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

(Mark One)

         X  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

For the period ended February 28, 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           (I.R.S. 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 __

         As of April 10, 1997,  40,917,908  shares of the Company's common stock
were outstanding.


<PAGE>


SOUTHWESTERN PUBLIC SERVICE COMPANY
FORM 10-Q
         For the Quarter Ended February 28, 1997


TABLE OF CONTENTS

PART I. Financial Information
         (Unaudited, except Condensed Consolidated Balance Sheet at
           August 31, 1996)

         Condensed Consolidated Balance Sheets at February 28, 1997 and
           August 31, 1996

         Condensed  Consolidated  Statements of Earnings for the three,  six and
           twelve months ended February 28, 1997 and February 29, 1996

         Condensed Consolidated  Statements of Cash Flows for the six and twelve
           months ended February 28, 1997 and February 29, 1996

         Notes to Condensed Consolidated Financial Statements

         Independent Accountants' Report

         Management's Discussion and Analysis of
           Financial Condition and Results of Operations

PART II. Other Information

Signatures

Exhibit 12. Statement of Computation of Ratio of Earnings

FORWARD LOOKING INFORMATION

         Certain matters discussed in this 10-Q are "forward-looking statements"
intended to qualify  for the safe  harbors  from  liability  established  by the
Private  Securities   Litigation  Reform  Act  of  1995.  These  forward-looking
statements  can  generally  be  identified  as such  because  the context of the
statement  will  include  words such as the Company  "believes,"  "anticipates,"
"expects" or words of similar  import.  Similarly,  statements that describe the
Company's future plans, objectives or goals are also forward-looking statements.
Such  statements  address  future  events  and  conditions   concerning  capital
expenditures,  earnings,  litigation,  rate and other  regulatory  matters,  the
pending Merger,  liquidity and capital resources, and accounting matters. Actual
results in each case could differ materially from those currently anticipated in
such statements,  by reason of factors such as electric  utility  restructuring,
including the ongoing state and federal activities;  future economic conditions;
developments in the legislative, regulatory and competitive markets in which the
Company  operates;  time and impact of pending merger;  and other  circumstances
affecting anticipated revenues and costs.



<PAGE>


PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>

SOUTHWESTERN PUBLIC SERVICE COMPANY
Condensed Consolidated Balance Sheets


Assets
<S>                                                          <C>            <C>  

                                                             February 28,   August 31,
                                                             1997           1996
                                                             (Unaudited)
                                                                   (In Thousands)
Utility plant:
         Utility plant in service ........................   $ 2,517,799    $ 2,484,025
         Accumulated depreciation ........................      (937,888)      (911,422)
                  Net plant in service ...................     1,579,911      1,572,603
         Construction work in progress ...................        97,202         49,143
                  Net utility plant ......................     1,677,113      1,621,746
Nonutility property and investments ......................        58,273         71,855

Current assets:
         Cash and temporary investments ..................        28,835         31,223
         Accounts receivable, net ........................        73,484         77,959
         Undercollected fuel and purchased power cost, net        15,697          7,193
         Accrual for unbilled revenues ...................        13,091         23,152
         Materials and supplies, at average cost .........        20,464         21,513
         Prepayments and other current assets ............         4,671          7,452
                  Total current assets ...................       156,242        168,492

Deferred debits ..........................................       173,280        135,724

                  Total assets ...........................   $ 2,064,908    $ 1,997,817

         Continued . . .

See accompanying notes to condensed consolidated financial statements.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

SOUTHWESTERN PUBLIC SERVICE COMPANY
Condensed Consolidated Balance Sheets


Capitalization and Liabilities
<S>                                                                         <C>            <C>   
                                                                            February 28,   August 31,
                                                                            1997           1996
                                                                            (Unaudited)
                                                                                 (In Thousands)
Capitalization:
         Common stock, $1 par value, authorized - 100,000,000 shares;
                  issued and outstanding - 40,917,908 shares ............   $   40,918     $   40,918
         Premium on capital stock .......................................      307,484        307,484
         Retained earnings ..............................................      370,909        386,717
                    Total common shareholders' equity ...................      719,311        735,119
         SPS Obligated Mandatorily Redeemable Preferred Securities of
           Subsidiary Trust holding solely Subordinated Debentures of SPS      100,000           -
         Long-term debt .................................................      620,278        622,931
                    Total capitalization ................................    1,439,589      1,358,050

