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 quarterly period ended June 30, 1998

                      OR

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

           For the transition period from _____________   to   ____________

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

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

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

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

      On August 12, 1998,  111,500,430  shares of the Registrant's  Common Stock
were  outstanding.  The  aggregate  market  value of this  common  stock held by
nonaffiliates  based on the  closing  price on the New York Stock  Exchange  was
approximately $4,829,362,374.

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

<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 .........................................  33


                          PART II - OTHER INFORMATION


Item 1.  Legal Proceedings................................................. 52

Item 4.  Submission of Matters to a Vote of Security Holders .............. 52

Item 5.  Other Information ................................................ 52

Item 6.  Exhibits and Reports on Form 8-K.................................. 55








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

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

                         FORWARD-LOOKING INFORMATION

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


                                       i
<PAGE>



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

Abbreviation or Acronym                                           Term
-------------------------------------------------------------------------------

AEP.....................................................American Electric Power
CDPHE......................................Colorado Department of Public Health
                                           and Environment
Cheyenne.................................Cheyenne Light, Fuel and Power Company
CPUC...................The Public Utilities Commission of the State of Colorado
Denver District Court....District Court in and for the City and County of Denver
DOE.........................................................Department of Energy
DSM.......................................................Demand Side Management
DSMCA.....................................Demand Side Management Cost Adjustment
Dth....................................................................Dekatherm
e prime...........................................e prime, inc. and subsidiaries
ECA.......................................................Energy Cost Adjustment
FERC........................................Federal Energy Regulatory Commission
Fort St. Vrain.......................Fort St. Vrain Electric Generating Station,
                                           formerly a nuclear generating station
Fuelco..........Fuel Resources Development Co., a dissolved Colorado Corporation
GCA..........................................................Gas Cost Adjustment
ICA....................................................Incentive Cost Adjustment
Kwh................................................................kilowatt-hour
Merger.............................the business combination between PSCo and SPS
Natural Fuels..........................................Natural Fuels Corporation
NCE or Company........................................New Century Energies, Inc.
NC Enterprises..............................................NC Enterprises, Inc.
NCI..............................................New Century International, Inc.
NMPUC.......................................New Mexico Public Utility Commission
NOx...............................................................Nitrogen Oxide
PSCo..........................................Public Service Company of Colorado
PUHCA.................................Public Utility Holding Company Act of 1935
PSCCC.............................................PS Colorado Credit Corporation
PUCT..........................................Public Utility Commission of Texas
QF...........................................................Qualifying Facility
Quixx.........................................Quixx Corporation and subsidiaries
SEC...........................................Securities and Exchange Commission
SO2...............................................................Sulfur Dioxide
SPS..........................................Southwestern Public Service Company
SFAS 71.....................Statement of Financial Accounting Standards No. 71 -
                     "Accounting for the Effects of Certain Types of Regulation"
SFAS 112...................Statement of Financial Accounting Standards No. 112 -
                             "Employers' Accounting for Postemployment Benefits"
SFAS 121..................Statement of Financial Accounting Standards No. 121 -
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
 to Be Disposed Of"
Thunder Basin.........................................Thunder Basin Coal Company
TNP...............................................Texas-New Mexico Power Company
UE.............................Utility Engineering Corporation and subsidiaries
WGI....................................................WestGas InterState, Inc.
WPSC..........................................Wyoming Public Service Commission
Yorkshire Electricity...........................Yorkshire Electricity Group plc
Yorkshire Power.......................................Yorkshire Power Group Ltd.

                                       ii

<PAGE>



                 NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
                    CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (Unaudited)
                            (Thousands of Dollars)


                                    ASSETS

                                                         June 30,   December 31,
                                                           1998          1997
                                                           ----          ----


Property, plant and equipment, at cost:
   Electric ..........................................  $6,877,629  $ 6,703,863
   Gas................................................   1,170,404    1,136,231
   Steam and other....................................     118,697      120,322
   Common to all departments..........................     465,460      437,636
   Construction in progress...........................     335,550      318,124
                                                           -------      -------
                                                         8,967,740    8,716,176
   Less: accumulated depreciation ....................   3,295,264    3,182,800
                                                         ---------    ---------
     Total property, plant and equipment..............   5,672,476    5,533,376
                                                         ---------    ---------


Investments, at cost:
   Investment in Yorkshire Power and other 
      unconsolidated  subsidiaries (Note 2)...........     291,546      295,316
   Other..............................................      66,159       71,411
                                                           -------       ------
    Total investments.................................     357,705      366,727
                                                           -------      -------


Current assets:
   Cash and temporary cash investments................     107,581       72,623
   Accounts receivable, less reserve for uncollectible
     accounts ($5,623 at June 30, 1998; $5,355 at
     December 31, 1997) ..............................     308,325      315,539
   Accrued unbilled revenues..........................     100,000      110,877
   Recoverable purchased gas and electric energy costs
     - net ...........................................      77,604      129,292
   Materials and supplies, at average cost............      70,098       68,411
   Fuel inventory, at average cost....................      25,194       23,162
   Gas in underground storage, at cost (LIFO).........      24,613       47,394
   Prepaid expenses and other.........................      67,024       56,868
                                                           -------       ------
    Total current assets..............................     780,439      824,166
                                                           -------      -------

Deferred charges:
   Regulatory assets (Note 1).........................     404,081      430,475
   Unamortized debt expense ..........................      21,354       20,833
   Other..............................................     134,348      134,704
                                                           -------      -------
    Total deferred charges............................     559,783      586,012
                                                           -------      -------
                                                        $7,370,403   $7,310,281
                                                        ==========   ==========


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

                                       1
<PAGE>


                 NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
                    CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (Unaudited)
                            (Thousands of Dollars)

                           CAPITAL AND LIABILITIES

                                                          June 30,  December 31,
                                                            1998       1997
                                                            ----       ----


Common stock .........................................   $1,727,281  $1,694,195
Retained earnings.....................................      672,718     659,050
                                                            -------     -------
    Total common equity...............................    2,399,999   2,353,245

Preferred stock of subsidiaries:
   Not subject to mandatory redemption................           -      140,002
   Subject to mandatory redemption at par.............           -       39,253
PSCo and SPS obligated mandatorily redeemable preferred
   securities of subsidiary trusts holding solely 
   subordinated debentures of PSCo and SPS (Note 6)....    294,000      100,000
Long-term debt of subsidiaries .......................   2,228,128    1,987,955
                                                         ---------    ---------
                                                         4,922,127    4,620,455
                                                         ---------    ---------

Noncurrent liabilities:
   Employees' postretirement benefits other than 
     pensions ........................................      68,809       62,716
   Employees' postemployment benefits ................      26,819       27,953
                                                            ------       ------
    Total noncurrent liabilities......................      95,628       90,669
                                                            ------       ------

Current liabilities:
   Notes payable and commercial paper ................      454,063     588,343
   Long-term debt due within one year.................      190,983     257,469
   Preferred stock subject to mandatory redemption 
     within one year .................................            -       2,576
   Accounts payable...................................      239,942     298,469
   Dividends payable..................................       67,536      68,296
   Customers' deposits................................       29,678      27,993
   Accrued taxes......................................       48,968      66,587
   Accrued interest...................................       54,092      52,615
   Current portion of accumulated deferred income taxes      24,142      27,391
   Other..............................................       92,526      87,380
                                                            -------      ------
    Total current liabilities.........................    1,201,930   1,477,119
                                                          ---------   ---------

Deferred credits:
   Customers' advances for construction...............       52,441      53,041
   Unamortized investment tax credits ................      103,589     106,147
   Accumulated deferred income taxes..................      930,021     922,341
   Other..............................................       64,667      40,509
                                                            -------      ------
    Total deferred credits............................    1,150,718   1,122,038
                                                          ---------   ---------

Commitments and contingencies (Notes 4 and 5).........
                                                         $7,370,403  $7,310,281
                                                         ==========  ==========


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

                                       2

<PAGE>


                 NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                 (Unaudited)
                            (Thousands of Dollars)

                                                            Three Months Ended
                                                                 June 30,
                                                               1998      1997
                                                               ----      ----

Operating revenues:
   Electric...........................................       $659,765  $594,665
   Gas................................................        178,130   170,824
   Other..............................................         21,726    11,253
                                                              -------    ------
                                                              859,621   776,742

Operating expenses:
   Fuel used in generation............................        171,280   165,178
   Purchased power....................................        154,193   124,029
   Cost of gas sold...................................        124,398   115,106
   Other operating and maintenance expenses...........        162,967   149,152
   Depreciation and amortization......................         67,074    60,378
   Taxes (other than income taxes) ...................         33,043    32,563
                                                              -------    ------
                                                              712,955   646,406
                                                              -------   -------
Operating  income.....................................        146,666   130,336

Other income and deductions:
   Merger expenses....................................             (5)  (10,430)
   Write-off of investment in Carolina Energy Project
      (Note 3) .......................................              -   (16,052)
   Equity in earnings (losses) of Yorkshire Power and
      other  unconsolidated subsidiaries (Note 2).....         (7,569)    4,006
   Miscellaneous income and deductions - net..........          1,028    (6,597)
                                                              -------   -------
                                                               (6,546)  (29,073)

Interest charges and preferred dividends of subsidiaries:
   Interest on long-term debt.........................         42,718    42,657
   Other interest.....................................          8,958     6,785
   Allowance for borrowed funds used during construction       (4,415)   (2,449)
   Dividends on PSCo and SPS obligated mandatorily
     redeemable preferred securities of subsidiary 
     trusts holding solely subordinated debentures
     of PSCo and SPS (Note 6)..........................         4,073     1,962
   Dividend requirements on preferred stock of 
    subsidiaries ......................................         2,403     2,942
                                                                -----     -----
                                                               53,737    51,897

Income before income taxes............................         86,383    49,366
Income taxes..........................................         29,790    15,321
                                                              -------    ------
Net income............................................        $56,593   $34,045
                                                              =======   =======

Weighted average common shares outstanding............        111,372   104,267
                                                              =======   =======

Basic and diluted earnings per share of common stock
  outstanding ........................................         $ 0.50   $  0.33
                                                               ======   =======


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

                                       3
<PAGE>


                 NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                 (Unaudited)
                            (Thousands of Dollars)

                                                             Six Months Ended
                                                                 June 30,
                                                               1998      1997
                                                               ----      ----

Operating revenues:
   Electric...........................................    $1,259,753 $1,183,022
   Gas................................................       497,837    462,448
   Other..............................................        41,535     21,283
                                                             -------     ------
                                                           1,799,125  1,666,753

Operating expenses:
   Fuel used in generation............................       312,199    314,057
   Purchased power....................................       303,057    251,862
   Cost of gas sold...................................       349,310    322,095
   Other operating and maintenance expenses...........       310,648    284,273
   Depreciation and amortization......................       129,492    121,545
   Taxes (other than income taxes) ...................        65,916     66,585
                                                              ------      ------
                                                           1,470,622  1,360,417
                                                           ---------  ---------
Operating  income.....................................       328,503   306,336

Other income and deductions:
   Merger expenses....................................          (790)   (14,488)
   Write-off of investment in Carolina Energy Project
      (Note 3) .......................................             -    (16,052)
   Equity in earnings (losses) of Yorkshire Power and
      other  unconsolidated subsidiaries (Note 2).....        (3,817)     4,259
   Miscellaneous income and deductions - net..........        (1,155)    (8,131)
                                                              -------   -------
                                                              (5,762)   (34,412)

Interest charges and preferred dividends of subsidiaries:
   Interest on long-term debt.........................         83,191    82,078
   Other interest.....................................         17,452    11,702
   Allowance for borrowed funds used during construction       (8,921)   (4,750)
   Dividends on PSCo and SPS obligated mandatorily
    redeemable preferred securities of subsidiary
    trusts holding solely subordinated debentures of
    PSCo and SPS (Note 6).............................          6,036     3,925
   Dividend requirements on preferred stock of 
    subsidiaries .....................................          5,332     5,885
                                                                -----     -----
                                                              103,090    98,840
                                                              -------    ------

Income before income taxes............................        219,651   173,084
Income taxes..........................................         76,909    60,883
                                                              -------   -------
Net income............................................       $142,742  $112,201
                                                             ========  ========

Weighted average common shares outstanding............        111,174   103,994
                                                              =======   =======

Basic and diluted earnings per share of common stock 
  outstanding                                                 $ 1.28     $ 1.08
                                                              ======     ======


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

                                       4
<PAGE>


                 NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES
               CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                 (Unaudited)
                            (Thousands of Dollars)


                                                              Six Months Ended
                                                                  June 30,
                                                               1998      1997
                                                               ----      ----
Operating activities:
   Net income.........................................       $142,742  $112,201
   Adjustments to reconcile net income to net
    cash provided by operating activities:
     Depreciation and amortization....................        134,512   125,576
     Amortization of investment tax credits...........         (2,558)   (2,629)
     Deferred income taxes............................          4,598    23,273
     Equity in (earnings) losses of Yorkshire Power
      and other unconsolidated subsidiaries, net......          3,817    (3,565)
     Allowance for funds used during construction.....              -        (4)
     Write-off of investment in Carolina Energy Project             -    16,052
     Change in accounts receivable....................         12,845    17,742
     Change in inventories............................         19,184    14,053
     Change in other current assets...................         52,508   (19,941)
     Change in accounts payable.......................        (58,842)  (90,956)
     Change in other current liabilities..............         (4,727)  (35,574)
     Change in deferred amounts.......................         53,688   (27,207)
     Change in noncurrent liabilities.................          4,959     7,702
     Other............................................             45      (327)
                                                              -------   --------
       Net cash provided by operating activities......        362,771   136,396

Investing activities:
   Construction expenditures..........................       (261,302) (201,538)
   Allowance for equity funds used during construction              -         4
   Proceeds from disposition of property, plant 
     and equipment                                              2,848     2,325
   Investment in Yorkshire Power......................              -  (362,387)
   Acquisition of subsidiary, net of cash acquired
    (Note 3) .........................................        (13,725)        -
   Purchase of other investments......................         (2,014)   (9,862)
   Sale of other investments..........................          3,426     2,376
                                                              -------   -------
       Net cash used in investing activities..........       (270,767) (569,082)

Financing activities:
   Proceeds from sale of common stock.................         23,976    14,777
   Proceeds from sale of PSCo obligated mandatorily
     redeemable preferred securities .................        194,000         -
   Proceeds from sale of long-term debt...............        248,380   333,435
   Redemption of long-term notes and bonds............        (80,392)  (38,031)
   Short-term borrowings - net........................       (134,281)  228,369
   Redemption of preferred stock......................       (181,824)        -
   Dividends on common stock..........................       (126,905) (113,308)
                                                              -------   -------

       Net cash provided by (used in) financing activities    (57,046)  425,242
                                                              -------   -------
       Net increase (decrease) in cash and temporary cash
          investments.................................         34,958    (7,444)
       Cash and temporary cash investments at beginning 
          of period ..................................         72,623    50,016 
                                                               ------    ------ 
       Cash and temporary cash investments at end of
          period .....................................      $ 107,581  $ 42,572
                                                            =========  ========



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


                                       5
<PAGE>


                      PUBLIC SERVICE COMPANY OF COLORADO
                               AND SUBSIDIARIES
                    CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (Unaudited)
                            (Thousands of Dollars)

                                    ASSETS
                                                          June 30,  December 31,
                                                             1998      1997
                                                             ----      ----


Property, plant and equipment, at cost:
   Electric ..........................................   $4,168,343  $4,088,447
   Gas................................................    1,131,081   1,100,003
   Steam and other....................................       78,846      78,740
   Common to all departments..........................      457,957     432,840
   Construction in progress...........................      238,582     170,503
                                                            -------     -------
                                                          6,074,809   5,870,533
   Less: accumulated depreciation ....................    2,223,787   2,145,673
                                                          ---------   ---------
     Total property, plant and equipment..............    3,851,022   3,724,860
                                                          ---------   ---------

Investments, at cost:
   Investment in Yorkshire Power (Note 2).............            -     286,703
   Note receivable from affiliate (Note 2)............      292,620           -
   Other..............................................       24,446      43,311
                                                            -------      ------
    Total investments.................................      317,066     330,014
                                                            -------     -------

Current assets:
   Cash and temporary cash investments................       21,732      18,909
   Accounts receivable, less reserve for uncollectible
     accounts ($2,547 at June 30, 1998; $2,272 at 
     December 31, 1997) ..............................      147,281     191,155
   Accrued unbilled revenues .........................       76,770      94,284
   Recoverable purchased gas and electric energy costs
     - net ...........................................       59,180     103,197
   Materials and supplies, at average cost............       48,315      48,030
   Fuel inventory, at average cost....................       22,895      20,862
   Gas in underground storage, at cost (LIFO).........       24,118      46,576
   Prepaid expenses and other.........................       42,843      39,594
                                                            -------      ------
    Total current assets..............................      443,134     562,607
                                                            -------     -------

Deferred charges:
   Regulatory assets (Note 1).........................      288,460     310,658
   Unamortized debt expense ..........................       11,507      10,800
   Other..............................................       78,825      55,794
                                                            -------      ------
    Total deferred charges............................      378,792     377,252
                                                            -------     -------
                                                         $4,990,014  $4,994,733
                                                         ==========  ==========



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

                                       6
<PAGE>


                      PUBLIC SERVICE COMPANY OF COLORADO
                               AND SUBSIDIARIES
                    CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (Unaudited)
                            (Thousands of Dollars)

                           CAPITAL AND LIABILITIES

                                                          June 30,  December 31,
                                                            1998       1997
                                                            ----       ----




Common stock..........................................  $1,302,119   $1,302,119
Retained earnings.....................................     330,018      319,280
                                                           -------      -------
    Total common equity...............................   1,632,137    1,621,399

Preferred stock:
   Not subject to mandatory redemption................           -      140,002
   Subject to mandatory redemption at par.............           -       39,253
PSCo obligated  mandatorily  redeemable preferred 
   securities of subsidiary trust holding solely
   subordinated debentures of PSCo (Note 6)...........     194,000            -
Long-term debt........................................   1,574,705    1,338,138
                                                         ---------    ---------
                                                         3,400,842    3,138,792
                                                         ---------    ---------

Noncurrent liabilities:
   Employees' postretirement benefits other than pensions   60,963       58,695
   Employees' postemployment benefits.................      25,031       25,031
                                                           -------      -------
    Total noncurrent liabilities......................      85,994       83,726
                                                           -------      -------

