<PAGE>
                                  FORM 10-Q



                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C.  20549




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

         For the quarterly period ended September 30, 1997
                                        ------------------

                                       OR

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

         For the transition period from _____________ to _____________



                         Commission File Number 0-17736
                                                -------

                                  ESELCO, INC. 
              ------------------------------------------------------
              (Exact name of registrant as specified in its charter)

        MICHIGAN                                               38-2785176 
  ----------------------                                  ----------------------
  State of Incorporation                                    (I.R.S. Employer 
                                                          Identification Number)
                            725 East Portage Avenue
                        Sault Ste. Marie, Michigan 49783
                    ----------------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (906) 632-2221
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

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

          1,593,180 shares of Common Stock, par value $.01 per share,
                     outstanding as of September 30, 1997

<PAGE>

                                  ESELCO, INC.

                         NOTES TO FINANCIAL STATEMENTS


(1)  These consolidated financial statements include the accounts of 
     ESELCO, Inc. (ESELCO) and its wholly owned subsidiaries, Edison Sault 
     Electric Company (Edison Sault), ESEG, Inc. and Northern Tree Service, 
     Inc. All significant intercompany balances and transactions have been 
     eliminated in consolidation. The consolidated financial statements as 
     of September 30, 1997 and 1996 included herein, which are unaudited, 
     reflect, in the opinion of management, all adjustments (which include 
     only normal recurring adjustments) necessary to present fairly the 
     results of operations for the periods presented. Sales of electricity 
     by Edison Sault, ESELCO's major subsidiary, are affected to some degree 
     by variations in weather conditions, and results of operations for 
     interim periods are not necessarily indicative of results to be 
     expected for the entire year.

     Certain information and footnote disclosures normally included in 
     financial statements prepared in accordance with generally accepted 
     accounting principles have been condensed or omitted pursuant to rules 
     and regulations of the Securities and Exchange Commission, although 
     ESELCO believes that the disclosures which are made are adequate to 
     make the information presented not misleading. It is suggested that 
     these condensed consolidated financial statements be read in 
     conjunction with the financial statements and the notes thereto 
     included in ESELCO, Inc. 1996 Annual Report on Form 10K, which 
     incorporates by reference the financial statements in the 1996 Annual 
     Report to Shareholders.

(2)  On October 6, 1997, the Board of Directors of ESELCO declared a 
     quarterly dividend on the common stock of 28 cents per share, payable 
     November 14, 1997 to stockholders of record at the close of business 
     November 3, 1997. The accompanying financial statements for the 
     period ending September 30, 1997 do not reflect this declared 
     dividend. 

(3)  On August 22, 1995, Edison Sault filed an application with the 
     Michigan Public Service Commission (MPSC) for authority to implement 
     price cap regulation. In the application Edison Sault proposed that 
     its base rates be capped at present levels, that its existing power 
     supply cost recovery (PSCR) factor be rolled into base rates, and that 
     its existing PSCR Clause be suspended. Edison Sault published the 
     required notice of opportunity to comment or request a hearing. No 
     comments were received and on September 21, 1995, the MPSC approved 
     Edison Sault's application subject to the modification that Edison 
     Sault give 30 days notice rather than 2 weeks notice for rate decreases 
     and that Edison Sault file an application by October 1, 2000, to 
     address its experience under the price cap mechanism. With the latter 
     modification the price cap authorization represents an experimental 
     regulatory mechanism. The order also allows Edison Sault to file an 
     application seeking an increase in rates only under extraordinary 
     circumstances.

     On October 23, 1995, the Attorney General for the State of Michigan 
     filed an intervention and petition for rehearing in Edison Sault's 
     price cap order. The Attorney General's intervention was based on the 
     grounds that the MPSC did not have authority to approve price cap 
     regulation. On December 21, 1995, the MPSC rejected the Attorney 
     General's petition for rehearing. On January 19, 1996, the Attorney 
     General filed an appeal with the Michigan

<PAGE>

     Court of Appeals.

     Legal counsel for Edison Sault believes that the Attorney General's 
     appeal is without merit and that Edison Sault will prevail. A decision 
     in this case is not expected until early to mid 1998. Edison Sault 
     implemented the price cap order on January 1, 1996.

