AMERICAN ELECTRIC POWER COMPANY INC, U-1, 1998-10-13

AMERICAN ELECTRIC POWER COMPANY INC
U-1, 1998-10-13
ELECTRIC SERVICES

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<PAGE> 1
File No. 70-

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

* * *
FORM U-1
APPLICATION OR DECLARATION
under the
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935

* * *
AMERICAN ELECTRIC POWER COMPANY, INC.
1 Riverside Plaza, Columbus, Ohio 43215
---------------------------------------

and

CENTRAL AND SOUTH WEST CORPORATION
1616 Woodall Rodgers Freeway, Dallas, Texas 75202
-------------------------------------------------

(Name of companies and top registered holding company
parents filing this statement and address
of principal executive offices)

* * *
<TABLE>
<S> <C>
Armando A. Pena Wendy G. Hargus
Treasurer Treasurer
American Electric Power Company, Inc. Central and South West Corporation
1 Riverside Plaza 1616 Woodall Rodgers Freeway
Columbus, OH 43215 Dallas, TX 75202

Susan Tomasky Jeffrey D. Cross
Senior Vice President and General Counsel Vice President and General Counsel
American Electric Power Company, Inc. AEP Resources, Inc.
1 Riverside Plaza 1 Riverside Plaza
Columbus, OH 43215 Columbus, OH 43215

Marianne K. Smythe Joris M. Hogan
Wilmer, Cutler & Pickering Milbank, Tweed, Hadley & McCloy
2445 M Street, N.W. 1 Chase Manhattan Plaza
Washington, DC 20037-1420 New York, NY 10005
</TABLE>

(Names and addresses of agents for service)

<PAGE> 2

TABLE OF CONTENTS

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Page
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<S> <C> <C>
ITEM 1. DESCRIPTION OF MERGER............................................................1
A. INTRODUCTION...........................................................1
B. DESCRIPTION OF THE PARTIES TO THE MERGER...............................3
1. General Description........................................3
2. Description of Energy Sales and Facilities................12
3. Electric Coordination.....................................22
C. DESCRIPTION OF MERGER AND STATEMENT AS TO
CONSIDERATION.........................................................25
1. Background of the Merger..................................25
2. Merger Agreement..........................................26
3. Reasons for the Merger....................................27
4. AEP Management Following the Merger.......................28

ITEM 2. FEES, COMMISSIONS AND EXPENSES..................................................28

ITEM 3. APPLICABLE STATUTORY PROVISIONS.................................................29
A. SECTION 10(b).........................................................31
1. Section 10(b)(1)..........................................31
2. Section 10(b)(2)..........................................40
3. Section 10(b)(3)..........................................47
B. SECTION 10(c).........................................................50
1. Section 10(c)(1)..........................................50
2. Section 10(c)(2)..........................................71
C. SECTION 10(f).........................................................73
D. INTRA-SYSTEM FINANCING AND OTHER COMMISSION
AUTHORIZATIONS........................................................73
E. SERVICE AGREEMENT; APPROVAL OF
METHODOLOGY FOR ALLOCATING COSTS UNDER THE
SERVICE AGREEMENT.....................................................74
F. ACQUISITION OF NON-UTILITY BUSINESSES.................................75
G. ORGANIZATION OF MERGER SUB; ACQUISITION OF
MERGER SUB COMMON STOCK...............................................76

ITEM 4. REGULATORY APPROVAL.............................................................76
A. ANTITRUST CONSIDERATIONS..............................................77
B. ATOMIC ENERGY ACT.....................................................77
C. FEDERAL POWER ACT.....................................................78
D. COMMUNICATIONS ACT....................................................78
E. ARKANSAS COMMISSION...................................................78
</TABLE>

<PAGE> 3
<TABLE>
<S> <C> <C>
F. LOUISIANA COMMISSION..................................................78
G. OKLAHOMA COMMISSION...................................................79
H. TEXAS COMMISSION......................................................79
I. AFFILIATE CONTRACTS...................................................80

ITEM 5. PROCEDURE.......................................................................80

ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS...............................................80

ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS.........................................82
</TABLE>

<PAGE> 4

GLOSSARY OF TERMS

The following abbreviations or acronyms used in this Application-Declaration are
defined below:

<TABLE>
<S> <C>
250 MW Contract Path Contractual reservation of 250 MW over the Ameren
system providing firm point-to-point transmission service from
AEP's Breed-Casey interconnection with Ameren to CSW's
MOKANOK line interconnection with Ameren

AEGCo AEP Generating Company

AEP American Electric Power Company, Inc. before the Merger,
unless the context indicates otherwise

AEPC AEP Communications, LLC

AEP Common Stock AEP common stock, $6.50 par value

AEPES AEP Energy Services, Inc. (formerly, AEP Energy
Solutions, Inc.)

AEPRESCO AEP Resources Service Company (formerly, AEP Energy
Services, Inc.)

AEP Resources AEP Resources, Inc.

AEPSC American Electric Power Service Corporation

AEP System American Electric Power System, an integrated electric
utility system owned and operated by AEP's U.S. electric utility
subsidiaries

Ameren Ameren Corporation, a public utility holding company
registered under the 1935 Act

Antitrust Division Antitrust Division of U.S. Department of Justice

APCo Appalachian Power Company

Applicants AEP and CSW

Arkansas Commission Arkansas Public Service Commission
</TABLE>

iii

<PAGE> 5

<TABLE>
<S> <C>
Atomic Energy Act Atomic Energy Act of 1954, as amended

C3 Communications C3 Communications, Inc.

Commission Securities and Exchange Commission

Central Dispatch Planning Computer software program, developed by the Applicants
using proprietary technology and technology licensed
from third parties, which forecasts the generation needs of
the Combined System and schedules each generating unit
accordingly

Central Economic Dispatch Computer software program, developed by the Applicants
using proprietary technology and technology licensed from
third parties, which adjusts, every four seconds, the
dispatch of each generating unit within the Combined System

Combined Company AEP following the Merger

Combined System System resulting from combination of the AEP System and
CSW System following the Merger

CPL Central Power and Light Company

CSPCo Columbus Southern Power Company

CSW Central and South West Corporation before the Merger,
unless the context indicates otherwise

CSW Common Stock CSW common stock, $3.50 par value

CSW Credit CSW Credit, Inc.

CSW Energy CSW Energy, Inc.

CSW Energy Services CSW Energy Services, Inc.

CSW International CSW International, Inc.

CSW Leasing CSW Leasing, Inc.

CSWS Central and South West Services, Inc.
</TABLE>

<PAGE> 6

<TABLE>
<S> <C>
CSW System CSW Electric Power System, an integrated electric utility
system, owned and operated by CSW's U.S. electric utility
subsidiaries

Division Commission's Division of Investment Management

D.C. Circuit U.S. Court of Appeals for the District of Columbia Circuit

DOJ U.S. Department of Justice

Duke Duke Energy Corporation, an integrated energy and energy
services provider including an electric public utility

ECAR East Central Area Reliability Council

Energy Act Energy Policy Act of 1992

EnerShop EnerShop Inc.

Entergy Entergy Corporation, a public utility holding company
registered under the 1935 Act

ERCOT Electric Reliability Council of Texas

EWG Exempt Wholesale Generator

Exchange Ratio Ratio specified in the Merger Agreement of converting CSW
Common Stock for AEP Common Stock, i.e., each share of CSW
Common Stock converts into 0.60 shares of AEP Common Stock

Excluded Shares Shares of CSW Common Stock owned by AEP, Merger
Sub or any other direct or indirect subsidiary of AEP and
shares of CSW Common Stock that are owned by CSW or any direct
or indirect subsidiary of CSW, in each case not held on
behalf of third parties

FCC Federal Communications Commission

FERC Federal Energy Regulatory Commission

FPA Federal Power Act
</TABLE>

<PAGE> 7

<TABLE>
<S> <C>
FTC Federal Trade Commission

FUCO Foreign Utility Company

HHI Herfindahl-Hirschman Index

HSR Act Hart-Scott-Rodino Antitrust Improvements Act of 1976

I&M Indiana Michigan Power Company

IPP Independent Power Producer

ISO Independent System Operator

KPCo Kentucky Power Company

KgPCo Kingsport Power Company

Kv Kilovolt

KwH Kilowatt hours

Louisiana Commission Louisiana Public Service Commission

Merger Business combination of AEP and CSW pursuant to the
Merger Agreement

Merger Agreement Agreement and Plan of Merger, dated as of
December 21, 1997 among CSW, AEP and Merger Sub in
which Merger Sub will be merged with and into CSW
and CSW will become a wholly-owned subsidiary of AEP

Merger Sub Augusta Acquisition Corporation, to become a wholly
owned subsidiary of AEP

MOKANOK Line 345 Kv transmission line jointly owned by PSO, UE,
Associated Electric Cooperative and Kansas Gas
and Electric Company.

Morgan Stanley Morgan Stanley & Co. Incorporated, an investment
banking firm and CSW's financial adviser with
respect to the Merger

MW Megawatts
</TABLE>

<PAGE> 8

<TABLE>
<S> <C>
Nanyang Electric Nanyang General Light Electric Co., Ltd.

NCE New Century Energies, Inc.

NEPOOL New England Power Pool

1935 Act Public Utility Holding Company Act of 1935, as amended

1995 Report The Regulation of Public Utility Holding Companies
(report to Congress by the Division, June 1995)

NRC Nuclear Regulatory Commission

OASIS Open Access Same-Time Information System

Ohio Commission Public Utilities Commission of Ohio

OPCo Ohio Power Company

Oklahoma Commission Corporation Commission of the State of Oklahoma

PG&E PG&E Corporation, a public utility holding company

PSNH Public Service Company of New Hampshire

PSO Public Service Company of Oklahoma

QF Qualifying Facility as defined in the Public Utility
Regulatory Policies Act of 1978

Registration Statement Joint Proxy Statement/Prospectus dated April 16, 1998 of
AEP and CSW

Salomon Salomon Smith Barney Inc., an investment banking firm
and AEP's financial adviser with respect to the Merger

SEEBOARD SEEBOARD plc, one of the 12 regional electricity companies
formed due to the restructuring and subsequent privatization
of the United Kingdom electricity industry in 1990

Southern The Southern Company, a public utility holding company
registered under the 1935 Act
</TABLE>

vii

<PAGE> 9

<TABLE>
<S> <C>
SPP Southwest Power Pool

STP South Texas Project, a two-unit nuclear electricity
generating plant in which CPL owns a 25.2% interest

STP Operating STP Nuclear Operating Company

SWEPCO Southwestern Electric Power Company

Texas Commission Public Utility Commission of Texas

UE Union Electric Company, a public utility and a wholly
owned subsidiary of Ameren

West Virginia Commission West Virginia Public Service Commission

WPCo Wheeling Power Company

WR Western Resources, Inc.

WTU West Texas Utilities Company

Yorkshire Electricity Yorkshire Electricity Group plc, one of the 12 regional
electricity companies formed due to the restructuring
and subsequent privatization of the United Kingdom
electricity industry in 1990
</TABLE>

viii

<PAGE> 10

ITEM 1. DESCRIPTION OF MERGER

Applicants, pursuant to Sections 6, 7, 9(a)(1) and 10, 11, 12, 13, 32
and 33 of the 1935 Act and the rules thereunder, hereby file this Form U-1
Application-Declaration in File No. 70-____ ("Application-Declaration"). As set
forth in greater detail below, Applicants hereby request the following authority
from the Commission with respect to the proposed Merger of AEP, a New York
corporation, and CSW, a Delaware corporation:

a. the acquisition by AEP of all of the issued and outstanding CSW
Common Stock;

b. the acquisition by AEP of common stock of Merger Sub;

c. the issuance of AEP Common Stock to effect the Merger;

d. the amendment of AEP's existing authority to authorize the
Combined Company to support the financing arrangements and to
conduct the business activities of CSW (as discussed in Item 3.D
below);

e. the adoption of a service agreement to permit, under Section 13 of
the 1935 Act and the Commission's rules thereunder, AEPSC (the
surviving service company for the Combined System after CSWS is
merged into AEPSC) to render services to the Combined Company's
utility and non-utility subsidiaries and an expansion of AEP's
allocation factors following the Merger (as discussed in Item 3.E
below); and

f. the acquisition by AEP of CSW's non-utility businesses (to the
extent jurisdictional, as discussed in Item 3.F below).

Applicants further request that the Commission grant such other authority
as may be necessary in connection with the Merger.

A. INTRODUCTION

This Application-Declaration seeks approvals relating to the proposed
Merger of AEP and CSW. Pursuant to the Merger Agreement, AEP will acquire all of
the issued and outstanding shares of CSW Common Stock. Both AEP and CSW are
registered with the Commission as holding companies under the 1935 Act.
(References to "AEP" or "CSW" refer to each Applicant and/or its subsidiaries,
jointly or separately.)

AEP owns all of the outstanding shares of common stock of seven U.S.
electric utility operating subsidiaries: APCo, CSPCo, I&M, KPCo, KgPCo, OPCo and
WPCo. The service area of AEP's electric utility subsidiaries covers portions of
Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia and West Virginia. AEP
also owns all of the common stock of AEGCo and AEPSC, among others. AEP
indirectly owns 50% of the outstanding share capital of Yorkshire Electricity.

<PAGE> 11

CSW owns all of the outstanding shares of common stock of four U.S.
electric utility operating subsidiaries: CPL, PSO, SWEPCO and WTU. The service
area of CSW's electric utility subsidiaries covers portions of Arkansas,
Louisiana, Oklahoma and Texas. CSW also owns all of the common stock of CSWS,
among others, and indirectly owns all of the outstanding share capital of
SEEBOARD.

The Merger Agreement provides for a business combination of AEP and CSW
in which Merger Sub will be merged into CSW. CSW will be the surviving
corporation and will become a wholly owned subsidiary of AEP. Immediately
following the Merger, the Combined Company will be a holding company with
respect to CSW, which, in turn, will be a holding company with respect to the
electric utility subsidiaries and other subsidiaries it currently owns (with the
exception of CSWS which will be merged into AEPSC). AEP's utility and
non-utility subsidiaries will remain subsidiaries of AEP, and CSW's utility and
non-utility subsidiaries, which will continue to be owned by CSW, will become
indirect subsidiaries of AEP (except for CSWS). The final ownership structure
has not yet been determined.

Upon consummation of the Merger, each share of issued and outstanding CSW
Common Stock (other than Excluded Shares) will be exchangeable for 0.60 shares
of AEP Common Stock. The former holders of CSW Common Stock will own
approximately 40% of the outstanding shares of AEP Common Stock after the
Merger. The only voting securities of AEP that will be publicly held will be AEP
Common Stock; the Merger is expected to have no effect on the issued and
outstanding public debt securities, preferred stock and/or preferred trust
securities of CSW and the respective subsidiaries of AEP and CSW.

The Merger will produce substantial benefits to the public, investors and
consumers and will meet all applicable standards of the 1935 Act. Applicants
believe that the Merger offers significant strategic and financial benefits to
them and to their respective shareholders, as well as to their employees,
customers and the communities in which they provide service. These benefits
include, among others:

(i) The Combined Company will operate more efficiently and be
better equipped to keep rates low in an increasingly competitive electric
utility industry;

(ii) The Combined Company will achieve savings through the
elimination of duplication in corporate and administrative programs,
greater efficiencies in operations and business processes, improved
purchasing power, and the combination of two workforces;

(iii) The Merger will result in a Combined Company with a
stronger financial base, improved position in the credit markets and
greater market diversity;

(iv) The Merger will diversify the service territory of the
Combined System, reducing exposure to local changes in economic and
competitive conditions; and

(v) The Merger will enhance the profitability of the Combined
Company through increased scale.

<PAGE> 12

Applicants estimate the net non-fuel savings from the Merger to be nearly
$2 billion and the net fuel-related savings to be approximately $98 million over
the first ten years following the Merger. The projected Merger fuel and non-fuel
savings are discussed in greater detail in Item 3.B.2 below. A copy of the
Merger Agreement is incorporated by reference and attached as Exhibit B-1.

At their Annual Meeting on May 27, 1998, holders of AEP Common Stock
overwhelmingly approved the shareholder actions necessary to effect the Merger.
The following day, holders of CSW Common Stock overwhelmingly approved the
Merger at their Annual Meeting. Various aspects of the Merger are subject to the
approval of this Commission as well as the: (i) FERC; (ii) NRC; (iii) FCC; (iv)
Louisiana Commission; (v) Oklahoma Commission; and (vi) Arkansas Commission. In
addition, the Applicants must obtain pre-Merger clearance from the DOJ/FTC
according to procedures set forth in the HSR Act and a determination by the
Texas Commission that the Merger is consistent with the public interest.
Applicants have made filings with each of these regulatory agencies except the
FCC and DOJ/FTC, with which they intend to file during the next several months.
On August 13, 1998, the Arkansas Commission issued an order conditionally
approving the Merger, a copy of which is filed as Exhibit D-2.2 and incorporated
by reference. To realize the benefits of the Merger promptly, Applicants ask
that the Commission review this Application-Declaration and issue an order
approving the Merger and granting authority for the attendant transactions set
forth above as expeditiously as practicable without a hearing.

B. DESCRIPTION OF THE PARTIES TO THE MERGER

1. General Description

a. AEP

AEP and its subsidiaries are subject to the broad regulatory provisions
of the 1935 Act administered by the Commission. Various of its subsidiaries are
also subject to regulation by the FERC under the FPA with respect to rates for
interstate sale at wholesale and transmission of electric power, accounting and
other matters and construction and operation of hydroelectric projects.

<PAGE> 13

AEP's electric utility operating subsidiaries serve approximately 3
million customers in Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia and
West Virginia. The generating and transmission facilities of these subsidiaries
are physically interconnected, and their operations are coordinated, as a single
integrated electric utility system. Transmission networks are interconnected
with extensive distribution facilities in the territories served.

At December 31, 1997, the U.S. subsidiaries of AEP had a total of 17,844
employees. AEP, as such, has no employees. The electric utility operating
subsidiaries of AEP are each described below:

APCo (organized in Virginia in 1926) is engaged in the
generation, sale, purchase, transmission and distribution of electric
power to approximately 877,000 customers in the southwestern portion of
Virginia and southern West Virginia, and in supplying electric power at
wholesale to other electric utility companies and municipalities in those
states and in Tennessee. At December 31, 1997, APCo had 3,877 employees.
Among the principal industries served by APCo are coal mining, primary
metals, chemicals and textile mill products. A comparatively small part
of the properties and business of APCo is located in the northeastern end
of Tennessee. APCo's retail rates and certain other matters are subject
to regulation by the West Virginia Commission and the State Corporation
Commission of Virginia.

CSPCo (organized in Ohio in 1937, the earliest direct
predecessor company having been organized in 1883) is engaged in the
generation, sale, purchase, transmission and distribution of electric
power to approximately 621,000 customers in central and southern Ohio,
and in supplying electric power at wholesale to other electric utilities
and to municipally owned distribution systems within its service area. At
December 31, 1997, CSPCo had 1,802 employees. Among the principal
industries served by CSPCo are food processing, chemicals, primary
metals, electronic machinery and paper products. CSPCo's retail rates and
certain other matters are subject to regulation by the Ohio Commission.

I&M (organized in Indiana in 1925) is engaged in the
generation, sale, purchase, transmission and distribution of electric
power to approximately 549,000 customers in northern and eastern Indiana
and southwestern Michigan, and in supplying electric power at wholesale
to other electric utility companies, rural electric cooperatives and
municipalities. At December 31, 1997, I&M had 3,306 employees. Among the
principal industries served by I&M are primary metals, transportation
equipment, electrical and electronic machinery, fabricated metal
products, rubber and miscellaneous plastic products and chemicals and
allied products. I&M's retail rates and certain other matters are subject
to regulation by the Indiana Utility Regulatory Commission and the
Michigan Public Service Commission. I&M also is subject to regulation by
the NRC under the Atomic Energy Act with respect to the operation of its
nuclear generation plant.

<PAGE> 14

KPCo (organized in Kentucky in 1919) is engaged in the
generation, sale, purchase, transmission and distribution of electric
power to approximately 168,000 customers in eastern Kentucky, and in
supplying electric power at wholesale to other utilities and
municipalities in Kentucky. At December 31, 1997, KPCo had 731 employees.
The principal industries served by KPCo include coal mining, petroleum
refining, primary metals and chemicals. KPCo's retail rates and certain
other matters are subject to regulation by the Kentucky Public Service
Commission.

OPCo (organized in Ohio in 1907 and reincorporated in
1924) is engaged in the generation, sale, purchase, transmission and
distribution of electric power to approximately 679,000 customers in the
northwestern, east central, eastern and southern sections of Ohio, and in
supplying electric power at wholesale to other electric utility companies
and municipalities. At December 31, 1997, OPCo and its wholly owned
subsidiaries had 4,376 employees. Among the principal industries served
by OPCo are primary metals, rubber and plastic products, stone, clay,
glass and concrete products, petroleum refining and chemicals. OPCo's
retail rates and certain other matters are subject to regulation by the
Ohio Commission.

WPCo (organized in West Virginia in 1883 and
reincorporated in 1911) provides electric service to approximately
42,000 customers in northern West Virginia. WPCo has no generating
facilities of its own. It purchases electric power distributed to its
customers from OPCo. At December 31, 1997, WPCo had 94 employees. The
principal industries served by WPCo include chemicals, coal mining and
primary metal products. WPCo's retail rates and certain other matters are
subject to regulation by the West Virginia Commission.

AEGCo was organized in Ohio in 1982 as an electric generating company.
AEGCo sells power at wholesale to I&M, KPCo and Virginia Electric and Power
Company, an unaffiliated public utility. AEGCo has no employees.

AEPSC provides, at cost, accounting, administrative, information systems,
engineering, financial, legal, maintenance and other services to the AEP
companies. The executive officers of AEP and its public utility subsidiaries are
all employees of AEPSC.

<PAGE> 15

AEP, primarily through AEP Resources, AEPRESCO, AEPC, and AEPES, pursues
new non-utility business opportunities, particularly those which allow use of
its expertise. These subsidiaries are described below:

AEP Resources' primary business is development of, and
investment in, EWGs, FUCOs, qualifying cogeneration facilities and other
energy-related domestic and international investment opportunities and
projects.

AEP Resources indirectly owns 50% of the outstanding share
capital of Yorkshire Electricity. Yorkshire Electricity is principally
engaged in the distribution of electricity to approximately 2.1 million
customers in its authorized service territory which is comprised of 3,860
square miles and located centrally on the east coast of England.

AEP Resources' indirect subsidiary, AEP Pushan Power, LDC,
has a 70% interest in Nanyang Electric, a joint venture organized to
develop and build two 125 MW coal-fired generating units near Nanyang
City in the Henan Province of The Peoples' Republic of China. Funding for
the construction of the generating units has commenced and will continue
through completion thereof, which is expected to occur sometime before
the end of 1999.

A subsidiary of AEP Resources also has an equity interest,
which, subject to certain conditions, could reach 20%, in Pacific Hydro
Limited, an Australian company that develops and operates hydroelectric
facilities.

AEP received approval from the Commission under the 1935
Act to issue and sell securities in an amount up to 100% of its
consolidated retained earnings (approximately $1,645,000,000 at June 30,
1998) for investment in EWGs and FUCOs through AEP Resources. American
Elec. Power Co., HCAR No. 26864 (Apr. 27, 1998).

AEPRESCO offers engineering, construction, project
management and other consulting services for projects involving
transmission, distribution or generation of electric power both
domestically and internationally.

AEPC, an "exempt telecommunications company" under the
1935 Act, was formed in 1997 to pursue opportunities in the
telecommunications field. AEPC operates a fiber optic line that runs
through Kentucky, Ohio, Virginia and West Virginia. This fiber optic line
is capable of providing high speed telecommunications capacity to other
telecommunications companies. In addition to establishing and providing
fiber optic services, AEPC also made investments in two companies engaged
in providing digital personal communications services, the West Virginia
PCS Alliance, LLC and the Virginia PCS Alliance, LLC.

<PAGE> 16

AEPES is authorized to engage in energy-related
activities, including marketing electricity, gas and other energy
commodities. AEPES is an energy-related company under Rule 58.

AEP Common Stock is listed on the New York Stock Exchange, Inc. under the
trading symbol, "AEP." As of August 31, 1998, there were 190,915,648 shares of
AEP Common Stock outstanding. All shares of the common stock of APCo, CSPCo,
I&M, KPCo, KgPCo, OPCo and WPCo are held by AEP.

APCo has four series of cumulative preferred stock issued and
outstanding, one of which is listed on a public securities exchange. As of June
30, 1998, there were 194,902 shares of its 4-1/2% Cumulative Preferred Stock
outstanding (listed on the Philadelphia Stock Exchange); 77,100 shares of its
5.90% Series Cumulative Preferred Stock outstanding; 61,500 shares of its 5.92%
Cumulative Preferred Stock outstanding; and 84,500 shares of its 6.85%
Cumulative Preferred Stock outstanding.

CSPCo has one series of cumulative preferred stock outstanding that is
not listed on a public securities exchange. As of June 30, 1998, there were
250,000 shares of its 7% Cumulative Preferred Stock outstanding.

I&M has seven series of cumulative preferred stock outstanding, none of
which is listed on any public securities exchange. As of June 30, 1998, there
were 59,767 shares of its 4-1/8% Cumulative Preferred Stock outstanding; 14,912
shares of its 4.56% Cumulative Preferred Stock outstanding; 19,131 shares of its
4.12% Cumulative Preferred Stock outstanding; 167,000 shares of its 5.90%
Cumulative Preferred Stock outstanding; 202,500 shares of its 6-1/4% Cumulative
Preferred Stock outstanding; 182,500 shares of its 6-7/8% Cumulative Preferred
Stock outstanding; and 132,450 shares of its 6.30% Cumulative Preferred Stock
outstanding.

OPCo has seven series of cumulative preferred stock outstanding, none of
which is listed on a public securities exchange. As of June 30, 1998, there were
15,393 shares of its 4.08% Cumulative Preferred Stock outstanding; 103,821
shares of its 4-1/2% Cumulative Preferred Stock outstanding; 23,100 shares of
its 4.20% Cumulative Preferred Stock outstanding; 32,474 shares of its 4.40%
Cumulative Preferred Stock outstanding; 82,500 shares of its 5.90% Cumulative
Preferred Stock outstanding; 31,000 shares of its 6.02% Cumulative Preferred
Stock outstanding; and 5,000 shares of its 6.35% Cumulative Preferred Stock
outstanding.

AEP's consolidated operating revenues for the twelve months ended June
30, 1998, after eliminating intercompany transactions, were $8,195,575,000.
Consolidated assets of AEP and its subsidiaries as of June 30, 1998, were
approximately $17.8 billion, consisting of $11.6 billion in net electric utility
property, plant and equipment and $6.2 billion in other corporate assets. More
detailed information concerning AEP and its subsidiaries is contained in AEP's
Annual Report on Form 10-K for the year ended December 31, 1997, as amended, and
the Quarterly Reports on Form

<PAGE> 17

10-Q for the quarters ended March 31, 1998, as amended, and June 30, 1998, each
of which is attached and incorporated by reference as Exhibits G-1, G-2 and G-3,
respectively.

b. CSW

CSW, incorporated under the laws of Delaware in 1925, has its principal
executive offices at 1616 Woodall Rodgers Freeway, Dallas, Texas. CSW is a
public utility holding company registered under the 1935 Act that owns all of
the common stock of four U.S. electric utility operating subsidiaries: CPL, PSO,
SWEPCO, and WTU. CSW also owns all of the common stock of CSWS, CSW Energy, CSW
International, C3 Communications, EnerShop, CSW Energy Services, and CSW Credit,
and indirectly owns all of the outstanding share capital of SEEBOARD. In
addition, CSW owns 80% of the outstanding shares of common stock of CSW Leasing.

CSW's electric utility subsidiaries are public utility companies engaged
in generating, purchasing, transmitting, distributing and selling electricity.
CSW's U.S. electric utility operating subsidiaries serve approximately 1.7
million customers in portions of Texas, Oklahoma, Louisiana and Arkansas. These
companies serve a mix of residential, commercial and diversified industrial
customers.

CSW and its subsidiaries are subject to the broad regulatory provisions
of the 1935 Act administered by the Commission. Various of the subsidiaries are
also subject to regulation by the FERC under the FPA with respect to rates for
interstate sale at wholesale and transmission of electric power, accounting and
other matters and construction and operation of hydroelectric projects.

At December 31, 1997, the U.S. subsidiaries of CSW had 7,254 employees.
CSW, as such, has no employees. The electric utility operating subsidiaries of
CSW are described below:

CPL (organized in Texas in 1945) is engaged in the
generation, sale, purchase, transmission and distribution of
electric power to approximately 628,000 customers in portions of
south Texas, and in supplying electric power at wholesale to other
electric utility companies and municipalities. At December 31,
1997, CPL had 1,668 employees. The principal industries served by
CPL include manufacturing, mining, agricultural, transportation
and public utilities sectors. The Texas Commission has original
jurisdiction over retail rates in the unincorporated areas and
appellate jurisdiction over retail rates in the incorporated areas
served by CPL. CPL is also subject to regulation by the NRC under
the Atomic Energy Act with respect to the operation of its
ownership interest in a nuclear generating plant.

<PAGE> 18

PSO include natural gas and oil production, oil refining, steel
processing, aircraft maintenance, paper manufacturing and timber
products, glass, chemicals, cement, plastics, aerospace,
telecommunications and rubber goods. PSO is subject to the
jurisdiction of the Oklahoma Commission with respect to retail
rates.

WTU (organized in Texas in 1927) is engaged in the
generation, sale, purchase, transmission and distribution of
electric power to approximately 187,000 customers in portions of
central west Texas, and in supplying electric power at wholesale
to other electric utility companies and municipalities. At
December 31, 1997, WTU had 907 employees. WTU serves manufacturing
and processing plants producing cotton seed products, oil
products, electronic equipment, precision and consumer metal
products, meat products, gypsum products and carbon fiber
products. The territory also has several military installations
and state correctional institutions. WTU is subject to the
jurisdiction of the Texas Commission as set forth in the
description of the regulation of CPL above.

CSWS performs, at cost, various accounting, engineering, tax, legal,
financial, electronic data processing, centralized economic dispatching of
electric power and other services for the CSW companies, primarily for CSW's
U.S. electric utility subsidiaries. After the Merger, services performed by CSWS
will be performed by AEPSC.

CSW's material non-utility businesses are conducted through CSW Energy,
CSW International, CSW Energy Services, C3 Communications, CSW Credit, EnerShop
and CSW Leasing. These subsidiaries are described below:

CSW Energy develops, owns and operates independent power
production and cogeneration facilities within the U.S. Currently,
CSW Energy has ownership interests in seven projects, six in
operation and one in development.

<PAGE> 19

of SEEBOARD. CSW acquired indirect control of SEEBOARD in April
1996. SEEBOARD's principal regulated businesses are the
distribution and supply of electricity. SEEBOARD is engaged in
other businesses, including gas supply, electricity generation and
electrical contracting. SEEBOARD's service area covers
approximately 3,000 square miles in southeast England. The service
area extends from the outlying areas of London to the English
Channel.

CSW received approval from the Commission under the 1935
Act to issue and sell securities in an amount up to 100% of its
consolidated retained earnings (approximately $1,781,000,000 at
June 30, 1998) for investment in EWGs and FUCOs through CSW Energy
and CSW International. Central and South West Corp., et al., HCAR
No. 26653 (January 24, 1997).

CSW Energy Services was formed to compete in restructured
electric utility markets and serves as an energy service provider
to wholesale and retail customers. It also engages in the business
of marketing, selling, and leasing to certain consumers throughout
the United States certain electric vehicles and retrofit kits
subject to limitations imposed by the Commission.

C3 Communications has two main lines of business. C3
Communications' Utility Automation Division specializes in
providing automated meter reading and related services to
investor-owned municipal and cooperative electric utilities. C3
Communications also offers systems to aggregate meter data from a
variety of technologies and vendor products that span multiple
communication mode infrastructures including broadband, wireless
network, power line carrier and telephony-based systems. C3
Communications is an "exempt telecommunications company" under the
1935 Act.

CSW Credit was originally formed to purchase, without
recourse, accounts receivable from the CSW electric utility
subsidiaries to reduce working capital requirements. Because CSW
Credit's capital structure is more highly leveraged than that of
the CSW electric utility subsidiaries and due to CSW Credit's
higher short-term debt ratings, CSW's overall cost of capital is
lower. Subsequent to its formation, under the 1935 Act, CSW
Credit's business has expanded to include the purchase, without
recourse, of accounts receivable from certain non-affiliated
parties subject to limitations imposed by the Commission.

EnerShop, an energy-related company under Rule 58, provides
energy services to commercial, industrial, institutional and
governmental customers in Texas. These services help reduce a
customer's operating costs through increased energy efficiencies
and improved equipment operations. EnerShop utilizes the skills of
local trade allies in offering services that include facility
analysis; project

<PAGE> 20

management; engineering design; equipment procurement; and
construction and performance monitoring.

CSW Leasing, approved by the Commission in 1985, is a joint
venture with CIT Group/Capital Equipment Financing. It was formed
to invest in leveraged leases.

CSW Common Stock is listed on the New York Stock Exchange, Inc., and the
Chicago Stock Exchange, Inc., under the trading symbol, "CSR." As of August 31,
1998, there were 212,461,876 shares of CSW Common Stock issued and outstanding.
All shares of the common stock of CPL, PSO, SWEPCO and WTU are held by CSW.

CPL has five series of cumulative preferred stock issued and outstanding.
As of June 30, 1998, there were 42,048 shares of 4.00% Series Cumulative
Preferred Stock outstanding; 17,476 shares of 4.20% Series Cumulative Preferred
Stock outstanding; 750,000 shares of Auction Money Market Cumulative Preferred
Stock outstanding; 425,000 shares of Auction Series A Cumulative Preferred Stock
outstanding; and 425,000 shares of Auction Series B Cumulative Preferred Stock
outstanding. CPL has one series of 8.00% Cumulative Quarterly Income Preferred
Securities issued and outstanding, which are listed on the NYSE. As of June 30,
1998, the principal amount of $150,000,000 of such trust preferred securities
was outstanding.

PSO has two series of cumulative preferred stock issued and outstanding.
As of June 30, 1998, there were 44,640 shares of 4.00% Series Cumulative
Preferred Stock outstanding and 8,069 shares of 4.24% Series Cumulative
Preferred Stock outstanding. PSO has one series of 8.00% Trust Originated
Preferred Securities issued and outstanding, which are listed on the NYSE. As of
June 30, 1998, the principal amount of $75,000,000 of such trust preferred
securities was outstanding.

SWEPCO has three series of cumulative preferred stock issued and
outstanding. As of June 30, 1998, there were 37,739 shares of 5.00% Series
Cumulative Preferred Stock outstanding; 1,908 shares of 4.65% Series Cumulative
Preferred Stock outstanding; and 7,386 shares of 4.28% Series Cumulative
Preferred Stock outstanding. SWEPCO has one series of 7.875% Trust Preferred
Securities issued and outstanding, which are listed on the NYSE. As of June 30,
1998, the principal amount of $110,000,000 of such trust preferred stock was
outstanding.

WTU has one series of cumulative preferred stock issued and outstanding.
As of June 30, 1998, there were 23,675 shares of 4.40% Series Cumulative
Preferred Stock outstanding.

CSW's consolidated operating revenues for the twelve months ended June
30, 1998, after eliminating intercompany transactions, were approximately $5.4
billion. Consolidated assets of CSW and its subsidiaries as of June 30, 1998
were approximately $13.8 billion, consisting of $8.4 billion in net electric
utility property, plant and equipment and $5.4 billion in other corporate
assets. More detailed information concerning CSW and its subsidiaries is
contained in CSW's Annual Report on Form 10-K for the year ended December 31,
1997 and the Quarterly Reports on Form

<PAGE> 21

10-Q for the quarters ended March 31, 1998 and June 30, 1998, each of which is
attached and incorporated by reference as Exhibits G-4, G-5 and G-6,
respectively.

c. Merger Sub

Merger Sub, a transitory subsidiary of AEP, was incorporated under the
laws of the State of Delaware, solely for the purpose of effecting the Merger.
Merger Sub has no operations other than those contemplated by the Merger
Agreement. AEP will own all the outstanding common stock, $0.01 par value per
share, of Merger Sub. A copy of the Certificate of Incorporation and By-laws of
Merger Sub are incorporated by reference and attached as Exhibits A-3 and A-4,
respectively. The principal executive office of Merger Sub will be located at 1
Riverside Plaza, Columbus, Ohio.

2. Description of Energy Sales and Facilities

a. AEP

(i) Energy Sales

<TABLE>
<CAPTION>
KwH of Electric Energy Sold (in millions)
Company Twelve Months Ended December 31, 1997
------- -----------------------------------------
<S> <C>
APCo 46,658
CSPCo 22,601
I&M 34,546
KPCo 12,408
KgPCo 1,774
OPCo 55,875
WPCo 1,795
AEP Total 145,423 (a)
</TABLE>

(a) Total after the elimination of intercompany transactions.