Current liabilities:
   Notes payable and commercial paper.................     234,531      348,555
   Long-term debt due within one year.................     190,302      257,160
   Preferred stock subject to mandatory redemption 
     within one year .................................           -        2,576
   Accounts payable...................................     164,481      218,773
   Dividends payable..................................      40,830       40,975
   Customers' deposits................................      23,467       21,888
   Accrued taxes......................................      13,008       42,549
   Accrued interest...................................      40,984       39,177
   Current portion of accumulated deferred income taxes     19,446       19,872
   Other..............................................      68,149       59,880
                                                           -------      -------
    Total current liabilities.........................     795,198    1,051,405
                                                           -------    ---------

Deferred credits:
   Customers' advances for construction...............      51,233       51,830
   Unamortized investment tax credits ................      96,961       99,355
   Accumulated deferred income taxes..................     527,521      534,246
   Other..............................................      32,265       35,379
                                                           -------      -------
    Total deferred credits............................     707,980      720,810
                                                           -------      -------

Commitments and contingencies (Notes 4 and 5).........
                                                        $4,990,014   $4,994,733
                                                        ==========   ==========



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

                                       7
<PAGE>


                      PUBLIC SERVICE COMPANY OF COLORADO
                               AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                 (Unaudited)
                            (Thousands of Dollars)


                                                             Three Months Ended
                                                                  June 30,
                                                              1998        1997
                                                              ----        ----

Operating revenues:
   Electric...........................................       $369,940  $360,234
   Gas................................................        133,170   170,824
   Other..............................................          1,488     2,462
                                                              -------   -------
                                                              504,598   533,520

Operating expenses:
   Fuel used in generation............................         49,554    47,482
   Purchased power....................................        123,874   121,105
   Gas purchased for resale...........................         84,058   115,106
   Other operating and maintenance expenses...........        102,564   101,548
   Depreciation and amortization......................         46,795    42,163
   Taxes (other than income taxes) ...................         20,937    21,239
   Income taxes  .....................................         13,550    11,606
                                                              -------   -------
                                                              441,332   460,249
                                                              -------   -------
Operating income......................................         63,266    73,271

Other income and deductions:
   Merger expenses....................................              -    (5,169)
   Equity earnings in Yorkshire Power (Note 2)........              -     4,113
   Miscellaneous income and deductions - net..........          1,968    (6,897)
                                                              -------   -------
                                                                1,968    (7,953)

Interest charges:
   Interest on long-term debt.........................         29,671    30,048
   Amortization of debt discount and expense less premium       1,017     1,017
   Other interest.....................................          4,498     5,017
   Allowance for borrowed funds used during construction       (2,971)   (1,371)
   Dividends on PSCo obligated  mandatorily  redeemable
    preferred securities of subsidiary trust holding
    solely subordinated debentures of PSCo (Note 6)....         2,111         -
                                                                -----     -----
                                                               34,326    34,711
                                                               ------    ------

Net income............................................         30,908    30,607
Dividend requirements and redemption premium on 
   preferred stock ...................................          2,403     2,942
                                                                -----     -----

Earnings available for common stock...................        $28,505   $27,665
                                                              =======   =======



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

                                       8
<PAGE>


                      PUBLIC SERVICE COMPANY OF COLORADO
                               AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                 (Unaudited)
                            (Thousands of Dollars)


                                                              Six Months Ended
                                                                  June 30,
                                                               1998       1997
                                                               ----       ----

Operating revenues:
   Electric...........................................      $745,386   $734,097
   Gas................................................       398,653    462,448
   Other..............................................         5,201      5,692
                                                             -------    -------
                                                           1,149,240  1,202,237

Operating expenses:
   Fuel used in generation............................       100,183     91,743
   Purchased power....................................       247,931    243,731
   Gas purchased for resale...........................       260,540    322,095
   Other operating and maintenance expenses...........       196,509    199,705
   Depreciation and amortization......................        89,691     85,100
   Taxes (other than income taxes) ...................        40,906     43,735
   Income taxes  .....................................        50,368     46,876
                                                             -------    -------
                                                             986,128  1,032,985
                                                             -------  ---------
Operating income......................................       163,112    169,252

Other income and deductions:
   Merger expenses....................................           418     (6,449)
   Equity earnings in Yorkshire Power (Note 2)........         3,446      4,113
   Miscellaneous income and deductions - net..........        (1,335)    (8,405)
                                                             -------    -------
                                                               2,529    (10,741)

Interest charges:
   Interest on long-term debt.........................         57,271    56,954
   Amortization of debt discount and expense less premium       1,995     1,945
   Other interest.....................................         10,151     8,956
   Allowance for borrowed funds used during construction       (5,692)   (2,832)
   Dividends on PSCo obligated mandatorily redeemable
     preferred securities of subsidiary trust holding
     solely subordinated debentures of PSCo (Note 6)...         2,111         -
                                                                -----    ------
                                                               65,836    65,023

Net income.............................................        99,805    93,488
Dividend requirements and redemption premium on
  preferred stock .....................................         5,332     5,885
                                                                -----     -----

Earnings available for common stock...................        $94,473   $87,603
                                                              =======   =======



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

                                       9
<PAGE>


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


                                                              Six Months Ended
                                                                  June 30,
                                                               1998      1997
                                                               ----      ----

Operating activities:
   Net income.........................................        $99,805   $93,488
   Adjustments to reconcile net income to net
    cash provided by operating activities:
     Depreciation and amortization....................         92,182    87,211
     Amortization of investment tax credits...........         (2,394)   (2,504)
     Deferred income taxes............................            (63)   30,978
     Equity in earnings of Yorkshire Power............         (3,446)   (4,113)
     Allowance for equity funds used during construction            -         1
     Change in accounts receivable....................         46,847    20,985
     Change in inventories............................         20,140    14,335
     Change in other current assets...................         58,282    (3,256)
     Change in accounts payable.......................        (53,082)  (83,380)
     Change in other current liabilities..............        (18,643)  (37,334)
     Change in deferred amounts.......................        (20,083)      573
     Change in noncurrent liabilities.................          2,268     2,892
     Other............................................              -       548
                                                              -------   -------
       Net cash provided by operating activities......        221,813   120,424

Investing activities:
   Construction expenditures..........................       (213,677) (135,650)
   Allowance for equity funds used during construction              -        (1)
   Proceeds from disposition of property, plant 
     and equipment ...................................          4,808     1,956
   Investment in Yorkshire Power (Note 2).............              -  (362,387)
   Purchase of other investments......................         (2,172)   (5,996)
   Sale of other investments..........................          3,145     2,376
                                                              -------   -------
       Net cash used in investing activities..........       (207,896) (499,702)

Financing activities:
   Proceeds from sale of common stock.................              -    14,777
   Proceeds from sale of PSCo obligated mandatorily
     redeemable preferred securities .................        194,000         -
   Proceeds from sale of long-term debt ..............        248,130   333,435
   Redemption of long-term notes and bonds............        (80,111)  (23,021)
   Short-term borrowings - net........................       (102,069)  137,875
   Dividends on common stock..........................        (80,959)  (68,298)
   Redemption of preferred stock (Note 6).............       (181,824)        -
   Dividends and redemption premium on preferred stock
      (Note 6) .......................................         (8,261)   (5,885)
                                                               ------    ------ 
       Net cash provided by (used in) financing
        activities ...................................        (11,094)  388,883
                                                              -------   -------
       Net increase in cash and temporary cash
        investments ..................................          2,823     9,605
       Cash and temporary cash investments at 
        beginning of period ..........................         18,909     9,406
                                                               ------     -----
       Cash and temporary cash investments at end 
        of period ....................................        $21,732   $19,011
                                                              =======   =======


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

                                       10

<PAGE>


                     SOUTHWESTERN PUBLIC SERVICE COMPANY
                           CONDENSED BALANCE SHEETS
                                 (Unaudited)
                            (Thousands of Dollars)

                                    ASSETS

                                                          June 30,  December 31,
                                                            1998       1997
                                                            ----       ----


Property, plant and equipment, at cost:
   Electric ..........................................   $2,649,120  $2,557,579
   Construction in progress...........................       93,257     144,452
                                                             ------     -------
                                                          2,742,377   2,702,031
   Less: accumulated depreciation ....................    1,019,161     987,487
                                                          ---------     -------
    Total property, plant and equipment...............    1,723,216   1,714,544
                                                          ---------   ---------


Investments, at cost:
   Notes receivable from affiliate ...................      119,036     119,036
   Other..............................................        5,958       5,832
                                                            -------     -------
    Total investments.................................      124,994     124,868
                                                            -------     -------

Current assets:
   Cash and temporary cash investments................         6,432        986
   Accounts receivable, less reserve for uncollectible
     accounts ($2,162 at June 30, 1998; $2,442 at
     December 31, 1997) ..............................       104,578     96,548
   Accrued unbilled revenues .........................        22,407     15,468
   Recoverable electric energy costs - net............        16,540     23,086
   Materials and supplies, at average cost............        17,034     16,337
   Fuel inventory, at average cost....................         2,299      2,301
   Prepaid expenses and other.........................         3,708      3,367
                                                             -------    -------
    Total current assets..............................       172,998    158,093
                                                             -------    -------

Deferred charges:
   Regulatory assets (Note 1).........................       115,105    119,244
   Unamortized debt expense ..........................         9,063      9,395
   Other..............................................        12,095     55,349
                                                             -------    -------
    Total deferred charges............................       136,263    183,988
                                                             -------    -------
                                                          $2,157,471 $2,181,493
                                                           ========= ==========



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

                                       11
<PAGE>


                     SOUTHWESTERN PUBLIC SERVICE COMPANY
                          CONDENSED BALANCE SHEETS
                                 (Unaudited)
                            (Thousands of Dollars)

                           CAPITAL AND LIABILITIES

                                                          June 30,  December 31,
                                                            1998      1997
                                                            ----      ----



Common stock..........................................       $348,402  $348,402
Retained earnings.....................................        356,062   349,988
                                                              -------   -------
    Total common equity...............................        704,464   698,390

SPS obligated mandatorily redeemable preferred 
  securities of subsidiary trust holding solely
  subordinated debentures of SPS .....................        100,000   100,000
Long-term debt........................................        620,621   620,598
                                                              -------   -------
                                                            1,425,085 1,418,988
                                                            --------- ---------

Noncurrent liabilities:
   Employees' postretirement benefits other than pensions       4,079     3,800
   Employees' postemployment benefits.................          1,312     2,446
                                                              -------   -------
    Total noncurrent liabilities......................          5,391     6,246
                                                              -------   -------

Current liabilities:
   Notes payable and commercial paper.................        169,532   154,244
   Notes payable to affiliates........................              -    25,160
   Long-term debt due within one year.................            114       173
   Accounts payable...................................         73,008   107,465
   Dividends payable..................................         23,980    22,546
   Customers' deposits................................          5,556     5,471
   Accrued taxes......................................         22,099    28,051
   Accrued interest...................................         12,631    12,715
   Current portion of accumulated deferred income taxes         4,371    10,740
   Other..............................................          2,177     7,415
                                                              -------   -------
    Total current liabilities.........................        313,468   373,980
                                                              -------   -------

Deferred credits:
   Unamortized investment tax credits ................          5,344     5,469
   Accumulated deferred income taxes .................        379,037   372,447
   Other..............................................         29,146     4,363
                                                              -------   -------
    Total deferred credits............................        413,527   382,279
                                                              -------   -------

Commitments and contingencies (Notes 4 and 5).........     ---------- ----------
                                                           $2,157,471 $2,181,493
                                                           ========== ==========



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


                                       12
<PAGE>


                     SOUTHWESTERN PUBLIC SERVICE COMPANY
                        CONDENSED STATEMENTS OF INCOME
                                 (Unaudited)
                            (Thousands of Dollars)


                                                             Three Months Ended
                                                                  June 30,
                                                               1998      1997
                                                               ----      ----

Operating revenues:
   Electric...........................................       $264,006  $234,430
   Other..............................................              -     8,791
                                                              -------   -------
                                                              264,006   243,221

Operating expenses:
   Fuel used in generation............................        121,725   117,696
   Purchased power....................................          7,079     2,924
   Other operating & maintenance expenses.............         35,065    47,604
   Depreciation and amortization......................         17,761    18,215
   Taxes (other than income taxes) ...................         11,328    11,324
   Income taxes ......................................         21,729     3,714
                                                              -------   -------
                                                              214,687   201,477
                                                              -------   -------
Operating income......................................         49,319    41,744

Other income and deductions:
   Merger expenses....................................             (5)   (5,261)
   Write-off of investment in Carolina Energy Project 
     (Note 3) ........................................              -   (16,052)
   Miscellaneous income and deductions - net .........          2,268       147
                                                              -------   -------
                                                                2,263   (21,166)

Interest charges:
   Interest on long-term debt.........................         11,037    11,032
   Amortization of debt discount and expense less premium         560       561
   Other interest.....................................          2,533     1,721
   Allowance for borrowed funds used during construction       (1,427)   (1,078)
   Dividends on SPS obligated  mandatorily  redeemable 
    preferred  securities of subsidiary trust holding 
    solely subordinated debentures of SPS ............          1,962     1,962
                                                                -----     -----
                                                               14,665    14,198
                                                               ------    ------

Net income............................................        $36,917   $ 6,380
                                                              =======   =======


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

                                       13
<PAGE>


                     SOUTHWESTERN PUBLIC SERVICE COMPANY
                        CONDENSED STATEMENTS OF INCOME
                                 (Unaudited)
                            (Thousands of Dollars)


                                                              Six Months Ended
                                                                  June 30,
                                                               1998      1997
                                                               ----      ----

Operating revenues:
   Electric...........................................       $463,738  $448,925
   Other..............................................              -    15,591
                                                              -------   -------
                                                              463,738   464,516

Operating expenses:
   Fuel used in generation............................        212,015   222,314
   Purchased power....................................          9,720     8,131
   Other operating & maintenance expenses.............         69,461    84,568
   Depreciation and amortization......................         35,537    36,445
   Taxes (other than income taxes) ...................         23,393    22,850
   Income taxes ......................................         32,954    14,006
                                                              -------   -------
                                                              383,080   388,314
                                                              -------   -------
Operating income......................................         80,658    76,202

Other income and deductions:
   Merger expenses....................................         (1,208)   (8,039)
   Write-off of investment in Carolina Energy 
     Project (Note 3) ................................              -   (16,052)
   Miscellaneous income and deductions - net .........          4,546       421
                                                              -------   -------
                                                                3,338   (23,670)

Interest charges:
   Interest on long-term debt.........................         21,980    22,057
   Amortization of debt discount and expense less premium       1,121     1,123
   Other interest.....................................          5,112     2,747
   Allowance for borrowed funds used during construction       (3,198)   (1,918)
   Dividends on SPS obligated  mandatorily  redeemable
     preferred  securities of subsidiary trust holding
     solely subordinated debentures of SPS ...........          3,925     3,925
                                                                -----     -----
                                                               28,940    27,934
                                                               ------    ------

Net income............................................        $55,056   $24,598
                                                              =======   =======


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

                                       14
<PAGE>


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


                                                              Six Months Ended
                                                                  June 30,
                                                               1998      1997
                                                               ----      ----

Operating activities:
   Net income.........................................        $55,056   $24,598
   Adjustments to reconcile net income to net
    cash provided by operating activities:
     Depreciation and amortization....................         37,703    38,365
     Amortization of investment tax credits...........           (125)     (125)
     Deferred income taxes............................          1,384    (7,705)
     Allowance for funds used during construction.....              -        (5)
     Write-off of investment in Carolina Energy Project             -    16,052
     Change in accounts receivable....................         (8,030)   (3,243)
     Change in inventories............................           (695)     (282)
     Change in other current assets...................           (734)  (16,685)
     Change in accounts payable.......................        (34,457)   (7,576)
     Change in other current liabilities..............        (11,189)    1,760
     Change in deferred amounts.......................         70,005   (27,780)
     Change in noncurrent liabilities.................           (855)    4,810
     Other............................................              -      (327)
                                                              -------   -------
       Net cash provided by operating activities......        108,063    21,857

Investing activities:
   Construction expenditures..........................        (43,184)  (65,888)
   Allowance for equity funds used during construction              -         5
   Proceeds from (cost of) disposition of property, 
     plant and equipment..............................         (1,830)      369
   Purchase of other investments......................           (126)   (3,866)
                                                              -------  --------
       Net cash used in investing activities..........        (45,140)  (69,380)

Financing activities:
   Redemption of long-term debt.......................            (57)  (15,010)
   Short-term borrowings - net........................         (9,872)   90,494
   Dividends on common stock..........................        (47,548)  (45,010)
                                                              -------   -------
       Net cash (used in) provided by financing 
          activities .................................        (57,477)   30,474
                                                              -------    ------
       Net increase (decrease) in cash and temporary
          cash investments ...........................          5,446   (17,049)
       Cash and temporary cash investments at beginning
           of period .................................            986    40,610
                                                                 ----    ------

       Cash and temporary cash investments at end 
           of period ..................................       $ 6,432  $ 23,561
                                                              =======  ========


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

                                       15

<PAGE>

                 NEW CENTURY ENERGIES, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                  (Unaudited)


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

      Effective August 1, 1997,  following the receipt of all required state and
Federal  regulatory  approvals,  PSCo and SPS  merged in a  tax-free  "merger of
equals"   transaction  and  became   wholly-owned   subsidiaries  of  NCE.  Each
outstanding share of PSCo common stock was canceled and converted into the right
to receive  one share of NCE common  stock,  and each  outstanding  share of SPS
common stock was canceled  and  converted  into the right to receive 0.95 of one
share of NCE common  stock.  Effective  with the  Merger,  certain  utility  and
non-utility   subsidiaries  were  transferred  within  NCE's  common  controlled
subsidiaries.  The common stock of Quixx and UE,  former SPS  subsidiaries,  was
transferred  through the sale by SPS of the common stock of such subsidiaries at
net book value,  aggregating  approximately $119.0 million, to NC Enterprises in
exchange for notes payable of NC  Enterprises.  Subsidiaries  of PSCo (Cheyenne,
WGI, e prime and Natural Fuels) were  transferred by a declaration of a dividend
of the subsidiaries' stock, at net book value,  aggregating  approximately $49.9
million to NCE. NCE subsequently made a capital  contribution of the e prime and
Natural Fuels common stock, at net book value,  aggregating  approximately $29.5
million to NC Enterprises.  Subsequent to the Merger and effective March 31, 
1998, PSCo sold its investment in NCI to NC Enterprises (see Note 2).

