SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   Form 10-K/A
                                 Amendment No. 1
                (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                    For the Fiscal Year Ended March 31, 1997
                                       OR
              ( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                        For the Transition Period from to
<TABLE>
<CAPTION>

<S>                            <C>                                       <C>
                                Registrant, State or other Jurisdiction
 Commission                       of Incorporation or Organization,         I.R.S. Employer
 File Number                      Address and Telephone Number             Identification No.
------------                    ---------------------------------------   -----------------
 333-09033                        Southern Investments UK plc                 None
                                  (Registered in England & Wales)
                                  800 Park Avenue
                                  Aztec West
                                  Almondsbury
                                  Bristol
                                  BS32 4SE, UK
                                 (01144) 1454 201101



==============================================================================
</TABLE>

<PAGE>


                                   PART II

Item 6.       SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>

                                                 (In Millions)
               
<S>                            <C>         <C>         <C>               <C>           <C>               <C>            <C>
                                                        Period from |
                                                         inception  |
                                                        (June 23,   |    Period from
                                   Fiscal    Fiscal      1995) to   |   April 1, 1995     Fiscal           Fiscal        Fiscal
                                   Year       Year       March 31,  |   to September       Year             Year          Year
                                   1997 (3)  1997 (3)    1996 (3)   |     17, 1995         1995             1994          1993
                                  Successor  Successor   Successor  |   Predecessor       Predecessor    Predecessor   Predecessor
                                  ---------  ---------   ---------  |   -----------       ----------     -----------   ------------ 
                                  (pound)       $        (pound)    |   (pound)          (pound)           (pound)        (pound)  
                                                                    |
Operating Revenues                   848       1,395          481   |        299            776             808            892 (1)
Net Income                            55          90           59   |         24             86              88             78 (1)
Total Assets                       1,721       2,831        1,690   |        795            820             831            708
Long-term Debt                       301         495            -   |         95             95              92             87
Preferred Securities (2)              50          82            -   |          -              -               -              -
Common Dividend Declared              37          60          191   |         75             30              29             24
</TABLE>

-------------
(1)   Operating revenues and net income for Fiscal Year 1993 have been
      determined under UK GAAP.

(2)   Company Obligated Mandatorily Redeemable Preferred Securities of Southern
      Investments UK Capital Trust I Holding Company Junior Subordinated
      Debentures. See Note 11 in the "Notes to the Financial Statements".

(3)   Successor periods are not comparable to predecessor periods due to
      acquisition related adjustments (including the revaluation of assets and
      liabilities) and to increases in debt as a result of the acquisition.


                                      II-1

<PAGE>


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

       The following discussion should be read in conjunction with the
consolidated financial statements and the notes thereto. The consolidated
financial statements discussed in this Section are presented in accordance with
US GAAP. Solely for the convenience of the reader, pounds sterling amounts have
been translated into US dollars at the Noon Buying Rate on March 31, 1997 of
$1.6448 = (pound)1.00; see Note 1 in the "Notes to the Financial Statements".

INTRODUCTION

Background

       The Company was incorporated as a public limited company under the laws
of England and Wales in June 1995, as a vehicle for the acquisition of SWEB. In
September 1995, the Company gained effective control of SWEB. The Company
subsequently replaced SWEB's board of directors and certain senior managers with
officers and employees of companies from within the Southern Company system.
Total consideration for the acquisition was (pound)1.065 billion ($1.752
billion) excluding a special dividend of (pound)52 million ($85 million) paid by
SWEB to its former shareholders (other than those whose shares the Company had
purchased in the open market). Such dividend, when considered in aggregate with
the final dividend of (pound)23 million ($38 million) paid in October 1995 in
respect of fiscal year 1995, yields the (pound)75 million ($123 million) payment
of pre-acquisition dividends disclosed in the financial statements located
elsewhere in this document.

Accounting for the Acquisition

       The recorded assets and liabilities of SWEB immediately prior to the time
the Company gained effective control of SWEB were (pound)855 million ($1,406
million) and (pound)528 million ($868 million), respectively. As a result of the
purchase method of accounting, the amount of SWEB's assets recorded on the books
of the Company was increased by (pound)927 million ($1,525 million) to their
fair value of (pound)1.782 billion ($2.931 billion), and the amount of SWEB's
liabilities recorded on the books of the Company was increased by (pound)372
million ($612 million) to their fair value of (pound)900 million ($1.480
billion). The increase in liabilities included the establishment of reserves
totalling (pound)44 million ($72 million) related principally to staff
reductions and the disposition of ancillary businesses. The resulting difference
between the purchase price of (pound)1.065 billion ($1.752 billion) and the
difference between the fair value of the assets acquired and the fair value of
the liabilities assumed as well as the reserves established resulted in goodwill
of (pound)183 million ($301 million).

       The unaudited pro forma information presented for fiscal year 1996 ("Pro
Forma Fiscal Year 1996") consists of the historical results of operations of the
Predecessor Company prior to the acquisition and the results of operations of
the Successor Company subsequent to the acquisition, both of which have been
adjusted for the effects of the acquisition as though it had taken place on
April 1, 1995. The effects of the acquisition that are reflected in Pro Forma
Fiscal Year 1996 include: (i) depreciation expense based on property, plant and
equipment valued according to the purchase method of accounting as if the
acquisition had occurred on April 1, 1995, (ii) amortization of goodwill valued
according to the purchase method of accounting as if the acquisition had
occurred on April 1, 1995, (iii) fair valuation of existing liabilities and the
related interest expense as if the acquisition had occurred on April 1, 1995,
(iv) debt issued to finance the acquisition and the related interest expense as
if the acquisition had occurred on April 1, 1995 and (v) recognition of pension
fund surplus and the reduction of pension expense in the accounts of the
Company.

       The information for Pro Forma Fiscal Year 1996 has been prepared for
illustrative purposes only and, because of its nature, cannot give a complete
picture of the Company's results of operations for that year had the
transactions been consummated on the date assumed and does not project the
Company's financial position or results of operations for any future date or
period. Unaudited amounts have been prepared based upon the audited consolidated
financial statements of the Company, which have been prepared in accordance with
US GAAP.

                                      II-2


<PAGE>


Significant Events

       During fiscal year 1996, the sale by SWEB of its shares in NGG and
related actions produced a nonrecurring pre-tax gain of (pound)14 million over
the fair value established at the time of the Company's acquisition of effective
control of SWEB and resulted in net pre-tax cash flow of (pound)241 million.
This followed a listing for the NGG shares on the London Stock Exchange. The
listing was conditional upon the prior demerger of NGG's pumped storage
electricity generation business ("PSB") in order for NGG to sell that business.
PSB was sold in December 1995. SWEB had received (pound)36 million of its share
of the total proceeds from that sale by the end of fiscal year 1996 and a
further (pound)7 million by the end of fiscal year 1997. The fair value of this
asset at acquisition was assessed at (pound)39 million. In fiscal year 1996 SWEB
paid to the Company and the Company paid to Holdings a dividend of (pound)191
million which was made possible because of the proceeds from the sale of SWEB's
interest in NGG. See Note 12 in the "Notes to the Financial Statements".

       SWEB has progressively withdrawn from its involvement in non-core
businesses. Neither the contribution to SWEB's or the Company's operating income
from the disposed businesses nor the effect of the dispositions on SWEB's or the
Company's net income was material after taking into account the reserves
established in connection with the acquisition. SWEB sold its appliance
retailing business in June 1995; its appliance servicing business in February
1996; its creditor and warranty insurance business and electrical installation
and contracting business in March 1996; and its interest in a cable television
and telecommunications company in July 1996.

RESULTS OF OPERATIONS

       SWEB was acquired on September 18, 1995. Since that time the new
management has undertaken certain restructuring and the level and cost of
financing has changed significantly. The results for fiscal year 1996 have been
presented on a pro forma basis to provide a comparison with fiscal year 1997.

       The financial statements of the Predecessor Company for fiscal year
1995 have been restated to recognize certain exceptional costs. See Note 2 in
the "Notes to the Financial Statements".

Fiscal Year 1997 Compared with Pro Forma Fiscal Year 1996 Compared with Fiscal
Year 1995

    Earnings

       Operating income decreased by (pound)4 million (3%) from (pound)129
million in the Pro Forma Fiscal Year 1996 to (pound)125 million in the fiscal
year 1997. This decrease was due to a (pound)4 million decrease in operating
income from the distribution business, a (pound)3 million decrease in operating
income from the supply business, partly offset by a (pound)3 million increase in
operating income from the ancillary businesses. Operating income remained
constant at (pound)129 million for both fiscal year 1995 and Pro Forma Fiscal
Year 1996. However, there was a (pound)24 million increase in cost of sales,
offset by a (pound)4 million increase in operating revenues and a (pound)20
million decrease in operating expenses.

       Net income increased by (pound)6 million (12%) from (pound)49 million in
the Pro Forma Fiscal Year 1996 to (pound)55 million in the fiscal year 1997.
This increase was primarily attributable to reduced after-tax interest expense
of (pound)9 million resulting from the repayment during the second half of
fiscal year 1996 of debt issued to finance the acquisition and increased gains
on the sale of investments, offset by decreased operating income as described
above. Net income decreased by (pound)37 million (43%) from (pound)86 million in
fiscal year 1995 to (pound)49 million in Pro Forma Fiscal Year 1996. The
decrease in net income was primarily due to increased after-tax interest expense
of (pound)37 million principally due to debt issued for acquisition.

                                      II-3

<PAGE>

   Revenues

       Operating revenues increased by (pound)68 million (9%) from (pound)780
million in Pro Forma Fiscal Year 1996 to (pound)848 million in the fiscal year
1997 and increased by (pound)4 million (1%) from (pound)776 million in fiscal
year 1995 as follows:
<TABLE>
<CAPTION>

<S>                                <C>                                          <C>   

                                       Operating Revenues                            Operating Revenues
                                  Increase (Decrease) from the                   Increase (Decrease) from Fiscal
                                    Pro Forma Fiscal Year 1996                   Year 1995 to Pro Forma Fiscal
                                      to the Fiscal Year 1997                            Year 1996
                                   ---------------------------------------------------------------------------------
                                       ((pound) millions, except %)                ((pound) millions, except %)
                              
  Electricity distribution                   (21)                                   (22)
  Electricity supply                          62                                      1
  Other                                        9                                     (3)
  Intra-business(1)                           18                                     28
                                             ---                                    ---
  Total operating revenues                    68                                      4
                                             ===                                    ===
  Percentage change                           9%                                      1%
</TABLE>

-------------
(1) Intra-business revenues relate to the elimination of intra-business revenues
in consolidation, principally distribution sales to the supply business.

