  Operating
Companies,  who continue to earn a benefit under the prior pension  formula are:
Mr. Verret, 27 and 53, Mr. Churchwell, 21 and 55.

Change in Control Agreements

      Pursuant to approval by the CSW Board of  Directors in October  1996,  CSW
also has Change in Control  Agreements with the Named Executive  Officers of CSW
and  certain  other CSW System  officers.  The  purpose of the Change in Control
Agreements  is to assure the  objective  judgment  and to retain the  loyalty of
these  individuals  in the  event of a Change  in  Control  of CSW.  A Change in
Control includes, among other things, any person gaining ownership or control of
25% or more of the  outstanding  shares of CSW's  voting stock or the closing of
any merger, acquisition or consolidation following which the former stockholders
of CSW own less than 75% of the surviving entity.

      The Change in Control Agreements entitle the Named Executive Officers,  in
certain circumstances, including but not limited to, a termination by CSW within
three years after a Change in Control  (prior to the expiration of the Change in
Control  Agreements),  to receive:  (i) a lump sum payment  equal to two to four
times  their  base  salary  plus  target  bonus;  (ii)  enhanced   non-qualified
retirement benefits; (iii) continued health and other welfare benefits for up to
three years and (iv) various other non-qualified benefits. The participating CSW

                                      3-22
<PAGE>

System  officers are also eligible for an additional  payment,  if required,  to
make them  whole for any excise tax  imposed  by  Section  4999 of the  Internal
Revenue Code.

      CSW's  LTIP  provides  for  awards of stock  options,  stock  appreciation
rights, restricted stock, phantom stock and performance unit awards to employees
selected  by  the  CSW  Executive   Compensation   Committee,   including  those
individuals  named in the CSW  Summary  Compensation  Table.  Upon a  Change  in
Control  (as  defined  in the  LTIP),  the  awards  previously  granted to those
employees will become fully exercisable, fully vested, or fully earned.

Meetings and Compensation

CSW

      The CSW Board of  Directors  held six regular  meetings  and four  special
meetings during 1999. Directors who are not officers or employees of CSW receive
annual cash directors' fees of $12,000 for serving on the CSW Board and a fee of
$1,250 per day plus  expenses  for each  meeting  of the CSW Board or  committee
meeting  attended.  CSW also has the Directors'  Compensation  Plan which awards
non-employee directors an annual award of 600 phantom stock shares.  Pursuant to
the Directors'  Compensation  Plan, all phantom stock was vested and immediately
converted,  on a  share-for-share  basis,  to  Common  Stock  after  stockholder
approval of the  proposed  merger with AEP, on May 28, 1998.  For 1999,  and any
future awards of phantom stock, all awards were and will be immediately  vested,
converted to common stock and issued. The CSW Board has standing Policy,  Audit,
Executive  Compensation  and  Nominating  Committees.  Chairmen  of  the  Audit,
Executive Compensation, and Nominating Committees receive annual fees of $6,000,
$3,500  and  $3,500,  respectively,  to be paid in cash in  addition  to regular
director and meeting fees. Any committee  chairman who is also an officer of CSW
receives no annual fees.

      CSW  maintains a memorial  gift program for all of its current  directors,
directors who have retired since 1992 and certain executive officers.  There are
17 current directors and executive officers and 15 retired or resigned directors
and officers  eligible for the memorial  gift program.  Under this program,  CSW
will make donations in a director's or executive  officer's name for up to three
charitable  organizations in an aggregate of $500,000,  payable by CSW upon such
person's death. CSW maintains  corporate-owned  life insurance  policies to fund
the  program.  The  annual  premiums  paid by CSW are based on pooled  risks and
averaged  $15,454 per participant in 1999,  $15,363 per participant for 1998 and
$15,803 per participant for 1997.

      Non-employee  directors are provided the  opportunity to defer some or all
of their  directors' fees by  participating in either the Central and South West
Deferred  Compensation  Plan for Directors or the  Directors'  Deferred  Savings
Plan. The Compensation Plan allows  participants to defer up to $20,000 of board
and committee fees. Participants receive a ten-year annuity, based on the amount
deferred,  beginning at the  participant's  normal  retirement date from the CSW
Board.  The Savings  Plan is unlimited  as to the amount of  participating  fees
which are returned, with accrued interest, as a lump sum or over a period not to
exceed 15 years following retirement.

      Non-employee directors are provided the opportunity to enroll in a medical
and dental  program  offered by CSW.  This  program is identical to the employee
plan, and directors who elect  coverage pay the same premium as active  employee
participants in the plan. If a non-employee  director  terminates his service on
the CSW Board  with ten or more  years of  service  and is over 70 years of age,
that  director  is  eligible  to receive  retiree  medical  and dental  benefits
coverage from CSW.

      All  current  directors  attended  more  than 75% of the  total  number of
meetings held by the CSW Board and each committee on which such directors served
in 1999.


                                      3-23
<PAGE>

U.S. Electric Operating Companies

Meetings and Directors Fees

      Those  directors  who are not also  officers of CPL,  PSO,  SWEPCO and WTU
receive annual directors' fees and a fee of $300 plus expenses for each board or
committee  meeting  attended,  as  described  below.  They are also  eligible to
participate in a deferred  compensation plan. Under this plan such directors may
elect to defer payment of annual  directors'  and meeting fees until they retire
from the board or as they  otherwise  direct.  The number of board  meetings and
annual directors' fees are presented in the following table.

                                       CPL         PSO       SWEPCO        WTU
                                   ---------------------------------------------

Number of regular board meetings        4           4           4           4
Number of special board meetings        1          --           2           1
Annual directors' fees               $6,000      $6,000      $6,600       $6,000

      All of CPL's  directors  attended 75% or more of the scheduled and special
board  meetings.  PSO and SWEPCO each had one director who attended  only 50% of
the meetings. WTU had one director who attended only 25% of the meetings.

Board Committees

CSW

      Policy Committee.  The Policy Committee,  currently  consisting of Messrs.
Brooks  (Chairman),  Foy,  Lawless and Powell,  held two  meetings in 1999.  The
Policy Committee reviews and makes  recommendations  to the CSW Board concerning
major policy issues,  considers the composition,  structure and functions of the
CSW Board  and its  committees  and  reviews  existing  corporate  policies  and
recommends  changes when appropriate.  The Policy Committee has authority to act
on behalf of the CSW Board when the full CSW Board is not in session,  except as
otherwise provided under Delaware law.

