UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q
                        [X] QUARTERLY REPORT PURSUANT TO
                           SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                For The Quarterly Period Ended SEPTEMBER 30, 2002
                                       OR
              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                        For The Transition Period from to
<TABLE>
<CAPTION>

Commission                  Registrant, State of Incorporation                              I.R. S. Employer
File Number                 Address, and Telephone Number                                   Identification No.
-----------                 -----------------------------                                   ------------------
<S>                         <C>                                                             <C>
1-3525                      AMERICAN ELECTRIC POWER COMPANY, INC.                           13-4922640
                            (A New York Corporation)
0-18135                     AEP GENERATING COMPANY (An Ohio Corporation)                    31-1033833
1-3457                      APPALACHIAN POWER COMPANY (A Virginia Corporation)              54-0124790
0-346                       CENTRAL POWER AND LIGHT COMPANY (A Texas Corporation)           74-0550600
1-2680                      COLUMBUS SOUTHERN POWER COMPANY (An Ohio Corporation)           31-4154203
1-3570                      INDIANA MICHIGAN POWER COMPANY (An Indiana Corporation)         35-0410455
1-6858                      KENTUCKY POWER COMPANY (A Kentucky Corporation)                 61-0247775
1-6543                      OHIO POWER COMPANY (An Ohio Corporation)                        31-4271000
0-343                       PUBLIC SERVICE COMPANY OF OKLAHOMA                              73-0410895
                            (An Oklahoma Corporation)
1-3146                      SOUTHWESTERN ELECTRIC POWER COMPANY                             72-0323455
                            (A Delaware Corporation)
0-340                       WEST TEXAS UTILITIES COMPANY (A Texas Corporation)              75-0646790
                            1 Riverside Plaza, Columbus, Ohio  43215-2373
                            Telephone (614) 223-1000
</TABLE>
AEP Generating Company, Columbus Southern Power Company, Kentucky Power Company,
Public  Service  Company of Oklahoma and West Texas  Utilities  Company meet the
conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are
therefore filing this Form 10-Q with the reduced  disclosure format specified in
General Instruction H(2) to Form 10-Q.

Indicate  by check mark  whether  the  registrants  (1) have  filed all  reports
required to be filed by Sections 13 or 15(d) of the  Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrants  were required to file such  reports),  and (2) have been subject to
such filing requirements for the past 90 days.

                                                    Yes   X          No

Indicate by check mark  whether  American  Electric  Power  Company,  Inc. is an
accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

                                                    Yes   X          No

Indicate  by check  mark  whether  AEP  Generating  Company,  Appalachian  Power
Company,  Central Power and Light  Company,  Columbus  Southern  Power  Company,
Indiana  Michigan  Power Company,  Kentucky  Power Company,  Ohio Power Company,
Public Service  Company of Oklahoma,  Southwestern  Electric Power Company,  and
West Texas Utilities Company are accelerated filers (as defined in Rule 12b-2 of
the Exchange Act).

                                                    Yes              No   X

The number of shares outstanding of American Electric Power Company, Inc. Common
Stock, par value $6.50, at October 31, 2002 was 338,835,220.
<PAGE>

         AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES

                                    FORM 10-Q

                    For The Quarter Ended September 30, 2002

                                    CONTENTS
<TABLE>
<CAPTION>
                                                                                                                Page
   Glossary of Terms                                                                                            i - iii
   Forward-Looking Information                                                                                  iv

   Part I.  FINANCIAL INFORMATION
     Items 1 and 2  Financial Statements and Management's Discussion
                    and Analysis of Results of Operations:

<S>                           <C>                                                                               <C>
                              American Electric Power Company, Inc. and Subsidiary Companies:
                                   Management's Discussion and Analysis of Results of Operations                A-1 - A-3
                                   Consolidated Financial Statements                                            A-4 - A-8

                              AEP Generating Company:
                                   Management's Narrative Analysis of Results of Operations                     B-1 - B-2
                                   Financial Statements                                                         B-3 - B-6

                              Appalachian Power Company and Subsidiaries:
                                   Management's Discussion and Analysis of Results of Operations                C-1 - C-3
                                   Consolidated Financial Statements                                            C-4 - C-8

                              Central Power and Light Company and Subsidiaries:
                                   Management's Discussion and Analysis of Results of Operations                D-1 - D-3
                                   Consolidated Financial Statements                                            D-4 - D-8

                              Columbus Southern Power Company and Subsidiaries:
                                   Management's Narrative Analysis of Results of Operations                     E-1 - E-2
                                   Consolidated Financial Statements                                            E-3 - E-7

                              Indiana Michigan Power Company and Subsidiaries:
                                   Management's Discussion and Analysis of Results of Operations                F-1 - F-3
                                   Consolidated Financial Statements                                            F-4 - F-8

                              Kentucky Power Company:
                                   Management's Narrative Analysis of Results of Operations                     G-1 - G-2
                                   Financial Statements                                                         G-3 - G-7

                              Ohio Power Company and Subsidiaries:
                                   Management's Discussion and Analysis of Results of Operations                H-1 - H-3
                                   Consolidated Financial Statements                                            H-4 - H-8

                              Public Service Company of Oklahoma and Subsidiary:
                                   Management's Narrative Analysis of Results of Operations                     I-1 - I-2
                                   Consolidated Financial Statements                                            I-3 - I-7

                              Southwestern Electric Power Company and Subsidiaries:
                                   Management's Discussion and Analysis of Results of Operations                J-1 - J-2
                                   Consolidated Financial Statements                                            J-3 - J-7

                              West Texas Utilities Company:
                                   Management's Narrative Analysis of Results of Operations                     K-1 - K-3
                                   Financial Statements                                                         K-4 - K-8

                              Notes to Financial Statements                                                     L-1 - L-25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

<S>                       <C>                                                                                   <C>
           Item 2.        Registrants' Combined Management's Discussion and Analysis of
                                 Financial Condition, Accounting Policies and Other Matters                     M-1 - M-21
           Item 3.        Quantitative and Qualitative Disclosures About Market Risk                            N-1 - N-8
           Item 4.        Controls and Procedures                                                               O-1

       Part II.           OTHER INFORMATION
           Item 5.             Other Information                                                                P-1
           Item 6.             Exhibits and Reports on Form 8-K                                                 P-1
                                     (a)  Exhibits
                                             Exhibit 12
                                             Exhibit 99.1
                                             Exhibit 99.2
                                     (b)     Reports on Form 8-K

SIGNATURES                                                                                                      Q-1

CERTIFICATIONS                                                                                                  R-1 - R-4
</TABLE>
     This  combined  Form 10-Q is separately  filed by American  Electric  Power
Company, Inc., AEP Generating Company,  Appalachian Power Company, Central Power
and Light  Company,  Columbus  Southern Power  Company,  Indiana  Michigan Power
Company,  Kentucky Power Company, Ohio Power Company,  Public Service Company of
Oklahoma,  Southwestern Electric Power Company and West Texas Utilities Company.
Information  contained herein relating to any individual  registrant is filed by
such registrant on its own behalf. Each registrant makes no representation as to
information relating to the other registrants.


<PAGE>
                                GLOSSARY OF TERMS

         When the following terms and  abbreviations  appear in the text of this
report, they have the meanings indicated below.
<TABLE>
<CAPTION>
               Term                                Meaning

<S>                                 <C>
2004 True-up Proceeding............ A filing to be made after January 10, 2004 under the Texas Legislation to finalize the
                                            amount of stranded costs and the recovery of such costs.
AEGCo.............................. AEP Generating Company, an electric utility subsidiary of AEP.
AEP................................ American Electric Power Company,  Inc.
AEP  Consolidated.................. AEP and its majority  owned subsidiaries consolidated.
AEP Credit, Inc.................... AEP Credit, Inc.,a subsidiary of AEP which factors accounts receivable and accrued utility
                                            revenues for affiliated domestic electric utility companies.
AEP East electric operating
companies.......................... APCo,   CSPCo,   I&M,   KPCo   and   OPCo.
AEPR............................... AEP Resources, Inc.
AEP System or the System........... The American Electric Power System, an integrated electric utility system, owned and
                                            operated by AEP's electric utility subsidiaries.
AEPSC.............................. American   Electric   Power  Service Corporation,  a  service  subsidiary
                                            providing management and professional services to AEP and its subsidiaries.
AEP Power Pool..................... AEP System Power Pool. Members are APCo, CSPCo, I&M, KPCo and OPCo.  The Pool shares the
                                            generation, cost of generation and resultant wholesale system sales of the member
                                            companies.
AEP West electric operating
companies.......................... CPL, PSO, SWEPCo and WTU.
Alliance RTO....................... Alliance Regional Transmission Organization, an ISO formed by AEP and four unaffiliated
                                            utilities.
Amos Plant......................... John E. Amos Plant, a 2,900 MW generation station jointly owned and operated by APCo and
                                            OPCo.
APCo............................... Appalachian Power Company,  an AEP electric utility subsidiary.
Buckeye............................ Buckeye Power, Inc., an unaffiliated  corporation.
COLI............................... Corporate owned life insurance program.
Cook  Plant........................ The Donald C. Cook Nuclear Plant, a two-unit, 2,110 MW nuclear plant owned by I&M.
CPL................................ Central  Power  and Light  Company,  an AEP electric  utility   subsidiary.
CSPCo.............................. Columbus Southern    Power    Company,    an    AEP    electric    utility    subsidiary.
CSW...............................  Central  and  South  West  Corporation,   a subsidiary of AEP.
CSW Energy......................... CSW Energy, Inc., an AEP subsidiary which invests in energy projects and builds power plants.
CSW International.................. CSW International, Inc., an AEP subsidiary which invests in energy projects and entities
                                            outside the United States.
D.C. Circuit  Court................ The United States Court of Appeals for the District of Columbia Circuit.
DOE................................ United States Department   of  Energy.
EITF............................... The   Financial Accounting Standards Board's Emerging Issues Task Force.
ERCOT.............................. The Electric  Reliability Council of Texas.
FASB............................... Financial Accounting Standards Board.
Federal EPA........................ United States Environmental Protection Agency.
FERC............................... Federal Energy Regulatory Commission.
GAAP............................... Generally Accepted Accounting Principles.
ICR................................ Internal Cost Reconstruction.
I&M................................ Indiana Michigan Power Company, an AEP electric utility subsidiary.
IRS................................ Internal Revenue Service.
IURC............................... Indiana Utility Regulatory Commission.
ISO................................ Independent system operator.
KPCo............................... Kentucky Power Company, an AEP electric utility subsidiary.
KPSC............................... Kentucky Public Service Commission.
KWH................................ Kilowatthour.
LIG................................ Louisiana Intrastate Gas.

<PAGE>

Michigan Legislation............... The Customer Choice and Electricity Reliability Act, a Michigan law which provides for
                                            customer choice of electricity supplier.
MLR................................ Member load ratio, the method used  to allocate AEP Power Pool transactions to its
                                            members.
Money Pool......................... AEP System's Money Pool.
MPSC............................... Michigan Public Service Commission.
MTM................................ Mark-to-Market Accounting.
MW................................. Megawatt.
MWH................................ Megawatthour.
NEIL............................... Nuclear   Electric   Insurance   Limited.
NOx................................ Nitrogen oxide.
NOx Rule........................... A final rule issued by Federal EPA which requires NOx reductions in 22 eastern states
                                            including seven of the states in which AEP companies operates.
NRC................................ Nuclear   Regulatory   Commission.
Ohio Act........................... The Ohio Electric Restructuring Act of 1999.
Ohio EPA........................... Ohio    Environmental    Protection    Agency.
OPCo..............................  Ohio Power Company,  an AEP electric utility subsidiary.
PJM................................ Pennsylvania   -  New  Jersey  -  Maryland regional transmission organization.
PSO................................ Public Service   Company   of   Oklahoma,   an   AEP   electric   utility   subsidiary.
PUCO............................... The Public  Utilities  Commission  of Ohio.
PUCT............................... The Public Utility Commission of Texas.
PUHCA.............................. Public Utility Holding Company Act of 1935, as amended.
PURPA.............................. The Public Utility  Regulatory Policies Act of 1978.
RCRA............................... Resource Conservation and Recovery Act of 1976, as amended.
Registrant Subsidiaries............ AEP subsidiaries who are SEC registrants; AEGCo, APCo, CPL, CSPCo, I&M, KPCo, OPCo, PSO,
                                            SWEPCo and WTU.
Rockport Plant..................... A generating plant, consisting of two 1,300 MW coal-fired generating units near Rockport,
                                            Indiana owned or leased by AEGCo and I&M.
RTO................................ Regional Transmission  Organization
SEC................................ Securities and Exchange Commission.
SFAS............................... Statement  of  Financial  Accounting Standards  issued  by the  Financial
                                            Accounting Standards Board.
SFAS 71............................ Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain
                                            Types of Regulation.
SFAS 101........................... Statement of Financial Accounting Standards No. 101, Accounting for the Discontinuance of
                                            Application of Statement 71.
SFAS 121........................... Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of
                                            Long-Lived Assets and for Long-Lived Assets to be Disposed of.
SFAS 133........................... Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
                                            and Hedging Activities.
SFAS 142........................... Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

SFAS 144........................... Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or
                                            Disposal of Long-lived Assets.
SFAS 146........................... Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with
                                            Exit or Disposal Activities.
SNF................................ Spent Nuclear Fuel.
SPP................................ Southwest Power Pool.
STP................................ South Texas Project Nuclear Generating  Plant,  owned  25.2%  by Central Power and Light
                                            Company,  an AEP electric utility subsidiary .
STPNOC............................. STP Nuclear Operating Company, a non-profit Texas  Corporation  which operates STP on behalf
                                            of its joint owners including CPL.
SWEPCo............................. Southwestern Electric Power Company, an AEP electric utility subsidiary.
Texas Restructuring Legislation.... Legislation  enacted in 1999 to  restructure the electric utility industry in Texas.
TVA ............................... Tennessee Valley Authority.
U.K................................ The United Kingdom.

<PAGE>

VaR................................ Value at Risk,  a method to  quantify  risk exposure.
Virginia   SCC..................... Virginia  State  Corporation Commission.
WPCo............................... Wheeling Power Company, an AEP electric distribution subsidiary.
WTU................................ West Texas Utilities Company, an AEP electric utility subsidiary.
Zimmer Plant....................... William H. Zimmer Generating Station, a 1,300 MW coal-fired unit owned 25.4% by Columbus
                                            Southern Power Company, an AEP subsidiary.
</TABLE>
<PAGE>
     FORWARD-LOOKING INFORMATION

     This  report  made  by  AEP  and  certain  of  its  subsidiaries   contains
     forward-looking  statements  within  the  meaning  of  Section  21E  of the
     Securities  Exchange Act of 1934. Although AEP and each of its subsidiaries
     believe that their  expectations are based on reasonable  assumptions,  any
     such  statements  may be  influenced  by factors  that could  cause  actual
     outcomes and results to be materially different from those projected. Among
     the factors that could cause actual results to differ materially from those
     in the forward-looking statements are:

o        Electric load and customer growth.
o        Abnormal weather conditions.
o        Available sources and costs of fuels.
o        Availability of generating capacity.
o        The  speed  and  degree  to  which  competition  is  introduced  to our
         power generation  business.
o        The structure and timing of a competitive market and its impact on
         energy prices or fixed rates.
o        The ability to recover  stranded costs in  connection  with
         possible/proposed   deregulation  of  generation.
o        New legislation and government  regulation,  oversight  and/or
         investigation of the energy sector or its participants.
o        The ability of AEP to successfully control its costs.
o        The success of  acquiring  new  business  ventures  and  disposing of
         existing investments  that  no  longer  match  our  corporate  profile.
o        International developments  affecting AEP's foreign  investments.
o        The economic  climate and growth in AEP's service territory.
o        Inflationary trends.
o        Electricity and gas market prices.
o        Interest rates.
o        Liquidity in the banking, capital and wholesale power markets.
o        Other risks and unforeseen events.
<PAGE>
         AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS

                    THIRD QUARTER 2002 vs. THIRD QUARTER 2001
                                       AND
                     YEAR-TO-DATE 2002 vs. YEAR-TO-DATE 2001

AEP's principal operating business segments and their major activities are:

o        Wholesale
  o        Generation of electricity for sale to retail and wholesale customers
  o        Gas pipeline and storage services
  o        Marketing and trading of electricity, gas, coal and other commodities
  o        Coal mining, bulk commodity barging operations and other energy
           supply related businesses
o        Energy Delivery
  o        Domestic electricity transmission
  o        Domestic electricity distribution
o        Other Investments
  o        Investments in foreign power and distribution projects
  o        Telecommunication services

Results of Operations

        Net Income for the third  quarter  was $425  million,  an increase of $4
million compared to third quarter 2001.  Earnings per share for the quarter were
$1.25  compared  to  $1.31  in  2001,  reflecting  the  effects  of the  sale of
additional shares in 2002.  Regulated  integrated  utilities and wholesale sales
from our power plants showed strong increases in earnings when compared with the
same period last year.  However,  lower  earnings from energy trading and a loss
from power  generation in the United Kingdom  offset the positives.  AEP had Net
Income  of  $318  million  year-to-date   compared  to  $919  million  in  2001.
Year-to-date  earnings per share as of September  30, 2002 were $.97 compared to
$2.85 in 2001,  reflecting  the combined  effect of equity  sales,  discontinued
operations and the cumulative  effect of a change in accounting  principle.  The
year-to-date loss for transitional  goodwill  impairment related to SEEBOARD and
CitiPower  resulted  from the  adoption  of SFAS  142 (see  Note 3) and has been
reported as a cumulative effect of a change in accounting principle  retroactive
to January 1, 2002.

Changes in Revenues
<TABLE>
<CAPTION>
                                                                Increase (Decrease)
                                                           Third Quarter Year-to-Date
                                          (in millions)          %         (in millions)        %
<S>                                             <C>             <C>            <C>            <C>
       Electricity Marketing and Trading*       $ 314            18            $762            15
       Gas Marketing and Trading                 (214)          (22)             32             2
       Domestic Energy Delivery*                   81             8             138             5
       Other Investments                          (27)          (57)            (58)          (49)
                                                -----                          ----
            Total                               $ 154             4            $874             9
                                                =====                          ====
</TABLE>
       *Reflects  the  allocation  of  certain   transmission  and  distribution
        revenues included in bundled retail rates to domestic energy delivery.
<PAGE>
     The increase in  Electricity  Marketing and Trading  revenues was primarily
due to  strong  wholesale  and  retail  sales as a result of  favorable  weather
conditions in the third quarter. The increase in revenues  year-to-date from Gas
Marketing  and Trading  can be  attributed  to an  increase  in  volumes,  as we
expanded our operations around Houston Pipe Line (HPL) which we acquired in June
2001.  The decrease in Gas Marketing  and Trading  revenues in the third quarter
resulted  from a decrease in net gains from  financial  trading which offset the
year-to-date  increase  attributed  to the HPL  acquisition.  Other  Investments
decreased  in both  periods  due to the  elimination  of  factoring  of accounts
receivable of an  unaffiliated  utility.  Prior to the third quarter of 2002, we
recorded and reported upon settlement,  sales under forward trading contracts as
revenues and  purchases  under  forward  trading  contracts as purchased  energy
expenses.  Effective July 1, 2002, we reclassified such forward trading revenues
and purchases on a net basis, as permitted by EITF 98-10 (see Note 2  and "New
Accounting Pronouncements" in "Registrants' Combined Management's Discussion and
Analysis of Financial Condition, Accounting Policies and Other Matters").

Changes in Operating Expenses
<TABLE>
<CAPTION>
                                                           Increase (Decrease)
                                                        Third Quarter Year-to-Date
                                        (in millions)         %         (in millions)          %
<S>                                         <C>              <C>          <C>                 <C>
       Fuel and Purchased Energy:

         Electricity Marketing              $ 294            41           $  329              16
         Gas Marketing                        (23)           (3)             520              30
         Other Investments                      1            25                2              20
       Maintenance and Other Operation       (135)          (15)             171               6
       Depreciation and Amortization           58            19              127              14
       Taxes other Than Income Taxes           (1)            -               24               4
                                            -----                         ------
           Total                            $ 194             7           $1,173              15
                                            =====                         ======
</TABLE>
        In the  quarter and  year-to-date,  the  increase in Fuel and  Purchased
Energy expense was primarily  attributable  to an increase in power  generation.
Net  generation  increased  3% due to  increased  demand for  electricity  and a
reduction in planned  power plant  maintenance  outages for various  plants from
2001. The year-to-date increase in Gas Marketing expense was primarily due to an
expansion of gas activity around our HPL pipeline assets.
        For the quarter, the decrease in Maintenance and Other Operation expense
was  due  to a $35  million  reduction  in  trading  incentives,  a $40  million
reduction in administration costs due to severance expense recorded in the prior
year, a $31 million reduction in other transmission and distribution expenses as
well as a $12 million decline in nuclear  outage  expenses due to the  reduction
of  planned  outages.  These  favorable  results  were  partially  offset  by an
impairment  charge  due to a  writedown of  utility  assets  resulting  from the
inactivation of inefficient gas fired generating facilities at WTU of
approximately  $34 million (see Note 10).  Year-to-date  Maintenance and Other
Operation  expense  increased  largely as aresult of the expenses of recently
acquired  businesses  including Quaker Coal; MEMCO, a barging line;  planned
material and labor costs incurred in  connection with the construction of
gas-fired plants for third  parties; HPL; and two power plants in the UK. These
cost  increases  were  partially  offset by a  reduction in trading incentive
compensation.
        Depreciation and Amortization  expense for both periods increased due to
plants  acquired,  and a plant  placed  into  service  in late  2001 as well the
amortization of Texas generation related Regulatory Assets that were securitized
in early 2002.
        For the year-to-date, period Taxes Other Than Income Taxes increased due
to recently  acquired  businesses  including  Quaker Coal, MEMCo and HPL and two
plants in the UK.
<PAGE>
Other Changes
        Other Income decreased in the  year-to-date  period due mainly to a gain
on the sale of the  Frontera  generating  plant in 2001  partially  offset by an
increase  in both  periods  for other  business  development  income  due to the
increased volume of those projects as well as minority interest in 2002.
        Other  Expense  increased in both periods due to an increase in expenses
on other business development projects expenses in 2002.
        The increase in Income  Taxes for the third  quarter and the decrease in
Income  Taxes  for  the  year-to-date   period  were   predominately  due  to  a
corresponding increase/decrease in pre-tax income.
        The  decrease  in  Interest  was  primarily  due to the  refinancing  of
long-term debt at favorable  interest rates, a reduction in short-term  interest
rates and lower outstanding balances of short-term debt.
        In  connection  with the sale of CitiPower and SEEBOARD (see Note 4), we
had recorded a net loss totaling  $432 million as of September 30, 2002.  Within
the total  net loss of $432  million  is a $350  million  transitional  goodwill
impairment  loss  from  the  adoption  of SFAS 142 (see  Note 3)  reported  as a
cumulative effect of a change in accounting principle  retroactive to January 1,
2002.


<PAGE>
<TABLE>
<CAPTION>
         AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
                        CONSOLIDATED STATEMENTS OF INCOME
                     (in millions, except per-share amounts)
                                   (UNAUDITED)
                      Three Months Ended Nine Months Ended
                                                                               September 30,                   September 30,
                                                                              2002             2001           2002           2001
                                                                              ----             ----           ----           ----
<S>                                                                          <C>              <C>           <C>            <C>
REVENUES:

   Electricity Marketing and Trading                                         $2,086           $1,772        $ 5,875        $ 5,113
   Gas Marketing and Trading                                                    761              975          2,145          2,113
   Domestic Electric Delivery                                                 1,043              962          2,737          2,599
   Other Investments                                                             21               48             61            119
                                                                             ------           ------        -------        -------
          TOTAL REVENUES                                                      3,911            3,757         10,818          9,944
                                                                             ------           ------        -------        -------
EXPENSES:
   Fuel and Purchased Energy:
     Electricity Marketing                                                    1,011              717          2,446          2,117
     Gas Marketing                                                              778              801          2,225          1,705
     Other Investments                                                            5                4             12             10
                                                                             ------           ------        -------        -------
           TOTAL FUEL AND PURCHASED ENERGY                                    1,794            1,522          4,683          3,832
                                                                             ------           ------        -------        -------
   Maintenance and Other Operation                                              770              905          2,857          2,686
   Depreciation and Amortization                                                366              308          1,059            932
   Taxes Other Than Income Taxes                                                198              199            560            536
                                                                             ------           ------        -------        -------
          TOTAL EXPENSES                                                      3,128            2,934          9,159          7,986
                                                                             ------           ------        -------        -------
OPERATING INCOME                                                                783              823          1,659          1,958
OTHER INCOME                                                                    127               73            210            224
OTHER EXPENSE                                                                    89               52            137             99
LESS: INTEREST                                                                  180              215            566            650
      PREFERRED STOCK DIVIDEND REQUIREMENTS
       OF SUBSIDIARIES                                                            3                2              8              7
      MINORITY INTEREST IN FINANCE SUBSIDIARY                                     9                5             27              5
                                                                             ------           ------        -------        -------
INCOME BEFORE INCOME TAXES                                                      629              622          1,131          1,421
INCOME TAXES                                                                    242              221            429            537
                                                                             ------           ------        -------        -------
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS,
 EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF A
 CHANGE IN ACCOUNTING PRINCIPLE                                                 387              401            702            884
  Discontinued Operations (net of tax)                                           38                2            (34)            65
  Extraordinary Loss - (net of tax)                                            -                -              -               (48)
  Cumulative Effect of a Change in Accounting
   Principle - (net of tax) (See Note 3)                                       -                  18           (350)            18
                                                                             ------           ------        -------        -------
NET INCOME                                                                   $  425           $  421        $   318        $   919
                                                                             ======           ======        =======        =======
AVERAGE NUMBER OF SHARES OUTSTANDING                                            339              322            329            322
                                                                                ===              ===            ===            ===
EARNINGS (LOSS) PER SHARE (BASIC AND DILUTIVE):
   Income Before Discontinued Operations,
    Extraordinary Item and Cumulative Effect of a
    Change in Accounting Principle                                            $1.14            $1.24         $ 2.14         $ 2.74
   Discontinued Operations                                                     0.11             0.01          (0.10)          0.20
   Extraordinary Loss                                                           -                -              -            (0.15)
   Cumulative Effect of a Change in Accounting
    Principle                                                                   -               0.06          (1.07)          0.06
                                                                              -----            -----         ------         ------
   EARNINGS PER SHARE (BASIC AND DILUTIVE)                                    $1.25            $1.31         $ 0.97         $ 2.85
                                                                              =====            =====         ======         ======

CASH DIVIDENDS PAID PER SHARE                                                 $0.60            $0.60          $1.80          $1.80
                                                                              =====            =====          =====          =====

See Notes to Financial Statements beginning on page L-1.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
         AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                                       September 30, 2002           December 31, 2001
                                                                       ------------------           -----------------
                                                                                          (in millions)
<S>                                                                                 <C>                         <C>
ASSETS
CURRENT ASSETS:

    Cash and Cash Equivalents                                                       $   566                     $   231
    Accounts Receivable (net)                                                         2,546                       1,649
    Fuel, Materials and Supplies                                                      1,227                       1,046
    Energy Trading and Derivative Contracts                                           7,897                       8,536
    Other                                                                             1,361                         639
                                                                                    -------                     -------

       TOTAL CURRENT ASSETS                                                          13,597                      12,101
                                                                                    -------                     -------

PROPERTY, PLANT AND EQUIPMENT:
   Electric:
     Production                                                                      17,750                      17,477
     Transmission                                                                     6,237                       5,764
     Distribution                                                                     9,474                       9,309
   Other (including gas, coal mining and
     nuclear fuel)                                                                    4,316                       4,530
   Construction Work in Progress                                                      1,296                       1,088
                                                                                    -------                     -------
       Total Property, Plant and Equipment                                           39,073                      38,168
   Accumulated Depreciation and Amortization                                         16,256                      15,403
                                                                                    -------                     -------

       NET PROPERTY, PLANT AND EQUIPMENT                                             22,817                      22,765
                                                                                    -------                     -------

REGULATORY ASSETS                                                                     2,394                       3,162
                                                                                    -------                     -------

SECURITIZED TRANSITION ASSET                                                            743                        -
                                                                                    -------                     -------

INVESTMENTS IN POWER, DISTRIBUTION AND
  COMMUNICATIONS PROJECTS                                                               521                         633
                                                                                    -------                     -------

ASSETS OF DISCONTINUED OPERATIONS                                                      -                          3,985
                                                                                    -------                     -------

GOODWILL                                                                                461                         392
                                                                                    -------                     -------

INTANGIBLE ASSETS                                                                        35                          33
                                                                                    -------                     -------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                     3,027                       2,368
                                                                                    -------                     -------

OTHER ASSETS                                                                          1,921                       1,842
                                                                                    -------                     -------

          TOTAL                                                                     $45,516                     $47,281
                                                                                    =======                     =======

See Notes to Financial Statements beginning on page L-1.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
         AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
                                                                             September 30, 2002         December 31, 2001
                                                                                               (in millions)
<S>                                                                                       <C>                      <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts Payable                                                                        $ 2,662                  $ 1,916
  Short-term Debt                                                                           3,234                    4,011
  Long-term Debt Due Within One Year                                                          825                    1,114
  Energy Trading And Derivative Contracts                                                   8,008                    8,288
  Other                                                                                     1,937                    1,935
                                                                                          -------                  -------

       TOTAL CURRENT LIABILITIES                                                           16,666                   17,264
                                                                                          -------                  -------

LONG-TERM DEBT                                                                              8,719                    8,440
                                                                                          -------                  -------

EQUITY UNIT SENIOR NOTES                                                                      371                     -
                                                                                          -------                  -------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                           2,693                    2,176
                                                                                          -------                  -------

DEFERRED INCOME TAXES                                                                       4,444                    4,469
                                                                                          -------                  -------

DEFERRED INVESTMENT TAX CREDITS                                                               468                      491
                                                                                          -------                  -------

DEFERRED CREDITS AND REGULATORY LIABILITIES                                                   773                      844
                                                                                          -------                  -------

DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT PLANT UNIT 2                                   187                      194
                                                                                          -------                  -------

OTHER NONCURRENT LIABILITIES                                                                1,304                    1,334
                                                                                          -------                  -------

LIABILITIES OF DISCONTINUED OPERATIONS                                                       -                       2,613
                                                                                          -------                  -------

COMMITMENTS AND CONTINGENCIES (Note 9)

CERTAIN SUBSIDIARY OBLIGATED, MANDATORILY REDEEMABLE,
  PREFERRED SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY
  JUNIOR SUBORDINATED DEBENTURES OF SUCH SUBSIDIARIES                                         321                      321
                                                                                          -------                  -------

MINORITY INTEREST IN FINANCE SUBSIDIARY                                                       759                      750
                                                                                          -------                  -------
CUMULATIVE PREFERRED STOCKS OF SUBSIDIARIES                                                   145                      156
                                                                                          -------                  -------

COMMON SHAREHOLDERS' EQUITY Common Stock-Par Value $6.50:
                                2002           2001
                                ----           ----
      Shares Authorized. . .600,000,000     600,000,000
      Shares Issued. . . . .347,835,212     331,234,997
      (8,999,992 shares were held in treasury at
       September 30, 2002 and December 31, 2001)                                            2,261                    2,153
  Paid-in Capital                                                                           3,394                    2,906
  Accumulated Other Comprehensive Income (Loss)                                               (28)                    (126)
  Retained Earnings                                                                         3,039                    3,296
                                                                                          -------                  -------
          TOTAL COMMON SHAREHOLDERS' EQUITY                                                 8,666                    8,229
                                                                                          -------                  -------

              TOTAL                                                                       $45,516                  $47,281
                                                                                          =======                  =======

See Notes to Financial Statements beginning on page L-1.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
         AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                                                                                     Nine Months Ended September 30,
                                                                                                         2002             2001
                                                                                                         ----             ----
OPERATING ACTIVITIES:                                                                                        (in millions)
<S>                                                                                                   <C>              <C>
   Net Income                                                                                          $  318           $   919
      Deduct Income (Add Loss) from Discontinued Operations                                               384               (65)
                                                                                                       ------            ------
      Net Income from Continuing Operations                                                               702               854
   Adjustments for Noncash Items:
      Depreciation and Amortization                                                                     1,080               960
      Deferred Federal Income Taxes                                                                       (86)              119
      Deferred Investment Tax Credits                                                                     (21)              (26)
      Deferred Costs Under Fuel Clause Mechanisms                                                         (57)              240
      Miscellaneous Accrued Expenses                                                                      138               (66)
      Extraordinary Loss - Effects of Deregulation                                                       -                   48
      Cumulative Effect of Accounting Change                                                             -                  (18)
      Mark to Market on Open Energy Trading and Derivative Contracts                                     (145)             (434)
      Realized Mark to Market on Settled Energy Trading and Derivative Contracts                          362              (109)
   Changes in Certain Current Assets and Liabilities:
      Accounts Receivable (net)                                                                          (882)              958
      Fuel, Materials and Supplies                                                                       (176)             (119)
      Accrued Revenues                                                                                   (255)                7
      Prepayments and Other                                                                              (387)              (81)
      Accounts Payable                                                                                    789              (934)
      Taxes Accrued                                                                                       128               153
      Interest Accrued                                                                                    109                60
   Change in Other Assets                                                                                (417)             (381)
   Change in Other Liabilities                                                                           (127)              (66)
                                                                                                      -------           -------
          Net Cash Flows From Operating Activities                                                        755             1,165
                                                                                                      -------           -------
INVESTING ACTIVITIES:
  Construction Expenditures                                                                            (1,147)           (1,187)
  Purchase of Houston Pipe Line                                                                          -                 (727)
  Net Proceeds from Sale of CitiPower                                                                     175              -
  Net Proceeds from Sale of Seeboard                                                                      941              -
  Net Proceeds from Sale of Yorkshire                                                                    -                  383
  Net Proceeds from Sale of Frontera                                                                     -                  265
  Other                                                                                                     2               (54)
                                                                                                      -------           -------
          Net Cash Flows Used For Investing Activities                                                    (29)           (1,320)
                                                                                                      -------           -------
FINANCING ACTIVITIES:
  Issuance of Common Stock                                                                                656                 9
  Issuance of Minority Interest                                                                          -                  750
  Issuance of Long-term Debt                                                                            1,819             1,764
  Issuance of Equity Unit Senior Notes                                                                    334              -
  Change in Short-term Debt (net)                                                                        (777)             (995)
  Retirement of Cumulative Preferred Stock                                                                (10)               (5)
  Retirement of Long-term Debt                                                                         (1,819)             (846)
  Dividends Paid on Common Stock                                                                         (590)             (580)
                                                                                                      -------           -------

            Net Cash Flows From (Used For) Financing  Activities                                         (387)               97
                                                                                                      -------           -------
Effect of Exchange Rate Change on Cash                                                                     (4)               (7)
                                                                                                      -------           -------
Net Increase (Decrease) in Cash and Cash Equivalents                                                      335               (65)
                                                                                                      -------           -------
Net Increase  (Decrease) in Cash and Cash  Equivalents from Discontinued Operations                      (102)                7
Cash and Cash Equivalents at Beginning of Period                                                          333               342
                                                                                                      -------           -------
Cash and Cash  Equivalents  Continuing  Operations - Beginning of Period                                  231               349
                                                                                                      -------           -------
Cash  and Cash  Equivalents  at End of  Period                                                          $ 566             $ 284
                                                                                                      -------           -------

</TABLE>

Supplemental  Disclosure:  Cash paid for interest net of capitalized amounts was
$328  million and $469  million and for income  taxes was $242  million and $208
million  in 2002 and 2001,  respectively.  Noncash  acquisitions  under  capital
leases were $1 million in 2002 and $39 million in 2001.