Current liabilities:
         Short-term debt ................................................       89,682         69,624
         Current maturities of long-term debt ...........................          229         15,176
         Accounts payable ...............................................       22,435         15,979
         Interest accrued ...............................................       11,257         10,962
         Fuel and purchased power expense accrued .......................       52,326         46,396
         Taxes accrued ..................................................        8,542         32,486
         Dividends payable on common stock ..............................       22,505         22,505
         Other current liabilities ......................................       38,480         43,441
                    Total current liabilities ...........................      245,456        256,569

Deferred credits:
         Deferred income taxes ..........................................      363,419        365,911
         Unamortized investment tax credits .............................        5,677          5,803
         Other ..........................................................       10,767         11,484
                    Total deferred credits ..............................      379,863        383,198

                    Total capitalization and liabilities ................   $2,064,908     $1,997,817

See accompanying notes to condensed consolidated financial statements.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

SOUTHWESTERN PUBLIC SERVICE COMPANY
Condensed Consolidated Statements of Earnings
(Unaudited)

<S>                                                   <C>         <C>         <C>         <C>          <C>         <C>
                                                      Three Months Ended      Six Months Ended         Twelve Months Ended
                                                      2-28-97     2-29-96     2-28-97     2-29-96      2-28-97     2-29-96
                                                                  (In Thousands, Except Per Share Amounts)

Operating revenues ................................   $ 226,155   $ 203,785   $ 440,536   $ 404,742    $ 935,190   $ 869,760

Operating expenses:
         Operation:
                  Fuel ............................     114,371      94,658     214,837     184,108      447,752     386,511
                  Purchased power .................       5,548       3,188       8,838       4,626       22,222       7,536
                  Other ...........................      26,985      27,136      54,213      54,071      111,397     110,126
         Maintenance ..............................       7,283       7,809      15,807      15,043       33,298      28,137
         Depreciation and amortization ............      16,598      16,459      33,699      32,847       66,300      63,337
         Taxes other than property and
                  income taxes ....................       5,296       5,131      10,877      10,408       21,577      19,864
         Property taxes ...........................       6,031       5,919      11,832      11,597       23,706      23,745
         Income taxes (note 2) ....................      10,775      12,184      22,454      25,881       56,454      68,005
                           Total operating expenses     192,887     172,484     372,557     338,581      782,706     707,261
Operating income ..................................      33,268      31,301      67,979      66,161      152,484     162,499

Other income (expense), net:
         Income taxes (note 2) ....................       5,307        (708)      4,696      (1,293)         572      (3,850)
         Other, net ...............................     (17,221)       (425)    (16,256)       (544)      (5,602)      6,923
                           Total other income
                             (expense), net             (11,914)     (1,133)    (11,560)     (1,837)      (5,030)      3,073

Interest charges ..................................      11,659      12,087      24,383      23,075       50,894      44,692
Distributions on SPS Obligated
  Mandatorily Redeemable
  Preferred Securities of
  Subsidiary Trust ................................       1,963        -          2,835        -           2,835        -
Net earnings ......................................       7,732      18,081      29,201      41,249       93,725     120,880
Dividends and premiums on
         cumulative preferred stock                         -         1,275        -          2,494         -          4,933
Earnings applicable to
         common stock .............................   $   7,732   $  16,806   $  29,201   $  38,755    $  93,725   $ 115,947
Earnings per common share* ...........................$    0.19   $    0.41   $    0.71   $    0.95    $    2.29   $    2.83
Weighted average shares
         outstanding ..............................      40,918      40,918      40,918      40,918       40,918      40,918
Dividends declared per
         common share .............................   $    0.55   $    0.55   $    1.10   $    1.10    $    2.20   $    2.20

( ) Denotes deduction.
*Based on weighted average shares outstanding.

See accompanying notes to condensed consolidated financial statements.