      Audit Committee.  The Audit Committee,  currently  consisting of Ms. Boren
and Messrs.  Carlton,  Lawless  (Chairman),  and Sandor,  held seven meetings in
1999. The Audit  Committee  recommends to the CSW Board the  independent  public
accountants to be selected; discusses with the internal auditors and independent
public  accountants  the overall scope,  plans and results of their audits,  and
their  evaluations  of  internal  controls  and the  overall  quality  of  CSW's
accounting  and  financial   reporting   practices;   facilitates   any  private
communication  with the Audit  Committee  desired by the  internal  auditors  or
independent public accountants; discusses with management, internal auditors and
the independent  public  accountants  CSW's  accounting and financial  reporting
principles and policies;  monitors the program to ensure  compliance  with CSW's
business ethics policy;  and may direct and supervise an investigation  into any
significant matter brought to its attention within the scope of its duties.

      Executive Compensation  Committee.  The Executive Compensation  Committee,
currently  consisting  of Ms.  Boren and Messrs.  Foy  (Chairman),  Howell,  and
Sandor,  held three  meetings  in 1999.  The  Executive  Compensation  Committee
determines the executive  compensation  philosophy of CSW and the U.S.  Electric
Operating  Companies,   reviews  benefit  programs  and  management   succession
programs,  sets the  salaries  for the  executive  officers  of CSW and the U.S.
Electric Operating  Companies and reviews and recommends  salaries for the chief
executive officers of CSW principal subsidiaries.


                                      3-24
<PAGE>

      Nominating Committee.  The Nominating  Committee,  currently consisting of
Messrs.  Carlton,  Howell and Powell (Chairman),  held two meetings in 1999. The
Nominating Committee reviews and recommends qualified candidates for election to
the  Board  of  Directors.   The  Nominating   Committee  welcomes   stockholder
suggestions for Board  nominations.  Such suggestions  should be directed to Mr.
Brooks, Chairman and CEO, who will forward them to the Nominating Committee.

U.S. Electric Operating Companies

Committees

      Each of the four U.S. Electric Operating Companies has an audit committee.
Except for CPL,  each of the other  companies  also has an  executive  committee
which addresses policy matters that arise between scheduled board meetings.

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities  Exchange Act of 1934 and Section 17(a) of
the  Public  Utility  Holding  Company  Act of 1935  require  CSW's and the U.S.
Electric  Operating   Companies'   officers  and  directors,   and  persons  who
beneficially  own more than ten percent of CSW's Common  Stock,  or any class of
equity security (other than an exempted  security) which is registered  pursuant
to Section 12 of the Exchange  Act, to file reports of ownership  and changes in
ownership with the SEC and the New York Stock Exchange.  Officers, directors and
greater-than-ten-percent  stockholders are required by SEC regulation to furnish
CSW with copies of all Section  16(a)  reports they file.  Based solely on CSW's
review of the copies of such forms  received  and written  representations  from
certain reporting persons, CSW and the U.S. Electric Operating Companies believe
that  during  1999 all such  filing  requirements  applicable  to its  officers,
directors and greater-than-ten-percent stockholders were complied with.

Compensation Committee Interlocks and Insider Participation

      No person  serving  during 1999 as a member of the Executive  Compensation
Committee  of the Board of  Directors of CSW served as an officer or employee of
any  Registrant  during or prior to 1999.  No person  serving  during 1999 as an
executive officer of the U.S. Electric Operating  Companies serves or has served
on  the  compensation  committee  or as a  director  of  another  company  whose
executive   officers  serve  or  have  served  as  a  member  of  the  Executive
Compensation  Committee  of CSW or as a  director  of one of the  U.S.  Electric
Operating  Companies.  The U.S. Electric  Operating  Companies have no Executive
Compensation Committees or committee performing similar functions.


                                      3-25
<PAGE>



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Security Ownership of Certain Beneficial Owners

      Set forth below are the only persons or groups known to CSW as of December
31,  1999,  which have  beneficial  ownership  of five  percent or more of CSW's
Common Stock.

   --------------------------------------------------------------------------
                                                        (3)
                                                     Amount and
                                 (2)                 Nature of       (4)
        (1)              Name and Address of         Beneficial  Percent of
   Title of Class         Beneficial Owners          Ownership      Class
   --------------------------------------------------------------------------
    Common Stock  Sanford C. Berstein & Co.          18,290,965     8.6%
                  767 Fifth Avenue
                  New York, NY 10153-0185

    Common Stock  Barrow, Hanley, Mewhinney &        16,090,800     7.6%
                  Strauss, Inc.
                  1 McKinney Plaza
                  3232 McKinney Avenue, 15th Floor
                  Dallas, TX 75204-2429 (A)

    Common Stock  Capital Research & Management      15,715,800     7.4%
                  Company
                  333 South Hope Street
                  Los Angeles, CA 90071-1447


    (A) Vanguard  Windsor Funds,  Inc.,  P.O. Box 2600,  Valley Forge, PA 19482,
      reported  beneficial  ownership of 12,443,000  shares of Common Stock,  or
      5.9%.  The 7.6% block of shares  reported by Barrow,  Hanley,  Mewhinney &
      Strauss,  Inc.  includes the Vanguard  shares,  based upon the information
      contained in the Vanguard  Windsor II Fund Annual Report dated October 31,
      1999.


      U.S. Electric Operating Companies
      All of the outstanding shares of common stock of each of the U.S. Electric
Operating Companies, presented in the following table, is owned beneficially and
of record by CSW.

              Company              Shares        Par Value
              -------------------------------------------------
              CPL                6,755,535           $25
              PSO                9,013,000            15
              SWEPCO             7,536,640            18
              WTU                5,488,560            25


                                      3-26
<PAGE>


CSW

Security Ownership of Management

      The following table shows securities beneficially owned as of December 31,
1999 by each director and nominee,  certain executive officers and all directors
and  executive  officers as a group.  Share  amounts shown in this table include
options  exercisable  within 60 days after December 31, 1999,  restricted stock,
shares of Common Stock  credited to  Retirement  Savings  Plan  accounts and all
other shares of Common Stock beneficially owned by the listed persons.