See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
         AMERICAN ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES
 CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                                   (UNAUDITED)
                                   Accumulated
                                                                                        Other
                                           Common       Paid-in       Retained       Comprehensive
                                           Stock        Capital       Earnings       Income (Loss)         Total
                                                                          (in millions)
<S>                                            <C>           <C>            <C>                 <C>             <C>
JANUARY 1, 2001                                $2,152        $2,915         $3,090              $(103)          $8,054
Issuance of Common Stock                            1             8                                                  9
Common Stock Dividends                                                        (580)                               (580)
Other                                                            (7)             9                                   2
                                                                                                                ------
                                                                                                                 7,485
Comprehensive Income:
  Other Comprehensive Income,
   Net of Taxes:
     Currency Translation Adjustment                                                              (21)             (21)
     Unrealized Gain on
      Hedged Derivatives                                                                            2                2
     Minimum Pension Liability                                                                     (6)              (6)
  Net Income                                                                   919                                 919
                                                                                                                ------
     Total Comprehensive Income                                                                                    894
                                               ------        ------         ------              -----           ------

SEPTEMBER 30, 2001                             $2,153        $2,916         $3,438              $(128)          $8,379
                                               ======        ======         ======              =====           ======



JANUARY 1, 2002                                $2,153        $2,906         $3,296              $(126)          $8,229
Issuance of Common Stock                          108           568                                                676
Common Stock Dividends                                                        (590)                               (590)
Other                                                           (80)            15                                 (65)
                                                                                                                ------
                                                                                                                 8,250
Comprehensive Income:
  Other Comprehensive Income,
   Net of Taxes:
    Currency Translation Adjustment                                                                97               97
    Unrealized Loss on
     Securities Available for sale                                                                 (3)              (3)
    Unrealized Gain on Cash Flow
     Hedges                                                                                         4                4
  Net Income                                                                   318                                 318
                                                                                                                ------
     Total Comprehensive Income                                                                                    416
                                               ------        ------         ------               ----           ------

SEPTEMBER 30, 2002                             $2,261        $3,394         $3,039               $(28)          $8,666
                                               ======        ======         ======               ====-          ======
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
                             AEP GENERATING COMPANY
            MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

                    THIRD QUARTER 2002 vs. THIRD QUARTER 2001
                                       AND
                     YEAR-TO-DATE 2002 vs. YEAR-TO-DATE 2001

        AEGCo is engaged in the  generation and wholesale sale of electric power
to two affiliates under long-term agreements.
        Operating  Revenues are derived  from the sale of Rockport  Plant energy
and capacity to two  affiliated  companies  pursuant to FERC approved  long-term
unit power agreements.  The unit power agreements  provide for recovery of costs
including a FERC  approved rate of return on common equity and a return on other
capital net of temporary cash investments.

Results of Operations
        Net Income  decreased  $104,000 or 5% for the third quarter and $536,000
or 9% for the year-to-date period due to limits on recovery of return on capital
related to operating and in-service ratios of the Rockport Plant.

Changes in Revenues
        The  decreases in Operating  Revenues of  $1,429,000 or 2% for the third
quarter  and  $10,922,000  or 6%  for  the  year-to-date  period  resulted  from
decreases in recoverable expenses, primarily Fuel.

Changes in Operating Expenses
        Operating expenses declined 2% in the third quarter and 6% for the
year-to-date period as follows:
<TABLE>
<CAPTION>
                                                             Increase (Decrease)
                                                             -------------------
                                              Third Quarter                         Year-to-Date
                                              -------------                         ------------
                                              (in thousands)              %       (in thousands)               %
                                              --------------              -       --------------               -
<S>                                                <C>                  <C>             <C>                  <C>
Fuel                                               $(1,441)              (5)            $(10,312)            (14)
Other Operation                                       (506)             (20)               1,404              18
Maintenance                                             69                5                 (474)             (6)
Depreciation                                            30                1                  117               1
Taxes Other Than Income Taxes                          149               15                   41               1
Income Taxes                                           449              N.M.              (1,101)            (43)
                                                   -------                              --------
      Total                                        $(1,250)              (2)            $(10,325)             (6)
                                                   =======                              ========
</TABLE>
N.M. = Not Meaningful

        Fuel expense,  which includes coal  transportation cost and coal trading
gains,  decreased in the year-to-date period due to lower average fuel costs and
a decrease in generation. Lower fuel cost contributed $6,600,000 of the decrease
while decreased generation  contributed  $3,700,000.  The decrease in generation
reflects longer outages for planned maintenance and system enhancements in 2002.
        Other Operation expense decreased in the third quarter due to a decrease
in the FERC assessment and lower costs allocated from  affiliates.  The increase
in Other  Operation  expense for the  year-to-date  period is  primarily  due to
higher costs for employee benefits and property insurance.


<PAGE>


        Maintenance  expense for the  year-to-date  period decreased even though
the duration of outages  lengthened.  In 2002,  due to the capital nature of the
projects,  more labor and related costs are being  capitalized as part of system
enhancements instead of expensed as maintenance projects.
        Taxes  Other Than  Income  Taxes  increased  due to  increased  employer
expense for  employment  taxes in the third  quarter due to a change in estimate
from the second quarter's level of expense.
        The  decrease  in  Income  Taxes  attributable  to  operations  for  the
year-to-date  period is  primarily  due to a change in estimate of state  income
taxes during first quarter of 2001 based on an estimate of higher taxable income
for the year 2001 than actually  occurred.  The over-accrual was adjusted during
the second and third  quarters of 2001  resulting  in higher  comparable  Income
Taxes for the third quarter of 2002.

Other Changes
        Interest  Charges  declined  14% in the  third  quarter  and 12% for the
year-to-date period due to lower interest rates on short-term  borrowing through
AEP's money pool reflecting market conditions and lower outstanding balances.


<PAGE>
                             AEP GENERATING COMPANY
                              STATEMENTS OF INCOME
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                  Three Months Ended                       Nine Months Ended
                                                                     September 30,                           September 30,
                                                                 2002                 2001                 2002               2001
                                                                 ----                 ----                 ----               ----
                                                                                                     (in thousands)
<S>                                                            <C>                   <C>                 <C>               <C>
OPERATING REVENUES - Sales to
  AEP Affiliates                                               $55,988               $57,417             $159,219          $170,141
                                                               -------               -------             --------          --------

OPERATING EXPENSES:
   Fuel                                                         26,702                28,143               65,737            76,049
   Rent - Rockport Plant Unit 2                                 17,071                17,071               51,212            51,212
   Other Operation                                               2,023                 2,529                9,259             7,855
   Maintenance                                                   1,484                 1,415                6,838             7,312
   Depreciation                                                  5,643                 5,613               16,918            16,801
   Taxes Other Than Income Taxes                                 1,150                 1,001                3,110             3,069
   Income Taxes                                                    479                    30                1,438             2,539
                                                               -------               -------             --------          --------

          TOTAL OPERATING EXPENSES                              54,552                55,802              154,512           164,837
                                                               -------               -------             --------          --------

OPERATING INCOME                                                 1,436                 1,615                4,707             5,304

NONOPERATING INCOME                                                 74                     5                  108                 5

NONOPERATING EXPENSES                                               (8)                   (3)                  98                 7

NONOPERATING INCOME TAX CREDITS                                    886                   957                2,541             2,716

INTEREST CHARGES                                                   457                   529                1,700             1,924
                                                               -------               -------             --------           -------

NET INCOME                                                     $ 1,947               $ 2,051             $  5,558           $ 6,094
                                                               =======               =======             ========           =======
</TABLE>
<TABLE>
<CAPTION>
                         STATEMENTS OF RETAINED EARNINGS
                                   (UNAUDITED)

                                                                 Three Months Ended                      Nine Months Ended
                                                                    September 30,                          September 30,
                                                                 2002                2001                  2002             2001
                                                                 ----                ----                  ----             ----
                                                                                         (in thousands)
<S>                                                            <C>                 <C>                    <C>              <C>
BALANCE AT BEGINNING OF PERIOD                                 $15,272             $11,847                $13,761          $ 9,722

NET INCOME                                                       1,947               2,051                  5,558            6,094

CASH DIVIDENDS DECLARED                                          1,050                 959                  3,150            2,877
                                                               -------             -------                -------          -------

BALANCE AT END OF PERIOD                                       $16,169             $12,939                $16,169          $12,939
                                                               =======             =======                =======          =======
</TABLE>
The common stock of AEGCo is wholly owned by AEP.

See Notes to Financial Statements beginning on page L-1.

<PAGE>
<TABLE>
<CAPTION>
                             AEP GENERATING COMPANY
                                 BALANCE SHEETS
                                   (UNAUDITED)

                                                                           September 30, 2002            December 31, 2001
                                                                           ------------------            -----------------
                                                                                                (in thousands)
<S>                                                                                     <C>                         <C>
ASSETS
ELECTRIC UTILITY PLANT:
   Production                                                                           $639,487                    $638,297
   General                                                                                 2,883                       3,012
   Construction Work in Progress                                                          12,295                       6,945
                                                                                        --------                    --------
        Total Electric Utility Plant                                                     654,665                     648,254
   Accumulated Depreciation                                                              353,080                     337,151
                                                                                        --------                    --------
           NET ELECTRIC UTILITY PLANT                                                    301,585                     311,103
                                                                                        --------                    --------

OTHER PROPERTY AND INVESTMENTS                                                               119                         119
                                                                                        --------                    --------

CURRENT ASSETS:
   Cash and Cash Equivalents                                                                -                            983
   Advances to Affiliates                                                                 14,148                        -
   Accounts Receivable:
      Affiliated Companies                                                                33,714                      22,344
      Miscellaneous                                                                          147                         147
   Fuel - at average cost                                                                 13,048                      15,243
   Materials and Supplies - at average cost                                                4,934                       4,480
   Prepayments                                                                                83                         244
                                                                                        --------                    --------
           TOTAL CURRENT ASSETS                                                           66,074                      43,441
                                                                                        --------                    --------

REGULATORY ASSETS                                                                          5,030                       5,207
                                                                                        --------                    --------

DEFERRED CHARGES                                                                           2,010                       1,471
                                                                                        --------                    --------

           TOTAL ASSETS                                                                 $374,818                    $361,341
                                                                                        ========                    ========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                             AEP GENERATING COMPANY
                                 BALANCE SHEETS
                                   (UNAUDITED)

                                                                            September 30, 2002             December 31, 2001
                                                                            ------------------             -----------------
                                                                                                 (in thousands)
<S>                                                                                      <C>                          <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
   Common Stock - Par Value $1,000:
      Authorized and Outstanding - 1,000 Shares                                          $  1,000                     $  1,000
   Paid-in Capital                                                                         23,434                       23,434
   Retained Earnings                                                                       16,169                       13,761
                                                                                         --------                     --------
      Total Common Shareholder's Equity                                                    40,603                       38,195
   Long-term Debt                                                                          44,800                       44,793
                                                                                         --------                     --------

        TOTAL CAPITALIZATION                                                               85,403                       82,988
                                                                                         --------                     --------

OTHER NONCURRENT LIABILITIES                                                                  340                           76
                                                                                         --------                     --------

CURRENT LIABILITIES:
   Advances from Affiliates                                                                  -                          32,049
   Accounts Payable:
      General                                                                              11,684                        7,582
      Affiliated Companies                                                                 28,628                        1,654
   Taxes Accrued                                                                            9,002                        4,777
   Rent Accrued - Rockport Plant Unit 2                                                    23,427                        4,963
   Other                                                                                    2,723                        3,481
                                                                                         --------                     --------
        TOTAL CURRENT LIABILITIES                                                          75,464                       54,506
                                                                                         --------                     --------

DEFERRED GAIN ON SALE AND LEASEBACK - ROCKPORT
 PLANT UNIT 2                                                                             112,439                      116,617
                                                                                         --------                     --------

REGULATORY LIABILITIES:
   Deferred Investment Tax Credit                                                          53,800                       56,304
   Amounts Due to Customers for Income Taxes                                               20,840                       22,725
                                                                                         --------                     --------
        TOTAL REGULATORY LIABILITIES                                                       74,640                       79,029
                                                                                         --------                     --------

DEFERRED INCOME TAXES                                                                      26,532                       27,975
                                                                                         --------                     --------

DEFERRED CREDITS                                                                             -                             150
                                                                                         --------                     --------

COMMITMENTS AND CONTINGENCIES (Note 9)

        TOTAL CAPITALIZATION AND LIABILITIES                                             $374,818                     $361,341
                                                                                         ========                     ========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                             AEP GENERATING COMPANY
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                                                 Nine Months Ended
                                                                                   September 30,
                                                                              2002                   2001
                                                                              ----                   ----
                                                                                         (in thousands)
<S>                                                                        <C>                     <C>
OPERATING ACTIVITIES:
   Net Income                                                              $  5,558                $  6,094
   Adjustment for Noncash Items:
     Depreciation                                                            16,918                  16,801
     Deferred Income Taxes                                                   (3,328)                 (4,409)
     Deferred Investment Tax Credits                                         (2,504)                 (2,509)
     Amortization of Deferred Gain on Sale and Leaseback -
       Rockport Plant Unit 2                                                 (4,178)                 (4,178)
     Deferred Property Taxes                                                   (881)                   (922)
   Changes in Certain Current Assets and Liabilities:
     Accounts Receivable                                                    (11,370)                  4,742
     Fuel, Materials and Supplies                                             1,741                  (4,595)
     Accounts Payable                                                        31,076                   1,985
     Taxes Accrued                                                            4,225                   7,201
     Rent Accrued - Rockport Plant Unit 2                                    18,464                  18,464
   Change in Other Assets                                                       243                  (1,840)
   Change in Other Liabilities                                                 (644)                 (1,860)
                                                                           --------                --------

           Net Cash Flow From Operating Activities                           55,320                  34,974
                                                                           --------                --------

INVESTING ACTIVITIES - Construction Expenditures                             (6,956)                 (3,120)
                                                                           --------                --------

FINANCING ACTIVITIES:
     Change in Advances from Affiliates (net)                               (46,197)                (31,546)
     Dividends Paid                                                          (3,150)                 (2,877)
                                                                           --------                --------
           Net Cash Flows Used For Financing Activities                     (49,347)                (34,423)
                                                                           --------                --------

Net Decrease in Cash and Cash Equivalents                                      (983)                 (2,569)
Cash and Cash Equivalents at Beginning of Period                                983                   2,757
                                                                           --------                --------
Cash and Cash Equivalents at End of Period                                 $   -                   $    188
                                                                           ========                ========
</TABLE>
Supplemental Disclosure:
Cash paid for interest net of capitalized  amounts was $1,983,000 and $1,489,000
and  for  income  taxes  was   $2,442,000  and  $1,352,000  in  2002  and  2001,
respectively.

See Notes to Financial Statements beginning on page L-1.
<PAGE>
                   APPALACHIAN POWER COMPANY AND SUBSIDIARIES
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS

                    THIRD QUARTER 2002 vs. THIRD QUARTER 2001
                                       AND
                     YEAR-TO-DATE 2002 vs. YEAR-TO-DATE 2001

       APCo is a public  utility  engaged  in the  generation,  purchase,  sale,
transmission  and  distribution of electric power to 917,000 retail customers in
southwestern  Virginia and southern West Virginia.  APCo, as a member of the AEP
Power Pool,  shares in the revenues and costs of the AEP Power Pool's  wholesale
sales to neighboring utility systems and power marketers including power trading
transactions. APCo also sells wholesale power to municipalities.
       The cost of the AEP Power Pool's  generating  capacity is allocated among
its members based on their relative peak demands and generating reserves through
the payment of capacity charges and the receipt of capacity  credits.  AEP Power
Pool  members  are  also  compensated  for the  out-of-pocket  costs  of  energy
delivered  to the AEP Power Pool and  charged for energy  received  from the AEP
Power Pool. The AEP Power Pool calculates each company's prior twelve month peak
demand relative to the total peak demand of all member  companies as a basis for
sharing  revenues and costs.  The result of this  calculation  is each company's
member load ratio (MLR) which  determines  each  company's  percentage  share of
revenues and costs.

Results of Operations
        Net Income  increased $24 million or 78% for the quarter and $27 million
or 21% year-to-date period due to higher retail sales and cost reductions.

Changes in Revenues
<TABLE>
<CAPTION>
                                                         Increase (Decrease)
                                                Third Quarter                 Year-to-Date
                                      (in millions)           %   (in millions)              %
<S>                                            <C>           <C>          <C>               <C>
       Electricity Marketing and Trading       $39           16           $ 7                1
       Energy Delivery*                         (5)          (3)          (11)              (2)
       Sales to AEP Affiliates                   6           15             6                5
                                               ---                        ---
            Total                              $40            9           $ 2                -
                                               ===                        ===
</TABLE>
       *Reflects  the  allocation  of  certain   transmission  and  distribution
        revenues included in bundled retail rates to energy delivery.

        The  increase in revenues  for the quarter was due  primarily  to warmer
summer weather as the third quarter of 2002 saw a 31% increase in cooling degree
days over third quarter of 2001.  Year-to-date revenues were comparable to those
of last year as current  quarter  increases  offset lower revenues for the first
six months which were lower primarily as a result of lower demand caused by mild
winter weather. Sales to AEP Affiliates increased quarter to quarter and year to
year due to available generation to be delivered to the AEP Power Pool.
<PAGE>
Changes in Operating Expenses
<TABLE>
<CAPTION>
                                                                  Increase (Decrease)
                                                       Third Quarter                     Year-to-Date
                                              (in millions)           %             (in millions)     %
                                                                      -                               -
<S>                                                  <C>            <C>              <C>              <C>
       Fuel                                          $ 16            17              $ 50              18
       Electricity Marketing Purchases                 12           115                24              83
       Purchases from AEP Affiliates                  (15)          (21)              (88)            (33)
       Other Operation                                 (8)          (11)              (10)             (5)
       Maintenance                                      -             -               (13)            (13)
       Depreciation and Amortization                    2             3                 7               6
       Taxes Other Than Income Taxes                   (1)           (3)               (1)             (2)
       Income Taxes                                    13            66                14              18
                                                     ----                            ----
            Total                                    $ 19             5              $(17)             (2)
                                                     ====                            ====
</TABLE>

        Fuel expense  increased for the quarter and  year-to-date as a result of
an  increase  in APCo  generation.  Mountaineer,  Amos,  and Glen Lyn plants had
undergone  boiler  plant   maintenance  in  2001  which  resulted  in  increased
availability and a decrease in maintenance in 2002.
        Electricity   Marketing   Purchases   increased   for  the  quarter  and
year-to-date as a result of increased purchases from third parties for resale to
wholesale customers and to meet internal demand.
        The overall  decrease for both periods in Purchases  from AEP Affiliates
is a result  of  increased  internal  generation  due to plant  availability  as
disclosed above in the discussion of Fuel expense.
        The  decrease  in  Other  Operation  expense  for  both  periods  is due
primarily  to a  decrease  in  transmission  equalization  charges  caused  by a
reduction  in  APCo's  MLR  ratio,   a  decrease  in  power  trading   incentive
compensation  expense,  and energy delivery  severance accruals recorded in 2001
for which there was no comparable  activity in 2002.  These favorable  variances
were  partially  offset by an increase in insurance  premiums and other employee
benefit costs.
        The decrease in  Maintenance  expense  year-to-date  is primarily due to
boiler plant maintenance at Amos,  Mountaineer,  and Glen Lyn plants in the year
2001 for which there was less  activity in 2002.  In addition,  there were fewer
maintenance  needs for electric  plant,  station  equipment,  and company  owned
structures and improvements.
        Depreciation and Amortization  expense increased during both periods due
to  increased  amortization  for the net  generation-related  regulatory  assets
related to the Company's Virginia and West Virginia jurisdictions that are being
recovered through regulated rates. Additionally,  investment in production plant
in service, primarily emission control related, also contributed to the increase
in depreciation and amortization expense.
        The increase in Income Taxes for the quarter and year-to-date was due to
an increase in pre-tax income.
<PAGE>
Other Changes
        Nonoperating Income for the quarter increased due to a net gain in power
trading  activity.  The Nonoperating  Income decrease  year-to-date was due to a
decrease in net power trading gains driven by a decline in market prices.
        Year-to-date  Interest Charges decreased  primarily as a result of lower
AEP money pool balances and interest  rates and the retirement of first mortgage
bonds in 2001.
        Nonoperating  Income Tax Expense  increased  in both  periods due to the
increase in nonoperating  pre-tax income and year-to-date due to a change in the
allocation of tax savings from AEP.
<PAGE>
<TABLE>
<CAPTION>
                   APPALACHIAN POWER COMPANY AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

                                                    Three Months Ended                     Nine Months Ended
                                                      September 30,                          September 30,
                                                   2002                 2001               2002               2001
                                                   ----                 ----               ----               ----
                                                                                     (in thousands)
<S>                                              <C>                <C>                 <C>               <C>
OPERATING REVENUES:
   Electricity Marketing and Trading             $277,796           $  238,819          $  785,206        $  777,803
   Energy Delivery                                150,236              155,566             444,706           455,587
   Sales to AEP Affiliates                         46,250               40,065             138,990           132,676
                                                 --------           ----------          ----------        ----------
           TOTAL OPERATING REVENUES               474,282              434,450           1,368,902         1,366,066
                                                 --------           ----------          ----------        ----------

OPERATING EXPENSES:
   Fuel                                           107,514               91,594             322,164           272,119
   Purchased Power:
     Electricity Marketing                         23,047               10,741              51,508            28,106
     AEP Affiliates                                58,395               73,951             177,892           265,614
   Other Operation                                 67,255               75,239             197,631           207,266
   Maintenance                                     32,053               31,812              85,542            98,663
   Depreciation and Amortization                   47,692               46,177             141,373           133,950
   Taxes Other Than Income Taxes                   23,881               24,578              73,926            75,263
   Income Taxes                                    33,080               19,977              90,723            77,190
                                                 --------           ----------          ----------        ----------
           TOTAL OPERATING EXPENSES               392,917              374,069           1,140,759         1,158,171
                                                 --------           ----------          ----------        ----------

OPERATING INCOME                                   81,365               60,381             228,143           207,895
NONOPERATING INCOME                                 6,627                5,655              26,644            47,746
NONOPERATING EXPENSES                               4,865                8,108               9,170            31,800
NONOPERATING INCOME TAX EXPENSE (CREDIT)              538               (1,535)              5,622             4,041
INTEREST CHARGES                                   28,642               29,146              84,099            91,277
                                                 --------           ----------          ----------        ----------

NET INCOME                                         53,947               30,317             155,896           128,523

PREFERRED STOCK DIVIDEND REQUIREMENTS                 502                  502               1,508             1,508
                                                 --------           ----------          ----------        ----------

EARNINGS APPLICABLE TO COMMON STOCK              $ 53,445           $   29,815          $  154,388        $  127,015
                                                 ========           ==========          ==========        ==========
</TABLE>
<TABLE>
<CAPTION>
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (UNAUDITED)
                                                       Three Months Ended                     Nine Months Ended
                                                         September 30,                          September 30,
                                                   2002                   2001                2002               2001
                                                   ----                   ----                ----               ----
                                                                                         (in thousands)
<S>                                              <C>                    <C>                 <C>               <C>
NET INCOME                                       $53,947                $30,317             $155,896          $128,523

OTHER COMPREHENSIVE INCOME (LOSS):
  Cash Flow Power Hedges                          (1,731)                  -                     486             -
  Cash Flow Interest Rate Hedge                      108                   -                  (2,020)            -
  Foreign Currency Exchange Rate
   Hedge                                               4                    673                  147                44
                                                 -------                -------             --------          --------

COMPREHENSIVE INCOME                             $52,328                $30,990             $154,509          $128,567
                                                 =======                =======             ========          ========
</TABLE>
The common  stock of the Company is wholly  owned by AEP. See Notes to Financial
Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                   APPALACHIAN POWER COMPANY AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                                   (UNAUDITED)

                                             Three Months Ended                       Nine Months Ended
                                                September 30,                           September 30,
                                            2002                 2001                 2002               2001
                                            ----                 ----                 ----               ----
                                                                                (in thousands)
<S>                                       <C>                  <C>                  <C>               <C>
BALANCE AT BEGINNING OF PERIOD            $189,773             $152,987             $150,797          $120,584

NET INCOME                                  53,947               30,317              155,896           128,523
                                          --------             --------             --------          --------

DEDUCTIONS:
    Cash Dividends Declared:
      Common Stock                          30,984               32,399               92,952            97,196
      Preferred Stock                          361                  361                1,082             1,082
    Capital Stock Expense                      142                  141                  426               426
                                          --------             --------             --------          --------

BALANCE AT END OF PERIOD                  $212,233             $150,403             $212,233          $150,403
                                          ========             ========             ========          ========
</TABLE>

See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                   APPALACHIAN POWER COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                                   September 30, 2002             December 31, 2001
                                                                   ------------------             -----------------
                                                                                         (in thousands)

<S>                                                                             <C>                             <C>
ASSETS
ELECTRIC UTILITY PLANT:
   Production                                                                   $2,198,392                      $2,093,532
   Transmission                                                                  1,219,411                       1,222,226
   Distribution                                                                  1,927,797                       1,887,020
   General                                                                         252,295                         257,957
   Construction Work in Progress                                                   214,973                         203,922
                                                                                ----------                      ----------
        Total Electric Utility Plant                                             5,812,868                       5,664,657
   Accumulated Depreciation and Amortization                                     2,400,618                       2,296,481
                                                                                ----------                      ----------
        NET ELECTRIC UTILITY PLANT                                               3,412,250                       3,368,176
                                                                                ----------                      ----------

OTHER PROPERTY AND INVESTMENTS                                                      57,235                          53,736
                                                                                ----------                      ----------

LONG-TERM ENERGY TRADING AND DERIVATIVE
 CONTRACTS                                                                         347,588                         316,249
                                                                                ----------                      ----------

CURRENT ASSETS:
   Cash and Cash Equivalents                                                         9,428                          13,663
   Accounts Receivable:
      Customers                                                                    113,359                         113,371
      Affiliated Companies                                                         135,972                          63,368
      Miscellaneous                                                                 23,011                          11,847
      Allowance for Uncollectible Accounts                                          (2,345)                         (1,877)
   Fuel - at average cost                                                           50,064                          56,699
   Materials and Supplies - at average cost                                         61,308                          59,849
   Accrued Utility Revenues                                                         23,360                          30,907
   Energy Trading and Derivative Contracts                                         475,513                         566,284
   Prepayments and Other                                                            25,643                          16,018
                                                                                ----------                      ----------
        TOTAL CURRENT ASSETS                                                       915,313                         930,129
                                                                                ----------                      ----------

REGULATORY ASSETS                                                                  384,920                         397,383
                                                                                ----------                      ----------

DEFERRED CHARGES                                                                    41,377                          42,265
                                                                                ----------                      ----------

        TOTAL ASSETS                                                            $5,158,683                      $5,107,938
                                                                                ==========                      ==========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                   APPALACHIAN POWER COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                                             September 30, 2002            December 31, 2001
                                                                             ------------------            -----------------
                                                                                                  (in thousands)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
   Common Stock - No Par Value:
<S>                                                                                       <C>                          <C>
      Authorized - 30,000,000 Shares
      Outstanding - 13,499,500 Shares                                                     $  260,458                   $  260,458
   Paid-in Capital                                                                           716,212                      715,786
   Accumulated Other Comprehensive Income (Loss)                                              (1,727)                        (340)
   Retained Earnings                                                                         212,233                      150,797
                                                                                          ----------                   ----------
        Total Common Shareowner's Equity                                                   1,187,176                    1,126,701
   Cumulative Preferred Stock:
      Not Subject to Mandatory Redemption                                                     17,790                       17,790
      Subject to Mandatory Redemption                                                         10,860                       10,860
   Long-term Debt                                                                          1,568,904                    1,476,552
                                                                                          ----------                   ----------

           TOTAL CAPITALIZATION                                                            2,784,730                    2,631,903
                                                                                          ----------                   ----------

OTHER NONCURRENT LIABILITIES                                                                  84,725                       84,104
                                                                                          ----------                   ----------

CURRENT LIABILITIES:
   Long-term Debt Due Within One Year                                                        155,007                       80,007
   Advances from Affiliates                                                                  165,177                      291,817
   Accounts Payable - General                                                                129,869                      127,597
   Accounts Payable - Affiliated Companies                                                    55,298                       84,518
   Taxes Accrued                                                                              95,243                       55,583
   Customer Deposits                                                                          26,296                       13,177
   Interest Accrued                                                                           35,257                       21,770
   Energy Trading and Derivative Contracts                                                   445,532                      549,703
   Other                                                                                      70,811                       79,089
                                                                                          ----------                   ----------

           TOTAL CURRENT LIABILITIES                                                       1,178,490                    1,303,261
                                                                                          ----------                   ----------

DEFERRED INCOME TAXES                                                                        713,795                      703,575
                                                                                          ----------                   ----------

DEFERRED INVESTMENT TAX CREDITS                                                               35,033                       38,328
                                                                                          ----------                   ----------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                            272,862                      257,129
                                                                                          ----------                   ----------

REGULATORY LIABILITIES AND DEFERRED CREDITS                                                   89,048                       89,638
                                                                                          ----------                   ----------

COMMITMENTS AND CONTINGENCIES (Note 9)

        TOTAL CAPITALIZATION AND LIABILITIES                                              $5,158,683                   $5,107,938
                                                                                          ==========                   ==========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                   APPALACHIAN POWER COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                                                        Nine Months Ended
                                                                                          September 30,
                                                                                      2002                    2001
                                                                                      ----                    ----
                                                                                          (in thousands)
<S>                                                                              <C>                       <C>
OPERATING ACTIVITIES:
   Net Income                                                                    $ 155,896                 $ 128,523
   Adjustments for Noncash Items:
      Depreciation and Amortization                                                141,457                   134,034
      Deferred Income Taxes                                                         10,257                    30,506
      Deferred Investment Tax Credits                                               (3,295)                   (3,318)
      Amortization of Deferred Property Taxes                                       13,573                    13,480
      Mark-to-Market Energy Trading and Derivative Contracts                       (27,710)                  (99,410)
   Changes in Certain Current Assets and Liabilities:
      Accounts Receivable (net)                                                    (83,288)                  105,134
      Fuel, Materials and Supplies                                                   5,176                   (12,162)
      Accrued Utility Revenues                                                       7,547                    46,655
      Accounts Payable                                                             (26,948)                  (34,550)
      Taxes Accrued                                                                 39,660                    14,630
      Interest Accrued                                                              13,487                    19,104
   Change in Other Assets                                                          (21,270)                  (22,917)
   Change in Other Liabilities                                                       4,618                   (17,936)
                                                                                 ----------                ---------
           Net Cash Flows From Operating Activities                                229,160                   301,773
                                                                                 ---------                 ---------

INVESTING ACTIVITIES:
      Construction Expenditures                                                   (175,314)                 (185,185)
      Proceeds from Sale of Property and Other                                       3,483                     1,182
                                                                                 ---------                 ---------
           Net Cash Flows Used For Investing Activities                           (171,831)                 (184,003)
                                                                                 ---------                 ---------

FINANCING ACTIVITIES:
      Change in Short-term Debt (net)                                                 -                     (191,495)
      Change in Advances to Affiliates (net)                                      (126,640)                  217,925
      Issuance of Long-term Debt                                                   444,110                   124,588
      Retirement of Long-term Debt                                                (285,000)                 (175,000)
      Dividends Paid on Common Stock                                               (92,952)                  (97,196)
      Dividends Paid on Cumulative Preferred Stock                                  (1,082)                   (1,082)
                                                                                 ---------                 ---------
           Net Cash Flows Used For Financing Activities                            (61,564)                 (122,260)
                                                                                 ---------                 ---------

Net Decrease in Cash and Cash Equivalents                                           (4,235)                   (4,490)
Cash and Cash Equivalents at Beginning of Period                                    13,663                     5,847
                                                                                 ---------                 ---------
Cash and Cash Equivalents at End of Period                                       $   9,428                 $   1,357
                                                                                 =========                 =========
</TABLE>
Supplemental Disclosure:
Cash  paid  for  interest  net  of  capitalized   amounts  was  $68,305,000  and
$70,286,000  and for income taxes was  $38,425,000  and  $21,521,000 in 2002 and
2001,  respectively.  There were no noncash  payments for the capital  leases in
2002. Noncash acquisitions under capital leases were $2,576,000 in 2001.

See Notes to Financial Statements beginning on page L-1.
<PAGE>
                CENTRAL POWER AND LIGHT COMPANY AND SUBSIDIARIES
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS

                    THIRD QUARTER 2002 vs. THIRD QUARTER 2001
                                       AND
                     YEAR-TO-DATE 2002 vs. YEAR-TO-DATE 2001

       CPL is a  public  utility  engaged  in the  generation,  purchase,  sale,
transmission  and  distribution  of electric power in southern  Texas.  CPL also
sells  electric  power at wholesale to other  utilities,  municipalities,  rural
electric cooperatives and beginning in 2002 to its affiliated REP in Texas.
       Wholesale power  marketing and trading  activities are conducted on CPL's
behalf by AEPSC. CPL, along with the other AEP electric operating  subsidiaries,
shares in AEP's forward trades with other utility systems and power marketers.
       On January 1, 2002, customer choice of electricity  supplier began in the
Electric  Reliability  Council of Texas  (ERCOT)  area of Texas.  CPL  currently
operates in the ERCOT region of Texas.
       Under the Texas  Restructuring  Legislation,  each  electric  utility was
required to submit a plan to  structurally  unbundle its business  into a REP, a
power generator,  and a transmission and distribution  utility.  During the year
2000, CPL submitted a plan for separation that was subsequently  approved by the
PUCT.  As a result  of this  legislation,  CPL has  functionally  separated  its
generation  from its  transmission  and  distribution  operations  and  formed a
separate  affiliated REP.  Pending  regulatory  approval,  CPL will separate its
generation from its transmission and distribution operations. The affiliated REP
is a separate  legal  entity that is an AEP  subsidiary  that is not owned by or
consolidated with CPL.
       Since the affiliated REP is the electricity  supplier to retail customers
in the ERCOT area,  CPL sells its  generation  to the  affiliated  REP and other
market  participants  and provides  transmission  and  distribution  services to
retail customers in the CPL service  territory.  As a result of the formation of
the  affiliated  REP,   effective  January  1,  2002,  CPL  no  longer  supplies
electricity directly to retail customers.  The implementation of affiliated REPs
as suppliers to retail  customers has caused a significant  shift in CPL's sales
as described below under "Results of Operations."

Results of Operations
         Third quarter Net Income  increased $10 million or 12% primarily due to
decreased  interest  charges and the absence in 2002 of special tax  assessments
recorded in the third  quarter of 2001.  Year-to-date  Net Income  decreased $20
million or 12%  primarily  due to a slow  economic  recovery  and a  significant
decline in wholesale margins.
<PAGE>
<TABLE>
<CAPTION>
Changes in Revenues
                                                                                        Increase (Decrease)
                                                                             Third Quarter                    Year-to-Date
                                                                    (in millions)           %      (in millions)              %

<S>                                                                        <C>             <C>            <C>                <C>
       Electricity Marketing and Trading*                                  $(320)          (91)           $(877)             (93)
       Energy Delivery*                                                      (97)          (57)            (209)             (47)
       Sales to AEP Affiliates                                               436           N.M.             841              N.M.
                                                                           -----                          -----
            Total                                                          $  19             4            $(245)             (17)
                                                                           =====                          =====
</TABLE>
       *Reflects  the  allocation  of  certain   transmission  and  distribution
        revenues included in bundled retail rates to energy delivery.
       N.M. = Not Meaningful

        Electricity  Marketing and Trading revenues decreased as a result of the
  elimination of retail  electricity  sales in the ERCOT region as of January 1,
  2002 and a  decrease  in  energy  trading  margins  offset  in part by the ICR
  adjustments  (see Note 6). Also  contributing to the decrease was a decline in
  wholesale power prices due to soft market demand.
        Sales to AEP Affiliates increased primarily due to increased revenues to
  the  newly-created  affiliated  REP.  Although  CPL  sold  electricity  to the
  affiliated  REP  instead  of  directly  to retail  customers,  total  revenues
  decreased due to lower wholesale prices.
        For  the  quarter,  the  effect  of  the  ICR  adjustments  and  revenue
  associated with securitized  assets offset negative  wholesale  effects  (see
  Note 6).

Changes in Operating Expenses
<TABLE>
<CAPTION>
                                                                                     Increase (Decrease)
                                                                          Third Quarter                        Year-to-Date
                                                                (in millions)              %         (in millions)            %

<S>                                                                    <C>               <C>             <C>                <C>
       Fuel                                                            $(58)             (48)            $(213)             (51)
       Electricity Marketing                                             81              117                31               24
       Purchases from AEP Affiliates                                    (27)            (162)              (34)             (77)
       Other Operation                                                   (2)              (3)              (16)              (7)
       Maintenance                                                        1               10                (8)             (17)
       Depreciation and Amortization                                     29               87                36               28
       Taxes Other Than Income Taxes                                    (10)             (28)                5                7
       Income Taxes                                                      -                 -               (25)             (25)
                                                                       ----                              -----
            Total                                                      $ 14                3             $(224)             (19)
                                                                       ====                              =====
</TABLE>
         Fuel expense  decreased both for the quarter and  year-to-date due to a
decrease in the average unit cost of fuel and decreased generation.
         The  increase in  Electricity  Marketing  expense  and the  decrease in
Purchases  from AEP Affiliates is due to higher MWH purchases from the market at
prices lower than CPL's  generation  cost. ICR  adjustments in the third quarter
also had the effect of increasing  Electricity  Marketing expense and decreasing
Affiliates  Purchase Power,  resulting in a negative  Affiliated  Purchase Power
expense for the quarter (see Note 6).
         Other Operation expense decreased both for the quarter and year-to-date
due primarily to the  elimination of factoring of accounts  receivable and lower
ERCOT transmission related expenses.
<PAGE>
         Maintenance  expense  decreased for the year due to a refueling  outage
for STP during 2001.
         The increase in  Depreciation  and  Amortization is attributable to the
amortization of regulatory  assets that were securitized in the first quarter of
2002,  offset by the  reduction of excess  earnings  expense in 2002 under Texas
Restructuring Legislation.
         The increase  year-to-date  in Taxes Other Than Income  Taxes  resulted
primarily from higher local  franchise  taxes,  offset by one-time third quarter
2001 assessments and decreased gross receipts tax, due to deregulation.  For the
quarter,  the decrease was primarily  attributable to the one-time third quarter
2001 assessments described above.
         The  decrease in Income Taxes for the  year-to-date  period is due to a
decrease in pre-tax income.