<PAGE> 22

(ii) Electric Generating Facilities

At December 31, 1997, subsidiaries of AEP owned (or leased where
indicated) generating plants with the net power capabilities (winter rating)
shown in the following table:

<TABLE>
<CAPTION>
OWNER, PLANT TYPE AND NAME LOCATION (NEAR) NET
- -------------------------- --------------- MEGAWATT
CAPABILITY
----------
<S> <C> <C>
AEGCO:
Steam--Coal Fired:
Rockport Plant (AEGCo share) Rockport, Indiana 1,300 (a)
-----

APCO:
Steam--Coal Fired:
John E. Amos, Units 1 & 2 St. Albans, West Virginia 1,600
John E. Amos, Unit 3 (APCo share) St. Albans, West Virginia 433 (b)
Clinch River Carbo, Virginia 705
Glen Lyn Glen Lyn, Virginia 335
Kanawha River Glasgow, West Virginia 400
Mountaineer New Haven, West Virginia 1,300
Philip Sporn, Units 1 & 3 New Haven, West Virginia 308
Hydroelectric--Conventional:
Buck Ivanhoe, Virginia 10
Byllesby Byllesby, Virginia 20
Claytor Radford, Virginia 76
Leesville Leesville, Virginia 40
London Montgomery, West Virginia 16
Marmet Marmet, West Virginia 16
Niagara Roanoke, Virginia 3
Reusens Lynchburg, Virginia 12
Winfield Winfield, West Virginia 19
Hydroelectric--Pumped Storage:
Smith Mountain Penhook, Virginia 565
---
5,858
-----

CSPCO:
Steam--Coal-Fired:
Beckjord, Unit 6 New Richmond, Ohio 53 (c)
Conesville, Units 1-3, 5 & 6 Coshocton, Ohio 1,165
Conesville, Unit 4 Coshocton, Ohio 339 (c)
Picway, Unit 5 Columbus, Ohio 100
Stuart, Units 1-4 Aberdeen, Ohio 608 (c)
Zimmer Moscow, Ohio 330 (c)
---
2,595
-----

I & M:
Steam--Coal-Fired:
Rockport Plant (I&M share) Rockport, Indiana 1,300 (a)
Tanners Creek Lawrenceburg, Indiana 995

Steam--Nuclear:
Donald C. Cook Bridgman, Michigan 2,110
</TABLE>

<PAGE> 23

<TABLE>
<CAPTION>
OWNER, PLANT TYPE AND NAME LOCATION (NEAR) NET
- -------------------------- --------------- MEGAWATT
CAPABILITY
----------
<S> <C> <C>
Gas Turbine:
Fourth Street Fort Wayne, Indiana 18 (d)
Hydroelectric--Conventional:
Berrien Springs Berrien Springs, Michigan 3
Buchanan Buchanan, Michigan 2
Constantine Constantine, Michigan 1
Elkhart Elkhart, Indiana 1
Mottville Mottville, Michigan 1
Twin Branch Mishawaka, Indiana 3
-
4,434
-----

KPCO:
Steam--Coal-Fired
Big Sandy Louisa, Kentucky 1,060
-----

OPCO:
Steam--Coal Fired:
John E. Amos, Unit 3 (OPCo share) St. Albans, West Virginia 867 (b)
Cardinal, Unit 1 Brilliant, Ohio 600
General James M. Gavin Cheshire, Ohio 2,600 (e)
Kammer Captina, West Virginia 630
Mitchell Captina, West Virginia 1,600
Muskingum River Beverly Ohio 1,425
Philip Sporn, Units 2, 4 & 5 New Haven, West Virginia 742
Hydroelectric--Conventional:
Racine & Racine Racine, Ohio 48
--
8,512
-----

Total Generating Capability........................................................................23,759
------

SUMMARY:
Total Steam--Coal-Fired........................................................................... 20,795
Total Steam--Nuclear............................................................................... 2,110
Total Hydroelectric--Conventional.................................................................... 271
Total Hydroelectric--Pumped Storage.................................................................. 565
Other.............................................................................................. 18
------

Total Generating Capability....................................................................... 23,759
======
</TABLE>

(a) Unit 1 of the Rockport Plant is owned one-half by AEGCo and one-half by
I&M. Unit 2 of the Rockport Plant is leased one-half by AEGCo and
one-half by I&M. The leases terminate in 2022 unless extended.
(b) Unit 3 of the John E. Amos Plant is owned one-third by APCo and
two-thirds by OPCo.
(c) Represents CSPCo's ownership interest in generating units owned in common
with two unaffiliated public utilities, Cincinnati Gas & Electric Company
and Dayton Power and Light Company.
(d) Leased from the City of Fort Wayne, Indiana. Since 1975, I&M has leased
and operated the assets of the municipal system of the City of Fort
Wayne, Indiana under a 35-year lease with a provision for an additional
15-year extension at the election of I&M.
(e) The scrubber facilities at the Gavin Plant are leased. The lease
terminates in 2010 unless extended.

<PAGE> 24

APCo, CSPCo, I&M, KPCo and OPCo are parties to an Interconnection
Agreement, dated July 6, 1951, as amended, defining how they share the costs and
benefits associated with the AEP System's generating plants. Sharing is based
upon each company's "member-load-ratio," which is calculated monthly on the
basis of each company's maximum peak demand in relation to the sum of the
maximum peak demands of all five companies during the preceding 12 months. Since
1995, APCo, CSPCo, I&M, KPCo and OPCo have been parties to the AEP System
Interim Allowance Agreement which provides, among other things, for the transfer
of SO2 allowances associated with transactions under the Interconnection
Agreement.

The following table shows the net credits or (charges) allocated among
the parties under the Interconnection Agreement and Interim Allowance Agreement
during the years ended December 31, 1995, 1996 and 1997.

<TABLE>
<CAPTION>
1995 1996 1997 (a)
---- ---- --------
(in thousands)
<S> <C> <C> <C>
APCo....................................... $ (252,000) $ (258,000) $ (237,000)
CSPCo...................................... (143,000) (145,000) (138,000)
I&M........................................ 118,000 121,000 67,000
KPCo....................................... 23,000 2,000 20,000
OPCo....................................... 254,000 280,000 288,000
</TABLE>

- -----------
(a) Includes credits and charges from allowance transfers related to the
transactions.

(iii) Electric Transmission and Other Facilities

The following table sets forth, as of December 31, 1997, the total
overhead circuit miles of transmission and distribution lines of the AEP System,
APCo, CSPCo, I&M, KPCo and OPCo and that portion of the total representing 765
Kv lines:

15
<PAGE> 25

<TABLE>
<CAPTION>
TOTAL OVERHEAD
CIRCUIT MILES
OF TRANSMISSION AND CIRCUIT MILES OF
DISTRIBUTION LINES 765 KV LINES
------------------ ------------
<S> <C> <C>
AEP System............................................ 127,864(a)(b) 2,022
APCo.................................................. 49,534 641
CSPCo................................................. 14,820(a) --
I&M................................................... 20,855 614
KPCo.................................................. 10,136 258
OPCo.................................................. 29,448 509
</TABLE>

(a) Includes 766 miles of 345 Kv lines jointly owned with non-affiliates.
(b) Includes lines of other AEP System companies not shown.

AEP is a member of ECAR. ECAR's membership includes 29 major electricity
suppliers located in nine states serving more than 36 million people. Membership
is voluntary, and the current full members are those utilities whose generation
and transmission have an impact on the reliability of the interconnected
electric systems in the region. ECAR members interchange power and energy with
one another on a firm, economy and emergency basis.

As of December 31, 1997, the AEP System was interconnected through 120
high-voltage transmission interconnections with 26 neighboring electric utility
systems. The all-time and 1997 one-hour peak system demands were 25,940,000 and
24,485,000 kilowatts, respectively (which included 7,314,000 and 4,400,000
kilowatts, respectively, of scheduled deliveries to unaffiliated systems which
the AEP System might, on appropriate notice, have elected not to schedule for
delivery) and occurred on June 17, 1994 and January 17, 1997, respectively. The
net dependable capacity to serve the system load on such dates, including power
available under contractual obligations, was 23,457,000 and 23,669,000
kilowatts, respectively. The all-time and 1997 one-hour internal peak demands
were 19,557,000 and 19,381,000 kilowatts, respectively, and occurred on February
5, 1996 and January 17, 1997, respectively. The net dependable capacity to serve
the system load on such dates, including power dedicated under contractual
arrangements, was 23,765,000 and 23,669,000 kilowatts, respectively.

APCo, CSPCo, I&M, KPCo and OPCo are parties to the Transmission
Equalization Agreement, dated April 1, 1984 (the "Transmission Agreement"),
which defines the method pursuant to which the parties share the costs
associated with their relative ownership of the extra-high-voltage transmission
system (which includes facilities rated 345 Kv and above) and certain facilities
operated at lower voltages (which includes facilities rated 138 Kv and above).
Like the Interconnection Agreement, sharing is based upon each company's
"member-load-ratio."

Other assets owned by AEP include electric distribution systems located
throughout its service area, and property, plant and equipment owned or leased
supporting its electric utility functions.

<PAGE> 26

AEP also owns or leases other physical properties, including real property, and
other facilities necessary to conduct its operations.

(iv) Fuel Supply

The following table shows the sources of power used by the AEP System to
generate electricity:

<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Coal......................................................... 88% 87% 92%
Nuclear...................................................... 11% 12% 7%
Hydroelectric and other...................................... 1% 1% 1%

Total........................................................ 100% 100% 100%
</TABLE>

AEP's average cost of fuel per million BTUs for the calendar years ended
December 31, 1995, 1996, and 1997 was 145 cents, 140 cents and 140 cents,
respectively.

b. CSW

(i) Energy Sales

<TABLE>
<CAPTION>
KwH of Electric Energy Sold (in millions)
Company Twelve Months Ended December, 31, 1997
------- --------------------------------------
<S> <C>
CPL 21,839
PSO 15,616
SWEPCO 22,533
WTU 7,335
CSW Total 63,157(a)
</TABLE>

(a) Total after elimination of intercompany transactions.

(ii) Electric Generating Facilities

At December 31, 1997, the U.S. electric utility subsidiaries of CSW owned
(or leased where indicated) generating plants with the net power capabilities
(based on summer ambient and water conditions) shown in the following table:

<PAGE> 27
<TABLE>
<CAPTION>
NET
MEGAWATT
OWNER, PLANT TYPE AND NAME LOCATION (NEAR) CAPABILITY
- -------------------------- --------------- -----------

<S> <C> <C>
CPL:
Steam--Gas:
B.M. Davis Corpus Christi, TX 697
E.S. Joslin Point Comfort, TX 249
J.L. Bates Palm View (Mission), TX 182
La Palma San Benito, TX 195
Laredo Laredo, TX 176
Lon C. Hill Corpus Christi, TX 528
Nueces Bay Corpus Christi, TX 559
Victoria Victoria, TX 482
Steam--Nuclear:
STP Bay City, TX 630 (b)
Steam--Coal
Coleto Creek Fannin (Goliad), TX 632
Oklaunion Vernon, TX 53 (c)
Hydroelectric--Conventional:
Eagle Pass Eagle Pass, TX 6
CT--Gas:
La Palma #7 San Benito, TX 48
--
4437
----

PSO:
CT/Steam--Gas:
Comanche Lawton, OK 273 (a)
Steam--Gas:
Northeastern 1 & 2 Oologah, OK 637
Riverside Jenks, OK 916
Southwestern Washita, OK 475
Tulsa Tulsa, OK 415
Steam--Coal:
Northeastern 3 & 4 Oologah, OK 900
Oklaunion Vernon, TX 106 (d)
CT--Gas:
Weleetka Weleetka, OK 163
Diesel--Diesel:
Diesels Oklahoma 25
----
3910
----

SWEPCO:
Steam--Gas:
Arsenal Hill Shreveport, LA 110
Knox Lee Cherokee Lake, TX 471
Lieberman Mooringsport, LA 273
Lone Star Daingerfield, TX 50
Wilkes Jefferson, TX 880

Steam--Lignite:
Dolet Hills Mansfield, LA 262 (e)
Pirkey Hallsville, TX 580 (f)
</TABLE>

<PAGE> 28

<TABLE>
<CAPTION>
NET
MEGAWATT
OWNER, PLANT TYPE AND NAME LOCATION (NEAR) CAPABILITY
- -------------------------- --------------- ----------

<S> <C> <C>
Steam--Coal:
Flint Creek Gentry, AR 264 (g)
Welsh Cason, TX 1584
----
4474
----

WTU:
Steam--Gas:
Abilene Abilene, TX 7
Fort Phantom Abilene, TX 362
Lake Pauline Quanah, TX 45
Oak Creek Blackwell, TX 85
Paint Creek Stamford, TX 237
CT--Gas:
Fort Stockton Ft. Stockton, TX 5
CT/Steam--Gas:
Rio Pecos Girvin, TX 137 (a)
San Angelo San Angelo, TX 125 (a)
Steam--Coal:
Oklaunion Vernon, TX 370 (h)
Diesel--Diesel:
Presidio Presidio, TX 2
Vernon Vernon, TX 9
--
1384
----

Total Generating Capability.............................................................. 14,205
======

SUMMARY:

Total Steam--Gas.......................................................................... 8,031
Total Steam--Nuclear........................................................................ 630
Total Steam--Coal......................................................................... 3,909
Total Hydroelectric--Conventional............................................................. 6
CT--Gas..................................................................................... 216
CT/Steam--Gas............................................................................... 535
Diesel--Diesel............................................................................... 36
Steam--Lignite.............................................................................. 842
------
Total Generating Capability.............................................................. 14,205
======
</TABLE>

(a) Normally operated as combined cycle.
(b) CPL owns 25.2% of STP
(c) CPL owns 7.81% of Oklaunion.
(d) PSO owns 15.6% of Oklaunion.
(e) SWEPCO owns 40.234% of Dolet Hills. Central Louisiana Electric
Company, Northeast Texas Electric Cooperative and Oklahoma Municipal
Power Authority own the rest of the interests in Dolet Hills.
(f) SWEPCO owns 85.936% of Pirkey. Northeast Texas Electric Cooperative and
Oklahoma Municipal Power Authority own the rest of the interests in
Pirkey.
(g) SWEPCO owns half of Flint Creek and Arkansas Electric Cooperative
Corporation owns the other half.
(h) WTU owns 54.7% of Oklaunion. (Non-affiliates own 12.29% of Oklaunion)

<PAGE> 29

All of the generating facilities described above are located on land
owned by CSW's U.S. electric utility subsidiaries or, in the case of jointly
owned facilities, jointly with other participants. The principal plants and
properties of CSW's electric utility subsidiaries are subject to liens of first
mortgage indentures under which CSW's electric utility subsidiaries' first
mortgage bonds are issued.

In addition to the generating facilities described above, CSW has
ownership interests in nonutility electrical generating facilities. Information
concerning U.S. facilities is listed below.

Operating Facilities - United States

<TABLE>
<CAPTION>
Capacity Capacity
Total Committed Ownership
Company Location (MW) (MW) Interest Status
------- -------- ---- ---- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Brush II......................... CSW Energy Colorado 68 68 47% QF
Ft. Lupton....................... CSW Energy Colorado 272 272 50% QF
Mulberry......................... CSW Energy Florida 120 110 50% QF
Orange Cogen..................... CSW Energy Florida 103 97 50% QF
Newgulf.......................... CSW Energy Texas 85 n/a 100% IPP
Sweeny........................... CSW Energy Texas 330 90 50% QF
--- ----
Total............................ 978 637
</TABLE>

CPL, WTU, PSO, SWEPCO, and CSWS are parties to a Restated and Amended
Operating Agreement dated as of January 1, 1997 ("CSW Operating Agreement"). The
CSW Operating Agreement requires CSW's U.S. electric utility operating
subsidiaries to maintain specified annual planning reserve margins and requires
the subsidiaries that have capacity in excess of the required margins to make
such capacity available for sale to other subsidiaries as capacity commitments.
The CSW Operating Agreement also delegates to CSWS the authority to coordinate
the acquisition, disposition, planning, design and construction of CSW's
generating units and to supervise the operation and maintenance of a central
control center. CSWS, as agent for the CSW System, schedules the energy output
of the system capability to obtain the lowest cost of energy for serving
aggregate system demand and coordinates off-system purchases and sales. The CSW
Operating Agreement has been accepted for filing and allowed to become effective
by the FERC.

<PAGE> 30

(iii) Electric Transmission and Other Facilities

The following table sets forth the total circuit miles of transmission
and distribution lines of the CSW U.S. electric utility operating subsidiaries
as of December 31, 1997:

<TABLE>
<CAPTION>
TOTAL CIRCUIT MILES TOTAL CIRCUIT MILES
OF TRANSMISSION OF DISTRIBUTION
LINES LINES
----- -----
<S> <C> <C>
CPL................................................... 4,915 28,110
PSO................................................... 3,563 17,916
SWEPCO................................................ 3,372 14,240
WTU................................................... 4,490 8,606
----- -----
Total................................................. 16,340 68,872
</TABLE>

CSW's U.S. electric utility subsidiaries' electric transmission and
distribution facilities are mostly located over or under highways, streets and
other public places or property owned by others, for which permits, grants,
easements or licenses have been obtained.

CPL and WTU are members of ERCOT, which operates in Texas. Other ERCOT
members include Texas Utilities Electric Company, Houston Lighting & Power
Company, Texas Municipal Power Agency, Texas Municipal Power Pool, Lower
Colorado River Authority, the municipal systems of San Antonio, Austin and
Brownsville, the South Texas and Medina Electric Cooperatives, and several other
interconnected systems and cooperatives. PSO and SWEPCO are members of the SPP,
which includes 18 investor-owned utilities, 11 municipalities, 11 cooperatives,
3 state and 1 federal agency as well as IPPs and power marketers operating in
the states of Arkansas, Kansas, Louisiana, Oklahoma and parts of Mississippi,
Missouri, New Mexico and Texas. ERCOT members interchange power and energy with
one another on a firm, economy and emergency basis, as do the members of the
SPP.

The highest all-time maximum coincident system demand through 1997 was
13,105 MW on July 28, 1997. The 1997 net dependable capacity to serve the system
load was 14,290 MW. Power generation at the time of the peak was 12,817 MW and
net purchases at the time of the peak were 288 MW.

CPL, WTU, PSO, SWEPCO and CSWS are parties to a Transmission Coordination
Agreement dated as of January 1, 1997 ("TCA"). The TCA establishes a
coordinating committee, which is charged with the responsibility of overseeing
the coordinated planning of the transmission facilities of CSW's U.S. electric
utility operating subsidiaries, including the performance of transmission
planning studies, the interaction of such subsidiaries with ISOs and other
regional bodies interested in transmission planning and compliance with the
terms of the open access transmission tariff ("OATT") filed with the FERC and
the rules of the FERC relating to such tariff. Under the TCA, CSW's U.S.
electric utility subsidiaries have delegated to CSWS the responsibility

21
<PAGE> 31
of monitoring the reliability of their transmission systems and administering
the OATT on their behalf. The TCA also provides for the allocation among CSW's
U.S. electric utility operating subsidiaries of revenues collected for
transmission and ancillary services provided under the OATT. The TCA has been
accepted for filing by the FERC effective as of January 1, 1997, and is the
subject of proceedings commenced to consider the reasonableness of its terms and
conditions.

(iv) Fuel Supply

The following table shows the sources of power used by the CSW System to
generate electricity:

<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Natural Gas.................................. 47% 40% 38%
Coal......................................... 36% 42% 44%
Lignite...................................... 9% 10% 10%
Nuclear...................................... 8% 8% 8%

Total........................................ 100% 100% 100%
</TABLE>

CSW's average cost of fuel per million BTUs for the calendar years ended
December 31, 1995, 1996, and 1997 was 158 cents, 181 cents and 183 cents,
respectively.

3. Electric Coordination

The Combined System will be physically interconnected and economically
operated as a single interconnected and coordinated system. Upon implementation
of the System Integration Agreement and the System Transmission Integration
Agreement and through the use of Central Dispatch Planning and Central Economic
Dispatch, the Combined System will have a central dispatch system capable of
scheduling the generating resources of the Combined System on an economical,
real-time basis. The Combined System will be physically interconnected through
the 250 MW Contract Path. The Applicants' goal ultimately is to further enhance
the interconnection and coordination of the Combined System through
participation in a regional ISO.

Each aspect of the electric coordination and interconnection of the
Combined System is discussed below:

a. System Integration Agreement and System Transmission
Integration Agreement

The System Integration Agreement provides for the coordination of
generation within the Combined System. The System Transmission Integration
Agreement provides for the coordination of transmission within the Combined
System. The agreements, each of which will take effect upon consummation of the
Merger, are described in the Testimony of J. Craig Baker and Dennis W.

<PAGE> 32
Bethel before the FERC which are filed with Exhibit D-1.1 and incorporated by
reference. The agreements and their functions are summarized below.

As noted, the System Integration Agreement provides for the coordination
of generation within the Combined System. AEPSC will coordinate the planning,
operation and maintenance of generating capacity resources and the dispatch of
electricity throughout the Combined System. The coordination of generation is
accomplished through two computer software programs: Central Dispatch Planning
and Central Economic Dispatch. Central Dispatch Planning forecasts (usually on a
day-ahead basis, although sometimes several days ahead) the generation needs of
the Combined System and determines the least-cost allocation of generation
resources available within the Combined System necessary to meet the forecasted
obligations. The central dispatch is based on anticipated fuel costs, load
levels, wholesale power market conditions, planned unit maintenance (which units
are out of service or operating below normal operating limits), and prevailing
transmission capabilities (including capacity reserved by third parties). During
the morning of normal working days (Monday through Friday), Central Dispatch
Planning will have scheduled hourly the following day's generation for every
unit in the Combined System (with the exception of Friday, when generation is
scheduled for Saturday, Sunday and Monday).

Central Economic Dispatch computes at regular intervals (currently every
four seconds) the most economic generation dispatch base points resulting from
current operating obligations. While Central Dispatch Planning is based on
predictive conditions, Central Economic Dispatch is a real-time function that
continuously evaluates current operating conditions, and, based on least-cost
allocations and existing transmission constraints, issues new dispatch
instructions to each generating unit within the Combined System.

Central Dispatch Planning and Central Economic Dispatch will be ready to
serve the Combined System prior to the effectiveness of the Merger, and,
accordingly, each will be available to the Combined System immediately upon
consummation of the Merger. Each will utilize the existing electronic
communication infrastructures currently in place in each of the AEP System and
the CSW System. The existing electronic communication infrastructures will feed
data to, and receive instructions from, Central Dispatch Planning and Central
Economic Dispatch via a high speed data link.

The System Transmission Integration Agreement provides for the
coordinated planning, operation and maintenance of the Combined System's
transmission facilities and the assignment among the Combined System's operating
companies of third-party transmission costs incurred to coordinate post-Merger
operations. AEPSC will coordinate the planning, operation and maintenance of
transmission facilities and capacity of the Combined System. The Combined System
will be subject to regulation by the FERC with respect to transmission and the
Combined System intends to operate in full compliance with all applicable FERC
rules and orders regarding, among other things, tariffs, billing and revenue
allocation, immediately upon the consummation of the Merger.

<PAGE> 33
b. 250 MW Contract Path

The Combined Company will transmit power from east to west over the 250
MW Contract Path. The 250 MW Contract Path's term is from June 1, 1999 to May
31, 2003, which may be renewed. AEPSC will coordinate the planning of the
transmission capacity interconnecting the Combined System.

In order to increase its firm transmission service rights on the MOKANOK
Line, CSW's subsidiary, PSO, entered into an agreement with WR to provide firm
point-to-point transmission service for the transfer of 38 MW of power from
Ameren. The point of receipt and delivery for the 38 MW of power will be the
point of interface with Ameren and WR's and PSO's undivided interest in the
MOKANOK Line. PSO and another CSW subsidiary, SWEPCO, will transmit the 38 MW of
power from the interface between PSO's and WR's undivided interest in the
MOKANOK Line to PSO's 345 Kv bus at its Northeastern Generating Station. PSO
will transmit the remaining 212 MW of power over its undivided interest in the
MOKANOK Line from the interconnection with Ameren on the MOKANOK Line to PSO's
345 Kv bus at its Northeastern Generating Station. In order to enable the 250 MW
Contract Path to accommodate a 250 MW firm transfer, CSW and Ameren agreed
that Ameren would upgrade Ameren's Albion Substation in order to increase
available transfer capability into Ameren from the east during the summer peak
period. The upgrade, effected by installing a 138 Kv reactor, was completed on
August 1, 1998.

Applicants have committed to avoid any possible anticompetitive concerns
attributable to the Merger by agreeing to limit their reservation of firm
transmission service from east to west to 250 MW for the period ending May 31,
2003 unless: (1) additional firm transmission service is needed for short
periods of time (no longer than one month) to assure continued reliable service
to native load customers served from the former CSW System; (2) the Applicants
fund construction that will increase import capability into the CSW-SPP area and
offer to make available no less than the lesser of 25 percent or 250 MW of such
increased import capability for use by others; or (3) the Applicants otherwise
demonstrate to the FERC that a firm transmission reservation in excess of 250 MW
for such time period would not have an anticompetitive effect attributable to
the Merger. See Answer of AEP and CSW to Motion for Rejection of Merger Filing,
FERC Docket No. EC 98-40 (filed July 27, 1998). If the Applicants meet these
conditions, they will be eligible to seek additional firm transmission service.

c. Additional Power Transfers

The Applicants expect that from time to time there will be opportunity to
transfer energy economically in the Combined Company from west to east. In these
circumstances, Applicants will make use of their rights to nominate secondary
points of receipt and delivery under their transmission service agreements with
WR and Ameren. PSO has the right to transfer approximately 113 MW of energy on a
non-firm basis across the MOKANOK Line. Ameren's OASIS postings indicate that
there are more than 1000 MW of transfer capability across the Ameren system from
the MOKANOK Line to the east.

<PAGE> 34
In addition to the use of the 250 MW Contract Path, quantities in excess
of the 250 MW can be moved within the Combined System in any given hour by using
non-firm transmission rights. Such additional transfers would be made when
circumstances indicate that they would be economical for post-Merger system
operations after taking into consideration opportunity costs. See generally,
Testimony of J. Craig Baker, filed with Exhibit D-1.1 and incorporated herein by
reference.

d. Future Participation in an ISO

The Applicants' goal ultimately is to further enhance the interconnection
and coordination of their companies through participation in a regional ISO.
Through an ISO, a utility relinquishes control over the operation of its
transmission system, effecting a structural separation of the control of access
to transmission service from the utility's merchant function. ISOs provide
strengthened assurances to the marketplace that transmission service will be
available to all eligible customers on a non-discriminatory basis. In addition,
ISOs can enhance regional reliability and, if properly structured and
configured, improve economic efficiencies and provide a broad range of buyers
and sellers access across a large geographic region. AEP and CSW each have been
actively engaged in discussions concerning participation in ISOs. Raymond M.
Maliszewski's testimony before the FERC, a copy of which is filed with Exhibit
D-1.1 and incorporated herein by reference, sets forth Applicants' views and
goals with respect to participating in an ISO. The ultimate goal of the
Applicants is to bring the northern portion of the CSW System and the AEP System
into the same ISO. The ERCOT portions of CSW participate in the ERCOT ISO, and
are expected to remain members.

C. DESCRIPTION OF MERGER AND STATEMENT AS TO CONSIDERATION

1. Background of the Merger

AEP and CSW are seeking to merge to further their mutual strategy of
adapting to an era of historic changes in the electric utility industry. The
electric utility industry is in the process of a transformation to greater
levels of competition in the wholesale and retail energy markets. Technological
advances, consumer pressures and federal and state legislative and regulatory
initiatives are forces affecting this transformation. Efficient, low cost
suppliers of energy with a diverse customer base will be best prepared to
compete successfully in the resulting electric energy marketplace.

Historically, competition in the wholesale and retail electric energy
markets was limited. In the wholesale market, this limitation was due to
various barriers to entry, including the difficulties in obtaining transmission
service over utility systems located between potential buyers and sellers and
the possibility of regulation under the 1935 Act. Pursuant to the Energy Act,
however, Congress authorized the FERC to exempt certain wholesale power sellers
from regulation under the 1935 Act. In 1996, the FERC issued Orders 888 and 889
requiring utilities to provide non-discriminatory, open-access transmission
service upon request. These regulatory developments have resulted in an active,
competitive wholesale market for electricity. Although the retail market for
electricity

<PAGE> 35
currently is less developed than the wholesale market, most states in which the
electric utility operating subsidiaries of AEP and CSW provide retail service
have adopted or are actively considering legislative or regulatory action
permitting retail customers to select their electricity supplier and obligating
utilities to provide transmission and distribution service to competitors.
Because of these ongoing legislative and regulatory activities, the managements
of AEP and CSW have concluded that there will soon be increased competition in
the retail sector of the business.

Electric utility companies must adapt quickly to this evolving
competitive environment if they are to succeed in it. Many companies are
pursuing consolidation to diversify business risks and create new opportunities
for earnings growth. Assets, such as a utility's transmission network and low
cost generation, will be key factors in structuring the successful electric
utility of the future. Customers in a competitive market will choose electric
suppliers that are efficient and responsive.

For the past several years, AEP and CSW separately have been focusing
their strategic planning activities on preparing for this fundamental evolution.
AEP and CSW have now determined that a merger of the two companies is the best
way to achieve their compatible long-term goals.

2. Merger Agreement

The following is not a complete description of the Merger Agreement and
is qualified in its entirety by reference to the Merger Agreement, which is
attached and incorporated by reference as Exhibit B-l.

The Merger Agreement provides for a business combination of AEP and CSW
in which Merger Sub will be merged with and into CSW. CSW will be the surviving
corporation and will become a wholly-owned subsidiary of AEP. Upon the
consummation of the Merger, each issued and outstanding share of CSW Common
Stock (other than the Excluded Shares) will be exchangeable for 0.60 shares of
AEP Common Stock. Based on the price of AEP Common Stock on December 19, 1997,
the transaction would be valued at $6.6 billion. Each issued and outstanding
share of AEP Common Stock will be unchanged as a result of the Merger.

The former holders of CSW Common Stock will own approximately 40% of the
issued and outstanding AEP Common Stock after the Merger. The Merger is subject
to customary closing conditions, including the receipt of all necessary
governmental approvals, including the approval of the Commission. The Merger is
designed to qualify as a tax-free reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended, and will be treated as a "pooling of
interests" for accounting purposes.

<PAGE> 36
3. Reasons for the Merger

The Merger offers significant opportunities to create additional value
for shareholders, customers and employees of the Combined Company. The benefits
of the Merger include the following:

- COST SAVINGS - The Combined Company will be more efficient
than either company standing alone. Merging will allow the
companies to create efficiencies in operations and business
processes, eliminate duplicative functions, enhance their
purchasing power, and combine two workforces. The Combined Company
should realize Merger-related non-fuel savings of nearly $2
billion over the first ten years following the Merger, net of
transaction and transition costs, and net fuel-related savings of
approximately $98 million over the same period.

- COMPETITIVE PRICES AND SERVICES - The Combined Company will
use the efficiencies arising from the Merger to compete
effectively in the increasingly competitive marketplace. Sales to
industrial, large commercial and wholesale customers are at
greatest near-term exposure to increased competition; these
customers will choose among potential suppliers those best able to
meet their demands for reliable, low-cost power. The Merger will
enable the Combined Company to serve customers more efficiently
and effectively.

- FINANCIAL STRENGTH - By combining the market capitalization
of the individual companies, the Merger will result in a Combined
Company with a stronger financial base, improved position in the
credit markets, and greater market diversity.

- GREATER DIVERSIFICATION - The combination of AEP and CSW
will diversify the Combined System's service territory, reducing
exposure to adverse changes in any sector's economic and
competitive conditions. The Combined Company will expand
relationships with existing customers and develop relationships
with new customers in its service area, using its combined
distribution channels to market a portfolio of innovative
energy-related products at competitive prices. The Merger will
result in a Combined Company with more diversity in fuel and
generation, which will reduce dependence upon any one sector of
the energy industry and exposure to fluctuations in certain
commodity prices.

- INCREASED SCALE - As competition intensifies within the
industry, scale will be one contributor to overall business
success. Scale is important in many areas, including utility
operations, product development, advertising and corporate
services. Profitability of the Combined Company will be enhanced
by the expanded customer base and the synergies in all of these
areas.

<PAGE> 37
4. AEP Management Following the Merger

The Board of Directors of the Combined Company immediately following the
Merger will consist of 15 members and will be reconstituted to include all
then-current board members of AEP, Mr. E. R. Brooks (the current Chairman of
CSW) and four additional outside directors of CSW to be nominated by AEP. Dr. E.
L. Draper, Jr., will be the Chairman and Chief Executive Officer of the Combined
Company. The Merger Agreement also provides that, from and after its
effectiveness, the Combined Company's corporate headquarters will be located in
Columbus, Ohio.

ITEM 2. FEES, COMMISSIONS AND EXPENSES

<TABLE>
<CAPTION>
Thousands

<S> <C>
Filing fee for Form S-4..........................................................$1,759
Accountants' fees.....................................................................*
Legal fees and expenses...............................................................*
Shareholder communication and proxy solicitation expenses.............................*
NYSE listing fee......................................................................*
Exchanging, printing and engraving stock certificates expenses........................*
Investment bankers' fees and expenses.................................................*
Consulting fees.......................................................................*
Miscellaneous ........................................................................*
Total.............................................................................*
</TABLE>

(*) To be filed by amendment.

The total fees, commissions and expenses expected to be incurred for
transaction and regulatory processing costs are estimated to be approximately
$53 million.

<PAGE> 38

ITEM 3. APPLICABLE STATUTORY PROVISIONS

The following sections of the 1935 Act and the Commission's
rules relate to the Merger:

<TABLE>
<CAPTION>
SECTION OR RULE TRANSACTIONS TO WHICH SECTION OR RULE RELATES
UNDER THE 1935 ACT

<S> <C>
6, 7, 12, 32 and 33 and rules Issuance of AEP Common Stock; amendment to AEP's
existing thereunder financing authority to allow the Combined Company
to engage in financing arrangements authorized for CSW;
all financing transactions that do not involve a
financing for the purposes of acquiring an EWG or FUCO.

9, 10, 11 and rules thereunder Acquisition by AEP of CSW Common Stock and Merger Sub
common stock; indirect acquisition by AEP of securities
of, and interests in the business of, CSW's subsidiary
companies, including the non-utility subsidiaries;
authority for the Combined Company to conduct the
business activities of CSW.

13 and rules thereunder Merger of CSWS into AEPSC with AEPSC as the surviving service
company; approval of service agreement and method for allocating
costs under the service agreement.
</TABLE>

Section 9(a)(1) of the 1935 Act provides that unless the acquisition has
been approved by the Commission under Section 10, it shall be unlawful for any
registered holding company or any subsidiary company thereof "to acquire,
directly or indirectly, any securities or utility assets or any other interest
in any business." Section 9(a)(1) is applicable to the proposed Merger because
the transaction involves the acquisition by AEP of CSW Common Stock and the
Merger Sub common stock, and the indirect acquisition of the securities of and
interests in the businesses of CSW's subsidiary companies.

As set forth more fully below, the Merger fully complies with Section 10
of the 1935 Act:

- The Merger will not create detrimental interlocking
relations or a detrimental concentration of control;

- The consideration and fees to be paid in the Merger are
fair and reasonable;

- The Merger will not result in an unduly complicated capital
structure for the Combined Company;

<PAGE> 39

- The Merger is in the public interest and the interests of
investors and consumers;

- The Combined System will be a single integrated public
utility system;

- The Merger equitably distributes voting power among the
investors in the Combined Company and does not unduly
complicate the structure of the holding company system;

- The Merger tends toward the economical and efficient
development of an integrated electric utility system; and

- The Merger will comply with all applicable state laws.

Under Sections 9 and 10, Congress gave the Commission the responsibility
for "supervision over the future development of utility-holding company
systems." The Southern Co., HCAR No. 25639 (Sept. 22, 1992) (citations omitted)
[hereinafter "Southern"]. Section 1(c) of the 1935 Act directs the Commission to
interpret all provisions of the 1935 Act to meet the problems and eliminate the
evils set forth in the 1935 Act in order to protect the interests of investors,
consumers and the general public. Accordingly, the Commission's mandate under
these sections is "to prevent acquisitions which would be 'attended by the evils
which have featured the past growth of holding companies.'" American Elec. Power
Co., HCAR No. 20633 (July 21, 1978) (quoting H.R. Rep. No. 1318, 74th Cong., 1st
Sess. 16 (1935)) [hereinafter "AEP"]. These evils include the "growth and
extension of holding companies [that] bears no relation to economy of management
and operation or the integration and coordination of related operating
properties." Section 1(b)(4) of the 1935 Act.

As the Supreme Court has recognized, the 1935 Act is an "intricate
statutory scheme" which must be given "practical sense and application." SEC v.
New England Elec. Sys., 384 U.S. 176 (1966), rev'g and remanding 346 F.2d 399
(1st Cir. 1966), rev'g, New England Elec. Sys., 41 S.E.C. 888 (1964), on remand,
376 F.2d 107 (1st Cir. 1967), rev'd, 390 U.S. 207 (1968). In administering the
1935 Act, the Commission must "weigh policies [of the 1935 Act] against each
other and against the needs of particular situations." Union Elec. Co., HCAR No.
18368 (Apr. 10, 1974), aff'd sub nom. City of Cape Giradeau v. SEC, 521 F.2d 324
(D.C. Cir. 1975) (citation omitted) [hereinafter "Union Electric"]. The
Commission is not disposed to "apply concepts such as res judicata or stare
decisis to the essentially regulatory and policy determinations called for in a
Holding Company Act case . . . ." AEP, supra. In considering whether to approve
an acquisition, the Commission "must make that determination in light of
contemporary circumstances . . . and [its] present view of the Act's
requirements." Southern, supra (citations omitted).

The Merger complies with the 1935 Act. In light of contemporary
circumstances, the Merger does not result in any of the concerns the 1935 Act
was intended to address. In this regard, the Merger will benefit the public
interest and the interests of investors and consumers. Adequate safeguards,
through both state and federal regulation, ensure that the public interest and
the interests

<PAGE> 40
of investors and consumers continue to be protected. Approval of the Merger is
consistent with previous merger transactions approved by the Commission under
the 1935 Act. Each subsection of Section 10 of the 1935 Act is addressed below,
as well as the public policies underlying the 1935
Act, as they relate to the Merger.