</TABLE>


<PAGE>

<TABLE>
<CAPTION>

SOUTHWESTERN PUBLIC SERVICE COMPANY
Condensed Consolidated Statements of Cash Flows
(Unaudited)

<S>                                                                   <C>          <C>          <C>          <C>    
                                                                      Six Months Ended          Twelve Months Ended
                                                                      2-28-97      2-29-96      2-28-97      2-29-96
                                                                                        (In Thousands)
Operating Activities:
         Cash received from customers .............................   $ 446,061    $ 424,689    $ 907,488    $ 848,235
         Cash paid to suppliers and employees .....................    (305,960)    (270,355)    (599,727)    (522,011)
         Interest paid ..................................... ......     (27,090)     (23,510)     (51,706)     (45,393)
         Income taxes paid ........................................     (31,607)     (42,344)     (44,688)     (59,550)
         Taxes other than income taxes paid .......................     (31,631)     (30,902)     (46,329)     (41,655)
         Other operating cash receipts and payments, net ..........     (17,993)        (139)     (10,611)       6,742
                   Cash provided by operating activities ..........      31,780       57,439      154,427      186,368
Investing Activities:
         Construction expenditures ................................     (89,190)     (64,401)    (136,775)    (114,496)
         Nonutility property and investments ......................      (2,426)      (2,951)      (1,243)     (19,530)
         Acquisitions .............................................        -         (29,200)        -         (29,200)
                   Net cash used in investing activities ..........     (91,616)     (96,552)    (138,018)    (163,226)
Financing Activities:
         Issuance of long-term debt ...............................      82,300         -         142,300        6,204
         Issuance of SPS Obligated Mandatorily Redeemable
           Preferred Securities ...................................     100,000         -         100,000         -  
         Retirement of long-term debt .............................     (99,900)      (1,610)    (102,735)      (2,021)
         Change in short-term debt ................................      20,058      138,834      (49,152)     138,834
         Redemption of cumulative preferred stock ................         -         (71,572)      (3,862)     (71,572)
         Dividends paid (common and preferred) ....................     (45,010)     (47,504)     (90,020)     (94,953)
                Net cash provided by (used in) financing activities      57,448       18,148       (3,469)     (23,508)
Net Increase (Decrease) in Cash and Temporary Investments .........      (2,388)     (20,965)      12,940         (366)
Cash and Temporary Investments at Beginning of Period .............      31,223       36,860       15,895       16,261
Cash and Temporary Investments at End of Period ...................   $  28,835    $  15,895    $  28,835    $  15,895

Reconciliation of Net Earnings to Net Cash Provided
   by Operating Activities:
          Net earnings ............................................   $  29,201    $  41,249    $  93,725    $ 120,880
          Adjustments to reconcile net earnings to net cash
            provided by operating activities:
          Depreciation and amortization ...........................      33,699       32,847       66,300       63,337
          Deferred income taxes and investment tax credits ........       1,173        7,983        9,363       12,005
          Allowance for equity funds used during construction .....        (184)         (60)        (184)        (245)
          Write-off of BCH Energy Limited Partnership ............       16,008         -          16,008         - 
          Cash flows impacted by changes in:
             Accounts receivable ..................................       4,475       14,261      (14,483)      (3,248)
             Accrual for unbilled revenues ........................      10,061       11,467        4,068      (14,661)
             Materials and supplies ...............................       1,049          854          329         (124)
             Accounts payable .....................................       6,456       (2,944)      13,192        1,025
             Fuel and purchased power expense accrued .............     (15,657)      (8,547)        (878)       5,338
             Taxes accrued ........................................     (23,944)     (32,050)         835        2,339
             Undercollected fuel and purchased power cost, net ....      (8,504)      (5,292)     (16,374)      (2,686)
             Other, net ...........................................     (22,053)      (2,329)     (17,474)       2,408
             Net cash provided by operating activities ............   $  31,780    $  57,439    $ 154,427    $ 186,368

             Noncash transaction ..................................   $  21,587         -       $  21,587         -  

See accompanying notes to condensed consolidated financial statements.