       Two factors determine the amount of revenues produced by the main
electricity distribution business: the unit price of the electricity distributed
(which is controlled by the Distribution Price Control Formula) and the number
of electricity units distributed. Following the Regulator's distribution price
review in 1994, the Regulator reduced SWEB's allowable expected distribution
revenues, effective beginning fiscal year 1996, by 14%, before an allowed
increase for inflation. Subsequently, the Regulator announced a further
distribution price reduction which has had and will continue to have the effect
of reducing SWEB's allowable expected distribution revenues, effective beginning
fiscal year 1997, by a further 11%, before an allowed increase for inflation. In
the fiscal year 1997, application of the Distribution Price Control Formula
resulted in a reduction in SWEB's distribution revenues as compared to the Pro
Forma Fiscal Year 1996. The number of units distributed depends on the demands
of SWEB's customers for electricity. That demand varies based in part upon
weather conditions and economic activity. Revenues from the distribution
business decreased by (pound)21 million (8%) from (pound)252 million for the Pro
Forma Fiscal Year 1996 to (pound)231 million for the fiscal year 1997 and also
decreased by (pound)22 million (8%) from fiscal year 1995 as a result of the
following factors:
<TABLE>
<CAPTION>

<S>                                                     <C>                                  <C>
                                                            Operating Revenues from           Operating Revenues from
                                                           Electricity Distribution             Electricity Distribution
                                                       Increase (Decrease) from the Pro     Increase (Decrease) from Fiscal
                                                            Forma Fiscal Year 1996            Year 1995 to Pro Forma
                                                            to the Fiscal Year 1997              Fiscal Year 1996
                                                       ---------------------------------     ----------------------------------
                                                            ((pound) millions, except %)            ((pound) millions, except %)
Application of Distribution Price Control Formula                   (19)                               (20)
Sales growth                                                          1                                  9
Other revenue attributable to distribution business                  (3)                               (11)
                                                                    ---                                ---
Total distribution revenues                                         (21)                               (22)
                                                                    ===                                ===
Percentage change                                                   (8%)                               (8%)
</TABLE>

       Two factors determine the amount of revenues produced by the supply
business: the unit price of the electricity supplied (which, in the case of the
Franchise Supply Customers, is controlled by the Supply Price Control Formula)
and the number of electricity units supplied. Until April 1998, SWEB is expected
to have the exclusive right to supply all Franchise Supply Customers in its
Franchise Area.

       Franchise Supply Customers are generally residential/domestic and small
commercial customers. The volume of unit sales of electricity for Franchise
Supply Customers is influenced largely by the number of customers in the
Franchise Area, weather conditions and prevailing economic conditions. Unit
sales to Non-Franchise Supply Customers are determined primarily by the success
of the supply business in entering into contracts to supply customers with
electricity.

       Revenues from the supply business increased by (pound)62 million (9%)
from (pound)726 million for the Pro Forma Fiscal Year 1996 to (pound)788 million
for the fiscal year 1997. In the fiscal year 1997, the number of electricity
units supplied increased by 23% but total revenues produced by the supply
business increased by only 9%, because a majority of the increase in total units


                                      II-4

<PAGE>

supplied was to Non-Franchise Supply Customers, who are the larger energy users
charged at generally lower average unit prices than those charged to Franchise
Supply Customers. Within the franchise market, the number of electricity units
increased by 1%, offset by a reduction in allowable income as set by the Supply
Price Control Formula. Revenues from the supply business increased by (pound)1
million from (pound)725 million in fiscal year 1995 to (pound)726 million in Pro
Forma Fiscal Year 1996. This increase reflects an increase of (pound)11 million
in revenues from the franchise supply market which offset a (pound)10 million
reduction in revenues from the non-franchise supply market which was primarily
due to lower unit sales. The (pound)11 million increase was the result of an
overall increase in unit sales to supply customers and application of the Supply
Price Control Formula which resulted in an upward inflation adjustment that
exceeded the downward regulatory factor adjustment.

       Intra-business eliminations for fiscal year 1997 decreased by (pound)18
million (7%) from Pro Forma Fiscal Year 1996 which decreased by (pound)28
million (10%) from fiscal year 1995 primarily as the result of the decrease in
revenues from the distribution business described above.

   Cost of Sales

       Cost of sales increased by (pound)90 million (18%) from (pound)504
million in the Pro Forma Fiscal Year 1996 to (pound)594 million in the fiscal
year 1997. This increase was principally the result of an increase in the supply
business cost of sales of (pound)68 million reflecting an increase in purchases
of electricity to supply the increase in unit sales as discussed above. Cost of
sales increased by (pound)24 million (5%) from (pound)480 million in fiscal year
1995 to (pound)504 million in Pro Forma Fiscal Year 1996. This increase is
principally the result of an increase in the supply business energy purchase
costs of (pound)20 million.

   Operating Expenses

       Operating expenses decreased by (pound)18 million (12%) from (pound)147
million in the Pro Forma Fiscal Year 1996 to (pound)129 million in the fiscal
year 1997. This decrease was primarily due to a (pound)4 million decrease in
maintenance costs and a (pound)15 million decrease in selling, general and
administrative costs, which were partially offset by a (pound)1 million increase
in depreciation and amortization resulting from the application of the purchase
method of accounting.

       The decrease in selling, general and administrative costs included a
decrease in certain classes of computer software development costs which were
expensed during the first half of Pro Forma Fiscal Year 1996 but which were
capitalized subsequently, having satisfied the criteria for capitalization under
the Company's accounting policy (see Note 1 to the "Notes to the Financial
Statements"). The decrease in selling, general and administrative costs also
included a decrease in labor costs resulting from a reduction in personnel.

       Operating expenses decreased by (pound)20 million (12%) from (pound)167
million in fiscal year 1995 to (pound)147 million in Pro Forma Fiscal Year 1996.
This decrease was principally due to a reduction of (pound)10m relating to tree
cutting costs recognised in fiscal year 1995, a reduction in severance costs of
(pound)6 million as a result of providing for severance costs under the purchase
method of accounting at the acquisition date and a net decrease in certain
classes of computer software development costs which were expensed during fiscal
year 1995 but were capitalized in Pro Forma Fiscal Year 1996, partially offset
by an increase in net pension costs and an increase in depreciation and
amortization expense.

   Interest Expense

       Interest expense decreased by (pound)14 million from (pound)66 million in
the Pro Forma Fiscal Year 1996 to (pound)52 million in the fiscal year 1997,
principally as a result of the financing costs associated with the amount of
debt issued for the acquisition. Interest expense for Pro Forma Fiscal Year 1996
reflects interest expense recorded in connection with the acquisition as if the
acquisition had occurred on April 1, 1995, and had been 100% financed with


                                      II-5


<PAGE>

short-term borrowings at an interest rate of 6% per year. However, in the fiscal
year 1997, the Company benefitted from the retirement of (pound)96 million of
debt and the conversion of (pound)500 million of debt to equity during the
second half of fiscal year 1996. The weighted average balance of debt
outstanding during the fiscal year 1997 was (pound)623 million at a weighted
average interest rate of 8.3% compared to (pound)876 million at 7.5% during the
Pro Forma Fiscal Year 1996.

       Interest expense increased by (pound)55 million from (pound)11 million in
fiscal year 1995 to (pound)66 million in Pro Forma Fiscal Year 1996 principally
as a result of the financing costs associated with the increased amounts of debt
issued for acquisition. Interest expense for Pro Forma Fiscal Year 1996 reflects
interest expense recorded in connection with the acquisition as if the
acquisition had occurred on April 1, 1995 and had initially been 100% financed
with short term borrowings at an interest rate of 6% per year. In the second
half of Pro Forma Fiscal Year 1996, the Company converted (pound)500 million of
debt to equity. The weighted average balance of debt outstanding during the Pro
Forma Fiscal Year 1996 was (pound)876 million at a weighted average interest
rate of 7.5% compared to (pound)93 million at 11.9% during fiscal year 1995.

   Gain on Sale of Investments

       Gains on the sale of investments increased by (pound)6 million from no
gain in the Pro Forma Fiscal Year 1996 to (pound)6 million in the fiscal year
1997. This increase was principally attributable to additional proceeds of
(pound)4 million relating to the demerger of the PSB associated with the sale of
NGG. See "Significant Events".

   Income Taxes

       Income taxes increased by (pound)6 million from (pound)26 million in the
Pro Forma Fiscal Year 1996 to (pound)32 million in the fiscal year 1997. Income
taxes decreased by (pound)21 million from (pound)47 million in fiscal year 1995
to (pound)26 million in Pro Forma Fiscal Year 1996. The increase and decrease,
respectively, were primarily attributable to an increase/decrease in pre-tax
income.

Future Earnings Potential

       The results of operations discussed above are not necessarily indicative
of future earnings potential. The level of future earnings depends on numerous
factors including the success of the implementation of reorganization plans,
future regulatory price reviews and the level of energy sales growth in the
electricity supply business.

       The largest portion (approximately 86%) of SWEB's operating income is
derived from its distribution business - essentially the operation and
maintenance of the electricity network in its Franchise Area in south west
England. SWEB is the only distributor of electricity in this area, and
management believes that economic, environmental and regulatory factors are
likely to prevent competitors from entering this business in SWEB's Franchise
Area.

       The supply market is subject to change as it is currently partially open
to competition and competition is scheduled to be extended to the remaining
customers (largely domestic and small commercial) after March 31, 1998.

       Two possible major impacts on future earnings are a court ruling related
to a pension matter and the windfall tax expected to be introduced by the Labour
government. See Notes 3, 5 and 14 in the "Notes to the Financial Statements"
herein for discussion of these matters. Additionally, other contingencies,
including the possibility of changes in the valuation of the Teesside contract,
and other matters that may affect future earnings potential are discussed in
Notes 4 and 5.

FINANCIAL CONDITION

Overview

       Substantial changes in the Company's financial condition during the
fiscal year 1997 were the addition by SWEB of approximately (pound)69 million in
property, plant, and equipment, largely in respect of the distribution network;
the issuance of $500 million of bonds; the issuance of $82 million of
mandatorily redeemable preferred securities; and the introduction of a
commercial paper program. The funds required for the plant additions were
derived primarily from operations. It is expected that SWEB's capital
requirements in the foreseeable future for investment in property will be
generated from operating activities. The funds from the issuance of debt were
used to retire short-term debt.

       Demand for electricity in Great Britain, in general, and in SWEB's
Franchise Area, in particular, is seasonal, with demand being higher in the
winter months and lower in the summer months. SWEB balances the effect of this
and other cyclical influences on its working capital needs with drawings under
its available credit facilities.

       The Company's sole investment and only significant asset is the entire
share capital of SWEB. The Company is therefore dependent upon dividends from
SWEB for its cash flow. SWEB can make distribution of dividends to the Company
under English law to the extent that it has distributable reserves, subject to
the retention of sufficient financial resources to conduct its supply and


                                      II-6
<PAGE>

distribution businesses as required by its regulatory license. The Company
believes that currently sufficient distributable reserves will exist at SWEB to
allow for any and all cash flow generated at SWEB through operations to be
distributed to the Company through dividends to the Company. In the UK, the
Accounting Standards Board currently has a discussion paper reviewing the
treatment of deferred income tax accounting to be required in the future; SWEB's
distributable reserves could be significantly reduced by this matter.

Financing Activities

       In November 1996, the Company issued $500 million Senior Notes in the US,
the proceeds of which were used to reduce short-term bank loans in the UK. Some
$168 million of the Senior Notes are due for redemption in 2001 and $332 million
in 2006; the Senior Notes are at rates of 6.375% and 6.8%, respectively. The
Company entered into currency swap transactions that effectively convert the US
dollar obligations of the Senior Notes into pounds sterling obligations, with a
nominal value of (pound)300 million.

       SWEB has established a commercial paper program in the US, first utilized
in February 1997 to reduce short-term bank loans. The maximum available under
the program, which is fully supported by a swingline facility provided by a
syndicate of banks, is $520 million. The amount not utilized at March 31, 1997
was $117 million. SWEB enters into foreign currency contracts to hedge the
currency risk associated with the interest and principal of each issue under
this program.

       The Company and SWEB have entered into agreements that effectively swap
into fixed rates, (pound)150 million of SWEB's variable-rate debt, for periods
of between 7 and 15 years.