      The NCE consolidated condensed financial statements reflect the accounting
for the  Merger as a pooling  of  interests.  The  Company's  1997  consolidated
condensed statements of income and cash flows include the consolidated financial
statements  for both PSCo and SPS for the three  months ended March 31, 1997 and
the six months ended June 30, 1997.

Business, Utility Operations and Regulation

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

Regulatory Assets and Liabilities

      The Company's regulated subsidiaries prepare their financial statements in
accordance  with the provisions of SFAS 71, as amended.  SFAS 71 recognizes that
accounting for rate regulated  enterprises  should reflect the  relationship  of
costs and revenues introduced by rate regulation.  A regulated utility may defer
recognition  of a cost (a  regulatory  asset)  or  recognize  an  obligation  (a
regulatory  liability) if it is probable that,  through the ratemaking  process,
there will be a corresponding increase or decrease in revenues.


                                       16

<PAGE>


      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

      The  following   regulatory  assets  are  reflected  in  the  accompanying
consolidated condensed balance sheets (in thousands):

June 30, 1998                               NCE           PSCo            SPS
                                          ------         ------         -----

Income taxes .......................      $154,734       $77,268        $77,997
Nuclear decommissioning costs.......        73,718        73,718              -
Employees' postretirement benefits
  other than pensions ..............        60,192        57,233          2,959
Early retirement costs..............         3,397         2,215          1,182
Employees' postemployment benefits
  (Note 4) .........................        24,213        23,739              -
Demand-side management costs........        40,448        35,764          4,684
Unamortized debt reacquisition costs        34,928        16,780         17,575
Thunder Basin judgment (Note 4).....         3,716             -          3,716
Other...............................         8,735         1,743          6,992
                                            ------        ------         ------
  Total.............................      $404,081      $288,460       $115,105
                                          ========      ========       ========

December 31, 1997                           NCE           PSCo            SPS
                                          ------         ------         -----

Income taxes........................      $162,985       $84,356        $79,161
Nuclear decommissioning costs.......        76,881        76,881              -
Employees' postretirement benefits
  other than pensions...............        63,023        59,995          3,028
Early retirement costs..............         8,008         6,645          1,363
Employees' postemployment benefits
  (Note 4) .........................        24,455        23,932              -
Demand-side management costs........        42,503        38,518          3,985
Unamortized debt reacquisition costs        36,717        17,791         18,344
Thunder Basin judgment (Note 4).....         5,912             -          5,912
Other...............................         9,991         2,540          7,451
                                            ------        ------         ------
  Total.............................      $430,475      $310,658       $119,244
                                          ========      ========       ========

      The regulatory  assets of the Company's  regulated  subsidiaries  that are
currently  being  recovered  as of June  30,  1998  and  December  31,  1997 are
reflected in rates charged to customers over periods  ranging from two to thirty
years.  The recovery of regulatory  assets over the next five years is estimated
to exceed $200 million.  For further discussion,  see the NCE, PSCo and SPS 1997
Annual Report on Form 10-K. The Company believes its utility  subsidiaries  will
continue  to be subject to rate  regulation.  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's
subsidiaries could be required to write-off their regulatory  assets,  determine
any impairment to other assets  resulting from  deregulation  and write-down any
impaired  assets to their  estimated  fair  value,  which  could have a material
adverse  effect on  NCE's,  PSCo's  and SPS's  financial  position,  results  of
operations and cash flows.

      On January  27,  1997,  the CPUC  issued its order on PSCo's 1996 gas rate
case. The CPUC allowed  recovery of  postemployment  benefit costs on an accrual
basis under SFAS 112 and denied  amortization of the approximately  $8.9 million
regulatory  asset recognized upon the adoption of SFAS 112. PSCo has appealed in
the Denver District Court the decision related to this issue. PSCo believes that
it will be  successful  on appeal and that the  associated  regulatory  asset is
realizable.  On April 1, 1998,  in connection  with PSCo's annual  earnings test
filing, PSCo requested approval to recover its electric  jurisdictional  portion
of the postemployment  benefits cost regulatory asset totaling approximately $15
million over three years. The CPUC staff and Colorado Office of Consumer Counsel
are proposing to exclude these costs from the earnings test.  PSCo believes that
it will be allowed  recovery of SFAS 112 costs on an accrual  basis.  If PSCo is
ultimately  unsuccessful  in its appeal of the gas rate case decision  and/or in
its  request  to recover  its  electric  jurisdictional  regulatory  asset,  all
unrecoverable

                                       17
<PAGE>
      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

amounts will be written-off (see Note 4. Regulatory Matters Electric  Department
Earnings Test and Quality of Service Plan).

      As of June 30, 1998,  SPS has  approximately  $3.7  million in  regulatory
assets  associated  with  the  Thunder  Basin  judgment.   The  judgment  amount
previously  paid by SPS is  recoverable  from  customers,  subject  to review by
various  regulatory  agencies (see Note 4. Regulatory Matters - Electric and Gas
Cost Adjustment Mechanisms).

Non-utility Subsidiaries and International Investments

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

Statements of Cash Flows - Non-cash Transactions:

      Effective  February 26, 1998,  the Company  issued  222,362  shares of its
common  stock,  valued at the market price on date of issuance of  approximately
$10 million to the Employees' Savings and Stock Ownership Plan of Public Service
Company of Colorado and Participating Subsidiary Companies. Prior to the Merger,
during 1997,  PSCo issued  250,058  shares of its common stock to the Employees'
Savings and Stock  Ownership  Plan of Public  Service  Company of  Colorado  and
Participating  Subsidiary  Companies  valued  at the  market  price  on  date of
issuance of  approximately  $10  million.  The  estimated  issuance  values were
recognized in other operating expenses during the respective preceding years.

Comprehensive Income

      The Company and its subsidiaries adopted Statement of Financial Accounting
Standards No. 130, "Reporting  Comprehensive Income," effective January 1, 1998.
The individual and cumulative  components of other comprehensive  income are not
material to the Company and its subsidiaries.

General

      See Note 1. of the Notes to  Consolidated  Financial  Statements in NCE's,
PSCo's and SPS' 1997 Annual  Report on Form 10-K for a summary of the  companies
and their  subsidiaries  significant  accounting  policies.  Certain  prior year
amounts have been reclassified to conform to the current year's classification.

2. Investment in Yorkshire Power (NCE and PSCo)

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

      The total  consideration  paid by Yorkshire Power was  approximately  $2.4
billion (1.5 billion pounds sterling). The acquisition was financed by Yorkshire
Power through a combination of approximately 25% equity and 75% debt,  including
the assumption of the existing debt of Yorkshire Electricity.  The funds for the

                                       18

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

acquisition were obtained from PSCo's and AEP's investment in Yorkshire Power of
approximately  $360  million  (220  million  pounds  sterling)  each,  with  the
remainder obtained by Yorkshire Power through the issuance of non-recourse debt.
PSCo funded its entire equity investment in Yorkshire Power through $250 million
of  publicly  issued  secured  medium-term  notes with  varying  maturities  and
drawings  of  approximately  $110  million  on its  short-term  lines of  credit
pursuant to its short-term credit agreement with Bank of America, as agent.

      As approved by the SEC on May 14, 1998,  under the PUHCA,  effective March
31, 1998, PSCo sold its common stock investment in NCI to NC Enterprises, an NCE
subsidiary.  NCI's  primary  investment  is Yorkshire  Power.  PSCo  received as
consideration  a 20 year  promissory  note from NC  Enterprises in the amount of
approximately  $292.6  million.  Annual  interest  payments are required for the
first three years followed by principal and interest  payments for the remaining
seventeen  years.  The interest  rate on the note is 7.02%.  NCE intends to make
additional capital contributions to NC Enterprises to provide the necessary cash
flow requirements to make payments on the promissory note to PSCo.

      In 1998,  Yorkshire Power recognized a $54.7 million after-tax  impairment
of its investment in Ionica, a wireless telecommunications company, upon the May
22,  1998,  announcement  by Ionica  that  negotiations  for release of lines of
credit  from  existing  providers  of bank  finance had been  unsuccessful.  The
impairment,  reflecting a write down to fair market value, was offset,  in part,
by an unrelated tax adjustment of approximately $21.5 million. Summarized income
statement  information for the six months ended June 30, 1998, and from the date
of  acquisition,  April 1,  1997 to June  30,  1997,  are  presented  below  (in
millions):

                                                     1998        1997
                                                     ----        ----
    Yorkshire Power:
      Operating revenues.......................    $1,167.1     $438.5
                                                   --------     ------

      Operating income.........................       182.2       52.1
                                                   --------     ------

      Net income (loss) (1)....................    $   (7.9)     $ 8.2
                                                   =========     =====

      NCI's equity in earnings (losses) of
        Yorkshire Power .......................    $   (4.0)     $ 4.1
                                                   ========      =====


  (1)Includes a penalty,  which was  applicable to all United  Kingdom  regional
     electricity  utilities,  designed to recognize  the effects of the delay in
     implementation  of full  competition for the period April 1998 to September
     1998 (Yorkshire Power's portion was $8.3 million).

      The  unaudited pro forma  financial  information  presented  below for NCE
assumes  that  Yorkshire  Power was  acquired on January 1, 1997.  The pro forma
adjustments include recognition of equity in the estimated earnings of Yorkshire
Power, an adjustment for interest expense on debt associated with the investment
in Yorkshire Power and related income taxes. The estimated earnings of Yorkshire
Power were based on historical earnings of Yorkshire  Electricity,  prior to its
acquisition by Yorkshire Power,  adjusted for the estimated  effects of purchase
accounting (including the amortization of goodwill), conversion to United States
generally  accepted  accounting  principles,  interest expense on debt issued by
Yorkshire Power associated with the acquisition and related income taxes.  Sales
of electricity are affected by seasonal  weather  patterns and,  therefore,  the
results of Yorkshire Power/Yorkshire  Electricity will not be distributed evenly
during  the year.  Equity  in  earnings  (losses)  of  Yorkshire  Power has been
converted at the average  exchange  rates for the six months ended June 30, 1998
and June 30, 1997, of $1.653/pound and $1.634/pound, respectively.

                                       19

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


      Based on the  above  assumptions,  shown  below  is  unaudited  pro  forma
financial  information  for the six  months  ended  June  30,  1998 and 1997 (in
millions, except per share amounts):

                                                      NCE Earnings
                                                      ------------
                                             Available for
                                             common stock     Per share (1)
                                             ------------     -------------

                                              1998   1997     1998    1997
                                              ----   ----     ----    ----

Net income.............................      $142.7 $112.2    $1.28   $1.08
                                                              =====   =====

Pro forma adjustments:

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

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

Pro forma result.......................      $142.7 $ 98.6    $1.28   $0.95
                                             ====== ======    =====   =====

  (1) Based on the weighted average number of common shares  outstanding for the
      period.
  (2) The six months ended June 30, 1997 amount includes $24.0 million ($17.9
      million  after-tax)  of  write-offs  related  to  certain  computer
      development costs,   acquisition  expenses  and  costs  incurred  for  the
      preparation for deregulation.

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

      Based  upon the above  assumptions,  shown  below is  unaudited  pro forma
financial  information  for the six  months  ended  June  30,  1998 and 1997 (in
millions):

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

Net income...............................................     $99.8   $93.5

Pro forma adjustments:

  NCI's net income.......................................      (2.8)   (4.8)
  Interest income from promissory note, net of tax.......       3.3     3.3
                                                              -----   -----

Pro forma result.........................................     $100.3  $92.0
                                                              ======  =====


                                       20
<PAGE>
      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

3.  Acquisition and Divestiture of Investments

Acquisition of the Planergy Group (NCE)

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

Carolina Energy Limited Partnership Investment (NCE and SPS)

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

4. Regulatory Matters (NCE, PSCo and SPS)

Merger Rate Filings

     The discussion below summarizes the significant  conditions imposed by the
state utility regulatory  commissions in Colorado,  Texas, New Mexico,  Wyoming,
Oklahoma and Kansas in their respective approvals of the Merger.

PSCo

      The CPUC decision approving the Merger established a five-year performance
based  regulatory  plan and  acknowledged  that  the  Merger  was in the  public
interest.  The major provisions of the decision  include the following,  some of
which are discussed in other sections of this note:

       a $6 million annual electric rate reduction, which was instituted October
      1, 1996,  followed by an  additional  $12  million  annual  electric  rate
      reduction  effective with the  implementation of new gas rates on February
      1, 1997;
       an annual electric  department earnings test with the sharing of earnings
      in excess of an 11% return on equity for the calendar years  1997-2001 and
      the implementation of a Quality of Service Plan;
       a freeze in base electric rates for the period through  December 31, 2001
      with the  flexibility to make certain other rate changes,  including those
      necessary   to  allow  for  the   recovery  of  DSM,   QF   capacity   and
      decommissioning costs. The freeze in base electric rates does not prohibit
      PSCo from filing a general rate case or deny any party the  opportunity to
      initiate a complaint or show cause proceeding; and
       the replacement of the ECA with an ICA.

      Subsequent to the CPUC's decision  approving the Merger, the CPUC approved
the recovery of merger costs,  amortized  from the effective  date of the Merger
through  December  31,  2001.  PSCo has  expensed  merger  costs as

                                       21
<PAGE>
      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

incurred and recovery of such costs will be reflected in the electric department
earnings test,  discussed below in Electric Department Earnings Test and Quality
of Service Plan. Merger costs attributable to Colorado gas retail customers were
included  in the gas rate case  approved  by the CPUC,  discussed  below in Rate
Cases- PSCo Retail Gas.

SPS

      Under the  various  regulatory  commission  approvals,  SPS is required to
provide  credits to  customers  over five  years for  one-half  of the  measured
non-fuel  operation and maintenance  expense savings associated with the Merger.
SPS will provide  guaranteed  minimum annual  credits to retail  customers of $3
million in Texas,  $1.2 million in New Mexico,  $100,000 in Oklahoma and $10,000
in Kansas and $1.5 million to wholesale customers.

Cheyenne

      The WPSC  approved the Merger on August 16, 1996.  Cheyenne  agreed not to
file a retail  electric  rate  case for two years  after  August  1,  1997,  the
effective  date of the  Merger.  Cheyenne  expects  to file a  combined  gas and
electric rate case with the WPSC in 1999,  following  the  expiration of the two
year moratorium.

Rate Cases

PSCo
Retail - Gas

      On June 5, 1996, PSCo filed a retail rate case with the CPUC requesting an
annual increase in its jurisdictional  gas department  revenues of approximately
$34  million.   In  early  1997,  the  CPUC  approved  an  overall  increase  of
approximately $18 million with an 11.25% return on equity, effective February 1,
1997 and as  modified  on May 15,  1997.  The CPUC  disallowed  the  recovery of
certain  postemployment  benefit  costs under SFAS 112 and  imputed  anticipated
merger  related  savings net of costs  related to the gas business  (see Note 1.
Summary of  Significant  Accounting  Policies).  PSCo filed a petition  with the
Denver District Court appealing the CPUC's decision.  A decision from the Denver
District Court is expected in the latter half of 1998.

SPS

New Mexico

      On November 17, 1997, the NMPUC issued an order investigating SPS's rates.
In the order, the NMPUC  determined that because of the rapid changes  occurring
in the electric  industry the NMPUC would require rate case filings by the major
electricity  suppliers who have not adopted a plan to provide retail open access
and customer choice of suppliers.  SPS made a compliance  filing on May 5, 1998,
which proposed a $1.7 million annual rate reduction for certain retail customers
in New Mexico,  and  incorporates  the $1.2 million  guaranteed  minimum  annual
credits, discussed above. This case has been set for hearing in October 1998.

Wholesale - FERC

      On December  19,  1989,  the FERC issued its final order  regarding a 1985
wholesale rate case. SPS 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  SPS's claim of an offsetting
cost and  limiting  the FERC's  actions.  The FERC issued its Order on Remand in
July  1992,  the  required  filings  were made and a hearing  was  completed  in
February  1994. In October 1994, the  administrative  law judge ("ALJ") issued a
favorable  initial  decision  that,  if approved by the FERC,  would result in a
revenue recovery for SPS. Negotiated settlements with SPS's partial requirements
customers  and TNP were  approved by the FERC in July 1993 and  September  1993,
respectively,  and SPS received approximately $2.8 million,  including interest.
In a settlement with SPS's New Mexico rural electric cooperative customers,  SPS
received approximately $7.0

                                       22

<PAGE>

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

million,  including  interest.  The FERC approved this  settlement in July 1995.
Resolutions of these matters with the remaining wholesale customers,  the Golden
Spread member cooperatives and Lyntegar Electric Cooperative, were not achieved.
On May 5, 1998,  the FERC issued its opinion  substantially  modifying the ALJ's
initial decision. The net positive impact from this decision, which was recorded
in June 1998, was approximately $7.7 million ($4.9 million after tax).

Cheyenne

      On May 12,  1997,  Cheyenne  filed  an  application  with  the WPSC for an
overall annual increase in retail gas revenues of  approximately  $1.25 million.
On September  23, 1997,  the WPSC approved an increase in retail gas revenues of
approximately  $1.19 million with an 11.71% return on equity,  effective October
1, 1997.

Electric and Gas Cost Adjustment Mechanisms

PSCo

      During 1994 and 1995,  the CPUC  conducted  several  proceedings to review
issues  related to the ECA.  The CPUC opened a docket to review  whether the ECA
should be  maintained in its then present form,  altered or  eliminated,  and on
January 8, 1996,  combined this docket with the merger docket  discussed  above.
The CPUC  decision on the Merger  modified and replaced the ECA with an ICA. The
ICA, which became  effective  October 1, 1996,  allows for a 50%/50%  sharing of
certain  fuel and energy  cost  increases  and  decreases  among  customers  and
shareholders.  Management  does not believe the cost  adjustment  mechanism will
have a significant  impact on the  Company's  results of  operations,  financial
position or cash flows.