</TABLE>

<PAGE>



SOUTHWESTERN PUBLIC SERVICE COMPANY
Notes to Condensed Consolidated Financial Statements
(Unaudited)


(1) Interim  periods.  The results of operations for the interim periods are not
necessarily an indication of the expected results for the fiscal year due to the
seasonal nature of Southwestern Public Service Company's (the Company) business.
The unaudited condensed  consolidated  financial statements included herein were
prepared from the books of the Company in  accordance  with  generally  accepted
accounting  principles and reflect all adjustments (none of which are other than
normal recurring adjustments) which are, in the opinion of management, necessary
to provide a fair statement of the results of operations and financial  position
for the interim  periods.  Such financial  statements  generally  conform to the
presentation  reflected in the  Company's  Annual  Report to  Stockholders.  The
current interim period reported herein is included in the fiscal year subject to
independent audit at the end of the year.


(2) Income taxes. The components of income tax expense (benefit) are as follows:
<TABLE>
         <S>                                 <C>         <C>         <C>         <C>         <C>         <C>
                                             Three Months Ended      Six Months Ended        Twelve Months Ended
                                             2-28-97     2-29-96     2-28-97     2-29-96     2-28-97     2-29-96
                                                                        (In Thousands)
         Taxes on operating income:
                  Federal-current ........   $  7,525    $  6,416    $ 15,522    $ 16,466    $ 39,247    $ 52,569
                  Federal-deferred .......      3,027       5,012       6,694       8,299      15,692      13,273
                  Investment tax credits .        (63)        (63)       (125)       (125)       (250)       (250)
                  State-current ..........        286         819         363       1,241       1,765       2,413
                                               10,775      12,184      22,454      25,881      56,454      68,005
         Taxes on other income:
                  Federal-current ........        (72)        737         693       1,467       5,469       4,838
                  Federal-deferred .......     (5,236)        (40)     (5,396)       (191)     (6,079)     (1,018)
                  State-current ..........          1          11           7          17          38          30
                                               (5,307)        708      (4,696)      1,293        (572)      3,850
                      Total income taxes..   $  5,468    $ 12,892    $ 17,758    $ 27,174    $ 55,882    $ 71,855
</TABLE>


(3) Merger  with Public  Service  Company of  Colorado  (PSCo).  The Company and
Denver-based  PSCo entered into a definitive  merger  agreement  (the Merger) on
August 22, 1995, to form a registered  public utility  holding company named New
Century  Energies,  Inc.,  which will be the parent  company for the Company and
PSCo. The transaction is subject to various conditions, including receipt of the
approval  of or the  taking  of other  action  by the  Securities  and  Exchange
Commission (SEC), the Federal Trade Commission,  the Department of Justice,  the
Nuclear Regulatory Commission,  the Federal Energy Regulatory Commission (FERC),
and the state  public  utility  commissions  in  Texas,  Colorado,  New  Mexico,
Wyoming, and Kansas. (See GENERAL. Merger Agreement in the Company's 1996 Annual
Report on Form 10-K.) All  regulatory  approvals  have been received  except for
approval by the SEC,  although the Texas order is  conditional on further review
after all other approvals have been received.

         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 of $3,000,000 in Texas,  $1,200,000 in New Mexico,  $100,000 in Oklahoma
and $10,000 in Kansas.

         The Merger,  with a targeted  completion date in the spring of 1997, is
conditioned on qualifying as a tax-free  reorganization  and being accounted for
as a pooling of interests.

(4)  Issuance  of  securities.  The  Company  redeemed in  September  1996,  the
$25,000,000  6-1/2%  pollution  control  revenue  bonds (PCRBs) due 2004 and the
$32,300,000  6-5/8% PCRBs due 2009 and replaced these series in September  1996,
with $57,300,000 5-3/4% PCRBs due 2016.

         In October 1996, the Company called its $25,000,000 principal amount of
13-1/2% PCRBs and issued  $25,000,000 of new variable rate PCRBs.  In connection
with the new issuance of variable  rate PCRBs,  the Company has an interest rate
swap  agreement,  which,  in effect,  fixes the interest  rate on a  $25,000,000
notional  amount at 6.435%.  Amounts paid or received  under this  agreement are
accrued  as  interest  rates  change  and are  recognized  over  the life of the
agreement  as an  adjustment  to  interest  expense.  The  Company is exposed to
interest rate risk in the event of nonperformance by the counterparty;  however,
the Company does not anticipate such nonperformance.