                 Beneficial Ownership as of December 31, 1999

                                                          CSW Common
                                                          Underlying
                                        CSW    Restricted Immediately
        Name                           Common    Stock    Exercisable
                                        (1)     (2) (3)   Options (3)
        ---------------------------------------------------------------
        CSW
        Molly Shi Boren                  5,663
        E.R. Brooks                    161,237     8,153        86,842
        Donald M. Carlton               10,120
        T.J. Ellis                      41,395       542        37,733
        Glenn Files                     65,636     2,904        44,319
        Joe H. Foy                       2,834
        Thomas M. Hagan                 27,984       779        21,818
        William Howell                   1,220
        Robert W. Lawless                5,433
        Venita McCellon-Allen           21,747       751        15,267
        Ferd. C. Meyer, Jr.             60,229     3,799        42,556
        James L. Powell                  6,101
        Glenn D. Rosilier               93,004     3,799        51,555
        Richard L. Sandor                  620
        T. V. Shockley, III            101,692     4,844        69,564
        Lawrence B. Connors             28,700       779        15,597
        Wendy G. Hargus                 16,944       725        12,650
        Stephen J. McDonnell            40,169       725        15,145
        Kenneth C. Raney, Jr.           16,881       725         9,476
        Michael D.Smith                 19,892       751        16,445

                                     ----------------------------------
        TOTAL                          727,501    29,276       438,967

(1)Beneficial ownership percentages are all less than one percent and therefore
   are omitted.
(2)These  individuals  currently have voting power,  but not  investment  power,
   with respect to these shares.
(3)These shares are included in the CSW Common column.

      The following tables show securities beneficially owned as of December 31,
1999, by each director, the President,  Executive Officers and all directors and
Executive Officers as a group for each of the U.S. Electric Operating Companies.
Share  amounts shown in this table include  options  exercisable  within 60 days
after  December 31, 1999,  restricted  stock,  CSW Common Stock  credited to CSW
Retirement  Savings Plan  accounts  and all other CSW Common Stock  beneficially
owned by the listed persons.

                                      3-27
<PAGE>


      Each of the U.S.  Electric  Operating  Companies has one or more series of
preferred  stock  outstanding.  As of December 31, 1999, none of the individuals
listed in the following tables owned any shares of preferred stock of any of the
U.S. Electric Operating Companies.

               Beneficial Ownership as of December 31, 1999
                                                         CSW Common
                                                         Underlying
                                      CSW     Restricted Immediately
      Name                           Common     Stock    Exercisable
                                      (1)      (2) (3)   Options (3)
      ----------------------------------------------------------------
      CPL
      John F. Brimberry                 1,542         -            --
      E. R. Brooks                    161,237     8,153        86,842
      Glenn Files                      65,636     2,904        44,319
      Ruben M. Garcia                      --        --            --
      Robert A. McAllen                   250        --            --
      Pete Morales, Jr.                    --        --            --
      H. Lee Richards                   1,400        --            --
      J. Gonzalo Sandoval              12,758       725         2,916
      Gerald E. Vaughn                 21,699       725        15,010
      Wendy Hargus                     16,944       725        12,650
      Alphonso R. Jackson               7,151       221         6,666
      R. Russell Davis                  1,406        --         1,406
      Brenda L. Snider                    834        --            --
                                   -----------------------------------
      TOTAL                           290,857    13,453       169,809
                                   -----------------------------------

      PSO
      E. R. Brooks                    161,237     8,153        86,842
      T. D. Churchwell                 17,137     1,076        13,601
      Harry A. Clarke                      --        --            --
      Glenn Files                      65,636     2,904        44,319
      Paul K. Lackey, Jr.                  --        --            --
      Paula Marshall-Chapman               --        --            --
      William R. McKamey               15,655       725         3,323
      Dr. Robert B. Taylor, Jr.            --        --            --
      Wendy Hargus                     16,944       725        12,650
      R. Russell Davis                  1,406        --         1,406
      Lina P. Holm                        789        --            --
                                   ------------------------------------
      TOTAL                           278,804    13,583       162,141
                                   ------------------------------------

      SWEPCO
      Karen C. Adams                    2,601        --           880
      E. R. Brooks                    161,237     8,153        86,842
      James E. Davison                 34,175        --            --
      Glenn Files                      65,636     2,904        44,319
      Dr. Frederick E. Joyce               --        --            --
      John M. Lewis                        --        --            --
      William C. Peatross                  --        --            --
      Maxine P. Sarpy                     100        --            --
      Michael H. Madison               14,100       725         6,802
      Wendy Hargus                     16,944       725        12,650
      R. Russell Davis                  1,406        --         1,406
      Marilyn  S. Kirkland                289        --            --
                                   ------------------------------------
      TOTAL                           296,488    12,507       152,899
                                   ------------------------------------

      WTU
      E. R. Brooks                    161,237     8,153        86,842
      Paul J. Brower                   10,338       725         7,145
      Glenn Files                      65,636     2,904        44,319
      Tommy Morris                      2,000        --            --
      Dian G. Owen                         --        --            --
      James M. Parker                      --        --            --
      F. L. Stephens                   15,215       600            --
      Alphonso R. Jackson               7,151       221         6,666
      Wendy Hargus                     16,944       725        12,650
      R. Russell Davis                  1,406        --         1,406
      Martha Murray                     3,583        --            --
                                   ------------------------------------
      TOTAL                           283,510    13,328       159,028
                                   ------------------------------------
(1)Beneficial ownership percentages are all less than one percent and therefore
   are omitted.
(2)These  individuals  currently have voting power,  but not  investment  power,
   with respect to these shares.
(3)These shares are included in the CSW Common column.


                                      3-28
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

       CSW
       None.

      U.S. Electric Operating Companies
      None.



                                      3-29
<PAGE>




PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) The  following  documents  are  filed as a part of this  report on this Form
    10-K.

      (1) Financial Statements.
      Reports of Independent Public Accountants on the financial  statements for
      CSW and subsidiary  companies,  CPL, PSO,  SWEPCO and WTU are listed under
      ITEM 8 herein.