Other Changes
         Nonoperating Income and Nonoperating  Expenses increased  significantly
during  the  quarter  and the  year-to-date  period  as a  result  of  increased
non-utility  revenue and expenses  associated  with energy related  construction
projects for third parties, offset in part by decreased interest income.
         Interest  Charges  decreased  primarily  due to the  issuance  of lower
interest  rates  securitization  bonds used to  refinance  regulatory  assets in
accordance with the Texas Restructuring Legislation.
         Nonoperating  Income Tax  Expense  decreased  both for the  quarter and
year-to-date  due to the  recording of the  investment  tax credit  amortization
related to power  plants as  Nonoperating  Income Tax Credits  since the time of
deregulation of CPL's power plants.
         As a result  of CPL's  recent  ability  to  purchase  electricity  at a
significantly  lower price than its current  cost to generate  electricity,  CPL
proposed  in  September  2002  to  "inactivate"  various,  high-cost  gas  fired
generating  facilities.  CPL recorded an impairment  charge in the third quarter
2002 of  approximately  $100 million  related to these plants which was deferred
and  recorded in  Regulatory  Assets,  to be included as a stranded  cost in the
Texas 2004 true-up proceeding (see Note 10).
<PAGE>
<TABLE>
<CAPTION>
                CENTRAL POWER AND LIGHT COMPANY AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

                                                                    Three Months Ended                    Nine Months Ended
                                                                      September 30,                         September 30,
                                                                  2002                  2001              2002              2001
                                                                  ----                  ----              ----              ----
                                                                                        (in thousands)
<S>                                                            <C>                   <C>              <C>                <C>
OPERATING REVENUES:
    Electricity Marketing and Trading                          $ 31,569              $351,532         $   66,172         $  943,584
    Energy Delivery                                              73,489               170,571            240,066            449,425
    Sales to AEP Affiliates                                     441,202                 5,014            879,323             37,440
                                                               --------              --------         ----------         ----------
           TOTAL OPERATING REVENUES                             546,260               527,117          1,185,561          1,430,449
                                                               --------              --------         ----------         ----------

OPERATING EXPENSES:
   Fuel                                                          63,657               121,933            207,941            420,965
   Purchased Power:
      Electricity Marketing                                     151,012                69,748            160,996            129,698
      Affiliates                                                (10,433)               16,876             10,058             43,685
   Other Operation                                               71,023                73,543            208,984            224,803
   Maintenance                                                   15,239                13,827             40,980             49,109
   Depreciation and Amortization                                 62,242                33,257            165,012            129,235
   Taxes Other Than Income Taxes                                 24,774                34,379             76,170             71,197
   Income Taxes                                                  50,542                50,956             77,452            102,656
                                                               --------              --------         ----------         ----------
           TOTAL OPERATING EXPENSES                             428,056               414,519            947,593          1,171,348
                                                               --------              --------         ----------         ----------

OPERATING INCOME                                                118,204               112,598            237,968            259,101

NONOPERATING INCOME                                              10,234                 4,690             24,237              7,192

NONOPERATING EXPENSES                                            10,184                   979             23,049              2,626

NONOPERATING INCOME TAX EXPENSE (CREDIT)                         (1,522)                  171             (2,037)               928

INTEREST CHARGES                                                 26,393                32,436             89,830             91,488
                                                               --------              --------         ----------         ----------

NET INCOME                                                       93,383                83,702            151,363            171,251

GAIN ON REACQUIRED PREFERRED STOCK                                    4                  -                     4               -

LESS: PREFERRED STOCK DIVIDEND
 REQUIREMENTS                                                        60                    60                181                181
                                                               --------              --------         ----------         ----------

EARNINGS APPLICABLE TO COMMON STOCK                            $ 93,327              $ 83,642         $  151,186         $  171,070
                                                               ========              ========         ==========         ==========
</TABLE>
<TABLE>
<CAPTION>
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (UNAUDITED)

                                                                 Three Months Ended                        Nine Months Ended
                                                                   September 30,                             September 30,
                                                             2002                     2001                  2002              2001
                                                             ----                     ----                  ----              ----
                                                                                     (in thousands)
<S>                                                        <C>                      <C>                  <C>              <C>
NET INCOME                                                 $93,383                  $83,702              $151,363         $171,251
OTHER COMPREHENSIVE INCOME
    Cash Flow Power Hedges                                    (205)                    -                       58             -
                                                           -------                  -------              --------         --------

COMPREHENSIVE INCOME                                       $93,178                  $83,702              $151,421         $171,251
                                                           =======                  =======              ========         ========
</TABLE>
The  common  stock  of CPL is  wholly  owned  by AEP.  See  Notes  to  Financial
Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                CENTRAL POWER AND LIGHT COMPANY AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                                   (UNAUDITED)

                                                               Three Months Ended                       Nine Months Ended
                                                                  September 30,                           September 30,
                                                             2002                  2001                     2002           2001
                                                             ----                  ----                     ----           ----
                                                                                     (in thousands)
<S>                                                        <C>                   <C>                      <C>              <C>
BALANCE AT BEGINNING OF PERIOD                             $807,052              $805,619                 $826,197         $792,219
NET INCOME                                                   93,383                83,702                  151,363          171,251
DEDUCTIONS (ADDITIONS):
  Capital Stock Gains                                            (4)                 -                          (4)            -
  Cash Dividends Declared:
    Common Stock                                             38,501                37,015                  115,505          111,043
    Preferred Stock                                              60                    60                      181              181
                                                           --------              --------                 --------         --------

BALANCE AT END OF PERIOD                                   $861,878              $852,246                 $861,878         $852,246
                                                           ========              ========                 ========         ========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                CENTRAL POWER AND LIGHT COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                                            September 30, 2002            December 31, 2001
                                                                            ------------------            -----------------
                                                                                                     (in thousands)
<S>                                                                                    <C>                           <C>
ASSETS
ELECTRIC UTILITY PLANT:
   Production                                                                          $2,726,661                    $3,169,421
   Transmission                                                                           699,834                       663,655
   Distribution                                                                         1,300,353                     1,279,037
   General                                                                                244,134                       241,137
   Construction Work in Progress                                                          181,179                       169,075
   Nuclear Fuel                                                                           258,059                       247,382
                                                                                       ----------                    ----------
        Total Electric Utility Plant                                                    5,410,220                     5,769,707
   Accumulated Depreciation and Amortization                                            2,199,635                     2,446,027
                                                                                       ----------                    ----------
      NET ELECTRIC UTILITY PLANT                                                        3,210,585                     3,323,680
                                                                                       ----------                    ----------

OTHER PROPERTY AND INVESTMENTS                                                             56,086                        47,950
                                                                                       ----------                    ----------

SECURITIZED TRANSITION ASSET                                                              742,766                          -
                                                                                       ----------                    ----------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                          21,874                        72,502
                                                                                       ----------                    ----------

CURRENT ASSETS:
   Cash and Cash Equivalents                                                               56,638                        10,909
   Accounts Receivable:
      General                                                                             114,134                        38,459
      Affiliated Companies                                                                189,442                         6,249
      Allowance for Uncollectible Accounts                                                   (391)                         (186)
   Fuel Inventory - at LIFO cost                                                           42,232                        38,690
   Materials and Supplies - at average cost                                                58,147                        55,475
   Energy Trading and Derivative Contracts                                                 35,211                       212,979
   Prepayments and Other Current Assets                                                     5,007                         2,742
                                                                                       ----------                    ----------
      TOTAL CURRENT ASSETS                                                                500,420                       365,317
                                                                                       ----------                    ----------

REGULATORY ASSETS                                                                         374,097                       226,812
                                                                                       ----------                    ----------

REGULATORY ASSETS DESIGNATED FOR SECURITIZATION                                           161,552                       959,294
                                                                                       ----------                    ----------

NUCLEAR DECOMMISSIONING TRUST FUND                                                         93,385                        98,600
                                                                                       ----------                    ----------

DEFERRED CHARGES                                                                           93,121                        21,837
                                                                                       ----------                    ----------

     TOTAL ASSETS                                                                      $5,253,886                    $5,115,992
                                                                                       ==========                    ==========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                CENTRAL POWER AND LIGHT COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                                             September 30, 2002            December 31, 2001
                                                                             ------------------            -----------------
                                                                                                        (in thousands)
<S>                                                                                            <C>                    <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
   Common Stock - $25 Par Value:
      Authorized - 12,000,000 Shares
      Outstanding - 2,211,678 Shares at September 30, 2002
                          6,755,535 Shares at December 31, 2001                                $   55,292             $  168,888
   Paid-in Capital                                                                                132,607                405,016
   Accumulated Other Comprehensive Income                                                              58                   -
   Retained Earnings                                                                              861,878                826,197
                                                                                               ----------             ----------
        Total Common Shareowner's Equity                                                        1,049,835              1,400,101
   Preferred Stock                                                                                  5,941                  5,951
   CPL - Obligated, Mandatorily Redeemable Preferred
     Securities of Subsidiary Trust Holding Solely
     Junior Subordinated Debentures of CPL                                                        136,250                136,250
   Long-term Debt                                                                               1,371,124                988,768
                                                                                               ----------             ----------

           TOTAL CAPITALIZATION                                                                 2,563,150              2,531,070
                                                                                               ----------             ----------

OTHER NONCURRENT LIABILITIES                                                                       13,571                 10,905
                                                                                               ----------             ----------

CURRENT LIABILITIES:
   Short-term Debt - Affiliates                                                                   200,000                   -
   Long-term Debt Due Within One Year                                                             123,087                265,000
   Advances from Affiliates                                                                       552,648                354,277
   Accounts Payable - General                                                                      84,410                 65,307
   Accounts Payable - Affiliated Companies                                                         13,892                 49,301
   Customer Deposits                                                                                  982                 26,744
   Over Recovered Fuel                                                                             70,314                 57,762
   Taxes Accrued                                                                                  144,710                 83,512
   Interest Accrued                                                                                35,354                 18,524
   Energy Trading and Derivative Contracts                                                         30,695                219,486
   Other                                                                                           22,447                 18,076
                                                                                                ---------             ----------

           TOTAL CURRENT LIABILITIES                                                            1,278,539              1,157,989
                                                                                               ----------             ----------

DEFERRED INCOME TAXES                                                                           1,171,257              1,163,795
                                                                                               ----------             ----------

DEFERRED INVESTMENT TAX CREDITS                                                                   118,987                122,892
                                                                                               ----------             ----------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                                  17,829                 62,138
                                                                                               ----------             ----------

REGULATORY LIABILITIES AND DEFERRED CREDITS                                                        90,553                 67,203
                                                                                               ----------             ----------

COMMITMENTS AND CONTINGENCIES (Note 9)

           TOTAL CAPITALIZATION AND LIABILITIES                                                $5,253,886             $5,115,992
                                                                                               ==========             ==========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                CENTRAL POWER AND LIGHT COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                                                   Nine Months Ended September 30,
                                                                                2002                      2001
                                                                                ----                      ----
                                                                                            (in thousands)
<S>                                                                           <C>                       <C>
OPERATING ACTIVITIES:
   Net Income                                                                 $ 151,363                 $ 171,251
   Adjustments for Noncash Items:
      Depreciation and Amortization                                             165,012                   129,235
      Deferred Income Taxes                                                     (14,620)                  (50,506)
      Deferred Investment Tax Credits                                            (3,905)                   (3,905)
      Deferred Property Taxes                                                    (9,560)                   (8,063)
      Mark-to-Market Energy Trading and Derivative Contracts                     (4,613)                   (7,198)
   Changes in Certain Current Assets and Liabilities:
      Accounts Receivable (net)                                                (258,663)                    9,894
      Fuel, Materials and Supplies                                               (6,214)                  (15,861)
      Fuel Recovery                                                              12,552                   116,473
      Accounts Payable                                                          (16,306)                  (30,223)
      Taxes Accrued                                                              61,198                   164,131
   Change in Other Assets                                                       (61,836)                      722
   Change in Other Liabilities                                                   19,093                    10,733
                                                                              ---------                 ---------
           Net Cash Flows From Operating Activities                              33,501                   486,683
                                                                              ---------                 ---------

INVESTING ACTIVITIES:
      Construction Expenditures                                                 (97,952)                 (158,191)
      Other                                                                        -                         (354)
                                                                              ---------                 ---------
           Net Cash Flows Used For Investing Activities                         (97,952)                 (158,545)
                                                                              ---------                 ----------

FINANCING ACTIVITIES:
      Issuance of Long-term Debt                                                797,335                      -
      Retirement of Long-term Debt                                             (583,836)                     -
      Reacquisition of Trust Preferred Securities                                   -                     (12,471)
      Change in Short-term Debt Affiliated (net)                                200,000                      -
      Retirement of Common Stock                                               (386,004)                     -
      Change in Advances from Affiliates (net)                                  198,371                  (211,990)
      Dividends Paid on Common Stock                                           (115,505)                 (111,043)
      Dividends Paid on Cumulative Preferred Stock                                 (181)                     (181)
                                                                              ---------                 ---------
           Net Cash Flows From (Used For) Financing Activities                  110,180                  (335,685)
                                                                              ---------                 ---------

Net Increase (Decrease) in Cash and Cash Equivalents                             45,729                    (7,547)
Cash and Cash Equivalents at Beginning of Period                                 10,909                    14,253
                                                                              ---------                 ---------
Cash and Cash Equivalents at End of Period                                    $  56,638                 $   6,706
                                                                              =========                 =========
</TABLE>
Supplemental Disclosure:
Cash  paid  for  interest  net  of  capitalized   amounts  was  $63,005,000  and
$80,612,000  and for income taxes was  $44,322,000  and  $11,939,000 in 2002 and
2001, respectively.

See Notes to Financial Statements beginning on page L-1.
<PAGE>
                COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
            MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

                    THIRD QUARTER 2002 vs. THIRD QUARTER 2001
                                       AND
                     YEAR-TO-DATE 2002 vs. YEAR-TO-DATE 2001

        CSPCo is a public utility  engaged in the  generation,  purchase,  sale,
transmission and distribution of electric power to approximately  678,000 retail
customers  in central and  southern  Ohio.  CSPCo,  as a member of the AEP Power
Pool,  shares in the revenues and costs of the AEP Power Pool's  wholesale sales
to  neighboring  utility  systems and power  marketers  including  power trading
transactions. CSPCo also sells wholesale power to municipalities.
         The cost of the AEP Power Pool's generating capacity is allocated among
its members based on their relative peak demands and generating reserves through
the payment of capacity charges and receipt of capacity credits.  AEP Power Pool
members are also compensated for their  out-of-pocket  costs of energy delivered
to the AEP Power Pool and charged for energy  received  from the AEP Power Pool.
The AEP Power Pool  calculates  each  company's  prior  twelve month peak demand
relative to the total peak demand of all member companies as a basis for sharing
AEP Power Pool revenues and costs.  The result of this calculation is the member
load ratio (MLR) which  determines each company's  percentage share of AEP Power
Pool revenues and costs.

Results of Operations
        Net Income increased $11 million or 17% in the third quarter of 2002 due
to higher retail sales and reduced  interest  charges.  Net Income increased $38
million or 30% in the year-to-date  period due to reduced interest charges and a
$26 million  extraordinary  loss recorded in the prior period second  quarter to
recognize a stranded asset resulting from deregulation.

Changes in Revenues
<TABLE>
<CAPTION>
                                                                                         Increase (Decrease)
                                                                               Third Quarter                        Year-to-Date
                                                                     (in millions)             %        (in millions)            %
<S>                                                                           <C>             <C>               <C>              <C>
       Electricity Marketing and Trading*                                     $42             19                $ 45             7
       Energy Delivery*                                                         9              6                  15             4
       Sales to AEP Affiliates                                                  2             17                 (10)          (20)
                                                                              ---                               ----
            Total                                                             $53             14                $ 50             5
                                                                              ===                               ====
</TABLE>
       *Reflects  the  allocation  of  certain   transmission  and  distribution
        revenues included in bundled retail rates to energy delivery.

        The  quarter  and  year-to-date  increase  in  revenues is mainly due to
higher  residential  and  commercial  sales  that  resulted  from  above  normal
temperatures during the third quarter compared with milder weather in 2001.
<PAGE>
<TABLE>
<CAPTION>
Changes in Operating Expenses

                                                                                Increase (Decrease)
                                                                     Third Quarter                    Year-to-Date
                                                          (in millions)             %  (in millions)                  %
<S>                                                                <C>            <C>           <C>                 <C>
       Fuel                                                        $ 4             11           $ 4                   3
       Electricity Marketing Purchases                               8            321            11                 148
       Purchases from AEP Affiliates                                 6              8            15                   7
       Other Operation                                               5              8            12                   7
       Maintenance                                                   -             -            (10)                (18)
       Depreciation and Amortization                                 1              3             3                   4
       Taxes other Than Income Taxes                                 1              2            (2)                 (2)
       Income Taxes                                                 16             50            16                  22
                                                                   ---                          ---
            Total                                                  $41             14           $49                   6
                                                                   ===                          ===
</TABLE>
        Electricity  Marketing  Purchases  increased  in the quarter and year to
date  periods  due to  increased  purchases  from  third  parties  for resale to
wholesale customers and to meet internal demand.
        Other  Operation  expense  increased  in both periods  primarily  due to
increases  in  benefits  expense  as  a  result  of  higher  benefit  costs  and
application of a lower discount rate.
        Maintenance expenses decreased in the year-to-date period of 2002 due to
boiler  overhaul work that was performed  during 2001.  Expenses for maintaining
distribution overhead lines were also lower in 2002.
        The increase in Income Taxes for both periods is predominately due to an
increase in pre-tax income.

Other Changes
        The  decrease  in  Nonoperating  Income  in  both  periods  was due to a
reduction in net gains from AEP Power Pool trading  transactions  outside of the
AEP System's  traditional  marketing  area. The AEP Power Pool enters into power
trading  transactions  for the purchase and sale of electricity and for options,
futures  and swaps.  Our share of the AEP Power  Pool's  gains and  losses  from
forward electricity trading  transactions  outside of the AEP System traditional
marketing area and for speculative  financial  transactions  (options,  futures,
swaps) is included in nonoperating  income. The decrease reflects a reduction in
electricity prices and margins due to a decrease in demand.

     The decrease in Nonoperating  Expense in the quarter and  year-to-date  was
due to lower  energy  trading  overheads  resulting  from a decrease  in trading
incentives.

     Non-Operating  Income Tax  expense  increased  in both  periods  due to the
flow-through  of deferred  taxes and a change in the  allocation  of tax savings
from AEP.

     The decrease in Interest in both periods was primarily due to a decrease in
the  outstanding  balance of long-term debt since the first quarter of 2001, the
refinancing  of debt at favorable  interest  rates and a reduction in short-term
interest rates.
<PAGE>
<TABLE>
<CAPTION>
                COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

                                                                    Three Months Ended                     Nine Months Ended
                                                                      September 30,                          September 30,
                                                                  2002                  2001              2002                2001
                                                                  ----                  ----              ----                ----
                                                                                        (in thousands)
<S>                                                             <C>                  <C>              <C>                <C>
OPERATING REVENUES:
    Electricity Marketing and Trading                           $262,754             $221,161         $  670,830         $  625,592
    Energy Delivery                                              148,359              139,674            373,969            358,984
    Sales to AEP Affiliates                                       17,324               14,856             42,277             52,547
                                                                --------             --------         ----------         ----------
           TOTAL OPERATING REVENUES                              428,437              375,691          1,087,076          1,037,123
                                                                --------             --------         ----------         ----------

OPERATING EXPENSES:
   Fuel                                                           47,228               42,702            135,942            132,100
   Purchased Power:
      Electricity Marketing                                       10,113                2,401             17,669              7,133
      AEP Affiliates                                              85,228               79,263            235,432            220,039
   Other Operation                                                62,394               57,856            178,042            165,941
   Maintenance                                                    14,878               15,254             44,068             53,763
   Depreciation and Amortization                                  33,450               32,352             98,588             95,213
   Taxes Other Than Income Taxes                                  37,570               36,686             97,176             99,452
   Income Taxes                                                   48,543               32,257             87,538             71,736
                                                                --------             --------         ----------         ----------
           TOTAL OPERATING EXPENSES                              339,404              298,771            894,455            845,377
                                                                --------             --------         ----------         ----------

OPERATING INCOME                                                  89,033               76,920            192,621            191,746

NONOPERATING INCOME                                                5,361               10,153             19,751             31,457

NONOPERATING EXPENSES                                              1,015                4,182              1,432             16,182

NONOPERATING INCOME TAX EXPENSE                                    4,590                  702              9,387              3,522

INTEREST CHARGES                                                  12,672               16,871             39,857             53,092
                                                                --------             --------         ----------         ----------
INCOME BEFORE EXTRAORDINARY ITEM                                  76,117               65,318            161,696            150,407

EXTRAORDINARY LOSS - EFFECTS OF
 DEREGULATION (INCLUSIVE OF TAX BENEFIT
 OF $8,353,000)                                                     -                    -                  -               (26,407)
                                                                --------             --------         ----------         ----------

NET INCOME                                                        76,117               65,318            161,696            124,000

PREFERRED STOCK DIVIDEND REQUIREMENTS                                694                  244              1,078                847
                                                                --------             --------         ----------         ----------
EARNINGS APPLICABLE TO COMMON STOCK                             $ 75,423             $ 65,074         $  160,618         $  123,153
                                                                ========             ========         ==========         ==========
</TABLE>
<TABLE>
<CAPTION>
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (UNAUDITED)
                                                                    Three Months Ended                     Nine Months Ended
                                                                      September 30,                          September 30,
                                                                 2002                  2001                 2002              2001
                                                                 ----                  ----                 ----              ----
                                                                                                    (in thousands)
<S>                                                            <C>                   <C>                  <C>             <C>
NET INCOME                                                     $76,117               $65,318              $161,696        $124,000

OTHER COMPREHENSIVE INCOME (LOSS)
  Cash Flow Power Hedges                                        (1,123)                 -                      326            -
                                                               -------               -------              --------        --------
COMPREHENSIVE INCOME                                           $74,994               $65,318              $162,022        $124,000
                                                               =======               =======              ========        ========
</TABLE>
The common stock of CSPCo is wholly owned by AEP.

See Notes to Financial Statements beginning on page L-1.

<PAGE>
<TABLE>
<CAPTION>
                COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                                   (UNAUDITED)

                                                                    Three Months Ended                      Nine Months Ended
                                                                      September 30,                           September 30,
                                                                   2002                 2001               2002               2001
                                                                   ----                 ----               ----               ----
                                                                                                      (in thousands)
<S>                                                             <C>                   <C>                <C>               <C>
BALANCE AT BEGINNING OF PERIOD                                  $217,290              $115,243           $176,103          $ 99,069
NET INCOME                                                        76,117                65,318            161,696           124,000
DEDUCTIONS:
  Cash Dividends Declared:
    Common Stock                                                  21,766                20,738             65,300            62,214
    Preferred Stock                                                 -                      175                350               700
  Capital Stock Expense                                              254                   255                762               762
                                                                --------              --------           --------          --------

BALANCE AT END OF PERIOD                                        $271,387              $159,393           $271,387          $159,393
                                                                ========              ========           ========          ========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                                            September 30, 2002            December 31, 2001
                                                                            ------------------            -----------------
                                                                                                  (in thousands)

<S>                                                                                    <C>                             <C>
ASSETS
ELECTRIC UTILITY PLANT:
   Production                                                                          $1,582,400                      $1,574,506
   Transmission                                                                           412,188                         401,405
   Distribution                                                                         1,193,010                       1,159,105
   General                                                                                152,771                         146,732
   Construction Work in Progress                                                           86,262                          72,572
                                                                                       ----------                      ----------
       Total Electric Utility Plant                                                     3,426,631                       3,354,320
   Accumulated Depreciation and Amortization                                            1,446,071                       1,377,032
                                                                                       ----------                      ----------
        NET ELECTRIC UTILITY PLANT                                                      1,980,560                       1,977,288
                                                                                       ----------                      ----------

OTHER PROPERTY AND INVESTMENTS                                                             38,632                          40,369
                                                                                       ----------                      ----------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                         233,662                         193,915
                                                                                       ----------                      ----------

CURRENT ASSETS:
   Cash and Cash Equivalents                                                                7,548                          12,358
   Advances to Affiliates                                                                  25,117                            -
   Accounts Receivable:
      Customers                                                                            34,437                          41,770
      Affiliated Companies                                                                100,664                          63,470
      Miscellaneous                                                                        20,669                          16,968
      Allowance for Uncollectible Accounts                                                   (778)                           (745)
   Fuel - at average cost                                                                  20,561                          20,019
   Materials and Supplies - at average cost                                                40,833                          38,984
   Accrued Utility Revenues                                                                22,012                           7,087
   Energy Trading and Derivative Contracts                                                319,191                         347,198
   Prepayments and Other Current Assets                                                    35,724                          28,733
                                                                                       ----------                      ----------
        TOTAL CURRENT ASSETS                                                              625,978                         575,842
                                                                                       ----------                      ----------

REGULATORY ASSETS                                                                         251,896                         262,267
                                                                                       ----------                      ----------

DEFERRED CHARGES                                                                           34,361                          56,187
                                                                                       ----------                      ----------

        TOTAL ASSETS                                                                   $3,165,089                      $3,105,868
                                                                                       ==========                      ==========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                                           September 30, 2002              December 31, 2001
                                                                           ------------------              -----------------
                                                                                                  (in thousands)

<S>                                                                                    <C>                             <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
   Common Stock - No Par Value:
      Authorized - 24,000,000 Shares
      Outstanding - 16,410,426 Shares                                                  $   41,026                      $   41,026
   Paid-in Capital                                                                        575,131                         574,369
   Accumulated Other Comprehensive Income                                                     326                            -
   Retained Earnings                                                                      271,387                         176,103
                                                                                       ----------                      ----------
        Total Common Shareowner's Equity                                                  887,870                         791,498
   Cumulative Preferred Stock - Subject to
    Mandatory Redemption                                                                     -                             10,000
   Long-term Debt                                                                         583,565                         571,348
                                                                                       ----------                      ----------

           TOTAL CAPITALIZATION                                                         1,471,435                       1,372,846
                                                                                       ----------                      ----------

OTHER NONCURRENT LIABILITIES                                                               34,560                          36,715
                                                                                       ----------                      ----------

CURRENT LIABILITIES:
   Long-term Debt Due Within One Year - General                                            58,500                          20,500
   Long-term Debt Due Within One Year -
    Affiliated Companies                                                                     -                            200,000
   Short-term Debt Affiliated                                                             290,000                            -
   Advances from Affiliates                                                                  -                            181,384
   Accounts Payable - General                                                              77,701                          60,689
   Accounts Payable - Affiliated Companies                                                 56,179                          83,697
   Taxes Accrued                                                                          121,961                         116,364
   Interest Accrued                                                                        12,392                          10,907
   Energy Trading and Derivative Contracts                                                299,439                         334,957
   Other                                                                                   41,769                          36,305
                                                                                       ----------                      ----------

           TOTAL CURRENT LIABILITIES                                                      957,941                       1,044,803
                                                                                       ----------                      ----------

DEFERRED INCOME TAXES                                                                     454,900                         443,722
                                                                                       ----------                      ----------

DEFERRED INVESTMENT TAX CREDITS                                                            34,841                          37,176
                                                                                       ----------                      ----------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                         183,429                         157,706
                                                                                       ----------                      ----------

DEFERRED CREDITS                                                                           27,983                          12,900
                                                                                       ----------                      ----------

COMMITMENTS AND CONTINGENCIES (Note 9)

           TOTAL CAPITALIZATION AND LIABILITIES                                        $3,165,089                      $3,105,868
                                                                                       ==========                      ==========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                COLUMBUS SOUTHERN POWER COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                                             Nine Months Ended September 30,
                                                                                    (in thousands)
                                                                           2002                     2001
                                                                           ----                     ----
<S>                                                                         <C>                       <C>
OPERATING ACTIVITIES:
   Net Income                                                               $ 161,696                 $ 124,000
   Adjustments for Noncash Items:
      Depreciation and Amortization                                            98,666                    96,194
      Deferred Income Taxes                                                    12,450                    25,360
      Deferred Investment Tax Credits                                          (2,335)                   (2,508)
      Deferred Property Tax                                                    31,968                    53,168
      Mark-to-Market Energy Trading and Derivative Contracts                  (21,033)                  (60,743)
   Changes in Certain Current Assets and Liabilities:
      Accounts Receivable (net)                                               (33,529)                   (3,254)
      Fuel, Materials and Supplies                                             (2,391)                   (8,977)
      Accrued Utility Revenues                                                (14,925)                    5,129
      Prepayments and Other Current Assets                                     (6,991)                      400
      Accounts Payable                                                        (10,506)                    6,848
      Taxes Accrued                                                             5,597                   (28,836)
   Other Assets                                                                (3,155)                   13,437
   Other Liabilities                                                           12,218                   (27,045)
                                                                            ---------                 ---------
           Net Cash Flows From Operating Activities                           227,730                   193,173
                                                                            ---------                 ---------

INVESTING ACTIVITIES:
      Construction Expenditures                                               (88,101)                 (110,631)
      Proceeds from Sale of Property                                              730                    10,673
                                                                            ---------                 ---------
           Net Cash Flows Used For Investing Activities                       (87,371)                  (99,958)
                                                                            ---------                 ---------

FINANCING ACTIVITIES:
      Proceeds From Issuance of Long-term Debt - Affiliated                      -                      200,000
      Retirement of Long-term Debt-Affiliated                                (200,000)                     -
      Change in Short-term Debt Affiliated (net)                              290,000                      -
      Issuance of Long-term Debt                                              160,000                      -
      Changes In Advances from Affiliates (net)                              (206,501)                   51,422
      Retirement of Cumulative Preferred Stock                                (10,000)                   (5,000)
      Retirement of Long-term Debt                                           (112,843)                 (280,632)
      Dividends Paid on Common Stock                                          (65,300)                  (62,214)
      Dividends Paid on Cumulative Preferred Stock                               (525)                     (788)
                                                                            ---------                 ---------
           Net Cash Flows Used For Financing Activities                      (145,169)                  (97,212)
                                                                            ---------                 ---------

Net Decrease in Cash and Cash Equivalents                                      (4,810)                   (3,997)
Cash and Cash Equivalents at Beginning of Period                               12,358                    11,600
                                                                            ---------                 ---------
Cash and Cash Equivalents at End of Period                                  $   7,548                 $   7,603
                                                                            =========                 =========
</TABLE>
Supplemental Disclosure:
Cash  paid  for  interest  net  of  capitalized   amounts  was  $37,204,000  and
$49,126,000  and for income taxes was  $32,254,000  and  $17,579,000 in 2002 and
2001, respectively. Noncash acquisitions under capital leases were $1,019,000 in
2001.

See Notes to Financial Statements beginning on page L-1.
<PAGE>
                 INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS

                    THIRD QUARTER 2002 vs. THIRD QUARTER 2001
                                       AND
                     YEAR-TO-DATE 2002 vs. YEAR-TO-DATE 2001

       I&M is a  public  utility  engaged  in the  generation,  purchase,  sale,
transmission and distribution of electric power to approximately  567,000 retail
customers in its service territory in northern and eastern Indiana and a portion
of  southwestern  Michigan.  As a member of the AEP Power  Pool,  I&M shares the
revenues and the costs of the AEP Power Pool's  wholesale  sales to  neighboring
utility systems and power marketers  including power trading  transactions.  I&M
also sells wholesale power to municipalities and electric cooperatives.
       The cost of the AEP Power Pool's  generating  capacity is allocated among
its members based on their relative peak demands and generating reserves through
the payment of capacity charges and the receipt of capacity  credits.  AEP Power
Pool  members  are  also  compensated  for the  out-of-pocket  costs  of  energy
delivered  to the AEP Power Pool and  charged for energy  received  from the AEP
Power Pool. The AEP Power Pool calculates each company's prior twelve month peak
demand relative to the total peak demand of all member  companies as a basis for
sharing  revenues and costs.  The result of this  calculation  is each company's
member load ratio (MLR) which  determines  each  company's  percentage  share of
revenues and costs.
       Under the terms of unit power agreements, I&M purchases AEGCo's 50% share
of the 2,600 MW Rockport  Plant capacity  unless it is sold to other  utilities.
AEGCo is an affiliate  that is not a member of the AEP Power Pool.  An agreement
between AEGCo and KPCo provides for the sale of 390 MW of AEGCo's Rockport Plant
capacity to KPCo through  2004.  Therefore,  I&M purchases 910 MW of AEGCo's 50%
share of Rockport Plant capacity.

Results of Operations
          The $10 million or 41%  increase  in Net Income for the third  quarter
reflects  increased  sales of electricity to retail  customers and a decrease in
Other  Operation  expense.  Net  Income  decreased  $31  million  or  36% in the
year-to-date  period due  primarily  to a reduction in  generation  in 2002 as a
result of a  refueling  outage at each unit of I&M's Cook Plant and  maintenance
outages at Rockport Plant.
        Operating   revenues  increased  6%  in  the  third  quarter  reflecting
increased  sales to retail  customers  and AEP  affiliates.  The 2%  decrease in
operating  revenues  for  the  year-to-date  period  reflects  the  decrease  in
generation in 2002 due to power plant outages.


<PAGE>
<TABLE>
<CAPTION>
Changes in Revenues
                                                                                           Increase (Decrease)
                                                                                 Third Quarter                  Year-to-Date
                                                                       (in millions)          %     (in millions)          %

<S>                                                                            <C>           <C>             <C>           <C>
       Electricity Marketing and Trading*                                      $ 10           4              $  8            1
       Energy Delivery*                                                           5           5                 1          N.M.
       Sales to AEP Affiliates                                                    8          16               (34)         (18)
                                                                                ---                          ----
            Total                                                               $23           6              $(25)          (2)
                                                                                ===                          ====
</TABLE>
       *Reflects  the  allocation  of  certain   transmission  and  distribution
        revenues included in bundled retail rates to energy delivery.


        The increase in Electricity  Marketing and Trading revenues in the third
quarter and  year-to-date  was due to increased sales to I&M's retail  customers
due to warmer summer weather  partially offset by lower wholesale energy prices.
The increase in Sales to AEP Affiliates in the third quarter reflects  increased
generation  from Cook Plant in 2002.  In September  2001 problems with the water
intake system forced Cook Plant into an unplanned outage. Revenues from Sales to
AEP Affiliates in the  year-to-date  period decreased  significantly  reflecting
less power being  available for sale as each of the Cook Nuclear Plant units was
shutdown  for  refueling  in the  first  six  months  of 2002 and both  units of
Rockport  Plant  underwent  scheduled  planned  boiler  maintenance in the first
quarter of 2002. With the outages in 2002, I&M's available  generation decreased
resulting in less power being delivered to the AEP Power Pool.
<TABLE>
<CAPTION>
Changes in Operating Expenses
                                                                                           Increase (Decrease)
                                                                             Third Quarter                       Year-to-Date
                                                                 (in millions)                %       (in millions)           %
<S>                                                                      <C>                <C>               <C>          <C>
       Fuel                                                              $ 6                 11               $(11)          (6)
       Electricity Marketing Purchases                                     9                173                 11           81
       Purchases from AEP Affiliates                                      (3)                (5)                (6)          (3)
       Other Operation                                                   (14)               (11)                12            4
       Maintenance                                                        10                 31                 21           23
       Depreciation and Amortization                                       1                  2                  3            3
       Taxes other Than Income Taxes                                       -                  -                  1            2
       Income Taxes                                                        1                  7                (20)         (39)
                                                                         ---                                  ----
            Total                                                        $10                  3               $ 11            1
                                                                         ===                                  ====
</TABLE>
        The increase in Fuel expense for the third quarter  reflects an increase
in nuclear and fossil fuel costs as generation rose  significantly in 2002. Fuel
expense for the year-to-date  period decreased  primarily due to the decrease in
generation  reflecting the plant outages as both units of the nuclear plant were
refueled in 2002 and Rockport Plant's outage time increased. In addition,  gains
on coal trading lowered the average fuel cost.
        The increase in Electricity  Marketing  Purchases in both periods is due
to  increased  purchases  from  third  parties  for sales for resale and to meet
internal demand.
        Purchases  from AEP  Affiliates  decreased  in both periods due to lower
purchase  volumes and lower cost of power  acquired from AEGCo and the AEP Power
Pool.
<PAGE>
        For the third quarter,  Other Operation  expense  decreased due to lower
trading  incentives,  the  effect of  recording  severances  in 2001 for  energy
delivery employees, and lower nuclear operations costs reflecting the effects of
the  2001  outage  at Cook  Plant.  Other  Operation  and  Maintenance  expenses
increased for the year-to-date  period due to costs related to the nuclear plant
refueling  outages.  The increase in  Maintenance  expense for the third quarter
reflects amortization of deferred refueling expenses.
        The decrease in Income Tax expense  attributable  to operations  for the
year-to-date period is due primarily to a decline in pre-tax operating income.