(4)  In 1993, Edison Sault received notification from the U.S. 
     Environmental Protection Agency (U.S. EPA) that it was being named a 
     "Potentially Responsible Party" at the Manistique River/Harbor Area of 
     Concern (AOC) in Manistique, Michigan. There were a number of other 
     potentially responsible parties, some of whom have been notified by the 
     U.S. EPA.

     The U.S. EPA, in conjunction with the Michigan Department of Natural 
     Resources, identified the Manistique River and Harbor as an "Area of 
     Concern" (AOC) due to PCBs which have been found in that area. An 
     Environmental Engineering/Cost Analysis (EECA) was submitted to the 
     U.S. EPA which provided an analysis of various methods of remediation 
     for the harbor. The EECA presented six alternatives of remediation 
     action and ultimately recommended a remediation method of in-place 
     capping. Management believed this to be the most prudent course of 
     action. Although the total ultimate cost of specific remedial action 
     and Edison Sault's potential liability were not known at that time, 
     management had estimated Edison Sault's minimum cost of this remedy to 
     be $2.9 million. That figure represented an increase of $1.9 million 
     from the amount recorded during 1994. Certain other expenditures for 
     investigation of any necessary remedial action were incurred and are 
     reflected in the accompanying financial statements.

     During 1995 and 1996, the U.S. EPA agreed to allow the PRPs to 
     remediate the harbor through in-place capping at a total cost of $6.4 
     million, with the Edison Sault portion costing $3.2 million. Through 
     further negotiations, the U.S. EPA and the PRPs agreed to a cash-out 
     settlement whereby the PRPs would pay to the U.S. EPA the $6.4 million 
     cost of capping for the right to be absolved from any future legal 
     actions concerning PCB pollution. To effect this settlement, an 
     Administrative Order on Consent was executed by all parties in 
     December, 1996 with payments made to the U.S. EPA prior to year-end 
     1996.

     To date, Edison Sault has incurred a total cost of $3.6 million on this 
     project. Edison Sault filed an action on February 4, 1997 in the 
     Circuit Court for the County of Schoolcraft, Michigan against certain 
     insurance carriers to recover unreimbursed defense costs and expenses 
     associated with defending this matter of approximately $350,000 and 
     indemnification for its costs of approximately $3.2 million in settling 
     the matter with the U.S. EPA and obtaining a release of the property 
     damage claims asserted by the U.S. EPA. The certainty and magnitude of 
     any insurance recovery is unknown at this time. On April 28, 1997, 
     Michigan Mutual Insurance Company filed a counterclaim for 
     approximately $1.7 million for previously paid defense costs. Legal 
     counsel for Edison Sault believes, based on the information currently 
     available, that the counterclaim lacks merit.

     In November 1993, the MPSC issued an order authorizing Edison Sault to 
     defer and amortize, over a period not to exceed ten years, 
     environmental assessment and remediation costs associated with the 
     Manistique River AOC. Therefore, Edison Sault has recorded a regulatory 
     asset in the amount of $3.2 million, plus unreimbursed costs of 
     $350,000, for a total of $3.55 million, which it began amortizing in 
     1997.

<PAGE>

(5)  On May 14, 1997 ESELCO, Inc. and Wisconsin Energy Corporation 
     (Wisconsin Energy) announced that they had entered into a definitive 
     agreement regarding the acquisition of ESELCO by Wisconsin Energy. The 
     terms of the definitive agreement were approved by both companies' 
     boards. On October 7, 1997, at a special meeting of shareholders of 
     ESELCO, ESELCO's shareholders approved the definitive agreement and 
     related transactions. 

     Upon completion of the transaction, all outstanding shares of ESELCO 
     common stock would be converted into shares of Wisconsin Energy common 
     stock based on a value of $44.50 for each share of ESELCO common stock 
     in a transaction proposed to be structured as a tax-free 
     reorganization. The total purchase price would be approximately $71.0 
     million. The exact number of shares of Wisconsin Energy common stock 
     to be issued in the transaction would be determined by dividing $44.50 
     by the average closing price of Wisconsin Energy common stock for the 
     ten trading days immediately preceding the closing date. Pursuant to 
     the definitive agreement, Wisconsin Energy will be paid a fee of $2.0 
     million if ESELCO consummates or enters into an agreement with respect 
     to, a business combination with a party unrelated to Wisconsin Energy 
     or ESELCO terminates the definitive agreement to pursue a business 
     combination with a party unrelated to Wisconsin Energy prior to the end 
     of the period specified in the agreement. 