A. SECTION 10(b)

Section 10(b) of the 1935 Act provides that, if the requirements of
Section 10(f) are satisfied, the Commission shall approve an acquisition under
Section 9(a) unless:

(1) such acquisition will tend towards interlocking relations
or the concentration of control of public utility
companies, of a kind or to an extent detrimental to the
public interest or the interest of investors or consumers;

(2) in case of the acquisition of securities or utility assets,
the consideration, including all fees, commissions, and
other remuneration, to whosoever paid, to be given,
directly or indirectly, in connection with such acquisition
is not reasonable or does not bear a fair relation to the
sums invested in or the earning capacity of the utility
assets to be acquired or the utility assets underlying the
securities to be acquired; or

(3) such acquisition will unduly complicate the capital
structure of the holding company system of the applicant or
will be detrimental to the public interest or the interest
of investors or consumers or the proper functioning of such
holding company system.

1. Section 10(b)(1)

Section 10(b)(1) of the 1935 Act requires the Commission to approve a
proposed acquisition unless it finds that the proposed acquisition will "tend
towards interlocking relations or the concentration of control of public utility
companies of a kind or to an extent detrimental to the public interest or the
interest of investors or consumers." As this Section clearly indicates, a merger
does not run afoul of Section 10(b)(1) merely because it causes interlocking
relations or a concentration of control. Rather, a merger will fail the
balancing test set forth in this Section only when the detrimental effects, if
any, from any such interlocking relations or concentration of control caused by
the merger outweigh the benefits of the merger.

a. Interlocking Relations

By its nature, any merger results in interlocking relations between
previously unrelated companies. As the Commission has previously noted: "[W]ith
any addition of a new subsidiary to

<PAGE> 41
a holding company system, the Acquisition will result in certain interlocking
relationships between [the two merging entities]." Northeast Utilities, HCAR No.
25221 (Dec. 21, 1990), modified on other grounds, HCAR No. 25273 (Mar. 15,
1991), aff'd sub nom. City of Holyoke Gas & Elec. Dep't v. SEC, 972 F.2d 358
(D.C. Cir. 1992) (citation omitted). [hereinafter "Northeast I"]. Such
"interlocking relationships are necessary to integrate [the two merging
entities.]" Id.

The Merger Agreement provides for the Board of Directors of the Combined
Company to be composed of members drawn from the Boards of Directors of both AEP
and CSW. Specifically, the Board of Directors of the Combined Company will
consist of 15 members including the current Chairman of the Board of CSW and
four other outside directors of CSW to be nominated by AEP. This combined Board
of Directors for the Combined Company is necessary to assure the effective
integration and operation of the Combined Company. As discussed below in Item
3.B.2, the Merger will result in benefits to the public interest and the
interests of investors and consumers. As such, the interlocking relations do not
harm, but rather, promote the interests which Section 10(b)(1) is meant to
protect.

b. Concentration of Control

Under the Section 10(b)(1) concentration of control test, the Commission
"considers various factors, including the size of the resulting system and the
competitive effects of the acquisition." Entergy Corp., HCAR No. 25952 (Dec. 17,
1993), request for reconsideration denied, HCAR No. 26037 (Apr. 28, 1994),
remanded sub nom. Cajun Elec. Power Coop. Inc. v. SEC, 1994 WL 704047 (D.C. Cir.
Nov. 16, 1994) (citations omitted). [hereinafter "Entergy"]. These factors are
discussed below.

(i) Size

As the terms of Section 10(b)(1) dictate and as the Commission has
recognized, Section 10(b)(1) does not "impose any precise limits on holding
company growth." AEP, supra. Congress condemned the "growth and extension of
holding companies [that] bears no relation to economy of management and
operation or the integration and coordination of related operating properties."
Section 1(b)(4) of the 1935 Act. The Commission has rejected a mechanical size
analysis under Section 10(b)(1) in favor of assessing the size of the resulting
system as it relates to the efficiencies and economies that can be achieved
through the integration and coordination of the new system's utility operations.
Entergy, supra (rejecting "conclusory assertions that the combined systems would
be too large to satisfy [Section 10(b)(1)]" and finding that merger created a
"large system, but not one that exceeds the economies of scale of current
electrical generation and transmission technology.") Section 10(b)(1) allows the
Commission to "exercise its best judgment as to the maximum size of a holding
company in a particular area, considering the state of the art and the area or
region affected." AEP, supra. Other recent transactions confirm that the
Commission evaluates the resulting size of a merging entity in terms of the
overall effects of the merger. For example, in Centerior Energy Corp., HCAR No.
24073 (Apr. 29, 1986) [hereinafter "Centerior"], the Commission stated that a
"determination of whether to prohibit enlargement of a system by

<PAGE> 42
acquisition is to be made on the basis of all the circumstances, not on the
basis of size alone." See also, Northeast I, supra (applying standard
articulated in Centerior, supra, to find acquisition satisfied Section
10(b)(1)). Likewise, the Division recommended in its 1995 Report that the
Commission approach its analysis of merger and acquisition transactions in a
flexible manner with an emphasis on whether the transaction creates an entity
subject to effective regulation and results in economies and efficiencies as
opposed to focusing on rigid, mechanical tests. 1995 Report at 66-70.

In short, size alone is not suspect. Rather, as the 1935 Act provides,
the concern is an enlargement of the system that is "of a kind or to an extent
detrimental to the public interest or the interest of investors or consumers"
caused "by the growth and extension of holding companies [that] bears no
relation to economy of management and operation or the integration and
coordination of related operating properties." Sections 10(b)(1) and 1(b)(4) of
the 1935 Act.

For purposes of comparison, the table below provides certain operating
information derived from publicly available documents for a selected group of
public utility systems. Each public utility system, with the exception of CSW,
consistently ranks at or near the top of virtually all categories presented.
These data identify and rank the largest public utility systems in the United
States. Among the utilities presented, AEP currently ranges from the second to
the fifth largest public utility system in the United States depending on the
criterion of measurement. Giving effect to the Merger as of December 31, 1997,
on a pro forma basis, the Combined Company would have ranged from the largest
to the fourth largest public utility system in the United States, again
depending on the criterion of measurement.

<TABLE>
<CAPTION>
(As of December 31, 1997)

U.S. U.S.
Operating Total Electric U.S. Sales in Market Generating
Revenues Assets Customers KwH Capitalization Capacity
System ($ Millions) ($ Millions) (Millions) (Billions) ($ Millions)(b) (MW)
- ------ ------------ ------------ ---------- ---------- --------------- -----
<S> <C> <C> <C> <C> <C> <C>
Duke 16,309 24,029 2.0 77.5 19,924 17,246
Southern 12,611 35,271 3.7 156.5 17,942 31,146
Entergy 9,562 27,001 2.5 106.8 7,361 21,727
PG&E 15,400 30,557 4.5 79.4 12,661 13,583

CSW 5,268 13,451 1.7 63.2 5,743 14,205
AEP 6,161 16,615 3.0 145.4 9,808 23,759
- --- ------ --- ----- ------
Combined
Company 11,352(a) 30,066 4.7 208.6 16,381(c) 37,964
</TABLE>

(a) Gives effect to certain reclassifications expected to be adopted by the
Combined Company upon completion of the Merger.
(b) Based on number of shares outstanding multiplied by the closing stock
price at December 31, 1997.
(c) Gives effect to the conversion of CSW Common Stock to AEP Common Stock
following the Merger at the Exchange Ratio.

<PAGE> 43
These data show that the Combined Company will be comparable in size to
other large public utility systems. Southern and PG&E would have been larger
than the Combined Company in total assets. Southern, PG&E and Duke would have
been larger than the Combined Company in terms of operating revenues. Duke and
Southern would have been larger than the Combined Company in total market
capitalization.

Moreover, the size of the Combined Company would not cause a
concentration of control within the relevant region under existing Commission
precedent. In Northeast I, supra, the Commission approved a merger in which the
combined system would have 29% of the peak load capacity, 36.7% of the total
assets and less than one-third of the operating revenues, number of electric
customers and KwH sales when compared to the regional electric utility industry.
The Commission further noted that these figures were well below the 40% level
that would have resulted in the merger the Commission blocked for other reasons
in New England Elec. Sys., HCAR No. 18801 (Feb. 4, 1975) ("NEES Decision"). Id.
at n. 53 (when measured by operating revenues, number of electric customers, KwH
sales, KwH capacity and electric power generated in KwH, the combined companies
in the NEES Decision would have represented "about 40% of New England").

Applicants propose that the relevant region for evaluating the size of
the Combined Company should include the Combined Company and those electric
utilities directly interconnected with AEP and/or CSW ("First Tier").(1) See
Entergy, supra (Commission adopted the applicants' definition of the relevant
region for purposes of measuring size to include applicants and those electric
utilities directly interconnected with either or both). As the table below
indicates, the size of the Combined Company compared to the size of the First
Tier and the Combined Company varies from 10% to 16% depending on the criterion
of measurement.

- ----------------------------
(1) First Tier utilities exclude certain municipalities and co-ops
including Arkansas Electric Cooperative, Associated Electric Cooperative, East
Kentucky Power Cooperative Inc., KAMO Electric Cooperative, Richmond Power &
Light Co., South Texas and Medina Electric Co., and Western Farmers Electric
Coop. First Tier utilities include Brownsville Public Utilities Board, Carolina
Power & Light Co., Central Illinois Light Co., Central Illinois Public Service
Co., Central Louisiana Electric Co. Inc., Cincinnati Gas & Electric,
Commonwealth Edison Co., Consumers Energy Co., Dayton Power & Light Co., Duke
Power Co., Entergy, Duquesne Light Co., Empire District Electric Co., Grand
River Dam Authority, Houston Light & Power Co., Illinois Power Co., Indianapolis
Power & Light Co., Kentucky Utilities Co., Louisville Gas and Electric Co.,
Lower Colorado River Authority, Monongahela Power Co., Northern Indiana Public
Service Co., Ohio Edison Co., Ohio Valley Electric Corp., Oklahoma Gas and
Electric Co., PSI Energy Inc., San Antonio Public Service Board, Southwestern
Public Service Co., Texas Utilities Electric Co., The Cleveland Electric
Illuminating Co., The Toledo Edison Co., Union Electric Company, Virginia
Electric & Power Co., West Penn Power Co., Western Resources Inc., Southwestern
Power Administration, and Tennessee Valley Authority.

<PAGE> 44
<TABLE>
<CAPTION>
Net
Electric Utility Electric Number of Total Net
Plant Revenues Electric Generation
($ Thousands) ($ Thousands) Customers MwH Sales (MwH)
------------- ------------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
First Tier
Utilities $169,463,307 $69,737,780 28,075,111(a) 1,224,545,371 1,092,704,814

Combined
Company $18,512,582 $9,097,234 4,614,541 194,998,011 199,222,365
---------------- ----------------- ------------ -------------- -----------

Total $187,975,889 $78,835,014 32,689,652 1,419,534,382 1,291,927,179

% of Total 10% 12% 15% 14% 16%
represented by
Combined
Company
</TABLE>

(a) The customers of the Tennessee Valley Authority and Southwestern Power
Administration are not included in this figure, since these federal power
marketing agencies typically do not have retail customers. The Tennessee
Valley Authority has 160 distributor customers and Southwestern Power
Administration has 92 customers comprised of municipalities, federal
agencies and cooperatives.

Sources: Edison Electric Institute, Electrical Utility Data, EZStat Query
System (1996); EIA Publication-Financial Statistics of Major US
Investor-Owned Electric Utilities (1996); EIA Publication -
Financial Statistics of Major US Publicly-Owned Electric Utilities
(1996).

Specifically, as the table above indicates, at December 31, 1996, the Combined
Company would have represented no more than the following percentages of the
utility industry in the region, in terms of the above criteria: net electric
plant (10%); electric revenues (12%); number of electric customers (15%); MwH
sales (14%); and net generation (16%). As such, the size of the Combined Company
relative to the relevant region is significantly below the 40% threshold
previously cited by the Commission.

By definition, any merger creates an entity larger than each of the
constituent parts. However, the size of the Combined Company will not exceed the
economies of scale of current electrical generation and transmission technology
and, therefore, does not exceed the maximum size of a holding company
considering the "state of the art." Technological changes have resulted in power
being transmitted over greater distances with less line loss, single integrated
computer networks that more efficiently dispatch generation sources and control
constricted transmission areas, and generation technologies that have reduced
the cost of power and increased the flexibility of power plant siting. Moreover,
changes in the regulatory and legal framework have resulted in an increase in
non-utility generators, non-utility marketers and brokers. Together, these
technological,

<PAGE> 45
legal and regulatory changes have resulted in increased competition within the
industry.(2) Given these present realities, the size of the Combined System will
not result in a "concentration of control" of a kind or to an extent detrimental
to the interests of the public, investors or consumers. As described in detail
below in Item 3.B.2, the Merger is expected to yield significant economies and
efficiencies. Net non-production savings of nearly $2 billion and net
fuel-related savings of approximately $98 million are projected over the first
ten years. These savings will be realized by investors and customers.

(ii) Antitrust Considerations

The Commission's analysis under Section 10(b)(1) also includes a
consideration of federal antitrust policies.(3) If the Commission determines
that an acquisition will tend towards the concentration of control of public
utility companies, it balances this effect against the benefits from the
acquisition to determine whether the acquisition passes the Section 10(b)(1)
balancing test. The Commission "has approved acquisitions that decrease
competition when it concludes that the acquisitions would result in benefits
such as possible economies of scale, elimination of the duplication of
facilities and activities, sharing of production capacity and reserves, and
generally more efficient operations." Northeast I, supra. The Commission has
also explained that the "antitrust ramifications of an acquisition must be
considered in light of the fact that public utilities are regulated monopolies
and that federal and state administrative agencies regulate the rates charged
consumers." Id.

When assessing the possible anticompetitive effects of a proposed
acquisition, the Commission is --

primarily concerned with the structure of public utility holding
company systems. The Commission, however, has also considered
anticompetitive issues involving the allocation of excess
generating capacity, transmission access and the flow of
electricity over transmission lines of a holding company system.

Entergy, supra (citations omitted).

The FERC has jurisdiction over the Merger under Section 203 of the
FPA. It will make a finding as to whether the Merger is consistent with the
public interest based, in part, upon consideration of the anticompetitive
consequences, if any, of the proposed transaction. The Commission has relied
upon the expertise of other federal regulators in determining the
anticompetitive effects of proposed merger transactions, and the D.C. Circuit
has upheld the Commission's ability to watchfully defer to other regulators:

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

(2) The "state of the art" is discussed in depth in Item 3.B.1.a
below.

(3) See, e.g., Conectiv, HCAR No. 26832 (Feb. 25, 1998) [hereinafter
"Conectiv"].

<PAGE> 46
Although the SEC may not rely upon the FERC's concurrent
jurisdiction over an acquisition as a reason to shirk its own
statutory mandate to determine the anticompetitive effect of that
transaction, . . . it does not follow that the SEC must pretend
that it is the only agency addressing the issue when it is not . .
. . Rather, when the SEC and another regulatory agency both have
jurisdiction over a particular transaction, the SEC may
'watchfully defer[]' to the proceedings held before -- and the
result reached by -- that other agency."

City of Holyoke Gas & Elec. Dep't v. SEC, 972 F.2d 358 (D.C. Cir. 1992)
(citations omitted) [hereinafter "City of Holyoke"]. Consistent with the
foregoing, the Division in its 1995 Report recommended that "the SEC avoid
duplicative review of acquisitions and, where possible, defer to the work of
other regulators in reviewing acquisitions." 1995 Report at 66. In this case,
the SEC can watchfully defer to other agencies (namely, the DOJ/FTC and the
FERC) on the question of competitive issues because consummation of the Merger
may not take place until and unless potential competitive concerns have been
addressed by these agencies under the HSR Act procedures as well as under
Section 203 of the FPA. If the Commission determines to approve the Merger
(subject to the FERC's approval of the Merger and/or the DOJ's or FTC's lack of
challenge to the transaction), it can defer to these agencies even if their
proceedings are not yet complete because the Commission retains ongoing
authority under Section 20(a) of the 1935 Act to rescind or further condition
its approval of a transaction. Id.

ii(a). The Role of the DOJ and the FTC

Pursuant to the HSR Act, AEP and CSW are required to file with the FTC
Premerger Notification and Report Forms. See 16 C.F.R. Parts 801 through 803.
The purpose of the HSR Act reporting requirements is to "facilitate evaluation
of the antitrust implications of the proposed transaction and, where the
competitive consequences appear substantial, to permit either [the DOJ or the
FTC] to challenge the legality of the transaction."(4) The HSR Act prohibits
consummation of the Merger until the statutory waiting period has expired or
been terminated.

ii(b). The Role of the FERC

AEP and CSW filed a joint application with the FERC on April 30, 1998
pursuant to Section 203 of the FPA for approval of the Merger. The application
conformed to FERC Order No. 592 in which the FERC adopted the DOJ/FTC Merger
Guidelines as the framework for analyzing the impact of a merger on competition
in affected markets.(5) The AEP/CSW application to the FERC

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

(4) Premerger Practice Notification Manual at xi (American Bar
Association 1991).

(5) Inquiry Concerning the Commission's Merger Policy under the
Federal Power Act: Policy Statement, Order No. 592, Docket No. RM96-6-000,
Regulations Preambles, Paragraph 31,044 at 30,109 (December 30, 1996).

<PAGE> 47
contained testimony by Dr. William Hieronymus analyzing the Merger pursuant to
the FERC's Order No. 592. A copy of Dr. Hieronymus's testimony is filed as an
exhibit to Exhibit D-1.1 and is incorporated by reference. The analysis
presented therein measures the competitive effect of the Merger in geographic
markets within the region defined herein previously as the First Tier. Dr.
Hieronymus concludes that the Merger will have no anticompetitive impacts that
cannot be mitigated by measures which the Applicants propose as a condition of
the Merger. Dr. Hieronymus's testimony is summarized below:

(x) Product Markets

The FERC presumes the long-term capacity market to be competitive, unless
special factors exist that limit the ability of long-term capacity markets to
develop. The evidence demonstrates that the Combined Company will not control
transmission access, fuel supplies or generation plant sites. Accordingly, the
Combined Company will not have market power in long-term capacity markets.

For the shorter term markets, the FERC applies a market screen analysis
to determine if a merger raises competitive concerns. For that purpose, the FERC
uses four product measures: 1) Total Capacity; 2) Uncommitted Capacity; 3)
Available Economic Capacity; and 4) Economic Capacity.

With respect to the Total Capacity measure, the overall size of the
market is in excess of 320,000 MW. The Total Capacity of the Combined System is
approximately 38,000 MW. Applying the screening analysis, Dr. Hieronymus's
testimony concludes that the market is unconcentrated (an HHI of less than 1000)
and, accordingly, the Merger has no anti-competitive impact with respect to
Total Capacity.

With respect to the Uncommitted Capacity measure, CSW has no Uncommitted
Capacity. Thus, the Merger cannot result in an increase in the Combined
Company's share of Uncommitted Capacity relative to AEP's present share.
Accordingly, the Combined Company will not have market power as measured by the
FERC's Uncommitted Capacity criterion.

For the Economic Capacity and Available Economic Capacity measures
combined, Dr. Hieronymus performed 448 HHI tests. Based solely on the Merger and
without considering the 250 MW Contract Path, the only failures to satisfy the
FERC screening criteria were the Economic Capacity Measure for five time periods
in the CSW SPP Market and the Available Economic Capacity Measure for one time
period in the Associated Electric Cooperative destination market.

With the inclusion of the 250 MW Contract Path to interconnect the
Applicants' systems, a few additional failures under the screening analysis
resulted for the Economic Capacity Measure and the Available Economic Capacity
Measure in the SPP and ERCOT markets. As to those

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

<PAGE> 48
markets that did not fall below the minimum benchmark, Applicants proposed
mitigation measures to offset any increase in market concentration so as to
reduce the HHI to fall within safe harbor levels. In this regard, AEP and CSW
proposed to sell 320 MW that would be available to the SPP and ERCOT markets.
The effect of the 320 MW sale is to reduce the nine instances where the Economic
Capacity Measure was above the safe harbor standard to levels comfortably within
the safe harbor range. In five out of these nine instances, the 320 MW sale
actually had the effect of deconcentrating the market. Similarly, with respect
to the seven instances in which the Available Economic Capacity Measure showed
changes above the safe harbor level, the 320 MW sale had the effect of reducing
the Available Economic Capacity Measure to within safe harbor levels. The
proposed sale of power is, therefore, specifically structured to meet any
concerns that the increases in market concentration in the SPP and ERCOT
markets, without correction, could have anti-competitive effects on those
markets.

In interpreting the estimated market shares and HHIs, it is important to
recognize that non-firm energy markets have a number of characteristics that
make the exercise of market power, either jointly or unilaterally, extremely
unlikely. In particular, the numerous ways energy transactions can be packaged,
the diversity of the participants in an evolving and increasingly competitive
market, and the fact that buyers are also sellers at various times will make it
exceedingly difficult for the Combined Company to exercise market power through
coordinated behavior.

In sum, it is clear that the Merger will have little or no effect on
competition in the relevant product markets.

(y) Vertical Markets

The Merger raises no vertical concerns. AEP and CSW are not transmission
competitors and each operates under FERC Order No. 888 open access transmission
tariffs. AEP and CSW have filed a joint Order No. 888 compliance tariff
applicable to the Combined System to be made effective as of the Merger closing
date. Hence, Applicants are not in a position to favor each other in operating
their transmission systems.

AEP and CSW each have committed to join an ISO, thus eliminating any
remaining concerns regarding the transmission facilities' impact on competition.
Through the ISO, the Combined Company will relinquish control over the operation
of its transmission facilities. The Combined Company will retain ownership of
the facilities, but the facilities will be operated by the ISO for the benefit
of the system users in a competitive and non-discriminatory manner.

The Merger raises no vertical issues relating to ownership or control of
scarce generating capacity. There are a number of projects under development and
construction in Texas, including an 800 MW merchant plant in Grimes County and a
350 MW merchant plant under consideration

<PAGE> 49
for Uvalde County, each of which will be capable of selling into both ERCOT and
SPP.(6) By utilizing the Combined Company's open access tariff, customers within
the Combined Company's service territory will be able to access numerous
suppliers that independently have constructed substantial generating capacity in
the past and that have located both within and outside the service territory. In
the longer term, with the introduction of retail competition, it is expected
that retail customers will have access to energy service providers with
different generation sources and mixes.

In sum, Dr. Hieronymus's testimony demonstrates that taking into account
the Combined Company's mitigation measures, the Merger presents no competitive
problems. Thus, the Merger can be expected to obtain required approval and
clearance from the FERC. To the extent the Commission finds that there is any
concentration of control resulting from the Merger, Applicants believe any such
concentration of control is far outweighed by the benefits accruing to the
public, investors and consumers from the Merger, as more fully discussed in Item
3.B.2 below. Thus, the Merger will not "tend toward . . . the concentration of
control" of public utility companies, of a kind or to an extent detrimental to
the public interest or the interests of investors or customers within the
meaning of Section 10(b)(1).

2. Section 10(b)(2)

Section 10(b)(2) of the 1935 Act requires the Commission to approve the
Merger unless it finds that the consideration, including all fees, commissions
and other remuneration, is unreasonable or does not bear a fair relation to the
sums invested in, or the earning capacity of the utility assets underlying the
securities to be acquired.

a. Reasonableness of Consideration

Section 10(b)(2) "does not demand a mathematical equivalence of values
for the terms of the exchange." Entergy, supra. Prices arrived at through arm's
length negotiations are particularly persuasive evidence that the Section
10(b)(2) requirement is met. See, e.g., Northeast I, supra, (citing Ohio Power,
HCAR No. 16753 (June 8, 1970)). Moreover, the assistance of independent
consultants in setting consideration is deemed to be evidence that the
requirement is met. See, e.g., Northeast I, supra (citing Southern Co., HCAR No.
24579 (Feb. 12, 1988)). The Commission also "independently analyze[s] the
financial and operating performances of [the combining entities]" with respect
to such factors as relative market values and dividends per share. Centerior,
supra. Finally, the Commission considers whether the shareholders have approved
the acquisition. Entergy, supra.

Under the standards applied by the Commission in previous utility
mergers, the consideration to be paid by AEP in the Merger is reasonable and
bears a fair relation to the earning capacity of the utility assets underlying
the CSW Common Stock to be acquired, in compliance with Section 10(b)(2). Based
on the Exchange Ratio set forth in the Merger Agreement, the consideration
offered

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

(6) Power Generation Markets Quarterly, Fourth Quarter 1997.

<PAGE> 50
by AEP will be AEP Common Stock which had a market value on December 19, 1997,
the last trading day before the Merger was announced, of approximately $6.6
billion, or approximately $31.20 per share of CSW Common Stock, which was
approximately 20% above the closing price of CSW Common Stock on December 19,
1997. Applicants' belief that the consideration is fair and reasonable is based
on the following reasons, each of which is discussed in detail below:

- Arm's length negotiations between AEP and CSW conducted in a
competitive context resulted in the proposed Exchange Ratio;

- An opinion from AEP's financial adviser, Salomon, states that the
consideration to be paid by AEP with respect to the Merger is
fair, from a financial point of view, to AEP;

- An opinion from CSW's financial adviser, Morgan Stanley, states
that the consideration to be received by CSW's shareholders with
respect to the Merger is fair, from a financial point of view, to
CSW's shareholders;

- Valuation analysis demonstrates the fairness of consideration as
evidenced by the comparative market prices of, and dividends paid
on, the AEP and CSW Common Stock;

- The Applicants' shareholders approved the shareholder actions
necessary to effect the Merger; and

- The inclusion of required closing conditions in the Merger
Agreement serves to assure that the Merger will be consummated on
terms that are fair to Applicants and their shareholders.

(i) Competitive Negotiations

The chief executive officers of AEP and CSW had informal discussions on
several occasions from January 1997 to March 1997 regarding a merger of the
companies. With CSW's stock price depressed in late April 1997 as a result, in
the opinion of CSW management, of adverse action by the Texas Commission, CSW
management terminated discussions with AEP.

From May through September 1997, CSW management continued to explore a
variety of strategic alternatives. As part of this analysis, CSW management, in
consultation with its advisers, developed a list of screening criteria for use
in analyzing potential merger partners. CSW also considered other strategic
alternatives which could be pursued without a business combination. At a meeting
of the CSW Board of Directors on September 27, 1997, management recommended to
the CSW Board of Directors that CSW seek a merger that could enhance CSW's
ability to implement its long-term vision. The CSW Board of Directors
unanimously authorized CSW management to

<PAGE> 51
pursue its search for an appropriate merger partner while continuing to evaluate
CSW's stand-alone options.

In September 1997, the chief executive officers of AEP and CSW resumed
their discussions regarding a stock-for-stock merger. During the ensuing months,
CSW's management also held preliminary discussions, and exchanged non-public
information, with three other electric utilities regarding a possible business
combination and continued to evaluate other stand-alone alternatives. CSW
management met with the CSW Board of Directors and a committee of the CSW Board
of Directors on many occasions during October-December 1997 to update the
directors and receive direction on the course of their discussions.

On November 24, 1997, CSW management and CSW's advisers met with a
committee of the CSW Board of Directors to discuss the progress of the strategic
alternative evaluation process. The committee authorized CSW management to send
to four strategic merger candidates a letter requesting each to advise CSW as to
whether, and on what terms, it was interested in pursuing a strategic
combination with CSW. On December 11, 1997, CSW received affirmative responses
to the request letters from AEP and two of the three other companies.

On December 12, 1997, CSW management and advisers met with a committee of
the CSW Board of Directors to discuss the responses and the status of the
strategic merger candidate evaluation process. After analyzing the responses and
CSW's other stand-alone alternatives, the committee determined that AEP appeared
to be the best strategic merger partner for CSW and that a merger with AEP on
the right terms would be more likely to restore and enhance long-term
stockholder value than any of the other merger or stand-alone strategic
alternatives.

Following negotiations between the chief executive officers of each
company, CSW and AEP agreed to proceed with merger negotiations on the basis of
a proposed exchange ratio of 0.60 shares of AEP Common Stock for each share of
CSW Common Stock. The Board of Directors of both companies approved the Merger
Agreement in meetings on December 21, 1997, and the Merger Agreement was signed
that afternoon.

The Exchange Ratio was agreed to by the Applicants after extensive
deliberations between the two companies involving senior management personnel
assisted by financial and legal advisers skilled in mergers and acquisitions
transactions. Moreover, the negotiations were carried out in a competitive
context with other companies.

For further information regarding the background of the proposed Merger
between AEP and CSW, reference is made to the Joint Proxy Statement and
Prospectus filed as Exhibit C-2 and incorporated herein by reference.

<PAGE> 52
(ii) Fairness Opinions

As discussed above, the Boards of Directors of AEP and CSW approved the
Merger Agreement and the transactions contemplated thereby. Prior to such
approvals, the Boards received opinions from AEP's and CSW's respective
financial advisers as to the fairness of the proposed consideration. AEP's Board
of Directors received a written opinion from Salomon that, based upon specified
procedures and assumptions, the consideration to be paid by AEP with respect to
the proposed Merger is fair, from a financial point of view, to AEP. CSW's Board
of Directors received a written opinion from Morgan Stanley that the proposed
consideration is fair, from a financial point of view, to the shareholders of
CSW. No limitations were imposed by the AEP Board or the CSW Board upon Salomon
or Morgan Stanley, respectively, with respect to the investigations made or
procedures followed by their respective financial advisers.

In arriving at their respective opinions, Salomon and Morgan Stanley
reviewed (i) the terms of the Merger Agreement; (ii) certain publicly available
business and financial information relating to AEP and CSW; (iii) certain other
internal information concerning AEP and CSW, including financial projections
provided to them by AEP and CSW; (iv) certain publicly available information
concerning the trading of, and the trading market for AEP's and CSW's Common
Stock; (v) certain publicly available information with respect to other
companies they believed to be comparable to AEP and CSW and the trading markets
for such other companies' securities; and (vi) certain publicly available
information concerning the nature and terms of other transactions they
considered relevant to their inquiry. They also met with officers and employees
of AEP and CSW to discuss the foregoing as well as other matters relevant to the
Merger. Copies of the fairness opinions are filed as Annexes II and III to
Exhibit C-2 and are incorporated by reference.

Salomon's fairness opinion was based on eight valuation analyses relating
to, respectively, Discounted Cash Flow Analysis-CSW; Comparable Company
Analysis-CSW; Analysis of Selected Utility Company Mergers and Acquisitions;
Discounted Cash Flow Analysis-AEP; Comparable Company Analysis-AEP; Historical
Trading Ratios Analysis; Contribution Analysis; and Pro Forma Analysis of the
Merger. These analyses supported the fairness of the proposed consideration,
from a financial perspective, to be paid by AEP and are summarized below:

Discounted Cash Flow Analysis-CSW. This analysis was based on
certain operating and financial assumptions for CSW in years 1997
to 2006 provided by CSW and adjusted by the management of AEP.
From this analysis, Salomon derived a range of the implied equity
value per share of CSW Common Stock of approximately $25 to $29.
In addition, Salomon derived a per share present value of the
expected Merger savings of $5. Thus, Salomon derived a reference
range for the implied value per share of CSW Common Stock,
including savings, of approximately $30 to $34.

Comparable Company Analysis-CSW. Salomon reviewed certain publicly
available financial, operating, and stock market information for
CSW and

<PAGE> 53

five other publicly-traded utility companies Salomon considered
comparable to CSW. Salomon derived the implied value of the CSW
shares on (1) a stand-alone basis ($21 to $25 per share); (2) with
the Merger savings ($26 to $30 per share); and (3) including a 30%
control premium, but no Merger savings ($27.50 to $32.50 per
share).

Analysis of Selected Utility Company Mergers and Acquisitions.
Salomon reviewed a set of completed and proposed utility mergers
announced since August 1996. Salomon calculated multiples based on
the offer price for each target company to such company's
respective pre-announcement market price, book value, earnings and
cash flow per share. From this analysis, Salomon derived a
reference range for the implied equity value per CSW share of $27
to $35.

Discounted Cash Flow Analysis-AEP. This analysis was based on
certain operating and financial assumptions for AEP in years 1997
to 2006 provided by AEP. From this analysis, Salomon derived a
range of the implied equity value per share of AEP Common Stock of
approximately $42 to $49.

Comparable Company Analysis-AEP. Salomon reviewed certain publicly
available financial, operating, and stock market information for
AEP and five other publicly-traded utility companies Salomon
considered comparable to AEP. Salomon derived a range of the
implied equity value per share of AEP Common Stock of
approximately $44 to $52.

Historical Trading Ratios Analysis. Salomon also reviewed the
daily closing prices of CSW Common Stock and AEP Common Stock
during the period from December 15, 1992 through December 15, 1997
and the historical trading ratios over such period. During that
period the average historical trading ratio was 0.70. The ratio on
December 15, 1997 was 0.52.

Contribution Analysis. Salomon reviewed the relative contributions
of each of AEP and CSW to estimated net income and other
indicators of the Combined Company for each of the years 1997 to
2006. This analysis showed that CSW is expected to contribute a
percentage of the Combined Company's net income ranging from
approximately 34% to 40% in 1997 to 2003 before leveling off at
39% in the years 2004 to 2006. CSW stockholders would own
approximately 40% of the outstanding shares of the Company based
on the Exchange Ratio.

Pro Forma Analysis of the Merger. Salomon also analyzed certain
pro forma effects resulting from the proposed combination for the
years 2000 through 2006. This analysis was based on financial and
operating assumptions for

<PAGE> 54
AEP and CSW, as provided to Salomon by AEP, and assumed the
realization of the cost savings projected by AEP management to
result from the Merger. Based on such analysis, Salomon concluded
that the Merger would be somewhat dilutive to AEP shareholders for
the years 2000-2002 and somewhat accretive for the remaining years
of the forecast. Salomon noted that the transaction would
generally produce earnings per share accretion of 10% or more each
year for CSW shareholders, but would result in a lower dividend
per original CSW share of more than 10% through 2003, the
reduction continuing to decline thereafter.

(iii) Comparative market prices of and dividends paid on
common stock.

Market prices at which securities are traded have always been strong
indicators as to values. As shown below, most quarterly price data for CSW
Common Stock and AEP Common Stock, high and low, for the years 1996 and 1997
provide support for the calculation of the Exchange Ratio.

<TABLE>
<CAPTION>
AEP CSW
High Low Dividends High Low Dividends
<S> <C> <C> <C> <C> <C> <C>
1996
1st Qtr ...................... 44-3/4 40-1/8 0.60 28-1/2 26-3/8 0.435
2nd Qtr ...................... 42-3/4 38-5/8 0.60 28-7/8 26-1/2 0.435
3rd Qtr ...................... 43-1/8 40 0.60 28-1/2 25-3/4 0.435
4th Qtr ...................... 42-1/2 39-1/2 0.60 28 25-1/2 0.435

1997
1st Qtr ...................... 43-3/16 40 0.60 26 20-3/4 0.435
2nd Qtr ...................... 42-1/2 39-1/8 0.60 22-1/4 18 0.435
3rd Qtr ...................... 46-5/8 41-1/2 0.60 22-9/16 19-1/2 0.435
4th Qtr ...................... 52 45-1/4 0.60 27-1/2 20 0.435
</TABLE>

(iv) Shareholder Approval

In addition, the holders of AEP Common Stock and the holders of CSW
Common Stock overwhelmingly approved the shareholder actions necessary to effect
the Merger. At the Annual Meeting of Shareholders of AEP held on May 27, 1998,
holders of approximately (i) 71% of all outstanding AEP Common Stock approved an
amendment to the Restated Certificate of Incorporation of AEP increasing the
number of authorized shares of AEP Common Stock, and (ii) 72% of all outstanding
AEP Common Stock approved the issuance of the AEP Common Stock, each necessary
to effect the Merger. Holders of approximately 82% of all outstanding CSW Common
Stock approved the Merger at the Annual Meeting of Stockholders of CSW held on
May 28, 1998.

<PAGE> 55
(v) Merger Agreement

Finally, the Merger Agreement contains a number of closing conditions
that help ensure the continued reasonableness of the consideration. Under
Section 8.1(g), it is a condition precedent to closing, applicable to both AEP
and CSW, that "there shall not have occurred and remain in effect a Divestiture
Event with respect to [either company]."(7) Pursuant to Sections 8.2 and 8.3,
AEP and CSW are each required to affirm that all representations made with
respect to the Merger Agreement are true and correct as of the date of closing,
including the representation that no Material Adverse Effect(8) shall have
occurred and that there shall exist no fact or circumstance which may reasonably
be expected to give rise to a Material Adverse Effect. Other closing conditions
ensure that the Merger will not be consummated in the event of onerous or
burdensome regulatory orders or conditions.

b. Reasonableness of Fees

The various categories of fees, commissions and expenses in connection
with the transaction and regulatory processing costs for the Merger are set
forth in Item 2 to this Application-Declaration. Applicants together expect to
incur total transaction and regulatory processing costs of approximately $53
million, including financial advisory fees of approximately $31 million.

Applicants believe that these estimated fees and expenses bear a fair
relation to the value of CSW and the savings to be achieved by the Merger and
are fair and reasonable in light of the size and complexity of the Merger.
Northeast Utilities, HCAR No. 25548 (June 3, 1992), modified on other grounds,
HCAR No. 25550 (June 4, 1992) [hereinafter "Northeast II"] (Commission considers
whether fees and expenses bear a fair relation to the value of the company to be
acquired and the savings to be achieved by the acquisition). Based on the price
of AEP Common Stock on December 19, 1997, the transaction would be valued at
$6.6 billion. As discussed in Item 3.B.2 below, net nonproduction savings of
nearly $2 billion and net fuel-related savings of approximately $98 million are
projected over the first ten years after the Merger.

