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

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                  FORM 10-Q

         [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                       SECURITIES EXCHANGE ACT OF 1934
                 For the quarterly period ended June 30, 1997
                                      OR
         [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
     For the transition period from ________________ to ________________
                        Commission file number 1-3789



                     Southwestern Public Service Company
            (Exact name of registrant as specified in its charter)



             New Mexico                                75-0575400
   (State or other jurisdiction of                    (IRS Employer
   incorporation or organization)                  Identification No.)

   Tyler at Sixth, Amarillo, Texas                        79101
(Address of principal executive offices)               (Zip Code)



Registrant's Telephone Number, including area code: (806) 378-2121


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


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

      At August 1, 1997,  40,917,908  shares of the  registrant's  Common Stock,
$1.00  par  value  (the  only  class of  common  stock),  were  outstanding.  In
connection with the Merger,  effective August 1, 1997, each share of outstanding
common stock of the registrant  stock was exchanged for 0.95 of one share of New
Century Energies, Inc., common stock, $1.00 par value.



<PAGE>


                              Table of Contents

                        PART I - FINANCIAL INFORMATION

Item l. Financial Statements ...............................................  1

Item 2. Management's Discussion and Analysis of Financial Condition and
         Results of Operations ............................................. 13


                          PART II - OTHER INFORMATION


Item 1.  Legal Proceedings................................................. 16

Item 6.  Exhibits and Reports on Form 8-K.................................. 16

SIGNATURES................................................................. 17

EXHIBIT 12................................................................. 18

EXHIBIT 15 ................................................................ 19














   In addition  to the  historical  information  contained  herein,  this report
contains a number of  "forward-looking  statements",  within the  meaning of the
Securities  Exchange Act of 1934.  Such  statements  address  future  events and
conditions concerning capital expenditures,  earnings,  resolution and impact of
litigation,  regulatory matters, liquidity and capital resources, and accounting
matters.  Actual  results  in each  case  could  differ  materially  from  those
projected  in such  statements  due to a variety of factors  including,  without
limitation,  restructuring of the utility industry;  future economic conditions;
earnings   retention  and  dividend   payout   policies;   developments  in  the
legislative,  regulatory  and  competitive  environments  in which  the  Company
operates;  and other  circumstances that could affect  anticipated  revenues and
costs, such as compliance with laws and regulations. These and other factors are
discussed in the Company's  filings with the Securities and Exchange  Commission
including this report.


                                       i
<PAGE>


                        PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

                     SOUTHWESTERN PUBLIC SERVICE COMPANY
                               AND SUBSIDIARIES
                    CONSOLIDATED CONDENSED BALANCE SHEETS
                            (Thousands of Dollars)

                                    ASSETS

                                                          June 30,  December 31,
                                                             1997       1996
                                                             ----       ----
                                                         (Unaudited)

Property, plant and equipment, at cost:
  Electric ..........................................    $2,531,927  $2,517,579
  Other..............................................        37,522      37,542
  Construction in progress...........................       122,795      79,346
                                                            -------     -------
                                                          2,692,244   2,634,467
  Less: accumulated depreciation ....................      (973,114)   (944,279)
                                                           --------    -------- 
    Total property, plant and equipment..............     1,719,130   1,690,188
                                                          ---------   ---------


Investments, at cost, and receivables.................       22,481      34,446
                                                            -------     -------

Current assets:
  Cash and temporary cash investments................        23,561      40,610
  Accounts receivable, less reserve for uncollectible
    accounts ($2,786 at June 30, 1997; $2,574 at
    December 31, 1996) ..............................        73,984      67,779
  Accrued unbilled revenues .........................        19,863      20,304
  Recoverable fuel and purchased power cost, net.....        14,377      15,715
  Materials and supplies, at average cost............        18,056      17,776
  Fuel inventory, at average cost....................         2,322       2,320
  Prepaid expenses and other.........................         4,860       4,984
                                                              -----       -----
    Total current assets..............................      157,023     169,488
                                                            -------     -------

Deferred charges:
  Regulatory assets (Note 1).........................       127,774     117,546
  Unamortized debt expense ..........................         9,681       9,864
  Other..............................................        33,671      23,262
                                                             ------     -------
    Total deferred charges............................      171,126     150,672
                                                            -------     -------
                                                         $2,069,760  $2,044,794
                                                         ==========  ==========



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


                                       1
<PAGE>


                     SOUTHWESTERN PUBLIC SERVICE COMPANY
                               AND SUBSIDIARIES
                    CONSOLIDATED CONDENSED BALANCE SHEETS
                            (Thousands of Dollars)

                           CAPITAL AND LIABILITIES

                                                          June 30,  December 31,
                                                             1997       1996
                                                             ----       ----
                                                         (Unaudited)


Common stock (Note 2).................................     $348,402    $348,402
Retained earnings.....................................      362,938     383,350
                                                            -------     -------
    Total common equity...............................      711,340     731,752

SPS obligated mandatorily redeemable preferred
 securities of subsidiary trust holding solely
 subordinated debentures of SPS (Note 4) .............      100,000     100,000
Long-term debt........................................      620,516     620,400
                                                            -------     -------
                                                          1,431,856   1,452,152
                                                          ---------   ---------

Noncurrent liabilities:
  Employees' postretirement benefits other than pensions      3,466       2,967
   Employees' postemployment benefits.................        1,344       2,369
                                                              -----       -----
    Total noncurrent liabilities......................        4,810       5,336
                                                              -----       -----