Other Changes
        Nonoperating  Income decreased in the quarter and  year-to-date  periods
due to a  reduction  in power  trading  margins  outside  of  AEP's  traditional
marketing area resulting from the overall decline of wholesale energy markets.
     Nonoperating  Expenses decreased due to reductions in variable compensation
expense associated with wholesale trading. Nonoperating
     Income  Taxes  decreased  in the  year-to-date  period due to a decrease in
pre-tax income.
<PAGE>
<TABLE>
<CAPTION>
                 INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

                                                                    Three Months Ended                     Nine Months Ended
                                                                      September 30,                          September 30,
                                                                  2002                  2001              2002                2001
                                                                  ----                  ----              ----                ----
                                                                                        (in thousands)
<S>                                                             <C>                   <C>             <C>                <C>
OPERATING REVENUES:
    Electricity Marketing and Trading                           $271,733              $261,666        $  747,207         $  739,377
    Energy Delivery                                               89,222                84,674           242,416            241,581
    Sales to AEP Affiliates                                       60,517                52,117           153,127            187,546
                                                                --------              --------        ----------         ----------

           TOTAL OPERATING REVENUES                              421,472               398,457         1,142,750          1,168,504
                                                                --------              --------        ----------         ----------

OPERATING EXPENSES:
   Fuel                                                           65,904                59,535           173,223            183,999
   Purchased Power:
      Electricity Marketing                                       13,764                 5,036            24,444             13,476
      AEP Affiliates                                              59,846                62,730           176,463            182,083
   Other Operation                                               108,457               122,211           340,556            328,654
   Maintenance                                                    41,668                31,913           112,291             91,594
   Depreciation and Amortization                                  42,081                41,172           125,817            122,735
   Taxes Other Than Income Taxes                                  16,698                16,376            52,794             51,950
   Income Taxes                                                   16,050                14,975            29,930             49,466
                                                                --------              --------        ----------          ---------

           TOTAL OPERATING EXPENSES                              364,468               353,948         1,035,518          1,023,957
                                                                --------              --------        ----------         ----------

OPERATING INCOME                                                  57,004                44,509           107,232            144,547

NONOPERATING INCOME                                               22,614                25,463            71,878             82,181

NONOPERATING EXPENSES                                             17,590                20,030            50,711             63,759

NONOPERATING INCOME TAXES                                          2,999                 2,113             3,887              6,246

INTEREST CHARGES                                                  23,717                22,765            70,648             71,922
                                                                --------              --------        ----------         ----------

NET INCOME                                                        35,312                25,064            53,864             84,801

PREFERRED STOCK DIVIDEND REQUIREMENTS                              1,145                 1,155             3,453              3,466
                                                                --------              --------        ----------         ----------

EARNINGS APPLICABLE TO COMMON STOCK                             $ 34,167              $ 23,909        $   50,411         $   81,335
                                                                ========              ========        ==========         ==========
</TABLE>
<TABLE>
<CAPTION>
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (UNAUDITED)
                                                                    Three Months Ended                     Nine Months Ended
                                                                      September 30,                          September 30,
                                                                  2002                  2001              2002                2001
                                                                  ----                  ----              ----                ----
                                                                                        (in thousands)
<S>                                                              <C>                   <C>               <C>                <C>
NET INCOME                                                       $35,312               $25,064           $53,864            $84,801

OTHER COMPREHENSIVE INCOME (LOSS)
    Cash Flow Interest Rate Hedge                                  1,348                  (878)            3,835             (3,700)
    Cash Flow Power Hedges                                        (1,218)                 -                  349               -
                                                                 -------               -------           -------            -------

COMPREHENSIVE INCOME                                             $35,442               $24,186           $58,048            $81,101
                                                                 =======               =======           =======            =======
</TABLE>
The  common  stock  of I&M is  wholly  owned  by AEP.  See  Notes  to  Financial
Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                 INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                                   (UNAUDITED)

                                                                 Three Months Ended                       Nine Months Ended
                                                                   September 30,                            September 30,
                                                                  2002                2001                  2002           2001
                                                                  ----                ----                  ----           ----
                                                                                     (in thousands)
<S>                                                             <C>                 <C>                   <C>              <C>
BALANCE AT BEGINNING OF PERIOD                                  $ 90,847            $60,869               $ 74,605         $ 3,443

NET INCOME                                                        35,312             25,064                 53,864          84,801

DEDUCTIONS:
Cash Dividends Declared -
   Cumulative Preferred Stock                                      1,109              1,121                  3,352           3,365
Capital Stock Expense                                                 33                 34                    100             101
                                                                --------            -------               --------         -------

BALANCE AT END OF PERIOD                                        $125,017            $84,778               $125,017         $84,778
                                                                ========            =======               ========         =======
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                 INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                                            September 30, 2002             December 31, 2001
                                                                            ------------------             -----------------
                                                                                                  (in thousands)
<S>                                                                                    <C>                             <C>
ASSETS
ELECTRIC UTILITY PLANT:
   Production                                                                          $2,768,964                      $2,758,160
   Transmission                                                                           970,724                         957,336
   Distribution                                                                           914,575                         900,921
   General (including nuclear fuel)                                                       222,247                         233,005
   Construction Work in Progress                                                          116,000                          74,299
                                                                                       ----------                      ----------
        Total Electric Utility Plant                                                    4,992,510                       4,923,721
   Accumulated Depreciation and Amortization                                            2,541,379                       2,436,972
                                                                                       ----------                      ----------
             NET ELECTRIC UTILITY PLANT                                                 2,451,131                       2,486,749
                                                                                       ----------                      ----------

NUCLEAR DECOMMISSIONING AND SPENT NUCLEAR FUEL
  DISPOSAL TRUST FUNDS                                                                    832,585                         834,109
                                                                                       ----------                      ----------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                         257,142                         215,544
                                                                                       ----------                      ----------

OTHER PROPERTY AND INVESTMENTS                                                            123,674                         127,977
                                                                                       ----------                      ----------

CURRENT ASSETS:
   Cash and Cash Equivalents                                                                9,002                          16,804
   Advances to Affiliates                                                                  45,095                          46,309
   Accounts Receivable:
      Customers                                                                            54,781                          60,864
      Affiliated Companies                                                                143,331                          31,908
      Miscellaneous                                                                        35,093                          25,398
      Allowance for Uncollectible Accounts                                                   (749)                           (741)
   Fuel - at average cost                                                                  23,736                          28,989
   Materials and Supplies - at average cost                                                95,538                          91,440
   Energy Trading and Derivative Contracts                                                367,452                         399,195
   Accrued Utility Revenues                                                                 6,484                           2,072
   Prepayments                                                                             10,256                           6,497
                                                                                       ----------                      ----------
          TOTAL CURRENT ASSETS                                                            790,019                         708,735
                                                                                       ----------                      ----------

REGULATORY ASSETS                                                                         376,141                         408,927
                                                                                       ----------                      ----------

DEFERRED CHARGES                                                                           40,464                          34,967
                                                                                       ----------                      ----------

          TOTAL ASSETS                                                                 $4,871,156                      $4,817,008
                                                                                       ==========                      ==========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                 INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                                            September 30, 2002             December 31, 2001
                                                                            ------------------             -----------------
                                                                                                  (in thousands)
<S>                                                                                    <C>                             <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
   Common Stock - No Par Value:
      Authorized - 2,500,000 Shares
      Outstanding - 1,400,000 Shares                                                   $   56,584                      $   56,584
   Paid-in Capital                                                                        858,526                         733,216
   Accumulated Other Comprehensive Income (Loss)                                              349                          (3,835)
   Retained Earnings                                                                      125,017                          74,605
                                                                                       ----------                      ----------
        Total Common Shareowner's Equity                                                1,040,476                         860,570
   Cumulative Preferred Stock:
      Not Subject to Mandatory Redemption                                                   8,103                           8,736
      Subject to Mandatory Redemption                                                      64,945                          64,945
   Long-term Debt                                                                       1,365,815                       1,312,082
                                                                                       ----------                      ----------

           TOTAL CAPITALIZATION                                                         2,479,339                       2,246,333
                                                                                       ----------                      ----------

OTHER NONCURRENT LIABILITIES:
   Nuclear Decommissioning                                                                583,764                         600,244
   Other                                                                                   83,265                          87,025
                                                                                       ----------                      ----------

           TOTAL OTHER NONCURRENT LIABILITIES                                             667,029                         687,269
                                                                                       ----------                      ----------

CURRENT LIABILITIES:
   Long-term Debt Due Within One Year                                                      90,000                         340,000
   Accounts Payable:
      General                                                                             109,693                          86,766
      Affiliated Companies                                                                100,429                          43,956
   Taxes Accrued                                                                           84,495                          69,761
   Interest Accrued                                                                        25,162                          20,691
   Rent Accrued - Rockport Plant Unit 2                                                    23,427                           4,963
   Energy Trading and Derivative Contracts                                                341,346                         383,714
   Other                                                                                   86,024                          82,363
                                                                                       ----------                      ----------

           TOTAL CURRENT LIABILITIES                                                      860,576                       1,032,214
                                                                                       ----------                      ----------

DEFERRED INCOME TAXES                                                                     381,319                         400,531
                                                                                       ----------                      ----------

DEFERRED INVESTMENT TAX CREDITS                                                            99,915                         105,449
                                                                                       ----------                      ----------

DEFERRED GAIN ON SALE AND LEASEBACK
 - ROCKPORT PLANT UNIT 2                                                                   74,812                          77,592
                                                                                       ----------                      ----------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                         206,527                         175,581
                                                                                       ----------                      ----------

DEFERRED CREDITS                                                                          101,639                          92,039
                                                                                       ----------                      ----------

COMMITMENTS AND CONTINGENCIES (Note 9)

                TOTAL CAPITALIZATION AND LIABILITIES                                   $4,871,156                      $4,817,008
                                                                                       ==========                      ==========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                 INDIANA MICHIGAN POWER COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                                              Nine Months Ended September 30,
                                                                              2002                     2001
                                                                              ----                     ----
                                                                                    (in thousands)
<S>                                                                           <C>                    <C>
OPERATING ACTIVITIES:
   Net Income                                                                 $  53,864              $  84,801
   Adjustments for Noncash Items:
      Depreciation and Amortization                                             125,881                124,993
      Deferral of Incremental Nuclear
       Refueling Outage Expenses (net)                                          (38,103)                  (224)
      Unrecovered Fuel and Purchased Power Costs                                 28,126                 28,126
      Amortization of Nuclear Outage Costs                                       30,000                 30,000
      Deferred Income Taxes                                                      (6,885)                (6,517)
      Deferred Investment Tax Credits                                            (5,534)                (5,604)
   Changes in Certain Current Assets and Liabilities:
      Accounts Receivable (net)                                                (115,027)                34,908
      Fuel, Materials and Supplies                                                1,155                (16,416)
      Accrued Utility Revenues                                                   (4,412)                  -
      Accounts Payable                                                           79,400                (61,519)
      Taxes Accrued                                                              14,734                 47,780
      Rent Accrued - Rockport Plant Unit 2                                       18,464                 18,464
   Mark-to-Market Energy Trading and Derivative Contracts                       (20,358)               (91,699)
   Regulatory Liability - Trading Gains                                           8,847                 25,938
   Regulatory Assets - Trading Losses                                            (4,105)                13,102
   Change in Other Assets                                                         7,526                 19,286
   Change in Other Liabilities                                                  (12,113)                11,997
                                                                              ---------              ---------
           Net Cash Flows From Operating Activities                             161,460                257,416
                                                                              ---------              ---------

INVESTING ACTIVITIES:
      Construction Expenditures                                                 (92,387)               (65,312)
      Buyout of Nuclear Fuel Leases                                                -                   (92,616)
      Other                                                                       1,027                    524
                                                                              ---------              ---------
           Net Cash Flows Used For Investing Activities                         (91,360)              (157,404)
                                                                              ---------              ---------

FINANCING ACTIVITIES:
      Capital Contributions from Parent Company                                 125,000                   -
      Issuance of Long-term Debt                                                 49,648                   -
      Retirement of Cumulative Preferred Stock                                     (424)                  -
      Retirement of Long-term Debt                                             (250,000)               (44,922)
      Change in Advances from Affiliates (net)                                    1,214                (39,162)
      Dividends Paid on Cumulative Preferred Stock                               (3,340)                (3,365)
                                                                              ---------              ---------
           Net Cash Flows Used For Financing Activities                         (77,902)               (87,449)
                                                                              ---------              ---------

Net Increase (Decrease) in Cash and Cash Equivalents                             (7,802)                12,563
Cash and Cash Equivalents at Beginning of Period                                 16,804                 14,835
                                                                              ---------              ---------
Cash and Cash Equivalents at End of Period                                    $   9,002              $  27,398
                                                                              =========              =========
</TABLE>
Supplemental Disclosure:
Cash  paid  for  interest  net  of  capitalized   amounts  was  $63,987,000  and
$67,657,000  and for income taxes was  $21,225,000  and  $13,079,000 in 2002 and
2001, respectively. Noncash acquisitions under capital leases were $1,023,000 in
2001.

See Notes to Financial Statements beginning on page L-1.
<PAGE>
                             KENTUCKY POWER COMPANY
            MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

                    THIRD QUARTER 2002 vs. THIRD QUARTER 2001
                                       AND
                     YEAR-TO-DATE 2002 vs. YEAR-TO-DATE 2001

       KPCo is a public  utility  engaged  in the  generation,  purchase,  sale,
transmission and distribution of electric power serving 173,000 retail customers
in eastern  Kentucky.  KPCo,  as a member of the AEP Power  Pool,  shares in the
revenues  and  costs of the AEP  Power  Pool's  wholesale  sales to  neighboring
utility systems and power marketers including power trading  transactions.  KPCo
also sells wholesale power to municipalities.
       The cost of the AEP Power Pool's  generating  capacity is allocated among
its members based on their relative peak demands and generating reserves through
the payment of capacity charges and the receipt of capacity  credits.  AEP Power
Pool  members  are also  compensated  for  their  out-of-pocket  costs of energy
delivered  to the AEP Power Pool and  charged for energy  received  from the AEP
Power Pool. The AEP Power Pool calculates each company's prior twelve month peak
demand relative to the total peak demand of all member  companies as a basis for
sharing  revenues and costs.  The result of this  calculation is the member load
ratio (MLR) which  determines each company's  percentage share of AEP Power Pool
revenues and costs.

Results of Operations
        Net  Income  increased  approximately  $1  million  or 13% in the  third
quarter  and $6  million  or 42% in the  year-to-date  period  primarily  due to
reduced  capacity  charges  and  increased  transmission   equalization  credits
resulting from the decrease in MLR.  Increased retail sales due to warmer summer
weather also contributed to the increase in Net Income.

Changes in Revenues
<TABLE>
<CAPTION>
                                                                                        Increase (Decrease)
                                                                          Third Quarter                        Year-to-Date
                                                                (in millions)              %    (in millions)                %
<S>                                                                      <C>              <C>           <C>                <C>
       Electricity Marketing and Trading*                                $ 5               9            $13                  9
       Energy Delivery*                                                    -               -              -                  -
       Sales to AEP Affiliates                                            (1)             (8)            (7)               (22)
                                                                         ---                            ---
            Total                                                        $ 4               4            $ 6                  2
                                                                         ===                            ===
</TABLE>
       *Reflects  the  allocation  of  certain   transmission  and  distribution
        revenues included in bundled retail rates to energy delivery.

        The  increase  in  revenues  in the third  quarter is due  primarily  to
increased  sales to  retail  customers  reflecting  warmer  summer  weather  and
increased fuel recovery  revenues.  This was partly offset by lower Sales to AEP
Affiliates in both periods because of planned outages in 2002. KPCo's generation
decreased resulting in less power being delivered to the AEP Power Pool.
<PAGE>
<TABLE>
<CAPTION>
Changes in Operating Expenses
                                                                                      Increase (Decrease)
                                                                           Third Quarter                       Year-to-Date
                                                                (in millions)              %      (in millions)                %
<S>                                                                     <C>              <C>             <C>                <C>
       Fuel                                                             $ 2               12              $ 6                 12
       Electricity Marketing Purchases                                    3              N.M.               3                N.M.
       Purchases from AEP Affiliates                                      1                1               (6)                (7)
       Other Operation                                                   (2)             (15)              (5)               (12)
       Maintenance                                                        1               20                3                 19
       Taxes Other Than Income Taxes                                     -                 -                1                 10
       Income Taxes                                                       1               36                2                 21
                                                                        ---                               ---
         Total Operating Expenses                                       $ 6                7              $ 4                  1
                                                                        ===                               ===
</TABLE>
       N.M. = Not Meaningful

        Fuel  expense  increased in both periods as a result of increases in the
cost of coal and  decreases  in  credits  to Fuel  expense.  Under the  Kentucky
commission's fuel clause mechanism,  a portion of the profits on wholesale power
trading  transactions  are shared  with the retail  customers.  This  sharing is
recognized  through  credits to Fuel  expense  that match the  increased  retail
revenues. As margins on wholesale electricity marketing and trading transactions
declined,  the amount of  credits  shared  through  the fuel  clause  adjustment
mechanism decreased.
        Third quarter Electricity Marketing Purchases expense increased compared
to prior  year due to  increased  purchases  from  third  parties  for resale to
wholesale customers and to meet internal demand. Year-to-date Purchases from AEP
Affiliates  declined  due to a decrease in capacity  charges  from the AEP Power
Pool as KPCo's MLR declined.  Also contributing to the year-to-date decline were
fewer purchases and lower prices on power purchased from AEGCo.
        Other  Operation  expense  decreased  for both  periods  due to  reduced
consumption  of emission  allowances,  reduced  accruals  for trading  incentive
compensation and increased AEP transmission  equalization credits. Under the AEP
Transmission  Equalization Agreement, KPCo and certain eastern region affiliates
share the costs associated with the ownership of their transmission system based
upon each company's peak demand and investment. A decrease in KPCo's peak demand
relative to its affiliates'  peak demand was the main reason for the increase in
transmission equalization credits.
     Maintenance  expense  increased  in both  periods  primarily as a result of
planned power plant outages.
     Taxes Other Than  Income  Taxes  increased  year-to-date  primarily  due to
increases in real and personal property taxes.
     Income Taxes year-to-date and quarter-to-date have increased primarily as a
result of increases in pre-tax income.

Other Changes
        Year-to-date  Nonoperating  Income  decreased  as a result of  decreased
margins  on power  trading  activity  outside  of the AEP  System's  traditional
marketing  area  resulting  from  soft  market  demand.   Nonoperating  Expenses
decreased  quarter  and  year-to-date  as  a  result  of  decreases  in  trading
incentives.
<PAGE>
<TABLE>
<CAPTION>
                             KENTUCKY POWER COMPANY
                              STATEMENTS OF INCOME
                                   (UNAUDITED)

                                                                    Three Months Ended                     Nine Months Ended
                                                                      September 30,                          September 30,
                                                                  2002                  2001              2002                2001
                                                                  ----                  ----              ----                ----
                                                                                        (in thousands)
<S>                                                            <C>                   <C>               <C>               <C>
OPERATING REVENUES:
    Electricity Marketing and Trading                          $ 55,645              $ 51,079          $165,565          $  152,396
    Energy Delivery                                              34,623                34,203           101,137             101,367
    Sales to AEP Affiliates                                      10,091                10,915            25,006              31,942
                                                               --------              --------          --------          ----------

           TOTAL OPERATING REVENUES                             100,359                96,197           291,708             285,705
                                                               --------              --------          --------          ----------

OPERATING EXPENSES:
   Fuel                                                          19,747                17,581            59,084              52,955
   Purchased Power:
      Electricity Marketing                                       2,572                  -                2,574                  38
      AEP Affiliates                                             31,440                31,037            92,747              99,197
   Other Operation                                               12,932                15,172            37,902              43,170
   Maintenance                                                    7,168                 5,984            19,795              16,598
   Depreciation and Amortization                                  8,330                 8,163            24,856              24,270
   Taxes Other Than Income Taxes                                  1,904                 1,877             6,407               5,826
   Income Taxes                                                   5,147                 3,796            12,190              10,096
                                                               --------              --------          --------          ----------

           TOTAL OPERATING EXPENSES                              89,240                83,610           255,555             252,150
                                                               --------              --------          --------          ----------

OPERATING INCOME                                                 11,119                12,587            36,153              33,555

NONOPERATING INCOME                                               1,712                 1,227             6,907              10,670

NONOPERATING EXPENSES                                               707                 1,754               701               7,057

NONOPERATING INCOME TAX EXPENSE (CREDIT)                           (801)                 (201)              929               1,221

INTEREST CHARGES                                                  6,931                 6,949            19,944              20,818
                                                               --------              --------          --------          ----------

NET INCOME                                                     $  5,994              $  5,312          $ 21,486          $   15,129
                                                               ========              ========          ========          ==========

</TABLE>
<TABLE>
<CAPTION>
                       STATEMENTS OF COMPREHENSIVE INCOME
                                   (UNAUDITED)

                                                                    Three Months Ended                     Nine Months Ended
                                                                      September 30,                          September 30,
                                                                  2002                2001                2002                2001
                                                                  ----                ----                ----                ----
                                                                                        (in thousands)
<S>                                                              <C>                 <C>                <C>                <C>
NET INCOME                                                       $5,994              $5,312             $21,486            $15,129

OTHER COMPREHENSIVE INCOME (LOSS)
    Cash Flow Power Hedges                                         (447)               -                    125               -
    Cash Flow Interest Rate Hedges                                  521                (618)              1,394             (2,040)
                                                                 ------              ------             -------            -------

COMPREHENSIVE INCOME                                             $6,068              $4,694             $23,005            $13,089
                                                                 ======              ======             =======            =======
</TABLE>
The  common  stock of KPCo is  wholly  owned  by AEP.  See  Notes  to  Financial
Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                             KENTUCKY POWER COMPANY
                         STATEMENTS OF RETAINED EARNINGS
                                   (UNAUDITED)

                                                                 Three Months Ended                        Nine Months Ended
                                                                   September 30,                             September 30,
                                                                  2002                2001                  2002              2001
                                                                  ----                ----                  ----              ----
                                                                                     (in thousands)
<S>                                                             <C>                 <C>                   <C>              <C>
BALANCE AT BEGINNING OF PERIOD                                  $50,237             $52,208               $48,833          $57,513

NET INCOME                                                        5,994               5,312                21,486           15,129

DEDUCTIONS:
Cash Dividends Declared                                           7,044               7,561                21,132           22,683
                                                                -------             -------               -------          -------

BALANCE AT END OF PERIOD                                        $49,187             $49,959               $49,187          $49,959
                                                                =======             =======               =======          =======
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                             KENTUCKY POWER COMPANY
                                 BALANCE SHEETS
                                   (UNAUDITED)


                                                                                September 30, 2002             December 31, 2001
                                                                                ------------------             -----------------
                                                                                                  (in thousands)
<S>                                                                                     <C>                            <C>
ASSETS
ELECTRIC UTILITY PLANT:
   Production                                                                           $  274,781                     $  271,070
   Transmission                                                                            371,904                        374,116
   Distribution                                                                            408,272                        402,537
   General                                                                                  62,768                         65,059
   Construction Work in Progress                                                           103,617                         15,633
                                                                                        ----------                     ----------
        Total Electric Utility Plant                                                     1,221,342                      1,128,415
   Accumulated Depreciation and Amortization                                               399,412                        384,104
                                                                                        ----------                     ----------
          NET ELECTRIC UTILITY PLANT                                                       821,930                        744,311
                                                                                        ----------                     ----------

OTHER PROPERTY AND INVESTMENTS                                                               7,107                          6,492
                                                                                        ----------                     ----------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                           89,701                         77,972
                                                                                        ----------                     ----------

CURRENT ASSETS:
   Cash and Cash Equivalents                                                                   873                          1,947
   Accounts Receivable:
      Customers                                                                             17,620                         20,036
      Affiliated Companies                                                                  32,731                         16,012
      Miscellaneous                                                                          2,562                          3,333
      Allowance for Uncollectible Accounts                                                    (237)                          (264)
   Fuel - at average cost                                                                    9,829                         12,060
   Materials and Supplies - at average cost                                                 17,513                         15,766
   Accrued Utility Revenues                                                                  6,777                          5,395
   Energy Trading and Derivative Contracts                                                 122,674                        139,605
   Prepayments                                                                               2,078                          1,314
                                                                                        ----------                     ----------
          TOTAL CURRENT ASSETS                                                             212,420                        215,204
                                                                                        ----------                     ----------

REGULATORY ASSETS                                                                           98,925                         97,692
                                                                                        ----------                     ----------

DEFERRED CHARGES                                                                             8,821                         11,572
                                                                                        ----------                     ----------

          TOTAL ASSETS                                                                  $1,238,904                     $1,153,243
                                                                                        ==========                     ==========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                             KENTUCKY POWER COMPANY
                                 BALANCE SHEETS
                                   (UNAUDITED)


                                                                         September 30, 2002             December 31, 2001
                                                                         ------------------             -----------------
                                                                                               (in thousands)

<S>                                                                                 <C>                           <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
   Common Stock - $50 Par Value:
      Authorized - 2,000,000 Shares
      Outstanding - 1,009,000 Shares                                                $   50,450                    $   50,450
   Paid-in Capital                                                                     158,750                       158,750
   Accumulated Other Comprehensive Income (Loss)                                          (384)                       (1,903)
   Retained Earnings                                                                    49,187                        48,833
                                                                                    ----------                    ----------
        Total Common Shareowner's Equity                                               258,003                       256,130
   Long-term Debt                                                                      300,915                       251,093
                                                                                    ----------                    ----------

           TOTAL CAPITALIZATION                                                        558,918                       507,223
                                                                                    ----------                    ----------

OTHER NONCURRENT LIABILITIES                                                            12,422                        11,929
                                                                                    ----------                    ----------

CURRENT LIABILITIES:
   Long-term Debt Due Within One Year - General                                         70,000                        95,000
   Long-term Debt Due Within One Year -
    Affiliated Companies                                                                15,000                          -
   Advances from Affiliates                                                             92,591                        66,200
   Accounts Payable:
      General                                                                           30,974                        23,464
      Affiliated Companies                                                              35,762                        22,557
   Customer Deposits                                                                     8,226                         4,461
   Taxes Accrued                                                                         6,945                        10,305
   Interest Accrued                                                                      5,376                         5,269
   Energy Trading and Derivative Contracts                                             115,735                       144,364
   Other                                                                                15,795                        12,882
                                                                                    ----------                    ----------

           TOTAL CURRENT LIABILITIES                                                   396,404                       384,502
                                                                                    ----------                    ----------

DEFERRED INCOME TAXES                                                                  176,311                       168,304
                                                                                    ----------                    ----------

DEFERRED INVESTMENT TAX CREDITS                                                          9,519                        10,405
                                                                                    ----------                    ----------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                       70,417                        63,412
                                                                                    ----------                    ----------

DEFERRED CREDITS                                                                        14,913                         7,468
                                                                                    ----------                    ----------

COMMITMENTS AND CONTINGENCIES (Note 9)

           TOTAL CAPITALIZATION AND LIABILITIES                                     $1,238,904                    $1,153,243
                                                                                    ==========                    ==========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                             KENTUCKY POWER COMPANY
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                                                            Nine Months Ended September 30,
                                                                                2002                       2001
                                                                                ----                       ----
                                                                                         (in thousands)

<S>                                                                           <C>                          <C>
OPERATING ACTIVITIES:
   Net Income                                                                 $  21,486                    $ 15,129
   Adjustments for Noncash Items:
      Depreciation and Amortization                                              24,856                      24,270
      Deferred Income Taxes                                                       7,461                       9,644
      Deferred Investment Tax Credits                                              (886)                       (889)
      Amortization of Deferred Property Taxes                                     4,472                       4,299
      Deferred Fuel Costs (net)                                                   2,081                      (2,708)
   Changes in Certain Current Assets and Liabilities:
      Accounts Receivable (net)                                                 (13,559)                     15,278
      Fuel, Materials and Supplies                                                  484                      (3,251)
      Accrued Utility Revenues                                                   (1,382)                      4,285
      Accounts Payable                                                           20,715                     (14,438)
      Taxes Accrued                                                              (3,360)                     (4,483)
   Mark-to-Market Energy and Derivative Contracts                               (13,161)                    (25,113)
   Change in Other Assets                                                        (6,626)                     (6,772)
   Change in Other Liabilities                                                   12,238                       1,113
                                                                              ---------                    --------
           Net Cash Flows From Operating Activities                              54,819                      16,364
                                                                              ---------                    --------

INVESTING ACTIVITIES:
      Construction Expenditures                                                (100,677)                    (26,628)
      Proceeds from Sales of Property                                               182                         216
                                                                              ---------                    --------
           Net Cash Flow Used For Investing Activities                         (100,495)                    (26,412)
                                                                              ---------                    --------

FINANCING ACTIVITIES:
      Issuance of Long-term Debt - Affiliated Company                           123,843                      75,000
      Retirement of Long-term Debt                                              (84,500)                    (60,000)
      Change in Advances from Affiliates (net)                                   26,391                      16,610
      Dividends Paid                                                            (21,132)                    (22,683)
                                                                              ---------                    --------
           Net Cash Flows From Financing Activities                              44,602                       8,927
                                                                              ---------                    --------

Net Decrease in Cash and Cash Equivalents                                        (1,074)                     (1,121)
Cash and Cash Equivalents at Beginning of Period                                  1,947                       2,270
                                                                              ---------                    --------
Cash and Cash Equivalents at End of Period                                    $     873                    $  1,149
                                                                              =========                    ========
</TABLE>
Supplemental Disclosure:
Cash  paid  for  interest  net  of  capitalized   amounts  was  $19,560,000  and
$18,899,000 and for income taxes was $7,025,000 and $6,011,000 in 2002 and 2001,
respectively.  Noncash  acquisitions  under  capital  leases  were  $22,021  and
$817,000 in 2002 and 2001, respectively.

See Notes to Financial Statements beginning on page L-1.
<PAGE>
                       OHIO POWER COMPANY AND SUBSIDIARIES
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS

                    THIRD QUARTER 2002 vs. THIRD QUARTER 2001
                                       AND
                     YEAR-TO-DATE 2002 vs. YEAR-TO-DATE 2001

         OPCo is a public utility  engaged in the  generation,  sale,  purchase,
transmission  and  distribution  of  electric  power  to  approximately  698,000
customers in the  northwestern,  east central,  eastern and southern sections of
Ohio. As a member of the AEP Power Pool,  OPCo shares the revenues and the costs
of the AEP Power Pool's wholesale sales to neighboring utility systems and power
marketers including power trading transactions.  OPCo also sells wholesale power
to municipalities and electric cooperatives.
       The cost of the AEP Power Pool's  generating  capacity is allocated among
its members based on their relative peak demands and generating reserves through
the payment of capacity charges and the receipt of capacity  credits.  AEP Power
Pool  members  are  also  compensated  for the  out-of-pocket  costs  of  energy
delivered  to the AEP Power Pool and  charged for energy  received  from the AEP
Power Pool. The AEP Power Pool calculates each company's prior twelve month peak
demand relative to the total peak demand of all member  companies as a basis for
sharing  revenues and costs.  The result of this  calculation  is each company's
member load ratio (MLR) which  determines  each  company's  percentage  share of
revenues and costs.

Results of Operations
        Net Income  increased  $29  million or 56% in the third  quarter of 2002
primarily  due to  increased  sales to  residential  and  commercial  customers.
Year-to-date  Net Income  increased  $84  million or 73% due to the effect of an
extraordinary  loss  recorded  in the  second  quarter  of 2001 to  recognize  a
stranded  asset  resulting  from   deregulation,   and  decreases  in  fuel  and
maintenance expenses.
<TABLE>
<CAPTION>
Changes in Revenues
                                                                                             Increase (Decrease)
                                                                                  Third Quarter                   Year-to-Date
                                                                          (in millions)         %            (in millions)     %
                                                                                                -                              -
<S>                                                                              <C>           <C>              <C>             <C>
       Electricity Marketing and Trading*                                        $ 27           10              $ 20              3
       Energy Delivery*                                                            22           16                42             10
       Sales to AEP Affiliates                                                    (18)         (14)              (54)           (13)
                                                                                 ----                           ----
            Total                                                                $ 31            6              $  8              1
                                                                                 ====                           ====
</TABLE>
       *Reflects  the  allocation  of  certain   transmission  and  distribution
        revenues included in bundled retail rates to energy delivery.

        The increase in revenues is mainly attributable to increased residential
and  commercial  sales  during  the third  quarter  due to warmer  weather.  The
decrease in revenues from Sales to AEP Affiliates was mainly  attributable  to a
decrease in the price of power delivered to the AEP Power Pool.
<PAGE>
<TABLE>
<CAPTION>
Changes in Operating Expenses
                                                                                      Increase (Decrease)
                                                                      Third Quarter                           Year-to-Date
                                                              (in millions)           %             (in millions)           %
                                                                                      -                                     -
<S>                                                                   <C>          <C>                <C>                  <C>
       Fuel                                                           $(19)        (11)               $(108)               (20)
       Electricity Marketing Purchases                                  10          63                   11                 24
       Purchases from AEP Affiliates                                     6          45                    8                 16
       Other Operation                                                  (8)         (8)                   4                  1
       Maintenance                                                      (2)         (5)                 (15)               (14)
       Depreciation and Amortization                                     3           5                    9                  5
       Taxes Other Than Income Taxes                                    (4)         (7)                   1                  -
       Income Taxes                                                     17          73                   38                 52
                                                                      ----                            -----
            Total                                                     $  3           1                $ (52)                (4)
                                                                      ====                            =====
</TABLE>
        The Fuel  expense  decrease for the quarter and  year-to-date  reflect a
year-to-date  reduction of 22% in the average cost of fuel for generation offset
in part by a 2%  year-to-date  increase in MWH  generated.  The decrease in fuel
costs are the result of  purchasing  coal at lower  prices on the open market in
2002.
        Electricity   Marketing   Purchases   increased   for  the  quarter  and
year-to-date  due to  increased  purchases  from  third  parties  for  resale to
wholesale customers and to meet internal demand.
        Other  Operation  expense  decreased  for the  quarter due to lower COLI
expense caused by mid-year cash surrender value  adjustments.  The  year-to-date
increase in Other  Operation  expense  was due to higher  current  year  benefit
expense caused by increased  benefit costs and a lower discount rate utilized to
determine  OPEB and  pension  expense  offsetting  the  quarter's  COLI  expense
reduction.
        Maintenance  expenses decreased in the third quarter and year-to-date of
2002 due to boiler overhaul work that was performed during 2001.
        Depreciation  expense  increased  in both periods due to the increase in
depreciation  expense from the placement of additional plant into service at the
Gavin Plant in 2001.
        The decrease in Taxes Other Than Income  Taxes during the third  quarter
is due to a reduction in tax rates on generation property.
        The increase in Income Taxes for both periods is predominately due to an
increase in pre-tax income due to the  replacement  of higher priced  affiliated
coal purchases with nonaffiliated coal purchases.