Moreover, the estimated overall fees are reasonable compared to the
overall fees approved by the Commission in other merger transactions. The total
fees of $53 million to be incurred by

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

(7) "Divestiture Event" means "any Law, Regulation or Order adopted or issued
by a Governmental Authority that requires the divestiture of a substantial
portion of the generating assets of [CSW or AEP]."

(8) "Material Adverse Effect" means "any change or effect that is material
and adverse to the business, condition (financial or otherwise) or results of
operations or prospects of a specified Person and its subsidiaries, if any,
taken as a whole; provided, however, that, as used in this definition the word
material shall have the meaning accorded thereto in Section 11 of the Securities
Act."

<PAGE> 56
Applicants represent approximately 0.8% of the value of consideration to be paid
by AEP, based on the price of AEP Common Stock on December 19, 1997. The
Commission has approved fees, commissions and expenses of $46.5 million in
connection with the acquisition of PSNH by Northeast, representing approximately
2% of the value of the assets to be acquired (Northeast I; Northeast II); $47.12
million in connection with the reorganization of Cincinnati Gas and Electric and
PSI Resources as subsidiaries of CINergy (CINergy Corp., HCAR No. 26146 (Oct.
21, 1994) [hereinafter "CINergy"]) and $38 million in fees, commissions and
expenses in connection with Entergy's acquisition of Gulf States Utilities
Company, representing approximately 1.7% of the value of the consideration paid
to Gulf States' shareholders (Entergy, supra).

The investment banking fees of approximately $31 million to be incurred
by Applicants represent approximately 0.47% of the value of consideration to be
paid by AEP, based on the price of AEP Common Stock on December 19, 1997. These
fees incurred by Applicants resulted from a marketplace in which investment
banking firms actively compete with each other to act as financial advisers to
merger participants. The Commission has previously approved financial advisory
fees of approximately $10.6 million, representing approximately 0.46% of the
value of the assets to be acquired (Northeast I, supra and Northeast II, supra),
financial advisory fees representing approximately 0.96% of the aggregate value
of the acquisition, (Southern Co., HCAR No. 24579 (Feb. 12, 1988), modified on
other grounds, HCAR No. 24579A (February 26, 1988), and Amendment No. 9 to
Southern Form U-1 (April 13, 1988)), and financial advisory fees of $8.3
million, representing approximately 0.36% of the value of the consideration paid
to Gulf States' shareholders (Entergy, supra and Amendment No. 24 to Entergy
Form U-1 (Nov. 18, 1993)).

As indicated in Item 2 above, the fees and expenses which are not yet
finalized will be filed by amendment when they become available.

For all of the above reasons, the consideration and fees to be paid are
fair and reasonable in compliance with Section 10(b)(2).

3. Section 10(b)(3)

Section 10(b)(3) of the 1935 Act requires the Commission to approve a
proposed acquisition unless the acquisition would unduly complicate the capital
structure of the holding company system, or would be detrimental to the public
interest, the interest of investors or consumers or the proper functioning of
such holding company system.

a. Capital Structure

The Commission has found that an acquisition does not unduly complicate
the capital structure of the holding company system where the effect of a
proposed acquisition on the acquirer's capital structure is negligible and the
debt to equity ratio due to the acquisition is well within "the 65/30%
debt/common equity ratio generally prescribed by the Commission." Entergy, supra
(citing

<PAGE> 57
Northeast I). The Commission has approved common equity to total capitalization
ratios as low as 27.6%. See Northeast I, supra.

In this regard, the proposed combination of AEP and CSW will not unduly
complicate the capital structure of the Combined System. The only changes to the
capital structure of AEP will be the acquisition by AEP of CSW Common Stock and
the addition of the capital structure of CSW to AEP's capital structure. CSW and
its subsidiaries have publicly held debt and have publicly held preferred stock
or preferred trust securities, and all CSW Common Stock will be held by AEP and
incorporated within AEP's consolidated financial statements.

At December 31, 1997, the respective capital structures of AEP and CSW
were as follows:

<TABLE>
<CAPTION>
AEP CSW
(in millions) (in millions)

<S> <C> <C> <C> <C>
Common Shareholders'
Equity................................ $ 4,677 45.5% $3,556 44.3%
Preferred Stock (a)................... 175 1.7% 203 2.5%
Long-Term Debt (a).................... 5,424 52.8% 3,929 49.0%
Trust Preferred Securities............ -0- 0% 335 4.2%
------ ------ ------ ------
Total........................ $10,276 100.0% $8,023 100.0%
</TABLE>

(a) Includes portion due within one year.

If the Merger had been consummated on December 31, 1997, the pro forma
consolidated capital structure of the Combined Company as of such date
(according to generally accepted accounting principles, assuming that the Merger
is treated as a "pooling of interests" under Accounting Principles Board Opinion
No. 16) would have been as follows:

COMBINED COMPANY PRO FORMA
(IN $ MILLIONS)

<TABLE>
<S> <C> <C>
Common Shareholders' Equity.............. $ 8,180(a) 44.8%
Preferred Stock.......................... 378 2.1%
Long-Term Debt........................... 9,353 51.3%
Trust Preferred Securities............... 335 1.8%
------ --------
Total........................... $18,246 100.0%
</TABLE>

(a) Includes $53 million of transactions and regulatory processing costs.

<PAGE> 58
As can be seen from the above tables, the debt to equity ratio is not
altered to any considerable degree by the Merger. The Combined Company's pro
forma consolidated common equity to total capitalization ratio of 44.8% is
substantially higher than Northeast Utilities' recently approved 27.6% common
equity position and comfortably exceeds the "traditionally acceptable 30%
level." Northeast I, supra.

Finally, the common stock that AEP proposes to issue in the Merger has
the same par value, same rights (including voting rights) and preference as to
dividends and distributions as the AEP Common Stock presently outstanding. All
of the issued and outstanding CSW Common Stock will be owned by AEP as a result
of the Merger. As such, there will be no publicly held minority common stock
interest in CSW following the Merger. Thus, the Merger does not complicate the
capital structure of AEP.

b. Public Interest, Interest of Investors and Consumers, and
Proper Functioning of Holding Company System

Section 10(b)(3) also requires the Commission to determine whether the
proposed Merger will be detrimental to the public interest, the interest of
investors or consumers or the proper functioning of the Combined System.

As discussed in greater detail in Item 3.B.2 below, the Merger will
enable the Combined Company to operate more efficiently and economically than
either AEP or CSW could operate independently of the Merger. The Merger will
result in substantial, otherwise unavailable, benefits to the public and to
consumers and investors of both companies -- specifically, savings through labor
cost savings, facilities consolidation, corporate and administrative programs,
non-fuel purchasing economies, and efficiencies from the combined utility
operations. These savings will be passed on to shareholders and consumers. The
shareholders, whose interests are protected by the disclosure requirements of
the Securities Act of 1933 and the Securities and Exchange Act of 1934, have
overwhelmingly approved the shareholder actions necessary to effect the Merger.
See Southern, supra (stating that "[c]oncerns with respect to investors have
been largely addressed by developments in the federal securities laws and in the
securities markets themselves.") The interests of consumers are protected by
both state and federal regulation.

Simply stated, the Merger will create an entity that will be poised to
respond effectively to the fundamental changes that have taken and will continue
to take place in the markets for electric power as such markets are being
deregulated and restructured and will create an entity prepared to compete
effectively for consumer's business. As such, consumers, investors, and the
public will be the ultimate beneficiaries of the Merger.

In sum, because the Merger does not add any complexity to AEP's capital
structure and is in the public interest and the interests of investors and
consumers, the requirements of Section 10(b)(3) are met.

<PAGE> 59
B. SECTION 10(c)

Section 10(c) of the 1935 Act establishes additional standards for
approval of the Merger. Under Section 10(c), the Commission cannot approve:

(1) an acquisition of securities or utility assets, or of any
other interest, which is unlawful under the provisions of
Section 8 or is detrimental to the carrying out of the
provisions of Section 11; or

(2) the acquisition of securities or utility assets of a public
utility or holding company unless the Commission finds that
such acquisition will serve the public interest by tending
towards the economical and efficient development of an
integrated public utility system.

1. Section 10(c)(1)

Section 10(c)(1) requires that the proposed acquisition be lawful under
the provisions of Section 8 of the 1935 Act. Section 8 prohibits an acquisition
by a registered holding company of an interest in an electric and gas utility
serving substantially the same area without the express approval of the state
commission when that state's law prohibits or requires approval of the
acquisition. Because neither CSW nor AEP has any direct or indirect interest in
any gas utility company, this section is not applicable to the Merger.

Section 10(c)(1) also requires that the Merger not be detrimental to the
carrying out of the provisions of Section 11. Section 11(b)(1) generally
requires a registered holding company system to limit its operations "to a
single integrated public-utility system, and to such other businesses as are
reasonably incidental, or economically necessary or appropriate to the
operations of such integrated public-utility system." Section 11(b)(2) directs
the Commission "to ensure that the corporate structure or continued existence of
any company in the holding-company system does not unduly or unnecessarily
complicate the structure, or unfairly or inequitably distribute voting power
among security holders, of such holding-company system." The following analysis
demonstrates that the Merger meets the standards of Section 11.

a. Section 11(b)(1) (Single integrated public utility system)

The Commission has found that the system of each of the Applicants is a
single integrated electric utility system. See AEP, supra (finding that AEP is a
single integrated system); Central and South West Corp., HCAR No. 22439 (April
1, 1982) (terminating a Section 11(b)(1) hearing and upholding a 1945
determination by the Commission that CSW comprises one integrated public utility
system). The following analysis supports a determination by the Commission that
the Merger of these two utility systems will result in a single integrated
electric utility system under Section 11(b)(1).

<PAGE> 60
Section 2(a)(29)(A) of the 1935 Act defines an integrated public utility
system, as applied to an electric utility system, as:

a system consisting of one or more units of generating plants
and/or transmission lines and/or distribution facilities, whose
utility assets, whether owned by one or more electric utility
companies, are physically interconnected or capable of physical
interconnection and which under normal conditions may be
economically operated as a single interconnected and coordinated
system confined in its operations to a single area or region, in
one or more States, not so large as to impair (considering the
state of the art and the area or region affected) the advantages
of localized management, efficient operation, and the
effectiveness of regulation.

Under this definition, the Commission has established four standards that
must be met before the Commission will find that an integrated public utility
system will result from a proposed merger of two separate systems:

(i) the utility assets of the systems must be physically
interconnected or capable of physical interconnection;

(ii) the utility assets, under normal conditions, must be
economically operated as a single interconnected and
coordinated system;

(iii) the system must be confined in its operations to a single
area or region; and

(iv) the system must not be so large as to impair (considering
the state of the art and the area or region affected) the
advantages of localized management, efficient operation,
and the effectiveness of regulation.

51
<PAGE> 61

See, e.g., Environmental Action, Inc., v. SEC, 895 F.2d 1255, 1263 (9th Cir.
1990) (citing In re Electric Energy Inc., 38 SEC 658, 668 (1958)).(9) As
demonstrated below, the Merger meets each of these standards.

The Commission must interpret the statutory integration standards "to
meet the problems and eliminate the evils enumerated in [the 1935 Act.]" Section
1(c). In so interpreting the integration standards, the Commission must balance
the 1935 Act's various objectives. See, e.g., Union Electric, supra (the
Commission noted that in the past it had "exercise[d] [its] discretion so as to
allow the expeditious consummation of plans that would make for financial
simplification even though they fell far short of full compliance with the Act's
integration standards" because "with respect to the enforcement of this complex
multifaceted and far-reaching statute" it had "found it necessary or appropriate
to subordinate some statutory objectives to others."). The various aspects of
the integration standard cannot be considered independently of one another and
the other objectives of the 1935 Act. See, e.g., Middle West Corp., HCAR No.
4846 (Jan. 24, 1944) (the Commission noted that while it was difficult to reach
the conclusion that the systems constituted a single system given the geographic
spread of the properties, the integration test was met due to the "contemplated
savings resulting from closely coordinated operation and joint planning with
respect to the routing of power and the installation of facilities."); Middle
West Corp., HCAR No. 5606 (Feb. 16, 1945) (the Commission found that the
combined system was not too large "in light of demonstrated disadvantages of
lack of coordination."). Where the acquisition will result in significant
economies and efficiencies to the benefit of the public, investors and
consumers, Commission precedent supports a flexible interpretation of the
integration standards to further the very interests that the 1935 Act was meant
to protect.

The Commission has recognized that the 1935 Act "creates a system of
pervasive and continuing economic regulation that must in some measure at least
be refashioned from time to time to keep pace with changing economic and
regulatory climates." Southern, supra (quoting Union Electric, supra). As the
definition of an integrated public utility system suggests, and as the
Commission has previously observed, Section 11 is not intended to impose "rigid
concepts" but

- ----------------------------
(9) Although the integrated utility system requirement has been
interpreted to involve a four-part test, Applicants submit that the requirement
can be fairly interpreted to involve only a three-part test. The plain reading
of the integration requirement suggests the last two tests should be read as one
test. The requirement provides, in pertinent part, that the "system [be]
confined in its operations to a single area or region, in one or more States,
not so large as to impair (considering the state of the art and the area or
region affected) the advantages of localized management, efficient operation,
and the effectiveness of regulation." There is no "and" inserted between "single
area or region" and "not so large as to impair" leading to the conclusion that
there are two distinct tests which the "system" must meet. Rather, the sentence
construction leads to the conclusion that it is the "single area or region"
which must not be so large as to result in the specified impairments. In any
event, the proposed Merger meets either the three-part test, as set forth in the
statute, or the four-part test.

<PAGE> 62

rather creates a "flexible" standard designed "to accommodate changes in the
electric utility industry." UNITIL Corp., HCAR No. 25524 (April 24, 1992)
[hereinafter, "Unitil"]; see also Yankee Atomic Elec. Co., HCAR No. 13048 (Nov.
25, 1955) [hereinafter "Yankee Atomic"] ("We think it is clear from the language
of Section 2(a)(29)(A), which defines an integrated public utility system, that
Congress did not intend to imposed [sic] rigid concepts with respect thereto."
(citations omitted)). Section 2(a)(29)(A) expressly directs the Commission to
consider the "state of the art" in analyzing size and to apply "normal
conditions" as the standard for determining whether a system may be economically
operated as a single coordinated system. The Commission is not constrained by
its past decisions interpreting the integration standards based on a different
"state of the art." See AEP, supra (noting that the state of the art --
technological advances in generation and transmission, unavailable thirty years
prior -- served to distinguish a prior case and justified "large systems
spanning several states.")

The concept of what constitutes an integrated public utility system has
evolved in light of the dramatic changes in the law, technology and structure of
the industry since the passage of the 1935 Act over 60 years ago. In recent
years, the "state of the art" has changed enormously. As the Energy Information
Administration of the Department of Energy aptly noted, "The era of competition
in the electric industry is upon us." Energy Information Administration,
Department of Energy, The Changing Structure of the Electric Power Industry: An
Update (last modified May 30, 1997) <http://www.eia.doe.gov/cneaf/electricity/
chg_str/intro.html>.

The initial groundwork for competition was laid by the passage of PURPA
in 1978, which opened wholesale markets to certain non-utility producers. PURPA
created a new class of non-utility generators, QFs, from which utilities were
required to buy power. The passage of the Energy Act in 1992 marked another
significant step towards the deregulation of the electric power industry. The
Energy Act was designed, among other things, to foster competition in the
wholesale market through (a) amendments to the 1935 Act that facilitated and
encouraged the ownership and operation of generating facilities by EWGs (which
may include IPPs as well as affiliates of electric utilities) and (b) amendments
to the FPA, authorizing the FERC under certain conditions to order utilities
that own transmission facilities to provide wholesale transmission services for
other utilities and entities generating electric power. FERC Order Nos. 888 and
889, issued in April 1996, taken together provide that public utilities must
file tariffs permitting open access to transmission and must functionally or
actually unbundle their transmission services, by requiring them to use their
own transmission tariffs in making off-system and third-party sales.

In response to deregulation in the wholesale market for electricity, many
state legislatures and regulatory commissions either have adopted or currently
are considering the adoption of "retail customer choice" provisions. In general
terms, these initiatives require the electric utility to transmit electric power
over its transmission and distribution system to a retail customer in its
service territory. A requirement to transmit directly to retail customers
permits retail electric customers to purchase electric power, at the election of
such customers, either from the electric utility in whose service area they
reside or from another electric service provider or directly from an electric
generator source.

<PAGE> 63

Taken together, these fundamental changes in the legal and regulatory
framework governing the electric utility industry are producing the following
structural changes:

- FERC Order No. 888 and the concomitant development of ISOs are
moving the electric power industry to a disaggregation of control
over generation and transmission. Utilities that retain control of
their generation capacity are ceding significant control over
their transmission capacity, and vice-versa. Consequently, the
"1935 model" of an integrated public utility holding company as
one that combines generation and transmission is being supplanted
by a different model in which the two functions are separated.

- One goal of the above-described disaggregation is to eliminate
ownership of transmission facilities as a barrier to entry into
power markets for those who are ready to compete for customers
traditionally served by electric utilities. If nondiscriminatory
access to transmission facilities is guaranteed, distance will be
significantly reduced as a barrier to competition.

- An electricity futures market and electricity spot markets, as
well as newly formed entities, such as power marketers, brokers
and ISOs, have emerged as new market structures and participants.
More than 100 marketers have registered with the FERC to trade in
electric power. See "Restructuring Energy Industries: Lessons From
Natural Gas," Energy Information Administration, Natural Gas
Monthly, May 1997.

One way in which investor-owned utilities are seeking to improve their
position in today's increasingly competitive market is through mergers and
acquisitions. Between 1986 and 1996, thirty-nine electric investor-owned
utilities merged with other utilities in the industry. Energy Information
Administration, Department of Energy, The Restructuring of the Electric Power
Industry: A Capsule of Issues and Events (Feb. 10, 1998). Between 1992 and the
first half of 1998, 48 investor-owned electric utilities have been involved in
the domestic merger and acquisition process. Edison Electric Institute, "Merger
& Acquisitions," EEI Financial Information (August 28, 1998). AEP and CSW are
seeking to merge to further their mutual strategy of adapting to these historic
changes in the electric utility industry.

Finally, recent years have witnessed technological advances unforeseeable
in 1935. Developments in telecommunications and computer technology, along with
parallel technological breakthroughs in transportation, have dramatically
reduced, if not eliminated, distance as a significant barrier to centralized
management and coordinated operation of any enterprise. It is a truism that
today's "global village" is a much smaller place than the world of 1935.
Developments in the transportation industry have greatly reduced travel times.
And information travels instantly. Computers provide "real time" information to
central management, providing it with comprehensive, timely information and the
capacity to assert central control over diverse operations.

<PAGE> 64

In 1935, "an electric utility system generally included local generation,
transmission and distribution, [and] little long-distance transmission . . . ."
Unitil, supra. Power plants were relatively small and isolated, and there was no
economical way to transmit power over any great distance. 1995 Report at 1, n. 1
(citation omitted). In today's world, "improved transmission and monitoring
technologies have increased the feasible geographic bounds for supply choice; a
geographic radius of 1,000 miles or more is currently considered reasonable for
choosing among supply options." Rodney E. Stevenson & David W. Penn,
"Discretionary Evolution: Restructuring the Electric Utility Industry," Land
Economics, Vol. 71, No. 3 (August 1, 1995).

Technological advances have occurred with respect to the "size" of
transmission lines. The building and expansion of the bulk power transmission
networks (345 Kv to 765 Kv lines) throughout the United States has allowed for
the transfer of large amounts of power over great distances. The construction of
such facilities has increasingly made it possible for electric utilities with
service territories over large geographic areas to share resources in providing
more reliable and economic service to their customers. There were less than 100
circuit miles of 345 Kv lines prior to 1950 and less than 100 circuit miles of
500 Kv lines prior to 1960. Electric Power Research Institute, Transmission Line
Reference Book (2d ed., revised, 1987) at 15 [hereinafter "Transmission Line"].
The first 765 Kv lines in the United States were built for AEP and were
energized in 1970. Id. at 14. Transmission lines above 189 Kv have grown from
7,800 circuit miles in 1950 to 151,700 circuit miles in 1995. Edison Electric
Institute, EEI Pocketbook of Electric Utility Industry Statistics (42d ed. 1997)
at 38. The contribution percentage of these lines above 189 Kv as compared to
all transmission lines above 22 Kv has grown from 3.3 % in 1950 to 22.6 % in
1995. Id.

Technological advances have also occurred with respect to the "type" of
transmission lines. The application of high-voltage direct current ("HVDC")
technology provides the ability to transmit bulk power over longer distances
with less energy loss and normally with a smaller investment than with
alternating current ("AC") transmission lines. This technology provides an
economical way to interconnect separated AC power grids and enables power
transfers to occur between these systems such that it not only provides for
improved economies, but also provides improvements in reliability. HVDC
technology was not commercially applied in the United States for bulk power
transfers until 1970, with the operation of the Pacific Intertie, Stage 1 USA.
Transmission Line at 17. From 1968 to 1981, there were 11,326 MWs of HVDC
capacity added in North America. Id. HVDC capacity has continued to be added in
different areas of the United States since 1981. In fact, the CSW System
constructed and placed in service a 220 MW HVDC interconnection between the SPP
and ERCOT in December 1984. In August 1995, another HVDC interconnection rated
at 600 MW owned by CSW and several other electric utility partners was placed in
service between the same two power pools, but at a different location.

The application of phase shifting transformers, series compensation, and
flexible alternating current transmission system ("FACTS") technology has also
provided the ability to improve and control the transfer of power and energy
across expansive transmission networks. Their use historically has been more
selective because of the operational problems that accompany their day-

<PAGE> 65

to-day use. However, over the years with improvements in technology and
operating experience, their application is becoming more common. New flexible
alternating FACTS technology can increase the capacity of existing transmission
lines by approximately 20 to 40 percent. Electricity: Innovation and
Competition, Hearing Before the Subcomm. of Energy and Power of the House Comm.
on Commerce, 105th Cong. 38 (1997) (statement of Robert B. Schainker, Manager,
Substations, Transmissions and Substation Business Area Power Delivery Group,
Electric Power Research Institute). Such technology "help[s] electric utilities
operate their bulk power networks closer to their inherent thermal limits, while
maintaining and/or improving network security and reliability." Id.

Advances in telecommunications and computer technology have improved the
ability to economically dispatch power systems and control power flow across
such systems. Improvements in telecommunication technology and the growth in
coverage area of telecommunications systems have allowed for the quick and
reliable transfer of data necessary to control and dispatch from a single
location generation that can be scattered over large geographic areas. During
the last 10 to 15 years, the expansion of microwave and fiber optic networks has
provided utilities the ability to transfer information at much greater speeds,
with improved quality, and greater reliability. Prior to the 1970s, data was
transferred at baud rates as low as 75 baud (bit per second), sometimes being
transmitted over the power lines themselves. Today, data transferred from the
field to central control centers is at a minimum 1200-baud rate to accomplish 2
second scan rates. Larger data transfers between control centers are normally
accomplished at transfer rates from 56 kbaud to 224 kbaud.

Computer technology necessary to economically dispatch power systems and
to control power flow across the bulk power transmission system has advanced
significantly since 1935, especially within the last ten years. The improvements
provided by fast and reliable telecommunication network allow for the control
and economic dispatch of power systems that extend over large geographic areas,
providing system operators an almost real time ability to monitor and control
the power system. Current control systems include software programs that can
help the operator analyze the real time operation of the power system and look
for potential problems before they occur. These complex programs have the
ability to suggest corrective measures and, in some cases, implement responses
without system operator participation. Such programs provide utilities greater
ability to obtain more capability out of their existing electric system, improve
system reliability, and improve economies. See, e.g., discussion of Central
Dispatch Planning and Central Economic Dispatch in Item 1.B.3.a, supra.

In addition, significant improvements in transmission and resource
planning have occurred since 1935. There are several software packages available
today that enable the system planner to model the operation of most of the
equipment used on a power system. Studies can be performed that not only
evaluate power transfer capabilities, but also allow the system planner to add
different types of equipment to determine their impact on increasing power
transfer capabilities. Development of such software has enabled the system
planner to determine what equipment functions best as well as where and when it
should be installed. Further technological advances can be expected in the
future as "power engineers" explore the potential for computers to optimize the
efficiency and

<PAGE> 66

reliability of the North American power network. Leslie Lamarre, "The Digital
Revolution," EPRI Journal, Jan./Feb. 1998.

The fundamental changes in technology outlined above dramatically alter
the "state of the art" which Congress, more than sixty years ago, directed the
Commission to consider. Such fundamental changes led the Division, in the 1995
Report, to state that it intends to apply a more flexible interpretation of the
integration requirements under the 1935 Act; and the Division recommended that
the Commission "respond realistically to the changes in the utility industry and
interpret more flexibly each piece of the integration equation." 1995 Report at
67. The Division further noted that in considering the integration requirements,
the Commission should place more focus on the acquisition's "demonstrated
economies and efficiencies." Id. at 69.

Each of the four integration standards is discussed below.

(i) Interconnection

The Combined System will be physically interconnected or capable of
interconnection. The combining entities need not own the transmission line
connecting them in order to meet the physical interconnection requirement. The
physical interconnection requirement can be met on the basis of contractual
rights to use third party transmission lines. See, e.g., Northeast I, supra
(interconnection standard met where combining entities reached an agreement to
obtain service by utilities with a transmission line interconnecting the two
systems); Centerior, supra (interconnection standard met where merging systems
could be interconnected through a power transmission line, owned by an
unaffiliated company, that each had the right to use).

As noted in Item 1.B.3 above, AEP and CSW will interconnect their systems
through the 250 MW Contract Path across the Ameren system. The eastern terminus
of the 250 MW Contract Path will be the Breed-Casey interconnection between AEP
and Ameren. The western terminus of the 250 MW Contract Path is the
interconnection between Ameren and PSO, a CSW subsidiary, at the MOKANOK Line
which is jointly owned by UE, an Ameren subsidiary, PSO and two other
unaffiliated entities.

The 250 MW Contract Path satisfies the interconnection requirement of
Section 2(a)(29)(A). As noted in Item 1.B.3, Applicants have committed to limit
their reservation of firm transmission service from east to west to 250 MW for
the period ending May 31, 2003 unless certain conditions are met.(10) See Answer
of AEP and CSW to Motion for Rejection of Merger Filing, FERC Docket

- ----------------------------
(10) The Applicants have committed to limit their reservation of firm
transmission service to avoid potential anticompetitive effects as a result of
the Merger, which is an additional consideration under the 1935 Act. In
applying the 1935 Act, the Commission must "weigh policies [of the 1935 Act]
against each other and against the needs of particular situations." Union
Electric, supra. The limitations to which the Applicants have agreed represent
a reconciliation of the various objectives of the 1935 Act in furtherance of
the interests which the 1935 Act was meant to protect, those of investors,
consumers and the public.

<PAGE> 67

No. EC 98-40 (filed July 27, 1998). If the Applicants meet these conditions,
they will be eligible to seek additional firm transmission service.

As discussed above in Item 1.B.3, Applicants' goal ultimately is to
further enhance the interconnection of the Combined System through participation
in a regional ISO (subject to the need of the CSW-ERCOT companies to continue
participation in the ERCOT ISO). Assuming that the Combined Company belongs to a
single ISO, the ISO will have the capability to use the other members'
transmission lines to transmit power within the Combined System. The effect is
the same even if the Combined Company belongs to separate but contiguous ISOs,
provided the ISOs are not permitted to erect economic barriers between them. The
Commission has found that the transmission rights associated with being a member
of an ISO help to satisfy the interconnection requirement. Conectiv, supra.

(ii) Single Interconnected and Coordinated System

The Combined System will be capable of being economically operated as a
single interconnected and coordinated system, as required by Section
2(a)(29)(A). The Commission has "interpreted this language to refer to the
physical operation of utility assets as a system in which, among other things,
the generation and/or flow of current within the system may be centrally
controlled and allocated as need or economy directs." Conectiv, supra (citing
North American Co., 11 SEC 194, 242 (1942), aff'd, SEC v. North American Co.,
133 F.2d 148 (2d Cir. 1943), aff'd on constitutional issues, 327 U.S. 686
(1946)). Through this standard, Congress "intended that the utility properties
be so connected and operated that there is coordination among all parts, and
that those parts bear an integral operating relationship to one another." Id.
(citing Cities Services Co., 14 SEC 28, 55 (1943)).

The Commission has considered advances in technology and the particular
operating circumstances in applying this integration standard. Unitil, supra
(citation omitted). For example, in Unitil, the Commission found that
participation in a power pool was sufficient to meet the economic integration
standards even though the "definition [of economic integration] reflects an
assumption that the holding company would coordinate the operations of the
integrated system." Similarly, in approving the acquisition of PSNH by
Northeast, the Commission noted that "the operation of the generating and
transmission facilities of PSNH and the Northeast operating companies is
coordinated and centrally dispatched under the NEPOOL Agreement [a regional
power pool agreement]." Northeast I, supra at n. 85. In Conectiv, supra, the
Commission noted that in addition to coordinated operation through an ISO,
Conectiv would also have a central operating transmission and generation control
center for the essentially local functions of the Conectiv system, thereby
meeting the standard.

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<PAGE> 68

The Combined System will operate as a single interconnected and
coordinated system through the centralized coordination of generation and
transmission. The centralized coordination within the Combined System will be
accomplished under the System Integration Agreement and the System Transmission
Integration Agreement, both of which will take effect upon consummation of the
Merger, as described above in Item 1.B.3. Through Central Dispatch Planning,
the coordination of each generation unit in the Combined System will be
scheduled on a day ahead basis. Central Economic Dispatch will compute at
regular intervals (currently every four seconds) the most economic generation
base points as dictated by current operating conditions and will adjust the
dispatch of each generating unit in the combined system. Taken together, the
software programs are designed to forecast and economically dispatch all
generation resources to meet the load requirements of the Combined System every
four seconds, twenty-four hours a day. The Applicants' goal ultimately is to
further enhance the coordination of their companies through participation in a
regional ISO.

Moreover, in applying this integration standard, the Commission looks
beyond simply the coordination of the generation and transmission within the
system to the coordination of other activities. See, e.g., General Public
Utilities Corp., HCAR No. 13116 (Mar. 2, 1956) [hereinafter "GPU"] (integration
is accomplished through power dispatching by a central load dispatcher as well
as through coordination of maintenance and construction requirements); Middle
South Utilities, HCAR No. 11782 (March 20, 1953), petition to reopen denied,
HCAR No. 12978 (Sept. 13, 1955), rev'd sub nom. Louisiana Public Service Comm'n
v. SEC, 235 F.2d 167 (5th Cir. 1956), rev'd, 353 U.S. 368 (1957), reh'g denied,
354 U.S. 928 (1957) (integration is accomplished through an operating committee
which coordinates not only the scheduling of generation and system dispatch, but
also makes and keeps records and necessary reports, coordinates construction
programs and provides for all other interrelated operations involved in the
coordination of generation and transmission); The North American Co., HCAR No.
10320 (Dec. 28, 1950) (economic integration is demonstrated by the exchange of
power, the coordination of future power demand, the sharing of extensive
experience with regard to engineering and other operating problems, and the
furnishing of financial aid to the company being acquired).

The Combined System will be coordinated in a variety of ways beyond
simply the coordination of the generation and transmission within the system.
AEPSC will be the designated agent under the System Integration Agreement.
AEPSC's major functions will be to coordinate the planning and design or
purchase of new generation facilities, the operation and maintenance of
generating capacity resources, economic dispatch, centralized trading and
marketing activities, acquisition and provision of transmission services needed
for inter-zone power transfers and billing and administration. In addition, the
accounting functions of the Combined System will be prepared and consolidated
through the use of a single enterprise-wide financial system. This financial
system will include a general ledger module, accounts receivable and cash
remittance processing modules, an accounts payable module, a purchasing and
materials management module, owned and leased assets modules as well as a single
integrated timekeeping and payroll system. These systems will enable the
Combined Company to have a single accounting organization which will be managed
by a single team in one or more locations.

<PAGE> 69

The coordination and integration of the Combined System is expected to be
further achieved through the coordination and integration of information system
networks; procurement organizations; organizational structures for Power
Generation, Nuclear Generation, Energy Delivery and Customer Relations; and
support services. Each is discussed below:

- Analysis completed to date has concluded that there are
approximately 600 information systems software packages
which support either AEP or CSW operations. This initial
analysis has concluded that these packages can be organized
under a single, integrated information system network with
the capability of being operated from a single location.
The network will be supported by a single data center and
will have common software tools and a single centralized IT
development organization. The individual integration teams
are currently analyzing the various software systems being
used by each of the companies in order to identify the
single best system to be utilized to support the Combined
Company in each area.

- AEP and CSW each have created centralized procurement
organizations which assist the business units in preparing
bid solicitations, procuring materials and supplies and
managing the inventory required to support the assets of
each business unit. The Combined Company expects to utilize
a single organizational structure to accomplish these
activities.

- AEP and CSW each have created four substantially equivalent
business unit management and organizational structures:
Power Generation, Nuclear Generation, and Energy Delivery
and Customer Relations. Each of these business units has
created a combination of central management and engineering
groups with regional and field organizations designed to
provide the services of the business unit as efficiently as
possible. The integration teams are studying how best to
integrate these activities. It is anticipated that each of
the business unit structures recommended for the Combined
Company will be similar to the existing single, integrated
organizational structure that is being used in AEP and CSW.

- AEP and CSW currently utilize a single service company
model to provide support services, including office,
finance, treasury, legal, corporate communications and
other corporate services. Upon the merger of AEPSC and
CSWS, these services would be effectively provided by
combined groups handling office, finance, treasury, legal,
corporate communications and other corporate services.

<PAGE> 70

As dictated by the language under Section 2(a)(29)(A) that the
coordinated system be "economically operated," the Commission further analyzes
whether the coordinated operation of the system results in economies and
efficiencies. See, e.g., City of New Orleans v. SEC, 969 F.2d 1163, 1168 (D.C.
Cir. 1992) (Court supported Commission's reading of the term "economically" to
mean "that facilities, in addition to their physical interconnection, be
consolidated so as to take advantage of efficiencies"); WPL Holdings, Inc., HCAR
No. 26856 (Apr. 14, 1998) (discussing this integration standard as it relates to
the requirement under Section 10(c)(2) that the acquisition tend towards the
economic and efficient development of an integrated system and noting that the
applicants introduced substantial evidence concerning the efficiencies to be
realized by the combined operation of the merging companies' generation and
transmission systems). The Applicants expect to realize significant economies
and efficiencies as a result of the Merger. As described in Item 3.B.2 below,
Applicants estimate the net non-fuel savings from the Merger to be nearly $2
billion and the net fuel-related savings to be approximately $98 million over
the first ten years following the Merger.

In short, pursuant to the System Integration Agreement, the Combined
System will be centrally and efficiently planned and dispatched. Pursuant to
the System Transmission Integration Agreement, the operation and management of
transmission within the Combined System will be centrally overseen. Thus, as
with other merger applications approved by the Commission, the Combined System
will be capable of being economically operated as a single interconnected and
coordinated system. The Combined System will be "economically operated" as a
coordinated system as further demonstrated by the variety of means through
which its operations will be coordinated and the efficiencies and economies
expected to be realized by the Merger as described below in Item 3.B.2.

(iii) Single Area or Region

As required by Section 2(a)(29)(A), the Combined System's operations will
be confined to a "single area or region in one or more States." While the terms
"area" and "region" are not defined in the 1935 Act, it is clear that the
"single area or region" requirement does not mandate that a system's operations
be confined to a small geographic area. The Section specifically provides that a
region can encompass more than one state. As Ganson Purcell, Chairman of the
Securities and Exchange Commission, testified before the Subcommittee of the
House Committee on Interstate and Foreign Commerce in 1946:

I wish to make it clear that the Act does not require that
an integrated utility system be broken up, whether or not
it crosses State lines, or that a holding company necessary
to integrate the properties of several operating companies
be abolished. . . .(11)

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(11) Study of Operations Pursuant to the Public Utility Holding Company
Act of 1935: Part 3: Hearings Before the House Subcomm. on Securities of the
House Comm. on Interstate and Foreign Commerce, 79th Cong. 856 (1946) (statement
of Ganson Purcell, Chairman of the Securities and Exchange Commission).

<PAGE> 71

He further stated:

[T]he Commission has not imposed any narrow limit on the
concept of what is an integrated utility system. Recently,
. . . we found that . . . [a] system serving 1700
communities in seven states[] was an integrated electric
utility system. . . .(12)

No absolute size limitation is specified. The terms "area" or "region," by their
nature, are capable of flexible interpretation, which permits the Commission to
respond to the current state of the industry and allows the Commission to give
the terms practical meaning and effect. The 1935 Act itself provides that the
question of size must be informed by practical considerations, including its
effect, if any, on the "advantages of localized management, efficient operation,
and the effectiveness of regulation" in light of "the state of the art and the
area or region affected" as discussed in Item 3.B.1.a.(iv) below.(13)

In considering size, the Commission has consistently found that utility
systems spanning multiple states satisfy the single area or region requirement
of the 1935 Act. For example, the Entergy system covers portions of four states
(Entergy, supra), the Southern system provides electric service to customers in
portions of four states (Southern Co., HCAR No. 24579 (Feb. 12, 1988)), and the
principal integrated system of NCE covers portions of five states (with all of
its electric operations serving customers in six states) (New Century Energies,
HCAR No. 26748 (Aug. 1, 1997) [hereinafter "New Century"] (citation omitted)).
Other registered holding companies also operate in multiple states. For
example, the Allegheny Energy, Inc. system provides electricity to customers in
parts of five states (Filings under the Public Utility Holding Company Act of
1935, HCAR No. 26846 (March 20, 1998)). As early as 1945, the Commission found
that AEP's operations in seven states were confined to a single region or area.
American Gas and Electric Co., HCAR No. 6333 (Dec. 26, 1945). In addition, in
light of the present state of the industry, other utility systems, although
they are not registered utility holding companies, span multiple states.(14)
For example, the PacifiCorp system covers portions of seven states (Annual
Report of PacifiCorp on Form 10-K for the year ended December 31, 1997), and
the UtiliCorp system covers portions of nine states (Form U-1 filed as of July
2, 1998).