     The transaction is contingent upon several conditions, including 
     receipt of all regulatory approvals. There can be no assurance that 
     the conditions will be satisfied or that the transaction will be 
     consummated.

<PAGE>

                                      ESELCO, INC.

Item 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

Operating revenues for the third quarter of 1997 were 3% higher than the 
corresponding period in 1996, while total kilowatthour sales increased 2%. 
Commercial sales are up about 5% while industrial sales were up 6% based on 
increased sales to all of our industrial customers. Residential sales were 
the same as last year. Sales for resale were 5% lower than last year. 

Purchased power expense increased 1% because of increased requirements 
partially offset by a lower average cost. 

Other operating and maintenance expenses increased 6% during the third 
quarter of 1997 due to an increase in payroll and associated employee 
benefits costs as well as the ten year write-off of costs associated with the 
Manistique Harbor EPA Project. 

Depreciation and amortization expenses increased 8% due to the Edison Sault's 
ongoing construction program. 

Interest expense increased 2%, primarily due to an increase in borrowing 
which included a term loan to cover the payment to the  U.S. EPA  in 
connection with the Manistique Harbor EPA Project.

Based on the above changes, net income available for common stock increased 
2% from last year. 

NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

Operating revenues for 1997 were 3% higher than last year, while total 
kilowatthour sales increased 1%. Residential and commercial sales are up only 
slightly from last year reflecting warmer weather in 1997. Industrial sales 
were up 4% based on increased sales to three of our four industrial 
customers. Resale sales are down slightly, however, revenue is higher due to 
the pass through of cost from the new Consumers Energy purchased power 
contract. 

Purchased power expense decreased 3% due to a lower average purchased power 
cost realized through the new power sales agreement with Consumers Energy. 
Included in purchased power expenses is an accrued net credit of $520,000 
which reflects anticipated reductions in transmission costs resulting from 
negotiations with Consumers Energy. A final settlement  of this issue is 
expected before year end. 

Other operating and maintenance expenses increased 8% during 1997 due to an 
increase in payroll and associated employee benefits costs as well as the ten 
year write-off of costs associated with the Manistique Harbor EPA Project. 

Income taxes increased $159,900 due to the increase in taxable income. 

<PAGE>

Interest expense increased 10%, primarily due to an increase in borrowing 
which included a term loan to cover the payment to the  U.S. EPA in 
connection with the Manistique Harbor EPA Project.

Based on the above changes, net income available for common stock increased 
20% from last year. 

TWELVE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

Operating revenues during the current twelve month period were 3% higher than 
a year ago. Total electric sales increased 1% during the current twelve month 
period. Residential sales were down during the period while commercial and 
industrial sales increased 1% and 4% respectively. Resale sales were down 
slightly for the period. 

Purchased power expense decreased 2% due to higher cost energy purchases 
being replaced with lower cost energy from American Electric Power Company 
and lower average cost energy from Consumers Energy including a credit for 
anticipated reductions in transmission costs. 

Other operating and maintenance expenses were up 9% during the current twelve 
month period, due to increased payroll and associated employee benefit costs 
and higher water costs reflecting higher rates and additional water available 
for generation at Edison Sault's hydro plant. In addition, the current period 
includes the write off of costs associated with the Manistique Harbor EPA 
Project. 

Depreciation and amortization expenses increased 7% due to Edison Sault's 
ongoing construction program. 

Based on an increase in taxable income, income taxes increased 12% during the 
period. 

Based on the above changes, net income available for common stock increased 
17% from the prior twelve month period. 

LIQUIDITY AND CAPITAL COMMITMENTS

INVESTING ACTIVITIES  ESELCO invested $3,350,000 in property, plant, and 
equipment in the nine month period ending September 30, 1997. For the same 
period in 1996, ESELCO invested approximately $3,314,000 in property, plant 
and equipment.

Investment expenditures during both periods included costs associated with 
the planned construction of a new 138 KV interconnection with Wisconsin 
Electric Power Company. This project has a planned completion date of 1999. 
Edison Sault's projected share of the cost of this project is $9.3 to $13.0 
million. Most of these expenditures are expected to be made in late 1997 and 
1998. 