Other Changes
        Nonoperating  Income decreased in the third quarter due to the decreases
in power trading margins from AEP Power Pool trading transactions outside of the
AEP's Systems  traditional  marketing area. The AEP Power Pool enters into power
trading  transactions  for the purchase and sale of electricity and for options,
futures and swaps.  The Company's share of the AEP Power Pool's gains and losses
from  forward  electricity  trading  transactions  outside  of  the  AEP  System
traditional marketing area and for speculative financial  transactions (options,
futures,  swaps) is included in  Nonoperating  Income.  On a year-to-date  basis
Nonoperating Income decreased due to lower power trading margins and the loss of
the  2001  interest  income  from  the  coal  subsidiary   deposits.   The  coal
subsidiaries were sold in July 2001.
<PAGE>
     Nonoperating  Expenses  decreased  during both periods due to reductions in
variable incentive compensation expenses associated with wholesale trading.
     The  increase in  Nonoperating  Income Tax Expense  results  from the prior
period sale of the Ohio Coal companies in the third quarter 2001.
     The  decrease in Interest  Charges was  primarily  due to a decrease in the
outstanding  balances of long-term debt in both periods, the refinancing of debt
at favorable interest rates and a reduction in short-term interest rates.
<PAGE>
<TABLE>
<CAPTION>
                       OHIO POWER COMPANY AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                                                                    Three Months Ended                     Nine Months Ended
                                                                      September 30,                          September 30,
                                                                   2002               2001                2002                2001
                                                                   ----               ----                ----                ----
                                                                                        (in thousands)
<S>                                                              <C>               <C>                <C>                <C>
OPERATING REVENUES:
    Electricity Marketing and Trading                            $290,890          $263,952           $  812,976         $  792,897
    Energy Delivery                                               162,200           140,343              447,104            405,352
    Sales to AEP Affiliates                                       113,276           131,240              348,303            401,985
                                                                 --------          --------           ----------         ----------
           TOTAL OPERATING REVENUES                               566,366           535,535            1,608,383          1,600,234
                                                                 --------          --------           ----------         ----------

OPERATING EXPENSES:
   Fuel                                                           148,480           167,155              439,913            547,773
   Purchased Power:
      Electricity Marketing                                        24,575            15,094               57,834             46,741
      AEP Affiliates                                               20,375            14,098               54,867             47,337
   Other Operation                                                 94,951           103,300              290,982            286,861
   Maintenance                                                     32,011            33,786               90,956            105,634
   Depreciation and Amortization                                   62,144            59,267              185,941            176,992
   Taxes Other Than Income Taxes                                   46,341            49,914              135,472            134,812
   Income Taxes                                                    40,279            23,253              110,446             72,593
                                                                 --------          --------           ----------         ----------
           TOTAL OPERATING EXPENSES                               469,156           465,867            1,366,411          1,418,743
                                                                 --------          --------           ----------         ----------

OPERATING INCOME                                                   97,210            69,668              241,972            181,491
NONOPERATING INCOME                                                11,157            15,507               43,057             66,245
NONOPERATING EXPENSES                                               6,241            15,882               17,501             43,706
NONOPERATING INCOME TAX EXPENSE (CREDIT)                            3,638            (7,163)               7,986             (3,166)
INTEREST CHARGES                                                   18,230            25,078               59,885             70,327
                                                                 --------          --------           ----------         ----------
INCOME BEFORE EXTRAORDINARY ITEM                                   80,258            51,378              199,657            136,869
EXTRAORDINARY LOSS - EFFECTS OF
 DEREGULATION (INCLUSIVE OF TAX BENEFIT
 OF $11,585,000)                                                     -                 -                   -                (21,515)
                                                                 --------          --------            --------          ----------

NET INCOME                                                         80,258            51,378             199,657             115,354

PREFERRED STOCK DIVIDEND REQUIREMENTS                                 315               315                 944                 944
                                                                 --------          --------            --------          ----------

EARNINGS APPLICABLE TO COMMON STOCK                              $ 79,943          $ 51,063            $198,713          $  114,410
                                                                 ========          ========            ========          ==========
</TABLE>
<TABLE>
<CAPTION>
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (UNAUDITED)

                                                                   Three Months Ended                      Nine Months Ended
                                                                      September 30,                          September 30,
                                                                 2002                 2001                  2002              2001
                                                                 ----                 ----                  ----              ----
                                                                                        (in thousands)
<S>                                                            <C>                  <C>                   <C>             <C>
NET INCOME                                                     $80,258              $51,378               $199,657        $115,354

OTHER COMPREHENSIVE INCOME (LOSS)
    Foreign Currency Exchange Rate Hedges                         -                     345                   (190)             20
    Cash Flow Power Hedges                                      (1,527)                 -                      432            -
                                                               -------              -------               --------        --------

COMPREHENSIVE INCOME                                           $78,731              $51,723               $199,899        $115,374
                                                               =======              =======               ========        ========
</TABLE>
The  common  stock of OPCo is  wholly  owned  by AEP.  See  Notes  to  Financial
Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                       OHIO POWER COMPANY AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                                   (UNAUDITED)

                                                                   Three Months Ended                      Nine Months Ended
                                                                      September 30,                          September 30,
                                                                   2002                2001                2002               2001
                                                                   ----                ----                ----               ----
                                                                                                    (in thousands)
<S>                                                             <C>                  <C>                  <C>              <C>
BALANCE AT BEGINNING OF PERIOD                                  $454,903             $389,945             $401,297         $398,086

NET INCOME                                                        80,258               51,378              199,657          115,354

CASH DIVIDENDS DECLARED:
    Common Stock                                                  32,582               35,744               97,746          107,232
    Cumulative Preferred Stock                                       315                  315                  944              944
                                                                --------             --------             --------         --------

BALANCE AT END OF PERIOD                                        $502,264             $405,264             $502,264         $405,264
                                                                ========             ========             ========         ========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                       OHIO POWER COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                                             September 30, 2002            December 31, 2001
                                                                             ------------------            -----------------
                                                                                                   (in thousands)

<S>                                                                                     <C>                            <C>
ASSETS
ELECTRIC UTILITY PLANT:
   Production                                                                           $3,035,181                     $3,007,866
   Transmission                                                                            910,102                        891,283
   Distribution                                                                          1,103,381                      1,081,122
   General                                                                                 237,077                        245,232
   Construction Work in Progress                                                           286,089                        165,073
                                                                                        ----------                     ----------
        Total Electric Utility Plant                                                     5,571,830                      5,390,576
   Accumulated Depreciation and Amortization                                             2,545,585                      2,452,571
                                                                                        ----------                     ----------
          NET ELECTRIC UTILITY PLANT                                                     3,026,245                      2,938,005
                                                                                        ----------                     ----------

OTHER PROPERTY AND INVESTMENTS                                                              67,327                         62,303
                                                                                        ----------                     ----------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                          311,812                        263,734
                                                                                        ----------                     ----------

CURRENT ASSETS:
   Cash and Cash Equivalents                                                                 7,952                          8,848
   Accounts Receivable:
      Customers                                                                             83,018                         84,694
      Affiliated Companies                                                                 141,694                        148,563
      Miscellaneous                                                                         13,841                         20,409
      Allowance for Uncollectible Accounts                                                    (555)                        (1,379)
   Fuel - at average cost                                                                   79,909                         84,724
   Materials and Supplies - at average cost                                                 83,250                         88,768
   Accrued Utility Revenues                                                                  2,677                           -
   Energy Trading and Derivative Contracts                                                 430,583                        472,246
   Prepayments and Other                                                                    32,195                         20,865
                                                                                        ----------                     ----------
          TOTAL CURRENT ASSETS                                                             874,564                        927,738
                                                                                        ----------                     ----------

REGULATORY ASSETS                                                                          599,352                        644,625
                                                                                        ----------                     ----------

DEFERRED CHARGES                                                                            41,903                         79,662
                                                                                        ----------                     ----------

          TOTAL ASSETS                                                                  $4,921,203                     $4,916,067
                                                                                        ==========                     ==========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                       OHIO POWER COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                                            September 30, 2002            December 31, 2001
                                                                            ------------------            -----------------
                                                                                                (in thousands)
<S>                                                                                     <C>                            <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
   Common Stock - No Par Value:
      Authorized - 40,000,000 Shares
      Outstanding - 27,952,473 Shares                                                   $  321,201                     $  321,201
   Paid-in Capital                                                                         462,483                        462,483
   Accumulated Other Comprehensive Income (Loss)                                                46                           (196)
   Retained Earnings                                                                       502,264                        401,297
                                                                                        ----------                     ----------
        Total Common Shareholder's Equity                                                1,285,994                      1,184,785
   Cumulative Preferred Stock:
      Not Subject to Mandatory Redemption                                                   16,648                         16,648
      Subject to Mandatory Redemption                                                        8,850                          8,850
   Long-term Debt                                                                          977,327                      1,203,841
                                                                                        ----------                     ----------

           TOTAL CAPITALIZATION                                                          2,288,819                      2,414,124
                                                                                        ----------                     ----------

OTHER NONCURRENT LIABILITIES                                                               123,853                        130,386
                                                                                        ----------                     ----------

CURRENT LIABILITIES:
   Short-term Debt From Affiliated Companies                                               150,000                           -
   Long-term Debt Due Within One Year - General                                             29,850                           -
   Long-term Debt Due Within One Year -
    Affiliated Companies                                                                    60,000                           -
   Advances from Affiliates                                                                160,682                        300,213
   Accounts Payable - General                                                              139,852                        131,057
   Accounts Payable - Affiliated Companies                                                 187,736                        176,520
   Customer Deposits                                                                        14,553                          5,452
   Taxes Accrued                                                                           164,140                        126,770
   Interest Accrued                                                                         19,549                         17,679
   Obligations Under Capital Leases                                                         13,925                         16,405
   Energy Trading and Derivative Contracts                                                 397,546                        456,047
   Other                                                                                    82,007                         90,431
                                                                                        ----------                     ----------

           TOTAL CURRENT LIABILITIES                                                     1,419,840                      1,320,574
                                                                                        ----------                     ----------

DEFERRED INCOME TAXES                                                                      798,735                        797,889
                                                                                        ----------                     ----------

DEFERRED INVESTMENT TAX CREDITS                                                             19,630                         21,925
                                                                                        ----------                     ----------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                          243,410                        214,487
                                                                                        ----------                     ----------

DEFERRED CREDITS                                                                            26,916                         16,682
                                                                                        ----------                     ----------

COMMITMENTS AND CONTINGENCIES (Note 9)

       TOTAL CAPITALIZATION AND LIABILITIES                                             $4,921,203                     $4,916,067
                                                                                        ==========                     ==========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                       OHIO POWER COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                                                                Nine Months Ended September 30,
                                                                                2002                    2001
                                                                                ----                    ----
                                                                                    (in thousands)
<S>                                                                            <C>                      <C>
OPERATING ACTIVITIES:
   Net Income                                                                  $ 199,657                $ 115,354
   Adjustments for Noncash Items:
      Depreciation                                                               130,120                  134,105
      Amortization of Transition Assets                                           55,820                   55,029
      Deferred Income Taxes                                                           95                  182,166
      Amortization of Deferred Property Taxes                                     45,275                   61,821
      Extraordinary Loss - Discontinuance SFAS 71                                   -                      21,515
      Accumulated Provisions - Noncurrent                                          3,543                 (390,313)
   Changes in Certain Current Assets and Liabilities:
      Accounts Receivable (net)                                                   14,289                   43,127
      Fuel, Materials and Supplies                                                10,333                   17,611
      Accrued Utility Revenues                                                    (2,677)                     264
      Prepayments and Other                                                      (11,330)                 (13,774)
      Accounts Payable                                                            20,011                  (69,673)
      Customer Deposits                                                            9,101                  (30,743)
      Taxes Accrued                                                               37,370                 (197,225)
      Interest Accrued                                                             1,870                    9,596
   Energy Trading Contract (net)                                                 (34,477)                 (82,190)
   Other Operating Assets                                                        (18,512)                  47,372
   Other Operating Liabilities                                                   (14,350)                 (92,745)
                                                                               ---------                ---------
           Net Cash Flows From (Used For) Operating Activities                   446,138                 (188,703)
                                                                               ---------                ---------

INVESTING ACTIVITIES:
      Construction Expenditures                                                 (224,257)                (242,898)
      Proceeds from Sale of Property and Other                                     5,444                   16,562
      Investment in Coal Companies                                                  -                     (32,115)
                                                                               ---------                ---------
           Net Cash Flows Used For Investing Activities                         (218,813)                (258,451)
                                                                               ---------                ---------

FINANCING ACTIVITIES:
      Change in Short-term Debt Affiliated (net)                                 150,000                     -
      Issuance of Long-term Debt - Affiliated                                       -                     300,000
      Change in Advances to Affiliates (net)                                    (139,531)                 452,534
      Retirement of Long-term Debt                                              (140,000)                (216,697)
      Dividends Paid on Common Stock                                             (97,746)                (107,232)
      Dividends Paid on Cumulative Preferred Stock                                  (944)                    (944)
                                                                               ---------                ---------
           Net Cash Flows From (Used For) Financing Activities                  (228,221)                 427,661
                                                                               ---------                ---------

Net Decrease in Cash and Cash Equivalents                                           (896)                 (19,493)
Cash and Cash Equivalents at Beginning of Period                                   8,848                   31,393
                                                                               ---------                ---------
Cash and Cash Equivalents at End of Period                                     $   7,952                $  11,900
                                                                               =========                =========
</TABLE>
Supplemental Disclosure:
Cash  paid  for  interest  net  of  capitalized   amounts  was  $56,864,000  and
$59,492,000  and for income taxes was  $29,981,000  and  $55,806,000 in 2002 and
2001,  respectively.  Noncash acquisitions under capital leases were $98,000 and
$595,000 in 2002 and 2001, respectively.

See Notes to Financial Statements beginning on page L-1.
<PAGE>
                PUBLIC SERVICE COMPANY OF OKLAHOMA AND SUBSIDIARY
            MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

                    THIRD QUARTER 2002 vs. THIRD QUARTER 2001
                                       AND
                     YEAR-TO-DATE 2002 vs. YEAR-TO-DATE 2001

       PSO is a  public  utility  engaged  in the  generation,  purchase,  sale,
transmission and distribution of electric power to approximately  503,000 retail
customers in eastern and southwestern Oklahoma. PSO also sells electric power at
wholesale to other utilities, municipalities and rural electric cooperatives.
       Wholesale power  marketing and trading  activities are conducted on PSO's
behalf by AEPSC. PSO, along with the other AEP electric operating  subsidiaries,
shares in AEP's forward trades with other utility systems and power marketers.

Results of Operations
         Net Income  decreased  by $10  million or 20% for the  quarter  and $10
million or 17% for the year-to-date  period.  The decreases  primarily  resulted
from  reduced  wholesale  margins  due to a decline  in demand  for  electricity
resulting from mild weather and a slow economic recovery.
<TABLE>
<CAPTION>
Changes in Revenues
                                                                                          Increase (Decrease)
                                                                          Third Quarter                       Year-to-Date
                                                                  (in millions)           %             (in millions)        %
                                                                                          -                                  -

<S>                                                                    <C>            <C>            <C>                   <C>
       Electricity Marketing and Trading*                              $(75)           (34)          $(260)                (45)
       Energy Delivery*                                                  (7)            (7)              6                   3
       Sales to AEP Affiliates                                          (13)          (198)            (24)                (94)
                                                                       ----                          -----
            Total                                                      $(95)           (29)          $(278)                (34)
                                                                       ====                          =====
</TABLE>
       *Reflects  the  allocation  of  certain   transmission  and  distribution
        revenues included in bundled retail rates to energy delivery.

         Operating   revenues   decreased   during  the   quarter  and  for  the
year-to-date  periods  as a  result  of a  decline  in  fuel  recovery  revenue.
Additionally,  the  quarterly  results were impacted by decreases due to the ICR
adjustments (see Note 6), decreases in usage by existing customers and decreases
in growth in the number of customers  resulting  from the slowing  economy.  The
Sales to AEP Affiliates revenue is negative for the quarter due to the impact of
the ICR adjustments (see Note 6).
<PAGE>
<TABLE>
<CAPTION>
Changes in Operating Expenses
                                                                                      Increase (Decrease)
                                                                       Third Quarter                        Year-to-Date
                                                          (in millions)                %       (in millions)               %
<S>                                                               <C>                <C>              <C>               <C>
       Fuel                                                       $(96)              (62)             $(262)             (64)
       Electricity Marketing                                        (1)              (21)               (29)            (133)
       Purchases from AEP Affiliates                                15               N.M.                27               67
       Other Operation                                              -                  -                 (7)              (7)
       Maintenance                                                  (1)               (8)                 3                7
       Depreciation and Amortization                                 2                11                  5                8
       Taxes Other Than Income Taxes                                 2                25                  2               11
       Income Taxes                                                 (7)              (23)                (7)             (18)
                                                                  ----                                -----
         Total                                                    $(86)              (32)             $(268)             (37)
                                                                  ====                                =====
</TABLE>
       N.M. = Not Meaningful

         The decrease in Fuel expense for both the quarter and  year-to-date was
primarily due to the amortization of previously  overrecovered fuel costs, lower
market prices for natural gas and fuel oil and deferral of newly  underrecovered
fuel costs due to the ICR adjustments through the fuel clause recovery mechanism
(see Note 6).
     The decrease in the quarter and year-to-date  Electricity Marketing expense
resulted  mainly from a decrease in energy prices and the ICR  adjustments  (see
Note 6).
         The  increase in the quarter and  year-to-date  in  Purchases  from AEP
Affiliates  results mainly from the availability of internal  generation and the
ICR adjustments (see Note 6).
     Other Operation expense decreased in the year-to-date  period primarily due
to lower transmission, administrative, and customer service expenses.
     Maintenance  expense  decreased in the third quarter due primarily to lower
production  plant costs and  distribution  costs for  overhead  and  underground
facilities.  Year-to-date Maintenance expense increased,  largely as a result of
increased  expenses to repair damage to overhead  lines caused by a winter storm
in 2002.
     Depreciation  expense  increased  for both  the  quarter  and  year-to-date
primarily  due to the  additional  depreciable  capitalized  costs  involved  in
repowering Northeast Station Units 1 & 2 completed in 2001.
     Taxes Other Than Income  Taxes  increased  in the quarter and  year-to-date
primarily due to the increase in ad valorem taxes.
     Income Taxes decreased in the quarter and  year-to-date  periods  primarily
due to a decrease in pre-tax income.
<PAGE>
<TABLE>
<CAPTION>
                PUBLIC SERVICE COMPANY OF OKLAHOMA AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

                                                                    Three Months Ended                     Nine Months Ended
                                                                      September 30,                          September 30,
                                                                  2002                  2001              2002                2001
                                                                  ----                  ----              ----                ----
                                                                                        (in thousands)
<S>                                                             <C>                   <C>               <C>                <C>
OPERATING REVENUES:
    Electricity Marketing and Trading                           $144,647              $219,429          $321,160           $581,450
    Energy Delivery                                               92,077                99,200           214,624            208,911
    Sales to AEP Affiliates                                       (6,626)                6,744             1,630             25,451
                                                                --------              --------          --------           --------
           TOTAL OPERATING REVENUES                              230,098               325,373           537,414            815,812
                                                                --------              --------          --------           --------

OPERATING EXPENSES:
   Fuel                                                           58,410               154,177           150,279            411,905
   Purchased Power:
      Electricity Marketing                                        2,430                 3,069            (7,230)            22,005
      AEP Affiliates                                              20,640                 5,985            67,238             40,256
   Other Operation                                                31,957                32,438            92,845            100,033
   Maintenance                                                    10,024                10,886            36,079             33,575
   Depreciation and Amortization                                  22,496                20,313            64,473             59,458
   Taxes Other Than Income Taxes                                   9,278                 7,394            25,209             22,720
   Income Taxes                                                   24,153                31,197            29,200             35,665
                                                                --------              --------          --------           --------
           TOTAL OPERATING EXPENSES                              179,388               265,459           458,093            725,617
                                                                --------              --------          --------           --------

OPERATING INCOME                                                  50,710                59,914            79,321             90,195

NONOPERATING INCOME                                                1,022                   316             2,351              1,549

NONOPERATING EXPENSES                                                  2                   314               666                986

NONOPERATING INCOME TAX EXPENSE (CREDIT)                             922                  (211)              681               (345)

INTEREST CHARGES                                                   9,806                 9,058            29,351             29,674
                                                                --------              --------          --------           --------

NET INCOME                                                        41,002                51,069            50,974             61,429

PREFERRED STOCK DIVIDEND REQUIREMENTS                                 53                    53               159                159
                                                                --------              --------          --------           --------

EARNINGS APPLICABLE TO COMMON STOCK                             $ 40,949              $ 51,016          $ 50,815           $ 61,270
                                                                ========              ========          ========           ========
</TABLE>
<TABLE>
<CAPTION>
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (UNAUDITED)

                                                                    Three Months Ended                     Nine Months Ended
                                                                      September 30,                          September 30,
                                                                  2002                2001                  2002              2001
                                                                  ----                ----                  ----              ----
                                                                                        (in thousands)
<S>                                                             <C>                 <C>                   <C>              <C>
NET INCOME                                                      $41,002             $51,069               $50,974          $61,429

OTHER COMPREHENSIVE INCOME
    Cash Flow Power Hedges                                         (155)               -                       45             -
                                                                -------             -------               -------          -------

COMPREHENSIVE INCOME                                            $40,847             $51,069               $51,019          $61,429
                                                                =======             =======               =======          =======
</TABLE>
The common  stock of the Company is wholly  owned by AEP. See Notes to Financial
Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                PUBLIC SERVICE COMPANY OF OKLAHOMA AND SUBSIDIARY
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                                   (UNAUDITED)

                                                                   Three Months Ended                      Nine Months Ended
                                                                      September 30,                          September 30,
                                                                   2002                2001                2002               2001
                                                                   ----                ----                ----               ----
                                                                                                      (in thousands)
<S>                                                             <C>                  <C>                 <C>               <C>
BALANCE AT BEGINNING OF PERIOD                                  $107,949             $121,822            $142,994          $137,688
NET INCOME                                                        41,002               51,069              50,974            61,429
DEDUCTIONS:
  Cash Dividends Declared:
    Common Stock                                                  22,457               13,060              67,368            39,180
    Preferred Stock                                                   53                   53                 159               159
                                                                --------             --------            --------          --------

BALANCE AT END OF PERIOD                                        $126,441             $159,778            $126,441          $159,778
                                                                ========             ========            ========          ========
</TABLE>
The common  stock of the Company is wholly  owned by AEP. See Notes to Financial
Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                PUBLIC SERVICE COMPANY OF OKLAHOMA AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                                           September 30, 2002              December 31, 2001
                                                                           ------------------              -----------------
                                                                                                  (in thousands)
<S>                                                                                     <C>                           <C>
ASSETS
ELECTRIC UTILITY PLANT:
   Production                                                                           $1,039,184                    $1,034,711
   Transmission                                                                            433,513                       427,110
   Distribution                                                                            990,439                       972,806
   General                                                                                 200,679                       203,572
   Construction Work in Progress                                                            72,710                        56,900
                                                                                        ----------                    ----------
          Total Electric Utility Plant                                                   2,736,525                     2,695,099
   Accumulated Depreciation and Amortization                                             1,235,343                     1,184,443
                                                                                        ----------                    ----------
        NET ELECTRIC UTILITY PLANT                                                       1,501,182                     1,510,656
                                                                                        ----------                    ----------

OTHER PROPERTY AND INVESTMENTS                                                              43,340                        41,020
                                                                                        ----------                    ----------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                           15,588                        55,215
                                                                                        ----------                    ----------

CURRENT ASSETS:
   Cash and Cash Equivalents                                                                11,808                         5,795
   Accounts Receivable:
      Customers                                                                             22,443                        31,100
      Affiliated Companies                                                                  47,556                        10,905
   Fuel - at LIFO costs                                                                     19,511                        21,559
   Materials and Supplies - at average costs                                                38,407                        36,785
   Under-Recovered Fuel Costs                                                               99,845                          -
   Energy Trading and Derivative Contracts                                                  15,300                       162,200
   Prepayments and Other                                                                     3,286                         2,368
                                                                                        ----------                    ----------
          TOTAL CURRENT ASSETS                                                             258,156                       270,712
                                                                                        ----------                    ----------

REGULATORY ASSETS                                                                           27,121                        35,064
                                                                                        ----------                    ----------

DEFERRED CHARGES                                                                            30,813                         5,290
                                                                                        ----------                    ----------

          TOTAL ASSETS                                                                  $1,876,200                    $1,917,957
                                                                                        ==========                    ==========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                PUBLIC SERVICE COMPANY OF OKLAHOMA AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                                                September 30, 2002            December 31, 2001
                                                                                ------------------            -----------------
                                                                                                  (in thousands)
<S>                                                                                     <C>                            <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
   Common Stock - $15 Par Value:
      Authorized Shares: 11,000,000 Shares
      Issued Shares: 10,482,000 shares and
      Outstanding Shares: 9,013,000 Shares                                              $  157,230                     $  157,230
   Paid-in Capital                                                                         180,016                        180,016
   Accumulated Other Comprehensive Income                                                       45                           -
   Retained Earnings                                                                       126,441                        142,994
                                                                                        ----------                     ----------
        Total Common Shareholder's Equity                                                  463,732                        480,240
   Cumulative Preferred Stock Not Subject
    to Mandatory Redemption                                                                  5,267                          5,267
   PSO-Obligated, Mandatorily Redeemable Preferred
    Securities of Subsidiary Trust Holding Solely
    Junior Subordinated Debentures of PSO                                                   75,000                         75,000
   Long-term Debt                                                                          245,360                        345,129
                                                                                        ----------                     ----------

           TOTAL CAPITALIZATION                                                            789,359                        905,636
                                                                                        ----------                     ----------

OTHER NONCURRENT LIABILITIES                                                                 8,360                          7,263
                                                                                        ----------                     ----------

CURRENT LIABILITIES:
   Long-term Debt Due Within One Year                                                      206,000                        106,000
   Advances from Affiliates                                                                228,638                        123,087
   Accounts Payable - General                                                               73,974                         72,759
   Accounts Payable - Affiliated Companies                                                  75,381                         40,857
   Customers Deposits                                                                       21,268                         21,041
   Taxes Accrued                                                                            29,274                         18,150
   Over-Recovered Fuel Costs                                                                  -                             8,720
   Interest Accrued                                                                         10,219                          7,298
   Energy Trading and Derivative Contracts                                                  17,900                        167,658
   Other                                                                                    14,118                         12,216
                                                                                        ----------                     ----------

           TOTAL CURRENT LIABILITIES                                                       676,772                        577,786
                                                                                        ----------                     ----------

DEFERRED INCOME TAXES                                                                      328,827                        296,877
                                                                                        ----------                     ----------

DEFERRED INVESTMENT TAX CREDITS                                                             32,649                         33,992
                                                                                        ----------                     ----------

REGULATORY LIABILITIES AND DEFERRED CREDITS                                                 27,306                         49,080
                                                                                        ----------                     ----------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                           12,927                         47,323
                                                                                        ----------                     ----------

COMMITMENTS AND CONTINGENCIES (Note 9)

           TOTAL CAPITALIZATION AND LIABILITIES                                         $1,876,200                     $1,917,957
                                                                                        ==========                     ==========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                PUBLIC SERVICE COMPANY OF OKLAHOMA AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                                                  Nine Months Ended September 30,
                                                                                 2002                    2001
                                                                                 ----                    ----
                                                                                      (in thousands)
<S>                                                                             <C>                        <C>
OPERATING ACTIVITIES:
   Net Income                                                                   $  50,974                  $ 61,429
   Adjustments to Reconcile Net Income to Net Cash From
     Operating Activities:
      Depreciation and Amortization                                                64,473                    59,458
      Deferred Income Taxes                                                        33,841                   (25,491)
      Deferred Investment Tax Credits                                              (1,343)                   (1,343)
      Deferred Property Taxes                                                      (8,092)                   (8,568)
     Changes in Certain Assets and Liabilities:
        Accounts Receivable (net)                                                 (27,994)                   34,534
        Fuel, Materials and Supplies                                                  426                     9,644
        Other Deferred Credits                                                       (201)                    1,997
        Accounts Payable                                                           35,739                   (97,739)
        Taxes Accrued                                                              11,124                    70,863
        Other Property and Investments                                             (2,320)                   (1,814)
        Fuel Recovery                                                            (108,565)                   67,975
        Mark-to-Market Energy Trading Contracts                                     2,442                       (39)
   Changes in Other Assets                                                        (14,664)                  (13,460)
   Changes in Other Liabilities                                                   (17,185)                    9,409
                                                                                ---------                  --------
           Net Cash Flows From Operating Activities                                18,655                   166,855
                                                                                ---------                  --------

INVESTING ACTIVITIES:
      Construction Expenditures                                                   (51,629)                  (88,194)
      Other                                                                           -                        (359)
      Proceeds from Sale of Property                                                  963                      -
                                                                                ---------                  --------
           Net Cash Flows Used For Investing Activities                           (50,666)                  (88,553)
                                                                                ---------                  --------

FINANCING ACTIVITIES:
      Retirement of Long-term Debt                                                   -                      (20,000)
      Change in Advances From Affiliates (net)                                    105,551                   (22,695)
      Dividends Paid on Common Stock                                              (67,368)                  (39,180)
      Dividends Paid on Cumulative Preferred Stock                                   (159)                     (159)
                                                                                ---------                  --------
           Net Cash Flows From (Used For) Financing Activities                     38,024                   (82,034)
                                                                                ---------                  --------

Net Increase (Decrease) in Cash and Cash Equivalents                                6,013                    (3,732)
Cash and Cash Equivalents at Beginning of Period                                    5,795                    11,301
                                                                                ---------                  --------
Cash and Cash Equivalents at End of Period                                      $  11,808                 $  7,569
                                                                                =========                 ========
</TABLE>
Supplemental Disclosure:
Cash  paid  for  interest  net  of  capitalized   amounts  was  $24,853,000  and
$24,351,000 and for income taxes was $2,962,000 and $7,386,000 in 2002 and 2001,
respectively.

See Notes to Financial Statements beginning on page L-1.
<PAGE>
              SOUTHWESTERN ELECTRIC POWER COMPANY AND SUBSIDIARIES
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS

                    THIRD QUARTER 2002 vs. THIRD QUARTER 2001
                                       AND
                     YEAR-TO-DATE 2002 vs. YEAR-TO-DATE 2001

         SWEPCo is a public utility engaged in the generation,  purchase,  sale,
transmission and distribution of electric power to approximately  435,000 retail
customers in northeastern Texas,  northwestern Louisiana,  and western Arkansas.
SWEPCo also sells electric power at wholesale to other utilities, municipalities
and rural electric cooperatives.
         Wholesale  power  marketing  and trading  activities  are  conducted on
SWEPCo's behalf by AEPSC.  SWEPCo,  along with the other AEP electric  operating
subsidiaries,  shares in AEP's  forward  trades with other  utility  systems and
power marketers.

Results of Operations
        Net Income  decreased  slightly in the third  quarter and  decreased $12
million or 14%, for the year-to-date  period.  The decrease for the year-to-date
period  primarily  resulted from reduced  wholesale  margins due to a decline in
demand for electricity resulting from mild weather and a slow economic recovery.
<TABLE>
<CAPTION>
Changes in Revenues

                                                                             Increase (Decrease)
                                                                Third Quarter                       Year-to-Date
                                                      (in millions)            %        (in millions)              %
<S>                                                          <C>              <C>             <C>                <C>
       Electricity Marketing and Trading*                     $22              10              $(10)              (2)
       Energy Delivery*                                        13              13                 2                1
       Sales to AEP Affiliates                                 (4)            (20)              (14)             (21)
                                                             ----                              ----
            Total                                            $ 31               9              $(22)              (3)
                                                             ====                              ====
</TABLE>
       *Reflects  the  allocation  of  certain   transmission  and  distribution
        revenues included in bundled retail rates to energy delivery.

     The increase in revenues for the quarter  mainly  result from a $31 million
increase due to ICR adjustments (see Note 6).

     Operating  revenues  decreased  3%  for  the  year-to-date  period  due  to
decreased fuel revenues offset in part by the addition of the Dolet Hills mining
operation,  increased  wholesale  revenues  and the  positive  impact of the ICR
adjustments (see Note 6).
<PAGE>
Changes in Operating Expenses

     Operating  expenses increased 11% in the third quarter due to a significant
increase in  Electricity  Marketing  Purchases and Purchases from AEP Affiliates
offset by a decrease in Fuel expense.
     Operating  expenses  decreased  1% for  the  year-to-date  period  due to a
decrease in Fuel  expense  offset by an increase in  purchased  power.
<TABLE>
<CAPTION>
                                                                                       Increase (Decrease)
                                                                         Third Quarter                     Year-to-Date
                                                               (in millions)           %       (in millions)               %

<S>                                                                   <C>            <C>              <C>               <C>
       Fuel                                                           $(12)           (9)              $(70)             (19)
       Electricity Marketing Purchases                                  26           N.M.                27              N.M.
       Purchases from AEP Affiliates                                     8           N.M.                18              171
       Other Operation                                                   5            11                 19               16
       Maintenance                                                       2             9                 (2)              (3)
       Depreciation and Amortization                                     3            12                  3                3
       Taxes Other Than Income Taxes                                     -             -                 -                 1
       Income Taxes                                                     (1)           (2)                (5)             (13)
                                                                      ----                             ----
            Total                                                     $ 31            11               $(10)              (1)
                                                                      ====                             ====
</TABLE>
        Fuel  expense  decreased  for  the  quarter  and  year-to-date  due to a
reduction in MWH  generated,  a decrease in deferred fuel expense in the quarter
and a decrease in the cost of fuel in the year-to-date period.
        Purchased  power  for the  quarter  and  year-to-date  increased  due to
reduced generation and the impact of ICR adjustments (see Note 6).
        The  acquisition  of Dolet Hills Lignite  Company  (Dolet Hills) in June
2001  caused  Other  Operation   expense  to  increase  in  year-to-date   2002.
Year-to-date  and the quarter were  impacted by both the addition of Dolet Hills
and the ICR adjustments (see Note 6).
        The increase in Depreciation and Amortization expense for the quarter is
due to a  favorable  excess  earnings  adjustment  in 2001 as  required by Texas
Restructuring  Legislation.  The increase  year-to-date  is primarily due to the
addition of Dolet Hills in June 2001.
        The  decrease in Income Taxes for the quarter and  year-to-date  periods
was due to a decrease in pre-tax income.
<PAGE>
<TABLE>
<CAPTION>
              SOUTHWESTERN ELECTRIC POWER COMPANY AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

                                                                   Three Months Ended                      Nine Months Ended
                                                                      September 30,                          September 30,
                                                                  2002                2001                 2002               2001
                                                                  ----                ----                 ----               ----
                                                                                                   (in thousands)
<S>                                                             <C>                 <C>                 <C>                <C>
OPERATING REVENUES:
  Electricity Marketing and Trading                             $234,435            $212,627            $529,641           $540,088
  Energy Delivery                                                112,084              98,916             265,027            262,943
  Sales to AEP Affiliates                                         15,904              19,898              53,088             67,275
                                                                --------            --------            --------           --------
           TOTAL OPERATING REVENUES                              362,423             331,441             847,756            870,306
                                                                --------            --------            --------           --------

OPERATING EXPENSES:
   Fuel                                                          122,446             134,560             306,536            376,957
   Purchased Power:
     Electricity Marketing                                        29,820               4,317              40,290             13,294
     AEP Affiliates                                               10,257               1,878              27,817             10,257
   Other Operation                                                51,005              46,034             137,288            117,926
   Maintenance                                                    16,767              15,344              49,547             51,011
   Depreciation and Amortization                                  31,764              28,461              92,437             89,919
   Taxes Other Than Income Taxes                                  15,259              15,208              42,205             41,721
   Income Taxes                                                   24,851              25,445              36,925             42,392
                                                                --------            --------            --------           --------
          TOTAL OPERATING EXPENSES                               302,169             271,247             733,045            743,477
                                                                --------            --------            --------           --------

OPERATING INCOME                                                  60,254              60,194             114,711            126,829

NONOPERATING INCOME                                                1,203               1,256               1,618              2,939
NONOPERATING EXPENSES                                                344                 657               1,298              1,977
NONOPERATING INCOME TAX EXPENSE
 (CREDIT)                                                            176                 (28)                 67                 58

INTEREST CHARGES                                                  15,143              14,464              42,856             43,723
                                                                --------            --------            --------           --------

NET INCOME                                                        45,794              46,357              72,108             84,010
                                                                --------            --------            --------           --------

PREFERRED STOCK DIVIDEND REQUIREMENTS                                 57                  57                 172                172
                                                                --------            --------            --------           --------

EARNINGS APPLICABLE TO COMMON STOCK                             $ 45,737            $ 46,300            $ 71,936           $ 83,838
                                                                ========            ========            ========           ========
</TABLE>
<TABLE>
<CAPTION>
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (UNAUDITED)

                                                                   Three Months Ended                      Nine Months Ended
                                                                      September 30,                          September 30,
                                                                   2002                2001                2002                2001
                                                                   ----                ----                ----                ----
                                                                                        (in thousands)
<S>                                                              <C>                 <C>                 <C>                <C>
NET INCOME                                                       $45,794             $46,357             $72,108            $84,010

OTHER COMPREHENSIVE INCOME
    Cash Flow Power Hedges                                          (180)               -                     50               -
                                                                 -------             -------             -------            -------

COMPREHENSIVE INCOME                                             $45,614             $46,357             $72,158            $84,010
                                                                 =======             =======             =======            =======
</TABLE>
The  common  stock of  SWEPCo  is wholly  owned by AEP.  See Notes to  Financial
Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
              SOUTHWESTERN ELECTRIC POWER COMPANY AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                                   (UNAUDITED)

                                                                   Three Months Ended                      Nine Months Ended
                                                                      September 30,                          September 30,
                                                                   2002                2001                2002               2001
                                                                   ----                ----                ----               ----
                                                                                                      (in thousands)
<S>                                                             <C>                  <C>                  <C>              <C>
BALANCE AT BEGINNING OF PERIOD                                  $297,187             $294,422             $308,915         $293,989
NET INCOME                                                        45,794               46,357               72,108           84,010
DEDUCTIONS:
  Cash Dividends Declared:
    Common Stock                                                  18,962               18,554               56,889           55,659
    Preferred Stock                                                   57                   57                  172              172
                                                                --------             --------             --------         --------