      The CPUC had a docket to review and prescribe a  standardized  GCA process
to determine the prudence of gas commodity and pipeline  delivery  service costs
incurred by gas  utilities.  Other  issues  addressed  in this  docket  included
whether the GCA should be maintained in its present form, altered or eliminated.
The CPUC issued an order on May 7, 1997,  which  provides for the current GCA to
be maintained and the adoption of certain  standardized  filing and gas purchase
reporting  requirements.  In early  1998,  the CPUC  issued  another  Notice  of
Proposed  Rulemaking  seeking  comments on various customer notice and reporting
requirements  related  to  changes in gas  costs.  On March 25,  1998,  the CPUC
decision was issued with no material changes to the GCA.

SPS

Texas

      A PUCT  substantive rule requires  periodic  examination of SPS's fuel and
purchased  power costs,  the  efficiency  of the use of such fuel and  purchased
power, fuel acquisition and management  policies and purchase power commitments.
Under the PUCT's  regulations,  SPS is required to file an  application  for the
Commission to retrospectively review, at least every three years, the operations
of a utility's electricity  generation and fuel management  activities.  In June
1998,  SPS filed  its  reconciliation  for the  generation  and fuel  management
activities totaling approximately $690 million, for the period from January 1995
through December 1997. For this same period, SPS had approximately $21.4 million
in  underrecovered  fuel costs  associated  with the Texas retail  jurisdiction.
Currently,  Texas retail customers are being surcharged for  approximately  $6.4
million of such  underrecovered  fuel costs.  The Company has also requested the
prospective  sharing of margins from wholesale  non-firm  sales.  The outcome of
this proceeding is pending.

      On  May  1,  1995,  SPS  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 SPS 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 and the  expense
recorded in April 1996. Additionally,  the order required SPS to pass through to
customers  100% of margins from  wholesale  non-firm  sales as of January  1995.
Prior PUCT


                                       23
<PAGE>
      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

rulings had allowed SPS to retain 25% of these margins. The 100% flow through is
required  by PUCT rules,  absent a waiver.  A motion for  rehearing  on the fuel
disallowance (which was adjusted to $1.9 million) was subsequently denied by the
PUCT and SPS was ordered to flow through 100% of the non-firm  off-system  sales
margin effective with the first billing cycle after the date of the order.  Upon
appeal  by SPS to the  Travis  County  District  Court in May 1996,  the  PUCT's
decision on the disallowed fuel costs was upheld. SPS appealed the decision and,
on January  29,  1998,  the Texas Court of Appeals  upheld the PUCT  decision to
disallow fuel costs. On March 16, 1998, SPS filed an appeal to the Supreme Court
of Texas. This appeal is pending.

      SPS was named as a defendant in a case entitled Thunder Basin Coal Co. vs.
Southwestern  Public Service Co., No.  93-CV304B (D. Wyo.). On November 1, 1994,
the jury  returned a verdict in favor of Thunder  Basin and  awarded  damages of
approximately  $18.8  million.  SPS 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.  SPS filed a motion  for  rehearing  which was
denied. In February 1997, SPS recorded the liability for the judgment  including
interest and court costs. The amount of approximately  $22.3 million was paid in
April 1997.

      On September 17, 1996, the FERC issued an order  granting SPS  conditional
approval  to  collect  the FERC  jurisdictional  portion  of the  Thunder  Basin
judgment  from  wholesale  customers.  On October 24, 1997,  the NMPUC issued an
order granting recovery of the New Mexico retail  jurisdictional  portion of the
judgment.  On May 1,  1997,  SPS  filed a  request  with the  PUCT to  surcharge
undercollected fuel and purchased power expenses, which included $9.1 million of
the Thunder Basin  judgment.  In November 1997, the PUCT issued a decision which
denied  recovery of the judgment  through a  surcharge,  on the grounds that the
costs were not  classified as fuel costs.  In 1997,  SPS expensed  approximately
$12.1  million of the Texas retail  jurisdictional  portion of the Thunder Basin
judgment and recognized an equal amount as deferred  revenue in  anticipation of
future recovery through the pending fuel reconciliation proceeding.

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

Electric Department Earnings Test and Quality of Service Plan

PSCo

      The CPUC's  decision  on the Merger  implemented  an  electric  department
earnings  test with the sharing of earnings in excess of an 11% return on equity
for the calendar years 1997-2001 as follows:

         Electric Department            Sharing of Excess Earnings
          Return on Equity           Customers        Shareholders
          ----------------           ---------        ------------
               11-12%                   65%                 35%
               12-14%                   50%                 50%
               14-15%                   35%                 65%
               over 15%                100%                  0%

      The CPUC's  decision on the Merger also  implemented a QSP which  provides
for bill  credits  totaling up to $5 million in year one and  increasing  to $11
million in year five,  if PSCo does not  achieve  certain  performance  measures
relating to electric reliability,  customer complaints and telephone response to
inquiries.  On  October  15,  1997,  the CPUC  issued  an order  addressing  the
implementation  of a reward mechanism in the QSP which provides up to $3 million
of annual  rewards if PSCo achieves  certain  performance  measures  relating to
electric reliability.

                                       24
<PAGE>
      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

      On April 1, 1998, PSCo filed with the CPUC its proposed Performanced-Based
Regulatory  Plan adjustment for calendar year 1997. This adjustment will provide
the means for implementing the sharing  mechanism for the customers'  portion of
earnings over PSCo's  authorized  return on equity threshold  resulting from the
1997 electric  department earnings test, net of QSP reward earned revenue. As of
December 31, 1997,  PSCo  recorded an estimated  customer  refund  obligation of
approximately  $16.4 million  related to the 1997 electric  department  earnings
test, net of QSP rewards.  A final refund  obligation  has not been  determined.
PSCo believes that it's accrued  obligation will be adequate.  During 1998, PSCo
has recorded a liability  of  approximately  $5.6 million for the 1998  electric
department earnings test.

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

Environmental Issues

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

Environmental Site Cleanup

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

      Under the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), the U.S. Environmental Protection Agency ("EPA") identified, and
a  Phase  II   environmental   assessment   revealed,   low  level,   widespread
contamination from hazardous  substances at the Barter Metals Company ("Barter")
properties located in central Denver. For an estimated 30 years, PSCo sold scrap
metal and electrical  equipment to Barter for  reprocessing.  PSCo has completed
the cleanup of this site at a cost of  approximately $9 million and has received
responses  from  the  Colorado  Department  of  Public  Health  and  Environment
("CDPHE")  indicating  that no  further  action  is  required  related  to these
properties.  On January 3, 1996,  in a lawsuit  by PSCo  against  its  insurance
providers,  the Denver District Court entered final judgment in favor of PSCo in
the amount of $5.6 million for certain cleanup costs at Barter.  Several appeals
and cross appeals have been filed by one of the insurance  providers and PSCo in
the Colorado  Court of Appeals.  The insurance  provider has posted  supersedeas
bonds in the amount of $9.7 million  ($7.7  million  attributable  to the Barter
judgment).  On July 10,  1997,  the  Colorado  Court of Appeals  overturned  the
previously awarded $7.7 million judgment on the basis that the jury had not been
properly  instructed  by the Judge  regarding  a narrow  issue  associated  with
certain policies.  Previously,  PSCo had received certain  insurance  settlement
proceeds from other insurance  providers for Barter and other contaminated sites
and a portion of those funds  remains to be  allocated to this site by the trial
court.  In  addition,  in August  1996,  PSCo filed a lawsuit  against four PRPs
seeking  recovery of certain Barter related costs.  Settlement has been achieved
with two smaller  PRP's.  On December 16, 1997, the U. S. District Court awarded
summary  judgment in favor of the  remaining  PRPs,  on the basis PSCo failed to
follow CERCLA guidelines in the cleanup.  On January 15, 1998, PSCo appealed the
summary  judgment  to the U.S.  Court of Appeals.  In March 1998,  PSCo sold the
remaining Barter properties, and the total proceeds were $1.2 million.

      PCB presence was identified in the basement of an historic office building
located in downtown Denver.  The Company was negotiating the future cleanup with
the current  owners;  however,  in October 1993, the owners filed a civil action
against  PSCo in the Denver  District  Court.  The action  alleged that PSCo was
responsible  for the PCB  releases and  additionally  claimed  other  damages in
unspecified  amounts.  In August,  1994,  the Denver  District  Court  entered a

                                       25
<PAGE>

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

judgment  approving a $5.3  million  offer of  settlement  between  PSCo and the
building owners resolving all claims. In December 1995, complaints were filed by
PSCo against all applicable  insurance carriers in the Denver District Court. In
June 1997, the Court ruled in favor of the carriers on summary  judgment motions
addressing late notice and other issues. In August 1997, PSCo filed an appeal of
the decision with the Colorado Court of Appeals. Two carriers were excluded from
this proceeding;  subsequently, one carrier received approval to be dismissed on
the same basis as the other  carriers.  In March 1998, PSCo reached a settlement
with the remaining carrier. The Company is pursuing the recovery of $3.3 million
net costs in the electric department earnings test over a three year period.

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

Other Environmental Matters

      Under the Clean Air Act  Amendments  of 1990  ("CAAA"),  coal fueled power
plants are required to reduce SO2 and NOx emissions to specified  levels through
a phased  approach.  PSCo's and SPS's  facilities  must comply with the Phase II
requirements,  which  will be  effective  in the  year  2000.  Currently,  these
regulations  permit  compliance  with SO2  emission  limitations  by  using  SO2
allowances  allocated  to  plants  by the EPA,  using  allowances  generated  by
reducing  emissions at existing  plants and by using  allowances  purchased from
other  companies.  The Company  expects to meet the Phase II emission  standards
placed on SO2  through the  combination  of: a) use of low sulfur  coal,  b) the
operation of air quality control equipment on certain generation facilities, and
c) allowances issued by the EPA and purchased from other companies. PSCo and SPS
will be  required to modify  certain  boilers by the year 2000 to reduce the NOx
emissions in order to comply with Phase II requirements.  The estimated Phase II
costs for future plant  modifications  to meet NOx requirements is approximately
$14.4 million for PSCo's Cherokee Unit 1 and 2 and Arapahoe Unit 3.

     SPS installed two new gas turbines at its  Cunningham  Station in 1997. The
two  gas  turbine  units  have  undergone   performance   testing  to  meet  the
requirements of the air quality permit. The test results have indicated that the
units are in  compliance.  Data is now being  compiled  into a  formalized  test
report to the State of New  Mexico.  SPS is working  with the vendor and the New
Mexico Environmental Department to ensure compliance with all permit limits.

      PSCo has announced its  intention to spend  approximately  $211 million on
its Denver and Boulder  Metro area  coal-fueled  power plants to further  reduce
such emissions below the required  regulatory  levels  discussed above, but will
only do so if the following  three  conditions are met: 1) the Colorado  General
Assembly  and the  CPUC  approve  recovery  of  these  costs,  2)  PSCo  obtains
flexibility  in  operating  the  plants  and 3) PSCo  is  assured  the  emission
reduction  plan is  sufficient to meet future state  requirements  for 15 years.
Legislation was passed and signed into law during the second quarter of 1998.

Hayden Steam Electric Generating Station

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

                                       26
<PAGE>

      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

Craig Steam Electric Generating Station

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

Pepsi Center

      Hazardous substances resulting from manufactured gas plant operations have
been  identified  at  the  site  of the  Pepsi  Center,  a  sports  arena  under
construction in lower downtown Denver. A settlement, in principle, with the site
owners has been achieved which is not expected to have a material adverse impact
on PSCo's financial position, results of operations or cash flows.

Fort St. Vrain

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

      On February 9, 1996, PSCo and the DOE entered into an agreement  resolving
all the  defueling  issues.  As part of this  agreement,  PSCo has agreed to the
following:  1) the DOE assumed title to the fuel currently  stored in the ISFSI,
2) the DOE will assume title to the ISFSI and will be responsible for the future
defueling and decommissioning of the facility, 3) the DOE agreed to pay PSCo $16
million  for the  settlement  of  claims  associated  with the  ISFSI,  4) ISFSI
operating and maintenance costs,  including  licensing fees and other regulatory
costs, will be the  responsibility of the DOE, and 5) PSCo provided to the DOE a
full and complete  release of claims  against the DOE resolving all  contractual
disputes  related to  storage/disposal  of Fort St. Vrain spent nuclear fuel. On
December 17, 1996,  the DOE submitted a request to the NRC to transfer the title
of the ISFSI.  This  request is being  reviewed by the NRC and PSCo  anticipates
approval in late-1998.

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

Employee Matters

      Several employee  lawsuits have been filed against PSCo involving  alleged
discrimination  or workers'  compensation  issues  which have arisen  during the
normal course of business.  Also, lawsuits have been filed against

                                       27
<PAGE>
      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

PSCo alleging breach of certain  fiduciary  duties to employees.  The plaintiffs
lawsuits  are in various  stages of  litigation  and/or  appeal  (s),  including
settlement discussions,  with the appropriate state and federal judicial courts.
PSCo  intends to contest,  or is actively  contesting,  all such  lawsuits,  and
believes the ultimate  outcome will not have a material adverse impact on PSCo's
financial position, results of operations or cash flows.

      During 1996,  ninety former  Information  Technology and Systems  ("IT&S")
employees filed a lawsuit against the Company.  The complaint  alleged that PSCo
unfairly  amended its severance plan in connection with a restructuring  in late
1994 to exclude the IT&S function/positions that were outsourced to a subsidiary
of IBM,  effective February 1, 1995. On June 16, 1997, the Denver District Court
issued  a  decision  in  favor  of  the  former  IT&S   employees   and  awarded
approximately  $1.6 million in severance costs and, in a judgment on October 10,
1997, the former IT&S employees were awarded interest and attorney fees as well,
making the total judgment against PSCo $2.1 million. An additional case with 153
former IT&S employees was filed asserting  identical claims.  Settlement on both
cases was achieved in early 1998.  During  1997,  PSCo  accrued  related  costs,
including  estimated  interest and attorney  fees. In early 1998, two additional
lawsuits,  asserting  identical  claims,  were  filed on behalf of a total of 26
former IT&S employees, which were settled in May 1998.

Year 2000 Costs

     The Company  has further  refined its initial  estimates and now expects to
incur costs of  approximately  $30 million  through  1999 to modify its computer
software,  hardware  and other  automated  systems used in  operations  enabling
proper data  processing  relating to the year 2000 and beyond.  The  majority of
these  costs  will  be  incurred  by or  allocated  to the  Company's  operating
utilities, primarily PSCo and SPS. The Company continues to evaluate appropriate
courses of corrective  action,  including the replacement of certain systems.  A
significant  portion of these costs will represent the  redeployment of existing
information technology resources.  If such modifications and conversions are not
completed on a timely basis, the year 2000 problem may have a material impact on
the operations of the Company.  Management does not anticipate  these activities
will have a  material  adverse  impact on the  financial  position,  results  of
operations or cash flows of the Company or its subsidiaries.

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

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

     In October 1996,  Southwestern  Public  Service  Capital I, a  wholly-owned
trust of SPS,  issued 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. The securities are redeemable at the
option of SPS on and after October 21, 2001 at 100% of the principal amount plus
accrued  interest.  In  addition  to SPS's  obligations  under the  Subordinated
Debentures,  SPS has agreed,  pursuant to a guarantee  issued to the trust,  the
provisions of the trust agreement  establishing  the trust and a related expense
agreement to guarantee,  on a subordinated  basis,  payment of distributions on
the preferred securities (but not if the trust does not have sufficient funds to
pay such  distributions)  and to pay all of the  guarantee by the Company of the
trust obligations under the preferred securities.

                                       28
<PAGE>
      NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)

7.  Management's Representations (NCE, PSCo and SPS)

   In the opinion of the registrants,  the accompanying  unaudited  consolidated
condensed  financial  statements  for NCE, PSCo and SPS include all  adjustments
necessary for the fair presentation of the financial position of the Company and
its  subsidiaries  at June 30,  1998 and  December  31,  1997 and the results of
operations  for the three and six months  ended June 30,  1998 and 1997 and cash
flows  for the six  months  ended  June 30,  1998  and  1997.  The  consolidated
condensed financial  information and notes thereto should be read in conjunction
with the  consolidated  financial  statements and notes included in the combined
1997 Form 10-K for NCE, PSCo and SPS.

   Because of seasonal  and other  factors,  the results of  operations  for the
three and six months ended June 30, 1998 should not be taken as an indication of
earnings for all or any part of the balance of the year.



                                       29
<PAGE>




                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


TO NEW CENTURY ENERGIES, INC.:

We have reviewed the accompanying  consolidated  condensed  balance sheet of New
Century Energies,  Inc. (a Delaware corporation) and subsidiaries as of June 30,
1998, and the related condensed statements of income for the three and six-month
periods ended June 30, 1998 and 1997 and the condensed  statements of cash flows
for the  six-month  periods  ended  June 30,  1998  and  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.

We have  previously  audited,  in accordance  with generally  accepted  auditing
standards,  the  consolidated  balance sheet of New Century  Energies,  Inc. and
subsidiaries as of December 31, 1997 (not presented herein),  and, in our report
dated February 13, 1998, we expressed an unqualified  opinion on that statement.
In our  opinion,  the  information  set forth in the  accompanying  consolidated
condensed  balance  sheet as of December  31,  1997,  is fairly  stated,  in all
material respects,  in relation to the consolidated  balance sheet from which it
has been derived.


                                                        ARTHUR ANDERSEN LLP

Denver, Colorado,
August 10, 1998


                                       30
<PAGE>



                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


TO PUBLIC SERVICE COMPANY OF COLORADO:

We have reviewed the accompanying consolidated condensed balance sheet of Public
Service Company of Colorado (a Colorado corporation) and subsidiaries as of June
30, 1998, and the related  consolidated  condensed  statements of income for the
three and six-month  periods  ended June 30, 1998 and 1997 and the  consolidated
condensed statements of cash flows for the six-month periods ended June 30, 1998
and 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.

We have  previously  audited,  in accordance  with generally  accepted  auditing
standards,  the consolidated balance sheet of Public Service Company of Colorado
and  subsidiaries  as of December 31, 1997 (not presented  herein),  and, in our
report  dated  February 13, 1998,  we expressed an  unqualified  opinion on that
statement.  In our  opinion,  the  information  set  forth  in the  accompanying
consolidated  condensed balance sheet as of December 31, 1997, is fairly stated,
in all material  respects,  in relation to the  consolidated  balance sheet from
which it has been derived.