Current liabilities:
   Notes payable and commercial paper ................      144,330      53,836
   Long-term debt due within one year.................          173      15,231
   Accounts payable...................................       55,427      63,003
   Customers' deposits................................        5,653       5,842
   Accrued taxes......................................       16,444      19,999
   Accrued interest...................................       12,789      13,151
   Current portion of accumulated deferred income taxes       5,119       3,583
   Other..............................................       23,570      28,504
                                                             ------      ------
    Total current liabilities.........................      263,505     203,149
                                                            -------     -------

Deferred credits:
   Customers' advances for construction...............          420         366
   Unamortized investment tax credits ................        5,594       5,719
   Accumulated deferred income taxes  ................      358,101     367,272
   Other..............................................        5,474      10,800
                                                            -------     -------
    Total deferred credits............................      369,589     384,157
                                                            -------     -------

Commitments and contingencies (Notes 1 and 3).........
                                                         $2,069,760  $2,044,794
                                                         ==========  ==========



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



                                       2
<PAGE>


                     SOUTHWESTERN PUBLIC SERVICE COMPANY
                               AND SUBSIDARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                 (Unaudited)
                 (Thousands of Dollars Except per Share Data)


                                                           Three Months Ended
                                                                June 30,
                                                           1997           1996
                                                         --------      -------
Operating revenues:
   Electric..........................................    $234,430     $241,140
   Other.............................................       8,791        7,194
                                                            -----        -----
                                                          243,221      248,334
Operating expenses:
   Fuel used in generation...........................     116,411      112,154
   Purchased power...................................       2,924        7,328
   Other operating expenses..........................      40,707       31,523
   Maintenance.......................................       8,198        9,665
   Depreciation and amortization.....................      18,215       17,565
   Taxes (other than income taxes)...................      11,324       11,388
   Income taxes......................................       5,786       17,226
                                                            -----       ------
                                                          203,565      206,849
                                                          -------      -------
Operating income.....................................      39,656       41,485

Other income and deductions:
   Write-off of investment in Carolina Energy Project
    (Note 3) .........................................    (16,052)           -
   Miscellaneous income and deductions - net.........      (3,026)        (465)
                                                           ------         ----
                                                          (19,078)        (465)
Interest charges:
   Interest on long-term debt........................      11,032       11,733
   Amortization of debt discount and expense less 
     premium ........................................         561          529
   Other interest....................................       1,721        1,653
   Allowance for borrowed funds used during 
     construction ...................................      (1,078)        (780)
   Dividends on SPS obligated mandatorily redeemable
        preferred securities of subsidiary trust ....       1,962            -
                                                         --------      -------
                                                           14,198       13,135
                                                           ------       ------
Net income...........................................    $  6,380      $27,885
                                                         ========      =======
Weighted average common shares outstanding (thousands)     40,918       40,918
                                                           ======       ======
Earnings per weighted average
   share of common stock outstanding.................    $   0.15      $  0.68
                                                         ========      =======



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


                                       3
<PAGE>


                     SOUTHWESTERN PUBLIC SERVICE COMPANY
                               AND SUBSIDARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                 (Unaudited)
                 (Thousands of Dollars Except per Share Data)


                                                            Six Months Ended
                                                                June 30,
                                                           1997          1996
                                                         --------      --------
Operating revenues:
   Electric..........................................    $448,925     $448,780
   Other.............................................      15,591       15,568
                                                           ------       ------
                                                          464,516      464,348
Operating expenses:
   Fuel used in generation...........................     221,029      210,547
   Purchased power...................................       8,131       11,038
   Other operating expenses..........................      70,727       65,560
   Maintenance.......................................      15,129       18,978
   Depreciation and amortization.....................      36,445       35,128
   Taxes (other than income taxes)...................      22,850       22,921
   Income taxes......................................      16,078       28,248
                                                         --------      -------
                                                          390,389      392,420
                                                          -------      -------
Operating income.....................................      74,127       71,928

Other income and deductions:
   Allowance for equity funds used during construction          5            -
   Write-off of investment in Carolina Energy Project
     (Note 3) .......................................     (16,052)           -
   Miscellaneous income and deductions - net.........      (5,548)      (2,790)
                                                           ------       ------
                                                          (21,595)      (2,790)
Interest charges:
   Interest on long-term debt........................      22,057       22,720
   Amortization of debt discount and expense less
     premium ........................................       1,123        1,047
   Other interest....................................       2,747        4,237
   Allowance for borrowed funds used during
     construction ...................................      (1,918)      (1,633)
   Dividends on SPS obligated mandatorily redeemable
        preferred securities of subsidiary trust ....       3,925            -
                                                            -----         ----
                                                           27,934       26,371
                                                           ------       ------
Net income...........................................      24,598       42,767
Dividend requirements on preferred stock.............           -          121
                                                         --------      -------
Earnings available for common stock..................    $ 24,598      $42,646
                                                         ========      =======
Weighted average common shares outstanding (thousands)     40,918       40,918
                                                           ======       ======
Earnings per weighted average
   share of common stock outstanding.................    $   0.60     $   1.04
                                                         ========     ========



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



                                       4
<PAGE>


                     SOUTHWESTERN PUBLIC SERVICE COMPANY
                               AND SUBSIDIARIES
               CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                 (Unaudited)
                            (Thousands of Dollars)