- ----------------------------
(12) Id. at 857 (referring to American Gas and Electric system).

(13) In fact, as discussed in note 9 above, Applicants submit that the
integrated utility system requirement could be interpreted to involve only a
three-part test, with the last two tests read as one.

(14) In this regard, Applicants believe that the continued economic
viability of large utility holding company systems suggests their efficient
operation and, accordingly, these systems should be evaluated on the same basis
as comparably large utility systems not regulated as registered utility holding
companies under the 1935 Act.

<PAGE> 72

In addition to not specifying an absolute size for an "area" or "region,"
the 1935 Act likewise does not provide any specific parameters with respect to
the term "single" in the "single area or region" test. In considering distance,
the Commission has found that the combining systems need not be contiguous in
order for the requirement to be met. See, e.g., Conectiv, supra; cf. New
Century, supra (integration test was met where entities planned to build a 300
mile transmission line to interconnect the systems which operated in
noncontiguous territories); Electric Energy, Inc., HCAR No. 13781 (Nov. 28,
1958) (utility assets were within the same area or region as the acquirer's
service area despite a distance of 100 miles crossing two states); Mississippi
Valley Generating Co., HCAR No. 12794 (Feb. 9, 1955) (single area or region test
met where generating station was located 150 air miles from the territory served
by the acquiring company).

In tandem with not specifying the absolute size of an "area" or "region,"
the 1935 Act makes no reference to a set of pre-defined regions with specific
boundaries. It follows that the concept of region is not constrained by
geographical boundaries such as rivers or mountains; nor is it constrained by
regional designations which are part of the common vocabulary (e.g., northeast,
southwest, or midwest).

The Commission's determination of whether the requirement is met is made
in light of "the existing state of the art of generation and transmission and
the demonstrated economic advantages of the proposed arrangement." Connecticut
Yankee Atomic Power Co., HCAR No. 14968 (Nov. 15, 1963); see also, Vermont
Yankee Nuclear Power Corp., HCAR No. 15958 (Feb. 6, 1968), rev'd and remanded
on other grounds, Municipal Elec. Ass'n v. SEC., 413 F.2d 1052 (D.C. Cir.
1969). The Commission has applied flexibly the requirement based on the facts
and circumstances involved and the practicalities of the situation at hand.
See, e.g., Yankee Atomic, supra.

The Division has recommended that the Commission "interpret
the 'single area or region' requirement flexibly, recognizing technological
advances, consistent with the purposes and provisions of the Act" and that the
Commission place "more emphasis on whether an acquisition will be economical."
1995 Report at 66, 69. The Division has recognized that "recent institutional,
legal and technological changes . . . have reduced the relative importance of
. . . geographical limitations by permitting greater control, coordination and
efficiencies" and "have expanded the means for achieving the interconnection and
economic operation and coordination of utilities with non-contiguous service
territories." 1995 Report at 69. It has also recognized that the concept of
"geographic integration" has been affected by "technological advances on the
ability to transmit electric energy economically over longer distances, and
other developments in the industry, such as brokers and marketers." Id. Such
advances and developments are breaking down traditional boundaries and concepts
of regions.

Prior to the Merger, the AEP System and the CSW System will be separated
by only 150 miles at their closest point, a distance which the Commission has
previously found acceptable under the single area or region test. The Combined
Company will operate in eleven contiguous states

<PAGE> 73

located in the mid-America region of the United States, connected in the middle
by the states of Arkansas and Tennessee.(15)

Moreover, that the Combined Company meets the single region test is
further supported by adopting a definition of region used by the Commission for
purposes of its size analysis under Section 10(b)(1). In Entergy, supra, the
Commission adopted the applicants' definition of the relevant region for Section
10(b)(1) purposes to include themselves and those electric utilities directly
interconnected with either or both ("First Tier" utilities). In today's
increasingly competitive world, AEP and CSW do not operate as isolated companies
and their geographic region should be analyzed in terms of their potential
buyers' markets -- the First Tier utilities. The service territories of these
First Tier utilities surround the Combined System and effectively close the
distance between the former AEP and CSW, bringing them even closer together.

The Merger represents a logical extension of the AEP System's existing
service territory in light of contemporary circumstances. As the Commission has
recognized, the concept of area or region is not a static one and must be
refashioned to take into account the present realities of the electric industry,
consistent with the purposes of the 1935 Act. These present realities have
effectively shrunk the world in which the industry operates and support a
finding that the concept of a region can encompass four additional states more
than 50 years after the Commission's finding that the current seven-state AEP
System operates within an area or region.

As the restructuring of the electric industry progresses, traditional
boundaries will become more blurred and the contours of regional markets will
change. Structural changes in a closely-related industry subject to similar
regulatory regimes, the natural gas industry, are influencing the restructuring
of the electricity industry and further breaking down traditional
boundaries.(16) Natural

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(15) The concept of a geographic region, which includes the states in
which AEP and CSW are based (Ohio and Texas), exists within the electric
industry. In 1956, state regulators from 14 states, including Ohio and Texas,
formed the Mid-America Regulatory Conference. See Mid-America Regulatory
Conference, A History, 1956-1995.

(16) Restructuring of the natural gas industry started more than 10
years ago, introducing competitive market forces into the industry's operations.
See Energy Information Administration, Office of Oil and Gas, Department of
Energy, Natural Gas 1996: Issues and Trends (December 1996) at xiii [hereinafter
"Natural Gas 1996"]. With the unbundling of pipeline company transportation and
sale services and the decontrol of natural gas wellhead prices over the last 20
years, the gas industry has responded by entering into new contractual
relationships, developing new services and new tools for managing risk and
creating a new participant -- the natural gas marketer. Id. at 1. Regulatory
restraints have been increasingly removed from the sale and transport of natural
gas, increasing the choices of participants in the natural gas industry, from
suppliers to consumers. Id. at ix. Energy markets for natural gas have become
increasingly competitive. Id. Regulatory changes seen in the interstate market
are being brought to the level of local distribution as state regulators promote
consumer choice in retail gas markets. Id. at 1, 113.

<PAGE> 74

gas marketers, a new participant in the gas industry, broke up old pipeline
customer networks and demanded open access conditions, fueling the industry's
restructuring. See "Restructuring Energy Industries: Lessons from Natural Gas,"
Energy Information Administration, Natural Gas Monthly, May 1997 [hereinafter
"Natural Gas Monthly"]. With the restructuring of the gas industry, regional
markets have become "interrelated" and the "stages and operations of the natural
gas industry have been integrated to an unprecedented degree across North
America." Natural Gas 1996 at 97. One of the most recent innovations in the
natural gas marketplace is the development of market centers and hubs. Id. at x.
At least 39 such centers were operating in the United States and Canada by 1996,
providing numerous interconnections and routes to move gas from production areas
to markets. Id. These market centers have "made it easier for buyers to access
the least expensive source of supply and helped sellers to allocate gas to the
highest bidding buyer." Id. at 78. Although it is "probably premature . . . to
conclude that a true North American market for natural gas has emerged," market
integration is improving and "regional clusters of markets across certain broad
areas seem to be highly competitive, even between U.S. and Canadian markets."
Id. at xii.

Developments in the natural gas industry which are eroding traditional
boundaries are being applied to the electricity industry. Many gas marketers are
moving into the new electricity markets, and the development of financial
instruments used in the gas industry, such as spot, forward, futures, and
options contracts, are being imported into the electricity industry. Natural Gas
1996 at xiii. More than 100 energy marketing companies have registered with the
FERC to market electric power on a wholesale basis. Natural Gas Monthly. These
companies will be marketing retail power to retail power markets as well.
Moreover, the developments in electric and gas industries "may imply a close
relationship in the future for both industries." Natural Gas 1996 at xiii. Not
only are gas marketers entering the electricity markets, but "gas and electric
companies are forming mergers and strategic alliances to give customers menus
that allow buyers to bridge the differences between the industries." Id. And the
development of financial markets "may help to integrate the energy markets." Id.
In short, the concept of "area or region" should be interpreted flexibly to keep
pace with the current state of the industry.(17)

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

(17) The breakdown of traditional boundaries is also seen in industries
beyond the utility industry. Technological advances, regulatory and legal
changes facilitating nationwide holding company acquisitions and nationwide
branching, and the entrance of nonbank providers of financial services have lead
to structural changes in the banking industry resulting in a trend toward
consolidation. In 1997, the number of interstate bank-to-bank mergers totaled
189. Bank Mergers: Hearings Before the House Banking and Financial Services
Comm., 105th Cong. 18-21 (1998) (statement of John D. Hawke, Jr., Treasury
Department Under Secretary for Domestic Finance). Similarly, the procompetitive,
deregulatory framework established by Congress in the Telecommunication Act of
1996 has removed the legal and economic barriers to the entry of
telecommunications firms into many markets. The Bell Atlantic-NYNEX merger
approved under the Telecommunications Act by the FCC resulted in Bell Atlantic
serving 13 states. The Effects of Consolidation on the State of Competition in
the Telecommunications Industry: Oversight Hearings Before the House Judiciary
Comm., 105th Cong. 1-2 (1998) (submitted statement of Susan Ness, Commissioner
of the Federal Communication Commission).

<PAGE> 75

Given the proximity of the AEP System to the CSW System and the present
technological ability to economically transmit power over longer distances, and
given that the Combined System will be economically operated as a single
integrated and coordinated system as described in Item 1.B.3, the Combined
Company satisfies the 1935 Act's requirement with respect to operating in a
"single area or region." The demonstrated economic advantages of the Merger
resulting in nearly $2 billion in net non-production savings and $98 million in
net fuel-related savings (as described below) also support the finding that the
single area or region test is met, consistent with the Commission's tradition of
balancing the various objectives of the 1935 Act. As discussed immediately
below, the size of the area or region in which the Combined Company will operate
will not result in the evils which the 1935 Act was meant to eliminate; namely,
it does not impair the advantages of localized management, efficient operation
or effective regulation.

(iv) Localized Management, Efficient Operation and
Effective Regulation

Section 2(a)(29)(A), like Section 10(b)(1) discussed above, requires the
Commission to consider the size of the combined system. Section 2(a)(29)(A) has
been interpreted to require that the combined system must not be so large as to
impair (considering the state of the art and the area or region affected) the
advantages of localized management, efficient operation, and the effectiveness
of regulation. As the Commission stated in AEP, supra:

[N]either section can be said to impose any precise limits on
holding company growth. Both sections are couched in discretionary
terms. They require the Commission to exercise its best judgment
as to the maximum size of a holding company in a particular area,
considering the state of the art and the area or region affected.

In exercising its discretion, the Commission must balance the various objectives
of the 1935 Act. The Commission stated in Commonwealth & Southern Corp., HCAR
No. 7615 (Aug. 1, 1947):

We do not, in applying particular size standards, lose sight of
the objectives of other criteria. There must be a reconciliation
of all objectives to the end of accomplishing a satisfactory
administration of the [1935] Act. Thus we do not disregard
operating efficiency in our determination of whether size is
excessive from the viewpoint of localized management or
effectiveness of regulation.

As will be discussed below, difficult balancing decisions need not be made
because each prong of this standard is easily met. The size of the Combined
System does not impair the advantages of

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<PAGE> 76

localized management, efficient operation or the effectiveness of regulation.
The Merger actually increases the efficiency of operations.

- Localized Management

The Commission has found that an acquisition does not
impair the advantages of localized management where the new
holding company's "management [would be] drawn from the
present management" (Centerior, supra), or where the
acquired company's management would remain substantially
intact (AEP, supra). The Commission has noted that the
distance of corporate headquarters from local management
was a "less important factor in determining what is in the
public interest" given the "present-day ease of
communication and transportation." AEP, supra. The
Commission also evaluates localized management in terms of
whether a merged system will be "responsive to local
needs." AEP, supra.

The management of the Combined Company will be drawn
primarily from the existing management of AEP and CSW and
their subsidiaries. AEP will continue to maintain its
system headquarters in Columbus, Ohio and will maintain the
management structure of its combined subsidiary companies
(including the electric operating and other subsidiary
companies of CSW) essentially intact.

CSW and AEP have operated with virtual service company
management which has located management personnel in a
number of operating locations throughout the service
territories. In 1996, AEP reorganized into a centralized
management structure with localized management remaining
essentially in place, with the exception of the electric
utility subsidiary headquarters operating management teams
being realigned into either the Power Generation, Nuclear
Generation, Energy Delivery and Customer Relations business
units. CSW completed a similar reorganization process in
1994.

For example, at AEP, the subsidiary companies' generation
operations were realigned into the Power Generation and
Nuclear Generation business units while the transmission
and distribution operations were realigned into the Energy
Delivery business unit. As part of this realignment,
transmission operations were structured with a centralized
management and engineering organization which oversees
three transmission operating regions. The distribution
operations were structured with a centralized management
and engineering structure which oversees 30 distribution
districts which report to one of eight distribution
regions. Customer services functions were also realigned
under the Energy Delivery and Customer Relations business
unit

<PAGE> 77

into a regional structure with four customer call centers,
a single customer information system and centralized
management of the customer service operations.

As part of these individual reorganization efforts, the
electric utility subsidiaries of AEP began doing business
under the AEP brand without altering their separate legal
identities, assets and liabilities, franchises and
certificates of public convenience and necessity. Likewise,
the electric utility subsidiaries of CSW retained their
separate corporate identities, assets and liabilities,
franchises and certificates of public convenience and
necessity.

Although the Applicants have just recently launched
transition teams that are studying how the various
components of the two organizations will be combined, the
Applicants expect that the impact of the Merger will be
predominantly confined to the merging of CSWS into AEPSC
and the establishment of a business unit and management
structure which looks very much like the existing
structures of AEP and CSW. The electric utility
subsidiaries will continue to operate through the regional
offices with local service personnel and line crews
available to respond to customers needs. The Combined
Company will preserve the well established delegations of
authority -- currently in place at AEP and CSW -- which
permit the local, district and regional management teams to
budget for, operate and maintain the electric distribution
system, to procure materials and supplies and to schedule
work forces in order to continue to provide the high
quality of service which the customers of AEP and CSW have
enjoyed in the past.

In short, the management structures of AEP and CSW, which
are responsive to local needs, will be left essentially
intact after the Merger. Accordingly, the advantages of
localized management will not be impaired.

- Efficient Operation

As discussed above in the analysis of Section 10(b)(1), the
size of the Combined Company will not impede efficient
operation; rather, the Merger will result in significant
economies and efficiencies as described in Item 3.B.2
below. Economic dispatch (as described in Item 1.B.3) is
more efficiently performed on a centralized basis because
of economies of scale, standardized operating and
maintenance practices and closer coordination of
system-wide matters.

Both AEP and CSW have efficient generating facilities that
were recently noted by Public Utilities Fortnightly as
being the fourth and sixth most efficient in the utility
industry (September 1, 1998 report). In addition, AEP

<PAGE> 78

and CSW have consistently been rated in the top five
utilities in the American Society for Quality and The
University of Michigan Business Schools American Customer
Satisfaction Index (ACSI). In the 1997 ACSI survey results
which were published in the February 16, 1998 issue of
Fortune Magazine, CSW tied for second place and AEP tied
for third place, out of more than 20 utilities surveyed.
Because the Merger is expected to have little impact on
field personnel in either power generation or transmission
and distribution, AEP and CSW expect that the Combined
Company will to continue to perform at these high
efficiency levels.

- Effective Regulation

The Merger will not impair the effectiveness of regulation
at either the state or federal level.

On the state level, the Commission has found that the
effectiveness of regulation is not impaired where the same
state regulators have jurisdiction both before and after a
merger. See, e.g., Conectiv, supra; GPU, supra. In finding
that regulation is not impaired, the Commission has also
emphasized that the various state regulators have approved
the combination. Entergy, supra. The electric utility
subsidiaries of CSW will continue to be regulated by the
state commissions of Arkansas, Louisiana, Oklahoma and
Texas with respect to retail rates, service and related
matters. The electric utility subsidiaries of AEP will
continue to be regulated by the state commissions of
Indiana, Kentucky, Michigan, Ohio, Tennessee, Virginia, and
West Virginia with respect to retail rates, service and
related matters.(18)

On the federal level, the Combined System will continue to
be regulated by the Commission. The electric utility
subsidiaries of the Combined System will continue to be
regulated by the FERC with respect to interstate electric
sales for resale and transmission services, by the NRC with
respect to the operation of nuclear facilities, and by the
FCC with respect to certain

- ----------------------------
(18) The AEP and CSW management structures are designed to facilitate
communications and relationships with state regulators. Each company has
established State offices which have responsibility for regulatory,
environmental, and corporate communications and have other external relations
purposes. These state offices provide a single point of contact with each of the
state regulatory and environmental offices and have the responsibility for
handling all regulatory contacts, including making regulatory filings and
answering customer inquiries to the regulatory commissions. It is expected that
these offices will be left essentially intact after the Merger.

<PAGE> 79

communications licenses. The jurisdiction of other federal
regulators is also not affected.

Moreover, the Merger Agreement requires approvals from all
regulatory authorities having jurisdiction over the Merger
as a condition to the consummation of the Merger.
Applicants are working closely with such regulators (both
state and federal) to obtain the required approvals (as
described below in Item 4).

b. Section 11(b)(1) (Acquisition of Non-Utility Interests)

Section 11(b)(1) of the 1935 Act also requires that a registered holding
company limit its operations to a single integrated public utility system and
"such other businesses as are reasonably incidental, or economically necessary
or appropriate to the operations of such integrated public-utility system." Each
of CSW's non-utility business interests conforms to the "other business"
standards of the 1935 Act as previously determined by the Commission. The
indirect acquisition by AEP of CSW's non-utility businesses in no way affects
the functional relationship of these businesses to the Combined Company's core
electric business following the Merger. See Item 3.F below for a detailed
discussion on the acquisition by AEP of CSW's non-utility businesses.

c. Section 11(b)(2)

Section 11(b)(2) of the 1935 Act directs the Commission "to ensure that
the corporate structure or continued existence of any company in the
holding-company system does not unduly or unnecessarily complicate the
structure, or unfairly or inequitably distribute voting power among security
holders, of such holding-company system." The Merger is consistent with Section
11(b)(2). The resulting capital structure is not unduly complicated as discussed
in Item 3.A.3 above. See, e.g., Sierra Pacific Resources, HCAR No. 24566 (Jan.
28, 1988), aff'd Environmental Action, Inc., 895 F.2d 1255 (D.C. Cir. 1990)
(Commission incorporates its Section 10(b)(3) capital structure analysis into
its Section 11(b)(2) corporate structure analysis). Voting power is equitably
and fairly distributed among the security holders of each of AEP and CSW and
their current subsidiaries, all of which have been approved by the Commission in
previous proceedings. The shareholders of AEP and CSW, respectively, have
overwhelmingly approved the shareholder actions necessary to effect the Merger
or the Merger itself.

Immediately following the Merger, AEP will be a holding company with
respect to CSW, which, in turn, will be a holding company with respect to the
electric utility subsidiaries and other subsidiaries it currently owns (with the
exception of CSWS, which will be merged into AEPSC). See Exhibit E-6. Although
it is intended that these interests will be restructured, the final ownership
structure has not yet been determined. Accordingly, Applicants request the
Commission to reserve jurisdiction over this issue for a period of eight years
after the consummation of the Merger to permit the Combined Company to effect
the necessary restructuring, subject to such further regulatory approval as may
be required.

<PAGE> 80

Based on the foregoing, the Merger is not detrimental to the carrying out
of the provisions of Section 11 (subject to the Commission's reservation of
jurisdiction regarding the final ownership structure under Section 11(b)(2)).

2. Section 10(c)(2)

Section 10(c)(2) requires that the Commission approve a proposed
transaction if it will serve the public interest by tending towards the
economical and efficient development of an integrated public utility system. For
the reasons discussed above, the Combined System will be integrated. The Merger
will also tend towards the economic and efficient development of the Combined
System. This Section 10(c)(2) standard is met where the likely benefits of the
acquisition exceed its likely costs. City of Holyoke, supra.

Economic efficiency is the driving force behind the Merger; its purpose
is to create an entity well situated to compete effectively in an increasingly
active market. Applicants will achieve $1,966 million of net non-fuel cost
savings over the ten-year period immediately following consummation of the
Merger. These savings will be passed on to shareholders and customers of the
Combined Company. Applicants also anticipate net fuel-related savings of
approximately $98 million over this same period that will be passed on to
customers. Thus, the Merger will allow the Combined Company to realize the
"opportunities for economies of scale, the elimination of duplicate facilities
and activities, the sharing of production capacity and reserves and generally
more efficient operations" described by the Commission in AEP, supra.

The nonproduction cost savings resulting from the Merger are set forth in
the testimony of Thomas J. Flaherty before the Texas Commission, a copy of which
is included in Exhibit D-5.1 and incorporated by reference. As explained by Mr.
Flaherty, the Combined Company is expected to achieve the following
nonproduction costs savings:

<TABLE>
<CAPTION>
Savings Category Millions
- ---------------- --------
<S> <C>
Elimination of Duplicate Corporate and Operations Support Staffing $ 996
Elimination of Duplicate Corporate and Administrative Programs 1,044
Purchasing Economies (Not Fuel-related) 367
-----
Total Savings 2,407
Less: Costs to Achieve (a) (248)
Premerger Initiatives (193)
------
Net Savings $ 1,966
=======
</TABLE>

(a) Does not include contingent change in control payments.

Assuming a March 31, 1999 closing, AEP and CSW estimate available
synergies and cost savings resulting from the Merger, net of costs necessary to
achieve these reductions, for each of the first ten years following the Merger
of approximately $17 million (9 months), $102 million, $135

<PAGE> 81

million, $162 million, $181 million, $243 million, $255 million, $259 million,
$267 million, $275 million and $70 million (3 months), respectively, for a total
of $1,966 million. The savings in the first five years are expected to be lower
than in the later years due to the costs incurred to achieve the savings. Of the
$1,966 million in total anticipated net savings, Applicants estimate that
approximately $713 million of the total savings will be allocated to the
pre-Merger CSW and approximately $1,253 million will be allocated to pre-Merger
AEP. Moreover, even though the savings are shown over 10 years only, it is
expected that some of these savings will continue to be realized over a much
longer period. See Testimony of Thomas J. Flaherty included in Exhibit D-5.1.

As part of the filings with various state and federal regulators,
Applicants propose an equitable sharing of the net savings from the Merger
between shareholders and customers. Although specific determinations of the net
savings to each group cannot be finalized until all regulatory proceedings have
been completed, it is expected that each group will realize approximately half
of the net savings.

Applicants estimate that the Combined Company will also realize
approximately $98 million in net fuel-related savings over the same 10 year
period. J. Craig Baker's testimony before the FERC (a copy of which is included
in Exhibit D-1.1 and is incorporated by reference) explains that these savings
will result from the central coordinated dispatch of energy by the Combined
Company. These savings will be realized by customers.

These expected savings exceed the anticipated savings in a number of
other acquisitions approved by the Commission. See, e.g., New Century, supra
(expected savings of $770 million over 10 years); Entergy, supra (expected
savings of $1.67 billion over ten years); Northeast I, supra (estimated savings
of $837 million over 11 years); IE Industries, HCAR No. 25325 (June 3, 1991)
(expected savings of $91 million over ten years); CINergy, supra (estimated
savings of approximately $895 million over ten years).

As the Commission has observed, with reference to the requirement of
Section 10(c)(2) that a proposed combination yield economies and efficiencies,
"specific dollar forecasts of future savings are not necessarily required; a
demonstrated potential for economies will suffice even when these are not
precisely quantifiable." Centerior, supra (citation omitted). In this regard,
the Merger will result in additional benefits which, although not precisely
quantifiable, are nonetheless significant.

Two of these principal additional benefits relate to the Combined
Company's generation mix and system reliability. The Merger will result in a
more balanced generation mix that is less susceptible to fuel price volatility
and supply interruptions. In addition, the Combined System will be better
situated to provide more reliable electric service than is possible for AEP and
CSW on a stand-alone basis. For example, the Combined System will share in a
larger generating base after the Merger. As a result, the Combined System will
have more generating resources to call on when units are down for maintenance or
due to an unscheduled outage. In addition, each of AEP and CSW has a higher risk
of unserved load than would be the case for the Combined System, since each of

<PAGE> 82

AEP and CSW on a stand-alone basis has access to fewer interconnections to
neighboring systems for emergency support.

C. SECTION 10(f)

Section 10(f) provides that:

The Commission shall not approve any acquisition as to which an
application is made under this section unless it appears to the
satisfaction of the Commission that such State laws as may apply
in respect of such acquisition have been complied with, except
where the Commission finds that compliance with such State laws
would be detrimental to the carrying out of the provisions of
section 11.

Each of AEP's and CSW's obligation to consummate the Merger is conditioned,
among other things, on the receipt of all requisite state regulatory approvals.
State regulatory approvals have been requested from the Oklahoma Commission, the
Arkansas Commission, and the Louisiana Commission. Applicants have also
requested a determination from the Texas Commission that the Merger is in the
public interest. See Item 4, infra, for further discussion of regulatory
approvals and the standard of review applicable to such approval. On August 13,
1998, the Arkansas Commission issued an order conditionally approving the
Merger, a copy of which is filed as Exhibit D-2.2 and incorporated by reference.
When the other approvals have been obtained, the Merger will comply with Section
10(f).

D. INTRA-SYSTEM FINANCING AND OTHER COMMISSION AUTHORIZATIONS

Currently, the CSW System uses short-term debt, primarily commercial
paper, to meet fluctuations in working capital requirements and other interim
capital needs. CSW has established a system money pool to coordinate short-term
borrowings for certain of its subsidiaries, primarily its U.S. electric utility
subsidiary companies. In addition, CSW incurs borrowings for other subsidiaries
that are not included in the money pool. At December 31, 1997, CSW had a
revolving credit facility totaling $1.4 billion to back up its commercial paper
program. At December 31, 1997, CSW had $721 million outstanding in short-term
borrowings. The maximum amount of short-term borrowings outstanding during the
year, which had a weighted average interest rate for the year of 5.8%, was $725
million during December 1997.

CSW Credit purchases, without recourse, the accounts receivable of CSW's
U.S. electric utility subsidiary companies and certain non-affiliated electric
companies. The sale of accounts receivable provides CSW's U.S. electric utility
subsidiary companies with cash immediately, thereby reducing working capital
needs and revenue requirements. In addition, because CSW Credit's capital
structure is more highly leveraged than that of the CSW U.S. electric utility
subsidiaries and due to CSW Credit's higher short-term debt ratings, CSW's
overall cost of capital is lower. CSW Credit issues commercial paper to meet its
financing needs. At December 31, 1997, CSW Credit had a

<PAGE> 83

$900 million revolving credit agreement, secured by the assignment of
receivables, to back up its commercial paper program, which had $637 million
outstanding.

The orders of the Commission approving the foregoing financing
arrangements and business activity are summarized in Exhibit I. Exhibit I also
fully describes the nature and extent of the authority of CSW (in its parent
capacity) as such authority is expressly approved in the summarized orders,
including the issuance and guaranteeing of indebtedness. During the post-Merger
transition period it may be more efficient or even commercially necessary for
the Combined Company to support the foregoing financing arrangements and
business activity previously supported by CSW. The Combined Company therefore
seeks the authority, effective upon consummation of the Merger, presently
conferred upon CSW, including the issuance and guaranteeing of indebtedness. As
it is the Applicants' intention that CSW remain the parent of all of its
pre-Merger subsidiaries (except CSWS), both the Combined Company and CSW will
simultaneously have the authority that CSW currently has. The Combined Company
does not seek to widen any such authority and the authority it seeks will
necessarily remain limited to the orders of the Commission approving the
financing arrangements and business activity of the former CSW System described
in Exhibit I. The practical effect of this approval would be to insert the
Combined Company alongside CSW (in its parent capacity) wherever CSW is
mentioned in such orders. If the Commission grants this authority, it will have
permitted the Combined Company to do neither more nor less than what it has
currently authorized for CSW, while preserving maximum flexibility for the
Combined Company during the post-Merger transition period.

E. SERVICE AGREEMENT; APPROVAL OF METHODOLOGY FOR ALLOCATING
COSTS UNDER THE SERVICE AGREEMENT

As described in Item 1.B.1 above, AEPSC is a service company that,
pursuant to service agreements with each of the subsidiary companies of AEP,
provides various technical, engineering, accounting, administrative, financial,
purchasing, computing, managerial, operational and legal services to each of the
AEP subsidiary companies. Pursuant to the service agreements, these services are
provided at cost. The Commission has previously determined that AEPSC is so
organized and its business is so conducted as to meet the requirements of
Section 13(b) of the 1935 Act and Rule 88 thereunder. Amer. Elec. Power Service
Corp., HCAR No. 21922 (Feb. 19, 1981) (order authorizing service agreement
between service company and operating subsidiaries).

Similarly, CSWS is a service company which, pursuant to service
agreements signed with each of the subsidiary companies of CSW, provides various
technical, engineering, accounting, administrative, financial, purchasing,
computing, managerial, operational and legal services to each of the CSW
subsidiary companies. Pursuant to the service agreements, these services are
provided at cost. The Commission has also previously determined that CSWS is so
organized and its business is so conducted as to meet the requirements of
Section 13(b) of the 1935 Act and Rule 88 thereunder. Central and South West
Corp., HCAR No. 26293 (May 18, 1995).

<PAGE> 84

Upon consummation of the Merger, CSWS will be merged with AEPSC, and
AEPSC will be the surviving service company for the Combined System. Applicants
intend that AEPSC will enter into an amended service agreement with AEP's
subsidiary companies and CSW's subsidiary companies. The proposed amended
service agreement is filed as Exhibit B-2. Under the amended service agreement,
AEPSC will provide the services previously provided by the two service
companies, CSWS and AEPSC. The execution and performance by the respective
parties of the amended service agreement is subject to Section 13(b) of the 1935
Act and the rules thereunder. The amended service agreement to be entered into
between AEPSC and the utility and nonutility subsidiary companies of AEP and
CSW, which, pending Commission approval, will become effective upon the
consummation of the Merger, is similar to those service agreements currently in
place.

Under the terms of the amended service agreement, AEPSC will render to
the subsidiary companies of the Combined Company, at cost, various technical,
engineering, accounting, administrative, financial, purchasing, computing,
managerial, operational and legal services. AEPSC will account for, allocate and
charge its costs of the services provided on a full cost reimbursement basis
under a work order system consistent with the Uniform System of Accounts for
Mutual and Subsidiary Service Companies. Costs incurred in connection with
services performed for a specific subsidiary company will be billed 100% to that
subsidiary company. Costs incurred in connection with services performed for two
or more subsidiary companies will be allocated in accordance with the allocation
factors set forth in Exhibit B-3. Indirect costs incurred by AEPSC which are not
directly allocable to one or more subsidiary companies will be allocated and
billed in proportion to how either direct salaries or total costs are billed to
the subsidiary companies depending on the nature of the indirect costs
themselves. The time AEPSC employees spend working for each subsidiary will be
billed to and paid by the applicable subsidiary on a monthly basis, based upon
time records. Each subsidiary company will maintain separate financial records
and detailed supporting records. Applicants hereby request that the Commission
approve the amended service agreement between AEPSC and the subsidiary companies
of the Combined Company and the related allocation factors in Exhibit B-3. The
expanded number of allocation factors are based on cost-drivers emphasizing
factors that correlate to the volume of activity that is inherent in performing
certain services. For a detailed description of the allocation factors, see the
testimony of R. Russell Davis before the Texas Commission filed with Exhibit
D-5.1.

F. ACQUISITION OF NON-UTILITY BUSINESSES

Section 10(c)(1) provides that the Commission shall not approve an
acquisition that is "detrimental to the carrying out of the provisions of
Section 11." Section 11(b)(1) limits the non-utility interests of a registered
holding company to those that are "reasonably incidental, or economically
necessary or appropriate to the operations of such integrated public-utility
system." The Commission may find that a non-utility business meets this standard
when it finds that the interest in the business is "necessary or appropriate in
the public interest or for the protection of investors or consumers and not
detrimental to the proper functioning of such [integrated] system." CSW has a
number of non-utility businesses that AEP will indirectly acquire as a result of
the

<PAGE> 85

Merger. CSW owns seven material non-utility subsidiaries: CSW Energy, CSW
International, C3 Communications, EnerShop, CSW Energy Services, CSW Credit, and
holds an 80% interest in CSW Leasing. For a description of CSW's non-utility
businesses, see Item 1.B.1(b) supra. The Commission has found that CSW's
non-utility businesses meet the 11(b)(1) standard (to the extent that such a
finding was necessary).(19) Such businesses have an operating or functional
relationship to CSW's utility operations. See, e.g., Conectiv, supra (the
Commission has interpreted section 11(b)(1) "to require the existence of an
operating or functional relationship between the utility operations of the
registered holding company and its nonutility activities.")

Upon consummation of the Merger, the non-utility businesses of CSW will
become indirect subsidiaries of AEP. To the extent that Commission approval is
necessary for the acquisition of CSW's non-utility businesses, the acquisitions
should be approved because the indirect ownership of CSW's non-utility
businesses by AEP in no way affects the functional relationship of these
businesses to the Combined Company's core electric business following the
Merger. Moreover, acquisition of these businesses is in the public interest and
consistent with the applicable standards under the 1935 Act.

G. ORGANIZATION OF MERGER SUB; ACQUISITION OF MERGER SUB
COMMON STOCK

Merger Sub was organized solely for the purpose of effecting the Merger
and has not conducted any activities other than in connection with the Merger.
Merger Sub has no subsidiaries. Each share of common stock of Merger Sub, par
value $0.01 per share, to be issued to AEP and outstanding immediately before
the consummation of the Merger will be converted into one share of CSW Common
Stock upon consummation of the Merger. Thus, the sole purpose for Merger Sub is
to serve as an acquisition subsidiary of AEP for purposes of effecting the
Merger. Approval of this Application-Declaration will constitute approval of the
acquisition by AEP of the common stock of Merger Sub.

ITEM 4. REGULATORY APPROVAL

Set forth below is a summary of the material regulatory requirements
affecting the Merger. Failure to obtain any necessary regulatory approval or any
adverse conditions that are imposed in connection with any necessary regulatory
approval, including the failure to obtain appropriate ratemaking treatment, may
affect the consummation of the Merger. In addition to required

- ----------------------------
(19) A registered holding company may acquire and hold an interest in
an EWG, FUCO, and an exempt telecommunications company, without the need to
apply for or receive approval from the Commission (although the Commission
retains jurisdiction over certain related transactions with these entities).
Sections 32, 33 and 34 of the 1935 Act. Moreover, a registered holding company
may acquire "energy-related" companies meeting the Rule 58 safe harbor
conditions (including an investment ceiling) without the need for Commission
approval.

<PAGE> 86

Commission approvals, the state utility commissions of Arkansas, Louisiana,
Oklahoma, and Texas, and the FERC, the FCC, and the NRC have jurisdiction over
various aspects of the transactions proposed herein.(20) Further, both AEP and
CSW are required to file notification and report forms under the HSR Act with
the FTC and the DOJ with respect to the Merger. Additional consents from or
notifications to governmental agencies may be necessary or appropriate in
connection with the Merger.

A. ANTITRUST CONSIDERATIONS

The HSR Act and the rules and regulations thereunder provide that certain
transactions (including the Merger) may not be consummated until certain
information has been submitted to the Antitrust Division and the FTC and the
specified HSR Act waiting period has expired or been terminated. Applicants
intend to provide their respective pre-Merger notifications pursuant to the HSR
Act during the next several months. The expiration or earlier termination of the
HSR Act waiting period would not permanently preclude the Antitrust Division or
the FTC from challenging the Merger on antitrust grounds, but it would represent
a decision by such agencies that the Merger may be consummated without challenge
under Section 7 of the Clayton Act. If the Merger is not consummated within 12
months after the expiration or earlier termination of the initial HSR Act
waiting period, AEP and CSW must submit new information to the Antitrust
Division and the FTC, and a new HSR Act waiting period must expire or be earlier
terminated before the Merger may be consummated.

B. ATOMIC ENERGY ACT

CSW, through its wholly-owned subsidiary CPL, owns a 25.2% interest in
the STP, a two-unit nuclear electric generating station. The STP is operated by
STP Operating, a Texas non-profit corporation, which is jointly-owned by CPL and
the other owners of the STP. CPL holds NRC licenses with respect to its
ownership interests in the STP and STP Operating. Section 184 of the Atomic
Energy Act provides that no license may be transferred, assigned or in any
manner disposed of, directly or indirectly, through transfer of control of any
license to any person, unless the NRC finds that the transfer is in accordance
with the provisions of the Atomic Energy Act and gives its consent in writing.
On June 19, 1998, CPL sought approval from the NRC for the transfer of control
of its NRC licenses as a result of the merger of its parent, CSW, with a
subsidiary of AEP. The Application for Transfers of Control Regarding Operating
License No. NPF-76 and NPF-80 for the

- ----------------------------
(20) AEP has U.S. electric utility subsidiaries operating in Ohio,
Indiana, Kentucky, Michigan, Tennessee, Virginia, and West Virginia. Utility
regulatory commissions in certain of these states have asserted that they have
or may have approval authority over the Merger. AEP believes that the approval
of the utility regulatory commissions in these states is not required to
consummate the Merger, and that these states therefore do not have jurisdiction
over this proposed transaction. AEP has been actively working with all of these
state commissions regarding both the FERC and state regulatory impacts of the
transaction.

<PAGE> 87

STP is filed as Exhibit D-6.1. After the Merger, CPL, as an operating utility
subsidiary of the Combined Company, will continue to own the identical
pre-Merger interests in the STP and STP Operating.