         In October 1996,  Southwestern Public Service Capital I, a wholly owned
trust,  issued in a public  offering  $100,000,000  of its 7.85% Trust Preferred
Securities,  Series  A. The sole  asset of the trust is  $103,000,000  principal
amount of the  Company's  7.85%  Deferrable  Interest  Subordinated  Debentures,
Series A due  September  1,  2036.  The funds from this  financing  were used to
reduce short-term debt.

(5) Rate and  regulatory  matters.  The Company may effect  changes in its rates
only as approved by the  regulatory  authorities  governing  its  jurisdictions.
Amounts   ultimately   realized  will  differ  from  amounts   approved  because
kilowatt-hour  sales  and  other  factors  will  vary  from  those  used in rate
proceedings.

         A Public Utility  Commission of Texas (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. A hearing was held in September 1995, and in
January 1996 an order was issued which required the Company to make a $3,900,000
fuel refund consisting of $2,100,000 of overrecovered  fuel costs and $1,800,000
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 rule waiver. The Company filed a
motion for rehearing on January 25, 1996.  The PUCT issued an order on March 14,
1996,  denying  rehearing  on the  fuel  disallowance  (which  was  adjusted  to
$1,900,000),  and ordered the flow through of 100% of the margin  effective with
the first  billing  cycle  after the date of the  order.  On May 24,  1996,  the
Company  filed an appeal  in the  Travis  County  District  Court on the  PUCT's
decision with respect to the  $1,900,000  of disallowed  fuel costs in which the
hearing of merits was held on November 1, 1996.  The  District  Court upheld the
PUCT's  decision on the disallowed  fuel costs.  The District Court decision has
been  appealed  to the  Texas  Court of  Appeals  which has not yet ruled in the
matter.  The  ultimate  outcome of this  matter  will not  significantly  affect
consolidated   financial  results.   Currently  the  Company  has  approximately
$16,000,000 in underrecovered  fuel costs and is surcharging  customers for some
of the underrecovery.  The Company anticipates  requesting a continued surcharge
to collect the remaining amount of underrecovered fuel costs.

         On December 19,  1989,  the FERC issued its final order  regarding  the
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 TNP  were  approved  by the  FERC in July  1993 and
September 1993, respectively, and the Company received approximately $2,800,000,
including  interest.  In a settlement with the Company's New Mexico  cooperative
customers the Company received approximately $7,000,000, including interest. The
FERC approved this  settlement in July 1995.  Resolutions  of these matters with
the  remaining  wholesale  customers,  Golden  Spread  member  cooperatives  and
Lyntegar  Electric  Cooperative,  have  not been  reached.  The  Company  cannot
reasonably  estimate the remaining amount  recoverable  from these  proceedings;
however, a favorable resolution could materially improve  consolidated  earnings
in the year in which it is resolved.

         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 ITEM
3. LEGAL  PROCEEDINGS  in the  Company's  1996  Annual  Report on Form 10-K.) On
November  1, 1994,  the jury  returned  a verdict in favor of Thunder  Basin and
awarded  them damages of  approximately  $18,800,000.  The Company  appealed the
judgement  to the Tenth  Circuit  Court of Appeals and on January 7, 1997,  that
Court found in favor of Thunder Basin and upheld the $18,800,000 judgement.  The
Company  filed a motion for  rehearing  which was denied.  In February  1997 the
Company  accrued the judgement plus interest and court costs and paid the amount
in April 1997. A noncash  transaction  occurred  during the  three-month  period
resulting  from the accrual of a fuel  payable  for the amount of the  judgement
plus interest and deferring that charge to a deferred asset.

         Management  believes that the payment is recoverable  from  ratepayers,
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 judgement from FERC jurisdictional wholesale
customers.  Therefore, management believes that the ultimate resolution will not
have  a  material  adverse  effect  on  the  Company's   consolidated  financial
statements.