                                                              Six Months Ended
                                                                  June 30,
                                                               1997      1996
                                                               ----      ----
Operating activities:
   Net income........................................         $24,598  $42,767
   Adjustments to reconcile net income to net
     cash provided by operating activities:
    Depreciation and amortization....................          38,365   36,953
    Amortization of investment tax credits...........            (125)    (125)
    Deferred income taxes............................          (7,705)  10,847
    Allowance for equity funds used during construction            (5)       -
    Write-off of investment in Carolina Energy Project         16,052        -
    Change in accounts receivable....................          (3,243) (10,611)
    Change in inventories............................            (282)   3,481
    Change in other current assets...................         (16,685)  (5,634)
    Change in accounts payable.......................          (7,576)   4,924
    Change in other current liabilities..............           1,760   (7,778)
    Change in deferred amounts.......................         (27,780)  (4,982)
    Change in noncurrent liabilities.................           4,810        -
    Other............................................            (327)      97
                                                              -------  -------
      Net cash provided by operating activities......          21,857   69,939
                                                              -------  -------

Investing activities:
   Construction expenditures.........................         (65,888) (53,547)
   Allowance for equity funds used during construction              5        -
   Proceeds from disposition of property, plant
     and equipment ..................................             369      154
   Purchase of other investments.....................          (3,866)  (5,748)
                                                              -------  -------
      Net cash used in investing activities..........         (69,380) (59,141)
                                                              -------  -------

Financing activities:
   Proceeds from sale of long-term debt..............               -   58,614
   Redemption of long-term debt......................         (15,010)    (741)
   Redemption of preferred stock.....................               -     (260)
   Short-term borrowings - net.......................          90,494  (11,769)
   Dividends on common stock.........................         (45,010) (45,010)
   Dividends on preferred stock......................               -     (120)
                                                              -------  -------
     Net cash provided by financing activities.......          30,474      714
                                                              -------  -------
     Net (decrease) increase in cash and temporary 
       cash investments .............................         (17,049)  11,512
      Cash and temporary cash investments at beginning
        of period                                              40,610   13,612
                                                               ------   ------
      Cash and temporary cash investments at end of period   $ 23,561 $ 25,124
                                                             ======== ========



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




                                       5
<PAGE>


                     SOUTHWESTERN PUBLIC SERVICE COMPANY
                               AND SUBSIDIARIES

             NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                 (Unaudited)


1.  Accounting Policies

Business, Utility Operations and Regulation

      The  Company  was  incorporated  in New  Mexico  in  1921.  The  Company's
principal  business is the generation,  transmission,  distribution  and sale of
electric energy.  Electric service is provided through an interconnected  system
to a population of about one million people in a 52,000-square-mile  area of the
Panhandle and south plains of Texas,  eastern and southeastern  New Mexico,  the
Oklahoma Panhandle and southwestern  Kansas.  Approximately 71% of the Company's
operating  revenues  during calendar 1996,  excluding sales to other  utilities,
were derived from operations in Texas and New Mexico.  The Company maintains its
accounts in  accordance  with the Uniform  System of Accounts  prescribed by the
Federal  Energy  Regulatory  Commission  ("FERC")  and as  adopted by the Public
Utility  Commission of Texas ("PUCT"),  the New Mexico Public Utility Commission
("NMPUC"),   the  Oklahoma   Corporation   Commission  ("OCC")  and  the  Kansas
Corporation Commission ("KCC").

      The consolidated  financial statements include the accounts of the Company
and  its  wholly-owned  subsidiaries  Utility  Engineering  Corporation  and its
subsidiaries ("UE") and Quixx Corporation and its subsidiaries  ("Quixx"). UE is
primarily  engaged in engineering,  design and  construction  management.  Quixx
invests in energy related projects including  cogeneration  facilities and holds
water rights and certain other nonutility assets.

      On April 22, 1997, the Board of Directors of the Company approved a change
in the  Company's  fiscal year.  Effective  January 1, 1997,  the  Company's new
fiscal year is the  twelve-month  period  ending  December 31.  Previously,  the
Company's fiscal year was a twelve-month period ending August 31.

     Effective  August 1,  1997,  the  Company  and  Public  Service  Company of
Colorado  ("PSCo")  merged and became  wholly-owned  subsidiaries of New Century
Energies,  Inc.  ("NCE"),  which will be a registered  holding company under the
Public utility Holding Company Act of 1935. This  transaction has been accounted
for as a pooling of interests  for  accounting  purposes.  After  effecting  the
Merger,  NCE will own the  following  direct  subsidiaries:  the Company,  PSCo,
Cheyenne Light, Fuel and Power Company,  WestGas  InterState,  Inc., New Century
Services,  Inc., and NC Enterprises,  Inc. PSCo owns the following subsidiaries:
PS Colorado Credit Corporation,  PSR Investments,  Inc., 1480 Welton, Inc., Fuel
Resources  Development Co., a dissolved  Colorado  Corporation,  and New Century
International,  Inc.,  which  was  established  in 1997 in  connection  with the
acquisition  of  Yorkshire  Electricity  Group plc. NC  Enterprises,  Inc.  ("NC
Enterprises"), an intermediate holding company, owns the following subsidiaries:
Quixx, UE, e prime,  inc. and subsidiaries  and Natural Fuels  Corporation.  The
transfer  of Quixx  and UE is not  expected  to have a  material  impact  on the
Company's financial position, results of operations or cash flows (see Note 2).

      The Company has reclassified  certain items in its consolidated  condensed
financial  statements  in order to conform to the  presentation  of the  holding
company's financial statements.

Regulatory Assets and Liabilities

      The Company  prepares its  financial  statements  in  accordance  with the
provisions of Statement of Financial Accounting Standards No. 71 "Accounting for
the Effects of Certain Types of Regulation" ("SFAS


                                       6
<PAGE>

             NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                 (Continued)


71"). SFAS 71 recognizes that accounting for rate regulated  enterprises  should
reflect the relationship of costs and revenues introduced by rate regulation.  A
regulated  utility  may  defer  recognition  of a cost (a  regulatory  asset) or
recognize an obligation (a regulatory liability) if it is probable that, through
the ratemaking  process,  there will be a corresponding  increase or decrease in
revenues.