C. FEDERAL POWER ACT

Section 203 of the FPA provides that no public utility may sell or
otherwise dispose of its jurisdictional facilities, directly or indirectly merge
or consolidate its facilities with those of any other person, or acquire any
security of any other public utility, without first having obtained
authorization from the FERC. On April 30, 1998, AEP and CSW filed a joint
application with the FERC seeking approval of the Merger, a copy of which is
filed as Exhibit D-1.1. Under Section 203 of the FPA, the FERC will approve a
merger if it finds the merger to be "consistent with the public interest."

D. COMMUNICATIONS ACT

CSW, itself or through one or more subsidiaries, holds various radio
licenses subject to the jurisdiction of the FCC under Title III of the
Communications Act. Under Section 310 of the Communications Act, no station
license may be assigned or transferred, directly or indirectly, except upon
application to and approval by the FCC. AEP and CSW intend to file applications
with the FCC seeking approval for the transfer of control of these licenses as a
result of the Merger within the next few months.

E. ARKANSAS COMMISSION

SWEPCO is subject to the jurisdiction of the Arkansas Commission.
Pursuant to Section 23-3-306(b) of the Arkansas Statutes, Arkansas Commission
approval is required before any person may merge with or otherwise acquire
control of a domestic public utility. On June 12, 1998, AEP, CSW and SWEPCO
filed an application with the Arkansas Commission seeking Arkansas Commission
approval of the Merger, a copy of which is filed as Exhibit D-2.1 and
incorporated by reference.

The Arkansas Commission must approve a merger application unless it finds
that one or more of five adverse circumstances would result from the
transaction. The circumstances include an adverse effect on the public utility's
existing obligations or quality of service, a reduction in competition for the
provision of utility services within the state, and an adverse effect on the
financial condition of the public utility.

On August 13, 1998, the Arkansas Commission issued an order conditionally
approving the Merger, a copy of which is filed as Exhibit D-2.2 and incorporated
by reference.

<PAGE> 88

F. LOUISIANA COMMISSION

SWEPCO is subject to the jurisdiction of the Louisiana Commission.
Pursuant to Louisiana Statutes Section 45:1164, the Louisiana Commission is
granted general supervisory authority over public utilities operating in the
state and, under this authority, the Louisiana Commission has held that its
approval or non-opposition is required prior to the sale, lease, merger,
consolidation, stock transfer, or any other change of control or ownership of a
public utility subject to its jurisdiction. On May 15, 1998, AEP, CSW and SWEPCO
filed an application seeking Louisiana Commission approval of, or non-opposition
to, the Merger, a copy of which is filed as Exhibit D-3.1 and incorporated by
reference.

The Louisiana Commission reviews merger applications pursuant to an 18
factor test that generally relates to the impact of the transaction on
competition, the financial condition of the utility, quality of service, public
health and safety, employment, and other similar "public interest" matters.

G. OKLAHOMA COMMISSION

PSO is subject to the jurisdiction of the Oklahoma Commission. The
Oklahoma Statutes concerning mergers and acquisitions of public utilities are
substantially identical to the sections of the Arkansas Statutes discussed
above. Oklahoma Commission approval is required before any person may merge with
or otherwise acquire control of an Oklahoma public utility. On August 14, 1998,
AEP, CSW and PSO filed an application with the Oklahoma Commission seeking
approval of the Merger, a copy of which is filed as Exhibit D-4.1 and
incorporated by reference. On October 1, 1998, the administrative law judge
presiding over the application proceeding orally informed the parties of his
intention to recommend to the Oklahoma Commission that the application be
dismissed, without prejudice, for its lack of information regarding the
potential impact of the Merger on retail electric markets in Oklahoma.
Applicants are reviewing the appropriate actions to take in response to the
recommendation and do not anticipate it causing a delay in consummating the
Merger.

The Oklahoma Commission is required to approve such merger or acquisition
of control unless it finds that the transaction will result in one or more of a
list of adverse circumstances, which are substantially identical to the adverse
circumstances listed above with respect to Arkansas.

H. TEXAS COMMISSION

CPL, SWEPCO, and WTU are subject to the jurisdiction of the Texas
Commission. Pursuant to Section 14.101 of the Texas Utilities Code, each
transaction involving the sale of at least 50 percent of the stock of a public
utility must be reported to the Texas Commission within a reasonable time. On
April 30, 1998, AEP, CSW, CPL, SWEPCO and WTU reported the Merger to the Texas
Commission for its review, a copy of which is filed as Exhibit D-5.1 and
incorporated by reference.

In reviewing a transaction involving the sale of at least 50 percent of
the stock of a Texas utility, the Texas Commission is required to determine
whether the action is consistent with the public interest, taking into
consideration factors such as the reasonable value of the property,

<PAGE> 89

facilities, or securities to be acquired, disposed of, merged, transferred, or
consolidated, and whether the transaction will adversely affect the health or
safety of customers or employees, result in the transfer of jobs of Texas
citizens to workers domiciled outside of Texas, or result in the decline of
service. If the Texas Commission determines that a transaction is not in the
public interest, it may take the effect of the transaction into consideration in
ratemaking proceedings and disallow the effect of such transaction if such
transaction will unreasonably affect rates or service.

I. AFFILIATE CONTRACTS

AEP, CSW and their subsidiaries intend to enter into or amend agreements
related to the provision by affiliates of various services, including
management, supervisory, construction, engineering, accounting, legal, financial
or similar services. The approval or non-opposition of certain state regulatory
commissions and the Commission is required with respect to the creation or
amendment of certain inter-affiliate agreements. Applicants and their
subsidiaries intend to file such agreements with the appropriate state
regulatory commissions within the next few months.

ITEM 5. PROCEDURE

The Commission is respectfully requested to issue and publish not later
than November 20, 1998, the requisite notice under Rule 23 with respect to the
filing of this Application-Declaration, such notice to specify a date not later
than December 15, 1998, by which comments may be entered and a date not later
than December 16, 1998, as the date after which an order of the Commission
granting and permitting this Application-Declaration to become effective may be
entered by the Commission.

It is submitted that a recommended decision by a hearing or other
responsible officer of the Commission is not needed for approval of the Merger.
The Division of Investment Management may assist in the preparation of the
Commission's decision. There should be no waiting period between the issuance of
the Commission's order and the date on which it is to become effective.

ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
A-1 Copy of Restated Certificate of Incorporation of AEP, dated October 29,1997 (filed
as Exhibit 3(a) to the Quarterly Report on Form 10-Q for the period ended September
30, 1997 (File No. 1-3525) and incorporated herein by reference)
A-2 Second Restated Certificate of Incorporation of CSW (filed as Exhibit 3(1) to the
Form 10-K for the fiscal year ended December 31, 1997 (File No. 1-1443) and
incorporated herein by reference)
A-3 Certificate of Incorporation of Merger Sub
A-4 By-laws of Merger Sub
</TABLE>

<PAGE> 90

<TABLE>
<S> <C>
B-1 Agreement and Plan of Merger among AEP, CSW and Merger Sub, dated at
December 21, 1997 (filed as Annex A to the Registration Statement on Form S-4 on
April 15, 1998 (Registration No. 333-50109) and incorporated herein by reference))
B-2 Proposed Service Agreement between AEPSC and subsidiaries of the Combined
Company
B-3 Proposed Attribution Basis List
C-1 Registration Statement of AEP on Form S-4 (as amended) (filed as Registration
Statement No. 333-50109 and incorporated herein by reference)
C-2 Joint Proxy Statement and Prospectus (included in Exhibit C-1)
D-1.1 Joint Application of jurisdictional subsidiaries of AEP and CSW before the FERC,
together with exhibits, appendices, and workpapers, dated April 30, 1998 (filed
herewith on Form SE)
D-2.1 Joint Application of AEP, CSW and SWEPCO before the Arkansas Commission,
together with exhibits, appendices, and workpapers, dated June 12, 1998 (filed
herewith on Form SE)
D-2.2 Order of Arkansas Commission conditionally approving the Merger, dated August
13, 1998
D-3.1 Joint Application of AEP, CSW and SWEPCO before the Louisiana Commission,
together with exhibits, appendices, and workpapers, dated May 15, 1998 (filed
herewith on Form SE)
D-4.1 Joint Application of AEP, CSW and PSO before the Oklahoma Commission,
together with exhibits, appendices, and workpapers, dated August 14, 1998 (filed
herewith on Form SE)
D-5.1 Joint Application of AEP and CSW before the Texas Commission, together with
exhibits, appendices, and workpapers, dated April 30, 1998 (filed herewith on Form
SE)
D-6.1 Application for Transfers of Control Regarding Operating License No. NPF-76 and
NPF-80 for the South Texas Project, dated June 19, 1998
E-1 Map of AEP service area, major transmission lines and interconnection points (filed
herewith on Form SE)
E-2 Map of CSW service area, major transmission lines and interconnection points (filed
herewith on Form SE)
E-3 Map of transmission lines showing the 250 MW Contract Path linking the Combined
System (filed herewith on Form SE)
E-4 AEP corporate chart (filed herewith on Form SE)
E-5 CSW corporate chart (filed herewith on Form SE)
E-6 Combined Company corporate chart after the Merger (filed herewith on Form SE)
F-1 Opinion of Counsel (to be filed by amendment)
F-2 Opinion of Counsel (to be filed by amendment)
F-l-1 Past-tense Opinion of Counsel (to be filed by amendment)
F-2-1 Past-tense Opinion of Counsel (to be filed by amendment)
G-1 Annual Report of AEP on Form 10-K for the year ended December 31, 1997, as
amended, (File No. 1-3525) and incorporated herein by reference
</TABLE>

<PAGE> 91

<TABLE>
<S> <C>
G-2 Quarterly Report of AEP on Form 10-Q for the quarter ended March 31, 1998 (File
No. 1-3525) and incorporated herein by reference
G-3 Quarterly Report of AEP on Form 10-Q for the quarter ended June 30, 1998 (File No.
1-3525) and incorporated herein by reference
G-4 Annual Report of CSW on Form 10-K for the year ended December 31, 1997 (File
No. 1-1443) and incorporated herein by reference
G-5 Quarterly Report of CSW on Form 10-Q for the quarter ended March 31, 1998 (File
No. 1-1443) and incorporated herein by reference
G-6 Quarterly Report of CSW on Form 10-Q for the quarter ended June 30, 1998 (File
No. 1-1443) and incorporated herein by reference
G-7 AEP Consolidated Balance Sheet as of June 30, 1998 (incorporated by reference to
the Quarterly Report on Form 10-Q of AEP for the quarterly period ended June 30,
1998 (File No. 1-3525)
G-8 Combined Company Unaudited Pro Forma Combined Balance Sheet at June 30,
1998
G-9 AEP Statement of Income for the period ended June 30, 1998 (incorporated by
reference to the Quarterly Report on Form 10-Q of AEP for the quarterly period
ended June 30, 1998 (File No. 1-3525)
G-10 Combined Company Unaudited Pro Forma Combined Statement of Income for the
twelve-month period ended June 30, 1998
G-11 Combined Company Unaudited Pro Forma Combined Statement of Retained
Earnings for the twelve-month period ended June 30, 1998
G-12 CSW Consolidated Balance Sheet as of June 30, 1998 (incorporated by reference to
the Quarterly Report on Form 10-Q of CSW for the quarterly period ended June 30,
1998 (File No. 1-1443)
G-13 CSW Consolidated Statement of Income as of June 30, 1998 (incorporated by
reference to the Quarterly Report on Form 10-Q of CSW for the quarterly period
ended June 30, 1998) (File No. 1-1443)
G-14 CSW Consolidated Statement of Income for the fiscal years ended December 31,
1997, 1996 and 1995 (incorporated herein by reference to the Annual Report of CSW
on Form 10-K for the year ended December 31, 1997 (File No. 1-1443)
H Proposed Form of Notice
I Description of Financing Authority (to be filed by amendment)
</TABLE>

ITEM 7. INFORMATION AS TO ENVIRONMENTAL EFFECTS

The Merger neither involves "major federal actions" nor "significantly
[affects] the quality of the human environment" as those terms are used in
Section (2)(C) of the National Environmental Policy Act, 42 U.S.C. Sec. 4332.
The only federal actions related to the Merger pertain to the Commission's
declaration of the effectiveness of the Registration Statement, the approvals
and actions described under Item 4 and Commission approval of this
Application-Declaration. Consummation of the Merger will not result in
significant changes in the operations of public utilities of the AEP or CSW
Systems or have any significant impact on the environment. Apart from

<PAGE> 92

the Application for Transfers of Control Regarding Operating License No. NPF-76
and NPF-80 in connection with the STP, no federal agency is preparing an
environmental impact statement with respect to this matter.

SIGNATURE

Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the undersigned companies have duly caused this statement to be signed on
their behalf by the undersigned thereunto duly authorized.

AMERICAN ELECTRIC POWER COMPANY, INC.

By /s/ A.A. Pena
--------------------------------------------
Treasurer

CENTRAL AND SOUTH WEST CORPORATION

By /s/ Wendy G. Hargus
--------------------------------------------
Treasurer

Dated: October 13, 1998

<PAGE> 1
EXHIBIT A-3

PAGE 1

STATE OF DELAWARE

OFFICE OF THE SECRETARY OF STATE

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

I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "AUGUSTA ACQUISITION CORPORATION", FILED IN THIS OFFICE ON THE
NINETEENTH DAY OF DECEMBER, A.D. 1997, AT 1:30 O'CLOCK P.M.

[SEAL OF THE SECRETARY'S OFFICE]

/s/ Edward J. Freel
--------------------------
Edward J. Freel, Secretary of State

2835933 8100 AUTHENTICATION: 8826804

DATE: 12-22-97
971439895
<PAGE> 2
CERTIFICATE OF INCORPORATION

Augusta Acquisition Corporation

The undersigned, in order to form a corporation for the
purpose hereinafter stated, under and pursuant to the provisions of the Delaware
General Corporation Law, hereby certifies that:

1. The name of the Corporation is Augusta Acquisition
Corporation.

2. The registered office and registered agent of the
Corporation is The Corporation Trust Company, 1209 Orange Street, Wilmington,
New Castle County, Delaware 19801.

3. The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of Delaware.

4. The total number of shares of capital stock that the
Corporation is authorized to issue is 1000 shares of Common Stock, par value
$0.01 each.

5. The name and address of the incorporator is Eric R. Jacobs,
425 Lexington Avenue, New York City, New York 10017.

6. The Board of Directors of the Corporation, acting by
majority vote, may alter, amend or repeal the By-Laws of the Corporation.

7. Except as otherwise provided by the Delaware General
Corporation Law as the same exists or may hereafter be amended, no director of
the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Any repeal or modification of this Article SEVENTH by the stockholders of the
Corporation shall not adversely affect any right of protection of a director of
the Corporation existing at the time of such repeal or modification.

IN WITNESS WHEREOF, the undersigned has signed this
Certificate of Incorporation on December 19, 1997.

/s/ Eric R. Jacobs
-------------------------
Eric R. Jacobs
Sole Incorporator

<PAGE> 1
EXHIBIT A-4

AUGUSTA ACQUISITION CORPORATION

BY-LAWS

ARTICLE I

MEETING OF STOCKHOLDERS

Section 1. Place of Meeting and Notice. Meetings of the
stockholders of the Corporation shall be held at such place either within or
without the State of Delaware as the Board of Directors may determine.

Section 2. Annual and Special Meetings. Annual meetings of
stockholders shall be held, at a date, time and place fixed by the Board of
Directors and stated in the notice of meeting, to elect a Board of Directors and
to transact such other business as may properly come before the meeting. Special
meetings of the stockholders may be called by the Chairman for any purpose and
shall be called by the Chairman or Secretary if directed by the Board of
Directors or requested in writing by the holders of not less than 25% of the
capital stock of the Corporation. Each such stockholder request shall state the
purpose of the proposed meeting.

Section 3. Notice. Except as otherwise provided by law, at
least 10 and not more than 60 days before each meeting of stockholders, written
notice of the time, date and place of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called, shall be given
to each stockholder.

Section 4. Quorum. At any meeting of stockholders, the holders
of record, present in person or by proxy, of a majority of the Corporation's
issued and outstanding capital stock shall constitute a quorum for the
transaction of business, except as otherwise provided by law. In the absence of
a quorum, any officer entitled to preside at or to act as secretary of the
meeting shall have power to adjourn the meeting from time to time until a quorum
is present.

Section 5. Voting. Except as otherwise provided by law, all
matters submitted to a meeting of stockholders shall be decided by vote of the
holders of record, present in person or by proxy, of a majority of the
Corporation's issued and outstanding capital stock.
<PAGE> 2
2

ARTICLE II

DIRECTORS

Section 1. Number, Election and Removal of Directors. The
number of Directors that shall constitute the Board of Directors shall be not
less than one nor more than fifteen. The first Board of Directors shall consist
of one Director. Thereafter, within the limits specified above, the number of
Directors shall be determined by the Board of Directors or by the stockholders.
The Directors shall be elected by the stockholders at their annual meeting.
Vacancies and newly created directorships resulting from any increase in the
number of Directors may be filled by a majority of the Directors then in office,
although less than a quorum, or by the sole remaining Director or by the
stockholders. A Director may be removed with or without cause by the
stockholders.

Section 2. Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as may from time to time be
fixed by the Board of Directors or as may be specified in a notice of meeting.
Special meetings of the Board of Directors may be held at any time upon the call
of the President and shall be called by the President or Secretary if directed
by the Board of Directors. Telegraphic or written notice of each special meeting
of the Board of Directors shall be sent to each Director not less than two hours
before such meeting. A meeting of the Board of Directors may be held without
notice immediately after the annual meeting of the stockholders. Notice need not
be given of regular meetings of the Board of Directors.

Section 3. Quorum. One-third of the total number of Directors
shall constitute a quorum for the transaction of business. If a quorum is not
present at any meeting of the Board of Directors, the Directors present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until such a quorum is present. Except as otherwise provided by
law, the Certificate of Incorporation of the Corporation, these By-Laws or any
contract or agreement to which the Corporation is a party, the act of a majority
of the Directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors.

Section 4. Committees of Directors. The Board of Directors
may, by resolution adopted by a majority of the whole Board, designate one or
more committees, including without limitation an Executive Committee, to have
and exercise such power and authority as the Board of Directors shall specify.
In the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or
<PAGE> 3
3

not he or they constitute a quorum, may unanimously appoint another Director to
act at the meeting in place of any such absent or disqualified member.

ARTICLE III

OFFICERS

The officers of the Corporation shall initially consist of a
President, a Secretary, and such other additional officers with such titles as
the Board of Directors shall determine, all of whom shall be chosen by and shall
serve at the pleasure of the Board of Directors. Such officers shall have the
usual powers and shall perform all the usual duties incident to their respective
offices. All officers shall be subject to the supervision and direction of the
Board of Directors. The authority, duties or responsibilities of any officer of
the Corporation may be suspended by the Chairman of the Board of Directors with
or without cause. Any officer elected or appointed by the Board of Directors may
be removed by the Board of Directors with or without cause.

ARTICLE IV

INDEMNIFICATION

To the fullest extent permitted by the Delaware General
Corporation Law, the Corporation shall indemnify any current or former Director
or officer of the Corporation and may, at the discretion of the Board of
Directors, indemnify any current or former employee or agent of the Corporation
against all expenses, judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with any threatened, pending or
completed action, suit or proceeding brought by or in the right of the
Corporation or otherwise, to which he was or is a party or is threatened to be
made a party by reason of his current or former position with the Corporation or
by reason of the fact that he is or was serving, at the request of the
Corporation, as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.

ARTICLE V

GENERAL PROVISIONS

Section 1. Notices. Whenever any statute, the Certificate of
Incorporation or these By-Laws require notice to be given to any Director or
stockholder, such notice may
<PAGE> 4
4

be given in writing by mail, addressed to such Director or stockholder at his
address as it appears on the records of the Corporation, with postage thereon
prepaid. Such notice shall be deemed to have been given when it is deposited in
the United States mail. Notice to Directors may also be given by telegram.

Section 2. Fiscal Year. The fiscal year of the Corporation
shall be fixed by the Board of Directors.

<PAGE> 1
EXHIBIT B-2

SERVICE AGREEMENT

THIS SERVICE AGREEMENT, made as of the ___ day of ________, ____,
between American Electric Power Service Corporation, a New York corporation
("Service Company") and [AEP System Company], a ____ corporation ("Client"),

WITNESSETH:

WHEREAS, both Service Company and Client are associate companies in the
American Electric Power System (the "AEP System"), which is comprised of
American Electric Power Company, Inc. ("American") and its subsidiary companies;
and

WHEREAS, Service Company is a wholly-owned subsidiary of American and
is approved by the Securities and Exchange Commission (the "Commission") as a
subsidiary service company pursuant to the provisions of Section 13 of the
Public Utility Holding Company Act of 1935, as amended (the "1935 Act"); and

WHEREAS, Service Company maintains an organization of employees who are
experienced in the operations of public utilities and related businesses,
together with appropriate facilities and equipment, through which it is prepared
to provide various management, administrative, financial, technical and other
services, as hereinafter provided, to Client and to other member companies in
the AEP System (Client, together with such other member companies, are
hereinafter referred to collectively as "Clients"); and

WHEREAS, such services will be rendered at cost, determined in
accordance with the applicable rules and regulations of the Commission under the
1935 Act, and the allocation of such costs among Clients will be made in
accordance with the authority granted by the Commission in HCAR No. ______ in
File No. 70-____;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, Service Company and Client hereby agree as follows:

1. Agreement to Provide Services. Service Company agrees to provide to
Client from time to time, upon the terms and conditions hereinafter set forth,
such of the following services as may properly be rendered by Service Company to
Client (within the meaning and intent of the 1935 Act and any other applicable
statutes and the orders, rules and regulations of the Commission and any other
governmental bodies having jurisdiction) at such times, for such periods and in
such manner as Client may from time to time require and which Service Company is
equipped to perform:

(a) Consultation, analysis, advice and performance of services
in connection with matters relating to operations, management,
financing and financial planning, engineering, system planning, law,
corporate communications, corporate development, energy production,
energy delivery and pricing, environmental requirements, marketing,
governmental and general business problems or questions;

(b) Consultation, analysis, advice and performance of services
in connection with human relations and employee benefit plans;

(c) Tax services relating to the preparation and filing of
returns for federal, state and local taxes, including consolidated tax
returns;

2
<PAGE> 3
(d) Assistance in connection with any audits of such tax
returns by Internal Revenue Service and other taxing bodies or
authorities;

(e) Consultation, analysis, advice and performance of services
in connection with accounting matters and financial reporting; and

(f) Electronic data processing services, including
establishing and operating a data processing center, processing of
customer billings, revenues and statistics, payrolls, property
accounting, general accounting, cash forecasts, load flow studies, and
various other business and engineering applications as may from time to
time be in the best interest of Client.

Service Company will render all services performed under this Service Agreement
at cost, determined in accordance with Rule 91 of the Rules and Regulations of
the Commission.

Service Company will also provide Client with such other services, in
addition to those specified above, as may be requested by Client and which
Service Company concludes it is equipped to perform. In providing such services,
Service Company may arrange, where it deems appropriate, for the services of
experts, consultants, advisers and other persons with necessary qualifications
as are required for or pertinent to the rendition of such services.

2. Agreement to Take Services. Client agrees to take from Service
Company such of the services described in Section 1 hereof

3
<PAGE> 4
and such additional general and special services, whether or not now
contemplated, as are requested from time to time by Client and which Service
Company is equipped to perform.

3. Compensation and Allocation. As compensation for the services to be
rendered hereunder, Client agrees to pay to Service Company all costs which
reasonably can be identified and related to particular transactions or services
performed by Service Company on Client's behalf. Where more than one Client is
involved in or has received benefits from a transaction or service performed,
costs will be allocated and billed among such Clients on the basis most directly
related to the transaction or service performed. Allocated costs will be billed
using appropriate attribution bases as authorized by the Commission.

As soon as practicable after the close of each month, Service Company
shall render a monthly statement to Client which shall reflect the billing
information necessary to identify the costs and allocations made and charged for
that month. Client agrees to remit to Service Company all charges billed to
Client within 30 days after receipt of the monthly statement.

[4. Termination of Prior Agreement. This Service Agreement
supersedes the agreement dated _________ __, ____, between the
parties hereto, providing for the rendition of services by Service
Company to Client.][for existing AEP System Companies]

5. Term and Termination. This Service Agreement shall become effective
upon the first day of ________, ____ and shall continue in full force and effect
until terminated by either party hereto upon

4
<PAGE> 5
not less than ninety (90) day's prior written notice to the other party. This
Service Agreement also shall be subject to termination or modification at any
time if and to the extent its performance may or shall conflict with (i) any
rule, regulation or order of the Commission pursuant to the provisions of the
1935 Act, whether issued before or after the effective date of this Service
Agreement, or (ii) any rule, regulation or order of any other governmental body
having jurisdiction.

IN WITNESS WHEREOF, the parties hereto have caused this Service
Agreement to be executed as of the date first above written.

AMERICAN ELECTRIC POWER SERVICE CORPORATION

By_________________________________________

[AEP SYSTEM COMPANY}

By_________________________________________

<PAGE> 1
EXHIBIT B-3

AEP 1999 PROPOSED ATTRIBUTION BASIS LISTING

<TABLE>
<CAPTION>
UPDATE
ATTRIBUTION BASIS FREQUENCY
----------------- ---------
<S> <C>
1. NUMBER OF BANK ACCOUNTS Semi-Annually
2. NUMBER OF CALL CENTER TELEPHONES Semi-Annually
3. NUMBER OF CELL PHONES / PAGERS Quarterly
4. NUMBER OF CHECKS PRINTED Monthly
5. NUMBER OF CUSTOMER INFORMATION SYSTEM CUSTOMER MAILINGS Monthly
6. NUMBER OF COMMERCIAL CUSTOMERS (Ultimate) Annually
7. NUMBER OF CREDIT CARDS Semi-Annually
8. NUMBER OF ELECTRIC RETAIL CUSTOMERS (Ultimate) Annually
9. NUMBER OF EMPLOYEES Quarterly
10. NUMBER OF GENERATING PLANT EMPLOYEES Quarterly
11. NUMBER OF GENERAL LEDGER TRANSACTIONS Monthly
12. NUMBER OF HELP DESK CALLS Monthly
13. NUMBER OF INDUSTRIAL CUSTOMERS (Ultimate) Annually
14. NUMBER OF JOB COST ACCOUNTING TRANSACTIONS Monthly
15. NUMBER OF NON-UMWA EMPLOYEES Quarterly
16. NUMBER OF PHONE CENTER CALLS Monthly
17. NUMBER OF PURCHASE ORDERS WRITTEN Monthly
18. NUMBER OF RADIOS (BASE/MOBILE/HANDHELD) Semi-Annually
19. NUMBER OF RAILCARS Annually
20. NUMBER OF REMITTANCE ITEMS Monthly
21. NUMBER OF REMOTE TERMINAL UNITS Annually
22. NUMBER OF RENTED WATER HEATERS Annually
23. NUMBER OF RESIDENTIAL CUSTOMERS (Ultimate) Annually
24. NUMBER OF ROUTERS Semi-Annually
25. NUMBER OF SERVERS Semi-Annually
26. NUMBER OF STORES TRANSACTIONS Monthly
27. NUMBER OF TELEPHONES Semi-Annually
28. NUMBER OF TRANSMISSION POLE MILES Annually
29. NUMBER OF TRANSTEXT CUSTOMERS Annually
30. NUMBER OF TRAVEL TRANSACTIONS Monthly
31. NUMBER OF VEHICLES Annually
32. NUMBER OF VENDOR INVOICE PAYMENTS Monthly
33. NUMBER OF WORKSTATIONS Quarterly
34. ACTIVE OWNED OR LEASED COMMUNICATION CHANNELS Annually
35. AVG PEAK LOAD FOR PAST THREE YEARS Annually
36. COAL COMPANY COMBINATION Semi-Annually
37. AEPSC PAST 3 MONTHS TOTAL BILL DOLLARS Monthly
38. AEPSC PRIOR MONTH TOTAL BILL DOLLARS Monthly
39. DIRECT Not Required
40. EQUAL SHARE RATIO Not Applicable
41. FOSSIL PLANT COMBINATION Annually
42. FUNCTIONAL DEPARTMENT'S PAST 3 MONTHS TOTAL BILL DOLLARS Monthly
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
UPDATE
ATTRIBUTION BASIS FREQUENCY
----------------- ---------
<S> <C>
43. KWH SALES (Ultimate Customers) Annually
44. LEVEL OF CONSTRUCTION - DISTRIBUTION Semi-Annually
45. LEVEL OF CONSTRUCTION - PRODUCTION Semi-Annually
46. LEVEL OF CONSTRUCTION- TRANSMISSION Semi-Annually
47. LEVEL OF CONSTRUCTION-TOTAL Semi-Annually
48. MW GENERATING CAPABILITY Annually
49. MWH'S GENERATION Semi-Annually
50. CURRENT YEAR BUDGETED SALARY DOLLARS Annually
51. PAST 3 MO. MMBTU'S BURNED(ALL FUEL TYPES) Quarterly
52. PAST 3 MO. MMBTU'S BURNED(COAL ONLY) Quarterly
53. PAST 3 MO. MMBTU'S BURNED(GAS TYPE ONLY) Quarterly
54. PAST 3 MO. MMBTU'S BURNED(OIL TYPE ONLY) Quarterly
55. PAST 3 MO. MMBTU'S BURNED(SOLID FUELS ONLY) Quarterly
56. PEAK LOAD/AVG # CUST/KWH SALES COMBINATION Annually
57. TONS OF FUEL ACQUIRED Semi-Annually
58. TOTAL ASSETS Quarterly
59. TOTAL ASSETS LESS NUCLEAR PLANT Quarterly
60. AEPSC ANNUAL COSTS BILLED (LESS INTEREST AND/OR INCOME TAXES, AS APPLICABLE) Annually
61. TOTAL FIXED ASSETS Quarterly
62. TOTAL GROSS REVENUE Quarterly
63. TOTAL GROSS UTILITY PLANT(INCLUDING CWIP) Quarterly
64. TOTAL PEAK LOAD (PRIOR YEAR) Annually
</TABLE>

<PAGE> 1
EXHIBIT D-2.2

ARKANSAS PUBLIC SERVICE COMMISSION

IN THE MATTER OF THE JOINT APPLICATION OF )
AMERICAN ELECTRIC POWER COMPANY, INC., )
SOUTHWESTERN ELECTRIC POWER COMPANY, )
AND CENTRAL AND SOUTH WEST ) DOCKET NO. 98-172-U
CORPORATION FOR APPROVAL OF MERGER ) ORDER NO. 5

ORDER

On June 12, 1998, American Electric Power Company, Inc. ("AEP"),
Southwestern Electric Power Company ("SWEPCO"), and Central and South West
Corporation ("CSW") (collectively referred to as "Applicants") filed in the
above-styled Docket the Joint Application of American Electric Power Company,
Inc., Southwestern Electric Power Company, and Central and South West
Corporation Regarding Proposed Merger ("Application") pursuant to Ark. Code Ann.
Sections 23-3-101 and 23-3-301 et seq. and Rule 4.01 et seq. and Rule 8.01 et
seq. of the Arkansas Public Service Commission Rules of Practice and Procedure
(the "Rule(s)").

AEP is a New York corporation with its principal executive offices located
in Columbus, Ohio. AEP is a public utility holding company registered under the
Public Utility Holding Company Act of 1935 ("PUHCA"), 15 U.S.C. Section 79 et
seq. (1997), with utility operating subsidiaries engaged primarily in the
generation, transmission, distribution, and sale of electric energy to customers
in seven states and the United Kingdom.

AEP owns all of the outstanding shares of common stock of seven domestic
electric utility operating subsidiaries: Appalachian Power Company, Columbus
Southern Power Company, Indiana
<PAGE> 2
DOCKET NO. 98-172-U
PAGE 2

Michigan Power Company, Kentucky Power Company, Kingsport Power Company, Ohio
Power Company and Wheeling Power Company. Substantially all of the operating
revenues of AEP and its subsidiaries are derived from the provision of electric
service.

The service area of AEP's domestic subsidiaries covers portions of the
states of Kentucky, Michigan, Ohio, Tennessee, Virginia and West Virginia. The
generating and transmission facilities of AEP's domestic subsidiaries are
physically interconnected, and their operations are coordinated as a single
integrated electric utility system. Transmission networks are interconnected
with distribution facilities in the states served by AEP's domestic
subsidiaries.

CSW is a Delaware corporation with its principal executive offices located
in Dallas, Texas. CSW is a public utility holding company registered under PUHCA
with utility operating subsidiaries engaged primarily in the generation,
transmission, distribution, and sale of electric energy to customers in four
states and the United Kingdom.

CSW owns all of the outstanding shares of common stock of four domestic
electric utility operating subsidiaries: Central Power and Light Company, Public
Service Company of Oklahoma, West Texas Utilities Company, and SWEPCO.
Substantially all of the operating revenues of CSW and its subsidiaries are
derived from the provision of electric service.

The service area of CSW's domestic subsidiaries covers portions of the
states of Louisiana, Texas, Oklahoma and Arkansas. The generating and
transmission facilities of CSW's domestic subsidiaries are physically
interconnected, and their operations are coordinated as a single integrated
electric utility system. Transmission networks are interconnected with
distribution facilities in the states served by CSW's domestic subsidiaries.

<PAGE> 3
DOCKET NO. 98-172-U
PAGE 3

SWEPCO is a Delaware corporation with headquarters in Shreveport,
Louisiana. SWEPCO, a public utility certified by the Arkansas Public Service
Commission to operate in Arkansas, operates in a territory covering western
Arkansas, northwestern Louisiana and northeastern Texas. SWEPCO provides service
to approximately 96,000 customers in Arkansas.

The Applicants propose a merger in which the CSW operating companies and
subsidiaries, including SWEPCO, will become operating companies and subsidiaries
of AEP. AEP effectively will be the surviving corporation and will continue to
be headquartered in Columbus, Ohio. Immediately following the merger the AEP
Board of Directors will consist of 15 members and will be reconstituted to
include the current Chairman of CSW and four additional outside directors of CSW
to the nominated by AEP.

Applicants' testimony states that AEP has no plans to liquidate, sell,
merge, or consolidate SWEPCO or to materially change SWEPCO's investment policy,
business or corporate structure, or management. Further, Applicants acknowledge
and agree that SWEPCO will continue to operate as an Arkansas jurisdictional
public electric utility subject to regulation by the Arkansas Public Service
Commission after consummation of the proposed merger. Applicants have also
committed to ensuring the safety, reliability, and quality of service to their
Arkansas customers. Applicants state that SWEPCO and AEP operating companies
consistently rank among the lowest cost providers of electric service in the
nation, while at the same time maintaining a consistent history of reliability
and high quality of service. The Applicants have committed to maintain and
strive to exceed this level of reliable electric service following the proposed
transaction. Applicants further affirmatively state that the financial stability
of SWEPCO will not be jeopardized by the
<PAGE> 4
DOCKET NO. 98-172-U
PAGE 4

merger and the interests of SWEPCO's customers will not be prejudiced.

Simultaneous with the filing of its Application, Applicants filed the
supporting Direct Testimony of twelve witnesses: Mark D. Roberson, Thomas V.
Shockley, III, William H. Hieronymus, Karen C. Martin, J. Craig Baker, Mark A.
Bailey, Richard E. Munczinski, Thomas J. Flaherty, Thomas E. Mitchell, Armando
A. Pena, R. Russell Davis and Dr. E. Linn Draper, Jr.

Order No. 1, issued June 12, 1998, established July 8, 1998, as the filing
date for Initial Direct Testimony by the General Staff of the Arkansas Public
Service Commission ("Staff") and Intervenors. Order No. 1 also scheduled a
public hearing to begin on July 13, 1998, for purposes of considering
Applicant's merger proposal.

Order No. 3, issued July 1, 1998, granted the Petition To Intervene of
Entergy Arkansas, Inc. ("EAI"); however, EAI subsequently filed no testimony.
Although Intervenor status was not sought by any other entity, Arkansas
Electric Cooperative Corporation ("AECC") filed a Limited Appearance Statement
on July 2, 1998, pursuant to Rule 3.04(c)(1). AECC's Limited Appearance
Statement was sponsored by Mr. Ricky Bittle who, pursuant to Rule 3.04(c)(1)
appeared for cross-examination purposes during the July 13, 1998, public
hearing. Prior to his cross-examination Mr. Bittle also introduced into the
record supplementary oral Limited Appearance testimony.

Also on July 1, 1998, Order No. 4 granted the June 26, 1998, Joint Motion
To Defer Consideration Of The Regulatory Plan And To Establish A Procedural
Schedule filed by Applicants and Staff. Accordingly, Applicants' proposed
regulatory plan ("PRP") was bifurcated from all other issues associated with
the proposed merger. Order No. 4 established a separate testimony filing
schedule for the PRP and set Applicant's PRP for public hearing on November 10,
1998.

<PAGE> 5
DOCKET NO. 98-172-U
PAGE 5

On July 7, 1998, Applicants filed a Proof of Publication of Notice
verifying that Applicants published an appropriate Notice of its Application
and the scheduled public hearing in the Arkansas Democrat-Gazette newspaper on
June 18 and June 21, 1998, as directed by Order No. 1.

On July 8, 1998, Staff filed the Prepared Testimony of Staff Financial
Analyst Mark Witkowski in response to the previously filed Direct Testimony of
Applicants' witnesses. Mr. Witkowski testified that the proposed merger would
be consistent with the public interest and should be approved if approval was
expressly conditioned upon 8 separate conditions set forth at page 21 of his
Prepared Testimony. In addition Mr. Witkowski recommended that an order of
approval should reserve for further consideration any determination of market
power in a competitive retail electric market.