       In January 1997, Southern Investments UK Capital Trust I (the "Trust"), a
statutory business trust formed under the laws of the State of Delaware and
established for the sole purpose of issuing its own securities and investing the
proceeds thereof in the 8.23% subordinated debentures issued by the Company and
scheduled to mature on February 1, 2027, sold $82 million of its 8.23% preferred
securities. The Company guarantees the Trust's obligations under the preferred
securities. The proceeds received by the Company from the sale of the preferred
securities were used in part to repay short-term bank loans. The Company has
also entered into foreign currency swap contracts to hedge the currency risk
associated with the interest and principal on the preferred securities, by
swapping the US dollar liabilities back to pounds sterling for the period to
February 2007. The nominal value of the swapped liabilities is (pound)50
million.

Sources of Capital

       To meet short-term cash needs and contingencies, the Company and SWEB
together had at March 31, 1997 approximately (pound)3 million of cash and cash
equivalents, $520 million of unused committed lines of credit (as standby for
the commercial paper program) and (pound)120 million of other unused committed
lines of credit with banks. Subsequent to March 31, 1997, SWEB has increased the
amount of committed lines of credit with banks. At March 31, 1997 the Company
and SWEB together had short-term debt of (pound)284 million largely payable to
investors in the commercial paper program in the US.

                                      II-7

<PAGE>


Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


             Southern Investments UK plc and Subsidiaries (Successor
                 Company) and South Western Electricity plc and
                       Subsidiaries (Predecessor Company)

                 Index to the Consolidated Financial Statements

<TABLE>
<CAPTION>
<S>                                                                                                       <C>    

                                                                                                            Page
     Management's Report...............................................................................    II-9
     Report of Independent Public Accountants*.........................................................    II-10
     Consolidated Statements of Income.................................................................    II-12
     Consolidated Statement of Changes in Stockholder's Equity.........................................    II-13
     Consolidated Statements of Cash Flows.............................................................    II-14
     Consolidated Balance Sheets.......................................................................    II-15
     Notes to the Consolidated Financial Statements....................................................    II-17
</TABLE>

                                    


*Change of Auditors.

Following acquisition, there was a change in the auditors of SWEB.  See Item 9.

                                      II-8
<PAGE>


        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)

                               MANAGEMENT'S REPORT
                               1997 Annual Report

       The management of the Company has prepared -- and is responsible for --
the financial statements and related information included in this report. These
statements were prepared in accordance with generally accepted accounting
principles appropriate in the circumstances and necessarily include amounts that
are the best estimates and judgments of management. Financial information
throughout this annual report is consistent with the financial statements.

       The Company maintains a system of internal accounting controls to provide
reasonable assurance that assets are safeguarded and that books and records
reflect only authorized transactions of the Company. Limitations exist in any
system of internal controls, however, based on a recognition that the cost of
the system should not exceed its benefits. The Company believes its system of
internal accounting controls maintains an appropriate cost/benefit relationship.

       The Company's system of internal accounting controls is evaluated on an
ongoing basis by the Company's internal audit staff. The Company's independent
public accountants also consider certain elements of the internal control system
in order to determine their auditing procedures for the purpose of expressing an
opinion on the financial statements.

       Management believes that its policies and procedures provide reasonable
assurance that the Company's operations are conducted according to a high
standard of business ethics.

       In management's opinion, the financial statements present fairly, in all
material respects, the financial position, results of operations, and cash flows
of the Company in conformity with generally accepted accounting principles in
the United States.







/s/ Richard J. Pershing            /s/ Carson B. Harreld
Richard J. Pershing                 Carson B. Harreld
Chief Executive Officer             Chief Financial and Accounting Officer


November 12, 1997


                                      II-9




<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To the Board of Directors of Southern Investments UK plc:


       We have audited the accompanying consolidated balance sheets of SOUTHERN
INVESTMENTS UK plc and SUBSIDIARIES (the "Company" being a company incorporated
in England and Wales) as of March 31, 1997 and 1996, the related consolidated
statements of income, changes in stockholder`s equity and cash flows for the
year ended March 31, 1997 and for the period from inception (June 23, 1995) to
March 31, 1996. In addition we have audited the accompanying consolidated
statements of income, changes in stockholder's equity, and cash flows of SOUTH
WESTERN ELECTRICITY plc and SUBSIDIARIES for the period from April 1, 1995 to
September 17, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

       We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

       In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Southern Investments UK plc as of March 31, 1997 and 1996 and the consolidated
results of its operations, changes in stockholder's equity and cash flows for
the year ended March 31, 1997 and for the period from inception (June 23, 1995)
to March 31, 1996, and the consolidated results of the operations, changes in
stockholder's equity, and cash flows of South Western Electricity plc for the
period from April 1, 1995 to September 17, 1995, in conformity with generally
accepted accounting principles in the United States.





/s/ Arthur Andersen
ARTHUR ANDERSEN
Bristol, England

November 12, 1997


                                     II-10
<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To the Board of Directors of South Western Electricity plc:

       We have audited the accompanying consolidated statements of income,
changes in stockholder's equity and cash flows of SOUTH WESTERN ELECTRICITY plc
AND SUBSIDIARIES (Predecessor Company) for the year ended March 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

       We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

       In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated results of operations,
changes in stockholder's equity and cash flows of South Western Electricity plc
and subsidiaries for the year ended March 31, 1995, in conformity with generally
accepted accounting principles in the United States.



/s/ Arthur Andersen
ARTHUR ANDERSEN
Bristol, England

November 12, 1997


                                     II-11
<PAGE>


        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
      FOR THE YEAR ENDED MARCH 31, 1997, AND FOR THE PERIOD FROM INCEPTION
                        (JUNE 23, 1995) TO MARCH 31, 1996

      SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES (PREDECESSOR COMPANY)
 FOR THE PERIOD FROM APRIL 1, 1995 TO SEPTEMBER 17, 1995 AND FOR THE YEAR ENDED
                                 MARCH 31, 1995

                         CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>


                                                            (In Millions)
<S>                                                             <C>          <C>         <C>             <C>               <C>
                                                                1997         1997        Inception      |  April 1, 1995      1995
                                                                                         (June 23,      |   to September     Note 2
                                                                                         1995) to       |     17, 1995
                                                                                         March 31,      |       (1)
                                                                                         1996 (1)       |
                                                              Successor    Successor     Successor      | Predecessor   Predecessor
                                                              (pound)       $             (pound)       |  (pound)          (pound)
                                                                                                        |
OPERATING REVENUES                                                848        1,395          481         |       299             776
COST OF SALES                                                     594          977          318         |       186             480
                                                              -------      -------      -------         |   -------         -------
GROSS MARGIN                                                      254          418          163         |       113             296
                                                              -------      -------      -------         |   -------         -------
OPERATING EXPENSES:                                                                                     |
    Maintenance                                                    35           57           21         |        18              55
    Depreciation and amortization                                  43           71           22         |        15              31
    Selling, general and administrative                            51           84           34         |        40              81
                                                              -------      -------      -------         |   -------         -------
              Total operating expenses                            129          212           77         |        73             167
                                                              -------      -------      -------         |   -------         -------
              Operating income                                    125          206           86         |        40             129
                                                              -------      -------      -------         |   -------         -------
OTHER INCOME (EXPENSE):                                                                                 |
    Interest income                                                 2            3            7         |         2               7
    Interest expense                                              (52)         (86)         (28)        |        (5)            (11)
    Gain on sale of investments                                     6           10           14         |         -               -
    Investment income                                               6           10            -         |         -              16
    Other, net                                                      -            -            2         |         1               -
                                                              -------      -------      -------         |   -------         -------
              Total other income(expense)                         (38)         (63)          (5)        |        (2)             12
                                                              -------      -------      -------         |   -------         -------
                                                                                                        |
INCOME BEFORE INCOME TAXES                                         87          143           81         |        38             141
PROVISION FOR INCOME TAXES                                         32           53           28         |        13              47
                                                              -------      -------      -------         |   -------         -------
                                                                                                        |

                                                                                                        |
INCOME FROM DISCONTINUED OPERATIONS, net of income                                                      |
    tax effect of (pound)0                                          -            -            -         |        (1)              1 
                                                                                                        |
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS, net                                                        |
    of income tax effect of (pound)5                                -            -            -         |         -              (9)
                                                                                                        |
EXTRAORDINARY GAIN ON EARLY EXTINGUISHMENT OF                                                           |
    DEBT, net of income tax effect of (pound)3                      -            -            6         |         -               -

NET INCOME                                              (pound)    55      $    90  (pound)  59         |  (pound)24    (pound)  86
                                                        =============      =======   ==========         |  =========    ===========
</TABLE>

-------------
(1)      See Note 15 for Details of Pro Forma Fiscal Year 1996.

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


                                     II-12

<PAGE>


        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
      FOR THE YEAR ENDED MARCH 31, 1997, AND FOR THE PERIOD FROM INCEPTION
                        (JUNE 23, 1995) TO MARCH 31, 1996

      SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES (PREDECESSOR COMPANY)
 FOR THE PERIOD FROM APRIL 1, 1995 TO SEPTEMBER 17, 1995 AND FOR THE YEAR ENDED
                                 MARCH 31, 1995

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                                  (In Millions)
<TABLE>
<CAPTION>


<S>                                             <C>            <C>          <C>            <C>           <C>                <C>
                                                 Number of                   Ordinary      Share          Retained         Total
                                                 Ordinary        Share      Shares of      Premium       Earnings/     Stockholders'
                                                  Shares        Capital       50p Each      Account      (Deficit)        Equity
                                                 (pound)        (pound)      (pound)       (pound)        (pound)         (pound)
                                               ------------- ------------- ------------- ------------- ------------- --------------
   PREDECESSOR COMPANY

   Balance, March 31, 1994                          123            62             -             -           351             413

   Repurchase of own shares                         (12)           (6)            -             6          (103)           (103)
   Issue of share capital                             -             -             -             -             -             -
   Dividends (25p per share)                          -             -             -             -           (30)            (30)
   Net income (Note 2)                                -             -             -             -            86              86
                                                   ----          ----          ----           ----         ----            ----
   Balance, March 31, 1995                          111            56             -             6           304             366

   Issue of share capital                             1             -             2             -             -               2
   Dividends:
      20p per share for 111 million shares            -             -             -             -           (23)            (23)
      65p per share for 81 million shares             -             -             -             -           (52)            (52)
   Net income                                         -             -             -             -            24              24
                                                   ----          ----          ----          ----          ----            ----  
   Balance, September 17, 1995                      112            56             2             6           253             317
                                                   ====          ====          ====          ====          ====            ====

   SUCCESSOR COMPANY

   Balance, June 23, 1995                             -             -             -             -             -             -

   Net income                                         -             -             -             -            59              59
   Proceeds from sale of National Grid
     Holdings reflected as dividends
     (Note 13)                                        -             -             -             -          (191)           (191)
   Conversion of advances to equity
     (Note 13)                                      315           315             -             -             -             315
   Equity contribution (Note 13)                    185           185             -             -             -             185
                                                   ----          ----          ----           ----         ----            ----
Balance, March 31, 1996                             500           500             -             -          (132)            368

   Net income                                         -             -             -             -            55              55
   Dividends declared on common stock                 -             -             -             -           (37)            (37)
                                                   ----          ----          ----           ----         ----            ----
Balance, March 31, 1997                             500           500             -             -          (114)            386
                                                   ====          ====          ====           ====         ====            ====
</TABLE>



  The accompanying notes are an integral part of this consolidated statement.