      The  financial  statements  filed  as a part  of this  report  for CSW and
      subsidiary  companies,  CPL,  PSO,  SWEPCO and WTU are listed under ITEM 8
      herein.

      (2)   Exhibits.
      Exhibits  for CSW,  CPL,  PSO,  SWEPCO  and WTU are listed in (c) Index to
      Exhibits below.

(b) Reports on Form 8-K.

CSW
Date of earliest event reported: October 8, 1999
Date of report: October 18, 1999
Item 5. Other Events and Item 7. Financial Statements and Exhibits, news release
related to the sale of 50% equity  interest  in the Sweeny  electric  generating
plant.


CSW CPL, PSO, SWEPCO and WTU
Date of earliest event reported: November 17, 1999
Date of report: December 7, 1999
Item 5. Other Events and Item 7. Financial Statements and Exhibits, news release
reporting a FERC ALJ finding that the AEP Merger is in the public interest and a
news release reporting the Louisiana  Commission's  approval of an agreement and
stipulation covering rates to retail customers.

CSW CPL, PSO, SWEPCO and WTU
Date of earliest event reported: December 16, 1999
Date of report:  December 17, 1999
Item 5. Other Events and Item 7. Financial Statements and Exhibits, news release
reporting  amendment of the AEP Merger agreement  extending the term for closing
until June 30, 2000.

CSW CPL, SWEPCO and WTU
Date of earliest event reported: January 10, 2000
Date of report:  January 25, 2000
Item 5. Other Events and Item 7. Financial  Statements  and Exhibits,  copies of
news release and Texas Commission filing by CSW and its three electric utilities

                                      4-1
<PAGE>

serving Texas jurisdictional customers announcing a business separation plan for
"unbundling" Texas electrical  utilities into three entities:  a retail electric
provider, a power generation company and an energy delivery company.

SWEPCO
Date of earliest event reported: February 4, 2000
Date of report:  February 4, 2000
Item 5. Other Events and Item 7. Financial  Statements  and Exhibits,  reporting
SWEPCO's  1999  earnings  in  anticipation  of  filing a Form  S-3  registration
statement  with the SEC for a new debt  offering.  Exhibits  include  a ratio of
earnings to fixed charges and a financial data schedule.

CSW CPL, PSO, SWEPCO and WTU
Date of earliest event reported: January 25, 2000
Date of report:  February 14, 2000
Item 5.  Other  Events  and Item 7.  Financial  Statements  and  Exhibits,  news
releases  reporting  regulatory  approvals  of AEP Merger from United  Kingdom's
Department of Trade and Industry and United States  Department of Justice;  news
release reporting a settlement between CPL and the Texas Commission  relating to
the initial  securitization  of stranded costs;  and the reporting of CPL's 1999
earnings in  anticipation  of a new debt offering.  Exhibits  include a ratio of
earnings to fixed charges and a financial data schedule.


                                      4-2
<PAGE>


CSW
SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, as amended,  the registrant has duly caused this report to
be signed on its behalf by the undersigned,  thereunto duly authorized, on March
21, 2000. The signature of the undersigned  registrant shall be deemed to relate
only to  matters  having  reference  to  such  registrant  and any  subsidiaries
thereof.

                                    CENTRAL AND SOUTH WEST CORPORATION

                                    By:  Lawrence B. Connors
                                         Controller

      Pursuant to the  requirements  of the Securities  Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities  indicated on March 21, 2000. The signature
of each of the  undersigned  shall be deemed to relate  only to  matters  having
reference to the above named registrant and any subsidiaries thereof.

Signature                              Title
---------                              -----
E. R. Brooks                           Chairman, CEO and Director
                                       (Principal Executive Officer)

Glenn D. Rosilier                      Executive Vice President and Chief
                                       Financial Officer
                                       (Principal Financial Officer)

Lawrence B. Connors                    Controller
                                       (Principal Accounting Officer)

*Molly Shi Boren                       Director
*Dr. Donald M. Carlton                 Director
*T. J. Ellis                           Director
*Joe H. Foy                            Director
*William R. Howell                     Director
*Dr. Robert W. Lawless                 Director
*James L. Powell                       Director
*Dr. Richard L. Sandor                 Director
*T. V. Shockley, III                   President, Chief Operating Officer and
                                        Director

*Lawrence B.  Connors,  by signing his name hereto,  does sign this  document on
behalf of the persons  indicated  above  pursuant  to a power of  attorney  duly
executed by each such person.

                                       *By:  Lawrence B. Connors
                                             Attorney-in-Fact

                                      4-3
<PAGE>


CPL
SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, as amended,  the registrant has duly caused this report to
be signed on its behalf by the undersigned,  thereunto duly authorized, on March
21, 2000. The signature of the undersigned  registrant shall be deemed to relate
only to matters having reference to such registrant.

                                          CENTRAL POWER AND LIGHT COMPANY

                                          By:  R. Russell Davis
                                               Controller

      Pursuant to the  requirements  of the Securities  Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities  indicated on March 21, 2000. The signature
of each of the  undersigned  shall be deemed to relate  only to  matters  having
reference to the above named registrant.

Signature                                  Title
---------                                  ------
J. Gonzalo Sandoval                        General Manager/President and
                                            Director
                                           (Principal Executive Officer)

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

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

*R. Russell Davis, by signing his name hereto, does sign this document on behalf
of the persons  indicated above pursuant to a power of attorney duly executed by
each such person.

                                          *By:  R. Russell Davis
                                                Attorney-in-Fact





                                      4-4
<PAGE>


PSO
SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, as amended,  the registrant has duly caused this report to
be signed on its behalf by the undersigned,  thereunto duly authorized, on March
21, 2000. The signature of the undersigned  registrant shall be deemed to relate
only to matters having reference to such registrant.

                                       PUBLIC SERVICE COMPANY OF OKLAHOMA

                                       By:  R. Russell Davis
                                            Controller

      Pursuant to the  requirements  of the Securities  Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities  indicated on March 21, 2000. The signature
of each of the  undersigned  shall be deemed to relate  only to  matters  having
reference to the above named registrant.