      On  September  1,  1996,  the  Company  adopted   Statement  of  Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 imposes stricter
criteria for the continued recognition of regulatory assets on the balance sheet
by  requiring  that such assets be probable of future  recovery at each  balance
sheet date.  The adoption of this statement in 1996 and the  application  during
1997 did not have a material  impact on the  Company's  results  of  operations,
financial position or cash flows. The following  regulatory assets are reflected
in the Company's consolidated condensed balance sheets:

                                                June 30,   December 31,
                                                  1997        1996
                                                  ----        ----
                                               (Thousands of Dollars)

Income taxes..............................      $80,303      $81,403
Employees' postretirement benefits
  other than pensions.....................        3,097        3,192
Early retirement costs....................        1,545        1,727
Demand-side management costs..............        2,900        2,317
Unamortized debt reacquisition costs......       19,112       19,880
Thunder Basin judgment....................       12,652            -
Other.....................................        8,165        9,027
                                                -------       ------
  Total...................................     $127,774     $117,546
                                               ========     ========

      As of June 30, 1997, the Company's  regulatory  assets are being recovered
through  rates  charged to  customers  over  periods  ranging from ten to thirty
years,  except  for the costs  related  to the state  regulatory  jurisdictional
portion  of  the  Thunder  Basin   judgment  for  which  recovery  is  currently
undetermined.  Under current rates,  the Company is recovering  approximately $8
million related to its regulatory  assets per year. The Company believes it will
continue to be subject to rate  regulation  to the extent  necessary  to recover
these  assets.  In the event that a portion of the  Company's  operations  is no
longer  subject  to the  provisions  of  SFAS  71 as a  result  of a  change  in
regulation  or the  effects of  competition,  the  Company  could be required to
write-off related  regulatory  assets,  determine any impairment to other assets
resulting  from  deregulation  and  write-down  any  impaired  assets  to  their
estimated  fair value  which could  materially  adversely  impact the  Company's
results of operations, financial position or cash flows.

      The Company was named as a defendant in a case entitled Thunder Basin Coal
Co. v. Southwestern Public Service Co., No. 93-CV-304B (D. Wyo.). (See Note 6 of
the Notes to Consolidated  Financial Statements in the Company's 1996 Transition
Report on Form 10-K as of December  31,  1996).  On  November 1, 1994,  the jury
returned a verdict in favor of Thunder  Basin and awarded  Thunder Basin damages
of approximately  $18.8 million.  The Company appealed the judgment to the Tenth
Circuit  Court of Appeals  and on January 7, 1997,  that Court found in favor of
Thunder Basin and upheld the judgment. The Company filed a motion for rehearing,
which was denied.  In February 1997, the Company  recorded the liability for the
judgment including interest and court costs in the amount of approximately $22.3
million  and  deferred  these  costs for future rate  recovery.  These  amounts,
including interest,  were paid in April 1997. Although rate recovery has not yet
been approved,  the Company is amortizing these costs as a recoverable component
of fuel used in generation.  As of June 30, 1997,  approximately $9.7 million of
these costs have been amortized.


                                       7
<PAGE>

             NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                 (Continued)

      Management  believes  that  the  Thunder  Basin  judgment  amount  paid is
recoverable  from  customers,  although  any such  recovery  would be subject to
review by various regulatory agencies. On September 17, 1996, the FERC issued an
order   granting   the  Company   conditional   approval  to  collect  the  FERC
jurisdictional  portion of the judgment  from  wholesale  customers.  Therefore,
management  believes  that the  ultimate  resolution  will  not have a  material
adverse  effect on the Company's  results of operations,  financial  position or
cash flows.

General

      See  Note 1 of the  Notes  to  Consolidated  Financial  Statements  in the
Company's  1996  Transition  Report on Form 10-K as of  December  31, 1996 for a
summary of the Company's significant accounting policies.

2.  Merger

     In August 1995,  the  Company,  PSCo,  a Colorado  corporation,  and NCE, a
Delaware  corporation,  entered  into an  Agreement  and Plan of  Reorganization
("Merger  Agreement")  providing  for  a  business  combination  as  peer  firms
involving the Company and PSCo in a tax-free "merger of equals" transaction (the
"Merger"). Effective August 1, 1997, following receipt of all required state and
Federal   regulatory   approvals,   the  Company  and  PSCo  merged  and  became
wholly-owned subsidiaries of NCE. Each outstanding share of Company common stock
was  canceled and  converted  into the right to receive 0.95 of one share of NCE
common  stock and each  outstanding  share of PSCo common stock was canceled and
converted into the right to receive one share of NCE common stock.  Based on the
outstanding  common stock of the Company and PSCo at August 1, 1997,  the Merger
resulted  in the common  shareholders  of the  Company  owning 37% of the common
equity of NCE and the  common  shareholders  of PSCo  owning  63% of the  common
equity of NCE.  Effective with the Merger, the common stock of Quixx Corporation
and Utility Engineering Corporation,  wholly-owned subsidiaries, was transferred
through the sale by the Company of all of the  outstanding  common stock of such
subsidiaries at net book value (approximately $118.7 million) to NC Enterprises,
in  exchange  for notes  payable of NC  Enterprises.  These notes  payable  have
thirty-year  terms and bear  interest  at a rate of 7.25%  per year with  annual
interest payments due beginning August 1, 1998 and annual principal payments due
beginning August 1, 2001.