                                     II-13

<PAGE>
        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
      FOR THE YEAR ENDED MARCH 31, 1997, AND FOR THE PERIOD FROM INCEPTION
                        (JUNE 23, 1995) TO MARCH 31, 1996

      SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES (PREDECESSOR COMPANY)
 FOR THE PERIOD FROM APRIL 1, 1995 TO SEPTEMBER 17, 1995 AND FOR THE YEAR ENDED
                                 MARCH 31, 1995

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S>                                                             <C>             <C>      <C>             <C>        <C>    
                                  (In Millions)
                                                                 1997        1997       Inception  |     April 1,     1995
                                                                                        (June 23,  |     1995 to    Note 2
                                                                                         1995) to  |     September
                                                                                         March 31, |     17, 1995
                                                                                           1996    |
                                                                 Successor   Successor   Successor |   Predecessor   Predecessor
                                                                  (pound)      $           (pound) |     (pound)      (pound)
CASH FLOWS FROM OPERATING ACTIVITIES:                                                              |
   Net income                                                        55          90            59  |          24               86
                                                                  -----       -----         -----  |       -----           ------
   Adjustments to reconcile net income to net cash                                                 |
       provided by operating activities:                                                           |
     Depreciation and amortization                                   43          71            22  |          15               31
     Gain on sale of investments                                     (6)        (10)          (14) |           -                -
     Gain on early extinguishment of debt                             -           -            (9) |           -                -
     Changes in assets and liabilities:                                                            |
      Receivables, net                                              (22)        (36)            6  |          32               (5)
      Accounts payable                                              (29)        (48)          (39) |          (7)               1
      Accrued income taxes                                           50          82             5  |          (3)              (5)
      Other, net                                                    (32)        (52)           (5) |           8               (8)
                                                                  -----       -----         ------ |       -----           ------
        Total adjustments                                             4           7           (34) |          45               14
                                                                  -----       -----         ------ |       -----           ------
        Net cash provided by operating activities                    59          97            25  |          69              100
                                                                  -----       -----         -----  |       -----           ------
CASH FLOWS FROM INVESTING ACTIVITIES:                                                              |
   Consideration for purchase of SWEB paid to former                                               |
       shareholders                                                   -           -        (1,023) |           -                -
   Capital expenditures                                             (70)       (115)          (37) |         (22)             (68)
   Loans to related parties                                          (2)         (3)            -  |          (3)               -
   Proceeds from property, plant and equipment sales                  7          11             -  |           5                1
   Purchases of investments                                           -           -             -  |         (28)             (66)
   Proceeds from sales of investments                                17          28           270  |          26               66
                                                                  -----       -----         -----  |       -----           ------
        Net cash used in investing activities                       (48)        (79)         (790) |         (22)             (67)
                                                                  -----       -----        ------  |       -----           ------
CASH FLOWS FROM FINANCING ACTIVITIES:                                                              |
   Proceeds from advances from parent                                 -           -           315  |           -                -
   Capital contribution received                                      -           -           185  |           -                -
   Proceeds from issuance of notes                                    -           -           650  |           -                -
   Proceeds from issuance of bonds                                  300         494           597  |           -                -
   Repayment of notes and bonds                                       -           -          (696) |           -                -
   Change in short term borrowings                                 (366)       (602)            -  |         (23)              24
   Common shares purchased                                            -           -             -  |           -             (103)
   Issue of share capital                                             -           -             -  |           2                -
   Issue of mandatorily redeemable preferred securities              50          82             -  |           -                -
   Payment of preacquisition dividends                                -           -           (75) |           -                -
   Payment of dividends                                             (12)        (20)         (191) |           -              (30)
                                                                  -----       -----         -----  |       -----           ------
        Net cash (used in) provided by financing activities         (28)        (46)          785  |         (21)            (109)
                                                                  -----       -----         -----  |       -----           ------
                                                                                                   |
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                (17)        (28)           20  |          26              (76)
                                                                                                   |           

                                                                  -----       -----         -----  |       -----           ------
                                                                                                   |
CASH AND CASH EQUIVALENTS AT END OF PERIOD                  (pound)   3      $    5  (pound)   20  |  (pound) 53     (pound)   27
                                                            ===========       =====  ============  |  ==========     ============
                                                                                                   |
SUPPLEMENTAL CASH FLOW INFORMATION:                                                                |
   Cash paid for interest                                   (pound)   48      $  79  (pound)   21  |(pound)    5     (pound)   11
                                                            ============      =====  ============  | ===========     ============
   Cash  (received from) paid for income tax                (pound)  (14)     $ (23) (pound)   26  |(pound)    6     (pound)   33
                                                            ============      ====== ============  | ===========     ============
   Conversion of debt to equity                             (pound)    -      $   -  (pound)  315  |(pound)    -     (pound)    -
                                                            ============      =====  ============  | ===========     ============
</TABLE>
   The accompanying notes are an integral part of these consolidated statements.

                                     II-14

<PAGE>


        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
                           CONSOLIDATED BALANCE SHEETS

                             MARCH 31, 1997 AND 1996

<TABLE>
<CAPTION>

                                  (In Millions)
<S>                                                                                        <C>              <C>           <C>


                                           ASSETS                                              1997           1997            1996
                                                                                                                             Note 2
        ------------------------------------------------------------------                    ----------     ------         -------
                                                                                                (pound)      $              (pound)
        PROPERTY, PLANT, AND EQUIPMENT                                                            1,312       2,158          1,227
            Less accumulated depreciation                                                            59          97             20
                                                                                                 ------      ------         ------

                          Property, plant, and equipment, net                                     1,253       2,061          1,207
                                                                                                 ------      ------         ------

        OTHER ASSETS
            Investments                                                                              19          31             22
            Prepaid pension cost                                                                    105         173             95
            Goodwill, net of accumulated amortization of (pound)7 ($12) at
               March 31, 1997 and(pound)2 at March 31, 1996                                         176         289            177
                                                                                                 ------      ------         ------
                          Total other assets                                                        300         493            294
                                                                                                 ------      ------         ------

        CURRENT ASSETS:
            Cash and cash equivalents                                                                 3           5             20
            Investments                                                                              18          30             26
            Receivables :
               Customer accounts, less provision for uncollectables of (pound)12
               ($20) at March 31, 1997 and(pound)17 at March 31, 1996                               120         197             95
               Other                                                                                 12          20             20
                                                                                                 ------      ------         ------
                          Receivables, net                                                          132         217            115
            Materials and supplies                                                                    3           5              3
            Prepaid expenses                                                                         12          20             25
                                                                                                 ------      ------         ------
                          Total current assets                                                      168         277            189

                          Total assets                                                     (pound)1,721      $2,831   (pound)1,690
                                                                                           ============      ======   ============
</TABLE>



 The accompanying notes are an integral part of these consolidated balance
 sheets.

                                     II-15

<PAGE>

        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
                           CONSOLIDATED BALANCE SHEETS

                             MARCH 31, 1997 AND 1996


                                  (In Millions)
<TABLE>
<CAPTION>

<S>                                                                                              <C>            <C>        <C>


                          STOCKHOLDER'S EQUITY AND LIABILITIES                                      1997         1997        1996
                                                                                                    ----         ----        ----
                                                                                                                            Note 2
-------------------------------------------------------------------------------
                                                                                               (pound)           $          (pound)
STOCKHOLDER'S EQUITY
    Common stock, (pound)1 par value, 500,400,587 shares authorized, issued and
       outstanding                                                                                  500          822         500
    Retained earnings (deficit)                                                                    (114)        (187)       (132)
                                                                                                 ------       ------     -------
              Total stockholder's equity                                                            386          635         368
                                                                                                 ------       ------     -------

COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SOUTHERN
    INVESTMENTS UK CAPITAL TRUST I HOLDING COMPANY JUNIOR SUBORDINATED DEBENTURES
    (Note 11)
                                                                                                     50           82            -

NON-CURRENT LIABILITIES
    Long-term debt                                                                                  301          495            -
    Deferred income taxes                                                                           377          620          352
    Provision for loss contracts (Note 5)                                                            69          114           62
    Other (Note 2)                                                                                   59           97           70
                                                                                                 ------       ------      -------
              Total non-current liabilities                                                         806        1,326          484
                                                                                                 ------       ------      -------

CURRENT LIABILITIES:
    Commercial paper                                                                                250          411            -
    Short-term borrowings                                                                            34           56          650
    Accounts payable                                                                                 46           76           45
    Accrued income taxes                                                                             31           51           19
    Unearned revenue                                                                                  5            8           10
    Common dividend declared                                                                         25           41            -
    Accrued interest                                                                                  9           15            -
    Other                                                                                            79          130          114
                                                                                                 ------       ------      -------
              Total current liabilities                                                             479          788          838
                                                                                                 ------       ------      -------

COMMITMENTS AND CONTINGENT MATTERS
    (NOTES 3, 4 and 5)

              Total stockholder's equity and liabilities                                   (pound)1,721       $2,831 (pound)1,690
                                                                                           ============       ====== ============
</TABLE>


The accompanying notes are an integral part of these consolidated balance
sheets.


                                      II-16
<PAGE>

        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
    AND SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES (PREDECESSOR COMPANY)
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                                 MARCH 31, 1997

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

       Southern Investments UK plc (the "Company") is a wholly-owned subsidiary
of Southern Investments UK Holdings Limited ("Holdings") which is 75% owned
indirectly by The Southern Company ("Southern") and 25% owned indirectly by PP&L
Resources, Inc. The Company was incorporated as a public limited company under
the laws of England and Wales on June 23, 1995 as a vehicle for the acquisition
of South Western Electricity plc (together with its subsidiaries, "SWEB"). On
September 18, 1995, the Company gained effective control of SWEB, having
acquired approximately 84% of its shares (the "Acquisition"). Accordingly, the
Company has designated September 18, 1995 as the effective date of the
Acquisition (the "Acquisition Date"). Given that SWEB represents substantially
all of the current operations of the Company, SWEB is considered the Predecessor
Company (the "Predecessor Company"). All references in the financial statements
to the Successor Company represent the Company and its subsidiaries and to the
Predecessor Company represent South Western Electricity plc and its
subsidiaries. See Note 8 for a further discussion of the Acquisition. The pro
forma accounts for 1996 are based on the adjusted results for these two entities
for the 12 months to March 31, 1996, as set out in Note 15.

       SWEB is one of the twelve regional electricity companies ("RECs") in
England and Wales licensed to distribute, supply, and, to a limited extent,
generate electricity. The RECs were created as a result of the privatization of
the electricity industry in 1990 after the state owned low voltage distribution
networks were allocated to the then existing twelve regional boards. SWEB's main
business, the distribution and supply of electricity to customers in the south
west of England, is regulated under the terms of SWEB's Public Electricity
Supply license by the Office of Electricity Regulation ("OFFER").

Basis of Presentation

       The financial statements of the Company are presented in pounds sterling
((pound)) and in conformity with accounting principles generally accepted in the
United States. The accompanying financial statements have not been prepared in
accordance with the policies of Statement of Financial Accounting Standards No.
71, "Accounting for the Effects of Certain Types of Regulation" ("SFAS No. 71").
This pronouncement, under which most US electric utilities report financial
statements, applies to entities which are subject to cost-based rate regulation.
By contrast, SWEB is not subject to rate regulation, but, rather is subject to
price cap regulation (Note 4) and therefore the provisions of SFAS No. 71 do not
apply. Financial statements presented in accordance with SFAS No. 71 contain
deferred items which have not yet been included in rates charged to customers in
compliance with the respective regulatory authorities, but which would have been
included in the income statement of enterprises in general under US GAAP. The
accompanying financial statements of the Company do not contain such deferrals.