In December, 1996 ESEG, Inc. (ESEG) signed a purchase agreement with 
Consumers Power Company for the purchase of a 138 KV submarine circuit across 
the Straits of Mackinac. Since 1990, Edison Sault has leased these cables at 
an annual net lease cost of approximately $466,000. ESEG, a wholly-owned 
subsidiary of ESELCO, has been an inactive subsidiary of ESELCO. ESEG will 
lease the cables to Edison Sault under an operating lease arrangement. The 
purchase and lease have been approved by the Federal Energy Regulatory 
Commission (FERC). The cost of the purchase, which is expected to be 
consummated in 1997, will be approximately $3.8 million. 

<PAGE>

CASH PROVIDED BY OPERATING AND FINANCE ACTIVITIES  Cash provided by 
operating activities for the nine month periods ending September 30, 1997, 
and September 30, 1996, totalled $4,226,000 and $3,531,000, respectively. 
After payment of dividends, internal sources of funds exceeded the capital 
requirements of ESELCO for the nine months ending September 30, 1997. Profoma 
dividends for the nine months ending September 30, 1997, totalled $1,325,000 
which represented a 56% payout ratio. For the same period in 1996, dividends 
totalled $1,218,000 which represented a 61% dividend payout ratio. 

During 1996, Edison Sault borrowed $3.2 million under a bank term loan 
agreement. The proceeds from this loan were used for payment to the U.S. EPA 
in settlement of the Manistique Harbor Project. In addition, ESEG has 
arranged bank term loan financing for its planned acquisition of the 138 KV 
submarine cables described above.
 

Edison Sault has authority to issue up to $10 million in short-term 
obligations. Included in this authority is a line of credit in the amount of 
$4 million at the prime rate. In addition, Edison Sault has authority to 
issue short-term thrift notes to Michigan residents. The Company's short-term 
financing requirements relate primarily to financing customer accounts 
receivable, unbilled revenue resulting from cycle billing, and capital 
expenditures until permanently financed. 

At September 30, 1997, the Company had approximately $6.4 million of unused 
bank line of credit and additional energy thrift notes. These two sources of 
short-term financing should be  sufficient to meet the Company's short-term 
capital requirements.

ESELCO's shareholders reinvested approximately $207,000 through the dividend 
reinvestment plan (DRP) in 1997. For the nine month period ending September 
30, 1996, the DRP provided $569,000 of capital. 

Effective March 24, 1997 the Board of Directors of ESELCO, Inc. declared the 
suspension of the DRP. The DRP has been suspended pending the potential 
acquisition of ESELCO, Inc. by Wisconsin Energy Corporation. 

At September 30, 1997, the long-term portion of first mortgage bonds totalled 
$6,170,000 which is a decrease of $1,825,000 from the December 31, 1996 
amount. First mortgage bonds are secured by the utility plant of Edison 
Sault. At December 31, 1996, there was approximately $10.4 million of 
unutilized bond financing capability resulting from plant additions and bond 
retirements. 

Edison Sault also has authority to issue up to $10 million in long-term 
energy thrift notes to Michigan residents. At September 30, 1997, the 
long-term portion of energy thrift notes outstanding was $5,549,000 which is 
an increase of $194,000 over the December 31, 1996 amount.

<PAGE>

PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

See Note 4 of the Notes to Financial Statements in Item 1 Part I herein. 
Edison Sault filed an action on February 4, 1997 in the Circuit Court for the 
County of Schoolcraft, Michigan against certain insurance carriers to recover 
unreimbursed defense costs and expenses associated with defending this matter 
of approximately $350,000 and indemnification for its costs of approximately 
$3.2 million in settling the matter with the U.S. EPA and obtaining a release 
of the property damage claims asserted by the U.S. EPA. The certainty and 
magnitude of any insurance recovery is unknown at this time. On April 28, 
1997, Michigan Mutual Insurance Company filed a counterclaim for 
approximately $1.7 million for previously paid defense costs. Legal counsel 
for Edison Sault believes, based on the information currently available, that 
the counterclaim lacks merit.