Signature                              Title
---------                              -----
T. D. Churchwell                       President and Director
                                       (Principal Executive Officer)

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

*E. R. Brooks                          Director
*Harry A. Clarke                       Director
*Glenn Files                           Director
*Paul K. Lackey, Jr.                   Director
*Paula Marshall-Chapman                Director
*William R. McKamey                    General Manager and Director
*Dr. Robert B. Taylor, Jr.             Director

*R. Russell Davis, by signing his name hereto, does sign this document on behalf
of the persons  indicated above pursuant to a power of attorney duly executed by
each such person.

                                       *By: R. Russell Davis
                                            Attorney-in-Fact




                                      4-5
<PAGE>


SWEPCO
SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, as amended,  the registrant has duly caused this report to
be signed on its behalf by the undersigned,  thereunto duly authorized, on March
21, 2000. The signature of the undersigned  registrant shall be deemed to relate
only to matters having reference to such registrant.

                                    SOUTHWESTERN ELECTRIC POWER COMPANY

                                    By:  R. Russell Davis
                                         Controller

      Pursuant to the  requirements  of the Securities  Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities  indicated on March 21, 2000. The signature
of each of the  undersigned  shall be deemed to relate  only to  matters  having
reference to the above named registrant.

Signature                                  Title
---------                                  -----
Michael H. Madison                         President and Director
                                           (Principal Executive Officer)

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

*Karen C. Adams                            General Manager and Director
*E. R. Brooks                              Director
*James E. Davison                          Director
*Glenn Files                               Director
*Dr. Frederick E. Joyce                    Director
*John M. Lewis                             Director
*William C. Peatross                       Director
*Maxine P. Sarpy                           Director

*R. Russell Davis, by signing his name hereto, does sign this document on behalf
of the persons  indicated above pursuant to a power of attorney duly executed by
each such person.

                                          *By:  R. Russell Davis
                                                Attorney-in-Fact





                                      4-6
<PAGE>


WTU
SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, as amended,  the registrant has duly caused this report to
be signed on its behalf by the undersigned,  thereunto duly authorized, on March
21, 2000. The signature of the undersigned  registrant shall be deemed to relate
only to matters having reference to such registrant.

                                          WEST TEXAS UTILITIES COMPANY

                                          By:  R. Russell Davis
                                               Controller

      Pursuant to the  requirements  of the Securities  Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities  indicated on March 21, 2000. The signature
of each of the  undersigned  shall be deemed to relate  only to  matters  having
reference to the above named registrant.

Signature                                  Title
---------                                  -----
Paul J. Brower                             General Manager/President and
                                            Director
                                           (Principal Executive Officer)

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

*E. R. Brooks                              Director
*Glenn Files                               Director
*Alphonso R. Jackson                       Director
*Tommy Morris                              Director
*Dian G. Owen                              Director
*James M. Parker                           Director
*F. L. Stephens                            Director

*R. Russell Davis, by signing his name hereto, does sign this document on behalf
of the persons  indicated above pursuant to a power of attorney duly executed by
each such person.

                                          *By:  R. Russell Davis
                                                Attorney-in-Fact





                                      4-7
<PAGE>


(c) Index to Exhibits

      The following  exhibits indicated by an asterisk (*) preceding the exhibit
number are filed  herewith.  The balance of the exhibits  have  heretofore  been
filed  with the  SEC,  respectively,  as the  exhibits  and in the file  numbers
indicated and are incorporated  herein by reference.  The exhibits marked with a
plus (+) are management contracts or compensatory plans or arrangements required
to be filed  herewith and required to be  identified  as such by ITEM 14 of Form
10-K. Reference is made to a duplicate list of exhibits being filed as a part of
this Form 10-K,  which list,  prepared in accordance with Item 102 of Regulation
S-T of the SEC,  immediately  precedes the  exhibits  being filed with this Form
10-K.

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

      CSW, CPL, SWEPCO and WTU
      1    Business separation plan for "unbundling" Texas electrical  utilities
           into three separate  entities:  a retail electric  provider,  a power
           generation  company  and an energy  delivery  company  filed with the
           Texas  Commission  on  January  10,  2000,  (incorporated  herein  by
           reference to CSW's, CPL's,  SWEPCO's and WTU's Form 8-K dated January
           10, 2000).

(3) Articles of Incorporation and Bylaws.

      CSW
      1    Certificate   of  Amendment  to  Second   Restated   Certificate   of
           Incorporation  of CSW  (incorporated  herein by reference to Item 10,
           Exhibit  B-1.2 to the 1993 CSW  annual  report on Form U5S,  File No.
           1-1443).
      2    Bylaws of  CSW, as amended January 20, 1999  (incorporated  herein by
           reference to Exhibit 3.2 to CSW's Form 10-K dated December 31, 1998,
           File No. 1-1443).

      CPL
      3    Restated  Articles of Incorporation  Without  Amendment,  Articles of
           Correction to Restated Articles of Incorporation  Without  Amendment,
           Articles  of  Amendment  to  Restated   Articles  of   Incorporation,
           Statements  of  Registered  Office  and/or  Agent,  and  Articles  of
           Amendment to the Articles of  Incorporation  (incorporated  herein by
           reference to Exhibit 3.1 to CPL's Form 10-Q dated March 31, 1997).
      4    Bylaws  of  CPL,  as amended  (incorporated  herein by  reference  to
           Exhibit 3.1  to CPL's  Form 10-Q  dated September 30, 1996,  File No.
           0-346).

      PSO
      5    Restated Certificate of Incorporation of PSO  (incorporated herein by
           reference to Exhibit B-3.1 of CSW's 1996 Form U5S, File No. 1-1443).
      6    Bylaws  of  PSO,  as  amended  (incorporated  herein by  reference to
           Exhibit 3.1 of PSO's Form 10-Q, dated March 31,1998, File No. 0-343).

                                      4-8
<PAGE>


      SWEPCO
      7  Restated Certificate of Incorporation,  as amended through May 6, 1997,
         including   Certificate   of  Amendment  of  Restated   Certificate  of
         Incorporation  (both incorporated herein by reference to Exhibit 3.4 to
         SWEPCO's Form 10-Q dated March 31, 1997, File No. 1-3146).
      8  Bylaws of  SWEPCO,  as  amended  (incorporate  herein by  reference  to
         Exhibit 3.3 to SWEPCO's Form 10-Q dated September 30, 1996, File No.
         1-3146).