      Operating  revenues  and net  income  for the three  months and six months
ended June 30, 1997 and 1996, for the Company, PSCo and NCE on a pro-forma basis
are as follows (in millions):

                                       Company            PSCo           NCE*
                                       -------            ----           ----
Three months ended June 30, 1997:
    Operating revenues                  $   243        $    543       $    786
    Net income                                6              31             34

Three months ended June 30, 1996:
    Operating revenues                  $   248        $    485       $    733
    Net income                               28              35             59

Six months ended June 30, 1997:
    Operating revenues                  $   465        $  1,220       $  1,685
    Net income                               25              93            112

Six months ended June 30, 1996:
    Operating revenues                  $   464        $  1,108       $  1,572
    Net income                               43              99            136

* NCE's net  income is net of  dividend  requirements  on  preferred  stock of
subsidiaries


                                       8

<PAGE>

             NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                 (Continued)


      It is management's intention that NCE begin realizing certain savings upon
the  consummation  of the Merger and,  accordingly,  costs  associated  with the
Merger and the transition  planning and implementation  have negatively impacted
earnings  during  1997.  The  Company  recognized  merger-related  and  business
integration  expenses of  approximately  $5.3 and $1.2 million during the second
quarter of 1997 and 1996, respectively,  and approximately $8.1 and $3.8 million
during the first six months of 1997 and 1996, respectively.

      Under the various state regulatory  approvals,  the Company is required to
provide credits to retail customers over five years for one-half of the measured
non-fuel operation and maintenance  expense savings associated with the business
combination.  The Company will provide a guaranteed  minimum  annual  savings to
retail customers of $3.0 million in Texas, $1.2 million in New Mexico,  $100,000
in Oklahoma and $10,000 in Kansas.

3.  Commitments and Contingencies

Regulatory Matters

Fuel and Purchased Power Recovery

      A PUCT  substantive  rule requires  periodic  examination of the Company's
fuel and  purchased  power  costs,  the  efficiency  of the use of such fuel and
purchased  power,  fuel  acquisition and management  policies and purchase power
commitments.  On May 1, 1995,  the Company  filed with the PUCT a petition for a
fuel  reconciliation  for the months of January 1992 through  December 1994. The
PUCT  issued an order in  January  1996  requiring  the  Company  to make a $3.9
million fuel refund  consisting of $2.1 million of overrecovered  fuel costs and
$1.8 million of  disallowed  fuel costs for the period.  This refund was made in
April 1996.  Additionally,  the order  required  the Company to flow  through to
customers  100% of margins  from  non-firm  off-system  opportunity  sales as of
January 1995.  Prior PUCT rulings had allowed the Company to retain 25% of these
margins.  The 100% flow through is required by PUCT rules, absent a rule waiver.
A motion for  rehearing  on the fuel  disallowance  (which was  adjusted to $1.9
million) was subsequently denied by the PUCT and the Company was ordered to flow
through 100% of the margin effective with the first billing cycle after the date
of the order.  Upon appeal to the Travis County  District Court in May 1996, the
PUCT's  decision  on the  disallowed  fuel costs was upheld.  The Travis  County
District  Court  decision has been  appealed to the Texas Court of Appeals which
has not yet ruled in the matter.  Management  believes that the ultimate outcome
of  this  matter  will  not  significantly   affect  the  Company's  results  of
operations,  financial position or cash flows. At June 30, 1997, the Company had
approximately  $14.4  million  in  underrecovered  fuel  costs in Texas  and has
requested to surcharge Texas retail customers for the underrecovery.

FERC Rate Case

      On December  19,  1989,  the FERC issued its final order  regarding a 1985
rate case. The Company  appealed  certain  portions of the order that related to
recognition in rates of the reduction of the federal income tax rate from 46% to
34%. The United  States  Court of Appeals for the  District of Columbia  Circuit
remanded the case,  directing the FERC to reconsider  the Company's  claim of an
offsetting  cost and limiting the FERC's  actions.  The FERC issued its Order on
Remand in July 1992,  required  filings were made and a hearing was completed in
February 1994. In October 1994, the  administrative law judge issued a favorable
initial  decision  that, if approved by the FERC,  would result in a substantial
recovery by the  Company.  Negotiated  settlements  with the  Company's  partial
requirements  customers and Texas-New  Mexico Power Company were approved by the
FERC in July 1993 and September  1993,  respectively,  and the Company  received
approximately  $2.8  million,  including  interest.  In a  settlement  with  the
Company's New Mexico cooperative  customers,  the Company received approximately
$7 million,  including interest. The FERC approved this settlement in July 1995.
Resolutions  of these matters with the  remaining  wholesale  customers,  Golden
Spread Electric  Cooperative,  Inc. member  cooperatives  and Lyntegar  Electric
Cooperative,  have not been reached.  The Company cannot reasonably estimate 

                                       9
<PAGE>

             NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                 (Continued)


the remaining amount  recoverable from these  proceedings;  however, a favorable
resolution could materially improve  consolidated  earnings in the year in which
it is resolved.

Thunder Basin Lawsuit

     Reference is made to Note 1 for discussion of the  judgement  made against
the Company in this litigation.

BCH Energy Limited Partnership Investment

      As discussed in the Company's  1996  Transition  Report on Form 10-K as of
December  31,  1996 under  BUSINESS.  Nonutility  Businesses,  Quixx holds a 49%
limited partnership  interest in BCH Energy Limited Partnership  ("BCH"),  which
owns a waste-to-energy  cogeneration  facility located near Fayetteville,  North
Carolina.  Limited  commercial  operation of the BCH project began in June 1996;
however,  the facility did not achieve the expected performance level. An effort
was made to  restructure  the  project  but it was not  possible  to achieve the
required improvements on economically viable terms; therefore, in December 1996,
Quixx wrote off its investment of approximately  $16 million or $0.25 per common
share in this project.