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

On October 7, 1997, ESELCO Inc. held a special meeting of shareholders for 
the purpose of asking shareholders to approve an Amended and Restated 
Agreement and Plan of Reorganization dated as of May 13, 1997, as amended and 
restated as of July 11, 1997, including the related Plan of Merger (together, 
the "Reorganization Agreement"), which provides for the merger (the "Merger") 
of ESL Acquisition Inc. ( Acquisition), a wholly owned subsidiary of 
Wisconsin Energy Corporation ("Wisconsin Energy"), with and into ESELCO.

This plan was approved by the Shareholders by a vote of 1,220,687 shares FOR 
and 14,755 shares AGAINST such approval. There were 1,658 abstentions and no 
broker non-votes with respect to such matter.

Of the 1,593,180 shares of common stock outstanding and entitled to vote on 
the record date of August 27, 1997, 78% of the shares were represented at the 
meeting. 

<PAGE>

Item 6.   Exhibits and Reports on Form 8-K

     (a)  List of Exhibits.

<TABLE>
<CAPTION>
                                                                                   Filed
Exhibit                                                                   ------------------------
  No.                    Description  of  Exhibit                         Herewith    By Reference
-------   -------------------------------------------------------------   --------    ------------
<C>       <S>                                                             <C>         <C>
  (2)     Amended and Restated Agreement and Plan of Reorganization 
          by and among Wisconsin Energy Corporation and ESELCO,
          Inc. and ESL Acquisition, Inc., dated as of May 13, 1997,
          as amended and restated as of July 11, 1997. (6)                                   *

  (3)     (a) Articles of Incorporation as filed on January 6, 1989. (6)                     *

          (b) Amendment to Articles of Incorporation as filed on 
              August 7, 1997. (6)                                                            *

          (c) Bylaws. (6)                                                                    *

  (4)     Instruments defining the rights of security holders, 
          including indentures:

          (a) Mortgage and Deed of Trust as of March 1, 1952. (1)                            *

          (b) Supplemental Indenture dated as of February 1, 1957. (1)                       *

          (c) Second Supplemental Indenture dated as of 
              January 1, 1964. (1)                                                           *

          (d) Third Supplemental Indenture dated as of 
              February 1, 1968. (1)                                                          *

          (e) Fourth Supplemental Indenture dated as of 
              September 15, 1975. (1)                                                        *

          (f) Fifth Supplemental Indenture dated as of 
              October 1, 1986. (2)                                                           *

          (g) Sixth Supplemental Indenture dated as of 
              April 1, 1989. (4)                                                             *

          (h) Seventh Supplemental Indenture dated as of 
              February 15, 1992. (5)                                                         *

          (i) Debenture Indenture dated as of August 1, 1973. (1)                            *

          (j) Form of Long-Term Energy Thrift Note. (3)                                      *

 (10)     (a) Form of Executive Severance Agreement. (6)                                     *

          (b) 1996 ESELCO, Inc. Restricted Stock Bonus Plan. (6)                             *

          (c) ESELCO, Inc. Director's Retirement Plan, as amended 
              January 1, 1995. (6)                                                           *

          (d) Edison Sault Electric Company Director's Fee Deferral Plan, 
              October 1, 1989. (6)                                                           *

          (e) Edison Sault Electric Company ESELCO Director's Fee 
              Deferral Plan, January 1, 1986. (6)                                            *

          (f) Supplemental Executive Retirement Plan of Edison Sault 
              Electric Company, as amended as of August 17, 1995. (6)                        *

 (27)     Financial Data Schedule                                           *
</TABLE>

<PAGE>

Key to Exhibits Incorporated by Reference:

    (1) Filed with the Company's Registration Statement, Form S-16, 
        No. 2-67191, filed April 2, 1980.
    (2) Filed with the Company's Form 10-K for 1986, dated March 30, 1987, 
        File No. 0-1158.
    (3) Filed with the Company's Registration Statement, Amendment No. 2 to
        Form S-3, No. 2-67191, filed February 16, 1988.
    (4) Filed with the Company's Form 10-Q for June 30, 1989, dated 
        August 11, 1989, File No. 0-17736.
    (5) Filed with the Company's Form 10-Q for March 31, 1992, dated 
        May 13, 1992, File No. 0-17736.
    (6) Filed with the Company's Form 10-Q for June 30, 1997, dated 
        August 11, 1997, File No. 0-17736.