                                                        ARTHUR ANDERSEN LLP

Denver, Colorado,
August 10, 1998



                                       31
<PAGE>



                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


TO SOUTHWESTERN PUBLIC SERVICE COMPANY:

We have reviewed the accompanying condensed balance sheet of Southwestern Public
Service Company (a New Mexico  corporation) as of June 30, 1998, and the related
condensed  statements of income for the three and  six-month  periods ended June
30, 1998 and 1997 and the  condensed  statements of cash flows for the six-month
periods  ended  June 30,  1998 and  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.

We have  previously  audited,  in accordance  with generally  accepted  auditing
standards,  the  balance  sheet of  Southwestern  Public  Service  Company as of
December 31, 1997 (not presented herein),  and, in our report dated February 13,
1998, we expressed an unqualified opinion on that statement. In our opinion, the
information set forth in the accompanying condensed balance sheet as of December
31, 1997, is fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.


                                                        ARTHUR ANDERSEN LLP

Denver, Colorado,
August 10, 1998



                                       32
<PAGE>



Item 2.  Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations (NCE, PSCo and SPS)

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

Three Months  Ended June 30, 1998  Compared to the Three Months Ended June 30,
1997

Earnings

      Earnings  per share were $0.50 for the second  quarter of 1998 as compared
to $0.33 for the second  quarter of 1997.  The higher  earnings  were  primarily
attributable to strong retail and wholesale electric sales.  Customer growth and
hotter than normal weather contributed to the increased sales during the period,
with a significant increase in the irrigation load in Texas and New Mexico.

     Non-recurring  items impacted the Company's quarterly earnings in both 1998
and  1997.  In the  second  quarter  of  1998,  Yorkshire  Power  recognized  an
impairment  of  its  investment  in  a  U.K.  telecommunications  company.  This
investment  impairment,  in conjunction  with the recognition of a non-recurring
positive tax adjustment at Yorkshire Power,  reduced  earnings  approximately 15
cents per share (see Note 2.  Investment in Yorkshire Power in Item 1. FINANCIAL
STATEMENTS).  Earnings for the second quarter of 1997 were reduced approximately
17 cents per share due to the recognition of merger costs and the write-off of a
subsidiary investment in a waste-to-energy cogeneration project.

Electric Operations

      The following table details the change in electric  operating revenues and
energy  costs for the second  quarter of 1998 as  compared to the same period in
1997.
                                                      Increase (Decrease)
                                                      -------------------
                                                    (Thousands of Dollars)
Electric operating revenues:
 Retail...............................................    $ 19,920
 Wholesale............................................      32,542
 Non-regulated power marketing........................      14,198
 Other (including unbilled revenues and provision for 
   rate refunds) .....................................      (1,560)
  Total revenues......................................      65,100
Fuel used in generation...............................       6,102
Purchased power.......................................      30,164
                                                           -------
  Net increase in electric margin.....................     $28,834
                                                           =======

      The following table compares  electric Kwh sales by major customer classes
for the second quarter of 1998 and 1997.
                                              Millions of Kwh Sales
                                              ---------------------
                                                1998      1997    % Change *
                                                ----      ----    ----------
Residential ...............................     2,215     2,116      4.7%
Commercial and Industrial  ................     6,686     6,534      2.3
Public Authority ..........................       197       180      9.3
                                                -----     -----
  Total Retail.............................     9,098     8,830      3.0
Wholesale..................................     3,698     2,671     38.5
Non-regulated power marketing..............       781       213      **
                                                -----     -----
Total .....................................     13,577    11,714    15.9
                                                ======    ======

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

                                       33
<PAGE>

     Electric  margin  increased in the second quarter of 1998, when compared to
the second  quarter of 1997,  due  primarily to a 3.0%  increase in total retail
sales and a 15.9%  increase in total sales  resulting  from customer  growth and
hotter than normal  weather.  PSCo's higher  non-firm  wholesale  electric sales
contributed  to increased  revenues,  but had little impact on electric  margin.
SPS's higher retail and wholesale sales were particularly impacted by the hotter
than normal weather  during the second quarter of 1998 and a resulting  increase
in the irrigation load in Texas and New Mexico.  Also contributing to the higher
margin  was the  favorable  $7.7  million  impact of a FERC  decision  in a 1985
wholesale rate case proceeding at SPS (see Note 4. Regulatory Matters in Item 1.
FINANCIAL STATEMENTS).

      The Company's regulated subsidiaries have cost adjustment mechanisms which
recognize the majority of the effects of changes in fuel used in generation  and
purchased power costs and allow recovery of such costs on a timely basis. PSCo's
ICA,  which  allows  for a 50%/50%  sharing  of  certain  fuel and  energy  cost
increases and decreases among customers and shareholders,  did not significantly
impact  electric  margin  for the  second  quarter  of 1998 or 1997 (see Note 4.
Regulatory Matters in Item 1. FINANCIAL STATEMENTS).

      Fuel used in  generation  expense  increased  approximately  $6.1  million
during the second  quarter of 1998 as compared  to the same  quarter in 1997 due
primarily to increased generation levels.

      Purchased power expense  increased $30.2 million during the second quarter
of 1998,  as compared to the same quarter in 1997,  primarily due to an increase
in power marketing activities at the Company's non-regulated subsidiaries ($14.0
million) and purchases to meet wholesale requirements and other customer demands
at PSCo ($12.4 million).  Purchased power at SPS increased $4.2 million due to a
78% increase in wholesale  purchases,  higher spot market  prices and  increased
purchased capacity costs. SPS generates  substantially all of its power for sale
to its firm retail and  wholesale  customers  and sells  non-firm  energy as the
market  demands.   Similarly,   SPS  purchases  low-cost  non-firm  energy  when
available.

Gas Operations

      The following  table details the change in revenues from gas sales and gas
purchased  for  resale for the second  quarter of 1998 as  compared  to the same
period in 1997.
                                                     Increase (Decrease)
                                                     -------------------
                                                   (Thousands of Dollars)

Revenues from gas sales (including unbilled revenues).     $ 6,630
Gas purchased for resale..............................       9,292
                                                           -------
 Net decrease in gas sales margin.....................     $(2,662)
                                                           ========

      The following table compares gas Dth deliveries by major customer  classes
for the second quarter of 1998 and 1997.
                                      Millions of Dth Deliveries
                                      --------------------------
                                                1998  1997    % Change *
                                                ----  ----    ----------
Residential................................     18.6  18.5       0.4%
Commercial.................................      9.4   9.8      (4.4)
Non-regulated gas marketing................     15.5  15.0       3.2
                                               -----  ----
  Total Sales..............................     43.5  43.3       0.3
Transportation.............................     27.3  22.3      22.4
                                               -----  ----
  Total....................................     70.8  65.6       7.8
                                               =====  ====

*  Percentages are calculated using unrounded amounts

     Gas sales margin decreased during the second quarter of 1998, when compared
to the second  quarter of 1997,  primarily  due to a $5.2  million  decrease  in
PSCo's  unbilled  revenues.  Unbilled  revenues  consist  of gas  that  has been
delivered to customers who's meters have not been read and therefore not billed.
Retail gas sales  increased  0.3% 



                                       34
<PAGE>

overall  during  the  second  quarter  of 1998 as  compared  with the prior year
primarily as a result of non-regulated sales. PSCo's gas sales decreased 1.6% as
a result of warmer weather, despite a 2.7% increase in customers.

      Gas   transportation,   gathering  and   processing   revenues   increased
approximately  $0.7 million during the second quarter of 1998,  when compared to
the second quarter of 1997,  primarily due to higher  deliveries.  The volume of
transported gas increased approximately 22% although the average price decreased
approximately  12%.  The  increase  in  transport  deliveries  is  a  result  of
commercial customers shifting to transport customers.

      PSCo and  Cheyenne  have in place a GCA  mechanism  for natural gas sales,
which  recognizes  the  majority  of the  effects  of changes in the cost of gas
purchased  for resale and adjusts  revenues to reflect such changes in cost on a
timely  basis.  As a result,  the  changes  in  revenues  associated  with these
mechanisms  during the second quarter of 1998, as compared to the second quarter
of 1997, had little impact on net income. However, the fluctuations in gas sales
impact  the  amount  of gas the  Company's  gas  utilities  must  purchase  and,
therefore,  along with the  increases and decreases in the per-unit cost of gas,
affect total gas purchased for resale.  The higher per-unit  average cost of gas
during the second quarter of 1998, along with an increase in the quantity of gas
purchased, contributed to the increase in cost of gas purchased for resale.

Non-Fuel Operating Expenses and Other Income and Deductions

      Other  operating and maintenance  expenses  increased $13.8 million during
the second  quarter of 1998,  as compared to the same period in 1997,  primarily
due to higher  operating costs from  non-regulated  operations  ($13.2 million).
Depreciation and amortization expense increased $6.7 million primarily due to an
increase in electric property, plant and equipment at PSCo and SPS.

      Other income and deductions  increased  approximately $22.5 million during
the  second  quarter  of 1998,  when  compared  to the  second  quarter of 1997,
primarily due to the write-off of the investment in the Carolina  Energy Project
in 1997 (see Note 3.  Acquisition  and  Divestiture  of  Investments  in Item 1.
FINANCIAL STATEMENTS),  a decrease in merger expenses and accruals for estimated
legal and other costs associated with various  employee  lawsuits in 1997 offset
by lower earnings at Yorkshire Power as discussed above.

      Interest  charges and preferred  dividends of subsidiaries  increased $1.8
million during the second quarter of 1998,  when compared to the same quarter in
1997,  primarily due to interest on borrowings to finance  capital  expenditures
and dividends on the PSCo Trust Originated Preferred Securities.

Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997

Earnings

     Earnings  per share were $1.28 for the first six months of 1998 as compared
to $1.08 for the first six months of 1997.  The higher  earnings were  primarily
attributable  to increases in electric and gas sales  resulting  from  continued
customer  growth,  hotter than normal weather during the second quarter of 1998,
the absence of merger costs in 1998, and a the write-off of the Carolina  Energy
Project in 1997.  Earnings for the six months ended June 30, 1998 also  included
the investment impairment and a non-recurring tax adjustment by Yorkshire Power,
which reduced earnings by approximately 15 cents per share.


                                       35
<PAGE>


Electric Operations

      The following table details the change in electric  operating revenues and
energy  costs for the first six months of 1998 as compared to the same period in
1997.
                                                      Increase (Decrease)
                                                      -------------------
                                                    (Thousands of Dollars)
Electric operating revenues:
 Retail...............................................     $24,140
 Wholesale............................................      33,014
 Non-regulated power marketing........................      23,913
 Other (including unbilled revenues and provision for 
   rate refunds) .....................................      (4,336)
  Total revenues......................................      76,731
Fuel used in generation...............................      (1,859)
Purchased power.......................................      51,195
                                                           -------
  Net increase in electric margin.....................     $27,395
                                                           =======

      The following table compares  electric Kwh sales by major customer classes
for the first six months of 1998 and 1997.
                                              Millions of Kwh Sales
                                              ---------------------
                                                 1998       1997    % Change *
                                                 ----       ----    ----------
Residential ...............................      4,896     4,736      3.4%
Commercial and Industrial  ................     13,277    13,036      1.8
Public Authority ..........................        378       359      5.1
                                                -----     -----
  Total Retail.............................     18,551    18,131      2.3
Wholesale..................................      6,434     4,962     29.7
Non-regulated power marketing..............      1,603       579      **
                                                -----     -----
Total .....................................     26,588    23,672     12.3
                                                ======    ======

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

     Electric margin increased in the first six months of 1998, when compared to
the prior year  primarily due to higher retail sales  resulting from hotter than
normal  weather  during the second  quarter of 1998.  Also  contributing  to the
higher margin was the favorable $7.7 million impact of a FERC decision in a 1985
wholesale rate case proceeding at SPS (see Note 4. Regulatory Matters in Item 1.
FINANCIAL  STATEMENTS).  This increase was offset, in part, by recognition of an
estimated  customer refund obligation  (approximately  $5.6 million in the first
six months 1998,  while no obligation was recorded in the first six months 1997)
in connection with the earnings  sharing in excess of 11% return on equity which
resulted for the  settlement of the Merger  proceedings in Colorado (see Note 4.
Regulatory Matters in Item 1. FINANCIAL  STATEMENTS).  Higher wholesale electric
sales  contributed  to  increased  revenues,  but had little  impact on electric
margin.

      The Company's regulated subsidiaries have cost adjustment mechanisms which
recognize the majority of the effects of changes in fuel used in generation  and
purchased power costs and allow recovery of such costs on a timely basis. PSCo's
ICA,  which  allows  for a 50%/50%  sharing  of  certain  fuel and  energy  cost
increases and decreases among customers and shareholders,  did not significantly
impact  electric  margin  for the first six  months of 1998 or 1997 (see Note 4.
Regulatory Matters in Item 1. FINANCIAL STATEMENTS).

      Fuel used in  generation  expense  decreased  approximately  $1.9  million
during  the first six  months of 1998 as  compared  to the same  period in 1997.
Lower per unit cost of coal and natural gas were offset by increased  generation
levels.

      Purchased power expense  increased during the first six months of 1998, as
compared  to the same  period in 1997,  primarily  due to an  increase  in power
marketing activities at the Company's non-regulated subsidiaries.

                                       36
<PAGE>

Gas Operations

      The following  table details the change in revenues from gas sales and gas
purchased  for resale for the first six months of 1998 as  compared  to the same
period in 1997.
                                                     Increase (Decrease)
                                                     -------------------
                                                   (Thousands of Dollars)

Revenues from gas sales (including unbilled revenues).     $33,436
Gas purchased for resale..............................      27,215
                                                           -------
 Net increase in gas sales margin.....................     $ 6,221
                                                           =======

      The following table compares gas Dth deliveries by major customer  classes
for the first six months of 1998 and 1997.

                                      Millions of Dth Deliveries
                                      --------------------------
                                                1998  1997    % Change *
                                                ----  ----    ----------
Residential................................     58.5  58.1       0.8%
Commercial.................................     28.7  31.2      (7.9)
Non-regulated gas marketing................     31.9  30.6       4.0
                                               ----- -----
  Total Sales..............................    119.1 119.9      (0.7)
Transportation.............................     54.9  47.5      15.6
                                               ----- -----
  Total....................................    174.0 167.4       3.9
                                               ===== =====

*  Percentages are calculated using unrounded amounts

      Gas sales  margin  increased  during  the first six  months of 1998,  when
compared to the first six months of 1997, primarily due to an increase in PSCo's
base  revenues  associated  with the higher  rates  effective  February 1, 1997,
resulting  from the 1996 rate case (see Note 4.  Regulatory  Matters  in Item 1.
FINANCIAL STATEMENTS).

      Gas  transportation,  gathering and  processing  revenues  increased  $2.0
million  during the first six  months of 1998,  when  compared  to the first six
months of 1997,  primarily due to higher volume of gas  transported  offset,  in
part,  by a  decrease  in the  average  price.  The  volume of  transported  gas
increased  approximately  16%  although  the  average  per unit  cost  decreased
approximately 3%. The increase in transport deliveries is a result of commercial
customers shifting to transport customers.

      PSCo and  Cheyenne  have in place a GCA  mechanism  for natural gas sales,
which  recognizes  the  majority  of the  effects  of changes in the cost of gas
purchased  for resale and adjusts  revenues to reflect such changes in cost on a
timely  basis.  As a result,  the  changes  in  revenues  associated  with these
mechanisms  during the first six months of 1998,  as  compared  to the first six
months of 1997, had little impact on net income.  However,  the  fluctuations in
gas sales impact the amount of gas the  Company's  gas  utilities  must purchase
and,  therefore,  along with the increases and decreases in the per-unit cost of
gas, affect total gas purchased for resale.  The higher per-unit average cost of
gas during the first six months of 1998,  along with an increase in the quantity
of gas  purchased,  contributed  to the  increase in cost of gas  purchased  for
resale.

Non-Fuel Operating Expenses and Other Income and Deductions

      Other  operating and maintenance  expenses  increased $26.4 million during
the first six months of 1998, as compared to the same period in 1997,  primarily
due to higher operating costs from non-regulated operations ($23.4 million).

      Other income and deductions  increased  approximately $28.7 million during
the first six  months of 1998,  when  compared  to the first six months of 1997,
primarily due to the write-off of the investment in the Carolina


                                       37
<PAGE>

Energy Project in 1997 ($16.1  million),  a decrease in merger  expenses  ($13.7
million)  offset,  in part,  by lower  earnings at Yorkshire  Power as discussed
above.

      Interest  charges and preferred  dividends of subsidiaries  increased $4.3
million  during the first six months of 1998,  when compared to the same quarter
in 1997,  primarily  due to interest on borrowings  utilized to finance  capital
expenditures  and the April  1997  investment  in  Yorkshire  Power (see Note 2.
Investment in Yorkshire Power in Item 1. FINANCIAL STATEMENTS), and dividends on
the PSCo Trust Originated Preferred Securities.

Commitments and Contingencies

      Issues  relating to regulatory  matters,  environmental  issues,  employee
lawsuits and Year 2000 costs are discussed in Notes 4 and 5 in Item 1. FINANCIAL
STATEMENTS.  These  matters  and the future  resolution  thereof  may impact the
Company's future financial position, results of operations or cash flows.

      Based on a  preliminary  analysis,  the Company  expects to incur costs of
approximately  $30  million  over the next two  years  to  modify  its  computer
software,  hardware  and other  automated  systems used in  operations  enabling
proper data  processing  relating to the year 2000 and beyond.  The  majority of
these  costs  will  be  incurred  by or  allocated  to the  Company's  operating
utilities, primarily PSCo and SPS. The Company continues to evaluate appropriate
courses of corrective  action,  including the replacement of certain systems.  A
significant  portion of these costs will represent the  redeployment of existing
information technology resources.  If such modifications and conversions are not
completed on a timely basis, the year 2000 problem may have a material impact on
the operations of the Company.  Management does not anticipate  these activities
will have a  material  adverse  impact on the  financial  position,  results  of
operations or cash flows of the Company or its subsidiaries.

Common Stock Dividend

      The Board of  Directors  approved  a $0.58 per share  dividend  payable to
shareholders  of the  Company  for the second  quarter of 1998 and $1.16 for the
year-to-date.  The Company's  common stock  dividend level is dependent upon the
Company's  financial  position, results  of  operations,  cash  flows  and other
factors.  The Board of Directors  of the Company  will  continue to evaluate the
common stock dividend on a quarterly basis.