      WTU
      9  Restated  Articles  of  Incorporation,  as  amended,  and  Articles  of
         Amendment to the Articles of Incorporation (both incorporated herein by
         reference to Exhibit 3.5 to WTU's Form 10-K dated March 31, 1997,  File
         No. 0-340).
     10  Bylaws of WTU, as amended  (incorporated herein by reference to Exhibit
         3.4 to WTU's Form 10-Q dated September 30, 1996, File No.  0-340).

(4) Instruments defining the rights of security holder, including indentures.

CSW
    (a)  Rights Agreement  dated as of  December 22, 1997  between CSW  and CSW
         Services, Inc.,  as Rights Agent  (incorporated  herein by reference to
         Exhibit 1 to CSW Form 8-A/A dated March 19, 1998, File No. 1-1443).

CPL
    (a)  Indenture of mortgage or deed of trust dated  November 1,1943, executed
         by CPL to the First National Bank of Chicago and Robert L. Grinnell  as
         trustee, as amended  through  October 1, 1977 (incorporated  herein  by
         reference to Exhibit 5.01 in File  No. 2-60712).

            Supplemental Indentures to the First Mortgage Indenture:

            Dated                       File Reference            Exhibit
            September 1, 1978           2-62271                   2.02
            December 15, 1984           Form U-1, No. 70-7003     17
            July 1, 1985                2-98944                   4 (b)
            May 1, 1986                 Form U-1, No. 70-7236     4
            November 1, 1987            Form U-1, No. 70-7249     4
            June 1, 1988                Form U-1, No. 70-7520     2
            December 1, 1989            Form U-1, No. 70-7721     3
            March 1, 1990               Form U-1, No. 70-7725     10
            October 1, 1992             Form U-1, No. 70-8053     10 (a)
            December 1, 1992            Form U-1, No. 70-8053     10 (b)
            February 1, 1993            Form U-1, No. 70-8053     10 (c)
            April 1, 1993               Form U-1, No. 70-8053     10 (d)
            May 1, 1994                 Form U-1, No. 70-8053     10 (e)
            July 1, 1995                Form U-1, No. 70-8053     10 (f)

    (b)  CPL-obligated,   mandatorily   redeemable   preferred   securities   of
         subsidiary trust holding solely Junior Subordinated Debentures of CPL.

         (1)      Indenture,  dated as of May 1, 1997,  between CPL and the Bank
                  of New York, as Trustee  (incorporated  herein by reference to
                  Exhibit 4.1 of CPL's Form 10-Q dated March 31, 1997,  File No.
                  0-346).

                                      4-9
<PAGE>

         (2)      First Supplemental Indenture, dated as of May 1, 1997, between
                  CPL and the Bank of New York, as Trustee  (incorporated herein
                  by reference to Exhibit 4.2 of CPL's Form 10-Q dated March 31,
                  1997, File No. 0-346).
         (3)      Amended and Restated  Trust  Agreement of CPL Capital I, dated
                  as of May 1, 1997,  among CPL, as  Depositor;  the Bank of New
                  York, as Property Trustee; the Bank of New York (Delaware), as
                  Delaware Trustee; and the Administrative Trustee (incorporated
                  herein by  reference  to Exhibit  4.3 of CPL's Form 10-Q dated
                  March 31, 1997, File No. 0-346).
         (4)      Guarantee Agreement, dated as of May 1, 1997, delivered by CPL
                  for the  benefit of the holders of CPL Capital I's Preferred
                  Securities (incorporated herein by reference to Exhibit 4.4 of
                  CPL's Form 10-Q dated March 31, 1997, File No. 0-346).

    (c)     Agreement  as to Expenses and  Liabilities  dated as of May 1, 1997,
            between  CPL and  Capital I  (incorporated  herein by  reference  to
            Exhibit  4.5 of CPL's  Form  10-Q  dated  March 31,  1997,  File No.
            0-346).

    (d)     Senior Notes  Indenture  dated November 15, 1998 between CPL and The
            Bank of New York as Trustee  (incorporated  herein by  reference  to
            Exhibit  4 of CPL's  Form S-3  dated  November  18,  1998,  File No.
            333-67525).
            (1)   First Supplemental  Indenture dated November 15, 1999, between
                  CPL and The Bank of New York,  as  Trustee,  for $200  million
                  Floating Rate Notes due November 23, 2001 (incorporated herein
                  by reference to Exhibit 4 of CPL's Form S-3 dated November 18,
                  1998, File No. 333-67525).
            (2)   Second Supplemental Indenture dated February 16, 2000, between
                  CPL and the Bank of New York,  as  Trustee,  for $150  million
                  Floating  Rate  Notes due  February  22,  2002,  (incorporated
                  herein  by  reference  to  Exhibit  4 of CPL's  Form S-3 dated
                  November 18, 1998, File No. 333-67525).

PSO
    (a)   Indenture dated July 1, 1945, as amended, of PSO  (incorporated herein
          by reference to Exhibit 5.03 in Registration No. 2-60712).

            Supplemental Indentures to the First Mortgage Indenture:

            Dated                   File Reference                      Exhibit
            June 1, 1979            2-64432                             2.02
            December 1, 1979        2-65871                             2.02
            March 1, 1983           Form U-1, No. 70-6822               2
            May 1, 1986             Form U-1, No. 70-7234               3
            July 1, 1992            Form S-3, No. 33-48650              4 (b)
            December 1, 1992        Form S-3, No. 33-49143              4 (c)
            April 1, 1993           Form S-3, No. 33-49575              4 (b)
            June 1, 1993            Form 10-K, No. 0-343                4 (b)
            February 1, 1996        Form 8-K, March 4, 1996, No.0-343   4.01
            February 1, 1996        Form 8-K, March 4, 1996, No.0-343   4.02
            February 1, 1996        Form 8-K, March 4, 1996, No.0-343   4.03

    (b)   PSO-obligated,  mandatorily  redeemable  preferred  securities of
          subsidiary  trust  holding  solely  Junior  Subordinated  Debentures
          of PSO.