Carolina Energy Limited Partnership Investment

      The Carolina Energy Project is similar to the BCH project, but with design
modifications.  Construction  was originally  scheduled to be completed later in
1997 but was halted pending an independent analysis of the project's engineering
and financial viability. Additionally, the banks providing debt financing to the
project  withheld  funds for  continued  construction.  Quixx,  UE, other equity
owners, senior creditors and the constructor have been unable to restructure the
project on mutually agreeable terms. The construction contractor is demobilizing
and the creditors have initiated  remedies  provided under the credit agreement.
Accordingly,  management  has  determined  it is unlikely  the  project  will be
completed  under the  present  ownership,  if at all,  and  Quixx's and UE's net
investments in the Carolina Energy Project are unlikely to be recovered.

      As a  consequence,  in  June  1997,  Quixx  wrote-off  its  investment  of
approximately  $13.64  million  in  the  Carolina  Energy  Limited  Partnership.
Additionally,  UE wrote-off its net investment of approximately $2.42 million in
this same partnership. Quixx held a one-third ownership interest, including a 1%
general  partnership  interest,  in the partnership.  UE's net investment in the
partnership was comprised of subordinated debt, the related interest receivable,
as  well  as  engineering   services.   This  combined   investment   represents
approximately $16.1 million or $0.25 per common share, after tax.

4.  SPS Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
    Trust Holding Solely Subordinated Debentures of SPS

      In October 1996,  Southwestern  Public  Service  Capital I, a wholly-owned
trust,  issued in a public  offering  $100 million of its 7.85% Trust  Preferred
Securities,  Series  A. The sole  asset of the trust is $103  million  principal
amount of the  Company's  7.85%  Deferrable  Interest  Subordinated  Debentures,
Series A due September 1, 2036.

5.  Management's Representations

      In the opinion of the Company,  the  accompanying  unaudited  consolidated
condensed  financial  statements include all adjustments  necessary for the fair
presentation  of the financial  position of the Company and its  subsidiaries at
June 30, 1997 and December 31, 1996, and the results of operations for the three
and six months  ended  June 30,  1997 and 1996 and cash flows for the six months
ended June 30, 1997 and 1996. The consolidated  condensed financial  information
and notes thereto should be read in conjunction with the consolidated  financial

                                       10
<PAGE>

             NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                 (Continued)


statements  and notes for the four months  ended  December  31, 1996 and for the
years  ended  August 31,  1996,  1995 and 1994  included in the  Company's  1996
Transition   Report  on  Form  10-K  filed  with  the  Securities  and  Exchange
Commission.

      Because  of  seasonal  and  other  factors  including  the  reorganization
assoicated  with the merger  discussed in Note 2, the results of operations  for
the  three  and six  months  ended  June  30,  1997  should  not be  taken as an
indication of earnings for all or any part of the balance of the year.





                                       11
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


TO SOUTHWESTERN PUBLIC SERVICE COMPANY

We have  reviewed  the  accompanying  consolidated  condensed  balance  sheet of
Southwestern  Public Service  Company (a New Mexico  corporation) as of June 30,
1997, and the related consolidated  condensed statements of income for the three
and six  month  periods  ended  June  30,  1997 and the  consolidated  condensed
statements  of cash flows for the six month period  ended June 30,  1997.  These
financial statements are the responsibility of the Company's management.

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

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

The  consolidated  balance  sheet of  Southwestern  Public  Service  Company and
subsidiaries as of December 31, 1996, was not audited by us and, accordingly, we
do not express an opinion on it. The consolidated condensed statements of income
for the three and six month  periods  ended June 30,  1996 and the  consolidated
condensed  statement  of cash flow for the six month period ended June 30, 1996,
of Southwestern  Public Service Company and subsidiaries were not reviewed by us
and, accordingly, we do not express an opinion on them.


                                                        ARTHUR ANDERSEN LLP
Denver, Colorado,
August 8, 1997




                                       12
<PAGE>


Item 1.  Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations

Earnings

      Decreased  earnings for both the second  quarter of 1997 and for the first
six months of 1997, as compared to the same periods in 1996,  were primarily due
to the write-off in June 1997 of the investment in the Carolina  Energy Project.
Lower electric kwh sales,  resulting from wet and mild weather in the spring and
early  summer  of 1997,  and  higher  merger-related  and  business  integration
expenses also contributed to the decrease in earnings available to shareholders.

Operating Revenues

Electric Operations

      Substantially all of the Company's operating revenues result from the sale
of electric energy.  The principal factors  determining  revenues are the amount
and price per unit of energy sold. The following  table  describes the principal
components of changes in electric operating revenues.

                                                   Increase (Decrease) From
                                                  Corresponding Prior Period
                                           Three Months Ended   Six Months Ended
                                           ------------------   ----------------
                                                    (Thousands of Dollars)
Estimated effect on revenues of variations in:
   Kilowatt-hour (kwh) sales*.......               $(26,410)      $(14,536)
   Rates and other..................                  3,990          1,642
   Fuel and purchased power cost recovery            17,029         14,617
                                                     ------         ------
     Subtotal.......................                 (5,391)         1,723
   Non-firm kwh sales...............                 (1,319)        (1,578)
                                                     ------         ------
     Increase (decrease) in electric revenue       $ (6,710)      $    145
                                                   ========       ========

Percentage decrease in kwh sales*...                  (10.9)%         (3.6)%
                                                      =====           ====
Percentage increase in non-firm kwh sales             110.6%          33.9%
                                                      =====           ====

  *Comprised of retail and wholesale excluding economy and interruptible
(non-firm) wholesale kwh sales.