(6) Other events.  As discussed in the Company's 1996 Annual Report on Form 10-K
under  BUSINESS.  Nonutility  Businesses,  Quixx  Corporation,  a  wholly  owned
subsidiary  of the  Company,  holds a 49%  limited  partnership  interest in BCH
Energy Limited  Partnership 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  $16,000,000  (25  cents  per  common  share,  after  tax) in this
project.

         Quixx also has an equity investment of approximately $13,000,000, which
equals  one-third  ownership  interest,  in the Carolina Energy Project which is
similar to the BCH  project,  but with design  modifications.  Construction  was
originally scheduled to be completed later this year but has been halted pending
an  independent  analysis of the project's  viability.  The Company is unable to
predict at this time if the project will be completed.

(7) General.  See note (1) of Notes to Consolidated  Financial Statements in the
Company's  1996  Annual  Report  on Form  10-K for a  summary  of the  Company's
significant accounting policies.
<PAGE>

Independent Accountant's Report


Southwestern Public Service Company:

We have  reviewed  the  accompanying  condensed  consolidated  balance  sheet of
Southwestern  Public Service  Company and  subsidiaries as of February 28, 1997,
and  the  related  condensed   consolidated   statements  of  earnings  for  the
three-month,  six-month and  twelve-month  periods ended  February 28, 1997, and
February 29, 1996,  and cash flows for the  six-month and  twelve-month  periods
ended February 28, 1997 and February 29, 1996.  These  financial  statements are
the responsibility of the Company's management.

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

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

We have  previously  audited,  in accordance  with generally  accepted  auditing
standards,  the consolidated  balance sheet and statement of  capitalization  of
Southwestern  Public Service Company and subsidiaries as of August 31, 1996, and
the related consolidated  statements of income, common shareholders' equity, and
cash  flows for the year then ended (not  presented  herein);  and in our report
dated  October  10,  1996,  we  expressed  an   unqualified   opinion  on  those
consolidated financial statements.  In our opinion, the information set forth in
the accompanying  condensed consolidated balance sheet as of August 31, 1996, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.


Deloitte & Touche LLP

April 11, 1997
Dallas, Texas
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS


RESULTS OF OPERATIONS

         Operating Revenues and Kilowatt-Hour Sales

                  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 revenues.
<TABLE>
<CAPTION>
                                                          Increase (Decrease) From Corresponding Prior Period
<S>                                                       <C>             <C>           <C>    
                                                          Three Months    Six Months    Twelve Months
                                                          Ended           Ended         Ended
                                                          2-28-97         2-28-97       2-28-97
                                                             (Dollars  In  Thousands)
Estimated  effect  on  revenues  of  variations in:
         Kilowatt-hour (kwh) sales* ...................   $ 11,768        $ 13,772      $ 29,841
         Rates ........................................     (2,163)         (1,559)       (9,558)
         Fuel and purchased power cost recovery .......     14,197          22,695        43,726
                  Subtotal ............................     23,802          34,908        64,009
         Non-firm kwh sales ...........................     (1,432)            886         1,421
                  Total revenue increase ..............   $ 22,370        $ 35,794      $ 65,430

Increase in kwh sales* (in millions) ..................        272             324           734
   
Increase (decrease) in non-firm kwh sales (in millions)       (129)              3          (174)

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

         Variations in Kwh Sales. The revenue increases in the three-,  six- and
twelve-month  periods  are  attributable  to  increased  sales to all classes of
customers.  These sales increased due primarily to increased  economic  activity
throughout the region.  Contributing to the increase for the twelve-month period
was the dry, warm weather last summer that favorably  impacted air  conditioning
and agriculture-related sales. Additionally the dry colder weather this fall and
winter  contributed to sales in the three- and six-month  periods with increases
to the retail and agriculture sectors.