BALANCE AT END OF PERIOD                                        $323,962             $322,168             $323,962         $322,168
                                                                ========             ========             ========         ========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
              SOUTHWESTERN ELECTRIC POWER COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                                            September 30, 2002             December 31, 2001
                                                                            ------------------             -----------------
                                                                                                  (in thousands)
<S>                                                                                     <C>                            <C>
ASSETS
ELECTRIC UTILITY PLANT:
   Production                                                                           $1,491,981                     $1,429,356
   Transmission                                                                            569,688                        538,749
   Distribution                                                                          1,040,372                      1,042,523
   General                                                                                 396,435                        376,016
   Construction Work in Progress                                                            69,590                         74,120
                                                                                        ----------                     ----------
        Total Electric Utility Plant                                                     3,568,066                      3,460,764
   Accumulated Depreciation and Amortization                                             1,677,142                      1,550,618
                                                                                        ----------                     ----------
        NET ELECTRIC UTILITY PLANT                                                       1,890,924                      1,910,146
                                                                                        ----------                     ----------

OTHER PROPERTY AND INVESTMENTS                                                              44,669                         43,000
                                                                                        ----------                     ----------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                           17,441                         63,372
                                                                                        ----------                     ----------

CURRENT ASSETS:
   Cash and Cash Equivalents                                                                 5,704                          5,415
   Accounts Receivable:
      Customers                                                                             54,602                         44,588
      Affiliated Companies                                                                  14,402                         12,069
      Allowance for Uncollectible Accounts                                                  (2,143)                           (89)
   Fuel Inventory - at average cost                                                         56,585                         52,212
   Under-recovered Fuel                                                                       -                             2,501
   Materials and Supplies - at average cost                                                 34,750                         32,527
   Energy Trading and Derivative Contracts                                                  24,561                        186,159
   Prepayments and Other                                                                    19,630                         18,716
                                                                                        ----------                     ----------
          TOTAL CURRENT ASSETS                                                             208,091                        354,098
                                                                                        ----------                     ----------

REGULATORY ASSETS                                                                           47,777                         52,308
                                                                                        ----------                     ----------

DEFERRED CHARGES                                                                           102,841                         67,753
                                                                                        ----------                     ----------

          TOTAL ASSETS                                                                  $2,311,743                     $2,490,677
                                                                                        ==========                     ==========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
              SOUTHWESTERN ELECTRIC POWER COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                                                            September 30, 2002             December 31, 2001
                                                                            ------------------             -----------------
                                                                                                  (in thousands)

<S>                                                                                     <C>                            <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
   Common Stock - $18 Par Value:
      Authorized - 7,600,000 Shares
      Outstanding - 7,536,640 Shares                                                    $  135,660                     $  135,660
   Paid-in Capital                                                                         245,003                        245,003
   Accumulated Other Comprehensive Income                                                       50                           -
   Retained Earnings                                                                       323,962                        308,915
                                                                                        ----------                     ----------
        Total Common Shareowner's Equity                                                   704,675                        689,578

Preferred Stock                                                                              4,701                          4,701
SWEPCO-Obligated, Mandatorily Redeemable Preferred
  Securities of Subsidiary Trust Holding Solely
  Junior Subordinated Debentures of SWEPCO                                                 110,000                        110,000
Long-term Debt                                                                             637,904                        494,688
                                                                                        ----------                     ----------

        TOTAL CAPITALIZATION                                                             1,457,280                      1,298,967
                                                                                        ----------                     ----------

OTHER NONCURRENT LIABILITIES                                                                44,450                         40,109
                                                                                        ----------                     ----------

CURRENT LIABILITIES:
   Long-term Debt Due Within One Year                                                       55,595                        150,595
   Advances from Affiliates                                                                  3,723                        117,367
   Accounts Payable - General                                                               70,665                         71,810
   Accounts Payable - Affiliated Companies                                                  45,894                         37,469
   Customer Deposits                                                                        20,448                         19,880
   Taxes Accrued                                                                            93,388                         36,522
   Interest Accrued                                                                         14,489                         13,631
   Energy Trading and Derivative Contracts                                                  20,027                        192,318
   Over-recovered Fuel                                                                      22,159                           -
   Other                                                                                    29,882                         26,074
                                                                                        ----------                     ----------

        TOTAL CURRENT LIABILITIES                                                          376,270                        665,666
                                                                                        ----------                     ----------

DEFERRED INCOME TAXES                                                                      350,712                        369,781
                                                                                        ----------                     ----------

DEFERRED INVESTMENT TAX CREDITS                                                             48,241                         48,714
                                                                                        ----------                     ----------

REGULATORY LIABILITIES AND DEFERRED CREDITS                                                 20,326                         13,127
                                                                                        ----------                     ----------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                           14,464                         54,313
                                                                                        ----------                     ----------

COMMITMENTS AND CONTINGENCIES (Note 9)

        TOTAL CAPITALIZATION AND LIABILITIES                                            $2,311,743                     $2,490,677
                                                                                        ==========                     ==========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
              SOUTHWESTERN ELECTRIC POWER COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                                                    Nine Months Ended September 30,
                                                                               2002                    2001
                                                                               ----                    ----

                                                                                    (in thousands)
<S>                                                                            <C>                    <C>
OPERATING ACTIVITIES:
   Net Income                                                                  $  72,108              $  84,010
   Adjustments for Noncash Items:
      Depreciation and Amortization                                               92,437                 89,919
      Deferred Income Taxes                                                      (15,296)                (2,534)
      Deferred Investment Tax Credits                                             (3,393)                (3,321)
      Mark-to-Market Energy Trading and Derivative Contracts                      (4,534)                (6,801)
      Deferred Property Taxes                                                     (8,772)                (9,316)
   Changes in Certain Current Assets and Liabilities:
      Accounts Receivable (net)                                                  (10,293)               (19,657)
      Fuel, Materials and Supplies                                                (6,596)                   943
      Accounts Payable                                                             7,280                (58,817)
      Taxes Accrued                                                               56,866                 63,653
      Fuel Recovery                                                               24,660                 16,024
   Change in Other Assets                                                        (24,717)                (4,929)
   Change in Other Liabilities                                                    15,889                 10,537
                                                                               ---------              ---------
           Net Cash Flows From Operating Activities                              195,639                159,711
                                                                               ---------              ---------

INVESTING ACTIVITIES:
      Construction Expenditures                                                  (73,483)               (76,668)
      Purchase of Dolet Hills                                                       -                   (85,716)
      Other                                                                          674                   (411)
                                                                               ---------              ---------
           Net Cash Flows Used For Investing Activities                          (72,809)              (162,795)
                                                                               ---------              ---------

FINANCING ACTIVITIES:
      Issuance of Long-term Debt                                                 198,614                   -
      Retirement of Long-term Debt                                              (150,450)                  (450)
      Change in Advances from Affiliates (net)                                  (113,644)                62,108
      Dividends Paid on Common Stock                                             (56,889)               (55,659)
      Dividends Paid on Cumulative Preferred Stock                                  (172)                  (172)
                                                                               ---------              ---------
           Net Cash Flows From (Used For) Financing Activities                  (122,541)                 5,827
                                                                               ---------              ---------

Net Increase in Cash and Cash Equivalents                                            289                  2,743
Cash and Cash Equivalents at Beginning of Period                                   5,415                  1,907
                                                                               ---------              ---------
Cash and Cash Equivalents at End of Period                                     $   5,704              $   4,650
                                                                               =========              =========
</TABLE>
Supplemental Disclosure:
Cash  paid  for  interest  net  of  capitalized   amounts  was  $34,860,000  and
$38,614,000  and for income taxes was  $24,102,000  and  $5,524,000  in 2002 and
2001, respectively.

See Notes to Financial Statements beginning on page L-1.
<PAGE>
                          WEST TEXAS UTILITIES COMPANY
            MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

                    THIRD QUARTER 2002 vs. THIRD QUARTER 2001
                                       AND
                     YEAR-TO-DATE 2002 vs. YEAR-TO-DATE 2001

         WTU is a public  utility  engaged in the  generation,  purchase,  sale,
transmission  and  distribution of electric power in west and central Texas. WTU
also sells electric power at wholesale to other utilities, municipalities, rural
electric cooperatives and beginning in 2002 to its affiliated REP in Texas.
         Wholesale power marketing and trading activities are conducted on WTU's
behalf by AEPSC. WTU, along with the other AEP electric operating  subsidiaries,
shares in AEP's forward trades with other utility systems and power marketers.
        On January 1, 2002, customer choice of electricity supplier began in the
Electric  Reliability  Council of Texas  (ERCOT) area of Texas.  WTU operates in
both the ERCOT  and  Southwest  Power  Pool  (SPP)  regions  of Texas,  with the
majority of its operations being in the ERCOT territory.
        Under the Texas  Restructuring  Legislation,  each electric  utility was
required to submit a plan to  structurally  unbundle its business  into a REP, a
power generator,  and a transmission and distribution  utility.  During the year
2000, WTU submitted a plan for separation that was subsequently  approved by the
PUCT.  As a result  of this  legislation,  WTU has  functionally  separated  its
generation  from its  transmission  and  distribution  operations  and  formed a
separate  affiliated REP.  Pending  regulatory  approval,  WTU will separate its
generation from its transmission and distribution operations. The affiliated REP
is a separate  legal entity that is an AEP  subsidiary,  that is not owned by or
consolidated with WTU.
        Since the affiliated REP is the electricity supplier to retail customers
in the ERCOT area,  WTU sells its  generation  to the  affiliated  REP and other
market  participants  and provides  transmission  and  distribution  services to
retail customers in the WTU service  territory.  As a result of the formation of
the  affiliated  REP,   effective  January  1,  2002,  WTU  no  longer  supplies
electricity directly to retail customers.  The implementation of affiliated REPs
as suppliers to retail  customers has caused a significant  shift in WTU's sales
as described below under "Results of Operations."

Results of Operations
        Net Income decreased $18 million or 130% for the quarter and $21 million
or 98% year-to-date. The decreases are primarily due to a $22 million impairment
charge,  net of tax, related to the inactivation of inefficient gas fired plants
(see Note 10).
<PAGE>
<TABLE>
<CAPTION>
Changes in Revenues
                                                                                           Increase (Decrease)
                                                                                 Third Quarter                    Year-to-Date
                                                                       (in millions)           %       (in millions)             %
<S>                                                                           <C>            <C>              <C>              <C>
       Electricity Marketing and Trading*                                     $(87)          (69)             $(218)           (69)
       Energy Delivery*                                                        (29)          (55)               (75)           (56)
       Sales to AEP Affiliates                                                  87           N.M.               191            N.M.
                                                                              ----                            -----
            Total                                                             $(29)          (16)             $(102)           (22)
                                                                              ====                            =====
</TABLE>
       *Reflects  the  allocation  of  certain   transmission  and  distribution
        revenues included in bundled retail rates to energy delivery.

       N.M. = Not Meaningful

     Electricity  Marketing  and Trading  revenues  decreased as a result of the
elimination  of retail  electricity  sales in the ERCOT  region as of January 1,
2002, partially offset by the ICR adjustments (see Note 6). Also contributing to
the decrease  was a decline in wholesale  power  prices.  In 2002 the  wholesale
energy  sector has been under  pressure  from lower  commodity  prices and fewer
market  participants in contrast to last year when  performance was stronger due
to favorable market conditions.

     Sales to AEP Affiliates  increased  primarily due to increased  revenues to
the  newly-created   affiliated  REP.  Although  WTU  sold  electricity  to  the
affiliated  REP  instead of directly to retail  customers  in the ERCOT  region,
total revenues decreased due to lower wholesale prices.
<TABLE>
<CAPTION>
Changes in Operating Expenses
                                                                                      Increase (Decrease)
                                                                      Third Quarter                          Year-to-Date
                                                             (in millions)           %           (in millions)                %
                                                                                     -                                        -
<S>                                                                  <C>           <C>                  <C>                <C>
       Fuel                                                          $(18)          (43)                $(67)               (45)
       Electricity Marketing                                           (9)          (18)                 (13)               (19)
       Purchases from AEP Affiliates                                    2            14                  (14)               (28)
       Other Operation                                                 33           127                   31                 40
       Maintenance                                                      1            23                    1                  5
       Depreciation and Amortization                                   (5)          (29)                  (5)               (13)
       Taxes Other Than Income Taxes                                   (3)          (32)                  (3)               (15)
       Income Taxes                                                   (12)         (138)                 (12)              (107)
                                                                     ----                               ----
            Total                                                    $(11)           (7)                $(82)               (19)
                                                                     ====                               ====
</TABLE>
        Fuel expense  decreased both for the quarter and  year-to-date  due to a
decrease in the average unit cost of fuel and decreased generation.
        The net  decline in  Purchased  Power  expense  for both the quarter and
year-to-date  was mainly due to reduced  prices caused by decreased  electricity
demand, partially offset by ICR adjustments (see Note 6).
        As a  result  of WTU's  recent  ability  to  purchase  electricity  at a
significantly  lower price than its current  cost to generate  electricity,  WTU
proposed  in  September  2002  to  "inactivate"  various,  high-cost  gas  fired
generating  facilities.  WTU recorded an impairment  charge in the third quarter
2002 of approximately  $34 million related to these plants which was recorded in
Other Operation expense (see Note 10).
<PAGE>
     Depreciation and Amortization  expense  decreased due to the elimination in
2002 of excess earnings expense under Texas Restructuring Legislation.
     The quarter and  year-to-date  decrease in Taxes Other Than Income Taxes is
primarily a result of one-time third quarter 2001  assessments and a decrease in
the gross receipts tax due to deregulation.
        The quarter and  year-to-date  decrease in Income  Taxes is  primarily a
result of a decrease in pre-tax income  resulting from the write-down of various
generating facilities.

Other Changes
        Nonoperating  Income and Nonoperating  Expenses increased  significantly
during  the  quarter  and the  year-to-date  period  as a  result  of  increased
non-utility  revenue and expenses  associated  with energy related  construction
projects for third parties, offset in part by decreased interest income.
        Nonoperating  Income Taxes decreased  year-to-date  due to a decrease in
pre-tax income.
<PAGE>
<TABLE>
<CAPTION>
                          WEST TEXAS UTILITIES COMPANY
                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

                                                                 Three Months Ended                        Nine Months Ended
                                                                    September 30,                            September 30,
                                                                    2002               2001                2002               2001
                                                                    ----               ----                ----               ----
                                                                                                      (in thousands)
<S>                                                               <C>                <C>                 <C>               <C>
OPERATING REVENUES:
  Electricity Marketing and Trading                               $ 38,249           $124,943            $ 96,064          $314,034
  Energy Delivery                                                   23,792             53,182              59,311           134,512
  Sales to AEP Affiliates                                           90,626              3,308             205,370            13,762
                                                                  ---------          --------            --------          --------
         Total Operating Revenues                                  152,667            181,433             360,745           462,308

OPERATING EXPENSES:
   Fuel                                                             23,774             41,667              81,596           148,420
   Purchased Power:
   Electricity Marketing                                            39,090             47,722              53,015            65,711
   AEP Affiliates                                                   12,552             11,022              34,761            48,249
 Other Operation                                                    58,270             25,633             107,350            76,735
 Maintenance                                                         5,389              4,379              16,795            15,987
 Depreciation and Amortization                                      11,513             16,149              34,154            39,449
 Taxes Other Than Income Taxes                                       5,718              8,460              17,545            20,758
 Income Taxes                                                       (3,331)             8,656                (855)           11,434
                                                                  --------           --------            --------          --------
       Total Operating Expenses                                    152,975            163,688             344,361           426,743

OPERATING INCOME (LOSS)                                               (308)            17,745              16,384            35,565

NONOPERATING INCOME                                                 15,446              2,060              20,938             4,358

NONOPERATING EXPENSES                                               13,639                253              20,898               773

NONOPERATING INCOME TAX EXPENSE
 (CREDIT)                                                              599                179                 (33)            1,079

INTEREST CHARGES                                                     5,093              5,306              15,983            16,980
                                                                  --------           --------            --------          --------
NET INCOME (LOSS)                                                   (4,193)            14,067                 474            21,091
PREFERRED STOCK DIVIDEND REQUIREMENTS                                   26                 26                  78                78
                                                                  --------           --------            --------          --------

EARNINGS APPLICABLE TO COMMON STOCK                               $ (4,219)          $ 14,041            $    396          $ 21,013
                                                                  ========           ========            ========          ========
</TABLE>
<TABLE>
<CAPTION>
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                                   (UNAUDITED)

                                                                 Three Months Ended                        Nine Months Ended
                                                                   September 30,                             September 30,
                                                              2002                    2001                   2002              2001
                                                              ----                    ----                   ----              ----
                                                                                     (in thousands)
<S>                                                         <C>                     <C>                      <C>           <C>
NET INCOME (LOSS)                                           $(4,193)                $14,067                  $474          $21,091

OTHER COMPREHENSIVE INCOME
    Cash Flow Power Hedges                                      (61)                   -                       17             -
                                                            -------                 -------                  ----          -------

COMPREHENSIVE INCOME (LOSS)                                 $(4,254)                $14,067                  $491          $21,091
                                                            =======                 =======                  ====          =======
</TABLE>
The common  stock of the Company is wholly  owned by AEP. See Notes to Financial
Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                          WEST TEXAS UTILITIES COMPANY
                         STATEMENTS OF RETAINED EARNINGS
                                   (UNAUDITED)

                                                                     Three Months Ended                     Nine Months Ended
                                                                       September 30,                          September 30,
                                                                   2002                2001                2002               2001
                                                                   ----                ----                ----               ----
                                                                                                     (in thousands)
<S>                                                               <C>                <C>                 <C>               <C>
BALANCE AT BEGINNING OF PERIOD                                    $97,087            $115,148            $105,970          $122,588
NET INCOME (LOSS)                                                  (4,193)             14,067                 474            21,091

DEDUCTIONS:
  Cash Dividends Declared:
    Common Stock                                                    6,749               7,206              20,247            21,618
    Preferred Stock                                                    26                  26                  78                78
                                                                  -------            --------            --------          --------

BALANCE AT END OF PERIOD                                          $86,119            $121,983            $ 86,119          $121,983
                                                                  =======            ========            ========          ========
</TABLE>
The common stock of the Company is wholly owned by AEP.

See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                          WEST TEXAS UTILITIES COMPANY
                                 BALANCE SHEETS
                                   (UNAUDITED)

                                                                            September 30, 2002            December 31, 2001
                                                                            ------------------            -----------------
                                                                                             (in thousands)
<S>                                                                                     <C>                         <C>
ASSETS
ELECTRIC UTILITY PLANT:
   Production                                                                           $  286,179                  $  443,508
   Transmission                                                                            255,580                     250,023
   Distribution                                                                            442,870                     431,969
   General                                                                                 106,665                     112,797
   Construction Work in Progress                                                            35,757                      22,575
                                                                                        ----------                  ----------
        Total Electric Utility Plant                                                     1,127,051                   1,260,872
   Accumulated Depreciation and Amortization                                               444,104                     546,162
                                                                                        ----------                  ----------
       NET ELECTRIC UTILITY PLANT                                                          682,947                     714,710
                                                                                        ----------                  ----------

OTHER PROPERTY AND INVESTMENTS                                                              26,241                      24,933
                                                                                        ----------                  ----------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                           10,029                      21,532
                                                                                        ----------                  ----------

CURRENT ASSETS:
   Cash and Cash Equivalents                                                                   342                       2,454
   Accounts Receivable:
      Customers                                                                             22,087                      18,720
      Affiliated Companies                                                                  46,815                       8,656
      Allowance for Uncollectible Accounts                                                    (358)                       (196)
   Fuel - at average cost                                                                   12,067                       8,307
   Materials and Supplies - at average cost                                                 11,399                      11,190
   Under-recovered Fuel Costs                                                               23,630                      32,791
   Energy Trading and Derivative Contracts                                                  14,332                      63,252
   Prepayments and Other Current Assets                                                      1,725                         966
                                                                                        ----------                  ----------
          TOTAL CURRENT ASSETS                                                             132,039                     146,140
                                                                                        ----------                  ----------

REGULATORY ASSETS                                                                           19,324                      13,733
                                                                                        ----------                  ----------

DEFERRED CHARGES                                                                            15,965                       2,446
                                                                                        ----------                  ----------

          TOTAL ASSETS                                                                  $  886,545                  $  923,494
                                                                                        ==========                  ==========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                          WEST TEXAS UTILITIES COMPANY
                                 BALANCE SHEETS
                                   (UNAUDITED)

                                                                            September 30, 2002             December 31, 2001
                                                                            ------------------             -----------------
                                                                                                (in thousands)

<S>                                                                                      <C>                          <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
   Common Stock - $25 Par Value:
      Authorized - 7,800,000 Shares
      Outstanding - 5,488,560 Shares                                                     $137,214                     $137,214
   Paid-in Capital                                                                          2,351                        2,351
   Accumulated Other Comprehensive Income                                                      17                         -
   Retained Earnings                                                                       86,119                      105,970
                                                                                         --------                     --------
        Total Common Shareowner's Equity                                                  225,701                      245,535
Cumulative Preferred Stock Not Subject to
  Mandatory Redemption                                                                      2,367                        2,367
Long-term Debt                                                                            132,483                      220,967
                                                                                         --------                     --------

        TOTAL CAPITALIZATION                                                              360,551                      468,869
                                                                                         --------                     --------

OTHER NONCURRENT LIABILITIES                                                                7,418                        6,296
                                                                                         --------                     --------

CURRENT LIABILITIES:
   Long-term Debt Due Within One Year                                                      35,000                       35,000
   Advances from Affiliates                                                               195,174                       50,448
   Accounts Payable - General                                                              34,288                       33,782
   Accounts Payable - Affiliated Companies                                                  3,870                       11,388
   Customer Deposits                                                                         -                           4,191
   Taxes Accrued                                                                           29,356                       17,358
   Interest Accrued                                                                         4,431                        1,244
   Energy Trading and Derivative Contracts                                                 12,734                       65,414
   Other                                                                                   11,364                        9,824
                                                                                         --------                     --------

        TOTAL CURRENT LIABILITIES                                                         326,217                      228,649
                                                                                         --------                     --------

DEFERRED INCOME TAXES                                                                     134,649                      145,049
                                                                                         --------                     --------

DEFERRED INVESTMENT TAX CREDITS                                                            21,828                       22,781
                                                                                         --------                     --------

LONG-TERM ENERGY TRADING AND DERIVATIVE CONTRACTS                                           7,821                       18,455
                                                                                         --------                     --------

REGULATORY LIABILITIES AND DEFERRED CREDITS                                                28,061                       33,395
                                                                                         --------                     --------

COMMITMENTS AND CONTINGENCIES (Note 9)

        TOTAL CAPITALIZATION AND LIABILITIES                                             $886,545                     $923,494
                                                                                         ========                     ========
</TABLE>
See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                          WEST TEXAS UTILITIES COMPANY
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

                                                                                                    Nine Months Ended September 30,
                                                                                                       2002                   2001
                                                                                                       ----                   ----
                                                                                                                 (in thousands)
<S>                                                                                                <C>                    <C>
OPERATING ACTIVITIES:
   Net Income                                                                                      $    474               $  21,091
   Adjustments for Noncash Items:
      Depreciation and Amortization                                                                  34,154                  39,449
      Writedown of Utility Plant Assets                                                              34,215                    -
      Deferred Income Taxes                                                                         (14,139)                 (8,060)
      Deferred Investment Tax Credits                                                                  (953)                   (953)
      Mark-to-Market Energy Trading and Derivative Contracts                                         (2,863)                 (2,285)
      Deferred Property Taxes                                                                        (3,588)                 (4,297)
   Changes in Certain Assets and Liabilities:
      Accounts Receivable (net)                                                                     (41,364)                 22,277
      Fuel, Materials and Supplies                                                                   (3,969)                  1,401
      Accounts Payable                                                                               (7,012)                (51,426)
      Taxes Accrued                                                                                  11,998                  27,108
      Fuel Recovery                                                                                   9,161                  14,245
   Change in Other Assets                                                                           (13,603)                 (3,469)
   Change in Other Liabilities                                                                          113                   7,388
                                                                                                   --------               ---------
           Net Cash Flows From Operating Activities                                                   2,624                  62,469
                                                                                                   --------               ---------

INVESTING ACTIVITIES:
      Construction Expenditures                                                                     (33,338)                (28,811)
      Other                                                                                            -                       (127)
                                                                                                  ---------               ---------
           Net Cash Flows Used For Investing Activities                                             (33,338)                (28,938)
                                                                                                  ---------               ---------

FINANCING ACTIVITIES:
      Retirement of Long-term Debt                                                                  (95,799)                   -
      Change in Advances from Affiliates (net)                                                      144,726                 (12,448)
      Dividends Paid on Common Stock                                                                (20,247)                (21,618)
      Dividends Paid on Cumulative Preferred Stock                                                      (78)                    (78)
                                                                                                  ---------               ---------
           Net Cash Flows From (Used For) Financing Activities                                       28,602                 (34,144)
                                                                                                  ---------               ---------

Net Decrease in Cash and Cash Equivalents                                                            (2,112)                   (613)
Cash and Cash Equivalents at Beginning of Period                                                      2,454                   6,941
                                                                                                  ---------               ---------
Cash and Cash Equivalents at End of Period                                                        $     342               $   6,328
                                                                                                  =========               =========
</TABLE>
Supplemental Disclosure:
Cash paid (received) for interest net of capitalized amounts was $13,061,000 and
$11,761,000  and for income taxes was  $2,408,000 and  ($2,957,000)  in 2002 and
2001, respectively.

See Notes to Financial Statements beginning on page L-1.
<PAGE>
<TABLE>
<CAPTION>
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)


The notes to financial statements are a combined presentation for AEP and its subsidiary registrants as follows:
                         Note                                           Registrant that Note applies to
                         ----                                           -------------------------------
<S>                                         <C>
1.           General                        AEP, AEGCo, APCo, CPL, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, WTU

2.           New Accounting                 AEP, AEGCo, APCo, CPL, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, WTU
                Pronouncements

3.           Goodwill and Other
                Intangible Assets           AEP, SWEPCo

4.           Acquisitions and
                  Dispositions              AEP

5.           Industry Restructuring         AEP, APCo, CPL, CSPCo, I&M, OPCo, SWEPCo, WTU

6.           Rate Matters                   AEP, APCo, CPL, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, WTU

7.           Business Segments              AEP, AEGCo, APCo, CPL, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, WTU

8.           Financing and Related
                Activities                  AEP, APCo, CPL, CSPCo, I&M, KPCo, OPCo, SWEPCo, WTU

9.           Commitments and
                 Contingencies              AEP, AEGCo, APCo, CPL, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, WTU

10.          Plant Closings and
                 Staff Reductions           AEP, CPL, WTU
</TABLE>

1.      GENERAL

               The accompanying unaudited financial statements should be read in
        conjunction  with the 2001 Annual  Report as  incorporated  in and filed
        with the Form 10-K.

               Certain prior period financial  statement items were reclassified
        to conform  to current  period  presentation.  Reclassifications  had no
        effect on previously reported net income.

               In the opinion of management,  the unaudited financial statements
        reflect  all  normal  recurring   accruals  and  adjustments  which  are
        necessary  for a fair  presentation  of the  results of  operations  for
        interim periods.

2.      NEW ACCOUNTING PRONOUNCEMENTS

               During 2002, the EITF discussed Issue No. 02-3,  "Recognition and
        Reporting of Gains and Losses on Energy Contracts under Issues No. 98-10
        and 00-17"  (EITF 02-3) and reached  consensus on certain  issues.  EITF
        98-10,  "Accounting  for  Contracts  Involving  Energy  Trading and Risk
        Management  Activities,"  requires  that  energy  trading  contracts  be
        accounted  for at  fair  value.  EITF  02-3  rescinds  Issue  No.  98-10
        effective for any new contracts entered into after October 25, 2002. For
        energy trading  contracts  entered into through  October 25, 2002,  such
        contracts  will  continue  to be  accounted  for at fair  value  through
        December  31,  2002.  Effective  January 1,  2003,  such  contracts  are
        required to be accounted for at historical  cost and we will report this
        as a cumulative  effect of an accounting  change.  Our energy  contracts
        that qualify as  derivatives  will  continue to be accounted for at fair
        value under SFAS 133.
<PAGE>
               EITF 02-3 requires that energy trading contracts and derivatives,
        whether  settled  financially or  physically,  be reported in the income
        statement on a net basis effective January 1, 2003. Previous guidance in
        EITF 98-10 permitted  non-financial  settled energy trading contracts to
        be reported  either gross or net in the income  statement.  Prior to the
        third quarter of 2002, we recorded and reported upon  settlement,  sales
        under forward trading  contracts as revenues and purchases under forward
        trading contracts as purchased energy expenses.  Effective July 1, 2002,
        we  reclassified  such forward  trading  revenues and purchases on a net
        basis, as permitted by EITF 98-10. The  reclassification of such trading
        activity to a net basis of reporting resulted in a substantial reduction
        in both  revenues and  purchased  energy  expense,  but did not have any
        impact on our financial  condition, results of operations or cash flows.
        The following table shows the amounts of revenue and Fuel and  Purchased
        Energy expense that AEP would report if these amounts were  presented on
        a "gross" basis:

                                    Three Months Ended     Nine Months Ended
                                          September 30,        September 30,
                                        2002       2001        2002       2001
                                        ----       ----        ----       ----
                                         (in millions)          (in millions)
        Gross Revenues               $21,999    $17,998     $49,844    $45,765
        Gross Fuel and Purchased
           Energy Expense            $19,882    $15,763     $43,709    $39,653
        Net Revenues                  $3,911     $3,757     $10,818     $9,944
        Net Fuel and Purchased
           Energy Expense             $1,794     $1,522      $4,683     $3,832

               The FASB issued  SFAS 146 which  addresses  accounting  for costs
        associated with exit or disposal  activities.  This statement supersedes
        previous  accounting  guidance,  principally  EITF No. 94-3,  "Liability
        Recognition for Certain Employee Termination Benefits and Other Costs to
        Exit an Activity (including Certain Costs Incurred in a Restructuring)."
        Under EITF No. 94-3, a liability for an exit cost was  recognized at the
        date of an entity's  commitment to an exit plan.  SFAS 146 requires that
        the liability for costs associated with an exit or disposal  activity be
        recognized  when the  liability is incurred.  SFAS 146 also  establishes
        that the  liability  should  initially  be measured and recorded at fair
        value.  The  timing  of  recognizing  future  costs  related  to exit or
        disposal  activities,  including  restructuring,  as well as the amounts
        recognized  may be affected by SFAS 146. We will adopt the provisions of
        SFAS 146 for exit or disposal  activities  initiated  after December 31,
        2002.

3.      GOODWILL AND OTHER INTANGIBLE ASSETS

               SFAS 142 was effective  for AEP on January 1, 2002.  The adoption
        of SFAS 142  required  the  transition  testing  for  impairment  of all
        indefinite lived intangibles by the end of the first quarter and initial
        testing of  goodwill  by the end of the second  quarter of 2002.  In the
        first  quarter  of 2002,  AEP  completed  testing  the  goodwill  of its
        domestic operations and its indefinite lived intangible assets and there
        was no impairment.  In the second  quarter of 2002 we completed  initial
        testing  for  goodwill  impairment  of  our  UK  and  Australian  retail
        electricity  and  supply  operations.  The  fair  values  of  the UK and
        Australia retail  electricity and supply operations were estimated using
        a combination of market values based on recent market  transactions  and
        cash flow projections.  As a result of that testing,  we determined that
        we had a net  transitional  impairment  loss of $350  million,  which is
        reported as a cumulative effect of a change in accounting principle.

               SFAS 142 also changed the  accounting  and reporting for goodwill
        and other intangible assets.  Effective with the adoption of SFAS 142 on
        January 1, 2002 the amortization of goodwill  ceased.  SFAS 142 requires
        that other intangible  assets be separately  identified and if they have
        finite lives, they must be amortized over that life.

               New  reporting  requirements  imposed  by SFAS  142  include  the
        disclosures shown below.
<PAGE>
        Goodwill

               The  changes  in the  carrying  amount of  goodwill  for the nine
        months ended September 30, 2002 by operating segment are:
<TABLE>
<CAPTION>
                                                                                      Energy                              AEP
                                                                      Wholesale       Delivery       Other           Consolidated
                                                                      ---------       --------       -----           ------------
                                                                                               (in millions)
<S>                                                                           <C>           <C>          <C>                 <C>
       Balance January 1, 2002                                                $340          $37          $ 15                $392
       Goodwill acquired                                                         2            -            -                    2
       Goodwill assigned from purchase price
        allocation for recent prior period
        acquisitions                                                            73            -            -                   73
       Non-transitional impairment loss                                          -            -           (12)                (12)
       Foreign currency exchange rate changes                                    6            -           -                     6
                                                                              ----          ---          ----                ----
       Balance September 30, 2002                                             $421          $37          $  3                $461
                                                                              ====          ===          ====                ====
</TABLE>
               The   transitional   impairment  loss  related  to  SEEBOARD  and
        CitiPower  goodwill,  which is  reported  as a  cumulative  effect of an
        accounting change, is excluded from the above schedule.  Under SFAS 144,
        the assets of SEEBOARD and  CitiPower,  including  goodwill and acquired
        intangible  assets no longer  subject to  amortization,  are reported as
        Assets of Discontinued  Operations on one line in the balance sheet. See
        Note 4 related to the sale of SEEBOARD and CitiPower.

               In  the  first  quarter  of  2002,   AEP  recognized  a  goodwill
        impairment  loss of $12  million  ($8 million net of tax) as a result of
        management's  decision to exit its Gas Power  Systems  business that was
        developing  customized generators powered by surplus helicopter engines.
        Management  elected to exit this business due to technical problems with
        the  underlying  technology  and  recognized an impairment  loss for all
        goodwill related to the acquisition of Gas Power Systems.

               As   required  by  SFAS  142  the   following   tables  show  the
        transitional  disclosures to adjust reported net income and earnings per
        share to  exclude  amortization  expense  recognized  in  prior  periods
        related to  goodwill  and  intangible  assets  that are no longer  being
        amortized.
<TABLE>
<CAPTION>
                                                                               Three Months Ended
              Net Income                                                         September 30,
                                                                             2002                  2001
                                                                             ----                  ----
                                                                                 (in millions)
<S>                                                                          <C>                   <C>
              Reported Net Income                                            $425                  $421
              Add back: Goodwill amortization                                  -                      9
              Add back: Amortization for intangibles with indefinite
               lives under SFAS 142                                            -                      2
                                                                             ----                  ----
              Adjusted Net Income                                            $425                  $432
                                                                             ====                  ====
</TABLE>
<TABLE>
<CAPTION>
                                                                               Three Months Ended
              Earnings Per Share (Basic and Dilutive)                            September 30,
                                                                             2002                  2001
                                                                             ----                  ----
<S>                                                                         <C>                   <C>
              Reported Earnings per Share                                   $1.25                 $1.31
              Add back: Goodwill amortization                                 -                     .03
              Add back: Amortization for intangibles with indefinite
               lives under SFAS 142                                           -                     -
                                                                            -----                 -----
              Adjusted Earnings per Share                                   $1.25                 $1.34
                                                                            =====                 =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                Nine Months Ended
              Net Income                                                          September 30,
                                                                              2002                  2001
                                                                              ----                  ----
                                                                                  (in millions)
<S>                                                                           <C>                   <C>
              Reported Net Income                                             $318                  $919
              Add back: Goodwill amortization                                   -                     28
              Add back: Amortization for intangibles with indefinite
               lives under SFAS 142                                             -                      6
                                                                              ----                  ----
              Adjusted Net Income                                             $318                  $953
                                                                              ====                  ====
</TABLE>
<TABLE>
<CAPTION>
                                                                                Nine Months Ended
              Earnings Per Share (Basic and Dilutive)                             September 30,
                                                                              2002                  2001
                                                                              ----                  ----
<S>                                                                          <C>                   <C>
              Reported Earnings per Share                                    $0.97                 $2.85
              Add back: Goodwill amortization                                  -                    0.09
              Add back: Amortization for intangibles with
               indefinite lives under SFAS 142                                 -                    0.01
                                                                             -----                 -----
              Adjusted Earnings per Share                                    $0.97                 $2.95
                                                                             =====                 =====
</TABLE>
       Acquired Intangible Assets

               Acquired  intangible  assets  subject  to  amortization  are  $35
        million at  September  30, 2002 and $33 million at December 31, 2001 net
        of accumulated  amortization.  The gross carrying amount and accumulated
        amortization by major asset class are:
<TABLE>
<CAPTION>
                                               September 30, 2002                            December 31, 2001
                                  Gross Carrying           Accumulated          Gross Carrying          Accumulated
                                          Amount           Amortization                Amount           Amortization
                                      --------------       ------------            --------------       ------------
                                                 (in millions)                                 (in millions)
<S>                                            <C>                     <C>                  <C>                      <C>
       Dolet Hills advanced
        Royalties                              $35                     $5                   $35                      $2
       Less: Adjustment due
        to purchase price
        reallocation                             6                      1                     -                       -
       Unpatented Technology                    10                      -                     -                       -
                                               ---                     --                   ---                      --
       Totals                                  $39                     $4                   $35                      $2
                                               ===                     ==                   ===                      ==
</TABLE>
               Amortization  of  intangible  assets was $2 million  for the nine
        months  ended  September  30,  2002.  Estimated  aggregate  amortization
        expense is $4 million for each year 2003 through 2008.