Liquidity and Capital Resources

Cash Flows - Six Months Ended June 30
                                                1998          1997    Increase
                                                ----          ----    --------
Net cash provided by operating 
  activities (in millions)................    $362.8        $136.4    $226.4

      Cash  provided  by  operating  activities  increased  during the first six
months of 1998, when compared to the first six months of 1997,  primarily due to
the decrease in payments to gas suppliers  resulting from lower gas costs during
the first six  months of 1998 as  compared  to the first six  months of 1997.  A
portion of these  lower gas costs have been  deferred  through  the GCA and have
reduced  the  amount  to  be  recovered  from  customers  in  the  future.  Also
contributing  to the  increase  were  higher  electric  sales  at SPS  and  PSCo
resulting from hotter than normal weather. SPS and a non-regulated subsidiary of
NCE  recorded  combined  cash  proceeds  of  approximately  $67  million for the
recovery of deferred  costs and income from the  investment  in a  non-regulated
energy development project.

                                                1998         1997      Decrease
                                                ----         ----      --------
Net cash used in investing 
  activities (in millions) ..............    $(270.8)    $(569.1)      $(298.3)


                                       38
<PAGE>


      Cash used in investing  activities decreased during 1998, when compared to
1997,  primarily  due  to the  acquisition  of  Yorkshire  Electricity  in  1997
partially  offset by higher 1998  construction  expenditures and payment for the
purchase of a company in 1998.

                                                1998         1997     Decrease
                                                ----         ----     --------
Net cash provided by (used in) financing 
  activities (in millions) ..............     $(57.0)       $425.2    $(482.2)

      Cash provided by financing activities decreased during 1998, when compared
to 1997,  primarily due to PSCo's  issuance of medium-term  notes in January and
March 1997. The proceeds from the $75 million  financing by PSCo in January 1997
and the  $250  million  financing  by  PSCo  in  March  1997  were  used to fund
construction  expenditures  and the investment in Yorkshire  POWER.  See Note 2.
Investment  in  Yorkshire  Power  in  Item 1.  FINANCIAL  STATEMENTS.  The  debt
issuances in 1997 were offset by proceeds  from PSCo's  issuance of $250 million
of  long-term  debt in April 1998 which was used to repay  short-term  and other
debt.  In May 1998,  PSCo  issued  $194  million of Trust  Originated  Preferred
Securities  the proceeds of which were used to redeem all of PSCo's  outstanding
preferred  stock  (totaling  $181.8  million)  on June  10,  1998  (see  Note 6.
Obligated  Mandatorily  Redeemable  Preferred  Securities  of  Subsidiary  Trust
Holding Soley Subordinated Debentures in Item 1. FINANCIAL STATEMENTS).

Financing Activities

Long-Term Debt

     On April 20, 1998,  PSCo issued $250 million of 6% First  Collateral  Trust
Bonds due April  15,  2003,  which are not  redeemable  prior to  maturity.  The
principal and accrued interest on the bonds are secured by PSCo's First Mortgage
Bonds.  Substantially  all  properties of PSCo are subject to the liens securing
its First  Mortgage  Bonds.  The  proceeds  from the  issuance  will be used for
general  corporate  purposes and to repay short-term and other debt incurred for
such purposes.

PSCo Obligated Mandatorily Redeemable Preferred Securities

      In May 1998, PSCo Capital Trust I, a wholly-owned trust of PSCo, issued in
a  public  offering  $194  million  of  its  7.60%  Trust  Originated  Preferred
Securities.  The sole  asset of the trust is $200  million  principal  amount of
PSCo's 7.60% Deferrable Interest Subordinated  Debentures due June 30, 2038. The
proceeds from the sale of the 7.60% Trust Originated  Preferred  Securities were
used to redeem all of PSCo's outstanding preferred stock totaling $181.8 million
on June 10, 1998 and for general corporate purposes.

Bank Lines of Credit and Compensating Bank Balances

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

      During the second  quarter of 1998,  PSCo entered into a credit  facility,
which  provides  for $150  million in  committed  lines of credit,  replacing an
existing $125 million  credit  facility.  During the first quarter of 1998,  SPS
entered  into a credit  facility  which  provides  for $200 million in committed
lines of credit,  replacing  the two existing  credit  facilities  totaling $180
million.


                                       39
<PAGE>

Electric Utility Industry

      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's subsidiaries,  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 unable to predict what  financial  impact or effect
the adoption of these proposals would have on its operations.

New Accounting Standards

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

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


                                       40
<PAGE>


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

Three Months  Ended June 30, 1998  Compared to the Three Months Ended June 30,
1997

Merger

      Effective  August 1, 1997,  following  receipt of all  required  state and
Federal  regulatory  approvals,  PSCo and SPS  merged in a  tax-free  "merger of
equals"  transaction  and became  wholly-owned  subsidiaries  of NCE, which is a
registered  holding company under PUHCA. This transaction was accounted for as a
pooling  of  interests  for  accounting  purposes.  Effective  with the  Merger,
Cheyenne,  WGI, e prime and Natural Fuels were transferred by a declaration of a
dividend  of  the   subsidiaries'   stock,   at  net  book  value,   aggregating
approximately   $49.9  million,   to  NCE.  NCE  subsequently   made  a  capital
contribution  of the e prime and Natural Fuels common stock,  at net book value,
aggregating approximately $29.5 million, to NC Enterprises.  See Note 1. Summary
of  Significant   Accounting  Policies  in  Item  1.  FINANCIAL  STATEMENTS  for
additional  discussion  regarding PSCo, the Merger and the transfer of Cheyenne,
WGI, e prime and Natural Fuels. The consolidated  condensed statements of income
for the three and six months ended June 30, 1997 and statement of cash flows for
the six months  ended June 30,  1997,  reflect  the  results  of  operations  of
Cheyenne, WGI, e prime and Natural Fuels. Where relevant, additional information
has been presented to discuss the impact of the transfer of these subsidiaries.

Earnings Available for Common Stock

      Earnings  increased  approximately  3% to  $28.5  million  for the  second
quarter of 1998,  as compared to $27.7  million for the second  quarter of 1997.
The increase was primarily attributable to the absence of accruals for estimated
legal costs associated with various employee lawsuits recognized in 1997, higher
merger and  business  integration  costs in 1997 and an increase in the electric
margin resulting from an increase in sales in 1998.

Electric Operations

      The following table details the change in electric  operating revenues and
energy costs for the three  months ended June 30, 1998,  as compared to the same
period in 1997 (in thousands of dollars).

                                                       Increase (Decrease)
                                                       -------------------
                                                          Cheyenne
                                               PSCo Only  & e prime Consolidated
                                               ---------  --------- ------------
Electric operating revenues:
 Retail.......................................    $10,804   $ (8,936)  $ 1,868
 Wholesale - regulated........................     10,197          -    10,197
 Non-regulated power marketing................          -     (3,085)   (3,085)
 Other (including unbilled revenues and 
   provision for rate refunds) ...............        722          4       726
                                                      ---       ----       ---
  Total revenues..............................     21,723    (12,017)    9,706
Fuel used in generation.......................      2,072          -     2,072
Purchased power...............................     12,399     (9,630)    2,769
                                                  -------   ---------  -------
  Net increase (decrease) in electric margin..    $ 7,252   $ (2,387)  $ 4,865
                                                  =======   =========  =======


                                       41
<PAGE>


       The following table compares electric Kwh sales by major customer classes
for the three months ended June 30, 1998 and 1997.

                                     Millions of Kwh Sales     % Change *
                                     ---------------------     ----------
                                        1998     1997     Consolidated PSCo Only
                                        ----     ----     ---------------------
Residential .....................       1,501    1,509       (0.6)%     2.7%
Commercial and Industrial  ......       3,721    3,844       (3.2)      1.0
Public Authority ................          39       41       (4.2)     (2.2)
                                       ------   ------
  Total Retail...................       5,261    5,394       (2.4)      1.4
Wholesale - Regulated............       1,409    1,028       37.1      37.1
Non-regulated Power Marketing....           -      212       **         -
                                       ------   ------
Total............................       6,670    6,634        0.6       7.3
                                       ======   ======

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

      Electric margin  increased in the second quarter of 1998, when compared to
the second  quarter of 1997,  primarily  due to an  overall  increase  in PSCo's
retail sales of 1.4% resulting  primarily from customer growth of  approximately
1.8%.  Higher  wholesale  electric  sales  contributed  to  increased  operating
revenues, however, the margin on such sales is minimal.

      PSCo has cost  adjustment  mechanisms  which recognize the majority of the
effects of changes in fuel used in  generation  and  purchased  power  costs and
allow  recovery of such costs on a timely basis.  PSCo's ICA, which allows for a
50%/50%  sharing of certain fuel and energy cost  increases and decreases  among
customers and shareholders, did not significantly impact the electric margin for
the second  quarter of 1998 or 1997 (see Note 4.  Regulatory  Matters in Item 1.
FINANCIAL STATEMENTS).

      Fuel used in  generation  expense  increased  approximately  $2.1  million
during the second  quarter of 1998,  as  compared  to the same  quarter in 1997,
primarily due to increased generation levels at PSCo's power plants.

      Purchased  power expense  increased $2.8 million during the second quarter
of 1998, as compared to the same quarter in 1997,  primarily due to purchases to
meet increased wholesale requirements and other customer demands.

Gas Operations

      The following  table details the change in revenues from gas sales and gas
purchased  for resale for the second  quarter of 1998,  as  compared to the same
period in 1997 (in thousands of dollars).

                                                        Increase (Decrease)
                                                        -------------------
                                                             Cheyenne
                                                              Natural
                                                               Fuels
                                                               WGI &
                                                 PSCo Only  e prime Consolidated
                                                 ---------  ------- ------------

Revenues from gas sales (including 
  unbilled revenues)............................   $ 3,480  $(41,655) $(38,175)
Gas purchased for resale........................     7,189   (38,236)  (31,047)
                                                    ------   -------- --------
  Net decrease in gas sales margin..............   $(3,709) $(3,419)  $ (7,128)
                                                   =======  =======   ========


                                       42
<PAGE>


      The following table compares gas Dth deliveries by major customer  classes
for the second quarter of 1998 and 1997.

                             Millions of Dth Deliveries      % Change *
                             --------------------------      ----------
                                  1998      1997       Consolidated   PSCo Only
                                  ----      ----       ------------  ----------
Residential..................     18.0      18.5          (2.7)%        0.3%
Commercial...................      8.9       9.8          (9.9)        (5.3)
Non-regulated gas marketing..        -      15.1          **              -
                                  ----      ----
  Total sales................     26.9      43.4         (38.0)        (1.6)
Transportation, gathering and
  processing ................     22.8      22.3           1.9         23.1
                                  ----      ----
  Total......................     49.7      65.7         (24.5)         8.4
                                  ====      =====

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

     Gas sales margin decreased during the second quarter of 1998, when compared
to the second  quarter of 1997,  primarily  due to a $5.2  million  decrease  in
PSCo's unbilled revenues,  which is gas delivered to customers that has not been
billed. Gas sales decreased 1.6% as a result of warmer weather during the second
quarter of 1998, despite a 2.7% increase in customers.

      PSCo has in place a GCA mechanism for natural gas sales,  which recognizes
the majority of the effects of changes in the cost of gas  purchased  for resale
and adjusts  revenues to reflect  such changes in cost on a timely  basis.  As a
result,  the changes in revenues  associated  with these  mechanisms  during the
second  quarter of 1998, as compared to the second  quarter of 1997,  had little
impact on net income.  However,  the fluctuations in gas sales impact the amount
of gas PSCo must purchase and, therefore, along with the increases and decreases
in the per-unit cost of gas,  affect total gas  purchased for resale.  The lower
per-unit  average  cost of gas during the second  quarter of 1998,  along with a
decrease in the quantity of gas  purchased,  contributed to the decrease in cost
of gas purchased for resale.

      Gas  transportation,  gathering  and  processing  revenues  increase  $0.5
million  during the second  quarter of 1998,  compared to the second  quarter of
1997,  primarily due to higher deliveries.  The increase in transport deliveries
continues  to be impacted by the  shifting of various  commercial  customers  to
transport customers.

Non-Fuel Operating Expenses and Other Income and Deductions

      Depreciation  and  amortization  increased  $4.6 million during the second
quarter of 1998, as compared to the second quarter of 1997, primarily due to the
depreciation  of  property  additions  and the higher  amortization  of software
costs.

      Income  taxes  increased  approximately  $1.9  million  during  the second
quarter of 1998,  as compared to the second  quarter of 1997,  primarily  due to
higher pre-tax income.

      Other income and deductions  increased  $9.9 million  primarily due to the
accruals for estimated legal and other costs  associated  with various  employee
lawsuits and the recognition of merger and business  integration  costs in 1997.
The decrease in expenditures  was offset,  in part, by the recognition of equity
earnings  associated  with the Company's  investment  in Yorkshire  Power in the
second  quarter  of 1997.  On March  31,  1998,  NCI and its  subsidiaries  were
transferred  through the sale by PSCo of all the outstanding common stock at net
book value (approximately  $292.6 million),  to NC Enterprises,  an intermediate
holding company for NCE, and received as consideration a promissory note from NC
Enterprises.  See Note 2.  Investment  in Yorkshire  Power in Item 1.  FINANCIAL
STATEMENTS.

      Interest charges decreased  slightly during the second quarter of 1998, as
compared to the second quarter of 1997. The increase in allowance for funds used
during  construction  were offset,  in part, by dividends on the

                                       43
<PAGE>

PSCo obligated  mandatorily  redeemable preferred securities of subsidiary trust
holding  solely  subordinated  debentures of PSCo which were issued in May 1998.
See Note 6.  PSCo  Obligated  Mandatorily  Redeemable  Preferred  Securities  of
Subsidiary  Trust Holding  Solely  Subordinated  Debentures in Item 1. FINANCIAL
STATEMENTS.

Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997

Earnings Available for Common Stock

      Earnings  increased  approximately  8% to $94.5  million for the first six
months of 1998,  as compared to $87.6  million for the first six months of 1997.
The increase was primarily  attributable  to accruals for estimated  legal costs
associated with various employee  lawsuits  recognized in 1997 and higher merger
and business integration costs in 1997.

Electric Operations

      The following table details the change in electric  operating revenues and
energy  costs for the six months  ended June 30,  1998,  as compared to the same
period in 1997 (in thousands of dollars).

                                                       Increase (Decrease)
                                                       -------------------
                                                          Cheyenne
                                              PSCo Only   & e prime Consolidated
                                              ---------   --------- ------------
Electric operating revenues:
 Retail......................................   $18,760   $(18,548)   $   212
 Wholesale - regulated.......................    21,916          -     21,916
 Non-regulated power marketing...............         -     (8,733)    (8,733)
 Other (including unbilled revenues and 
   provision for rate refunds) ..............    (2,205)        99     (2,106)
                                                 ------        ---     ------
  Total revenues.............................    38,471    (27,182)    11,289
Fuel used in generation......................     8,440          -      8,440
Purchased power..............................    26,514    (22,314)     4,200
                                                -------   ---------   -------
  Net increase (decrease)  in electric margin   $ 3,517   $ (4,868)   $(1,351)
                                                =======   ========    =======

       The following table compares electric Kwh sales by major customer classes
for the six months ended June 30, 1998 and 1997.

                                   Millions of Kwh Sales       % Change *
                                   ---------------------       ----------
                                        1998     1997    Consolidated  PSCo Only
                                        ----     ----    ------------  ---------
Residential .....................       3,356    3,376       (0.6)%     2.7%
Commercial and Industrial  ......       7,476    7,686       (2.7)      1.4
Public Authority ................          87       89       (2.8)     (0.6)
                                       ------   ------
  Total Retail...................      10,919   11,151       (2.1)      1.8
Wholesale - Regulated............       2,903    1,878       54.5      54.5
Non-regulated Power Marketing....           -      579       **         -
                                       ------   ------
Total............................      13,822   13,608        1.6       9.7
                                       ======   ======

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

      Electric margin increased  (excluding the results of Cheyenne and e prime)
in the first six months of 1998,  when compared to the first six months of 1997,
primarily due to an overall  increase in PSCo's  retail sales of 1.8%  resulting
from customer growth of approximately 1.8%. The increase was offset, in part, by
the recognition of an estimated customer refund obligation  (approximately  $5.6
million in the first six months of 1998 while no  obligation  was  recognized in
the first six months of 1997) in connection with the earnings  sharing in excess
of 11%  return  on equity  which  resulted  from the  settlement  of the  Merger
proceedings  in Colorado


                                       44
<PAGE>

(see  Note  4.  Regulatory  Matters  in Item 1.  FINANCIAL  STATEMENTS).  Higher
wholesale electric sales contributed to increased operating  revenues,  however,
the margin on such sales is minimal.

      PSCo has cost  adjustment  mechanisms  which recognize the majority of the
effects of changes in fuel used in  generation  and  purchased  power  costs and
allow  recovery of such costs on a timely basis.  PSCo's ICA, which allows for a
50%/50%  sharing of certain fuel and energy cost  increases and decreases  among
customers and shareholders, did not significantly impact the electric margin for
the first six months of 1998 or 1997 (see Note 4. Regulatory  Matters in Item 1.
FINANCIAL STATEMENTS).

      Fuel used in  generation  expense  increased  approximately  $8.4  million
during the first six months of 1998,  as compared to the same period in 1997 due
to increased generation levels at PSCo's power plants.

      Purchased power expense  increased  approximately  $4.2 million during the
first six months of 1998, as compared to the same period in 1997,  primarily due
to  purchases  to meet  increased  wholesale  requirements  and  other  customer
demands.

Gas Operations

      The following  table details the change in revenues from gas sales and gas
purchased  for resale for the first six months of 1998,  as compared to the same
period in 1997 (in thousands of dollars).

                                                        Increase (Decrease)
                                                        -------------------
                                                           Cheyenne
                                                           Natural
                                                            Fuels
                                                            WGI &
                                                PSCo Only  e prime  Consolidated
                                                ---------  -------   -----------
Revenues from gas sales (including
   unbilled revenues)......................        $32,240  $(97,710)  $(65,470)
Gas purchased for resale........................    29,114   (90,669)  ( 61,555)
                                                    ------   --------  --------
  Net increase (decrease) in gas sales margin...    $3,126   $(7,041)   $(3,915)
                                                    ======   =======   ========

      The following table compares gas Dth deliveries by major customer  classes
for the first six months of 1998 and 1997.