       The consolidated financial statements include the accounts of the Company
and its wholly owned and majority-owned subsidiaries and have been prepared from
records maintained by SWEB in the United Kingdom. All significant intercompany
accounts and transactions have been eliminated in consolidation. Investments in
companies in which the Company's ownership interests range from 20% to 50% and
the Company exercises significant influence over operating and financial
policies are accounted for using the equity method. Other investments are
accounted for using the cost method (Note 12).


                                     II-17
<PAGE>



        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
    AND SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES (PREDECESSOR COMPANY)
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


       Solely for the convenience of the reader, pounds sterling amounts have
been translated into US dollars at the exchange rate of $1.6448 = (pound)1.00,
the noon buying rate in New York City for cable transfers in pounds sterling as
certified for customs purposes by the Federal Reserve Bank of New York on March
31, 1997. The following table sets out this rate for previous periods:
<TABLE>
<CAPTION>

<S>                                                   <C>          <C>                  <C>            <C>                  
       Fiscal Year                                   Period end     Average (1)           High          Low
       -----------                                   ----------     -----------           ----          ---
                                                                    ($ per (pound)1.00)
                                                                                              
          1992....................................       1.51          1.77            2.00           1.51
          1993....................................       1.48          1.50            1.59           1.42
          1994....................................       1.57          1.53            1.64           1.46
          1995....................................       1.55          1.58            1.64           1.53
          1996....................................       1.53          1.53            1.56           1.50
          1997....................................       1.64          1.59            1.71           1.49
</TABLE>
   
-------------
(1)    The average of the Noon Buying Rates in effect on the last business day
       of each month during the relevant period.

Use of Accounting Estimates

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

Revenue Recognition

       SWEB records revenue net of value added tax ("VAT") and accrues revenues
for services provided but unbilled at the end of each reporting period. SWEB
purchases power primarily from a market for the bulk trading of electricity (the
"Pool").

       The Company has a diversified base of customers. No single customer or
industry comprises 10% or more of revenues.

Cash and Cash Equivalents

       The Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents.

Property, Plant, and Equipment

       Property, plant, and equipment are recorded at fair market value as
adjusted at the acquisition date in accordance with Accounting Principles Board
Opinion No. 16, "Accounting for Business Combinations" ("APB No. 16"). Items
capitalized subsequent to the Acquisition are recorded at original cost, which
includes materials, labor, appropriate administrative and general costs, and the
estimated cost of funds used during construction. The cost of maintenance,
repairs, and replacement of minor items of property is charged to maintenance
expense.

       Depreciation of the recorded cost of depreciable property, plant, and
equipment is provided by using primarily composite straight-line rates, which
approximate 3.1% per year (2.5% per year for depreciable utility plant in
service). Upon the retirement or sale of assets, the costs of such assets and
the related accumulated depreciation are removed from the balance sheet and the
gain or loss, if any, is included in income.

                                     II-18


<PAGE>


        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
    AND SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES (PREDECESSOR COMPANY)
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


Information Technology Consultancy and Development Costs

       Significant information technology ("IT") consultancy and development
costs are capitalized when they become technologically feasible and are
amortized over their estimated useful economic life from the date of first use.
Other IT consultancy and development costs are charged to income in the period
in which they are incurred. This policy was adopted effective October 1, 1995 as
the Company embarked on a significant program of investment and will be
incurring significant development costs which are fundamental to the future
performance of the business and which will benefit the business for a number of
years. The Directors are of the opinion that in relation to the planned
development costs to be incurred in the future, the policy followed by the
Predecessor Company of writing off such costs to the Statement of Income does
not give a fair reflection of the period over which the benefits will accrue.
Prior to this change in accounting policy the Company expensed all IT
consultancy and development costs as incurred. The effect of adopting this
policy has resulted in the capitalization of (pound)5 million of costs in the
year ended March 31, 1996 and (pound)11 million of costs in the year ended March
31, 1997.

Goodwill

       The Company amortizes costs in excess of fair value of net assets of the
business acquired using the straight-line method over a period of 40 years.
Recoverability (performed on the basis of undiscounted operating cash flow
analysis) is reviewed annually or sooner if events or changes in circumstances
indicate that the carrying amount may exceed fair value, in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". Goodwill shown in the accompanying consolidated financial
statements relates to the acquisition of SWEB.

Investments

       The Company accounts for its current investments in accordance with SFAS
No. 115, "Accounting for Investments for Certain Debt and Equity Securities."
These investments represent investments in debt securities, which management
classifies as available-for-sale securities in accordance with SFAS No. 115. The
Company's long-term investments consist of investments accounted for using the
cost method (See Note 12).

Income Taxes

       SFAS No. 109, "Accounting for Income Taxes," requires the asset and
liability approach for financial accounting and reporting for deferred income
taxes. The Company uses the liability method of accounting for deferred income
taxes and provides deferred income taxes for all significant income tax
temporary differences.

Financial Instruments

       The Company uses financial instruments primarily to mitigate the risk of
exposure to volatility in electricity prices and fluctuations in interest and
foreign currency rates. Such instruments are accounted for as hedges, and
accordingly, gains and losses are deferred and recognized over the same period
as the item hedged (Note 9).

       The Company's carrying amount of financial instruments at both March 31,
1997 and March 31, 1996 was zero (Note 9).

                                     II-19


<PAGE>


        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
    AND SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES (PREDECESSOR COMPANY)
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)


2. RESTATEMENT OF FINANCIAL INFORMATION

The Predecessor Company has restated its financial statements for the year ended
March 31, 1995 and the Successor Company has restated its consolidated balance
sheet at March 31, 1996. This action was taken as the directors have identified
certain exceptional costs, principally relating to tree cutting, which due to
existing obligations should have been recognized in the accounts of SWEB in the
year ended March 31, 1995. The directors have revised the accounts of SWEB for
the year ended March 31, 1995 recognizing such costs. In the opinion of the
directors, all material adjustments necessary to correct the financial
statements have been recorded. The impact of these adjustments on the March 31,
1995 financial statements of the Predecessor Company included herein, as
originally reported, is as follows (in millions):
<TABLE>
<CAPTION>

<S>                                                              <C>                         <C> 
                                                                                 1995                        1995
                                                                           Originally                    Restated
                                                               --------------------------   ---------------------  
                                                                 (pound)        $       (pound)             $
                            Net Income                               94           155            86           141
                            Operating Expenses                      157           258           167           275

The impact of these adjustments on the consolidated balance sheet of the Company
at March 31, 1996 included herein, as originally reported, is as follows (in
millions):

                                                                                 1996                        1996
                                                                           Originally                    Restated
                                                             ------------------------       ---------------------- 
                                                                (pound)        $            (pound)        $
                            Total assets                          1,686         2,773         1,690         2,780
</TABLE>


3. RETIREMENT BENEFITS

Pension Plans

       SWEB has two pension plans, a defined benefit plan and a defined
contribution plan.

Defined Contribution Plan

       The defined contribution plan was established in fiscal year 1994. The
assets of the defined contribution plan are held and administered by an
independent trustee. Contributions to the plan by SWEB on behalf of its
employees were (pound)0.1 million ($0.2 million) for fiscal year 1997.
Contributions in prior periods were not material.

Defined Benefit Plan

       SWEB participates in the Electricity Supply Pension Scheme, which
provides pension and other related defined benefits, based on final pensionable
pay, to substantially all employees throughout the Electricity Supply Industry
in the United Kingdom. Contributions to the plan by SWEB on behalf of its
employees were (pound)0.6 million ($1.0 million) for fiscal year 1997,
(pound)4.8 million for the period from inception (June 23, 1995) through March
31, 1996, (pound)3.7 million for the period from April 1, 1995 to September 17,
1995 and (pound)9.8 million for fiscal year 1995.

       In accordance with SFAS No. 87, as of the date of the Acquisition, the
assignment of the purchase price to individual assets acquired and liabilities
assumed includes the plan assets in excess of the projected benefit obligation.
SWEB uses the "entry age normal method with a frozen initial liability"
actuarial method for funding purposes. Amounts funded to the pension trust(s)
are primarily invested in equity and fixed-income securities. SFAS No. 87
requires use of the "projected unit credit" actuarial method for financial
reporting purposes.


                                     II-20


<PAGE>

        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
    AND SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES (PREDECESSOR COMPANY)
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

The following table shows the actuarial results and assumptions for pension
benefits as computed under SFAS No. 87 (in millions):
<TABLE>
<CAPTION>


<S>                                                                <C>            <C>            <C>
                                                                    March 31,      March 31,      March 31,
                                                                       1997          1997           1996
Successor Company                                                   (pound)           $          (pound)

 Actuarial present value of benefit obligation
     Vested benefits.........................................          (493)         (811)          (488)
     Nonvested benefits......................................             -             -              -
                                                                       ----          ----           ----

 Accumulated benefit obligations.............................          (493)         (811)          (488)
 Effect of future benefit obligations........................           (37)          (61)           (37)
                                                                       ----          ----           ----
 
 Projected benefit obligations...............................          (530)         (872)          (525)
    Less:
        Fair value of plan assets............................           641         1,055            642
        Prior service cost                                                3             5              -
        Unrecognized net gain................................            (9)          (15)           (22)
                                                                       ----          ----           ----
    

 Prepaid asset recognized in the consolidated 
   balance sheets............................................           105           173             95
                                                                       ====          ====           ====
</TABLE>

The weighted average rates assumed in the actuarial calculations were as 
follows:
<TABLE>
<CAPTION>
<S>                                                               <C>                <C>                <C>

                                                                       1997              1996   |         1995
                                                                       ----              ----   |         ----
                                                                   Successor         Successor  |    Predecessor
 Discount rate...................................................      8.50%             8.75%  |        8.75%
 Annual salary rate increase.....................................      5.75%             6.00%  |        6.00%
 Long term rate of return on plan assets.........................      9.50%             9.50%  |        9.50% 
</TABLE>


The components of the plan's net pension income are shown below (in millions):
<TABLE>
<CAPTION>
<S>                                                           <C>                    <C>                 <C>            <C>


                                                                                        Period from   |    Period from
                                                                                         inception    |     April 1,
                                                                                       (June 23,      |     1995 to
                                                                                          1995) to    |   September 17,     Fiscal
                                                                   Fiscal Year         March 31,      |       1995           Year
                                                                       1997               1996        |                      1995
                                                                                                      |
                                                               (pound)       $            (pound)     |    (pound)        (pound)
 Benefits earned during the period.....................             9         15              2       |        3             5
 Interest cost on projected benefit obligation.........            44         72             22       |       20            37
 Actual return on plan  assets.........................           (66)      (109)           (50)      |      (69)            -
 Net amortization and  deferral........................             9         15             22       |       42           (56)
                                                                   --         --             --       |       --           ----
 Net pension income....................................            (4)        (7)            (4)      |       (4)          (14)
                                                                   ===        ===            ===      |       ===          ====
</TABLE>

 Pensions Contingency

       The Pensions Ombudsman (a UK statutorily appointed independent
arbitrator) has issued a determination in favor of complaints made by members of
the Electricity Supply Pension Scheme ("ESPS") relating to another employer's
use of ESPS surplus to offset the employer's costs of providing early pensions
on redundancies and certain other items. Under that determination the Pensions
Ombudsman directed the employer to pay into ESPS the amount of that use of the


                                     II-21


<PAGE>


SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
AND SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES (PREDECESSOR COMPANY)
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

surplus plus interest. The determination was challenged in the High Court by the
employer, and the High Court upheld the employer's appeal in a judgment
delivered on June 10, 1997. The High Court also granted the complainants leave
to appeal to a higher court. No date has yet been set for any hearing in the
higher court. If the complainants' appeal is successful either at the higher
court or on a subsequent appeal to the House of Lords, it will have an adverse
effect on SWEB. No payments are required until such challenge has been heard.
It is not practical to make an estimate of the exposure at the present time.