                                      4-10
<PAGE>

         (1)      Indenture,  dated as of May 1, 1997,  between PSO and The Bank
                  of New York, as Trustee (incorporated  herein by  reference to
                  Exhibit 4.6  of PSO's Form 10-Q dated March 31, 1997, File No.
                  0-343).
         (2)      First Supplemental Indenture, dated as of May 1, 1997, between
                  PSO and The Bank of New York, as Trustee  (incorporated herein
                  by reference to Exhibit 4.7 of PSO's Form 10-Q dated March 31,
                  1997 File No. 0-343).
         (3)      Amended and Restated  Trust  Agreement of PSO Capital I, dated
                  as of May 1, 1997,  among PSO, as  Depositor;  The Bank of New
                  York, as Property Trustee; The Bank of New York (Delaware), as
                  Delaware Trustee; and the Administrative Trustee (incorporated
                  herein by  reference  to Exhibit  4.8 of PSO's Form 10-Q dated
                  March 31, 1997, File No. 0-343).
         (4)      Guarantee Agreement, dated as of May 1, 1997, delivered by PSO
                  for the benefit of the  holders of PSO  Capital I's  Preferred
                  Securities (incorporated herein by reference to Exhibit 4.9 of
                  PSO's Form 10-Q dated March 31, 1997, File No. 0-343).
         (5)      Agreement as to Expenses and  Liabilities,  dated as of May 1,
                  1997,  between PSO and PSO Capital I  (incorporated  herein by
                  reference  to Exhibit  4.10 of PSO's Form 10-Q dated March 31,
                  1997, File No. 0-343).

SWEPCO
    (a)   Indenture dated February 1, 1940, as amended through November 1, 1976
          (incorporated herein by reference to Exhibit 5.04 in Registration No.
          2-60712).

            Supplemental Indentures to the First Mortgage Indenture:

            Dated                     File Reference               Exhibit
            August 1, 1978            2-61943                      2.02
            January 1, 1980           2-66033                      2.02
            April 1, 1981             2-71126                      2.02
            May 1, 1982               2-77165                      2.02
            August 1, 1985            Form U-1, No. 70-7121        4
            May 1, 1986               Form U-1, No. 70-7233        3
            November 1, 1989          Form U-1, No. 70-7676        3
            June 1, 1992              Form U-1, No. 70-7934        10
            September 1, 1992         Form U-1, No. 72-8041        10 (b)
            July 1, 1993              Form U-1, No. 70-8041        10 (c)
            October 1, 1993           Form U-1, No. 70-8239        10 (a)

    (b)   SWEPCO-obligated,   mandatorily  redeemable  preferred  securities  of
          subsidiary  trust  holding solely  Junior  Subordinated  Debentures of
          SWEPCO.
          (1)   Indenture, dated as of May 1, 1997, between SWEPCO and the Bank
                of New York,  as Trustee  (incorporated  herein by reference to
                Exhibit 4.11  of  SWEPCO's  Form  10-Q  dated  March 31,  1997,
                File No. 1-3146).
          (2)   First Supplemental Indenture,  dated as of May 1, 1997, between
                SWEPCO  and the Bank of  New  York,  as  Trustee  (incorporated
                herein  by  reference  to Exhibit  4.12 of  SWEPCO's  Form 10-Q
                dated March 31, 1997, File No. 1-3146).
          (3)   Amended  and  Restated  Trust  Agreement  of SWEPCO  Capital I,
                dated as of May 1, 1997,  among SWEPCO, as Depositor;  the Bank
                of  New  York,  as  Property  Trustee;  the  Bank  of New  York
                (Delaware),   as  Delaware  Trustee;  and   the  Administrative
                Trustee  (incorporated  herein by  reference to Exhibit 4.13 of
                SWEPCO's Form 10-Q dated March 31, 1997, File No. 1-3146).

                                      4-11
<PAGE>

          (4)   Guarantee  Agreement,  dated as  of May 1, 1997,  delivered  by
                SWEPCO for the  benefit of the  holders  of SWEPCO  Capital I's
                Preferred  Securities  (incorporated  herein  by  reference  to
                Exhibit 4.14 of SWEPCO's  Form 10-Q dated March 31, 1997,  File
                No. 1-3146).
          (5)   Agreement as to Expenses and  Liabilities,  dated as of May 1,
                1997 between SWEPCO and SWEPCO Capital I (incorporated  herein
                by reference to Exhibit 4.15 of SWEPCO's Form 10-Q dated March
                31, 1997, File No. 1-3146).
          (6)   Senior Note Indenture  dated February 4, 2000,  between SWEPCO
                and The Bank of New York as Senior Note Trustee, (incorporated
                herein by  reference  to  Exhibit  4 of SWEPCO  Form S-3 dated
                February 4, 2000, File No. 333-96213).
                (a)   First Supplemental  Indenture,  dated February 25, 2000,
                      between  SWEPCO and The Bank of New York, as Senior Note
                      Trustee,  for $150 million Floating Rate Notes due March
                      1, 2001  (incorporated  herein by reference to Exhibit 4
                      of SWEPCO's  Form S-3 dated  February 4, 2000,  File No.
                      333-96213).

WTU
    (a)   Indenture dated August 1, 1943, as amended through July 1, 1973, of
          WTU, incorporated herein by reference to Exhibit 5.05 in File No.
          2-60712.

            Supplemental Indentures to the First Mortgage Indenture:

            Dated                   File Reference               Exhibit
            May 1, 1979             2-63931                      2.02
            November 15, 1981       2-74408                      4.02
            November 1, 1983        Form U-1, No. 70-6820        12
            April 15, 1985          Form U-1, No. 70-6925        13
            August 1, 1985          2-98843                      4 (b)
            May 1, 1986             Form U-1, No. 70-7237        4
            December 1, 1989        Form U-1, No. 70-7719        3
            June 1, 1992            Form U-1, No. 70-7936        10
            October 1, 1992         Form U-1, No. 72-8057        10
            February 1, 1994        Form U-1, No. 70-8265        10
            March 1, 1995           Form U-1, No. 70-8057        10 (b)
            October 1, 1995         Form U-1, No. 70-8057        10 (c)

(10) Material contracts.