Item 6. (b) Reports on Form 8-K

     The following reports on Form 8-K were filed during the three months
     ended September 30, 1997.

          None.



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

                                         ESELCO, INC.
                                         (Registrant)

Date November 12, 1997                     /s/ William R. Gregory

                                         WILLIAM R. GREGORY
                                         Its President


Date November 12, 1997                     /s/ David R. Hubbard

                                         DAVID R. HUBBARD
                                         Its Vice President-Finance

<PAGE>

PART I. - FINANCIAL INFORMATION
     ITEM 1. - FINANCIAL STATEMENTS

                               E S E L C O, INC.
                  CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
                                                 September 30,   December 31,
                                                    1 9 9 7        1 9 9 6
                                                  -----------    -----------
<S>                                              <C>            <C>
ASSETS:
  ELECTRIC PLANT, at original cost                $74,890,260    $71,802,321
    Less - Accumulated depreciation                31,629,436     29,671,038
                                                  -----------    -----------
                                                  $43,260,824    $42,131,283
    Asset acquired under capital lease              2,795,821      2,851,622
                                                  -----------    -----------
                                                  $46,056,645    $44,982,905
                                                  -----------    -----------
  CURRENT ASSETS:
    Cash                                          $   118,055    $   293,883
    Accounts receivable, less reserve of $26,203
      and $32,000 respectively                      3,709,612      2,999,783
    Unbilled revenue                                1,576,226      1,693,826
    Materials and supplies, at average cost         1,158,311      1,148,046
    Prepayments                                     1,160,498      1,966,932
                                                  -----------    -----------
                                                  $ 7,722,702    $ 8,102,470
                                                  -----------    -----------
  OTHER ASSETS:
    Debt expense, being amortized                 $    23,572    $    28,972
    Regulatory asset                                3,246,481      3,510,181
    Other                                           1,255,269        531,193
                                                  -----------    -----------
                                                  $ 4,525,322    $ 4,070,346
                                                  -----------    -----------
                                                  $58,304,669    $57,155,721
                                                  -----------    -----------
                                                  -----------    -----------
STOCKHOLDERS' INVESTMENT AND LIABILITIES:
  CAPITALIZATION (See Statement):
    Common equity                                 $22,343,982    $20,234,722
    Preferred stock                                         0              0
    Long-term debt (less current portion)          14,817,450     16,898,187
                                                  -----------    -----------
                                                  $37,161,432    $37,132,909
                                                  -----------    -----------
  OTHER NONCURRENT LIABILITIES:
    Obligation under capital lease                $ 2,711,874    $ 2,775,905
                                                  -----------    -----------
  CURRENT LIABILITIES:
    Notes payable                                 $ 2,179,000    $ 1,119,000
    Current portion of long-term debt               3,157,516      2,877,323
    Current portion of lease obligation                83,947         75,717
    Accounts payable                                3,012,184      2,143,082
    Dividends declared                                      0        415,960
    Accrued taxes                                     880,283      1,754,101
    Current deferred income taxes                      59,555         66,755
    Accrued interest                                  395,665        166,215
    Other                                             145,862        270,116
                                                  -----------    -----------
                                                  $ 9,914,012    $ 8,888,269
                                                  -----------    -----------
  DEFERRED CREDITS:
    Deferred income taxes                         $ 4,247,356    $ 4,454,626
    Net regulatory liability                        1,202,526      1,193,526
    Unamortized investment tax credit                 822,781        873,181
    Other                                           2,244,688      1,837,305
                                                  -----------    -----------
                                                  $ 8,517,351    $ 8,358,638
                                                  -----------    -----------
                                                  $58,304,669    $57,155,721
                                                  -----------    -----------
                                                  -----------    -----------
</TABLE>
<PAGE>

                E S E L C O, INC.