4. REGULATORY MATTERS

       OFFER controls the revenues generated by SWEB in its distribution and
supply businesses by applying a price control formula, P + RPI -X (where X is
currently 3% for distribution and 2% for supply), where P is the price level at
the beginning of each new regulatory period, RPI is the change in the Retail
Price Index and X is an adjustment factor determined by OFFER.

       In the distribution business, the Distribution Price Control Formula
("DPCR") is usually set for a five-year period, subject to more frequent
adjustments as determined necessary by the Director General of Electricity
Supply (the "Regulator"). At each review, the Regulator can require a one-time
price reduction. An initial review by the Regulator of allowable income in the
distribution business led to a reduction of the price level by 14% for SWEB
starting April 1, 1995, followed by efficiency factors of X = 2% for each year
until March 2000. On July 6, 1995, the Regulator announced the result of a
further distribution price review which was precipitated by certain market
events in the UK electric utility industry. For SWEB, such announcement meant a
further real reduction of 11% in allowable distribution income for the twelve
months from April 1, 1996, followed by an efficiency factor of X = 3% for each
year until March 31, 2000, before an allowed increase for inflation.

       In the supply business, which is progressively being opened to
competition, price regulation still applies to the market for customers with a
demand of not more than 100kW. The calculation of the maximum supply charge is
based on a Supply Price Control Formula, similar to the DPCR and is set for a
four-year period. In 1993, OFFER announced the supply franchise market (i.e.
with demand of not more than 100kW) income entitlement for the four-year period
ending March 1998. A relatively small efficiency factor of X = 2% was applied to
SWEB and is being offset by an allowance for both unit and customer growth. The
non-franchise markets (above 1MW) were opened to full competition during
privatization in 1990; the non-franchise markets above 100kW were opened to full
competition starting in April 1994. OFFER is currently undertaking a further
Supply Price Control Formula review, effective from April 1, 1998; the result of
their review is not expected to be announced before October, 1997.

5. COMMITMENTS AND CONTINGENT MATTERS

Power Purchase Agreements

       SWEB has entered into a contract relating to the purchase of 200
megawatts of capacity from a 7.69% owned related party, Teesside Power Limited
("Teesside"), for a period of 15 years beginning April 1, 1993. The contract
sets escalating electricity purchase prices at predetermined levels. The Company
has recognized an accrual at the acquisition date for the excess of these
Teesside power purchase costs in each year over an estimate of the equivalent
pool costs in that respective year. These costs have been discounted at an
appropriate rate to their present value of (pound)69 million ($114 million) at
March 31, 1997 and (pound)62 million at March 31, 1996. Over the past two years,
the pool prices have been less than anticipated when the accrual was recognized.
The Company is continuing to review the trend of pool prices and an adjustment
to the provision may be required in the future.

       The Company has additional contracts with unaffiliated parties relating
to the purchase of electricity, which expire by March 31, 1998, and contracts
relating to the purchase of gas which expire by September 30, 1998, the terms of
which are immaterial with respect to quantity and price, both annually and in
the aggregate.

                                     II-22


<PAGE>


        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
    AND SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES (PREDECESSOR COMPANY)
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

Operating Leases

       SWEB has commitments under operating leases with various terms and
expiration dates. Expenses associated with these commitments totalled (pound)4
million ($7 million) for the 1997 fiscal year, (pound)3 million for the period
from inception (June 23, 1995) to March 31, 1996, (pound)3 million for the
period from April 1, 1995 to September 17, 1995 and (pound)6 million for fiscal
year 1995. Estimated minimum rental commitments for noncancelable operating
leases were as follows at March 31, 1997 (in millions):

       Fiscal year
                                                  ((pound))          ($)
       1998.....................................     3                5
       1999.....................................     2                3
       2000.....................................     1                2
       2001.....................................     1                2
       2002.....................................     1                2
       Thereafter...............................     7               11
                                                    --               --
    Total minimum payment.......................    15               25
                                                    ==               ==
   
Labor Subject to Collective Bargaining Agreements

       Substantially all of SWEB's employees are subject to one of two
collective bargaining agreements. Such agreements are ongoing in nature, and
SWEB's employee participation level is consistent with that of the electric
utility industry in Great Britain.

Change of Government in the UK

       On May 1, 1997 a new Labour government in the UK was elected. The Labour
Party's election manifesto includes the commitment to introduce "a one-off
windfall levy on the excess profits of privatised utilities". The total amount
of government revenue to be raised by the tax and the allocation of the tax
between utilities is scheduled to be announced as part of the government's
budget in early July, 1997. There can be no assurance that the introduction of a
windfall tax or other taxes or policies of the new government will not adversely
affect the Company. See Note 14 in the "Notes to the Financial Statements"
herein for a discussion of this matter.

                                     II-23


<PAGE>


        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
    AND SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES (PREDECESSOR COMPANY)
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

6. SEGMENT REPORTING

       The Company is primarily engaged in two electric industry segments:
distribution, which involves the transmission of electricity across its network
and its transfer and delivery to its customers, and supply, which involves bulk
purchase of electricity from the Pool and arranging for its sale and transfer to
its customers. Intersegment sales primarily represent sales from distribution to
supply for the use of the distribution network. Information about the Company's
operations in these individual segments is detailed below (in millions):
<TABLE>
<CAPTION>

<S>                                  <C>                  <C>               <C>              <C>                  <C>
Fiscal Year
1997 (Successor)                         Distribution         Supply           Other          Eliminations        Consolidated
----------------                       --------------       -----------      ----------      ----------------    ---------------
                                      (pound)    $      (pound)  $         (pound)    $     (pound)  $          (pound)        $

Operating revenues                       231    380        788    1,296        63    104     (234)    (385)         848     1,395
Operating income                         108    178         12       20         6     10       (1)      (2)         125       206
Total assets employed at period-end    1,481  2,436        133      219       107    176        -        -        1,721     2,831
Capital expenditures                      64    106          3        5         3      5       (1)      (2)          69       114


Inception (June 23, 1995) to
March 31, 1996 (Successor)               Distribution         Supply           Other          Eliminations        Consolidated
--------------------------             --------------       -----------      ----------      ---------------     --------------
                                         (pound)          (pound)         (pound)            (pound)               (pound)

Operating revenues                           147               450              33               (149)                  481
Operating income                              72                13               1                  -                    86
Total assets employed at period-end        1,426               102             162                  -                 1,690
Capital expenditures                          32                 1               4                  -                    37


April 1, 1995 to September 17, 1995
(Predecessor)                            Distribution         Supply           Other           Eliminations        Consolidated
------------------------------------    -------------       -----------       --------         -------------     ---------------
                                          (pound)              (pound)          (pound)          (pound)               (pound)

Operating revenues                           105               276              23               (105)                  299
Operating income                              42                 2              (4)                 -                    40
Total assets employed at period-end          537                54             289                (45)                  835
Capital expenditures                          19                 -               2                  -                    21


Fiscal Year
1995 (Predecessor) (Note 2)              Distribution         Supply           Other          Eliminations        Consolidated
---------------------------            --------------       -----------     ----------      ---------------       ------------
                                         (pound)            (pound)          (pound)            (pound)               (pound)

Operating revenues                           274               725              57               (280)                  776
Operating income                             102                18              10                 (1)                  129
Total assets employed at period-end          531                93             294                (49)                  869
Capital expenditures                          54                 -              13                  -                    67
</TABLE>


       Included in "Other" above are insignificant operating subsidiaries of
SWEB, as well as corporate activities and assets not allocated to specific
segments (i.e. dividends, taxes, investments, and financing). With the exception
of total assets employed, the values above exclude discontinued operations. The
eliminations above primarily relate to internal sales from the distribution
business to the supply business for the use of the network. Such sales are
priced at rates applicable to SWEB and other suppliers operating in the SWEB
Franchise Area.

                                     II-24

<PAGE>


        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
    AND SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES (PREDECESSOR COMPANY)
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

7. INCOME TAXES

       Details of the income tax provisions are as follows (in millions):
<TABLE>
<CAPTION>

<S>                                                     <C>               <C>                    <C>                   <C>    

                                                                              Period from     |   Period from April
                                                                          inception (June 23, |      1, 1995 to
                                                         Fiscal Year       1995) to March 31, |  September 17, 1995     Fiscal Year
                                                             1997               1996          |    Predecessor            1995
                                                          Successor            Successor      |                        Predecessor
                                                                                              |                          (Note 2)
                                                       ------------        ------------------ |-------------------    ------------
                                                        (pound)       $        (pound)        |    (pound)              (pound)
         Provision for income taxes:                                                          | 
           Currently payable                               21         35           12         |         10                33
           Deferred                                        11         18           19         |          3                 9
                                                           --         --           --         |         --                --
             Total provisions                              32         53           31         |         13                42
                                                           ==         ==           ==         |         ==                ==
                                                                                              
</TABLE> 

       The tax effects of temporary differences between the carrying amounts of
assets and liabilities in the financial statements and their respective tax
bases, which give rise to deferred tax assets and liabilities, are as follows
(in millions):
<TABLE>
<CAPTION>

<S>                                                                                         <C>                   <C>
                                                                                             March 31,             March 31,
                                                                                               1997                  1996
                                                                                           -------------           ---------
                                                                                         (pound)     $              (pound)
                                                                                               
         Deferred tax liabilities:
           Property, plant, and equipment basis differences....................              363      597             341
           Pensions............................................................               35       58              32
                                                                                             ---      ----           ----
                  Total........................................................              398      655             373
                                                                                             ---     ----            ----
          Deferred tax assets:
                   Acquisition related accruals................................               21       35              21
                                                                                             ---      ---             ---

         Net deferred tax liabilities in consolidated balance sheet............              377      620             352
                                                                                             ===      ===             ===
</TABLE>

<TABLE>
<CAPTION>

     Reconciliations of the UK statutory rate to the effective income tax rate
are as follows:

<S>                                                                 <C>           <C>                 <C>                 <C>
                                                                                   Period from   |
                                                                                 inception (June |     Period from
                                                                    Fiscal        23, 1995) to   |  April 1, 1995 to
                                                                     Year        March 31, 1996  |    September 17,     Fiscal Year
                                                                     1997           Successor    |        1995              1995
                                                                  ------------   --------------- |  --------------      ------------
                                                                   Successor     Successor       |    Predecessor      Predecessor
                                                                                                 |
                                                                                                 |
         UK statutory rate                                              33%            33%       |         33%                33%
         Nondeductible amortization of goodwill.                         2              1        |          -                  -
         Other permanent differences                                     1              -        |          2                  -
                                                                       ---            ---        |        ---                ---
         Effective income tax rate                                      36%            34%       |        35%                33%
                                                                       ===            ===        |        ===                ===
</TABLE>
                                      II-25



<PAGE>


        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
    AND SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES (PREDECESSOR COMPANY)
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

8. ACQUISITION

       The acquisition of SWEB in the amount of (pound)1.065 ($1.752) billion
was accomplished through the purchase of shares via both cash and non-cash
consideration (see accompanying consolidated statement of cash flows) between
July and November 1995. The Company purchased 30% of SWEB through open market
purchases during July and August 1995. On August 31, 1995, the Company's offer
to purchase all shares of SWEB was endorsed by its Directors. By September 18,
1995, the Company had gained effective control of approximately 84% of its
shares, and, therefore, effective control of SWEB. It subsequently acquired the
remaining shares.