CSW
      +1 Change in Control Agreement between CSW and E. R. Brooks.
      +2 Change in Control Agreement between CSW and Thomas V. Shockley, III.
      +3 Change in Control Agreement between CSW and Ferd. C. Meyer, Jr.
      +4 Change in Control Agreement between CSW and Glenn D. Rosilier.
      +5 Change in Control Agreement between CSW and Venita. McCellon-Allen.
      +6 Change in Control Agreement between CSW and Thomas M. Hagan.
      +7 Change in Control Agreement between CSW and Glenn Files.
      +8 Change in Control Agreement between CSW and Robert L. Zemanek.
      +9 Change in Control Agreement between CSW and Richard H. Bremer.
     +10 Change in Control Agreement between CSW and Richard P. Verret.

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<PAGE>

     +11 Change in Control Agreement between CSW and T. J. Ellis.
     +12 Change in Control Agreement between CSW and Terry D. Dennis.
     +13 Change in Control Agreement between CSW and Bruce Evans.
     +14 Change in Control Agreement between CSW and T.D. Churchwell.
     +15 Change in Control Agreement between CSW and Michael D. Smith.
     +16 Change in Control Agreement between CSW and Floyd Nickerson.
     +17 Restricted Stock Plan for Central and South West Corporation
         (incorporated herein by reference to  Exhibit 10 (a) to CSW's 1990 Form
         10-K, File No. 1-1443).
     +18 Central  and South West System  Special  Executive  Retirement  Plan as
         amended and restated  effective  July 1, 1997  (incorporated  herein by
         reference to Exhibit 10 (18) to CSW's 1998 Form 10-K, File No. 1-1443).
     +19 Executive Incentive Compensation Plan for Central and South West System
         (incorporated  herein by reference to Exhibit 10 (c) to CSW's 1990 Form
         10-K, File No. 1-1443).
      20 Central and South West  Corporation  Stock  Option  Plan  (incorporated
         herein by reference to Exhibit 10 (d) to CSW's 1990 Form 10-K, File No.
         1-1443).
      21 Central  and South  West  Corporation  Deferred  Compensation  Plan for
         Directors  (incorporated herein by reference to Exhibit 10 (e) to CSW's
         1990 Form 10-K, File No. 1-1443).

     +22 Central  and South  West  Corporation  1992  Long-Term  Incentive  Plan
         (incorporated  herein by  reference  to  Appendix A to the  Central and
         South West  Corporation  Notice of 1992 Annual Meeting of  Shareholders
         and Proxy Statement).
      23 Agreement  and Plan of Merger,  dated as of December 21,  1997,  by and
         among American  Electric Power Company,  Inc.; a New York  Corporation,
         Augusta  Acquisition   Corporation,   a  Delaware   Corporation  and  a
         wholly-owned subsidiary of AEP; and Central and South West Corporation,
         a Delaware  Corporation  (incorporated  herein by reference to the 1998
         Joint Proxy Statement, File No. 1-1443).
      24 Amendment to the AEP Merger  agreement  extending  the term for closing
         until June 30, 2000.  (incorporated  herein by  reference to CSW,  CPL,
         PSO, SWEPCO and WTU Form 8-K dated December 17, 1999).
     +25 Central and South West Corporation  Executive  Deferred Savings Plan as
         amended  and  restated  effective  as of January 1, 1997  (incorporated
         herein by  reference  to Exhibit 10 (24) to CSW's 1998 Form 10-K,  File
         No. 1-1443).

  (12) Statements re computation of ratios.

   CPL, PSO, SWEPCO and WTU
    * 1 CPL's  Statement re  computation of Ratio of Earnings to Fixed Charges
        for the five years ended December 31, 1999.
    * 2 PSO's  Statement re  computation of Ratio of Earnings to Fixed Charges
        for the five years ended December 31, 1999.
    * 3  SWEPCO's  Statement  re  computation  of Ratio of  Earnings  to Fixed
        Charges for the five years ended December 31, 1999.
    * 4 WTU's  Statement re  computation of Ratio of Earnings to Fixed Charges
        for the five years ended December 31, 1999.

* (13)  Annual report to security holders.
    * 1 CSW's 1999 Financial Report.
    * 2 CSW's 1999 Summary Annual Report.

* (21)  Subsidiaries of the registrant (CSW).


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  (23) Consent of experts and counsel.

    CSW, CPL, PSO
      * 1 CSW's Consent of Independent Public Accountants.
      * 2 CSW UK Holdings Consent of Independent Public Accountants.
      * 3 CSW UK Finance Company Consent of Independent Public Accountants
      * 4 CPL's Consent of Independent Public Accountants.
      * 5 PSO's Consent of Independent Public Accountants.
      * 6 SWEPCO's Consent of Independent Public Accountants.

   (24) Power of attorney.

    CSW
      * 1 Power of Attorney.
      * 2 Power of Attorney.
      * 3 Power of Attorney.
      * 4 Power of Attorney.
      * 5 Board Resolution Authorizing Power of Attorney.

    CPL
      * 6 Power of Attorney.
      * 7 Power of Attorney.
      * 8 Power of Attorney.
      * 9 Board Resolution Authorizing Power of Attorney.

    PSO
      * 10 Power of Attorney.
      * 11 Power of Attorney.
      * 12 Power of Attorney
      * 13 Board Resolution Authorizing Power of Attorney.

    SWEPCO
      * 14 Power of Attorney.
      * 15 Power of Attorney.
      * 16 Power of Attorney.
      * 17 Board Resolution Authorizing Power of Attorney

    WTU
      * 18 Power of Attorney.
      * 19 Power of Attorney.
      * 20 Power of Attorney.
      * 21 Board Resolution Authorizing Power of Attorney.

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<PAGE>


  (27) Financial Data Schedules.

    CSW, CPL, PSO, SWEPCO and WTU
      * 1  CSW's Financial Data Schedules.
      * 2  CPL's Financial Data Schedules.
      * 3  PSO's Financial Data Schedules.
      * 4  SWEPCO's Financial Data Schedules.
      * 5  WTU's Financial Data Schedules.

(d) Index to Financial Statement Schedules.

    Other Schedules.

All other  exhibits  and  schedules  are  omitted  because of the absence of the
conditions under which they are required or because the required  information is
included in the financial statements or related notes to financial statements.


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