               AEP's   acquired   intangible   assets  no  longer   subject   to
        amortization  were  comprised of  distribution  licenses  for  CitiPower
        operating  franchises.  In  accordance  with  SFAS  144,  the  assets of
        CitiPower,  including  acquired  intangible  assets no longer subject to
        amortization,  are reported as Assets of Discontinued  Operations on one
        line in the balance sheet. See Note 4 related to the sale of CitiPower.

4.      ACQUISITIONS AND DISPOSITIONS

        Disposition of SEEBOARD

                  On June 18,  2002,  AEP,  through a wholly  owned  subsidiary,
         entered into an agreement,  subject to European Union ("EU")  approval,
         to sell its consolidated  subsidiary  SEEBOARD, a UK electricity supply
         and  distribution  company.  EU approval was received July 25, 2002 and
         the sale was  completed  on July 29, 2002.  AEP received  approximately
         $941  million in net cash from the sale,  subject to a working  capital
         true up, and the buyer  assumed  SEEBOARD debt of  approximately  $1.12
         billion,  resulting in a net loss of $345 million at June 30, 2002.  In
         accordance  with SFAS 144 the results of  operations  of SEEBOARD  have
         been  classified  as  discontinued   operations  in  the   accompanying
         financial  statements.  $22 million of the net loss was recorded in the
         second  quarter  and is  classified  as  discontinued  operations.  The
         remaining  $323  million  of the net  loss  has  been  classified  as a
         transitional impairment loss from the adoption of SFAS 142 (see Note 3)
         and has been reported as a cumulative  effect of a change in accounting
         principle  retroactive  to January 1, 2002. A $46 million  reduction of
         the net loss was  recognized  in the third  quarter  of 2002 to reflect
         changes in exchange  rates to closing,  settlement  of working  capital
         true-up and selling  expenses.  Proceeds from the sale of SEEBOARD were
         used to pay down bank facilities and short-term debt.
<PAGE>
                  The assets and  liabilities of SEEBOARD were aggregated on the
         balance sheet as Assets of  Discontinued  Operations and Liabilities of
         Discontinued  Operations.  The major classes of  SEEBOARD's  assets and
         liabilities of discontinued operations are:

                                                      December 31, 2001
                                                             (in millions)
        Assets
         Current Assets                                         $  324
         Plant, Property and Equipment, Net                      1,283
         Goodwill                                                1,129
         Other Assets                                               96
                                                                ------
          Total Assets of Discontinued Operations               $2,832
                                                                ======

        Liabilities
         Current Liabilities                                    $  752
         Long-term Debt                                            701
         Deferred Income Taxes                                     268
         Other Liabilities                                          77
                                                                ------
          Total Liabilities of Discontinued Operations          $1,798
                                                                ======

         Disposition of CitiPower

                  On July 19,  2002,  AEP,  through  a wholly  owned  subsidiary
         entered into an agreement to sell Citipower,  a retail  electricity and
         gas supply and distribution subsidiary in Australia.  AEP completed the
         sale in August 2002 and received net cash of approximately $175 million
         and the buyer assumed CitiPower debt of approximately $674 million. AEP
         recorded a net charge  totaling  $125 million as of June 30, 2002.  $98
         million was recorded in the second  quarter of 2002  relating to a loss
         on the distribution license intangible asset. The remaining $27 million
         of net loss was classified as a transitional  goodwill  impairment loss
         from  the  adoption  of SFAS  142 (see  Note 3) and was  recorded  as a
         cumulative  effect of a change in accounting  principle  retroactive to
         January 1, 2002.

                  The loss on the sale of CitiPower increased $8 million to $133
         million  in the third  quarter  of 2002  based on  actual  closing
         amounts and exchange rates.

                  CitiPower's  results of operation  have been  reclassified  as
         discontinued  operations  in  accordance  with SFAS 144. The assets and
         liabilities of Citipower have been aggregated on the December 31, 2001,
         balance sheet as assets of  discontinued  operations and liabilities of
         discontinued  operations.  The major classes of CitiPower's  assets and
         liabilities of discontinued operations are:

                                                        December 31, 2001
                                                               (in millions)
        Assets
         Current Assets                                           $  138
         Plant, Property and Equipment, Net                          495
         Goodwill/Intangibles                                        466
         Other Assets                                                 54
                                                                  ------
          Total Assets of Discontinued Operations                 $1,153
                                                                  ======
<PAGE>
        Liabilities
         Current Liabilities                                        $ 83
         Long-term Debt                                              612
         Deferred Income Taxes                                        86
         Other Liabilities                                            34
                                                                    ----
     Total Liabilities of Discontinued Operations                   $815
                                                                    ====

                  Total  revenues and pretax profit  (loss) of the  discontinued
operations of SEEBOARD and CitiPower were:

                                           SEEBOARD          CitiPower
                                           --------          ---------
                                                  (in millions)
         Revenues

         3 months ended 9/30/01              $  313             $  83
         3 months ended 9/30/02                -                   (2)

         9 months ended 9/30/01               1,062               251
         9 months ended 9/30/02                 694               204

         Pretax Profit

         3 months ended 9/30/01                  20               (10)
         3 months ended 9/30/02                  64              -

         9 months ended 9/30/01                 100              -
         9 months ended 9/30/02                 155              (175)

         Acquisition of European Trading

                  In  January  2002 AEP  acquired  for $2 million  the  existing
         trading  operations,  including  34 key staff,  of  Enron's  Norway and
         Sweden-based  energy  trading  businesses.  Results of  operations  are
         included in AEP's  consolidated  income statements from the acquisition
         date.  Based on a preliminary  purchase price  allocation the excess of
         cost over fair value of the net assets  acquired  is  approximately  $2
         million which is recorded as goodwill.  The  allocation of the purchase
         price is subject to revision after  completion of a final  appraisal of
         the fair values of the assets acquired and liabilities assumed.

         REPs Transfer

                  In April 2002 AEP reached a definitive  agreement,  subject to
         regulatory  approval,  to  transfer  two of its Texas  retail  electric
         providers  (REPs) to  Centrica,  a provider of retail  energy and other
         consumer services. An independent appraiser established the fair market
         value for the transaction  that was within the range of $133 million to
         $153 million specified in the agreement in order for the transaction to
         be completed.

                  If the  transaction  is  approved  by the PUCT and  others  as
         agreed by the parties AEP will  provide  Centrica  with a power  supply
         contract for the two REPs and all back-office services related to these
         customers for a two-year period  following  closing.  Completion of the
         transaction is contingent  upon the regulatory  approval from the PUCT.
         In  addition,  AEP retains the right to share in earnings  from the two
         REPs  above a  threshold  amount  through  2006 in the  event the Texas
         retail market  develops  increased  earnings  opportunities.  Under the
         Texas Legislation, REPs are subject to a clawback liability if customer
         change does not attain thresholds  required by the legislation.  AEP is
         responsible for a portion of such liability, if any, for the portion of
         the  period it owned the REPs  after  January  1,  2002.  AEP will also
         receive an up-front payment of approximately  $39 million from Centrica
         associated with the  back-office  service  agreement.  If an acceptable
         regulatory  approval is not obtained by December 31, 2002, either party
         has the right to terminate the transaction.
<PAGE>
5.      INDUSTRY RESTRUCTURING

                As  discussed  in the 2001  Annual  Report,  customer  choice of
        electricity  supplier has been  implemented  in four of the eleven state
        retail   jurisdictions  in  which  the  AEP  domestic  electric  utility
        companies operate.  The following  paragraphs discuss significant events
        occurring in 2002 related to customer choice and industry restructuring.

          Ohio Restructuring - Affecting AEP, CSPCo and OPCo

                As discussed in Note 7 of the Notes to Financial  Statements  in
        the 2001  Annual  Report,  CSPCo and OPCo filed an appeal  with the Ohio
        Supreme  Court  related to a tax expense  issue  which  would  result in
        duplicate  expense of $40 million and $50 million,  respectively,  for a
        twelve month period beginning on May 1, 2001. On April 3, 2002, the Ohio
        Supreme Court rejected the companies'  arguments  related to a duplicate
        tax period and affirmed the PUCO's order which established the effective
        date of tax credit riders in rates. This ruling had no impact on results
        of operations as the companies had recorded an  extraordinary  loss when
        the prepaid asset was stranded by a PUCO order in 2001.

                 On June 27,  2002,  the  Ohio  Consumers'  Counsel,  Industrial
        Energy  Users  - Ohio  and  American  Municipal  Power  - Ohio  filed  a
        complaint  with the PUCO  alleging that CSPCo and OPCo have violated the
        PUCO's orders  regarding  implementation  of their  transition  plan and
        violated other applicable law by failing to participate in an RTO.

                 The complainants  seek,  among other relief,  an order from the
        PUCO suspending collection of transition charges by CSPCo and OPCo until
        transfer of control of their transmission  assets has occurred,  pricing
        standard  offer  electric  generation  effective  January 1, 2006 at the
        market  price used by the  companies  to estimate  transition  costs and
        imposing  a $25,000  per  company  forfeiture  for each day AEP fails to
        comply with its commitment to transfer control of transmission assets to
        an RTO.

                 Due to FERC delays in the  approval of our RTO  filings,  CSPCo
        and  OPCo  have  been  delayed  in  the   implementation  of  their  RTO
        participation  plans. We continue to pursue  integration of CSPCo,  OPCo
        and other AEP East electric operating  companies into PJM and anticipate
        completing that integration in 2003. Management is unable to predict the
        timing of FERC's  final  approval  of RTOs,  the  timing of an RTO being
        operational or the outcome of this proceeding before the PUCO.

                In  October  2002 the PUCO  initiated  an  investigation  of the
        financial  condition of Ohio's  regulated public  utilities.  The PUCO's
        goal is to identify  measures  available  to the PUCO to ensure that the
        regulated  operations  of Ohio's  public  utilities  are not impacted by
        adverse   financial   consequences   of  parent  or  affiliate   company
        unregulated  operations  and take  appropriate  corrective  action.  The
        utilities  and  other  interested  parties  were  requested  to  provide
        comments  and  suggestions  by November 12,  2002,  with reply  comments
        November 22, 2002,  on the type of  information  necessary to accomplish
        the stated goals, the means to gather the required  information from the
        public  utilities  and  potential  courses of action that the PUCO could
        take.  Management  is  unable  to  predict  the  outcome  of the  PUCO's
        investigation  or its  impact on  results  of  operations  and  business
        practices, if any.

        Virginia Restructuring - Affecting AEP and APCo

               On January 1, 2002,  choice of  electricity  supplier  for retail
        customers  began in Virginia.  Presently,  APCo continues to service all
        its  previous  customers  under  capped  rates.  Pursuant to  settlement
        agreements and terms of the  restructuring  law, APCo's capped rates are
        the rates which were in effect on July 1, 1999 and no wires  charge will
        be collected during 2002 or 2003.  However,  the Virginia  restructuring
        law  allows  rates to be  adjusted  in certain  circumstances  including
        changes in fuel prices.  As discussed in Note 6, an APCo  requested fuel
        factor  increase was approved in November  2002 and will be effective on
        January 1, 2003. The  restructuring law also allows for an adjustment of
        non-generation  base rates  once  during  the  transition  period but no
        earlier  than  January 1, 2004.  See the 2001 Annual  Report for further
        discussion of Virginia restructuring.

<PAGE>
        Texas Restructuring - Affecting AEP, CPL, SWEPCo and WTU

                As  discussed  in the 2001  Annual  Report,  on January 1, 2002,
        customer  choice of  electricity  supplier  began in the  ERCOT  area of
        Texas.  Customer  choice  has  been  delayed  in  other  areas  of Texas
        including the SPP area.  All of SWEPCo's  Texas service  territory and a
        small  portion of WTU's  service  territory are located in the SPP area.
        CPL operates entirely in the ERCOT area of Texas.

                Under  the  Texas   Legislation,   the  PUCT  approved  business
        separation  plans for the utility  companies.  The  business  separation
        plans  provided  for CPL and WTU to  establish  separate  companies  and
        divide  their  integrated  utility  operations  and assets  into a power
        generation company, a transmission and distribution utility and a retail
        electric provider.

                Due to the delay in the start of competition in the SPP area and
        lack of regulatory  approval for our  corporate  separation  plan,  only
        CPL's  and WTU's  retail  electric  providers  commenced  operations  on
        January  1,  2002.   Operations  for  CPL,  SWEPCo  and  WTU  have  been
        functionally  separated.   The  companies  anticipate  completing  legal
        separation following receipt of all appropriate regulatory approvals. In
        September  2002 the FERC approved our  corporate  separation  plan.  SEC
        approval remains pending.

                In February 2002 CPL, through a subsidiary,  issued $797 million
        of transition  notes approved under the  securization  provisions in the
        Texas  Restructuring  Legislation.  The  transition  notes  provide more
        economical  financing for certain  generation-related  regulatory assets
        during their recovery period.

                 A 2004 true-up  proceeding  will  determine the amount of total
        stranded  costs,  if  any,  including  the  final  fuel  recovery,   net
        regulatory  asset recovery,  certain  environmental  costs,  accumulated
        excess earnings offsets and other issues.  The Texas Legislation  allows
        for several  alternative  methods to be used to value  stranded costs in
        the final 2004 true-up proceeding  including the sale of and/or exchange
        of generation  assets, the issuance of power generation company stock to
        the public or the use of an excess cost over market (ECOM) model. To the
        extent that the final 2004 true-up proceeding determines that CPL should
        recover additional stranded costs, the additional amount recoverable can
        also be securitized.

                 In order  to  obtain a market  value of  generating  plant  for
        purposes of determining  stranded costs for the 2004 true-up proceeding,
        CPL anticipates filing a plan of divestiture with the PUCT in the fourth
        quarter  of 2002  seeking  approval  of a sales  process  for all of its
        generating facilities.

                 Two unaffiliated Texas utilities reached settlement  agreements
        approved by the PUCT regarding  recovery of stranded  generation  costs.
        CPL is not  presently  engaged in any  settlement  discussions  with the
        PUCT. CPL's generation-related  regulatory assets subject to recovery as
        stranded costs are approximately  $1.1 billion of which $949 million has
        been securitized pending the 2004 true-up proceeding's  determination of
        stranded   costs   recovery   including   the   recovery   of   stranded
        generation-related  regulatory  assets.  WTU and  SWEPCo do not have any
        recoverable Texas generation-related regulatory assets.

                 The Texas  Restructuring  Legislation  provides for an earnings
        test each year 1999 through 2001. For CPL, any earnings in excess of the
        most  recently  approved  cost of  capital in its last rate case must be
        applied to reduce  stranded  costs.  Companies  without  stranded costs,
        including  SWEPCo and WTU,  must pay any excess  earnings to  customers,
        invest them in improvements  to transmission or distribution  facilities
        or invest  them to improve  air quality at  generating  facilities.  The
        Texas  Restructuring  Legislation  required  PUCT approval of the annual
        earnings test calculation.

                 The PUCT  ordered  CPL to  reduce  distribution  rates by $54.8
        million over a five-year  period  beginning  January 1, 2002 in order to
        return  estimated  excess  earnings for 1999,  2000 and 2001.  The Texas
        Restructuring  Legislation  intended  that  excess  earnings  be used to
        reduce stranded costs.  Final stranded cost amounts and the treatment of
        excess earnings will be determined in the 2004 true-up  proceeding.  The
        PUCT  currently  estimates  that CPL will have no stranded  cost and has
        ordered  the rate  reduction  to return  excess  earnings,  pending  the
        outcome  of the 2004  true-up  proceeding.  Since  CPL  expensed  excess
        earnings  amounts in 1999,  2000,  and 2001, the order has no additional
        effect on  reported  net income but will  reduce cash flows for the five
        year refund period.
<PAGE>
                 The PUCT staff issued its  recommendation for the 2001 earnings
        test in  September  2002.  An  estimate  of 2001  excess  earnings of $8
        million for CPL, $2 million for SWEPCo and none for WTU were recorded in
        2001.  Adjustments  to  reflect  the PUCT  staff's  estimate  of  excess
        earnings were recorded prior to September 30, 2002. When the PUCT issues
        its final order regarding 2001 excess earnings  further  adjustments may
        be  necessary.  The PUCT  staff's  report  shows  excess  earnings of $2
        million for SWEPCo, $0.7 million for WTU and none for CPL.

                 Beginning  January 1, 2002, fuel costs for CPL and WTU in ERCOT
        are  no  longer  subject  to  PUCT  fuel   reconciliation   proceedings.
        Consequently, CPL and WTU will file a final fuel reconciliation with the
        PUCT which reconciles their fuel costs through the period ended December
        31, 2001.  As discussed  in Note 6 "Rate  Matters",  WTU filed its final
        fuel  reconciliation  for its ERCOT service  territory  with the PUCT in
        June 2002 and CPL intends to file its final fuel  reconciliation  by the
        end of  2002.  These  final  fuel  balances  will  be  included  in each
        company's 2004 true-up  proceeding.  The  elimination of the fuel clause
        recoveries  in 2002 in Texas will subject AEP to the risk of fuel market
        price increases and could adversely affect results of operations.

                 In the event CPL,  SWEPCo,  and WTU are  unable  after the 2004
        true-up   proceeding   to   recover   all   or  a   portion   of   their
        generation-related   regulatory   assets,   unrecovered  fuel  balances,
        stranded costs and other  restructuring  related costs,  it could have a
        material  adverse  effect  on  results  of  operations,  cash  flows and
        possibly financial condition.

        Michigan Restructuring - Affecting AEP and I&M

                  Customer  choice  commenced  for I&M's  Michigan  customers on
        January 1, 2002.  Effective  with that date the rates on I&M's  Michigan
        customers'  bills for retail  electric  service were  unbundled to allow
        customers the opportunity to evaluate the cost of generation service for
        comparison  with other  offers.  I&M's total  rates in  Michigan  remain
        unchanged  and  reflect  cost of  service.  At this time,  none of I&M's
        customers have elected to change  suppliers and no alternative  electric
        suppliers are registered to compete in I&M's Michigan service territory.

                  Management  has  concluded  that as of September  30, 2002 the
        requirements  to apply SFAS 71  continue to be met since I&M's rates for
        generation in Michigan continue to be cost-based regulated.  As a result
        I&M has not discontinued regulatory accounting under SFAS 71.

        West Virginia Restructuring - Affecting AEP and APCo

                  As  discussed  in Note 7 of the 2001 Annual  Report,  the West
        Virginia Legislature in 2000 approved an electricity restructuring plan.
        Before  implementation of the plan, the West Virginia Legislature needed
        to enact  legislation  to  preserve  the  revenues  of state  and  local
        government.  In the subsequent two legislative  sessions,  which usually
        end in March each year,  the West Virginia  Legislature  has not enacted
        the required legislation.  Due to the lack of legislative activity,  the
        Public  Service  Commission  of West  Virginia  closed  two  proceedings
        related to electricity restructuring in the summer of 2002.

                 The two closed West Virginia Commission  proceedings related to
        the respective  dockets  intended  originally to determine  whether West
        Virginia should deregulate the generation  business,  and to develop the
        Commission's Deregulation Plan and related Commission rules to implement
        the Plan.

                  Management  has  reviewed  these  two   proceedings   and  has
        concluded  that at  this  time  it is not  clear  that  APCo  meets  the
        requirements to reapply SFAS 71. Management  believes  definitive action
        from the West Virginia  Legislature or the Public Service  Commission is
        required to reapply SFAS 71.
<PAGE>
6.      RATE MATTERS

        ICR Explanation - Affecting AEP, CPL, PSO, SWEPCo and WTU

                  The AEP West electric operating companies' power is dispatched
        real time on an economic basis and is later allocated among the AEP West
        electric operating  companies using the Interchange Cost  Reconstruction
        (ICR) system based on dispatch  information  from  internal and external
        sources.  ICR is designed to allocate  the cost of power under the terms
        and conditions of the AEP West Operating Agreement.

        Fuel Reconciliation - Affecting AEP and WTU

                  In June 2002 WTU filed with the PUCT to  reconcile  fuel costs
        and to defer any unrecovered  portion  applicable to retail sales within
        its ERCOT  service area for  inclusion  in the 2004 true-up  proceeding.
        This  reconciliation  for the period of July 2000 through  December 2001
        will be the final fuel reconciliation for WTU's ERCOT service territory.
        Texas   Restructuring   Legislation   eliminated  fuel  clause  recovery
        mechanisms  beginning in 2002 for the ERCOT area and provides for a 2004
        true-up  proceeding  to determine  recovery of final fuel  balances.  At
        December 31, 2001,  the  under-recovery  balance  associated  with WTU's
        ERCOT  service  area was  $27.5  million  including  interest.  WTU also
        requested authority to surcharge its SPP customers.  WTU's SPP customers
        will continue to be subject to fuel  reconciliations  until  competition
        begins.  The  under-recovery  balance  at  December  31,  2001 for WTU's
        service  within  SPP was $0.7  million  including  interest.  During the
        reconciliation  period, WTU incurred $293.7 million of eligible fuel and
        fuel related  expenses serving both ERCOT and SPP retail  customers.  In
        October  2002 the  filing  was split into two  phases.  The first  phase
        examined all components of the filing except for AEP trading  activities
        and the  associated  margins that flow back to customers as an offset to
        fuel costs.  The  intervenor  groups filed  testimony in the first phase
        recommending  that up to $25 million of WTU's requested  retail eligible
        fuel recovery be disallowed  and hearings were held on October 23, 2002.
        WTU disputed the  recommendations.  On October 21, 2002,  the PUCT Staff
        and Office of Public  Utility  Counsel  (OPC)  filed a joint  Motion for
        Summary  Decision  related to the second phase issue and requested  that
        approximately  $18.5  million of WTU's retail  eligible fuel recovery be
        disallowed  without a hearing.  On November 8, 2002, the  administrative
        law judges  (ALJs) in the case denied the motion for  Summary  Judgment.
        The PUCT Staff and OPC could appeal the ALJs' decision to the full PUCT.
        The intervenors  filed testimony on October 29, 2002 in the second phase
        recommending  that up to $34 million of WTU's requested  retail eligible
        fuel recovery be disallowed.  The intervenors  recommended  disallowance
        includes  the  amount  sought  in the  October  21  Motion  for  Summary
        Decision. The total recommended retail disallowance is approximately $59
        million.  Hearings  for the second  phase will be held on  November  13,
        2002. The PUCT is not expected to issue a final order in this case until
        2003.  An adverse  ruling from the PUCT could have a material  impact on
        future results of operations, cash flows and financial condition.

        ERCOT Over-scheduling - Affecting AEP, CPL and WTU

                  In late  2001,  the PUCT  initiated  an  investigation  of the
        impact of  scheduling  of  electric  loads and  resources  by  qualified
        scheduling  entities (QSE) in ERCOT in August 2001.  ERCOT began serving
        as a central  control  center  for all of ERCOT at the end of July 2001.
        QSEs  schedule  loads  and  resources  for  ERCOT  market   participants
        including power generation  companies and retail electric providers.  In
        August 2001 ERCOT incurred  substantial costs for managing  transmission
        in its north zone. The costs incurred by ERCOT to manage  congestion are
        shared by all ERCOT QSEs.  The PUCT's  investigation  determined  that a
        substantial  amount of the  congestion  charges were the result of QSEs,
        including  AEP's QSE,  scheduling  more  resources than required to meet
        their  actual  load  requirements  in the ERCOT  north  zone.  AEP's QSE
        over-scheduled  resources due to an error in the allocation of estimated
        load requirements between ERCOT congestion zones. Pursuant to the PUCT's
        investigation,  QSEs,  including  AEP's QSE, agreed to a settlement that
        provides  for the refund of payments  received  for  adjusting  resource
        schedules for  congestion.  The  settlement  was approved by the PUCT in
        November 2002. The settlement recognizes that the scheduling errors were
        associated with the start up of the ERCOT competitive market. Settlement
<PAGE>
        amounts  will be  refunded  to QSEs in ERCOT.  The AEP QSE will pay $3.2
        million  to ERCOT and  expects  to receive  $1.9  million  from ERCOT in
        congestion refunds for a net payment of $1.3 million. The ERCOT QSE will
        allocate these payments and refunds to WTU and CPL. WTU expects to incur
        a net cost of $2.7  million  and CPL  expects to receive a net refund of
        $1.4  million.  It is expected  that both the WTU payment and CPL refund
        will be reflected in the final fuel reconciliations for each company and
        as result  these  amounts  are not  expected  to have any  impact on net
        income.

        FERC Wholesale Fuel Complaint - Affecting AEP and WTU

                  As discussed in Note 5 of the 2001 Annual Report,  certain WTU
        wholesale  customers  filed a complaint  with FERC alleging that WTU had
        overcharged  them  through  the  fuel  adjustment   clause  for  certain
        purchased  power costs since 1997.  The customers  allege WTU had billed
        them for not only the cost of a 1999  Oklaunion  plant outage,  but also
        certain  additional  costs  that  are not  permissible  under  the  fuel
        adjustment clause.

                  Negotiations  to settle the complaint and update the contracts
        are  continuing.  In March 2002 WTU  recorded a provision  for refund of
        $2.2 million before income taxes. The actual refund and final resolution
        of this matter could differ materially from this estimate and may have a
        negative impact on future results of operations, cash flow and financial
        condition.

        Texas Retail Price-to-Beat Rates - Affecting AEP

                  AEP subsidiaries which are the Texas retail electric providers
        (REP) for the ERCOT  area,  CPL REP and WTU REP,  filed with the PUCT in
        May 2002 to increase the fuel portion of their  "price-to-beat"  rate in
        compliance with the Texas Restructuring  Legislation and rules issued by
        the PUCT. The Texas legislation  provides for the adjustment of the fuel
        portion of the rate up to twice  annually based on changes in the market
        price of natural gas and purchased power using NYMEX natural gas prices.
        On July 15, 2002, the PUCT required  further  hearings to reconsider the
        validity of their  existing rules for fuel factor  adjustments.  On July
        24, 2002,  CPL REP and WTU REP filed a petition with the District  Court
        seeking an  injunction  commanding  the PUCT to proceed to a final order
        based on the existing rules and  prohibiting  the PUCT from conducting a
        remand proceeding.  The District Court issued an order on August 9, 2002
        requiring  the PUCT to comply  with the  existing  rules.  On August 26,
        2002,  the PUCT  issued an order  approving  a 22%  increase to the fuel
        portion of their  "price-to-beat"  rates effective  immediately for both
        CPL REP and WTU REP. The PUCT order  approving the 22% increase has been
        appealed.

        FERC Transmission Rates - Affecting AEP, CPL, PSO, SWEPCo and WTU

                  In November  2001 FERC  issued an order  requiring  CPL,  PSO,
        SWEPCo and WTU to submit revised open access transmission  tariffs,  and
        calculate and issue refunds for  overcharges  from January 1, 1997.  The
        order resulted from a remand by an appeals court of a tariff  compliance
        filing order issued in November  1998 that had been  appealed by certain
        customers.  CPL and WTU recorded  refund  provisions of $1.7 million and
        $0.7 million,  respectively,  including interest in 2001 for this order.
        PSO and SWEPCo recorded  $100,000 each in 2001 for this order making the
        AEP total $2.6 million. In July 2002 FERC approved a revised open access
        transmission  tariff.  Refunds totaling $1.3 million including  interest
        were issued in August 2002.  The  allocation of the refunds  resulted in
        revenue  increases  of $2.5  million for PSO and $2.8 million for SWEPCo
        and revenue reductions of $2.8 million for CPL and $1.2 million for WTU.

        Texas Transmission Cost Recovery - Affecting AEP, CPL and WTU

                  In July 2002 CPL and WTU  filed a  petition  to  update  their
        Transmission  Cost Recovery  Factor (TCRF) as of September 1, 2002.  The
        TCRF allows for the pass  through of changes in  wholesale  transmission
        costs  billed to the  distribution  service  providers  by  transmission
        service providers.  CPL and WTU received approval to increase their TCRF
        by $0.8 million and $0.2  million,  respectively.  The TCRF increase has
        been implemented.
<PAGE>
        Fuel and Purchased Power Recovery - Affecting AEP, CPL, PSO, SWEPCo
            and WTU

                  PSO  has  Under-Recovered  Fuel  Costs  of  $99.8  million  at
        September 30, 2002, representing fuel and purchased power costs recorded
        but not yet collected  from retail  customers in Oklahoma and cost to be
        allocated among the AEP West electric  operating  companies.  During the
        third quarter of 2002, PSO estimated that the under-recovered  fuel cost
        due to natural gas price  increases  that were not expected when PSO set
        its quarterly  factors during the year were  approximately  $25 million.
        The  formation of the ERCOT single  control zone  increased the need for
        data  estimation  and true-up  which has  resulted  in extended  true-up
        periods associated with allocations performed on estimated data.

                  During 2002, AEP  reallocated  purchased power costs among the
        four AEP West  electric  operating  companies  for the periods  prior to
        January 1, 2002 (the ICR  Adjustments).  The effects of the reallocation
        on pretax income were  insignificant to CPL and PSO and increased pretax
        income at SWEPCo and WTU by $2.4 million and $1.9 million, respectively.
        As updated or final data  become  known,  AEP is  reallocating  purchase
        power costs among the four AEP West  electric  operating  companies.  To
        date,  completed  reallocations  of purchased  power costs among the AEP
        West electric operating companies increased PSO's under-recovered amount
        by $44.6 million.  The reallocation  currently in process is expected to
        reduce  PSO's  under-recovered  fuel and  purchased  power  costs and to
        increase the costs  allocated to the other AEP West  electric  operating
        companies  (SWEPCo,  CPL and WTU).  PSO's next  opportunity to request a
        change to its fuel  factors  will be in  November  2002,  with new rates
        beginning   December  2002,  subject  to  review  and  approval  by  the
        Corporation Commission of the State of Oklahoma (OCC). To the extent the
        OCC  and/or  the AEP West  Commissions  regulating  SWEPCo do not permit
        recovery of the revised fuel and purchased  power costs,  there could be
        an  adverse  effect  on  its  results  of  operations  and  cash  flows.
        Furthermore, if the currently pending reallocations result in additional
        costs being allocated to CPL and WTU, these  additional costs may not be
        recoverable  since there is no longer a fuel clause for these companies.
        As a result, any additional costs that may be reallocated to CPL and WTU
        could have an adverse  effect on their future  results of operations and
        cash flows.

        Louisiana Compliance Filing - Affecting AEP and SWEPCo

                  On October 15, 2002,  SWEPCo filed with the  Louisiana  Public
        Service  Commission  (LPSC)  detailed  financial  information  typically
        utilized in a revenue  requirement  filing,  including a  jurisdictional
        cost of service.  This  filing was  required as a result of the order by
        the LPSC  approving  the merger  between AEP and CSW. The LPSC's  merger
        order also  provides  that SWEPCo's base rates are capped at the present
        level through  mid-year 2005. The filing indicates that SWEPCo's current
        rates should not be reduced because  SWEPCo's current revenues are below
        the level of revenues that SWEPCo  should be permitted to recover.  This
        filing is under review by the LPSC staff. If the LPSC disagrees with our
        conclusion,  they  could  order  SWEPCo to file a full  cost of  service
        revenue  requirement in order to determine whether SWEPCo's capped rates
        should be reduced.

        FERC Long-term Contracts - Affecting AEP and AEP East and AEP West
            electric operating companies

                  In September  2002 the FERC voted to hold hearings to consider
        requests from certain  wholesale  customers located in western states to
        break long-term contracts which they allege are "high-priced".  At issue
        are long-term contracts entered during the California energy price spike
        in 2000 and 2001.  The  complaints  allege that AEP sold power at unjust
        and unreasonable  prices. The FERC delayed hearings to allow the parties
        to hold  settlement  discussions.  Management  is unable to predict  the
        outcome of these proceedings or their impact on results of operations

        Virginia Fuel Rate Filing - Affecting AEP and APCo

                  In July 2002 APCo filed with the  Virginia SCC  requesting  an
        increase in fuel rates  effective  January 1, 2003. A public hearing was
        held on September 23, 2002 related to this filing.  On November 8, 2002,
        a decision  was  issued in this  proceeding  approving  an  increase  of
        approximately $24 million.
<PAGE>
        Environmental Surcharge Filing - Affecting AEP and KPCo

                  In  September  2002 KPCo  filed  with the KPSC to  revise  its
        environmental  surcharge tariff to recover the cost of emissions control
        equipment being installed at Big Sandy Plant. See NOx Reductions in Note
        9.

                  The surcharge  request,  estimated to increase annual revenues
        by  approximately  $21 million,  must be approved by the KPSC before its
        inclusion in customers'  bills. If the KPSC does not approve an increase
        in the  environmental  surcharge,  results of operations  and cash flows
        would be negatively impacted.

7.      BUSINESS SEGMENTS

                  AEP has three business segments: Wholesale,Energy Delivery and
        Other.  The business activities of each of these segments are as
        follows:

        Wholesale
        oGeneration  of electricity  for sale to retail and wholesale  customers
        oGas   pipeline  and  storage   services
        oMarketing and trading of electricity, gas, coal and other commodities
        oCoal  mining,  bulk commodity barging operations and other energy
         supply related businesses

        Energy Delivery
        oDomestic electricity transmission
        oDomestic electricity distribution

        Other
        oInvestments in foreign power and distribution projects
        oTelecommunication services

        Segment  results of operations  for the nine months ended  September 30,
        2002 and 2001 are shown below.  These amounts include certain  estimates
        and allocations where necessary.

                 We have used Earnings  Before  Interest and Income Taxes (EBIT)
        as a measure of segment operating performance. The EBIT measure is total
        operating  revenues net of total operating expenses and other income and
        deductions  from income.  It differs from net income in that it does not
        take into account interest expense,  and income taxes, and the effect of
        discontinued  operations,  extraordinary items and the cumulative effect
        of changes in accounting principles. EBIT is believed to be a reasonable
        gauge of results of operations.  By excluding interest and income taxes,
        EBIT does not give  guidance  regarding  the  demand of debt  service or
        other interest  requirements,  or tax liabilities or taxation rates. The
        effects of interest expense and taxes on overall  corporate  performance
        can be seen in the  consolidated  statements  of  income.  By  excluding
        discontinued  operations,  extraordinary items and the cumulative effect
        of changes in accounting principles, EBIT gives more focused guidance on
        segment operating performance.
<PAGE>
               The amounts shown for the three business segments reported by AEP
include certain estimates and allocations where necessary.
<TABLE>
<CAPTION>
                                                                          Energy    Other        Reconciling
                                                              Wholesale   Delivery  Investments  Adjustments   Consolidated
                                                                                       (in millions)
<S>                                                             <C>        <C>          <C>      <C>             <C>
        Nine Months Ended September 30, 2002
        Revenues from:
          External customers                                    $ 8,020    $2,737       $   61   $               $  10,818
                                                                                                   -
          Transactions with other operating segments              1,643        13           37   (1,693)            -
        Segment EBIT                                                939       808         (15)       -               1,732
        Total assets at September 30, 2002                       32,353    12,341          822       -              45,516

        Nine Months Ended September 30, 2001
        Revenues from:
          External customers                                    $ 7,226    $2,599       $  119   $     -            $9,944
          Transaction with other operating segments               1,771        14            4   (1,789)            -
        Segment EBIT                                              1,226       810           47         -             2,083
        Total assets at September 30, 2001                       32,632    13,321        8,008   (1,142)            52,819
</TABLE>
               All of the registrant subsidiaries except AEGCo have two business
        segments.  The  segment  results  for  each of  these  subsidiaries  are
        reported  in the  table  below.  AEGCo  has  one  segment,  a  wholesale
        generation  business.  AEGCo's  results of  operations  are  reported in
        AEGCo's financial statements.
<TABLE>
<CAPTION>
                                                   Nine Months Ended                           Nine Months Ended
                                                   September 30, 2002                          September 30, 2001
                                                    Segment                                      Segment
                                       Revenues     EBIT         Total Assets       Revenues     EBIT          Total Assets
        Wholesale Segment                                     (in thousands)                               (in thousands)
<S>                                      <C>          <C>          <C>               <C>             <C>           <C>
        APCo                              $924,196    $175,501     $2,883,704        $  910,479      $135,287      $3,066,057
        CPL                                945,495     174,838      3,057,762           981,024       245,947       3,080,135
        CSPCo                              713,107     227,197      2,025,657           678,139       197,305       2,157,522
        I&M                                900,334      39,508      3,356,226           926,923       121,130       3,528,300
        KPCo                               190,571      11,589        629,363           184,338         4,516         638,684
        OPCo                             1,161,279     303,108      3,159,412         1,194,882       198,107       3,337,773
        PSO                                322,790      41,779        887,443           606,901        51,063         946,654
        SWEPCo                             582,729      64,797      1,132,754           607,363        73,034       1,304,534
        WTU                                301,434     (14,939)       380,328           327,796        12,410         432,338
</TABLE>
<TABLE>
<CAPTION>
                                                     Segment                                     Segment
                                       Revenues      EBIT        Total Assets       Revenues     EBIT          Total Assets
        Energy Delivery Segment                                 (in thousands)                             (in thousands)
<S>                                      <C>           <C>         <C>                 <C>           <C>           <C>
        APCo                             $444,706      $160,839    $2,274,979          $455,587      $165,744      $2,418,839
        CPL                               240,066       141,770     2,196,124           449,425       120,376       2,212,194
        CSPCo                             373,969        71,281     1,139,432           358,984        81,452       1,213,606
        I&M                               242,416       118,821     1,514,930           241,581        91,305       1,592,600
        KPCo                              101,137        42,960       609,541           101,367        42,748         618,567
        OPCo                              447,104        74,866     1,761,791           405,352        78,516       1,861,251
        PSO                               214,624        68,427       988,757           208,911        75,360       1,054,728
        SWEPCo                            265,027        87,159     1,178,989           262,943        97,149       1,357,780
        WTU                                59,311        30,508       506,217           134,512        38,174         575,443
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
        Registrant Subsidiaries
        Company Total                  Revenues     EBIT         Total Assets       Revenues     EBIT          Total Assets
                                                        (in thousands)                              (in thousands)
<S>                                     <C>            <C>         <C>               <C>             <C>           <C>
        APCo                            $1,368,902     $336,340    $5,158,683        $1,366,066      $301,031      $5,484,896
        CPL                              1,185,561      316,608     5,253,886         1,430,449       366,323       5,292,329
        CSPCo                            1,087,076      298,478     3,165,089         1,037,123       278,757       3,371,128
        I&M                              1,142,750      158,329     4,871,156         1,168,504       212,435       5,120,900
        KPCo                               291,708       54,549     1,238,904           285,705        47,264       1,257,251
        OPCo                             1,608,383      377,974     4,921,203         1,600,234       276,623       5,199,024
        PSO                                537,414      110,206     1,876,200           815,812       126,423       2,001,382
        SWEPCo                             847,756      151,956     2,311,743           870,306       170,183       2,662,314
        WTU                                360,745       15,569       886,545           462,308        50,584       1,007,781
</TABLE>
                  In October 2002, we announced our plans to reduce our exposure
        to speculative  energy  trading  markets and to downsize our trading and
        wholesale  marketing  operations.  It is expected that in the future our
        trading  and  marketing  operations  will be limited to risk  management
        around our assets.