      Variations in Kwh Sales. Revenues during the second quarter and during the
first six months of 1997 decreased from the comparable periods in 1996 primarily
due to a reduction in retail and firm wholesale sales.  Mild, wet weather during
1997 contributed to a 10.9% and 3.6% decline in kwh sales  (excluding  non-firm)
for the second quarter and for the first six months of 1997, respectively.

      Variations in Rates and Other.  Increased  revenues for the second quarter
and for the  first six  months of 1997 are  primarily  due to  increased  demand
charges  received  from  certain  retail and  wholesale  customers.  Such demand
charges are based on historical usage by the customer.

      Variations in Fuel and Purchased Power Cost Recovery. The revenue increase
in the current  period is primarily due to the deferral for rate recovery of the
Thunder Basin judgment and increased natural gas prices and coal costs which are
recovered through cost recovery mechanisms.

      Variations  in Non-Firm  Kwh Sales.  The amount of revenues  arising  from
non-firm  sales is dependent,  in large part,  upon the amount and cost of power
available to the Company for sale,  the demand for power,  the  availability  of
competing  hydroelectric  power from the  Northwest  and  generation  from major
plants in the West.  Although kwh sales increased,  the decrease in revenues for
the second  quarter and the first six months of 1997 is due to the  availability
of low cost power throughout the region.

                                       13
<PAGE>

Other Revenues

      Other  operating  revenues are  comprised  of revenue  from the  Company's
consolidated subsidiaries and from non-electric operations. The increase of $1.6
million is primarily attributable to increased activities at UE.

Operating Expenses and Non-Operating Items

      Fuel and  purchased  power  expense  as a  percentage  of total  operating
expenses  approximated  60.1% and 57.8% for the second quarter of 1997 and 1996,
respectively. Although electric kwh sales decreased during the second quarter of
1997, as compared to the same period in 1996,  fuel and purchased  power expense
increased  slightly  primarily due to the higher costs  recognized in connection
with the  Thunder  Basin  judgment.  The effect of the  judgment  for the second
quarter of 1997 was  approximately  0.36 cents per net kwh  generated.  Overall,
fuel expense  increased from 2.05 to 2.21 cents per net kwh generated;  as lower
coal costs partially offset the effect of the judgment.

      For the first six months of 1997 and 1996,  fuel and purchased  power as a
percentage  of  total  operating   expenses,   approximated   59.5%  and  56.5%,
respectively.  As discussed above,  although electric kwh sales decreased during
the first six months of 1997,  as compared to the same period in 1996,  fuel and
purchased  power expense  increased  primarily due to the effects of the Thunder
Basin judgment. The effect of the judgment on the cost per kwh generated for the
first six months of 1997 was 0.19 cents.  Overall,  fuel expense  increased from
2.04 to 2.17 cents per net kwh generated;  as lower coal costs partially  offset
the effect of the judgment.

      Operating  and  maintenance  costs  increased  $7.7 million for the second
quarter of 1997, as compared to the second quarter 1996, primarily due to higher
advertising  costs and other  general and  administrative  costs,  and increased
operating  costs  at  subsidiaries,  offset,  in  part,  by  lower  costs at the
Company's generation facilities.

      Operating and  maintenance  expenses  increased $1.3 million for the first
six months of 1997,  as compared to the same  period in 1996,  primarily  due to
higher  operating costs at subsidiaries  offset,  in part, by lower  maintenance
costs at the  Company's  generation  facilities,  lower  labor  costs  and other
decreases attributable to the Company's overall costs containment efforts.

      Income taxes decreased for the second quarter and for the first six months
of 1997, as compared to the same periods in 1996, primarily due to lower pre-tax
income  principally  attributable  to the  write-off  of the  investment  in the
Carolina Energy Project.  Lower 1997 non-deductible  merger-related and business
integration expenses also contributed to the decrease.

Other Income and Deductions.

      In June 1997,  Quixx  wrote-off  its  investment of  approximately  $13.64
million in the Carolina Energy Project, a waste-to-energy  cogeneration facility
located in North  Carolina  after it was determined  that  restructuring  of the
project on mutually  agreeable terms was not likely to occur.  Additionally,  UE
wrote-off  its net  investment  of  approximately  $2.42  million,  comprised of
subordinated debt, interest receivable,  and engineering  services, in this same
partnership. This combined investment represents approximately $16.1 million, or
$0.25 per share,  after tax (see Note 3 Commitments and Contingencies in Item 1.
FINANCIAL STATEMENTS).

      Miscellaneous  income and  deductions - net decreased $2.6 million for the
second  quarter of 1997 as compared to the second  quarter of 1996 primarily due
to increased  merger-related and business  integration  expenses.  In the second
quarter of 1997, the Company incurred over $5.0 million of such costs, including
approximately $3.9 million of severance costs.


                                       14
<PAGE>

      Miscellaneous  income and  deductions - net decreased $2.7 million for the
first six months of 1997 as compared  to the first six months of 1996  primarily
due to increased  merger-related and business integration expenses. In the first
six months of 1997,  the  Company  incurred  over $8.0  million  of such  costs,
including approximately $5.3 million of severance costs.

Commitments and Contingencies

      Issues  relating to regulatory  matters are discussed in Note 3 in Item 1.
FINANCIAL STATEMENTS. These matters and the future resolution thereof may impact
the Company's future results of operations, financial position or cash flows.

Common Stock Dividend

      The Board of Directors approved a partial dividend payable to shareholders
of the Company  covering the period May 16, 1997 through July 31, 1997,  the day
prior to the Merger  effective  date,  based on the  quarterly  dividend rate of
$0.55, but prorated for the number of days in the interim period  (approximately
46.0 cents per share). As a result of the consummation of the Merger,  effective
August  1,  1997,  dividends  will be paid  to NCE as the  holder  of all of the
Company's common stock.