On July 10, 1998, a Stipulation And Agreement ("Stipulation") entered into
by Applicants and Staff was filed for consideration by the Commission. (A copy
of said Stipulation is attached hereto as Appendix 1.) Staff and Applicants
jointly requested that the Commission issue an order approving the proposed
merger subject to the express conditions set forth in the Stipulation; subject
to the findings and orders regarding the PRP and related issues emanating from
the November 10, 1998, public hearing; and further subject to the merger
qualifying as a pooling of interest transaction under generally accepted
accounting principles and applicable Securities and Exchange Commission ("SEC")
regulations, and qualifying as a tax free corporate reorganization under
Internal Revenue Code 368.

As scheduled by Order No. 1, a public hearing to consider Applicants'
proposed merger (excluding the PRP issues) was conducted by the Commission on
July 13, 1998. Although invited,
<PAGE> 6
DOCKET NO. 98-172-U
PAGE 6

no public comments were offered during the public hearing. In addition to the
formal presentation of the pre-filed testimony of Staff and Applicants and the
Limited Appearance testimony of Mr. Ricky Bittle on behalf of AECC, the
Commission also heard oral testimony from Staff and Applicants in support of the
Stipulation.

Ark. Code Ann. Section 23-3-310 states that "[t]he Commission shall approve
any merger ... unless ... it finds that one (1) or more of the following
conditions will exist if the merger ... is consummated, in which event it shall
disapprove the merger ...." Following this language, Section 23-3-310 lists the
following five conditions to be considered by the Commission:

(1) The acquisition of control would adversely affect the contractual
obligations of the domestic public utility or of any person controlling
the domestic public utility or the ability or commitment to continue to
render the same level of service to its customers that the domestic
public utility is currently rendering;
(2) The effect of the merger or other acquisition of control would be
substantially to lessen competition in the furnishing of public utility
service in this state;
(3) The financial condition of any acquiring party is such as might
jeopardize the financial stability of the domestic public utility or
any person controlling the domestic public utility or would otherwise
prejudice the interest of the domestic public utility's customers;

(4) The plans or proposals which an acquiring party has to liquidate
the public utility or any such controlling person, to sell its assets
or a substantial part thereof, or to consolidate or merge it with any
person, or to make any other material change in its investment policy,
business or corporate structure, or management would be detrimental to
the customers of the domestic public utility and not in the public
interest; or

(5) The competence, experience, and integrity of those persons who
would control the operation of the domestic public utility are such
that it would not be in the interest of its customers and the public to
permit the merger or other acquisition of control.

Based upon the pre-filed testimonies and exhibits, including the Limited
Appearance Statement of AECC, which have been formally introduced into the
record of this proceeding, and
<PAGE> 7
DOCKET NO. 98-172-U
PAGE 7

the information set forth in the Application, as well as the supplementary oral
testimony presented during the public hearing on behalf of Applicants, Staff
and AECC, the Commission finds no persuasive evidence that any of the
above-listed five conditions will exist if the merger is consummated subject to
the express conditions set forth hereinafter.

Further, based upon said evidence, the Commission finds no persuasive
evidence that the proposed merger would adversely affect SWEPCO's Arkansas
customers or the overall public interest if consummated subject to the express
conditions set forth hereinafter. Accordingly, the Commission finds, subject
to Applicants' compliance with the following conditions, that the proposed
merger is in the public interest and should be approved.

Approval of the proposed merger is expressly conditioned upon Applicants'
compliance with the following conditions:

1. The Commission's approval of the merger is expressly conditioned upon
Applicants' full compliance with the terms and conditions of the July 10, 1998,
Stipulation And Agreement attached hereto as Appendix 1.

2. In its application for merger approval at the Federal Energy Regulatory
Commission ("FERC"), Applicants agreed to a waiver of any arguments that it may
have before the FERC under Ohio Power Co. v. FERC, 954 F.2d 779 (D.C. Cir.
1992), cert. denied, 498 U.S. 73 (1992). The Court in Ohio Power reversed the
FERC's use in wholesale ratemaking of market prices for affiliate coal
purchases rather than the at-cost prices established by the SEC under PUHCA.
One basis for the Court's ruling was its finding that the Congress has assigned
to the SEC, through PUHCA, sole authority over non-power affiliate
transactions. Id. at 786. According to Applicants' FERC witness
<PAGE> 8
DOCKET NO. 98-172-U
PAGE 8

Mr. Richard E. Munczinski, Ohio Power stands for the proposition that "in
wholesale ratemaking the [FERC] must treat the costs and revenues resulting from
those SEC regulated transactions as reasonable." Exh. AC-300 at 12, FERC Docket
No. EC98-40-000. Although the Court's holding in Ohio Power was directed to the
FERC's treatment of non-power affiliate costs, its language could be used to
argue that a state commission's ratemaking treatment of those costs is similarly
preempted.

The issue of a similar Ohio Power waiver for this Commission has not been
directly addressed in this docket. However, Paragraph 7 of the Stipulation
reflects the Applicants' agreement that, "upon the issuance of any final and
non-appealable order from the FERC...providing any benefits to ratepayers of any
jurisdiction or imposing any conditions on Applicants that would benefit the
ratepayers of any jurisdiction, such net benefits and conditions will be
extended to Arkansas ratepayers..." (emphasis added) The Commission interprets
that paragraph to encompass the provision of an Ohio Power waiver to this
Commission, like the one offered to the FERC, because such a waiver will allow
this Commission to examine the reasonableness of non-power affiliate costs to be
passed to Arkansas ratepayers.(1) The Commission's approval of the merger is
expressly conditioned on the Applicant's acceptance of that interpretation.

3. The record reflects that Dr. Draper, the Chairman, President, and CEO
of AEP, is at least generally aware of the provisions of a 1996 settlement
agreement between CSW and this Commission regarding CSW's investments in exempt
wholesale generators ("EWG's") and foreign

(1) It is the Commission's understanding that the Ohio Power waiver does
not include waiver of any arguments that AEP/CSW may have with respect to the
reasonableness of SEC-approved cost allocations, as opposed to the
reasonableness of the costs themselves.
<PAGE> 9
DOCKET NO. 98-172-U
PAGE 9

utility companies ("FUCOs"). (T. 195) The Commission finds that the terms and
conditions of that agreement will remain appropriate for the post-merger
environment and thus conditions its approval of the merger on AEP's agreement to
be bound by the 1996 settlement.

4. The System Integration Agreement ("SIA") is the proposed wholesale rate
schedule which would allocate power costs between the CSW and AEP systems. That
agreement has been filed for approval in FERC Docket No. ER98-2770-000. On June
30, 1998, the Commission filed a protest in that proceeding. The protest noted
that SIA Service Schedule A would, inter alia, allocate the fixed costs of new
capacity "in proportion to the amount of new capacity required" by CSW and AEP,
as determined by American Electric Power Service Corp. ("AEPSC"), the merged
company's service subsidiary. The Commission pointed out that the discretion
vested in AEPSC raised the possibility of inappropriate cost allocations between
the systems. The Commission requested that the merged company be required to
give its retail regulators notice of any intended allocation, so that the
affected jurisdictions would have the timely opportunity to challenge the
allocation under Section 206 of the Federal Power Act ("FPA"), 16 U.S.C.
Section 824e.

On July 27, 1998, Applicants filed their Answer of American Electric Power
Service Corporation and Central and South West Services, Inc. to Motions to
Intervene ("Answer"). In that Answer, they argued to the FERC that the notice of
proposed allocations requested by the Commission is unnecessary. Answer at 7-8.
The Commission disagrees.

The Commission notes that its request would require only notice of a
proposed allocation, not approval by this or any other retail regulator. No
disruption of the current state/federal allocation of jurisdiction over power
costs is contemplated or required. As Applicants are well aware, see
<PAGE> 10
DOCKET NO. 98-172-U
PAGE 10

Answer at 8, any interested party, including this Commission, may challenge
allocations under the SIA pursuant to FPA Section 206. However, it is vital
that Section 206 challenges be timely filed, for at least three reasons. First,
the ability of this Commission to disallow any costs resulting from such an
allocation is problematic, at best. See Mississippi Power & Light Co. v.
Mississippi, 487 U.S. 354 (1988). Second, FPA Section 206 provides for a
limited refund period, which may be exceeded by the time it takes to resolve
the controversy. Third, the Commission has observed that Section 206 complaints
often languish for months or years before the FERC even sets the case for
hearing.

The SIA filing and the Commission's protest await further action at the
FERC. Nevertheless, the above discussion makes it clear that the Commission's
call for notice of proposed allocations of capacity costs under SIA Service
Schedule A is reasonable and necessary for the protection of Arkansas
ratepayers. The Commission's approval of the merger is expressly conditioned on
the Applicants' commitment to give this Commission notice of its proposed fixed
capacity cost allocations pursuant to SIA Service Schedule A.

5. The Commission's approval of the merger is expressly conditioned on
Applicants' agreement not to terminate its membership in the Southwest Power
Pool without the prior approval of this Commission, subject to Applicants' due
process rights to a public hearing and an opportunity to present testimony in
support of its position.

6. The Commission's approval of the merger is further expressly subject to
the findings and orders regarding Applicants' PRP and related issues emanating
from the upcoming November 10, 1998, public hearing; and further subject to the
merger qualifying as a pooling of interest transaction
<PAGE> 11
DOCKET NO. 98-172-U
PAGE 11

under generally accepted accounting principles and applicable Securities and
Exchange Commission regulations, and qualifying as a tax free corporate
reorganization under Internal Revenue Code 368.

Accordingly, subject to the foregoing conditions, the proposed merger of
AEP and CSW is in the public interest and is hereby approved. Applicants'
failure to file written objections to any of the foregoing conditions within ten
(10) days of the date of this order shall be deemed as an affirmative
acquiescence to said conditions.

BY ORDER OF THE COMMISSION.

This 13th day of August, 1998.

/s/ Lavenski R. Smith
------------------------------------
Lavenski R. Smith, Chairman

/s/ Sam L. Bratton, Jr.
------------------------------------
Sam L. Bratton, Jr., Commissioner

/s/ Julius D. Kearney
------------------------------------
Julius D. Kearney, Commissioner

/s/ Glenna Hooks (acting)
------------------------------------
Jan Sanders
Secretary of the Commission

<PAGE> 12
BEFORE THE
ARKANSAS PUBLIC SERVICE COMMISSION

IN THE MATTER OF THE JOINT APPLICATION OF )
AMERICAN ELECTRIC POWER COMPANY, INC., )
SOUTHWESTERN ELECTRIC POWER COMPANY, ) DOCKET NO. 98-172-U
AND CENTRAL AND SOUTH WEST CORPORATION )
FOR APPROVAL OF MERGER )

STIPULATION AND AGREEMENT

The Applicants and Staff Stipulate and agree as follows:

1. The Applicants commit and agree to honor all commitments made in the Joint
Application, pre-filed testimony and exhibits.

2. The Applicants commit and agree not to seek to recover termination fees,
the "Out of Pocket" and "Topping Out" fees associated with the merger as
described in Sections 9.5 and 9.6 of the Agreement and Plan of Merger By
and Among American Electric Power Company, Inc., Augusta Acquisition
Corporation and Central and South West Corporation dated December 21, 1997
(Merger Agreement); and further commit and agree not to seek to recover the
fee that may be charged by Morgan Stanley, all as shown in Exhibits MW-3,
MW-4 and MW-5.

3. The Applicants commit and agree to maintain or improve the quality of
service currently provided, including evaluation by the specific
performance measures and standards as shown in Exhibit MW-8. Applicants
further commit and agree to file information/substantiation of SWEPCO's
performance for each of these measures on an annual basis by the end of May
of the year following the year in question, beginning in May 1999.

4. The Applicants commit and agree to make available information and witnesses
such as are necessary to provide required information with respect to
matters and activities that relate to Arkansas retail rates, all as shown
by Exhibits MW-9, MW-10, MW-11, MW-12 and MW-13.

5. The Applicants commit and agree that the cost of capital as reflected in
SWEPCO's rates shall not be adversely affected as the result of AEP's
acquisition of CSW. The Applicants also agree that subsequent to the
completion of the merger, the cost of capital for SWEPCO should be set
commensurate with the risk of SWEPCO and should not be affected by the
merger. Applicants agree that they will not oppose, in either a regulatory
proceeding or an appeal of a decision by the
<PAGE> 13
APSC, the application of the principle that the determination of the cost
of capital can be based on the risk attendant to the regulated operations
of SWEPCO.

6. The Applicants commit and agree that any stranded cost that SWEPCO
may seek to recover will be on a stand-alone basis, as reflected in
Exhibit MW-15, and limited to SWEPCO's ownership interest.

7. The Applicants commit and agree that upon issuance of any final
and non-appealable order from the FERC, SEC, or any state or federal
commission addressing the merger, through stipulation or otherwise,
providing any benefits to ratepayers of any jurisdiction or imposing any
conditions on Applicants that would benefit the ratepayers of any
jurisdiction, such net benefits and conditions will be extended to
Arkansas ratepayers to the extent necessary to achieve equivalent net
benefits and conditions to the Arkansas ratepayers, provided the proposed
merger is ultimately consummated.

8. The Applicants commit and agree to file the letters from independent
public accountants stating that the merger transaction qualifies as a
pooling of interests transaction under generally accepted accounting
principles as required by Section 8.1(e) of the Merger Agreement.

9. The Applicants and Staff agree that the question of the determination of
market power in a competitive retail electric market is reserved and may
be considered in any docket considering transition to competition issues.

Based upon the foregoing, the Staff and Applicants jointly pray that an
Order of this Commission be entered approving the proposed merger subject to
the findings and orders regarding the proposed regulatory plan and related
issues emanating from the November 10, 1998 hearing; and further subject to the
merger qualifying as a pooling of interest transaction under generally accepted
accounting principles and applicable Securities and Exchange Commission
regulations, and qualifying as a tax free corporate reorganization under
Internal Revenue Code 368.

2
<PAGE> 14
Agreed to this 10 day of July, 1998.

/s/ Illegible
------------------------------------------------------
Counsel for American Electric Power Company, Inc.

/s/ Illegible
------------------------------------------------------
Counsel for Central and South West Corporation and
Southwestern Electric Power Company

/s/ Susan E. D'Auteuil
------------------------------------------------------
Counsel for the General Staff of the Arkansas
Public Service Commission

3
<PAGE> 15
BEFORE THE
ARKANSAS PUBLIC SERVICE COMMISSION

IN THE MATTER OF THE JOINT APPLICATION OF )
AMERICAN ELECTRIC POWER COMPANY, INC., )
SOUTHWESTERN ELECTRIC POWER COMPANY, ) DOCKET NO. 98-172-U
AND CENTRAL AND SOUTHWEST )
CORPORATION FOR APPROVAL OF MERGER )

CERTIFICATE OF SERVICE

I, Susan E. D'Auteuil, do hereby certify that a copy of the foregoing has
been served on all parties of record this 10th day of July, 1998.

/s/ Susan E. D'Auteuil
----------------------------------
Susan E. D'Auteuil

<PAGE> 16

ARKANSAS PUBLIC SERVICE COMMISSION

IN THE MATTER OF THE JOINT APPLICATION OF ) DOCKET NO. 98-172-U
AMERICAN ELECTRIC POWER COMPANY, INC., ) ORDER NO. 6
SOUTHWESTERN ELECTRIC POWER COMPANY, )
AND CENTRAL AND SOUTH WEST )
CORPORATION FOR APPROVAL OF MERGER )

ERRATA ORDER

Order No. 5, entered in the above-styled Docket on August 13, 1998, is
corrected nunc pro tunc as follows:

1. The first sentence of the first full paragraph on page 2 of said order
is corrected to read as follows: "The service area of AEP's domestic
subsidiaries covers portions of the states of Indiana, Kentucky, Michigan, Ohio,
Tennessee, Virginia and West Virginia."

2. The last sentence of the first full paragraph on page 8 of said order
is corrected to read as follows: "The Commission's approval of the merger is
expressly conditioned on the Applicants granting to this Commission the Ohio
Power wavier as described herein."

BY ORDER OF THE COMMISSION.

Entered nunc pro tunc this 19th day of August, 1998.

/s/ Lavenski R. Smith
---------------------------------
Lavenski R. Smith, Chairman

/s/ Sam I. Bratton, Jr.
---------------------------------
Sam I. Bratton, Jr., Commissioner

/s/ Julius D. Kearney
---------------------------------
Julius D. Kearney, Commissioner

/s/ Jan Sanders
- ---------------------------
Jan Sanders
Secretary of the Commission

<PAGE> 1
EXHIBIT D-6.1

UNITED STATES OF AMERICA

NUCLEAR REGULATORY COMMISSION

In the Matter of )
)

Central Power and Light Company )

) Docket Nos. 50-498 and 50-499

South Texas Project, )
Units 1 and 2 )

APPLICATION FOR TRANSFERS OF CONTROL
REGARDING OPERATING LICENSE NOS. NPF-76
AND NPF-80 FOR THE SOUTH TEXAS PROJECT

INTRODUCTION AND BACKGROUND

The Houston Lighting & Power Company, Central Power and Light Company
("CPL"), City Public Service Board of San Antonio, City of Austin and STP
Nuclear Operating Company ("STPNOC") are the holders of Facility Operating
License No. NPF-76, dated March 22, 1988 ("Operating License NPF-76"). Operating
License NPF-76 authorizes the holders to possess the South Texas Project, Unit 1
("STP Unit 1") and authorizes STPNOC to use and operate STP Unit 1 in
accordance with the procedures and limitations set forth in the operating
license.

The Houston Lighting & Power Company, CPL, City Public Service Board of
San Antonio, City of Austin and STPNOC are the holders of Facility Operating
License No. NPF-80, dated March 28, 1989 ("Operating License NPF-80"). Operating
License NPF-80 authorizes the holders to possess the South Texas Project, Unit 2
("STP Unit 2") and authorizes STPNOC to use and operate STP Unit 2 in accordance
with the procedures and limitations set forth in the operating license.

The purpose of this Application is to request the consent of the
Nuclear Regulatory Commission ("NRC") under 10 C.F.R. Section 50.80 to the
indirect transfers of control of CPL's interests in the operating licenses for
STP Unit 1 and STP Unit 2 that will occur under a proposed merger of American
Electric Power Company, Inc. ("AEP") and Central and South West Corporation
("CSW"), the parent company of CPL. CPL, as a wholly-owned subsidiary of CSW,
owns a 25.2% interest in STP Units 1 and 2. Upon completion of the merger, CSW
will become a wholly-owned subsidiary of AEP with CPL remaining a wholly-
<PAGE> 2
owned subsidiary of CSW. The merger will result in the indirect transfer of
control of the interests held by CPL in Operating Licenses NPF-76 and NPF-80 to
AEP. A copy of the Joint Proxy Statement and Prospectus (which includes as an
exhibit a copy of the merger agreement between AEP and CSW) is filed with this
Application as Exhibit A.

As a result of the merger, AEP and CSW will achieve significant cost
savings and efficiencies that will reduce their operating costs to the benefit
of their customers, shareholders and the communities that they serve. The merger
will therefore enhance CPL's financial resources to possess its ownership
interests in STP Unit 1 and STP Unit 2.

The merger will have no adverse affect on either the technical
management or operation of STP Unit 1 and STP Unit 2. The technical
qualifications of STPNOC, the plant operator for STP Unit 1 and STP Unit 2, will
be unaffected since STPNOC is not impacted by the merger and the same technical
management and nuclear organization of STPNOC currently responsible for
operating and maintaining STP Unit 1 and STP Unit 2 will continue to be
responsible for the operation and maintenance of the two units after the merger.

In addition to the NRC's review, the merger will be reviewed by other
Federal and state agencies, including the Federal Energy Regulatory Commission
("FERC"), the Securities Exchange Commission ("SEC"), the Federal Communication
Commission, and potentially the U.S. Department of Justice and the Federal Trade
Commission ("FTC"), the Public Utility Commission of Texas, the Arkansas Public
Service Commission, the Louisiana Public Service Commission, and the Oklahoma
Corporation Commission. Among the issues that these agencies will consider are
the competitive aspects of the proposed merger. The NRC itself need not
undertake any additional antitrust review with respect to the proposed indirect
transfers of control concerning Operating Licenses NPF-76 and NPF-80 for STP
Unit 1 and STP Unit 2 because approval of this application -- like the NRC's
recent approvals of the indirect transfers of control resulting from the
proposed mergers of Ohio Edison and Centerior Energy and Atlantic Energy Company
and Delmarva Power & Light Company -- does not involve the issuance of a
license. Therefore, as the NRC recently concluded in its review of those
mergers, the antitrust provisions of section 105c of the Atomic Energy Act do
not apply.(1)

- ------------------
(1)See, e.g., Safety Evaluation by the Office of Nuclear Reactor Regulation
Related to the Indirect Transfers of Control of License Nos. DPR-66 and NPF-73
for Beaver Valley Power Station, Unit Nos. 1 and 2, Docket Nos. 50-334 and
50-412 at 3 (June 19, 1997); Safety Evaluation by the Office of Nuclear Reactor
Regulation, Proposed Merger of Atlantic Energy, Inc. and Delmarva Power and
Light Company, Hope Creek Generating Station, Docket No 50-354 at 3 (Dec. 18,
1997)
<PAGE> 3
Part I below sets forth the information required by 10 C.F.R. Section
50.80 with respect to the proposed transfers. Part II discusses the effective
date for the license transfers.

I. INFORMATION FOR INDIRECT TRANSFERS OF CONTROL

A. General Information Concerning CPL

1. Name and Address
Central Power and Light Company
539 N. Carancahua
Corpus Christi, Texas 78401

2. Description Of Business

Following the merger, CPL will be an indirect wholly-owned subsidiary
of AEP. Its purpose will remain the same as it is now, which is to engage
principally in the generation, transmission, distribution and sale of electric
energy in Texas to residential, commercial and industrial customers for their
own use and to wholesale customers in Texas for resale.

3. Organization And Management

CPL is -- and will remain after the merger -- a corporation organized
and existing under the laws of the State of Texas. All of CPL's directors and
principal officers are citizens of the United States.

CSW is a publicly traded company. No individual shareholder owns more
than five percent of the outstanding shares of CSW stock, except for Mellon Bank
Corporation and its subsidiaries, including Mellon Bank N.A., which acts as
trustee of a 401 k employee benefit plan for CSW employees. Mellon Bank
Corporation and its subsidiaries holds approximately six percent of the CSW
shares in trust for CSW employees.

Subsequent to the merger, the Board of Directors of AEP will be
composed of 15 members, to include all then current board members of AEP, the
Chairman of CSW, and four additional outside directors of CSW to be nominated by
AEP. The current directors of AEP and the Chairman and outside directors of CSW
are U.S. citizens.

Following the proposed merger, CPL will not be owned, controlled or
dominated by an alien, foreign corporation or foreign government. CPL is not
acting as an agent or

<PAGE> 4
representative of any other person in this request for consent to the indirect
transfer of control of the licenses.

B. Technical Qualifications

The proposed merger involves no change to either the management
organization or technical personnel of STPNOC responsible for operating and
maintaining STP Units 1 and 2. STPNOC is not impacted by the merger. Therefore,
the technical qualifications of STPNOC to carry out its responsibilities under
Operating Licenses NPF-76 and NPF-80 will remain unchanged and will not be
adversely affected by the proposed merger.

C. Financial Qualifications

After the proposed merger, CPL will continue to generate, transmit and
distribute electricity and recover the cost of this electricity through rates
authorized by the Public Utility Commission of Texas and by FERC for wholesale
transactions. Therefore, CPL will continue to meet the definition of electric
utility set forth in 10 C.F.R. Section 50.2. Accordingly, its financial
qualifications are presumed by 10 C.F.R. Section 50.33(f) and no specific
demonstration of financial qualifications is required.

We understand that in connection with recent mergers of other
licensees, the NRC has expressed an interest in being kept informed of
subsequent asset transfers. If this is a consideration in this merger, CPL is
willing to commit to provide the Director of the Office of Nuclear Reactor
Regulation a copy of any application, at the time it is filed, to transfer
(excluding grants of security interests or liens) from CPL to its proposed
parents, or to any other affiliated company, facilities for the production,
transmission or distribution of electric energy having a depreciated book value
exceeding ten percent of CPL's consolidated net utility plant, as recorded on
its books of account.

D. Decommissioning Funding

NRC regulations require information showing "reasonable assurance . . .
that funds will be available to decommission the facility." 10 C.F.R. Section
50.33(k). CPL has, jointly with the other owners of STP Units 1 and 2, filed a
decommissioning report with the NRC under 10 C.F.R. Section 50.75(b) and is
providing financial assurance for decommissioning its ownership interests in STP
Units 1 and 2 through external sinking trust funds in which deposits are made at
least annually. After the merger, CPL will remain responsible for the
decommissioning liabilities associated with its ownership interests in STP Units
1 and 2 and
<PAGE> 5
will continue to fund its decommissioning trusts for the two units in accordance
with NRC regulations.

E. Antitrust Considerations

The Atomic Energy Act only provides for an antitrust review in
connection with a construction permit application and, where there have been
"significant changes" from the time of the construction permit, in connection
with the initial operating license application. 42 U.S.C. Section 2135(c). The
legislative history of section 105c strongly reinforces the statutory language
that the antitrust review provided for by section 105c is limited to the
"initial application" for a construction permit or operating license and not to
"other applications that may be filed during the licensing process."(2)
Accordingly, no antitrust review is required with respect to the indirect
transfers of control that would result from the proposed merger of AEP and CSW.

In its approval of the indirect transfers of control resulting from the
proposed merger of Ohio Edison and Centerior Energy, the NRC expressly
recognized that no antitrust review -- not even a no significant change review
- -- is to be undertaken with respect to an application for an indirect transfer
of control of a license under 10 C.F. R. Section 50.80. As stated by the NRC in
the Beaver Valley Safety Evaluation for the Ohio Edison and Centerior merger:

Although FirstEnergy may become the holding company of the
licensees for the Beaver Valley facilities, i.e., may
indirectly

- ----------------
(2)As stated by the Joint Committee on Atomic Energy,

The Committee recognizes that applications may be amended from
time to time, that there may be applications to extend or
review [sic] a license, and also that the form of an
application for a construction permit may be such that, from
the applicant's standpoint, it ultimately ripens into the
application for an operating license. The phrases "any license
application", "an application for a license", and "any
application" as used in the clarified and revised subsection
105 c. refer to the initial application for a construction
permit, the initial application for an operating license, or
the initial application for a modification which would
constitute a new or substantially different facility, as the
case may be, as determined by the Commission. The phrases do
not include, for the purposes of triggering subsection 105 c.,
other applications which may be filed during the licensing
process.

H. Rep. 91-1470, 91st Cong. 2d Sess., at 29 (1970) (emphasis added).
<PAGE> 6
acquire control of the licenses, it will not be performing
activities for which a license is needed. Since approval of
the instant application would not involve the issuance of a
license, the procedures under Section 105c do not apply,
including the making of any "significant changes"
determination. Therefore, there is no need to conduct any
additional antitrust review.(3)

Further, in its recently issued "Standard Review Plan on Antitrust
Reviews" (NUREG-1574) the NRC has clearly stated:

If the application involves an indirect transfer of the
license through transfer of control of the existing licensee
to another entity, where the existing licensee remains the
licensee, no antitrust review is conducted since there is no
effective application for an operating license.

NUREG-1574 at 3-1.

Here, the NRC's approval of the instant application for indirect
transfer of control does not involve the issuance of a license. After the
merger, CPL will remain the licensee with respect to its interests in both STP
Units 1 and 2. Accordingly, no antitrust review is to be undertaken with respect
to this application, not even the making of a no "significant changes"
determination.

Additionally, no practical purpose would be served by conducting any
type of antitrust review here for the NRC has previously conducted an extensive
antitrust review with respect to the STP Unit 1 and Unit 2 licenses. This review
resulted in comprehensive antitrust conditions being added to the licenses to
which CPL is subject. See Appendix C to Operating Licenses NPF-76 and NPF-80.
Further, the competitive effects of the merger will be thoroughly reviewed by
other federal and state agencies reviewing the merger, including the FERC and
the Public Utility Commission of Texas. The potential effect of the business

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

(3)Safety Evaluation by the Office of Nuclear Reactor Regulation Related to
the Indirect Transfers of Control of License Nos. DPR-66 and NPF-73 for Beaver
Valley Power Station, Unit Nos. 1 and 2, Docket Nos. 50-334 and 50-412 at 3
(June 19, 1997) (emphasis added). Since then the NRC has reached similar
conclusions with respect to the indirect transfers of control resulting from the
merger of Atlantic Energy Company and Delmarva Power & Light Company and the
proposed merger of Allegheny Power Company and Duquesne Light Company. See
Safety Evaluation by the Office of Nuclear Reactor Regulation, Proposed Merger
of Atlantic Energy, Inc. and Delmarva Power and Light Company, Hope Creek
Generating Station, Docket No 50-354 at 3 (Dec. 18, 1997); Safety Evaluation by
the Office of Nuclear Reactor Regulation Regarding Proposed Merger, Duquesne
Light Company, Docket Nos. 50-334 and 50-412, Beaver Valley Power Station, Unit
Nos. 1 and 2 at 3 (Jan. 23 1998).
<PAGE> 7
combination of AEP and CSW on competition will be one of the issues considered
by FERC in its review of the merger. The NRC's antitrust role is far more
limited than FERC's in that the NRC does not possess plenary antitrust
jurisdiction. See, e.g., Houston Lighting & Power Co. (South Texas Project,
Units Nos. 1 and 2), CLI-77-13, 5 N.R.C. 1303 (1977). Therefore, consistent with
Regulatory Guide 9.1, Regulatory Staff Position Statement on Antitrust Matters,
the NRC should not duplicate FERC's role of evaluating the potential competitive
effects of the merger.(4)

In short, no additional antitrust review by the NRC is required or
warranted in connection with its review of this application.

F. Statement Of Purposes For The Transfer And The Nature Of The
Transaction Necessitating Or Making The License Transfer
Desirable

The purpose of the merger is to achieve benefits for AEP's and CSW's
shareholders, customers and communities that would not be achievable if they
were to remain separate companies. The potential net non-fuel cost savings
related to the merger are approximately $2 billion over the first ten years
following the merger. The savings will come from the elimination of duplicative
activities, improved operating efficiencies, lower capital costs, and the
combination of the companies' work forces. In addition, it is anticipated that
there will be reduced fuel costs.

G. Restricted Data

This application does not contain any Restricted Data or other
classified defense information, and it is not expected that any will become
involved in the licensed activities. However, in the event that such information
does become involved, CPL agrees that it will appropriately safeguard such
information and will not permit any individual to have access to Restricted Data
until the Office of Personnel Management (the successor to the Civil Service

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

(4)Regulatory Guide 9.1 provides in relevant part as follows: "In general,
reliance will be placed on the exercise of Federal Power Commission [now FERC]
and State agency jurisdiction regarding the specific terms and conditions of the
sale of power, rates of transmission services and such other matters as may be
within the scope of their jurisdiction." In addition to FERC review, the
proposed AEP and CSW merger is subject to the provisions of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Consequently,
both the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice will be provided an opportunity to evaluate the
antitrust implications, if any, of the proposed merger.
<PAGE> 8
Commission) shall have made an investigation and reported to the NRC on the
character, associations, and loyalty of the individual, and the NRC has
determined that permitting such person to have access to Restricted Data will
not endanger the common defense and security of the United States.

H. No Environmental Impact

The merger does not involve any change to the nuclear plant operations
or equipment of STP Units 1 and 2 and does not change any environmental impact
previously evaluated in the Final Environmental Statement for the STP Project.
Accordingly, this application involves no significant environmental impact.

II. EFFECTIVE DATE

Approval by AEP's and CSW's shareholders was obtained on May 27, 1998,
and May 28, 1998, respectively. The proposed merger of AEP and CSW requires the
approval of federal and state regulatory authorities in addition to the NRC.
Until all necessary approvals have been obtained, the merger cannot be
implemented. AEP and CSW intend to consummate the merger as soon as reasonably
possible after all the necessary approvals have been obtained which are expected
by March 31, 1999. Therefore, the NRC is requested to review this Application on
a schedule that will permit it to act on and provide its final consent to the
proposed indirect transfers of control that would be effectuated by the merger
as promptly as possible and in any event before December 31, 1998.

CONCLUSION

For the foregoing reasons, the NRC is requested to consent to the
indirect transfers of control that would be result from the merger of AEP and
CSW regarding the interests held by CPL in Operating Licenses Nos. NPF-76 and
NPF-80 for STP Units 1 and 2.
<PAGE> 9
/s/ Gerald Vaughn
------------------------------
Gerald Vaughn
Vice President, Nuclear
Central Power and Light Company

Dated: June 16, 1998

Subscribed and sworn to before me
this 16th day of June, 1998

/s/ Imelda V. Perez
- -----------------------------
Notary Public

[SEAL]
<PAGE> 10
APPLICATION FOR TRANSFERS OF CONTROL
REGARDING OPERATING LICENSES NOS. NPF-76 AND NPF-80 FOR
SOUTH TEXAS PROJECT, UNITS 1 AND 2
DOCKET NOS. 50-498 AND 50-499

EXHIBIT A

JOINT PROXY STATEMENT AND PROSPECTUS

<PAGE> 1
Exhibit G - 8
Page 1 of 6

AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
June 30, 1998
(in millions)

<TABLE>
<CAPTION>
AEP CSW Pro Forma Pro Forma
(As Reported) (As Reclassified) Adjustments Combined
------------- ----------------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS

ELECTRIC UTILITY PLANT:
Production $ 9,531 $ 5,845 $15,376
Transmission 3,547 1,580 5,127
Distribution 4,692 4,630 9,322
General (including mining assets
and nuclear fuel) 1,607 1,561 3,168
Construction Work in Progress 431 185 616
------- ------- -------

Total Electric Utility Plant 19,808 13,801 33,609

Accumulated Depreciation and Amortization 8,179 5,412 13,591
------- ------- -------

NET ELECTRIC UTILITY PLANT 11,629 8,389 20,018
------- ------- -------

OTHER PROPERTY AND INVESTMENTS 1,499 853 2,352
------- ------- -------

CURRENT ASSETS:
Cash and Cash Equivalents 175 218 393
Accounts Receivable (net) 868 1,004 1,872
Fuel 246 83 329
Materials and Supplies 274 157 431
Accrued Utility Revenues 197 118 315
Energy Marketing and Trading Contracts 786 -- 786
Prepayments and Other 95 76 171
------- ------- -------

TOTAL CURRENT ASSETS 2,641 1,656 4,297
------- ------- -------

REGULATORY ASSETS 1,819 1,192 3,011
------- ------- -------

GOODWILL -- 1,428 1,428
------- ------- -------

DEFERRED CHARGES 224 322 546
------- ------- -------

TOTAL $17,812 $13,840 $ -- $31,652
======= ======= ======= =======
</TABLE>

The Pro Forma adjustments to these Unaudited Pro Forma Combined Condensed
Financial Statements are shown on pages 5 and 6.

<PAGE> 2
Exhibit G - 8
Page 2 of 6

AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
June 30, 1998
(in millions)

<TABLE>
<CAPTION>
AEP CSW Pro Forma Pro Forma
(As Reported) (As Reclassified) Adjustments Combined
CAPITALIZATION AND LIABILITIES

CAPITALIZATION:
<S> <C> <C> <C> <C>
Common Stock $ 1,299 $ 744 $ 85 (1) $ 2,128
Paid-in Capital 1,816 1,045 (85)(1) 2,776
Retained Earnings 1,645 1,748 (53)(2) 3,340
--------- --------- --------- ---------

Total Common Shareholders' Equity 4,760 3,537 (53) 8,244

Cumulative Preferred Stocks of Subsidiaries:
Not Subject to Mandatory Redemption 46 176 222
Subject to Mandatory Redemption 128 -- 128
Subsidiary Obligated, Mandatorily Redeemable,
Trust Preferred Securities -- 335 335
Long-term Debt 5,134 3,779 8,913
--------- --------- --------- ---------

TOTAL CAPITALIZATION 10,068 7,827 (53) 17,842
--------- --------- --------- ---------

OTHER NONCURRENT LIABILITIES 1,327 82 1,409
--------- --------- ---------

CURRENT LIABILITIES:
Preferred Stock and Long-term Debt
Due Within One Year 423 94 517
Short-term Debt 506 1,762 2,268
Accounts Payable 512 634 1,146
Taxes Accrued 303 232 535
Interest Accrued 72 103 175
Obligations Under Capital Leases 103 2 105
Energy Marketing and Trading Contracts 772 -- 772
Other 381 158 53(2) 592
--------- --------- --------- ---------

TOTAL CURRENT LIABILITIES 3,072 2,985 53 6,110
--------- --------- --------- ---------

DEFERRED INCOME TAXES 2,543 2,459 5,002
--------- --------- ---------

DEFERRED INVESTMENT TAX CREDITS 365 272 637
--------- --------- ---------

DEFERRED GAIN ON SALE AND LEASEBACK -
ROCKPORT PLANT UNIT 2 227 -- 227
--------- --------- ---------

DEFERRED CREDITS 210 215 425
--------- --------- --------- ---------

TOTAL $ 17,812 $ 13,840 $ -- $ 31,652
========= ========= ========= =========
</TABLE>

The Pro Forma adjustments to these Unaudited Pro Forma Combined Condensed
Financial Statements are shown on pages 5 and 6.
<PAGE> 3
Exhibit G - 8
Page 3 of 6

CENTRAL AND SOUTH WEST CORPORATION
UNAUDITED RECLASSIFYING CONSOLIDATED BALANCE SHEET
June 30, 1998
(in millions)
<TABLE>
<CAPTION>
CSW
CSW (Reclassifying CSW
(As Reported) Entries) (As Reclassified)
ASSETS
<S> <C> <C> <C>
FIXED ASSETS:
Electric
Production $ 5,845 $ 5,845
Transmission 1,580 1,580
Distribution 4,630 4,630
General 1,359 $ 202(A) 1,561
Construction Work in Progress 185 185
Nuclear Fuel 202 (202)(A) --
------- ------- -------

Total Electric 13,801 -- 13,801

Other Diversified 299 (299)(B) --
------- ------- -------

Total Fixed Assets 14,100 (299) 13,801

Accumulated Depreciation and Amortization 5,476 (64)(B,C) 5,412
------- ------- -------

NET FIXED ASSETS 8,624 (235) 8,389
------- ------- -------

OTHER PROPERTY AND INVESTMENTS -- 853(B,C,D) 853
------- ------- -------

CURRENT ASSETS:
Cash and Cash Equivalents 218 218
Accounts Receivable 1,051 (47)(E,F) 1,004
Fuel 83 83
Materials and Supplies 157 157
Accrued Utility Revenues -- 118(E) 118
Under-Recovered Fuel Costs 34 (34)(G) --
Notes Receivable 71 (71)(F) --
Prepayments and Other 76 76
------- ------- -------

TOTAL CURRENT ASSETS 1,690 (34) 1,656
------- ------- -------

DEFERRED CHARGES AND OTHER ASSETS:
Deferred Plant Costs 500 (500)(G) --
Mirror CWIP Asset 279 (279)(G) --
Other Non-utility Investments 430 (430)(D) --
Securities Available for Sale 74 (74)(D) --
Income Tax Related Regulatory Assets, Net 321 (321)(G) --
Goodwill 1,428 1,428
Regulatory Assets -- 1,192(G) 1,192
Other Deferred Charges 437 (115)(C,G) 322
------- ------- -------

TOTAL DEFERRED CHARGES AND
OTHER ASSETS 3,469 (527) 2,942
------- ------- -------

TOTAL $13,783 $ 57 $13,840
======= ======= =======
</TABLE>

The reclassifying entries to these Unaudited Pro Forma Combined Condensed
Financial Statements are shown on pages 5 and 6.