       The acquisition was accounted for using the purchase method of accounting
in accordance with APB No. 16. The purchase price of SWEB has been allocated to
the underlying assets and liabilities based on estimated fair values at the
acquisition date. The acquisition cost exceeded the fair market value of net
assets acquired, including (pound)28 million ($46 million) of acquisition
related costs, by (pound)183 million ($301 million) and is considered goodwill.
The operating results of SWEB have been included in the Company's financial
statements from the effective date of the acquisition. These values include
revisions to the fair value estimates following review in September 1996.
Provisional goodwill was stated at (pound)175 million at March 31, 1996.

       The following unaudited pro forma information has been prepared assuming
that the acquisition had occurred at the beginning of the respective periods.
This pro forma information includes adjustments for depreciation expense
resulting from the fair valuation of the assets upon acquisition, amortization
of goodwill resulting from the excess of the fair values of the assets minus
liabilities over the purchase price, incremental interest expense resulting from
the fair valuation of debt obligations upon acquisition, interest expense that
would have been incurred to finance the acquisition as if they were incurred at
the beginning of the period, and the exclusion of the Company's gain on sale of
its investment in NGG and its acquisition bid defense costs. The pro forma
information is presented for informational purposes only and may not be
indicative of the results of operations as they would have been had the
acquisition occurred at the beginning of the respective periods, nor is the
information necessarily indicative of the results of operations which may occur
in the future.

                                                        Pro Forma
                                              Fiscal Year Ended March 31
                                              --------------------------
                                                 1996             1995
                                              -------------      -----------
                                             (pound)  $         (pound)  $
Operating Revenues (in millions)               780    1,283        776   1,276
Net income (in millions)                        49       81         47      77

9. FINANCIAL INSTRUMENTS

       SWEB utilizes contracts for differences ("CFDs") to mitigate its exposure
to volatility in the prices of electricity purchased through the Pool. Such
contracts allow the Company to effectively convert the majority of its
anticipated Pool purchases from market prices to fixed prices. CFDs are in place
to hedge a portion of electricity purchases on approximately 33,000 GWh through
the year 2008. Accordingly, the gains and losses on such contracts are deferred
and recognized as electricity is purchased. It is not possible to estimate the
fair value of these contracts at present as the contract prices are based on
future events, the effects of which currently are not estimable. Current CFD's
have been entered into with UK Power Generators.

       Interest rate swaps are used by the Company to hedge its exposure to
fluctuations in interest rates by allowing the Company to effectively convert
its outstanding variable-rate debt into fixed rates. At March 31, 1997, sterling
interest rate swaps expiring between 2001 and 2012 with notional amounts
totalling (pound)500 million ($822 million), resulted in an unrealized loss of
(pound)2 million ($3 million).

       Foreign currency swaps contracts are used by the Company to hedge
exposure to US dollar liabilities in respect of outstanding debt. At March 31,
1997, currency hedging swaps expiring between 2001 and 2007 with notional
amounts totalling (pound)350/$582 million, resulted in an unrealized loss of
(pound)11 million ($18 million).

                                     II-26

<PAGE>

        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
    AND SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES (PREDECESSOR COMPANY)
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

       The cash flows relating to interest rate and foreign currency swaps are
included within the cost of the related debt on the cash flow statement.

       The fair value of the swaps is estimated using pricing models which
provide the present value of the difference between the contracted swap rates
and market interest rates over the remaining life of the swaps and represent the
amounts payable to terminate the swaps at March 31, 1997. Should the Company
terminate the swaps, the gain or loss on termination would be deferred and
amortized to interest expense over the period of the related debt.

     The Company is exposed to losses in the event of nonperformance by
counterparties to its CFDs, interest rate swaps and currency hedging contracts.
To manage this credit risk, the Company selects counterparties based on their
credit ratings, limits its exposure to any one counterparty under defined
guidelines, and monitors the market position of the programs and its relative
market position with each counterparty.

10. CAPITAL BUDGET

       The Company's capital expenditure for fiscal year 1997 was (pound)69
million ($114 million); for fiscal years 1998 and 1999 capital expenditures are
estimated to be (pound)67 million ($110 million) and (pound)69 million ($114
million) respectively. The capital budget is subject to periodic review and
revision, and actual capital cost incurred may vary from the above statement
because of numerous factors. The factors include: changes in business
conditions; revised load growth projections; change in regulatory requirements;
and increasing costs of labor, equipment, and materials.

11. FINANCING

       In November 1996, the Company issued $500 million Senior Notes in the US,
the proceeds of which were used to reduce short-term bank loans in the UK. Some
$168 million of the Senior Notes are due for redemption in 2001 and $332 million
in 2006; the Senior Notes are at rates of 6.375% and 6.8% respectively. The
Company entered into currency swap transactions that effectively convert the US
dollar obligations of the Senior Notes into pounds sterling obligations, with a
nominal value of (pound)300 million.

       SWEB has established a commercial paper program in the US, first utilized
in February 1997 to reduce short-term bank loans. The maximum available under
the program, which is fully supported by a swingline facility provided by a
syndicate of banks, is $520 million. The amount not utilized at March 31, 1997
was $117 million. SWEB enters into foreign currency contracts to hedge the
currency risk associated with the interest and principal of each issue under
this program.

       The Company and SWEB have entered into agreements that effectively swap
into fixed rates, (pound)150 million of SWEB's variable-rate debt, for periods
of between 7 and 15 years.

       In January 1997, Southern Investments UK Capital Trust I (the "Trust"), a
statutory business trust formed under the laws of the State of Delaware and
established for the sole purpose of issuing its own securities and investing the
proceeds thereof in the 8.23% subordinated debentures issued by the Company and
scheduled to mature on February 1, 2027, sold $82 million of its 8.23% preferred
securities. The Company guarantees the Trust's obligations under the preferred
securities. The proceeds received by the Company from the sale of the preferred
securities were used in part to repay short-term bank loans. The Company has
also entered into foreign currency swap contracts to hedge the currency risk
associated with the interest and principal on the preferred securities, by
swapping the US dollar liabilities back to pounds sterling for the period to
February 2007. The nominal value of the swapped liabilities is (pound)50
million. The Company owns all of the common securities of the Trust, all of the
assets of which are the aforementioned subordinated debentures of the Company in
the aggregate principal amount of $84.5 million. The Company considers that the
mechanisms and obligations relating to the preferred securities, taken together,
constitute a full and unconditional guarantee by the Company of the Trust's
payment obligations with respect to the preferred securities.

                                     II-27


<PAGE>


SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
AND SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES (PREDECESSOR COMPANY)
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

       During the period from inception (June 23, 1995) to March 31, 1996, the
Company recorded an extraordinary gain of (pound)6 million ($10 million), net of
taxes, on the early extinguishment of UK government debt; this debt had been
allocated to SWEB at privatization. At the acquisition date, a fair value had
been allocated to this debt. The Company subsequently had opportunity to make an
offer to redeem the debt below its fair value as a result of changes in
circumstances not anticipated by SWEB.

12. SALE OF INVESTMENTS

       The Company's long-term investments accounted for under the cost method
consist of its 7.69% ownership of Teesside (Note 5), the fair value of which is
not readily determinable. The Company's short-term investments are classified as
available-for-sale under SFAS No. 115, the fair value of which approximated cost
at March 31, 1997.

       During fiscal year 1996, SWEB sold its share of The National Grid Holding
plc ("NGH") into the market, following the listing of the NGH shares on the
London Stock Exchange on December 11, 1995. At the Acquisition Date, the
eventual listing of shares in NGH was not certain as it required numerous
actions by the 12 RECs, NGH and the UK government followed by the consent of the
shareholders given at meetings of each of the 12 RECs on the terms of a listing.
Regardless of the outcome of the above uncertainties, the Company intended to
retain its investment even if such listing did ultimately occur. Accordingly,
management determined that it had all the facts necessary to complete a
calculation of the fair value of its long term investment in NGH, and it
utilized a discounted cash flow methodology to determine the asset's fair value
shortly after the Acquisition Date in accordance with APB No. 16. The Company's
valuation of (pound)199 million ($327 million) was within the range of
independent appraisals of NGH performed during the same period.

       Subsequent to the Acquisition Date, certain facts and circumstances
changed which increased the value of the Company's investment in NGH. First, the
listing of shares was structured in a manner found acceptable by the
shareholders of each of the RECs, thereby transforming the Company's illiquid
investment into a liquid investment. Additionally, while the Company viewed its
investment in NGH as long-term in nature at the Acquisition Date, the
acquisition of SWEB and the acquisition of several RECs subsequent to the
Acquisition Date caused the UK government to be concerned that the listing of
NGH would not result in NGH being broadly held by the public and that the NGH
would be controlled by the holding companies that had acquired, or announced
plans to acquire, RECs. As such, at the insistence of the UK government, each
REC, including SWEB, agreed to dispose of its investment in NGH within one year
of the listing and that such shares could not be retained by a REC's parent
holding company, such as the Company.

       SWEB disposed of its shares over a period of approximately two months
through a series of market transactions. The net proceeds of such sales were
(pound)201 million ($331 million) resulting in a pretax gain of (pound)14
million ($23 million). Further proceeds of (pound)12 million were received from
the sale of shares transferred to SWEB's former shareholders and brought the
total proceeds received to (pound)213 million. This gain is nonrecurring in
nature as it is the result of changes in circumstances after the fair valuation
of the investment in NGH resulting from the application of APB No. 16 which
valuation was finalized shortly after the Acquisition Date.

       The offering of NGH was conditional on the prior demerger of NGH's Pumped
Storage Business ("PSB") which was completed in November 1995. The fair value of
SWEB's holdings at acquisition in PSB was assessed at (pound)39 million ($64
million). PSB was subsequently sold. At March 31, 1997, proceeds of (pound)43
million ($71 million) had been received; a gain of (pound)4 million ($7 million)
has been recognized in fiscal year 1997.

                                     II-28


<PAGE>


        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
    AND SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES (PREDECESSOR COMPANY)
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

13. COMMON STOCKHOLDER'S EQUITY

       As discussed in Note 8, the Company obtained effective control of SWEB on
September 18, 1995. During October 1995, (pound)315 million ($518 million) of
advances from the parent of the Company were converted to share capital, an
equity contribution of (pound)185 million ($304 million) was received from the
parent of the Company, and a combination of short-term and long-term debt
financing was obtained to facilitate the payment of the former shareholders.
These transactions are reflected in the consolidated statements of cash flows.

       Dividends in the amount of (pound)191 million ($314 million) were
declared and paid by the Company during the period ending March 31, 1996 as
proceeds from the sale of the Company's shares in NGH (Note 12) provided cash in
addition to that provided from operations during the period.

       The Company's sole investment and only significant asset is the entire
share capital of SWEB. The Company is therefore dependent upon dividends from
SWEB for its cash flow. SWEB can make distribution of dividends to the Company
under English law to the extent that it has distributable reserves, subject to
the retention of sufficient financial resources to conduct its supply and
distribution businesses as required by its regulatory license. The Company
believes that currently sufficient distributable reserves will exist at SWEB to
allow for any and all cash flow generated at SWEB through operations to be
distributed to the Company through dividends to the Company. In the UK, the
Accounting Standards Board currently has a discussion paper reviewing this
treatment of deferred income tax accounting to be required in the future; SWEB's
distributable reserves could be significantly reduced by this matter.