Liquidity and Capital Resources

Cash Flows - Six Months Ended June 30
                                                1997         1996     Decrease
                                                ----         ----     --------
Net cash provided by operating activities 
  (in millions) .........................      $21.9        $69.9      $(48.0)

      Cash provided by operating activities decreased in the first six months of
1997,  when  compared  to the same  period in 1996,  primarily  due to the lower
earnings and the payment in April 1997 of the Thunder Basin judgment.

                                                1997         1996      Increase
                                                ----         ----      --------
Net cash used in investing activities 
  (in millions) .........................     $(69.4)      $(59.1)     $10.3

      Cash used in investing  activities  increased  during the six months ended
June 30, 1997, when compared to the same period in 1996, primarily due to higher
construction expenditures.

                                                1997         1996     Increase
                                                ----         ----     --------
Net cash provided by financing activities
  (in millions) .........................     $30.5        $0.7        $29.8

      Cash provided by financing  activities  increased  (indicating  that there
were more borrowings) in the first six months of 1997, when compared to the same
period in 1996,  primarily  due to the increase in short-term  borrowings  which
were used to finance capital expenditures and operating activities.

OTHER MATTERS

      Electric  utilities  have  historically  operated  in a  highly  regulated
environment  in which they have an  obligation  to provide  electric  service to
their  customers  in return for an  exclusive  franchise  within  their  service
territory  with  an  opportunity  to  earn a  regulated  rate  of  return.  This
regulatory  environment  is  changing.  The  generation  sector has  experienced
competition from nonutility power producers and the FERC is requiring utilities,
including the Company, to provide wholesale  transmission  service to others and
may order electric utilities to enlarge their transmission systems to facilitate
transmission   services   without   impairing   reliability.   State  regulatory
authorities  are in the process of changing  utility  regulations in response to
federal  and  state   statutory   changes  and   evolving   markets,   including
consideration of providing open access to retail customers. All of the Company's
jurisdictions   continue  to  evaluate  utility   regulations  with  respect  to
competition.  The Company is 

                                       15
<PAGE>

unable  to  predict  what  financial  impact  or effect  the  adoption  of these
proposals would have on its operations.  The Merger between the Company and PSCo
was, in part, in response to these changing conditions.





                          PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

   Thunder Basin Lawsuit - see Note (1).

Item 6. Exhibits and Reports on Form 8-K.

(a)  Exhibits:

   12 Computation of Ratio of Consolidated Earnings to Consolidated Fixed
      Charges for the six months ended June 30, 1997

   15 Letter from Arthur Andersen LLP regarding unaudited interim information.

   27 Financial Data Schedule UT

(b)  Reports on Form 8-K:

   Item reported - Item 5. Other Events
   Financial Statements filed - None
   Date of report - June 30, 1997, reporting a recorded charge related to the
                    write-off of the Carolina Energy project

   Item reported - Item 4. Changes in Registrant's Certifying Accountant
   Financial Statements filed - None Date of report - April 22, 1997 and filed
        August 8, 1997, reporting the completion of the December 31, 1996 audit
        of the Company's consolidated financial statements by Deloitte & Touche
        LLP


                                       16
<PAGE>



                                  SIGNATURES

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


                                           SOUTHWESTERN PUBLIC SERVICE COMPANY

                                           By      /s/ Doyle R. Bunch II
                                             ---------------------------------
                                                       Doyle R. Bunch II
                                                      Executive Vice-President
                                          Accounting and Corporate Development

DATE: August 14, 1997



                                       17
<PAGE>




                                                                    EXHIBIT 12

                     SOUTHWESTERN PUBLIC SERVICE COMPANY
                               AND SUBSIDIARIES

                COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
                        TO CONSOLIDATED FIXED CHARGES

          (not covered by Report of Independent Public Accountants)



                                                       Six Months Ended
                                                         June 30, 1997
                                                         -------------
                                                    (Thousands of Dollars,
                                                        except ratios)

Fixed charges:

   Interest on long-term debt......................        $22,057
   Dividends on SPS obligated mandatorily redeemable
      preferred securities of subsidiary trust.....          3,925
   Amortization of debt discount and expense less premium    1,123
   Other interest..................................          2,747
   Interest component of rental expense............            623
                                                               ---

     Total ........................................        $30,475
                                                           =======

Earnings (before fixed charges and taxes on income):
   Net income......................................        $24,598
   Fixed charges as above..........................         30,475
   Provisions for Federal and state taxes on income,
   net of investment tax credit amortization.......         16,078
                                                           -------

     Total.........................................        $71,151
                                                           =======

Ratio of earnings to fixed charges.................           2.33
                                                              ====


                                       18
<PAGE>


EXHIBIT 15
August 8, 1997


Southwestern Public Service Company:

      We are aware that Southwestern  Public Service Company has incorporated by
reference in its Registration  Statement No. 333-05199 on Form S-3, Registration
Statement No. 33-64951 on Form S-4 and Registration  Statements No. 33-27452 and
33-57869 on Form S-8, its Form 10-Q for the quarter  ended June 30, 1997,  which
includes our report dated August 8, 1997,  covering the  unaudited  consolidated
condensed financial  statements  contained therein.  Pursuant to Regulation C of
the  Securities  Act of  1933,  that  report  is not  considered  a part  of the
registration statement prepared or certified by our Firm or a report prepared or
certified by our Firm within the meaning of Sections 7 and 11 of the Act.


                                                        Very truly yours,



                                                        ARTHUR ANDERSEN LLP



                                       19