         Variations  in  Rates.  The  decrease  for the  twelve-month  period is
primarily  the  result of last  year's  settlement  of the 1985  Federal  Energy
Regulatory  Commission  (FERC) rate case with the Company's New Mexico wholesale
REC  customers.  This  settlement  contributed  increased  revenues in the prior
period of  approximately  $4.0  million  (and  interest of $3.0  million that is
included in other income).  Interruptible  rates available to certain classes of
retail  customers were approved and  implemented in Texas and New Mexico in 1996
which acted to lower  related  revenues  for all  periods.  The  Company  sought
approval  to put into  effect  these new  rates in  compliance  with  settlement
agreements   in  the  1993  and  1994  rate  cases  in  Texas  and  New  Mexico,
respectively, and to respond to generation resource capacity needs.

         Variations in Fuel and Purchased Power Cost Recovery. Revenue increases
for all three periods are due to increased natural gas prices and coal costs.

         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.  The  decrease for the quarter is due to the  available  low
cost power  throughout the region.  The increases for the six- and  twelve-month
periods are due primarily to increased fuel charges included in the non-firm kwh
sales. Additionally, interruptible sales to Public Service Company of New Mexico
increased for all periods.

         Operating Expenses and Non-Operating Items

         Fuel and purchased power expense  comprised  62.2%,  60.0% and 60.0% of
total operating expenses for the three, six and twelve months ended February 28,
1997, respectively.  When compared to the corresponding periods last year, these
expenses  increased  $22.1  million or 22.6%,  $34.9  million or 18.5% and $75.9
million  or  19.3%,  respectively.   Fuel  expense  (excluding  purchased  power
expense), per net kwh generated, increased from 1.94 to 2.30 cents, from 1.88 to
2.16  cents,  and from 1.82 to 2.11 cents for the  respective  three-,  six- and
twelve-month periods due to higher natural gas and coal costs.

         Total operating expenses,  excluding fuel and purchased power decreased
$1.7  million or 2.2%,  $1.0  million or 0.6%,  and $0.5 million or 0.2% for the
respective  three-,  six- and  twelve-month  periods.  These decreases  resulted
primarily  from lower  income tax expense as a result of lower  taxable  income.
During  the  twelve-month  period  this  decrease  was  mitigated  by  increased
maintenance expense as a result of the 18-month maintenance cycle and additional
cooling tower repairs.

         Other Income  (Expense).  A decline in "other income  (expense)" in all
periods is due  primarily  to a  write-off  of the Quixx  investment  in the BCH
limited  partnership and related  receivables and expenses of approximately  $16
million or 25 cents per share. The BCH project is a waste-to-energy cogeneration
project in North Carolina. The project experienced problems primarily related to
deficiencies in the waste-fuel  handling system. For the twelve-month period the
BCH write-off was partially offset by the sale of a portion of underground water
rights held by Quixx.  Additionally  other income was favorably  impacted in the
prior  twelve-month  period by the approximate  $3.0 million of interest arising
from the rate case settlement with New Mexico wholesale customers.

         Earnings

         Current earnings applicable to common stock were negatively affected by
the one-time  write-off of the Quixx  investment in the BCH limited  partnership
and related  receivables and expenses of  approximately  $16 million or 25 cents
per share. During the twelve-month period the BCH write-off was partially offset
by the sale of a portion of underground water rights held by Quixx, representing
19 cents  per  share.  Additionally,  twelve-month  earnings  were  impacted  by
increased  maintenance and interest expense.  Maintenance expense was higher due
to the 18-month  maintenance  cycle and  additional  cooling tower  maintenance.
Interest  expense rose due to increased  long-term and  short-term  debt.  These
higher  levels of debt were caused by the  retirement  of preferred  stock,  the
acquisition  of  electric  properties  from Texas New Mexico  Power  Company and
increased construction  expenditures.  During the prior 12-month period earnings
were favorably affected by two non-recurring items: an accounting  adjustment to
delivered-not-billed  revenues  (13 cents per  share)  and  settlement  with New
Mexico  customers  of a 1985  wholesale  rate  case (11 cents  per  share).  The
wholesale  settlement  included  $3.0  million of interest  that is reflected in
other income.