      CONSOLIDATED STATEMENT OF CAPITALIZATION

<TABLE>
<CAPTION>
                                                                                   September 30,        December 31,
                                                                                      1 9 9 7             1 9 9 6
                                                                                 ----------------    ----------------
                                                                                   AMOUNT      %       AMOUNT      %
                                                                                 ----------   ---    ----------   ---
<S>                                                  <C>          <C>           <C>           <C>   <C>           <C>
COMMON EQUITY:
  COMMON STOCK, par value $.01 per share

                                                         1997         1996
                                                      ---------    ---------
      Authorized shares                               9,840,000    3,000,000
                                                      ---------    ---------
                                                      ---------    ---------
      Outstanding shares                              1,593,180    1,540,592    $    15,932         $    15,406
                                                      ---------    ---------
                                                      ---------    ---------
  Capital surplus                                                                19,256,710          17,331,579

  Retained earnings                                                               3,971,719           4,204,585

  Unearned compensation - ESOP and
    Restricted Stock Bonus Plan                                                    (900,379)         (1,316,848)
                                                                                -----------         -----------
                                                                                $22,343,982   60%   $20,234,722   54%
                                                                                -----------         -----------


PREFERRED STOCK, value $.01 per share, 
  authorized 160,000 shares                                                     $         0    0%   $         0    0%
                                                                                -----------         -----------

LONG-TERM DEBT of Subsidiaries (less current portion)
  First Mortgage Bonds:
    Series D,  7.00%, due 1998                                                  $         0         $   855,000
    Series F, 10.31%, due 2001                                                      900,000           1,200,000
    Series G, 10.25%, due 2009                                                    4,070,000           4,440,000
    Series H,  7.90%, due 2002                                                    1,200,000           1,500,000

  Energy Thrift Notes, 5.8%-10%, due 1998-2007                                    5,549,000           5,355,000

  Equipment Loan, Floating Rate, due 1998                                           104,797             147,786

  ESOP Loans of the Corporation,
    floating rate, due 2000-2001                                                    179,998             421,110

  Term Loan, floating rate, due 1999                                              2,813,655           2,979,291
                                                                                -----------         -----------
                                                                                $14,817,450   40%   $16,898,187   46%
                                                                                -----------  ---    -----------  ---

      TOTAL CAPITALIZATION                                                      $37,161,432  100%   $37,132,909  100%
                                                                                -----------  ---    -----------  ---
                                                                                -----------  ---    -----------  ---
</TABLE>
<PAGE>

                               E S E L C O, INC.

                       CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                 The Three Months               The Nine Months             The Twelve Months
                                                Ended September 30,           Ended September 30,          Ended September 30,
                                             -------------------------    --------------------------    --------------------------
                                                1997           1996           1997           1996           1997          1996
                                             ----------     ----------    -----------    -----------    -----------    -----------
<S>                                         <C>            <C>           <C>            <C>            <C>            <C>
OPERATING REVENUES                           $9,302,926     $9,045,070    $28,648,048    $27,770,257    $38,377,722    $37,149,373
                                             ----------     ----------    -----------    -----------    -----------    -----------
OPERATING EXPENSES: 
  Operation - Purchased power                $4,384,322     $4,326,233    $13,629,019    $13,994,190    $18,485,864    $18,845,612
            - Other                           1,759,282      1,594,720      5,528,047      4,904,080      7,367,240      6,503,301
  Maintenance                                   513,720        544,151      1,577,557      1,693,327      2,026,389      2,101,531
  Depreciation and amortization                 700,259        645,193      2,100,697      1,961,019      2,754,073      2,569,738
  Property and other taxes                      404,712        405,770      1,209,778      1,172,006      1,594,123      1,581,677
  Income taxes                                  343,300        344,400      1,029,700        869,800      1,407,096      1,255,784
                                             ----------     ----------    -----------    -----------    -----------    -----------
    Total operating expenses                 $8,105,595     $7,860,467    $25,074,798    $24,594,422    $33,634,785    $32,857,643
                                             ----------     ----------    -----------    -----------    -----------    -----------

    Net operating income                     $1,197,331     $1,184,603    $ 3,573,250     $3,175,835     $4,742,937     $4,291,730
                                             ----------     ----------    -----------    -----------    -----------    -----------
OTHER INCOME (DEDUCTIONS), NET                 ($36,267)       ($8,452)      ($67,228)      ($55,174)      ($59,648)      ($41,328)
                                             ----------     ----------    -----------    -----------    -----------    -----------
ALLOWANCE FOR FUNDS USED
  DURING CONSTRUCTION                           $39,900             $0       $119,700             $0       $119,700             $0
                                             ----------     ----------    -----------    -----------    -----------    -----------
INTEREST CHARGES:
  Interest on long-term debt                 $  387,014     $  347,092    $ 1,171,067    $ 1,012,290    $ 1,526,164    $ 1,347,949
  Other interest                                 18,410         49,597         67,409        112,911         86,954        173,417
                                             ----------     ----------    -----------    -----------    -----------    -----------
    Total interest charges                   $  405,424     $  396,689    $ 1,238,476    $ 1,125,201    $ 1,613,118    $ 1,521,366
                                             ----------     ----------    -----------    -----------    -----------    -----------