                               Millions of Dth Deliveries           % Change *
                               --------------------------           ----------
                                      1998      1997     Consolidated  PSCo Only
                                      ----      ----     ------------  ---------
Residential...................         56.9      58.1       (2.1)%      0.7%
Commercial....................         27.3      31.2       (12.5)     (8.8)
Non-regulated gas marketing...            -      30.6        **         -
                                     ------   --------
  Total sales.................         84.2     119.9       (29.8)     (2.6)
Transportation, gathering and 
  processing .................         46.0      47.5        (3.1)     18.0
                                       ----      ----        ----      ----

  Total.......................           130.2     167.4    (22.3)      3.8
                                       =======  ========

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

      Gas sales  margin  increased  (excluding  the  results of  Cheyenne,  WGI,
Natural Fuels and e prime) during the first six months of 1998, when compared to
the first six  months  of 1997,  primarily  due to an  increase  in PSCo's  base
revenues associated with the higher rates effective February 1, 1997,  resulting
from the 1996 rate case.  This increase was offset,  in part, by a 2.6% decrease
in PSCo's sales which  resulted from warmer  weather during the first six months
of 1998 despite a 2.8% increase in customers.

      Gas   transportation,   gathering  and   processing   revenues   increased
approximately $1.7 million during the first six months of 1998, when compared to
the  first six  months of 1997,  primarily  due to higher  transportation

                                       45
<PAGE>

rates  effective  February 1, 1997,  resulting from PSCo's 1996 rate case and an
increase in transport deliveries. The increase in transport deliveries continues
to be impacted by the  shifting of various  commercial  customers  to  transport
customers.

      PSCo has in place a GCA mechanism for natural gas sales,  which recognizes
the majority of the effects of changes in the cost of gas  purchased  for resale
and adjusts  revenues to reflect such changes in costs on a timely  basis.  As a
result,  the changes in revenues  associated  with these  mechanisms  during the
first six  months of 1998,  as  compared  to the first six  months of 1997,  had
little impact on net income.  However,  the fluctuations in gas sales impact the
amount of gas PSCo must  purchase and,  therefore,  along with the increases and
decreases in the per-unit  cost of gas,  affect total gas  purchased for resale.
The lower  per-unit  average  cost of gas  during  the first six months of 1998,
along with a decrease  in the  quantity  of gas  purchased,  contributed  to the
decrease in cost of gas purchased for resale.

Non-Fuel Operating Expenses and Other Income and Deductions

      Other  operating and maintenance  expenses  decreased  approximately  $3.2
million  primarily  due to lower  labor  and  employee  benefit  costs and other
general cost reductions in connection with the Merger.

      Depreciation and amortization  expense increased $4.6 million in the first
six months of 1998, as compared to the same period in 1997, primarily due to the
depreciation  of  property  additions  and the higher  amortization  of software
costs.

      Taxes other than income taxes decreased  approximately $2.8 million during
the  first six  months of 1998,  as  compared  to the first six  months of 1997.
Excluding  the effects of the sale of Cheyenne,  WGI, e prime and Natural  Fuels
taxes other than income taxes decreased approximately $1.8 million primarily due
to lower property tax accruals.

      Income taxes  increased  approximately  $3.5 million  during the first six
months of 1998,  as compared to the first six months of 1997,  primarily  due to
higher pre-tax income.

      Other income and deductions  increased  approximately $13.3 million during
the first six  months of 1998,  when  compared  to the first six months of 1997,
primarily due to the  recognition  of merger and business  integration  costs in
1997 and accruals for estimated  legal and other costs  associated  with various
employee lawsuits in 1997. The recognition of equity earnings in Yorkshire Power
($3.4 million) during the first quarter of 1998 offset, in part, equity earnings
of Yorkshire  Power during the second quarter of 1997 ($4.1  million).  On March
31, 1998, NCI and its subsidiaries,  including Yorkshire Power, were transferred
through the sale by PSCo of all the  outstanding  common stock at net book value
(approximately  $292.6  million),  to NC Enterprises,  an  intermediate  holding
company  for NCE,  and  received  as  consideration  a  promissory  note from NC
Enterprises.  See Note 2.  Investment  in Yorkshire  Power in Item 1.  FINANCIAL
STATEMENTS.

      Interest charges  increased  slightly during the first six months of 1998,
as  compared  to the  first  six  months of 1997.  Dividends  on PSCo  obligated
mandatorily  redeemable  preferred securities of subsidiary trust holding solely
subordinated  debentures  of PSCo  which  were  issued  in May 1998 (See Note 6.
Obligated  Mandatorily  Redeemable  Preferred  Securities  of  Subsidiary  Trust
Holding Solely  Subordinated  Debentures in Item 1. FINANCIAL  STATEMENTS)  were
offset, in part, by allowance for funds used during construction.

Commitments and Contingencies

       See  Note  5.  Commitments  and  Contingencies  in  Item  1.  FINANCIAL
STATEMENTS.


                                       46
<PAGE>


Liquidity and Capital Resources

Cash Flows - Six Months Ended June 30
                                                 1998         1997    Increase
                                                 ----         ----    --------
Net cash provided by operating 
  activities (in millions)...............       $221.8      $ 120.4     $101.4

      Cash  provided  by  operating  activities  increased  during the first six
months of 1998, when compared to the first six months of 1997,  primarily due to
the decrease in payments to gas suppliers  resulting from lower gas costs during
the first six  months of 1998 as  compared  to the first six  months of 1997.  A
portion of these  lower gas costs have been  deferred  through  the GCA and have
reduced the amount to be recovered from customers in the future.

                                                 1998         1997    Decrease
                                                 ----         ----    --------
Net cash used in investing 
  activities (in millions)...............       $(207.9)    $(499.7)    $291.8

      Cash used in investing activities decreased during the first six months of
1998,  when  compared to the first six months of 1997,  primarily  due to PSCo's
acquisition  of  Yorkshire  Electricity  in April  1997 for  approximately  $360
million offset, in part by higher construction  expenditures and the purchase of
certain leased assets in 1998.

                                                 1998        1997    Decrease
                                                 ----        ----    --------
Net cash provided by (used in) financing
 activities (in millions).................     $(11.1)      $388.9    $(400.0)

      Cash  provided  by  financing  activities  decreased  during the first six
months of 1998, when compared to the first six months of 1997,  primarily due to
the issuance of $75 million and $250 million of medium-term notes in January and
March 1997,  respectively.  The proceeds from these financings were used to fund
PSCo's  construction  program and the investment in Yorkshire Power. See Note 2.
Investment in Yorkshire  Power in Item 1. FINANCIAL  STATEMENTS.  In April 1998,
$250 million of 5 year 6% First Collateral Trust Bonds were issued. The proceeds
were used for  general  corporate  purposes.  Additionally,  in May  1998,  $194
million of Trust Originated  Preferred Securities were issued. The proceeds were
used to redeem  all of  PSCo's  outstanding  preferred  stock  (totaling  $181.8
million)  on June  10,  1998.  See  Note  6.  Obligated  Mandatorily  Redeemable
Preferred Securities of Subsidiary Trust Holding Solely Subordinated  Debentures
in Item 1. FINANCIAL STATEMENTS.

Financing Activities

      Discussion  relating  to PSCo's  financing  activities  is  covered  under
"Financing Activities" in NCE's Management's Discussion and Analysis of
Financial Condition and Results of Operations.


                                       47
<PAGE>


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

Three Months  Ended June 30, 1997  Compared to the Three Months Ended June 30,
1997

Merger

      Effective  August 1, 1997,  following  receipt of all  required  state and
Federal  regulatory  approvals,  SPS and PSCo  merged in a  tax-free  "merger of
equals"  transaction  and became  wholly-owned  subsidiaries  of NCE, which is a
registered  holding company under PUHCA. This transaction was accounted for as a
pooling of interests for accounting  purposes.  Effective with the Merger, Quixx
and UE, previously wholly-owned subsidiaries,  were transferred through the sale
by SPS of all of the outstanding  common stock of such  subsidiaries at net book
value, to NC Enterprises, an intermediate holding company of NCE. The statements
of income for the three and six months ended June 30, 1997 and the  statement of
cash  flows for the six  months  ended  June 30,  1997  reflect  the  results of
operations of Quixx and UE.

Earnings Available for Common Stock

      Earnings  available for common stock  increased  $30.5 million  during the
second  quarter of 1998 compared to the same quarter in 1997.  Operating  income
increased  primarily  due to a  16.6%  increase  in  electric  sales  and  lower
operating and maintenance expenses.  The 1997 write-off of the investment in the
Carolina  Energy Project and lower merger related costs also favorably  impacted
net income.

Operating Revenues

Electric Operations

      Substantially  all of SPS's  operating  revenues  result  from the sale of
electric energy.  The principal  factors  impacting  revenues are the amount and
price of energy  sold.  The  following  table  details  the  change in  electric
operating revenues and energy costs for the three months ended June 30, 1998, as
compared to the same period in 1997 (thousands of dollars).

                                            Increase (Decrease)
                                            -------------------
     Electric operating revenues:
      Retail..............................        $ 9,069
      Wholesale...........................         22,346
      Other (including unbilled revenues).         (1,839)
                                                  -------
        Total revenues....................         29,576
     Fuel used in generation..............          4,029
     Purchased power......................          4,155
                                                  -------
        Net increase in electric margin...        $21,392
                                                  =======

      The following table compares  electric Kwh sales by major customer classes
for the three months ended June 30, 1998 and 1997.

                                      Millions of Kwh Sales
                                      ---------------------
                                        1998        1997      % Change*
                                     ----------------------   ---------
      Residential ............         667         607           9.9%
      Commercial  ............         712         682           4.4
      Industrial  ............       2,098       2,008           4.5
      Public Authority .......         156         139          12.7
                                     -----       -----
        Total Retail..........       3,633       3,436           5.7
      Wholesale...............       2,289       1,643          39.3
                                     -----       -----
      Total...................       5,922       5,079          16.6
                                     =====       =====

* Percentages are calculated using unrounded amounts.

                                       48
<PAGE>

      Electric  operating  revenues  increased $29.6 million or 12.6% during the
second quarter in 1998, when compared to the same period in 1997,  primarily due
to higher retail and wholesale electric sales offset, in part by $1.1 million of
merger  savings  passed  on  to  customers.   The  hotter  than  normal  weather
contributed  to  the  increased  sales,  with  a  significant  increase  in  the
irrigation  load in Texas and New  Mexico.  Other  electric  operating  revenues
decreased  $1.8  million  primarily  due to the  recognition  in 1997 of  higher
deferred  fuel  revenues  related to the  recovery  of the Texas  jurisdictional
portion of the  Thunder  Basin  judgment  offset,  in part,  by $7.7  million of
additional  revenue  recognized in 1998 from the  resolution of a 1985 FERC rate
case. Under the various state regulatory  approvals,  SPS is required to provide
credits  to retail  customers  over  five  years for  one-half  of the  measured
non-fuel  operation and maintenance  expense savings associated with the Merger.
SPS 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,  $10,000 in
Kansas and $1.5 million to wholesale customers.

      Fuel used in generation  expense increased $4.0 million or 3.4% during the
second quarter of 1998, when compared to the same period in 1997,  primarily due
to increased  generation  levels to serve retail and wholesale  customers.  This
increase  was  mitigated,  in part,  by the  recognition  of the  Thunder  Basin
judgment costs in 1997.  Lower coal expense for the quarter was offset by higher
gas expense.  The decrease in coal expense is primarily due to the expiration of
a coal supply contract in 1997 and  negotiation  with a new supplier in 1998 for
consumption at the Harrington generating station. SPS coal generation levels for
1998 and 1997 were comparable.  Cost of natural gas used in generation increased
due to a 52%  increase in  generation  from gas fired  plants  primarily  due to
generation at the new Cunningham Station combustion turbine unit.

      SPS has fuel cost  adjustment  mechanisms  which recognize the majority of
the effects of changes in fuel used in generation and purchased  power costs and
allow  recovery  of such costs on a timely  basis.  As a result,  the changes in
revenues  associated  with these  mechanisms  during the second quarter of 1998,
when compared to the second quarter of 1997, had little impact on net income.

      Purchased  power increased $4.2 million during the second quarter of 1998,
when  compared to the same period in 1997,  due to a 78%  increase in  wholesale
purchases, higher spot market prices and increased purchased capacity costs. SPS
generates  substantially  all of its  power  for  sale to its  firm  retail  and
wholesale customers and sells non-firm energy as the market demands.  Similarly,
SPS purchases low-cost non-firm energy when available.

Other Operating Revenues

      Other operating  revenues decreased $8.8 million during the second quarter
of 1998, when compared to the same period in 1997,  primarily due to the sale of
Quixx and UE in connection with the Merger as discussed above.

Non-Fuel Operating Expenses

      Other operating and maintenance  expenses decreased $12.5 million or 26.3%
during  the  second  quarter  of 1998 as  compared  to the same  period in 1997.
Excluding  the  effects  of the  sale of  Quixx  and  UE,  other  operating  and
maintenance expenses decreased $6.0 million,  primarily due to lower pension and
benefit costs.

      Income taxes  increased  $18.0 million  during the second quarter of 1998,
compared to the same period in 1997,  primarily  due to higher  pre-tax  income.
Additional income tax expense was recognized in 1997 for  non-deductible  merger
costs.  The effective  income tax rate for the second  quarter was 37.1% in 1998
and 36.8% in 1997.

Other Income and Deductions

      Other income and  deductions  increased  $23.4  million  during the second
quarter of 1998,  as compared to the same period in 1997,  primarily  due to the
1997 write-off of the investment in the Carolina Energy Project


                                       49
<PAGE>

($16.1 million), the absence of merger and business integration expenses in 1998
and  higher  interest  income in 1998  related  to the note  receivable  from NC
Enterprises for the sale of Quixx and UE.

Six Months Ended June 30, 1998 Compared to the Six Months Ended June 30, 1997

Earnings Available for Common Stock

      Earnings  available  for common stock were $55.1 million and $24.6 million
during the first six  months of 1998 and 1997,  respectively.  Operating  income
increased  due to the  increase  in  electric  margin  and lower  operating  and
maintenance expense. The 1997 write-off of the investment in the Carolina Energy
Project and lower  merger  related  costs in 1998 also  favorably  impacted  net
income.

Operating Revenues

Electric Operations

      Substantially  all of SPS's  operating  revenues  result  from the sale of
electric energy.  The principal  factors  impacting  revenues are the amount and
price of energy  sold.  The  following  table  details  the  change in  electric
operating  revenues  and energy  costs for the six months ended June 30, 1998 as
compared to the same period in 1997 (thousands of dollars).

                                            Increase (Decrease)
                                            -------------------
     Electric operating revenues:
      Retail..............................        $ 5,185
      Wholesale...........................         11,098
      Other (including unbilled revenues).         (1,470)
                                                  --------
        Total revenues....................         14,813
     Fuel used in generation..............        (10,299)
     Purchased power......................          1,589
                                                  -------
        Net increase in electric margin...        $23,523
                                                  =======

      The following table compares  electric Kwh sales by major customer classes
for the six months ended June 30, 1998 and 1997.

                                   Millions of Kwh Sales
                                   ---------------------
                                      1998       1997          % Change*
                                     -----       ----          ---------
      Residential ............       1,431       1,360           5.2%
      Commercial  ............       1,375       1,364           0.8
      Industrial  ............       4,112       3,986           3.2
      Public Authority .......         289         270           7.0
                                     -----       -----
        Total Retail..........       7,207       6,980           3.2
      Wholesale...............       3,532       3,084          14.5
                                     -----       -----
      Total...................       10,739      10,064          6.7
                                     ======      ======

* Percentages are calculated using unrounded amounts.

      Electric  operating  revenues  increased  $14.8 million or 3.3% during the
first six months of 1998,  when  compared to the same period in 1997,  primarily
due to higher retail and wholesale  electric sales.  The increase in revenues is
substantially  attributable  to the effects of hotter than normal weather during
the second quarter of 1998 with a significant increase in the irrigation load in
Texas and New Mexico.  The  decrease in other  electric  operating  revenues was
primarily  due to the  recognition  in 1997 of  higher  deferred  fuel  revenues
related to the recovery of the Texas jurisdictional portion of the Thunder Basin
judgment offset,  in part, by $7.7 million of additional  revenue  recognized in
1998 from the  resolution  of a 1985 FERC rate  case.  Under the  various  state


                                       50
<PAGE>

regulatory  approvals,  SPS is required to provide  credits to retail  customers
over five years for one-half of the measured non-fuel  operation and maintenance
expense  savings  associated  with the  Merger.  SPS 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,  $10,000 in Kansas and $1.5 million
to wholesale customers.

      Fuel used in generation expense decreased $10.3 million or 4.6% during the
first six months of 1998,  when  compared to the same period in 1997,  primarily
due to lower  prices of coal and  natural  gas.  The  decrease in coal costs was
primarily  due  to  the  expiration  of a  coal  supply  contract  in  1997  and
negotiation  with a new  supplier  in 1998  for  consumption  at the  Harrington
generating  station.   SPS  coal  generation  levels  for  1998  and  1997  were
comparable.  Cost of natural gas used in generation  increased  primarily due to
generation at the new Cunningham Station combustion turbine unit.

      SPS has fuel cost  adjustment  mechanisms  which recognize the majority of
the effects of changes in fuel used in generation and purchased  power costs and
allow  recovery  of such costs on a timely  basis.  As a result,  the changes in
revenues  associated with these mechanisms  during the first six months of 1998,
when compared to the first six months of 1997, had little impact on net income.

      Purchased  power  increased  $1.6  million  or 19.5%  during the first six
months of 1998,  when  compared to the same period in 1997,  primarily due to an
increase  in spot  market  prices  and  higher  purchased  capacity  costs.  SPS
generates  substantially  all of its  power  for  sale to its  firm  retail  and
wholesale customers and sells non-firm energy as the market demands.  Similarly,
SPS purchases low-cost non-firm energy when available.

Other Operating Revenues

      Other  operating  revenues  decreased  $15.6 million  during the first six
months of 1998,  when compared to the same period in 1997,  primarily due to the
sale of Quixx and UE in connection with the Merger as discussed above.

Non-Fuel Operating Expenses

      Other operating and maintenance  expenses decreased $15.1 million or 17.9%
during the first six months of 1998,  as  compared  to the same  period in 1997.
Excluding  the  effects  of the  sale of  Quixx  and  UE,  other  operating  and
maintenance expenses decreased $4.2 million,  primarily due to lower pension and
benefit costs.