14. SUBSEQUENT EVENTS

       On May 1, 1997 a new Labour government in the UK was elected and on 
June 10, 1997 a UK Court ruling on a pensions matter was announced.  See Notes
5 and 3 respectively.

       On July 2, 1997 the newly elected Labour government presented its first
budget which included a "one-off windfall levy on the excess profits of the
privatized utilities". Based upon the legislation, SWEB currently estimates its
liability to be approximately (pound)90 million. Earlier, the Company filed an
estimate of the windfall levy with the SEC. The Company has refined its estimate
based on final income data for the years the tax impacted. The levy is payable
in two equal installments on or before December 1, 1997 and December 1, 1998.

                                     II-29


<PAGE>


        SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (SUCCESSOR COMPANY)
    AND SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES (PREDECESSOR COMPANY)
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

15. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE 12
    MONTHS ENDED MARCH 31, 1996

       The following unaudited pro forma statement of income from continuing
operations is based upon the audited consolidated statement of income for the
period from inception (June 23, 1995) to March 31, 1996 of the Successor Company
and the audited consolidated statement of income of the Predecessor Company for
the period from April 1, 1995 to September 17, 1995, adjusted to reflect the
items described in notes (1) to (5) below as if the purchase business
combination had occurred at the beginning of the period.
<TABLE>
<CAPTION>

<S>                       <C>                       <C>                      <C>                               <C>

                                                                      (In Millions)
                         -------------------------------------------------------------------------------------------------------
                                Successor Period   |    Predecessor                                           Pro forma for
                               Inception (June 23, |  Period April 1,                                        the Year Ended
                               1995) to March 31,  |  1995 to September                                       March 31, 1996
                                      1996         |      17, 1995                  Adjustments
                                    (audited)      |     (audited)                                               US GAAP
                                     US GAAP       |      US GAAP
                         ---------------------------------------------  --------------------------------      ----------------
                                                   |
                 `                   (pound)       |  (pound)            1      2       3      4       5     (pound)
                                                   |
OPERATING REVENUES                        481      |       299           -      -       -      -       -          780
COST OF SALES                             318      |       186           -      -       -      -       -          504
                                         ----      |      ----         ---    ---     ---    ---      ---         ---
GROSS MARGIN                              163      |       113           -      -       -      -       -          276
                                         ----      |      ----         ---    ---     ---    ---      ---         ---
OPERATING EXPENSES:                                |
  Maintenance                              21      |        18           -      -       -      -       -           39
  Depreciation and amortization            22      |        15           3      2       -      -       -           42
  Selling, general, and  administrative    34      |        40           -      -       -      -      (8)          66
                                         ----      |      ----          ---    ---    ---    ---     ---          ---
     Total operating expenses              77      |        73           3      2       -      -      (8)         147
                                                   |
                                         ----      |      ----          ---    ---    ---    ---     ---          ---
     Operating  income                     86      |        40          (3)    (2)      -      -       8          129
                                         ----      |      ----          ---    ---    ---    ---     ---          ---
OTHER INCOME (EXPENSE):                            |
  Interest income                           7      |         2            -     -       -      -       -            9
  Interest expense                        (28)     |        (5)           -     -      (1)   (32)      -          (66)
  Gain on sale of investments              14      |         -            -     -       -      -     (14)           -
  Other, net                                2      |         1            -     -       -      -       -            3
                                         ----      |      ----          ---   ---     ---    ---    ---           ---
     Total other income (expense)          (5)     |        (2)           -     -      (1)   (32)    (14)         (54)
                                         ----      |      ----          ---   ---     ---    ---     ---          ---
INCOME  BEFORE INCOME TAXES                81      |        38           (3)   (2)     (1)   (32)     (6)          75
                                                   |
PROVISION FOR INCOME TAXES                 28      |        13           (1)   (1)      -    (11)     (2)          26
                                         ----      |      ----          ---   ---     ---    ---     ---          ---
INCOME FROM CONTINUING                             |
  OPERATIONS                               53      |        25           (2)   (1)     (1)   (21)     (4)          49
                                         ====      |      ====          ===   ===     ===    ===     ===          ===
</TABLE>


(1)   Depreciation expense which would have been recorded based on the valuation
      of property, plant, and equipment recorded in connection with the purchase
      business combination, as if such combination had occurred on April 1,
      1995. It has been provided using composite straight line rates which
      approximate 3.1% on an asset value of (pound)1,190 million for 170 days,
      less depreciation already charged to the Predecessor Company's
      consolidated statement of income.

(2)   Amortization of goodwill recorded in connection with the purchase business
      combination as if the combination had occurred on April 1, 1995.

(3)   Reflect the fair value of long-term debt obligations and associated
      interest expense recorded in connection with the purchase business
      combination as if the combination had occurred on April 1, 1995. The
      charge relates to notional interest ((pound)2 million) on a discounted
      provision for onerous purchase contracts (`Teesside'), partly offset by a
      reduction in interest to market rates on the HM Government debt put in
      place at privatization ((pound)1 million).

(4)   Reflect the interest expense recorded in connection with the purchase
      business combination as if the combination had occurred on April 1, 1995
      and had been 100% financed with short-term borrowings at an interest rate
      of 6% per year. The impact of a 1/8% change in the assumed interest rate
      would change income from continuing operations by (pound)0.4 million.

(5)   Remove gain on sale of investment in NGG and costs incurred by the
      Predecessor Company relating to bid defense associated with the
      Acquisition. An extraordinary gain of (pound)6 million ($10 million) on
      early extinguishment of debt during the successor period above, normally
      shown after income from continuing operations, has also been removed.

                                     II-30

<PAGE>

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

       None.

       At the request of the board of directors of SWEB, Ernst & Young,
Chartered Accountants, tendered their resignation, which was accepted effective
September 18, 1995, as independent auditors of SWEB, the report of which did not
contain an adverse opinion or disclaimer of opinion for the fiscal year 1994.
Nor was the report modified as to uncertainty, audit scope, or accounting
principles. During the fiscal year 1994, and to the date of their resignation,
September 18, 1995, there were no unresolved disagreements with Ernst & Young on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which would have warranted reference
to the subject matter of such disagreement(s) in connection with its report.

       On September 18, 1995, the board of directors of the Company approved the
engagement of Arthur Andersen, Independent Public Accountants, as independent
auditors of SWEB. Arthur Andersen has been the independent auditor of the
Company since its inception (June 23, 1995), and is the independent auditor of
Southern, the ultimate parent of SWEB.


                                     II-31


<PAGE>


                                     PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a) The following documents are filed as a part of this report on this Form
10-K:

         (1)    Financial Statements:
                The financial statements and the related reports of independent
                public accountants filed as a part of this annual report are
                listed under Item 8 herein.

         (2)    Financial Statement Schedules:

                Reports of Independent Public Accountants as to Schedules for
                SOUTHERN INVESTMENTS UK plc and Subsidiaries (Successor Company)
                and SOUTH WESTERN ELECTRICITY plc and Subsidiaries (Predecessor
                Company) are included herein on pages S-1 through S-2.

                Financial Statement Schedules for the Company are included
                herein on page S-3.


         (3)    Exhibits:
                Exhibits are listed in the Exhibit Index on page E-1 and E-2.

     (b) Reports on Form 8-K:
         The registrant has not filed any reports on Form 8-K during the last
         quarter of the fiscal year ended March 31, 1997.

                                      IV-1


<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant, Southern Investments UK plc, a public limited
company incorporated and existing under the laws of England and Wales, has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia, on the 12th day of
November, 1997.

                                    SOUTHERN INVESTMENTS UK plc

                                      
                                     By:     Richard J.Pershing
                                          Director and Chief Executive Officer


                                     By:/s/ WAYNE BOSTON
                                            Wayne Boston
                                            Attorney-in-Fact

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following directors and officers of Southern
Investments UK plc in the capacities and on the date indicated:

              Signature             Title                  Date

      RICHARD J. PERSHING           Chairman and Chief
                                    Executive Officer


      CARSON B. HARRELD            Chief Financial and
                                   Accounting Officer


      THOMAS G. BOREN         |
                              |
      GALE E. KLAPPA          |
                              |
      C. PHILIP SAUNDERS      |
                              |    Directors
      ACCENTACROSS LIMITED    |
                              |
      By: Robert D. Fagan     |
           Director           |
                              |
      MIGHTEAGER LIMITED      |
                              |
      By: Roger L. Petersen   |
           Director           |
                              |

      /s/ WAYNE BOSTON                                     November 12, 1997
         Wayne Boston
        Attorney-in-Fact


                                      IV-2

<PAGE>


             REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE

To the Board of Directors of Southern Investments UK plc:

We have audited in accordance with generally accepted auditing standards, the
financial statements of SOUTHERN INVESTMENTS UK plc AND SUBSIDIARIES (Successor
Company) included in this report and have issued our report thereon dated
November 12, 1997. Our audit was made for the purposes of forming an opinion on
the basic financial statements taken as a whole. The schedule listed in Item 14
(a) (2) is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. The schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.


/s/ Arthur Andersen
ARTHUR ANDERSEN

Bristol, England
November 12, 1997


                                      S-1


<PAGE>



             REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE


To the Board of Directors of South Western Electricity plc:

We have audited in accordance with generally accepted auditing standards, the
financial statements of SOUTH WESTERN ELECTRICITY plc AND SUBSIDIARIES
(Predecessor Company) included in this report and have issued our report thereon
dated November 12, 1997. Our audit was made for the purposes of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
in Item 14 (a) (2) is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

/s/ Arthur Andersen
ARTHUR ANDERSEN

Bristol, England
November 12, 1997


                                      S-2


<PAGE>

<TABLE>
<CAPTION>

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

      FOR THE YEARS ENDED MARCH 31, 1997, AND 1995 AND FOR THE PERIODS FROM
              INCEPTION (JUNE 23, 1995) TO MARCH 31, 1996 AND FROM
                       APRIL 1, 1995 TO SEPTEMBER 17, 1995

                                  (In Millions)

<S>                                                   <C>           <C>                <C>                <C>       <C>
                                                                             Additions
                                                                     -----------------------------
                                                                      Charged
                                                      Balance at      to Costs    Charged                         Balance at
                                                      Beginning         and      to Other                           End of
                                                      of Period      Expenses    Accounts    Deductions             Period
                                                      (pound)        (pound)      (pound)    (pound)               (pound)
                                                      ------------  ---------   ----------   ----------        --------------
 Provision for Uncollectable Accounts
   Predecessor Company
     Year-Ended March 31, 1995...............            13               7                      (8)              12
                                                         ==              ==                     ===               ==

     Period from April 1, 1995 to September 17,
        1995.................................            12               2                      (3)              11
                                                         ==              ==                     ===               ==


   Successor Company
     Period from Inception (June 23, 1995) to
        March 31, 1996 ......................            15 (1)           3                      (1)              17
                                                         ==              ==                     ===               ==

     Year-Ended March 31, 1997...............            17 (1)          (2)                     (3)              12
                                                         ==              ===                    ===               ==
-------------
(1)   In the period from inception (June 23, 1995) to March 31, 1996, the value shown includes an additional(pound)4 million of
      provision created resulting from application of purchase accounting at the acquisition.  In the year ended March 31, 1997,
      (pound)2 million of this provision was reversed as part of the review of the purchasing accounting adjustments.
</TABLE>


                                      S-3