<PAGE> 4
Exhibit G - 8
Page 4 of 6

CENTRAL AND SOUTH WEST CORPORATION
UNAUDITED RECLASSIFYING CONSOLIDATED BALANCE SHEET
June 30, 1998
(in millions)

<TABLE>
<CAPTION>
CSW
CSW (Reclassifying CSW
(As Reported) Entries) (As Reclassified)
CAPITALIZATION AND LIABILITIES

CAPITALIZATION:
<S> <C> <C> <C>
Common Stock $ 744 $ 744
Paid-in Capital 1,045 1,045
Retained Earnings 1,732 $ 16(H) 1,748
Foreign Currency Translation Adjustment
and Other 16 (16)(H) --
----------- ----------- -----------

Total Common Shareholders' Equity 3,537 -- 3,537

Cumulative Preferred Stocks of Subsidiaries
- Not Subject to Mandatory Redemption 176 176
Subsidiary Obligated, Mandatorily Redeemable,
Trust Preferred Securities 335 335
Long-term Debt 3,783 (4)(I) 3,779
----------- ----------- -----------

TOTAL CAPITALIZATION 7,831 (4) 7,827
----------- ----------- -----------

OTHER NONCURRENT LIABILITIES -- 82(C,I,J) 82
----------- ----------- -----------

CURRENT LIABILITIES:
Preferred Stock and Long-term Debt
Due Within One Year 94 94
Short-term Debt 890 872(K) 1,762
Short-term Debt - CSW Credit, Inc. 814 (814)(K) --
Loan Notes 58 (58)(K) --
Accounts Payable 634 634
Taxes Accrued 232 232
Interest Accrued 103 103
Obligations Under Capital Leases -- 2(I)
Other 160 (2)(I) 158
----------- ----------- -----------

TOTAL CURRENT LIABILITIES 2,985 -- 2,985
----------- ----------- -----------

DEFERRED INCOME TAXES 2,459 2,459
----------- -----------

DEFERRED INVESTMENT TAX CREDITS 272 272
----------- -----------

DEFERRED CREDITS 236 (21)(J) 215
----------- ----------- -----------

TOTAL $ 13,783 $ 57 $ 13,840
=========== =========== ===========
</TABLE>

The reclassifying entries to these Unaudited Pro Forma Combined Condensed
Financial Statements are shown on pages 5 and 6.
<PAGE> 5
Exhibit G - 8
Page 5 of 6

CENTRAL AND SOUTH WEST CORPORATION
RECLASSIFYING ENTRIES

The CSW unaudited reclassifying condensed consolidated balance sheet reflects
the reclassifying entries necessary to adjust CSW's consolidated balance sheet
presentation to be consistent with the presentation expected to be used by AEP
after the Merger is completed. The following describes such reclassifying
entries:

<TABLE>
<CAPTION>
BALANCE SHEETS RECLASSIFYING ENTRIES - JUNE 30, 1998
Debit Credit
(in millions)
<S> <C> <C>
(A) To reclassify nuclear fuel.

Electric Plant - General $202
Electric Plant - Nuclear Fuel $202

(B) To reclassify non-utility plant and related depreciation.

Accumulated Depreciation 7
Other Property and Investments 292
Other Diversified 299

Accumulated Depreciation 57
Other Property and Investments 57
Other Deferred Charges 57
Other Noncurrent Liabilities 57

(D) To reclassify other non-utility investments and securities
available for sale.

Other Property and Investments 504
Other Non-Utility Investments 430
Securities Available for Sale 74

(E) To reclassify accrued utility revenues.

Accrued Utility Revenues 118
Accounts Receivable 118

(F) To reclassify notes receivable.

Accounts Receivable 71
Notes Receivable 71

(G) To reclassify regulatory assets.

Regulatory Assets 1,192
Under-Recovered Fuel 34
Deferred Plant Costs 500
Mirror CWIP Asset 279
Income Tax Related Regulatory Assets, Net 321
Other Deferred Charges 58

(H) To reclassify foreign currency translation and other.

Foreign Currency Translation Adjustments and Other 16
Retained Earnings 16
</TABLE>
<PAGE> 6

Exhibit G - 8
Page 6 of 6

BALANCE SHEETS RECLASSIFYING ENTRIES - JUNE 30, 1998

<TABLE>
<CAPTION>
Debit Credit
(in millions)
<S> <C> <C>
(I) To reclassify capital lease obligations.

Long-term Debt 4
Current Liabilities - Other 2

Other Noncurrent Liabilities 4
Obligations Under Capital Leases 2

(J) To reclassify operating reserves.

Deferred Credits 21
Other Noncurrent Liabilities 21

(K) To reclassify short-term debt.

Short-term Debt - CSW Credit, Inc. 814
Loan Notes 58
Short-term Debt 872
</TABLE>

AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
BALANCE SHEET PRO FORMA ENTRIES
June 30, 1998

(1) To adjust Common Stock to reflect 327,339,024 shares of $6.50 par value.

<TABLE>
<CAPTION>
Debit Credit
(in millions)
<S> <C> <C>
Paid-in Capital $85
Common Stock $85

(2) To accrue the liability and adjust retained earnings for the transaction
costs of the Merger.

Retained Earnings 53

Other Current Liabilities 53

</TABLE>

<PAGE> 1
Exhibit G - 10
Page 1 of 3

AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
Twelve Months Ended June 30, 1998
(in millions - except per share amounts)

<TABLE>
<CAPTION>
AEP CSW Pro Forma Pro Forma
(As Reported) (As Reclassified) Adjustments Combined
------------- ----------------- ----------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
U.S. Electric $ 8,195 $ 3,387 $ 11,582
United Kingdom -- 1,882 1,882
-------- -------- --------

TOTAL OPERATING REVENUES 8,195 5,269 13,464
-------- -------- --------

OPERATING EXPENSES:
Fuel 1,701 1,206 2,907
Purchased Power 2,393 93 2,486
United Kingdom Cost of Sales -- 1,295 1,295
Other Operation 1,227 837 2,064
Maintenance 505 153 658
Depreciation and Amortization 576 498 1,074
Taxes Other Than Federal Income Taxes 488 259 747
Federal Income Taxes 331 118 449
-------- -------- --------

TOTAL OPERATING EXPENSES 7,221 4,459 11,680
-------- -------- --------

OPERATING INCOME 974 810 1,784

NONOPERATING INCOME 50 46 96
-------- -------- --------

INCOME BEFORE INTEREST CHARGES AND
PREFERRED DIVIDENDS 1,024 856 1,880

INTEREST CHARGES 418 460 878

PREFERRED STOCK DIVIDEND
REQUIREMENTS OF SUBSIDIARIES 11 9 20

LOSS ON REACQUIRED PREFERRED STOCK
OF SUBSIDIARIES -- 1 1
-------- -------- --------

INCOME BEFORE EXTRAORDINARY ITEM 595 386 981

EXTRAORDINARY LOSS - U.K. WINDFALL TAX (109) (176) (285)
-------- -------- ------ --------

NET INCOME $ 486 $ 210 $ -- $ 696
======== ======== ====== ========

Average Number of Shares Outstanding 189.9 212.3 (84.9) 317.3
======== ======== ====== ========

EARNINGS PER SHARE (basic and diluted):
Before Extraordinary Item $ 3.14 $ 1.82 $ 3.09
Extraordinary Loss (0.58) (0.83) (0.90)
-------- -------- --------
EARNINGS PER SHARE $ 2.56 $ 0.99 $ 2.19
======== ======== ========
</TABLE>

The Pro Forma adjustments to these Unaudited Pro Forma Combined Condensed
Financial Statements are shown on page 3.
<PAGE> 2
Exhibit G - 10
Page 2 of 3

CENTRAL AND SOUTH WEST CORPORATION
UNAUDITED RECLASSIFYING CONDENSED CONSOLIDATED STATEMENT OF INCOME
Twelve Months Ended June 30, 1998
(in millions - except per share amounts)

<TABLE>
<CAPTION>
CSW CSW CSW
(As Reported) (Reclassifying Entries) (As Reclassified)
------------- ----------------------- -----------------
<S> <C> <C> <C>
OPERATING REVENUES:
U.S. Electric $ 3,387 $ 3,387
United Kingdom 1,882 1,882
Other Diversified 138 $ (138)(A) --
------- ------- -------

TOTAL OPERATING REVENUES 5,407 (138) 5,269
------- ------- -------

OPERATING EXPENSES:
U.S. Electric Fuel 1,206 1,206
U.S. Electric Purchased Power 93 93
United Kingdom Cost of Sales 1,295 1,295
Other Operation 961 (124)(A,B) 837
Maintenance 153 153
Depreciation and Amortization 507 (9)(A) 498
Taxes Other Than Federal Income Taxes 202 57 (A,C) 259
Federal Income Taxes 175 (57)(A,C) 118
------- ------- -------

TOTAL OPERATING EXPENSES 4,592 (133) 4,459
------- ------- -------

OPERATING INCOME 815 (5) 810

NONOPERATING INCOME 44 2 (A,B) 46
------- ------- -------

INCOME BEFORE INTEREST CHARGES 859 (3) 856
------- ------- -------

INTEREST CHARGES:
Interest on Long-term Debt 326 326
Distributions on Trust Preferred Securities 26 26
Interest on Short-term Debt and Other 111 (3)(B) 108
------- ------- -------

TOTAL INTEREST CHARGES 463 (3) 460
--------

PREFERRED STOCK DIVIDEND REQUIREMENTS
OF SUBSIDIARIES 9 9

LOSS ON REACQUIRED PREFERRED STOCK 1 1
------- ------- -------

INCOME BEFORE EXTRAORDINARY ITEM 386 -- 386

EXTRAORDINARY LOSS - U.K. WINDFALL TAX (176) (176)
------- ------- -------

NET INCOME FOR COMMON STOCK $ 210 $ -- $ 210
======= ======= =======

Average Number of Shares Outstanding 212.3 212.3
======= =======
EARNINGS PER SHARE:
Before Extraordinary Item $ 1.82 $ 1.82
Extraordinary Loss (0.83) (0.83)
------- -------
EARNINGS PER SHARE $ 0.99 $ 0.99
======= =======
</TABLE>

The reclassifying entries to these Unaudited Pro Forma Combined Condensed
Financial Statements are shown on page 3.
<PAGE> 3
Exhibit G - 10
Page 3 of 3

CENTRAL AND SOUTH WEST CORPORATION
RECLASSIFYING ENTRIES

The CSW unaudited reclassifying condensed consolidated statement of income
reflects the reclassifying entries necessary to adjust CSW's consolidated
statement of income presentation to be consistent with the presentation expected
to be used by AEP after the Merger is completed. The following describes such
reclassifying entries:

STATEMENT OF INCOME RECLASSIFYING ENTRIES FOR THE TWELVE MONTHS ENDED JUNE 30,
1998

(A) To reclassify other diversified income and expenses to nonoperating income.

<TABLE>
<CAPTION>
Debit Credit
(in millions)

<S> <C> <C>
Operating Revenues - Other Diversified $138
Operating Expenses - Federal Income Taxes 3
Operating Expenses:
Other Operation $124
Depreciation and Amortization 9
Taxes Other Than Federal Income Taxes 3
Nonoperating Income 5

(B) To reclassify nuclear decommissioning trust interest
income and interest expense.

Other Operation 3
Nonoperating Income 3
Other Operation 3
Interest on Short-term Debt and Other 3

Operating Expenses:
Taxes Other Than Federal Income Taxes 60
Federal Income Taxes 60
</TABLE>

<PAGE> 1

Exhibit G - 11
Page 1 of 1

AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF RETAINED EARNINGS
Twelve Months Ended June 30, 1998
(in millions)

<TABLE>
<CAPTION>
AEP CSW Pro Forma Pro Forma
(As Reported) (As Reclassified) Adjustments Combined

<S> <C> <C> <C> <C>
Balance at Beginning of Period $1,615 $1,925 $3,540
Net Income 486 210 696
Deductions:
Cash Dividends Declared 456 369 825
Other -- 18 18
Transaction Costs -- -- $(53)* (53)
------ ------ ---- -------
Balance at End of Period $1,645 $1,748 $(53) $3,340
====== ====== ==== ======
</TABLE>

* See Exhibit G-8 Page 6 Pro Forma Entry 2.

<PAGE> 1
Exhibit H

UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION

PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
Release No. / , 1998

- ------------------------------------------------
:
In the Matter of :
:
AMERICAN ELECTRIC POWER COMPANY, INC. :
1 Riverside Plaza :
Columbus, Ohio 43215 :
:
CENTRAL AND SOUTH WEST CORPORATION :
1616 Woodall Rodgers Freeway :
Dallas, TX 75202 :
:
(70- ) :
- ------------------------------------------------:

American Electric Power Company, Inc. ("AEP") and Central and
South West Corporation ("CSW"), registered holding companies collectively,
("Applicants"), have filed with the Securities and Exchange Commission
("Commission") an Application or Declaration pursuant to the Public Utility
Holding Company Act of 1935 (the "1935 Act"), designating Sections 6, 7, 9, 10,
11, 12, 13, 32 and 33 of the 1935 Act and Rules promulgated thereunder as
applicable to the proposed combination of AEP and CSW.

As described in more detail below, AEP proposes: (1) to
acquire, by means of the merger described below all of the issued and
outstanding common stock of CSW ("CSW Common Stock"), and through this
acquisition (i) all of the issued and outstanding common stock of Central and
South West Services, Inc. ("CSWS"), (ii) all of the issued and outstanding
common stock of CSW's direct electric utility subsidiary companies, Central
Power and Light Company ("CPL"), Public Service Company of Oklahoma ("PSO"),
Southwestern Electric Power Company ("SWEPCO") and West Texas Utilities Company
("WTU"), and (iii) all of the issued and outstanding common stock of CSW's
nonutility subsidiaries, CSW Credit, Inc. ("CSW Credit"), CSW Energy, Inc. ("CSW
Energy"), CSW Energy Services, Inc. ("CSW Energy Services"), CSW International,
Inc. ("CSW International"), CSW Leasing, Inc. ("CSW Leasing"), C3
Communications, Inc. ("C3 Communications") and EnerShop, Inc. ("EnerShop"); (2)
to capitalize
<PAGE> 2
a special purpose subsidiary and issue AEP common stock ("AEP Common Stock") to
effect the proposed transactions; (3) to provide loans and guarantees to CSW's
subsidiaries and to conduct the business activities of CSW's subsidiaries; (4)
that its service corporation, American Electric Power Service Corporation
("AEPSC") render services to AEP's and CSW's utility and nonutility
subsidiaries; and (5) the acquisition of CSW's non-utility businesses.

AEP, a New York corporation, has its principal executive
offices at 1 Riverside Plaza, Columbus, Ohio. AEP was incorporated under the
laws of the State of New York in 1906 and reorganized in 1925. AEP is a
registered public utility holding company that owns all of the outstanding
shares of common stock of seven U.S. electric utility operating subsidiaries:
Appalachian Power Company ("APCo"), Columbus Southern Power Company ("CSPCo"),
Indiana Michigan Power Company ("I&M"), Kentucky Power Company ("KPCo"),
Kingsport Power Company ("KgPCo"), Ohio Power Company ("OPCo") and Wheeling
Power Company ("WPCo"). Most of the operating revenues of AEP and its
subsidiaries are derived from sales of electricity. AEP also owns, either
directly or indirectly, all of the common stock of four material non-utility
businesses -- AEP Resources, Inc. ("AEP Resources"), AEP Resources Service
Company ("AEPRESCO"), AEP Communications, LLC ("AEPC"), and AEP Energy Services,
Inc. ("AEPES") -- and all of the common stock of two other businesses -- AEP
Generating Company ("AEGCo") and American Electric Power Service Corporation
("AEPSC"). AEP indirectly owns 50% of the outstanding share capital of Yorkshire
Electricity Group plc ("Yorkshire Electricity").

AEP and its subsidiaries are subject to the broad regulatory
provisions of the 1935 Act administered by the Commission. Various of its
subsidiaries are also subject to regulation by the Federal Energy Regulatory
Commission ("FERC") under the Federal Power Act ("FPA") with respect to rates
for interstate sale at wholesale and transmission of electric power, accounting
and other matters and construction and operation of hydroelectric projects.

AEP's electric utility operating subsidiaries serve
approximately 3 million customers in Indiana, Kentucky, Michigan, Ohio,
Tennessee, Virginia and West Virginia. The generating and transmission
facilities of these subsidiaries are physically interconnected, and their
operations are coordinated, as a single integrated electric utility system.
Transmission networks are interconnected with extensive distribution facilities
in the territories served.

At December 31, 1997, the U.S. subsidiaries of AEP had a total
of 17,844 employees. AEP, as such, has no employees. The electric utility
operating subsidiaries of AEP are each described below:

APCo (organized in Virginia in 1926) is
engaged in the generation, sale, purchase, transmission and
distribution of electric power to approximately 877,000
customers in the southwestern portion of Virginia and southern
West Virginia, and in supplying electric power at wholesale to
other electric utility companies and municipalities in those
states and in Tennessee. At December 31, 1997, APCo had 3,877
employees. Among the principal industries served by APCo are
coal mining, primary metals, chemicals and textile mill
products. A comparatively small part of the properties and
business of APCo is located in the northeastern end of
Tennessee. APCo's retail rates and certain other matters are
<PAGE> 3
subject to regulation by the West Virginia Public Service
Commission ("West Virginia Commission") and the State
Corporation Commission of Virginia.

CSPCo (organized in Ohio in 1937, the
earliest direct predecessor company having been organized in
1883) is engaged in the generation, sale, purchase,
transmission and distribution of electric power to
approximately 621,000 customers in central and southern Ohio,
and in supplying electric power at wholesale to other electric
utilities and to municipally owned distribution systems within
its service area. At December 31, 1997, CSPCo had 1,802
employees. Among the principal industries served by CSPCo are
food processing, chemicals, primary metals, electronic
machinery and paper products. CSPCo's retail rates and certain
other matters are subject to regulation by the Public
Utilities Commission of Ohio ("Ohio Commission").

I&M (organized in Indiana in 1925) is
engaged in the generation, sale, purchase, transmission and
distribution of electric power to approximately 549,000
customers in northern and eastern Indiana and southwestern
Michigan, and in supplying electric power at wholesale to
other electric utility companies, rural electric cooperatives
and municipalities. At December 31, 1997, I&M had 3,306
employees. Among the principal industries served by I&M are
primary metals, transportation equipment, electrical and
electronic machinery, fabricated metal products, rubber and
miscellaneous plastic products and chemicals and allied
products. I&M's retail rates and certain other matters are
subject to regulation by the Indiana Utility Regulatory
Commission and the Michigan Public Service Commission. I&M
also is subject to regulation by the Nuclear Regulatory
Commission ("NRC") under the Atomic Energy Act of 1954, as
amended ("Atomic Energy Act") with respect to the operation of
its nuclear generation plant.

KPCo (organized in Kentucky in 1919) is
engaged in the generation, sale, purchase, transmission and
distribution of electric power to approximately 168,000
customers in eastern Kentucky, and in supplying electric power
at wholesale to other utilities and municipalities in
Kentucky. At December 31, 1997, KPCo had 731 employees. The
principal industries served by KPCo include coal mining,
petroleum refining, primary metals and chemicals. KPCo's
retail rates and certain other matters are subject to
regulation by the Kentucky Commission.

KgPCo (organized in Virginia in 1917)
provides electric service to approximately 43,000 customers in
Kingsport and eight neighboring communities in northeastern
Tennessee. KgPCo has no generating facilities of its own. It
purchases electric power distributed to its customers from
APCo. At December 31, 1997, KgPCo had 85 employees. The
principal industries served by KgPCo include chemicals and
allied products, paper products, stone, clay, glass and
concrete products, textiles and printing products. KgPCo's
retail rates and certain other matters are subject to
regulation by the Tennessee Regulatory Authority.
<PAGE> 4
OPCo (organized in Ohio in 1907 and
reincorporated in 1924) is engaged in the generation, sale,
purchase, transmission and distribution of electric power to
approximately 679,000 customers in the northwestern, east
central, eastern and southern sections of Ohio, and in
supplying electric power at wholesale to other electric
utility companies and municipalities. At December 31, 1997,
OPCo and its wholly owned subsidiaries had 4,376 employees.
Among the principal industries served by OPCo are primary
metals, rubber and plastic products, stone, clay, glass and
concrete products, petroleum refining and chemicals. OPCo's
retail rates and certain other matters are subject to
regulation by the Ohio Commission.

WPCo (organized in West Virginia in 1883 and
reincorporated in 1911) provides electric service to
approximately 42,000 customers in northern West Virginia. WPCo
has no generating facilities of its own. It purchases electric
power distributed to its customers from OPCo. At December 31,
1997, WPCo had 94 employees. The principal industries served
by WPCo include chemicals, coal mining and primary metal
products. WPCo's retail rates and certain other matters are
subject to regulation by the West Virginia Commission.

AEGCo was organized in Ohio in 1982 as an electric generating
company. AEGCo sells power at wholesale to I&M, KPCo and Virginia Electric and
Power Company, an unaffiliated public utility. AEGCo has no employees.

AEPSC provides, at cost, accounting, administrative,
information systems, engineering, financial, legal, maintenance and other
services to the AEP companies. The executive officers of AEP and its public
utility subsidiaries are all employees of AEPSC.

AEP, primarily through AEP Resources, AEPRESCO, AEPC, and
AEPES, pursues new non-utility business opportunities, particularly those which
allow use of its expertise. These subsidiaries are described below:

AEP Resources' primary business is
development of, and investment in, exempt wholesale generators
("EWGs"), foreign utility companies ("FUCOs"), qualifying
cogeneration facilities and other energy-related domestic and
international investment opportunities and projects.

AEP Resources indirectly owns 50% of the
outstanding share capital of Yorkshire Electricity. Yorkshire
Electricity is principally engaged in the distribution of
electricity to approximately 2.1 million customers in its
authorized service territory which is comprised of 3,860
square miles and located centrally on the east coast of
England.

AEP Resources' indirect subsidiary, AEP
Pushan Power, LDC, has a 70% interest in Nanyang Electric, a
joint venture organized to develop and build two 125 MW
coal-fired generating units near Nanyang City in the Henan
Province of The Peoples' Republic of China. Funding for the
construction of the generating
<PAGE> 5
units has commenced and will continue through completion
thereof, which is expected to occur sometime before the end of
1999.

A subsidiary of AEP Resources also has an
equity interest, which, subject to certain conditions, could
reach 20%, in Pacific Hydro Limited, an Australian company
that develops and operates hydroelectric facilities.

AEP received approval from the Commission
under the 1935 Act to issue and sell securities in an amount
up to 100% of its consolidated retained earnings
(approximately $1,645,000,000 at June 30, 1998) for investment
in EWGs and FUCOs through AEP Resources. American Elec. Power
Co., HCAR No. 26864 (Apr. 27, 1998).

AEPRESCO offers engineering, construction,
project management and other consulting services for projects
involving transmission, distribution or generation of electric
power both domestically and internationally.

AEPC was formed in 1997 to pursue
opportunities in the telecommunications field. AEPC operates a
fiber optic line that runs through Kentucky, Ohio, Virginia
and West Virginia. This fiber optic line is capable of
providing high speed telecommunications capacity to other
telecommunications companies. In addition to establishing and
providing fiber optic services, AEPC also made investments in
two companies engaged in providing digital personal
communications services, the West Virginia PCS Alliance, LLC
and the Virginia PCS Alliance, LLC.

AEPES is authorized to engage in
energy-related activities, including marketing electricity,
gas and other energy commodities. AEPES is an energy-related
company under Rule 58.

CSW, incorporated under the laws of Delaware in 1925, has its
principal executive offices at 1616 Woodall Rodgers Freeway, Dallas, Texas. CSW
is a public utility holding company registered under the 1935 Act that owns all
of the common stock of four U.S. electric utility operating subsidiaries: CPL,
PSO, SWEPCO, and WTU. CSW also owns all of the common stock of CSWS, CSW Energy,
CSW International, C3 Communications, EnerShop, CSW Energy Services, and CSW
Credit, and indirectly owns all of the outstanding share capital of SEEBOARD. In
addition, CSW owns 80% of the outstanding shares of common stock of CSW Leasing.

CSW's electric utility subsidiaries are public utility
companies engaged in generating, purchasing, transmitting, distributing and
selling electricity. CSW's U.S. electric utility operating subsidiaries serve
approximately 1.7 million customers in portions of Texas, Oklahoma, Louisiana
<PAGE> 6
and Arkansas. These companies serve a mix of residential, commercial and
diversified industrial customers.

CSW and its subsidiaries are subject to the broad regulatory
provisions of the 1935 Act administered by the Commission. Various of the
subsidiaries are also subject to regulation by the FERC under the FPA with
respect to rates for interstate sale at wholesale and transmission of electric
power, accounting and other matters and construction and operation of
hydroelectric projects.

At December 31, 1997, the U.S. subsidiaries of CSW had 7,254
employees. CSW, as such, has no employees. The electric utility operating
subsidiaries of CSW are described below:

CPL (organized in Texas in 1945) is engaged in the
generation, sale, purchase, transmission and distribution of
electric power to approximately 628,000 customers in portions
of south Texas, and in supplying electric power at wholesale
to other electric utility companies and municipalities. At
December 31, 1997, CPL had 1,668 employees. The principal
industries served by CPL include manufacturing, mining,
agricultural, transportation and public utilities sectors. The
Public Utility Commission of Texas ("Texas Commission") has
original jurisdiction over retail rates in the unincorporated
areas and appellate jurisdiction over retail rates in the
incorporated areas served by CPL. CPL is also subject to
regulation by the NRC under the Atomic Energy Act with respect
to the operation of its ownership interest in a nuclear
generating plant.

PSO (organized in Oklahoma in 1913) is engaged in the
generation, sale, purchase, transmission and distribution of
electric power to approximately 481,000 customers in portions
of eastern and southwestern Oklahoma, and in supplying
electric power at wholesale to other electric utility
companies and municipalities. At December 31, 1997, PSO had
1,273 employees. The principal industries served by PSO
include natural gas and oil production, oil refining, steel
processing, aircraft maintenance, paper manufacturing and
timber products, glass, chemicals, cement, plastics,
aerospace, telecommunications and rubber goods. PSO is subject
to the jurisdiction of the Corporation Commission of the State
of Oklahoma with respect to retail rates.

SWEPCO (organized in Delaware in 1912) is engaged in
the generation, sale, purchase, transmission and distribution
of electric power to approximately 416,000 customers in
portions of northeastern Texas, northwestern Louisiana and
western Arkansas, and in supplying electric power at wholesale
to other electric utility companies and municipalities. At
December 31, 1997, SWEPCO had 1,529 employees. The principal
industries served by SWEPCO include mining, manufacturing,
chemical products, petroleum products, agriculture and
tourism. SWEPCO is subject to the jurisdiction of the Arkansas
Public Service Commission and the Louisiana Public Service
Commission with respect to retail rates, as well as the Texas
Commission as set forth in the description of the regulation
of CPL above.
<PAGE> 7
WTU (organized in Texas in 1927) is engaged in the
generation, sale, purchase, transmission and distribution of
electric power to approximately 187,000 customers in portions
of central west Texas, and in supplying electric power at
wholesale to other electric utility companies and
municipalities. At December 31, 1997, WTU had 907 employees.
WTU serves manufacturing and processing plants producing
cotton seed products, oil products, electronic equipment,
precision and consumer metal products, meat products, gypsum
products and carbon fiber products. The territory also has
several military installations and state correctional
institutions. WTU is subject to the jurisdiction of the Texas
Commission as set forth in the description of the regulation
of CPL above.

CSWS performs, at cost, various accounting, engineering, tax,
legal, financial, electronic data processing, centralized economic dispatching
of electric power and other services for the CSW companies, primarily for CSW's
U.S. electric utility subsidiaries. After the Merger, services performed by CSWS
will be performed by AEPSC.

CSW's material non-utility businesses are conducted through
CSW Energy, CSW International, CSW Energy Services, C3 Communications, CSW
Credit, EnerShop and CSW Leasing. These subsidiaries are described below:

CSW Energy develops, owns and operates independent
power production and cogeneration facilities within the U.S.
Currently, CSW Energy has ownership interests in seven
projects, six in operation and one in development.

CSW International engages in international
activities, including developing, acquiring, financing and
owning EWGs and FUCOs, either alone or with local or other
partners. CSW International indirectly owns all of the
outstanding share capital of SEEBOARD plc ("SEEBOARD"). CSW
acquired indirect control of SEEBOARD in April 1996.
SEEBOARD's principal regulated businesses are the distribution
and supply of electricity. SEEBOARD is engaged in other
businesses, including gas supply, electricity generation and
electrical contracting. SEEBOARD's service area covers
approximately 3,000 square miles in southeast England. The
service area extends from the outlying areas of London to the
English Channel.

CSW received approval from the Commission under the
1935 Act to issue and sell securities in an amount up to 100%
of its consolidated retained earnings (approximately
$1,732,000,000 at June 30, 1998) for investment in EWGs and
FUCOs through CSW Energy and CSW International. Central and
South West Corp., et al., HCAR No. 26653 (January 24, 1997).

CSW Energy Services, an energy-related company under
Rule 58, was formed to compete in restructured electric
utility markets and serves as an energy service provider to
wholesale and retail customers. It also engages in the
business of marketing, selling, and leasing to certain
consumers throughout the United States certain electric
vehicles and retrofit kits subject to limitations imposed by
the Commission.
<PAGE> 8
C3 Communications has two main lines of business. C3
Communications' Utility Automation Division specializes in
providing automated meter reading and related services to
investor-owned municipal and cooperative electric utilities.
C3 Communications also offers systems to aggregate meter data
from a variety of technologies and vendor products that span
multiple communication mode infrastructures including
broadband, wireless network, power line carrier and
telephony-based systems. C3 Communications is an "exempt
telecommunication company" under the 1935 Act.

CSW Credit was originally formed to purchase, without
recourse, accounts receivable from the CSW electric utility
subsidiaries to reduce working capital requirements. Because
CSW Credit's capital structure is more highly leveraged than
that of the CSW electric utility subsidiaries, CSW's overall
cost of capital is lower. Subsequent to its formation, under
the 1935 Act, CSW Credit's business has expanded to include
the purchase, without recourse, of accounts receivable from
certain non-affiliated parties subject to limitations imposed
by the Commission.

EnerShop, an energy-related company under Rule 58,
provides energy services to commercial, industrial,
institutional and governmental customers in Texas. These
services help reduce a customer's operating costs through
increased energy efficiencies and improved equipment
operations. EnerShop utilizes the skills of local trade allies
in offering services that include facility analysis; project
management; engineering design; equipment procurement; and
construction and performance monitoring.

CSW Leasing, approved by the Commission in 1985, is a
joint venture with CIT Group/Capital Equipment Financing. It
was formed to invest in leveraged leases.

An Agreement and Plan of Merger, dated as of December 21, 1997
("Merger Agreement") among AEP, CSW and Augusta Acquisition Corporation, a
wholly owned subsidiary that AEP has incorporated under Delaware law ("Merger
Sub"), provides for a combination of AEP and CSW in which Merger Sub will be
merged with and into CSW ("Merger"), with CSW as the surviving corporation.

Merger Sub was organized solely for the purpose of the Merger
and has not conducted any activities other than in connection with the Merger.
Merger Sub has no subsidiaries. Each share of common stock of Merger Sub, par
value $0.01 per share, to be issued to AEP and outstanding immediately before
the consummation of the Merger will be converted into one share of CSW Common
Stock, upon consummation of the Merger. Thus, the sole purpose for Merger Sub is
to serve as an acquisition subsidiary of AEP for purposes of effecting the
Merger. Approval of
<PAGE> 9
this Application-Declaration will constitute approval of the acquisition by AEP
of the common stock of Merger Sub.

AEP requests authority to issue shares of AEP Common Stock to
consummate the Merger. Each share of CSW Common Stock (other than shares of CSW
Common Stock owned by AEP, Merger Sub or any other direct or indirect
subsidiary of AEP and shares of CSW Common Stock that are owned by CSW or any
direct or indirect subsidiary of CSW, in each case not held on behalf of third
parties) issued and outstanding immediately prior to the effective date of the
Merger will be converted into the right to receive, and become exchangeable
for, 0.60 shares of AEP Common Stock. The former holders of CSW Common Stock
will own approximately 40% of the outstanding shares of AEP Common Stock after
the Merger.

After the Merger, CSW will be a wholly owned subsidiary of
AEP. AEP's utility and nonutility subsidiaries will remain subsidiaries of AEP.
CSW's utility and nonutility subsidiaries will become indirect subsidiaries of
AEP, other than CSWS, which will be merged into AEPSC.

Applicants seek the amendment of AEP's existing authority to
authorize the Combined Company (AEP following the Merger) to support the
financing arrangements (including the issuance and guaranteeing of indebtedness)
and business activity currently supported by CSW.

AEPSC is a service company that, pursuant to service
agreements with each of the subsidiary companies of AEP, provides various
technical, engineering, accounting, administrative, financial, purchasing,
computing, managerial, operational and legal services to each of the AEP
subsidiary companies. Pursuant to the service agreements, these services are
provided at cost.

Upon consummation of the Merger, CSWS will be merged with
AEPSC, and AEPSC will be the surviving service company for the Combined System.
Applicants intend that AEPSC will enter into an amended service agreement with
AEP's subsidiary companies and CSW's subsidiary companies. Under the amended
service agreement, AEPSC will provide the services previously provided by the
two service companies, CSWS and AEPSC. The amended service agreement to be
entered into between AEPSC and the utility and nonutility subsidiary companies
of AEP and CSW, which, pending Commission approval, will become effective upon
the consummation of the Merger, is similar to those service agreements currently
in place.

Under the terms of the amended service agreement, AEPSC will
render to the subsidiary companies of the Combined Company, at cost, various
technical, engineering, accounting, administrative, financial, purchasing,
computing, managerial, operational and legal services. AEPSC will account for,
allocate and charge its costs of the services provided on a full cost
reimbursement
<PAGE> 10
basis under a work order system consistent with the Uniform System of Accounts
for Mutual and Subsidiary Service Companies. Costs incurred in connection with
services performed for a specific subsidiary company will be billed 100% to that
subsidiary company. Costs incurred in connection with services performed for two
or more subsidiary companies will be allocated in accordance with various
allocation factors. Indirect costs incurred by AEPSC which are not directly
allocable to one or more subsidiary companies will be allocated and billed in
proportion to how either direct salaries or total costs are billed to the
subsidiary companies depending on the nature of the indirect costs themselves.
The time AEPSC employees spend working for each subsidiary will be billed to and
paid by the applicable subsidiary on a monthly basis, based upon time records.
Each subsidiary company will maintain separate financial records and detailed
supporting records. Applicants hereby request that the Commission approve the
amended service agreement between AEPSC and the subsidiary companies of the
Combined Company and the related allocation factors. The expanded number of
allocation factors are based on cost-drivers emphasizing factors that correlate
to the volume of activity that is inherent in performing certain services.

The Application or Declaration and any amendments thereto are
available for public inspection through the Commission's Office of Public
Reference. Interested persons wishing to comment or request a hearing should
submit their views in writing by December 15, 1998 to the Secretary, Securities
and Exchange Commission, Washington, D.C. 20549, and serve a copy on the
Applicants at the addresses specified above. Proof of service (by affidavit or,
in case of any attorney at law, by certificate) should be filed with the
request. Any request for a hearing shall identify specifically the issues of
fact or law that are disputed. A person who so requests will be notified of any
hearing, if ordered, and will receive a copy of any notice or order issued in
this matter. After December 16, 1998, the Application or Declaration, as filed
or as it may be amended, may be permitted to become effective.

For the Commission, by the Office of Public Utility
Regulation, pursuant to delegated authority.

Jonathan G. Katz
Secretary