      Income taxes  increased $18.9 million during the first six months of 1998,
when  compared  to the same  period in 1997,  primarily  due to  higher  pre-tax
income.  Additional income tax expense was recognized in 1997 for non-deductible
merger costs.  The effective  income tax rate for the first six months was 37.4%
in 1998 and 36.2% in 1997.

Other Income and Deductions

      Other income and deductions  increased  $27.0 million during the first six
months of 1998,  as compared to the same  period in 1997,  primarily  due to the
1997 write-off of the investment in the Carolina Energy Project ($16.1 million),
the  absence  of merger and  business  integration  expenses  in 1998 and higher
interest  income in 1998 related to the note  receivable from NC Enterprises for
the sale of Quixx and UE.


                                       51
<PAGE>


                         PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

         Part 1.  See Note 5.  Commitments and Contingencies in Item 1, Part 1.

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

(a)   The 1998 Annual Meeting of Shareholders of the Company was held on May 12,
      1998.

(b)   Six matters  were voted upon at the above  meeting:  1) the election of
      five class I  directors;  2) the  approval of the New Century  Energies,
      Inc.  Omnibus  Incentive  Plan;  3)  the  approval  of the  New  Century
      Energies,   Inc.   Outside   Directors'   Compensation   Plan;   4)  the
      appointment of Arthur Andersen LLP as the Company's  independent  public
      accountants  for the 1998 calendar  year;  5) a shareholder  proposal to
      provide for  cumulative  voting in the election of  directors,  and 6) a
      shareholder  proposal to provide  for the  elimination  of a  classified
      Board of Directors.

      With respect to the election of directors, the votes were as follows:

      Wayne H. Brunetti        95,410,211 shares for   2,324,750 shares withheld
      C. Coney Burgess         95,693,535 shares for   2,041,426 shares withheld
      Danny H. Conklin         95,752,783 shares for   1,982,178 shares withheld
      Gayle L. Greer           95,629,565 shares for   2,105,396 shares withheld
      A. Barry Hirschfeld      95,660,670 shares for   2,074,291 shares withheld

      With respect to the  adoption of the New Century  Energies,  Inc.  Omnibus
      Incentive Plan, the vote was:  62,621,872  shares for;  31,757,730  shares
      against; 3,355,359 shares abstain. The proposal and plan was approved.

      With respect to the  adoption of the New Century  Energies,  Inc.  Outside
      Directors'  Compensation  Plan,  the  vote  was:  85,659,804  shares  for;
      9,177,983 shares against;  2,897,174 shares abstain. The proposal and plan
      was approved.

      With respect to the  appointment  of Arthur  Andersen LLP as the Company's
      independent  public  accountants,  the vote was:  94,951,892  shares  for;
      1,618,683 shares against; 1,164,386 shares abstain. The proposal passed.

      With respect to the shareholder  proposal regarding cumulative voting, the
      vote was:  28,147,497  shares for;  52,971,870  shares against;  4,044,414
      shares abstain. The proposal did not pass.

      With respect to the  shareholder  proposal  regarding the elimination of a
      classified  Board of  Directors,  the vote was:  35,515,796  shares  for;
      45,700,987 shares against;  3,946,999 shares abstain. The proposal did not
      pass.

      There  were  zero  broker  non-votes  with  respect  to  the  election  of
      directors,  the  adoption  of  the  New  Century  Energies,  Inc.  Omnibus
      Incentive  Plan, the adoption of the New Century  Energies,  Inc.  Outside
      Directors'  Compensation Plan, and the appointment of Arthur Andersen LLP.
      Broker  non-votes  had no effect  on the  outcome  of the two  shareholder
      proposals.

Item 5.  Other Information

      Rule 14a-4 of the Securities and Exchange  Commission's proxy rules allows
the Company to use  discretionary  voting  authority  to vote on matters  coming
before an annual meeting of stockholders, if the Company does not have notice of
the matter at least 45 days before the date  corresponding  to the date on which
the Company first mailed its proxy materials for the prior year's annual meeting
of stockholders or the date specified by an overriding  advance notice


                                       52
<PAGE>

provision in the Company's Certificate of Incorporation or Bylaws. The Company's
Certificate of Incorporation contains such an advance notice provision.

     Under the Company's  Restated  Certificate  of  Incorporation,  no business
maybe brought  before an Annual Meeting of  Stockholders  except as specified in
the notice of the meeting or as otherwise properly brought before the meeting by
or at the direction of the Board or by a stockholder  from whom the Secretary of
the  Company  has  received  written  notice  (containing   certain  information
specified in the Restated  Certificate of  Incorporation)  not less than 60 days
nor more than 90 days prior to the first  anniversary of the  preceeding  year's
Annual  Meeting;  provided that in the event that the date of the Annual Meeting
is  advanced  by more  than 30 days or  delayed  by more  than 60 days from such
anniversary, notice by the stockholder to be timely must be received not earlier
than the 90th day prior to such  Annual  Meeting and not later than the close of
business on a later of (a) the 60th day prior to such Annual  Meeting or (b) the
10th day following the date on which notice of the Annual  Meeting was mailed or
public disclosure thereof was made, whichever first occurs. the Restate Articles
of Incorporation also provide that nominations for Director at an Annual Meeting
may be  made  only by the  Board  or the  Nominating  and  Civic  Responsibility
Committee,  or by a  stockholder  entitled to vote in the  election of directors
generally  from whom the  Secretary of the Company has received  written  notice
(containing  certain  information  specified  in  the  Restated  Certificate  of
Incorporation)  in  accordance  with the  timetable  set  forth  above.  For the
Company's  1999  Annual  Meeting of  Stockholders,  which is not  expected to be
advanced or delayed, the Secretary of the Company must have received notice from
any  stockholder  who intends to bring business before the meeting or who wishes
to  nominate a person or persons  for  election  as  directors  no earlier  than
February 11, 1999 and no later than the close of business on March 13, 1999.

     This  requirement  is separate and apart from the  Securities  and Exchange
Commission's  requirements  that a  stockholder  must  meet in  order  to have a
stockholder proposal included in the company's proxy statement under Rule 14a-8.
For the Company's Annual Meeting of Stockholders,  any stockholder who wishes to
submit a proposal for inclusion in the  Company's  proxy  materials  pursuant to
Rule14a-8 must submit such proposal to the Secretary of the Company on or before
November 29, 1998.

Item 6.  Exhibits and Reports on Form 8-K

(a)   Exhibits

      12(a) Computation of Ratio of Consolidated  Earnings to Consolidated Fixed
            Charges for PSCo is set forth at page 57 herein.
      12(b) Computation of Ratio of Consolidated Earnings to Consolidated
            Combined Fixed Charges and Preferred Stock Dividends for PSCo is
            set forth at page 58 herein.
      12(c) Computation of Ratio of Consolidated  Earnings to Consolidated Fixed
            Charges for SPS is set forth at page 59 herein.

      15(a) Letter  from  Arthur  Andersen  LLP  regarding   unaudited   interim
            information is set forth at page 60 herein for NCE.
      15(b) Letter  from  Arthur  Andersen  LLP  regarding   unaudited   interim
            information is set forth at page 61 herein for PSCo.
      15(c) Letter  from  Arthur  Andersen  LLP  regarding   unaudited   interim
            information is set forth at page 62 herein for SPS.

      27(a) Financial Data Schedule for NCE as of June 30, 1998.
      27(b) Financial Data Schedule for PSCo as of June 30, 1998.
      27(c) Financial Data Schedule for SPS as of June 30, 1998.

(b)    Reports on Form 8-K

The following reports on Form 8-K were filed by PSCo since the  beginning of the
second quarter of 1998.

                                       53
<PAGE>

   - A report on Form 8-K dated  April  28,  1998,  was filed by PSCo on April
     28, 1998.
   The item  reported  was  Item 5.  Other  Events:  Filing  of Bond  Purchase
   Contract, dated as of April 15, 1998.

   - A report on Form 8-K dated April 30, 1998,  was filed by PSCo on April 30,
      1998.
   The item  reported  was Item 5. Other  Events:  Selected  consolidated
   financial information for PSCo was presented for the three months ended March
   31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995.

   - A report on Form 8-K/A dated April 30,  1998,  was filed by PSCo on May 1,
      1998.
   The item  reported  was Item 5. Other  Events:  Selected  consolidated
   financial information for PSCo was presented for the three months ended March
   31, 1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995.

   -  A report on Form 8-K dated May 6, 1998 was filed by PSCo on May 14,
      1998.
   The item reported was Item 5.Other Events: Filing of an Underwriting 
   Agreement and other documents in connection with a financing.


                                       54
<PAGE>


                           NEW CENTURY ENERGIES, INC.
                                  SIGNATURE

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, New Century Energies,  Inc. has duly caused this report to
be signed on its behalf by the  undersigned,  thereunto  duly  authorized on the
13th day of August, 1998.

                                          NEW CENTURY ENERGIES, INC.

                                          By     /s/ R. C. Kelly
                                          ---------------------------------
                                                   R. C. KELLY
                                          Executive Vice President and
                                            Chief Financial Officer



                      PUBLIC SERVICE COMPANY OF COLORADO
                                  SIGNATURE

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934,  Public  Service  Company of Colorado has duly caused this
report to be signed on its behalf by the undersigned,  thereunto duly authorized
on the 13th day of August, 1998.


                                            PUBLIC SERVICE COMPANY OF COLORADO

                                          By   /s/Brian P. Jackson
                                          ---------------------------------
                                                Brian P. Jackson
                                          Senior Vice President, Finance and
                                           Administrative Services and
                                                Chief Financial Officer



                     SOUTHWESTERN PUBLIC SERVICE COMPANY
                                  SIGNATURE

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934,  Southwestern  Public Service Company has duly caused this
report to be signed on its behalf by the undersigned,  thereunto duly authorized
on the 13th day of August, 1998.


                                           SOUTHWESTERN PUBLIC SERVICE COMPANY

                                          By   /s/Brian P. Jackson
                                          ---------------------------------
                                                Brian P. Jackson
                                          Senior Vice President, Finance and
                                           Administrative Services and
                                             Chief Financial Officer


                                       55
<PAGE>



                                EXHIBIT INDEX

12(a) Computation  of Ratio  of  Consolidated  Earnings  to  Consolidated  Fixed
      Charges for PSCo is set forth at page 57 herein.

12(b) Computation of Ratio of  Consolidated  Earnings to  Consolidated  Combined
      Fixed Charges and Preferred  Stock Dividends for PSCo is set forth at page
      58 herein.

12(c) Computation  of Ratio  of  Consolidated  Earnings  to  Consolidated  Fixed
      Charges for SPS is set forth at page 59 herein.

15(a) Letter from Arthur Andersen LLP regarding unaudited interim information is
      set forth at page 60 herein for NCE.

15(b) Letter from Arthur Andersen LLP regarding unaudited interim information is
      set forth at page 61 herein for PSCo.

15(c) Letter from Arthur Andersen LLP regarding unaudited interim information is
      set forth at page 62 herein for SPS.

27(a) Financial Data Schedule for NCE as of June 30, 1998.

27(b) Financial Data Schedule for PSCo as of June 30, 1998.

27(c) Financial Data Schedule UT for SPS as of June 30, 1998.


                                       56
<PAGE>


                                                                 EXHIBIT 12(a)

                      PUBLIC SERVICE COMPANY OF COLORADO
                               AND SUBSIDIARIES

                 COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
                         TO CONSOLIDATED FIXED CHARGES

           (not covered by Report of Independent Public Accountants)



                                                     Six Months Ended
                                                         June 30,
                                                      1998       1997
                                                      ----       ----
                                           (Thousands of Dollars, except ratios)

Fixed charges:
   Interest on long-term debt...................     $ 57,271   $ 56,953
   Interest on borrowings against corporate-owned
    life insurance contracts....................       24,605     22,238
   Other interest...............................       10,152      8,954
   Amortization of debt discount and expense less
     premium ...................................        1,995      1,945
   Interest component of rental expense.........        4,139      4,938
   Dividends on PSCo obligated mandatorily 
     redeemable preferred securities............        2,111          -
                                                       ------    -------

     Total .....................................     $100,273   $ 95,028
                                                     ========   ========

Earnings (before fixed charges and taxes on income):
   Net income...................................     $ 99,805   $ 93,488
   Fixed charges as above.......................      100,273     95,028
   Provisions for Federal and state taxes on income,
   net of investment tax credit amortization....       50,368     46,944
                                                     --------    -------

     Total......................................     $250,446   $235,460
                                                     ========   ========

Ratio of earnings to fixed charges..............         2.50       2.48
                                                       ======     ======

                                       57
<PAGE>



                                                                 EXHIBIT 12(b)

                      PUBLIC SERVICE COMPANY OF COLORADO
                               AND SUBSIDIARIES

                 COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS
     TO CONSOLIDATED COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

           (not covered by Report of Independent Public Accountants)



                                                   Six Months Ended
                                                       June 30,
                                                    1998      1997
                                                    ----      ----
                                         (Thousands of Dollars, except ratios)

Fixed charges and preferred stock dividends:
   Interest on long-term debt..................    $ 57,271  $ 56,953
   Interest on borrowings against corporate
    -owned life insurance contracts............      24,605    22,238
   Other interest..............................      10,152     8,954
   Amortization of debt discount and expense 
    less premium ..............................       1,995     1,945
   Interest component of rental expense........       4,139     4,938
   Dividends on PSCo obligated mandatorily
     redeemable preferred securities...........       2,111         -
   Preferred stock dividend requirement........       5,332     5,885
   Additional preferred stock dividend requirement    2,691     2,955
                                                      -----    ------

     Total ....................................    $108,296  $103,868
                                                   ========  ========

Earnings (before fixed charges and taxes on income):
   Net income..................................    $ 99,805  $ 93,488
   Interest on long-term debt..................      57,271    56,953
   Interest on borrowings against corporate
    -owned life insurance contracts............      24,605    22,238
   Other interest..............................      10,152     8,954
   Amortization of debt discount and expense 
    less premium ..............................       1,995     1,945
   Interest component of rental expense........       4,139     4,938
   Dividends on PSCo obligated mandatorily 
     redeemable preferred securities...........       2,111         -
   Provisions for Federal and state taxes on
     income, net of investment tax credit
     amortization ..............................     50,368    46,944
                                                     ------   -------

     Total.....................................    $250,446  $235,460
                                                   ========  ========

Ratio of earnings to fixed charges
  and preferred stock dividends................        2.31      2.27
                                                     ======   =======


                                       58
<PAGE>


                                                                 EXHIBIT 12(c)

                      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,
                                                      1998       1997
                                                      ----       ----
                                           (Thousands of Dollars, except ratios)

Fixed charges:
   Interest on long-term debt...................     $21,980    $22,057
   Dividends on SPS obligated mandatorily 
     redeemable preferred securities............       3,925      3,925
   Other interest...............................       5,112      2,747
   Amortization of debt discount and expense less
     premium ...................................       1,121      1,123
   Interest component of rental expense.........         404        623
                                                      ------     ------

     Total .....................................     $32,542    $30,475
                                                     =======    =======

Earnings (before fixed charges and taxes on income):
   Net income...................................     $ 55,056   $ 24,598
   Fixed charges as above.......................       32,542     30,475
   Provisions for Federal and state taxes on income,
   net of investment tax credit amortization....       32,954     16,078
                                                     --------   --------

     Total......................................     $120,552   $ 71,151
                                                     ========   ========

Ratio of earnings to fixed charges..............         3.70       2.33
                                                       ======     ======


                                       59
<PAGE>



                                                                 EXHIBIT 15(a)

August 10, 1998


New Century Energies, Inc.:

     We are aware that New Century Energies,  Inc. has incorporated by reference
in its Registration  Statement (Form S-8, File No. 333-28639)  pertaining to the
Omnibus  Incentive  Plan;  its  Registration   Statement  (Form  S-3,  File  No.
333-28637) pertaining to the Dividend Reinvestment and Cash Payment Plan and its
Registration  Statement  (Form  S-3,  File  No.  333-40361)  pertaining  to  the
registration of NCE Common Stock; its Registration Statement (Form S-8, File No.
333-58117)  pertaining to the NCE Employee  Investment  Plan and NCE  Employees'
Savings and Stock  Ownership  Plan and its Form 10-Q for the quarter  ended June
30,  1998,  which  includes  our report  dated  August 10,  1998,  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



                                       60
<PAGE>



                                                                 EXHIBIT 15(b)

August 10, 1998


Public Service Company of Colorado:

      We are aware that Public Service  Company of Colorado has  incorporated by
reference in its Registration Statement (Form S-3, File No. 33-62233) pertaining
to the Automatic  Dividend  Reinvestment  and Common Stock  Purchase  Plan;  its
Registration  Statement (Form S-3, File No.  33-37431) as amended on December 4,
1990,  pertaining  to the  shelf  registration  of  Public  Service  Company  of
Colorado's First Mortgage Bonds; its Registration  Statement (Form S-8, File No.
33-55432)  pertaining to the Omnibus Incentive Plan; its Registration  Statement
(Form S-3, File No.  33-51167)  pertaining to the shelf  registration  of Public
Service Company of Colorado's  First  Collateral  Trust Bonds;  its Registration
Statement (Form S-3, File No. 33-54877)  pertaining to the shelf registration of
Public Service Company of Colorado's First Collateral Trust Bonds and Cumulative
Preferred  Stock and its Form 10-Q for the quarter  ended June 30,  1998,  which
includes our report dated August 10, 1998,  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



                                       61
<PAGE>



                                                                 EXHIBIT 15(c)
August 10, 1998


Southwestern Public Service Company:

     We are aware that  Southwestern  Public Service Company has incorporated by
reference  in  its  Registration   Statement  (Form  S-3,  File  No.  333-05199)
pertaining to  Southwestern  Public Service  Company's  Preferred Stock and Debt
Securities;  its Registration Statement (Form S-8, File No. 33-27452) pertaining
to  Southwestern  Public  Service  Company's  1989 Stock  Incentive Plan and its
Registration  Statement (Form S-8, File No. 33-57869) pertaining to Southwestern
Public Service  Company's  Employee  Investment  Plan and  Non-Qualified  Salary
Deferral  Plan and its Form 10-Q for the  quarter  ended  June 30,  1998,  which
includes  our report dated August 10,  1998,  covering the  unaudited  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