         SPS also notes that Quixx has an equity  investment  of $13.2  million,
representing  approximately  21 cents per SPS common  share,  after tax,  in the
Carolina Energy Project,  another waste-to-energy  facility,  which is a similar
project to BCH,  but with design  modifications.  Construction  at the  Carolina
Energy Project,  originally  scheduled to be completed later this year, has been
halted  pending an  independent  analysis  of the  projects  viability.  Quixx's
investment equals one-third ownership interest.

         Assuming normal weather  conditions,  1997 operating income is expected
to remain relatively flat, but net earnings for 1997 will be negatively impacted
by increased merger-related and business integration expenses as well as the BCH
write-off.  A  resolution  of the 1985 FERC rate case with Texas  wholesale  REC
customers,  by  settlement  or  otherwise,  would  favorably  affect  income and
earnings in the year received.

LIQUIDITY AND CAPITAL RESOURCES

         The  Company's   demand  for  capital  is  primarily   related  to  the
construction  of utility plant and  equipment.  Cash  construction  expenditures
excluding  AFUDC for the three,  six and twelve months ended  February 28, 1997,
were $34.7  million,  $89.2 million and $136.8  million,  respectively.  Also in
fiscal 1996, the Company  received  regulatory  approval to make  investments in
Quixx of up to $15 million each year beginning in fiscal 1996 and continuing for
five years.  Quixx's  investment in independent power projects is dependent upon
suitable investment  opportunities and the availability of capital.  The Company
cannot accurately forecast the portion of internally  generated funds to be used
for capital  expenditures,  but  expects  that it will be  approximately  40% in
fiscal  1997.  To the extent the  capital  required  in 1997 is not  supplied by
internally  generated  funds,  the Company  expects to obtain such  capital from
short-term  borrowing or from the sale of long-term debt, preferred stock and/or
common stock.  The Company's  estimates of capital  needs,  in particular  those
related to  construction  and the  generation  of internal  funds are subject to
review and revision, and may vary substantially from the foregoing especially in
a more competitive environment.  Additionally the completion of the merger could
significantly  impact these estimates.  Due to the merger,  Standard & Poor's is
reviewing the Company's rated debt for possible downgrade.

         The Company also has  effective a shelf  registration  under which $220
million of debt securities and/or preferred stock are available for issuance.

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.  On July 9,  1996,  the
Company filed its open access  transmission tariff in compliance with FERC Order
No. 888. (See GENERAL.  Competition. in the Company's 1996 Annual Report on Form
10-K.)  State  regulatory  authorities  are in the process of  changing  utility
regulations  in  response to federal and state  statutory  changes and  evolving
markets.  All  of the  Company's  jurisdictions  continue  to  evaluate  utility
regulations  with respect to competition,  and  legislative  proposals to effect
retail  wheeling are expected to be introduced in 1997. The Company is unable to
predict what financial  impact or effect the adoption of these  proposals  would
have on its  operations.  In part in response to these  changing  conditions the
Company has entered  into a  definitive  merger  agreement  with Public  Service
Company  of  Colorado  (the  Merger).  Consummation  of the Merger is subject to
customary conditions including receiving regulatory authority approvals. The two
utilities  are working  toward a completion  date in spring 1997.  The foregoing
discussions of the Company's  "Results of Operations" and "Liquidity and Capital
Resources"  do not take into account any changes that could arise as a result of
the Merger.
<PAGE>

PART II. OTHER INFORMATION

Item 5. Other Information.

                  The  Company's  ratio of  earnings  to fixed  charges  for the
twelve months ended February 28, 1997, was 3.61.

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

         (a)      Exhibits:

                   12      Statement showing computations of ratio of earnings
                           for the twelve months ended February 28, 1997

                   15      Letter of Deloitte & Touche LLP regarding unaudited
                           condensed consolidated interim financial information

         (b)      Reports on Form 8-K:

                   Items reported - Item 5. Other Events
                   Financial Statements filed - None
                   Date of reports filed -  February  7,  1997,  reporting  a
                                            recorded  charge  related to the
                                            write-off of the BCH project. 
                                          - February  24, 1997,  reporting  the
                                            joint offer by PSCo and American 
                                            Electric Power to acquire Yorkshire
                                            Electricity Group plc in the
                                            United Kingdom.


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

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

DATE: April 10, 1997