NET INCOME AVAILABLE FOR COMMON 
  STOCK                                      $  795,540     $  779,462    $ 2,387,246    $ 1,995,460    $ 3,189,871    $ 2,729,036
                                             ----------     ----------    -----------    -----------    -----------    -----------
                                             ----------     ----------    -----------    -----------    -----------    -----------

EARNINGS PER AVERAGE SHARE OF 
  COMMON STOCK                                    $0.50          $0.50          $1.50          $1.29          $2.01          $1.77 
                                                  -----          -----          -----          -----          -----          -----
                                                  -----          -----          -----          -----          -----          -----

CASH DIVIDENDS DECLARED PER 
  SHARE OF COMMON STOCK                           $0.28          $0.26          $0.83          $0.78          $1.09          $1.02
                                                  -----          -----          -----          -----          -----          -----
                                                  -----          -----          -----          -----          -----          -----

AVERAGE COMMON SHARES OUTSTANDING             1,593,180      1,569,635      1,591,829      1,548,406      1,589,706      1,542,472
                                             ----------     ----------    -----------    -----------    -----------    -----------
                                             ----------     ----------    -----------    -----------    -----------    -----------
</TABLE>

<PAGE>

                                E S E L C O, INC.

                       CONSOLIDATED STATEMENT OF CASH FLOW
               FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                   1997           1996
                                                                ----------     ----------
<S>                                                            <C>            <C>
NET CASH FLOWS FROM (USED BY):
OPERATING ACTIVITIES:
  Net income                                                    $2,387,246     $1,995,460
  Noncash expenses, revenue, losses and gains
    included in income
      Depreciation and amortization                              2,149,812      2,031,084
      Deferred taxes and charge equivalent to
        investment tax credit, net of amortization                (255,870)       741,582
      Net decrease (increase) in receivables and
        unbilled revenue                                          (592,229)       253,681
      Net decrease (increase) in materials and 
        supplies and prepayments                                   796,169        517,893
      Net increase (decrease) in accounts payable, 
        accrued taxes, and other current liabilities              (128,970)    (2,154,662)
      Increase (decrease) in interest accrued 
        but not paid                                               229,450        158,108
      Other                                                       (359,505)       (12,476)
                                                                ----------     ----------
        Net cash from operating activities                      $4,226,103     $3,530,670
                                                                ----------     ----------

INVESTING ACTIVITIES:
  Acquisition of property, plant and equipment                 ($3,349,799)   ($3,314,233)
  Proceeds from disposals of property, plant
    and equipment                                                   75,846         23,212
                                                                ----------     ----------
        Net cash used by investing activities                  ($3,273,953)   ($3,291,021)
                                                                ----------     ----------

FINANCING ACTIVITIES:
  Proceeds of short-term debt                                   $7,546,500     $9,131,500
  Payments to settle short-term debt                            (6,486,500)    (9,818,000)
  Issuance of long-term debt (net)                                 910,000      2,123,000
  Payments on long-term debt                                    (2,425,475)    (1,216,153)
  Proceeds from sale of common stock                               206,844        569,084
  Dividends paid                                                  (879,347)    (1,217,881)
                                                                ----------     ----------
        Net cash used by financing activities                  ($1,127,978)     ($428,450)
                                                                ----------     ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             ($175,828)     ($188,801)

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR             293,883        302,845
                                                                ----------     ----------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD              $  118,055     $  114,044
                                                                ----------     ----------
                                                                ----------     ----------
  INTEREST PAID                                                 $1,111,513     $1,030,118
                                                                ----------     ----------
                                                                ----------     ----------
  INCOME TAXES PAID                                             $  730,000     $  645,000
                                                                ----------     ----------
                                                                ----------     ----------
</TABLE>