8.      FINANCING AND RELATED ACTIVITIES

        Equity Units

                 In June 2002,  AEP issued 6.9 million  equity  units at $50 per
        unit ($345 million).  Each equity-linked  security consists of a forward
        purchase  contract and a senior note issued by AEP. The forward purchase
        contracts obligate the holders to purchase from AEP shares of AEP common
        stock on the stock  purchase date of August 16, 2005. The purchase price
        per equity unit is $50. The number of shares to be  purchased  under the
        forward purchase  contract will be determined under a formula based upon
        the average  closing  price of AEP common stock near the stock  purchase
        date. The senior notes have a principal amount of $50 each and mature on
        August 16, 2007.  The senior notes are pledged as  collateral  to secure
        the  purchase  of common  stock under the  forward  purchase  contracts.
        Holders  may  satisfy  their   obligation  under  the  forward  purchase
        contracts by allowing the senior  notes to be  remarketed.  The proceeds
        from  the  remarketing  will be used to  purchase  a  portfolio  of U.S.
        treasury   securities  that  holders  pledge  to  AEP  to  secure  their
        obligations under the forward purchase contracts. Alternatively, holders
        may choose to continue  holding the senior notes and use other resources
        as  consideration  for the purchase of stock under the forward  purchase
        contracts.

                 AEP will make quarterly  interest  payments on the senior notes
        at the initial  annual  rate of 5.75%.  The  interest  rate can be reset
        through a  remarketing,  which is initially  scheduled for May 2005. AEP
        will pay the purchaser contract  adjustment  payments at the annual rate
        of 3.50% on the forward purchase contracts.

                 The present value of the contract  adjustment payments has been
        recorded as a liability  in equity unit senior  notes offset by a charge
        to paid-in capital.  Interest  payments on the senior notes are reported
        as interest expense and contract adjustment payments are charged against
        the liability. Accretion of the contract adjustment payment liability is
        reported as interest expense.  AEP applies the treasury stock  method to
        the equity units to calculate  diluted  earnings per share.  This method
        of calculation theoretically assumes that the proceeds received as a
        result of the forward  purchase  contract  are used to  repurchase
        outstanding shares.

         Common Stock

                 In June 2002,  AEP issued 16 million  shares of common stock at
        $40.90 per share through an equity offering and received net proceeds of
        $634  million.  Proceeds  from the sale of equity units and common stock
        were used to pay down  short-term  debt and  establish a cash  liquidity
        reserve fund.
<PAGE>
        Issuances and Retirements of Long-term Debt

               In the first  quarter  of 2002,  CPL  Transition  Funding  LLC, a
        subsidiary  of CPL,  issued $797 million of  transition  notes under the
        provisions  of the Texas  Restructuring  Legislation  (see Note 5).  The
        proceeds were used to reduce CPL's debt and retire 4.5 million shares of
        CPL's common stock.

        The notes were issued under the following classes:

                   Principal     Interest    Scheduled Final      Final
        Class        Amount        Rate      Payment Date      Maturity Date
        -----      ---------     --------    ---------------   -------------
              (in millions)     (%)
        A-1           129          3.54        2005               2007
        A-2           154          5.01        2008               2010
        A-3           107          5.56        2010               2012
        A-4           215          5.96        2013               2015
        A-5           192          6.25        2016               2017

                      Other  issuances  and  retirements  of long-term  debt and
other securities during the first nine months of 2002 were:

                 Type of                   Principal     Interest
   Company       Debt                      Amount        Rate      Due Date
   -------     -------                   ---------     --------    --------
   Issuances                           (in millions)      (%)
   ---------
   APCo       Senior Unsecured Notes      $  450          4.80        2005
   I&M        Installment Purchase Contracts  50          4.90        2025
   KPCo       Senior Unsecured Notes         125          5.50        2007
   SWEPCo     Senior Unsecured Notes         200          4.50        2005
   Non-Registrant
    AEP Subs. Revolving Credit Agreement     143          Variable    2003
    AEP Subs. Notes Payable                  121       6.225-6.60     2017

   Retirements
   AEP        Senior Unsecured Notes        $  5          6.125       2006
   APCo       First Mortgage Bonds            40          6.65        2003
   APCo       First Mortgage Bonds            30          6.85        2003
   APCo       First Mortgage Bonds            50          7.38        2002
   APCo       Junior Debentures               75          8-1/4       2026
   APCo       Junior Debentures               90          8.00        2027
   CPL        Senior Unsecured Notes         150          Variable    2002
   CPL        First Mortgage Bonds            73          7-1/4       2004
   CPL        First Mortgage Bonds            59          7-1/2       2002
   CPL        First Mortgage Bonds            33          6-7/8       2003
   CPL        First Mortgage Bonds            56          7-1/8       2008
   CPL        First Mortgage Bonds            57          7-1/2       2023
   CPL        First Mortgage Bonds           128          6-5/8       2005
   CSPCo      Junior Debentures               73          8-3/8       2025
   CSPCo      Junior Debentures               40          7.92        2027
   I&M        Installment Purchase Contract   50          Variable    2014
   I&M        Senior Unsecured Notes         200          Variable    2002
   KPCo       First Mortgage Bonds            15          7.90        2023
   KPCo       First Mortgage Bonds            15          6.65        2003
   KPCo       First Mortgage Bonds            15          6.70        2003
   KPCo       First Mortgage Bonds            15          6.70        2003
   KPCo       Notes Payable                   25          7.445       2002
   OPCo       First Mortgage Bonds             5          8.80        2022
   OPCo       Junior Debentures               85          8.16        2025
   OPCo       Junior Debentures               50          7.92        2027
   SWEPCo     Senior Unsecured Notes         150          Variable    2002
   WTU        First Mortgage Bonds            17          7-3/4       2007
   WTU        First Mortgage Bonds            22          7           2004
   WTU        First Mortgage Bonds            16          6-1/8       2004
   WTU        First Mortgage Bonds            34          6-3/8       2005
   Non-Registrant
    AEP Subs. Notes Payable                   12          Variable    2002-2007
    AEP Subs. Revolving Credit Agreement     239          Variable    2003
<PAGE>
               In addition to the transactions  reported in the table above, the
        following table lists intercompany issuances and retirements of debt due
        to AEP.

                 Type of                   Principal     Interest
        Company       Debt                      Amount        Rate      Due Date
        -------     -------                   ---------     --------    --------
     Issuances                           (in millions)      (%)
     ---------
        CSPCo       Notes Payable               $160           6.501     2006

        Retirements
        CSPCo       Notes Payable               $200           Variable  2002

        Related Activities

                 In the third  quarter  of 2002,  all long term debt  associated
with  SEEBOARD and  CitiPower  (approximately  $1.8  billion) was assumed by the
buyers.

                 AEP Credit renewed its sale of receivables agreement during the
        second  quarter of 2002. At September 30, 2002,  the sale of receivables
        agreement provided  commitments of $600 million to purchase  receivables
        from AEP  Credit,  of which $528  million  was  outstanding.  All of the
        receivables sold represented affiliate receivables. The commitment's new
        term under the sale of receivables agreement will remain at $600 million
        until May 28,  2003.  AEP Credit  maintains  a retained  interest in the
        receivables  sold and this  interest  is pledged as  collateral  for the
        collection  of the  receivables  sold.  The fair  value of the  retained
        interest  is based on book  value  due to the  short-term  nature of the
        accounts  receivables  less an allowance for  anticipated  uncollectible
        accounts.

                 In April 2002, AEP closed on a bridge loan facility  consisting
        of a $1,125 million 364-day revolving credit facility and a $600 million
        364-day  term loan  facility to prepare  for  corporate  separation.  We
        borrowed  $600  million  under the term loan  facility  and  loaned  the
        amounts  borrowed to CPL ($200  million),  CSPCo ($250 million) and OPCo
        ($150  million).  Pricing on the  facilities and  intercompany  loans is
        based on a spread over LIBOR.

                 AEP has available $3.5 billion in bank facilities consisting of
        a $2.5 billion 364-day facility (with a one year term option) and a $1.0
        billion  five-year  facility  maturing on May 31, 2005. On May 22, 2002,
        AEP renewed the $2.5 billion  facility for another  year  extending  the
        maturity date to May 21, 2003.

9.      COMMITMENTS AND CONTINGENCIES

        Litigation

        Federal EPA Complaint and Notice of Violation - Affecting AEP, APCo,
           CSPCo, I&M, and OPCo

               As discussed in Note 8 of the Notes to  Financial  Statements  in
        the 2001 Annual  Report,  AEPSC,  APCo,  CSPCo,  I&M, and OPCo have been
        involved in litigation  since 1999 regarding  generating plant emissions
        under  the  Clean Air Act.  Federal  EPA and a number of states  alleged
        APCo,   CSPCo,  I&M,  OPCo  and  eleven   unaffiliated   utilities  made
        modifications  to generating  units at coal-fired  generating  plants in
        violation of the Clean Air Act. Federal EPA filed complaints against AEP
        subsidiaries in U.S. District Court for the Southern District of Ohio. A
        separate  lawsuit  initiated  by  certain  special  interest  groups was
        consolidated with the Federal EPA case. The alleged  modification of the
        generating units occurred over a 20 year period.
<PAGE>
               Under  the  Clean  Air  Act,  if  a  plant   undertakes  a  major
        modification that directly results in an emissions increase,  permitting
        requirements might be triggered and the plant may be required to install
        additional pollution control technology. This requirement does not apply
        to  activities  such as routine  maintenance,  replacement  of  degraded
        equipment  or  failed  components,  or  other  repairs  needed  for  the
        reliable,  safe and efficient  operation of the plant. The Clean Air Act
        authorizes  civil  penalties  of up to $27,500 per day per  violation at
        each  generating  unit ($25,000 per day prior to January 30,  1997).  In
        2001 the Court ruled claims for civil penalties based on activities that
        occurred  more than five years before the filing date of the  complaints
        cannot  be  imposed.  There is no time  limit on claims  for  injunctive
        relief.

               In  February  2001 the  government  filed a motion  requesting  a
        determination that four projects undertaken on units at Sporn,  Cardinal
        and Clinch River plants do not constitute "routine  maintenance,  repair
        and  replacement"  as used in the  Clean  Air Act.  The  District  Court
        dismissed the motion as pre-mature. Management believes its maintenance,
        repair and replacement  activities were in conformity with the Clean Air
        Act and intends to vigorously pursue its defense.

               Management  is  unable  to  estimate  the  loss or  range of loss
        related to the contingent  liability for civil penalties under the Clear
        Air Act  proceedings  and unable to predict the timing of  resolution of
        these  matters  due  to  the  number  of  alleged   violations  and  the
        significant  number of issues yet to be determined by the Court.  In the
        event the AEP System companies do not prevail, any capital and operating
        costs of additional  pollution control equipment that may be required as
        well as any penalties  imposed would adversely  affect future results of
        operations,  cash flows and  possibly  financial  condition  unless such
        costs can be recovered  through  regulated  rates and market  prices for
        electricity.

               In December 2000 Cinergy Corp.,  an unaffiliated  utility,  which
        operates  certain  plants  jointly  owned by CSPCo,  reached a tentative
        agreement  with the Federal EPA and other  parties to settle  litigation
        regarding   generating   plant   emissions  under  the  Clean  Air  Act.
        Negotiations  are continuing  between the parties in an attempt to reach
        final settlement terms.  Cinergy's settlement could impact the operation
        of Zimmer Plant and W.C. Beckjord Generating Station Unit 6 (owned 25.4%
        and 12.5%, respectively, by CSPCo). Until a final settlement is reached,
        CSPCo will be unable to determine the settlement's impact on its jointly
        owned facilities and its future results of operations and cash flows.

        NOx Reductions - Affecting AEP,  AEGCo,  APCo,  CPL,  CSPCo,  I&M, KPCo,
           OPCo, PSO, SWEPCo and WTU

               Federal EPA issued a NOx Rule requiring substantial reductions in
        NOx emissions in a number of eastern states, including certain states in
        which the AEP System's  generating plants are located.  The NOx Rule has
        been upheld on appeal.  The compliance  date for the NOx Rule is May 31,
        2004.

               The NOx Rule  required  states to submit plans to comply with its
        provisions.  In 2000  Federal  EPA ruled that eleven  states,  including
        states in which  AEGCo's,  APCo's,  CSPCo's,  I&M's,  KPCo's  and OPCo's
        generating  units are located,  failed to submit  approvable  compliance
        plans which could have resulted in the imposition of stringent sanctions
        including  limits on construction of new sources of air emissions,  loss
        of federal highway funding and possible  Federal EPA assumption of state
        air quality  management  programs.  Most of those states have  submitted
        conforming compliance plans and the appeal filed by AEP subsidiaries and
        other utilities in the D.C. Circuit Court to review this ruling has been
        dismissed.

               In 2000  Federal EPA also adopted a revised rule (the Section 126
        Rule) granting petitions filed by certain  northeastern states under the
        Clean  Air  Act.  The  rule  imposed  emissions  reduction  requirements
        comparable  to the NOx Rule  beginning  May 1,  2003,  for most of AEP's
        coal-fired generating units.  Affected utilities,  including certain AEP
        operating  companies,  petitioned  the D.C.  Circuit Court to review the
        Section 126 Rule.
<PAGE>
               After review,  the D.C. Circuit Court  instructed  Federal EPA to
        justify the methods it used to allocate  allowances  and project  growth
        for both the NOx Rule and the Section  126 Rule.  AEP  subsidiaries  and
        other utilities requested that the D.C. Circuit Court vacate the Section
        126 Rule or suspend  its May 2003  compliance  date.  In August 2001 the
        D.C. Circuit Court issued an order tolling the compliance schedule until
        Federal EPA responded to the Court's remand. On April 30, 2002,  Federal
        EPA announced that May 31, 2004 is the  compliance  date for the Section
        126 Rule.  Federal EPA published a notice in the Federal Register in May
        2002 advising that no changes in the growth  factors used to set the NOx
        budgets  were  warranted.  In June 2002 AEP  subsidiaries  joined  other
        utilities and  industrial  organizations  in seeking a review of Federal
        EPA's action in the D.C. Circuit Court.

               In 2000 the Texas Commission on Environmental  Quality  (formerly
        the  Texas  Natural  Resource  Conservation  Commission)  adopted  rules
        requiring significant  reductions in NOx emissions from utility sources,
        including CPL and SWEPCo.  The  compliance  date is May 2003 for CPL and
        May 2005 for SWEPCo.

               AEP is installing a variety of emission  control  technologies to
        reduce NOx emissions to comply with the applicable state and Federal NOx
        requirements.   This  includes  selective   catalytic   reduction  (SCR)
        technology on certain units and non-SCR  technologies on a larger number
        of units.  During 2001 SCR systems commenced  operations on OPCo's Gavin
        Plant. Installation of SCR technology on Amos and Mountaineer plants was
        completed  and  commenced  operation  in May 2002.  Construction  of SCR
        technology  at certain other AEP  generating  units  continues.  Non-SCR
        technologies  have been  installed  and begun  operation  on a number of
        units across the AEP System and  additional  units will be equipped with
        these technologies.

               The AEP NOx compliance plan is a dynamic plan that is continually
        reviewed  and  revised  as  new  information  becomes  available  on the
        performance   of  installed   technologies   and  the  cost  of  planned
        technologies.  Certain  compliance  steps  may or may  not be  necessary
        dependent on this  information.  The result is that the plan has a range
        of  possible  outcomes.   Our  current  estimate  indicates  that  AEP's
        compliance  with the NOx Rule,  the Texas  Commission  on  Environmental
        Quality rule and the Section 126 Rule could  result in required  capital
        expenditures  in the  range of $1.3  billion  to $2  billion,  including
        amounts spent through September 30, 2002. The range in the cost estimate
        reflects  the  uncertainty  over  the  need for  certain  SCR  projects.
        Estimated  compliance  cost  ranges by  registrant  subsidiaries  are as
        follows:

                                         Estimated
                                Compliance Costs
                                  (in millions)
               AEGCo                     $30 - 198
               APCo                         445
               CPL                            5
               CSPCo                         93
               I&M                        42 - 210
               KPCo                         163
               OPCo                      535 - 864
               PSO                            1
               SWEPCo                        40
               WTU                            5

               Since  compliance  costs cannot be estimated with certainty,  the
        actual  cost  to  comply  could  be  significantly  different  than  the
        estimates depending upon the compliance alternatives selected to achieve
        reductions in NOx emissions.  Unless any capital and operating costs for
        additional  pollution  control  equipment are recovered from  customers,
        they will have an adverse effect on future  results of operations,  cash
        flows and possibly financial condition.
<PAGE>
        Enron Bankruptcy -  Affecting AEP, APCo, CSPCo, I&M, KPCo and OPCo

               On October 15,  2002,  certain  subsidiaries  of AEP filed claims
        against Enron Corp. and its  subsidiaries  in the bankruptcy  proceeding
        filed by the Enron  entities  which are  pending in the U.S.  Bankruptcy
        Court for the  Southern  District  of New York.  At the date of  Enron's
        bankruptcy  AEP  had  open  trading   contracts  and  trading   accounts
        receivables  and payables with Enron.  In addition,  on June 1, 2001, we
        purchased  Houston  Pipe Line  Company  (HPL) from  Enron.  Various  HPL
        related  contingencies and indemnities remained unsettled at the date of
        Enron's  bankruptcy.  The timing of the  resolution of the claims by the
        Bankruptcy Court is not certain.

               In  connection  with the 2001  acquisition  of HPL,  we  acquired
        exclusive  rights to use and operate the underground  Bammel gas storage
        facility pursuant to an agreement with BAM Lease Company, a now-bankrupt
        subsidiary of Enron. This exclusive right to use the referenced facility
        is for a term of 30 years, with a renewal right for another 20 years and
        includes  the  use of the  Bammel  storage  reservoir  and  the  related
        compression,  treating  and  delivery  systems.  We also entered into an
        agreement  with BAM  Lease  Company  which  grants  HPL the right to use
        approximately 65 billion cubic feet of cushion gas (or pad gas) required
        for the normal operation of the Bammel gas storage facility.  The Bammel
        Gas Trust,  which purportedly owned  approximately 55 billion cubic feet
        of the gas, had entered into a financing  arrangement in 1997 with Enron
        and a group of banks.  These banks  purported to have certain  rights to
        the  gas  in  certain  events  of  default.  In  connection  with  AEP's
        acquisition  of HPL, the banks entered into an agreement  granting HPL's
        use of the cushion gas and released HPL from liabilities and obligations
        under the  financing  arrangement.  HPL was  thereafter  informed by the
        banks of a purported  default by Enron under the terms of the referenced
        financing  arrangement.  In July 2002 the banks filed a lawsuit  against
        HPL  seeking  a  declaratory   judgment  that  they  have  a  valid  and
        enforceable  security  interest in this  cushion gas which would  permit
        them to cause the withdrawal of this gas from the storage  facility.  In
        September  2002 HPL filed a general  denial  and  certain  counterclaims
        against the banks.  Management  is unable to predict the outcome of this
        lawsuit or its impact on results of operations and cash flows.

               In the  fourth  quarter of 2001 AEP  provided  $47  million  ($31
        million net of tax) for our  estimated  loss from the Enron  bankruptcy.
        The amounts for certain subsidiary registrants were:

                                                                      Amounts
                                           Amounts                     Net of
        Registrant                        Provided                      Tax
                                                          (in millions)
        APCo                                $5.2                       $3.4
        CSPCo                                3.2                        2.1
        I&M                                  3.4                        2.2
        KPCo                                 1.3                        0.8
        OPCo                                 4.3                        2.8

        The amounts  provided  were based on an analysis of contracts  where AEP
        and  Enron  are  counterparties,   the  offsetting  of  receivables  and
        payables,  the  application  of  deposits  from  Enron and  management's
        analysis of the HPL related purchase contingencies and indemnifications.
        If there are any adverse  developments  in the bankruptcy  proceeding or
        the lawsuit  related to the cushion gas  financing  agreement our future
        results of operations, cash flows and possibly financial condition could
        be adversely impacted.

        Shareholder Lawsuits - Affecting AEP

                 In  October  and  November  2002  several   lawsuits   alleging
        securities law violations  and seeking class action  certification  were
        filed in Federal District Court, Columbus, Ohio against AEP, certain AEP
        executives  and in  some  of the  lawsuits  against  certain  investment
        banking  firms.  Some of the lawsuits  claim that AEP failed to disclose
        that  alleged  "round  trip"  trades  resulted  in an  overstatement  of
        revenues and all of the lawsuits  claim that AEP failed to disclose that
<PAGE>
        AEP traders falsely  reported energy prices to trade  publications  that
        publish gas price indices.  The plaintiffs  seek recovery of an unstated
        amount of compensatory damages, attorney fees and costs. The time period
        within  which others may file to attempt to become lead  plaintiff  will
        end in late December  2002.  AEP cannot  predict  whether any additional
        lawsuits will be filed.  AEP intends to vigorously  defend against these
        actions.

          Arbitration of Williams Claim - Affecting AEP

                  In November 2002 AEP filed its demand for arbitration with the
        American   Arbitration   Association  to  initiate  formal   arbitration
        proceedings  in a dispute with the Williams  Companies  (Williams).  The
        proceeding  results  from  Williams'  failure  to provide  the  monetary
        security required for natural gas deliveries by AEP. Consequently,  both
        parties claimed  default and terminated all outstanding  natural gas and
        electric  power  trading  deals  among  the  various  Williams  and  AEP
        affiliates. Williams claimed that AEP owes approximately $130 million in
        connection  with the  termination  and liquidation of all trading deals.
        AEP believes it has valid claims  arising from  Williams  actions and is
        seeking, in part, a determination that either no amount is due or that a
        lesser  amount is due from AEP to  Williams  and the extent of any other
        damages and legal or equitable relief available.  Although management is
        unable to predict the outcome of this matter, it is not expected to have
        a  material  impact on results of  operations,  cash flows or  financial
        condition.

        Energy Market Investigations - Affecting AEP

               In February 2002 the FERC issued an order  directing its Staff to
        conduct a fact-finding  investigation into whether any entity, including
        Enron Corp., manipulated short-term prices in electric energy or natural
        gas markets in the West or  otherwise  exercised  undue  influence  over
        wholesale  prices in the West, for the period January 1, 2000,  forward.
        In April 2002 AEP furnished certain  information to the FERC in response
        to their related data request.

               Pursuant to the FERC's  February  order, on May 8, 2002, the FERC
        issued further data requests,  including  requests for admissions,  with
        respect to certain  trading  strategies  engaged in by Enron Corp.  and,
        allegedly,   traders  of  other   companies   active  in  the  wholesale
        electricity  and ancillary  services  markets in the West,  particularly
        California, during the years 2000 and 2001. This data request was issued
        to AEP as part of a group of over 100 entities designated by the FERC as
        all sellers of wholesale  electricity  and/or ancillary  services to the
        California  Independent  System  Operator  and/or the  California  Power
        Exchange.

               The May 8, 2002 FERC data request  required senior  management to
        conduct an  investigation  into our trading  activities  during 2000 and
        2001 and to  provide  an  affidavit  as to whether we engaged in certain
        trading  practices  that the FERC  characterized  in the data request as
        being  potentially  manipulative.  Senior  management  complied with the
        order and denied our involvement with those trading practices.

               On May 21,  2002,  the FERC issued a further  data  request  with
        respect  to this  matter  to us and over 100 other  market  participants
        requesting  information for the years 2000 and 2001  concerning  "wash",
        "round  trip"  or  "sale/buy   back"  trading  in  the  Western   System
        Coordinating  Council (WSCC),  which involves the sale of an electricity
        product to another company together with a simultaneous  purchase of the
        same product at the same price (collectively,  "wash sales"). Similarly,
        on May 22, 2002, the FERC issued an additional data request with respect
        to this matter to us and other market  participants  requesting  similar
        information  for the same period with respect to the sale of natural gas
        products  in the  WSCC  and  Texas.  After  reviewing  our  records,  we
        responded  to the FERC that we did not  participate  in any "wash  sale"
        transactions  involving power or gas in the relevant market.  We further
        informed  the FERC that  certain of our  traders did engage in trades on
        the  Intercontinental   Exchange,  an  electronic   electricity  trading
        platform owned by a group of electricity  trading  companies,  including
        us, on September 21, 2001,  the day on which all  brokerage  commissions
        for trades on that exchange were donated to charities for the victims of
        the September  11, 2001  terrorist  attacks,  which do not meet the FERC
        criteria for a "wash sale" but do have certain characteristics in common
        with such sales.  In response to a request from the California  attorney
        general for a copy of AEP's responses to the FERC inquires,  we provided
        the pertinent information.
<PAGE>
               The PUCT also issued similar data requests to AEP and other power
        marketers.  AEP  responded  to such  data  request  by the July 2,  2002
        response date. The US Commodity Futures Trading Commission (CFTC) issued
        a subpoena to us on June 17, 2002 requesting information with respect to
        "wash sale" trading practices. We responded to CFTC. In addition, the US
        Department of Justice made a civil investigation  demand to us and other
        electric  generating  companies  concerning  their  investigation of the
        Intercontinental  Exchange.  We have recently  completed a review of our
        trading  activities  in the  United  States  for the  last  three  years
        involving sequential trades with the same terms and counterparties.  The
        revenue from such trading is not material to our  financial  statements.
        We believe that  substantially all these  transactions  involve economic
        substance and risk transference and do not constitute "wash sales".

               In August 2002 we received an informal  data request from the SEC
        asking us to voluntarily  provide  documents  related to "round trip" or
        "wash" trades. We have provided the requested information to the SEC.

               In  September  2002 we received a subpoena  from FERC  requesting
        information  about our  natural  gas  transactions  and their  potential
        impact on gas  commodity  prices in the New York City area. We responded
        to the subpoena in October 2002.

               On October 9, 2002, AEP dismissed several  employees  involved in
        natural gas marketing and trading after the company determined that they
        provided  inaccurate  price  information for use in indexes compiled and
        published by trade publications. We have and will continue to provide to
        the FERC and the CFTC information relating to price data given to energy
        industry publications.

        FERC Proposed Security Standards - Affecting AEP System

               In July 2002 the FERC published for comment its proposed security
        standards  as part of the  Standards  for  Market  Design  (SMD).  These
        standards  are intended to ensure all market  participants  have a basic
        security program that effectively protects the electric grid and related
        market activities and required compliance by January 1, 2004. The impact
        of  these  proposed   standards  is  far-reaching  and  has  significant
        penalties  for  non-compliance.  These  standards  apply  to  marketers,
        transmission  owners,  and  power  producers.  For the AEP  System  this
        includes:   regulated  and   non-regulated   power  generation   plants,
        transmission systems,  distribution systems, regulated and non-regulated
        energy trading, and related areas of business. These standards represent
        a significant effort that will impact the entire AEP System.  Unless the
        cost can be recovered  from  customers,  results of operations  and cash
        flows would be adversely affected.

        FERC Market Power Mitigation  - Affecting AEP System

               A FERC order on AEP's triennial market based wholesale power rate
        authorization  update required certain mitigation actions that AEP would
        need to take for  sales/purchases  within its control  area and required
        AEP to post  information  on its  website  regarding  its power  systems
        status.  As a result of a request for  rehearing  filed by AEP and other
        market participants, FERC issued an order delaying the effective date of
        the mitigation plan until after a planned technical conference on market
        power determination.  No such conference has been held and management is
        unable to predict  the timing of any  further  action by the FERC or its
        affect on future results of operations and cash flows.
<PAGE>
        Minority Interest in Finance Subsidiary - Affecting AEP

               In August  2001 AEP  formed  Caddis  Partners,  LLC  (Caddis),  a
        consolidated  subsidiary,  and sold a  non-controlling  preferred member
        interest  in  Caddis  to  an   unconsolidated   special  purpose  entity
        (Steelhead)  for  $750  million.  Under  the  provisions  of the  Caddis
        formation agreements, the preferred member interest receives quarterly a
        preferred return equal to an adjusted floating  reference rate. The $750
        million  received  replaced interim funding used to acquire Houston Pipe
        Line Company in June 2001.

               The  preferred  interest is  supported  by natural  gas  pipeline
        assets and $321.4 million of preferred stock issued by an AEP subsidiary
        to the AEP affiliate  which has the managing  member interest in Caddis.
        Such  preferred  stock is  convertible  into AEP  common  stock upon the
        occurrence of certain events  including  AEP's stock price closing below
        $18.75 for ten  consecutive  trading days. AEP can elect not to have the
        transaction  supported by such preferred stock if the preferred interest
        were  reduced  by $225  million.  In  addition,  Caddis has the right to
        redeem the preferred member interest at any time.

               The initial  period of the preferred  interest is through  August
        2006.  At the end of the initial  period,  Caddis will either  reset the
        preferred  rate,   re-market  the  preferred  member  interests  to  new
        investors,  redeem the preferred member  interests,  in whole or in part
        including accrued return, or liquidate in accordance with the provisions
        of applicable agreements.

               Steelhead  has  the  right  to  terminate  the   transaction  and
        liquidate  Caddis  upon the  occurrence  of certain  events  including a
        default  in the  payment of the  preferred  return.  Steelhead's  rights
        include:  forcing a liquidation of Caddis and acting as the  liquidator,
        and requiring the  conversion  of the $321.4  million of AEP  subsidiary
        preferred stock into AEP common stock. If the preferred  member interest
        exercised its rights to liquidate under these conditions, then AEP would
        evaluate whether to refinance at that time or relinquish the assets that
        support the  preferred  member  interest.  Liquidation  of the preferred
        interest or of Caddis could negatively impact AEP's liquidity.

               Caddis and the AEP subsidiary  which acts as its managing  member
        are each a limited  liability  company,  with a separate  existence  and
        identity  from its  members,  and the  assets of each are  separate  and
        legally  distinct  from AEP. The results of  operations,  cash flows and
        financial  position of Caddis and such managing member are  consolidated
        with AEP for financial reporting purposes. The preferred member interest
        and  payments  of the  preferred  return are  reported  on AEP's  income
        statement and balance sheet as Minority Interest in Finance Subsidiary.

        Foreign Distribution Projects - Affecting AEP

               We own a 44%  equity  interest  in  Vale,  a  Brazilian  electric
        operating  company which was  purchased for a total of $149 million.  On
        December 1, 2001 we converted a $66 million note  receivable and accrued
        interest  into  a 20%  equity  interest  in  Caiua  (Brazilian  electric
        operating   company),   a  subsidiary  of  Vale.  Vale  and  Caiua  have
        experienced  losses from operations and our investment has been affected
        by the devaluation of the Brazilian Real. The cumulative equity share of
        operating and foreign currency  translation losses through September 30,
        2002 is approximately  $88 million and $105 million,  respectively.  The
        cumulative  equity share of operating and foreign  currency  translation
        losses through December 31, 2001 was  approximately  $71 million and $83
        million,  respectively.  Both  investments  are covered by a put option,
        which, if exercised,  requires our partners in Vale to purchase our Vale
        and Caiua shares at a minimum price equal to the U.S. dollar  equivalent
        of the original  purchase price.  As a result,  management has concluded
        that the investment  carrying amount should not be reduced below the put
        option  value  unless  it  is  deemed  to  be an  other  than  temporary
        impairment  and our partners in Vale are deemed  unable to fulfill their
        responsibilities  under the put  option.  In  January  2002,  management
        evaluated  through an independent  third-party,  the ability of its Vale
        partners  to  fulfill  their   responsibilities  under  the  put  option
        agreement  and  concluded  that our  partners  should be able to fulfill
        their responsibilities.
<PAGE>
               During  2002,  Vale and  other  participants  in the  electricity
        industry  in  Brazil  have  experienced  reduced  cash  flows due to the
        effects of significant currency devaluation,  electricity rationing, and
        lower than expected tariffs and demand. There is additional  uncertainty
        related to the current  political  environment and the ability to obtain
        higher future tariffs from  regulators.  Vale has principal  payments of
        $55  million  due in November  of 2002 and is  currently  attempting  to
        refinance  or  restructure  debt and sell assets in order to improve its
        cash flows.

               The ability of Vale to honor its  responsibilities  under the put
        obligation  is  dependent  on its  current and future cash flows and its
        ability to refinance or restructure debt and sell assets.  Due to Vale's
        cash flow difficulties and the current industry and market conditions in
        Brazil, we are updating the previous reviews of the  collectibility  and
        value of the put option in order to  determine if there is an other than
        temporary impairment of our $215 million investment.

        Investments in Telecommunications Companies - Affecting AEP

               AEP   provides   telecommunications   services  to  business  and
        telecommunication companies through a broadband fiber optic network. AEP
        conducts  its  operations  through  an  ownership  interest  in a  joint
        venture, AFN Networks, LLC (AFN), and through its AEP Communications and
        C3 subsidiaries.

               Management  is  currently   reassessing  its   telecommunications
        business strategy and considering certain changes that could include the
        reorganization,  divestiture or  dissolution of AFN.  Management is also
        considering   a    reorganization    or   divestiture   of   its   other
        telecommunications  operations  in order to  optimize  the value of such
        assets. The review of the  telecommunications  business strategy,  which
        was started in the third quarter of 2002, is expected to be completed in
        the fourth  quarter of 2002. In connection  with the  completion of this
        assessment,  management will review its investment in  telecommunication
        companies for any impairment of value. Management is unable to determine
        the extent of any impairment  until  such  evaluation  is  complete.  At
        September 30, 2002, AEP's investment in telecommunications companies was
        approximately $252 million.

        Wind Project - Affecting WTU

               WTU is assessing recoverability of certain wind generating assets
        due to performance concerns.  The net book value of these assets is
        approximately $5 million as of September 30, 2002.

        Other

               AEP and its  subsidiary  registrants  continue  to be involved in
        certain other matters discussed in the 2001 Annual Report.

10. PLANT CLOSING AND STAFF REDUCTIONS

               In September 2002 AEP proposed  closing 16 gas-fired power plants
        in the ERCOT  control  area of Texas (8 WTU  plants  and 8 CPL  plants).
        ERCOT   indicated  that  it  may  designate  some  of  those  plants  as
        "reliability  must run" (RMR) status.  In October ERCOT designated seven
        RMR plants (3 WTU plants and 4 CPL  plants) and  approved  AEP's plan to
        inactivate  nine  other  plants (5 WTU  plants  and 4 CPL  plants).  The
        process  of moving  the plants to  inactive  status  will take up to two
        months.  Employees of the plants to become inactive  (approximately 183)
        will be eligible for severance and outplacement services.

               RMR plants are  required to ensure the  reliability  of the power
        grid,  even if  electricity  from those  plants is not  required to meet
        market  needs.  ERCOT  and  AEP  negotiated  interim  contracts  for the
        remainder of 2002 for the seven RMR plants. It is expected that 2003 RMR
        requirements will be announced before the end of 2002.

               As  a  result  of  the  decision  to  inactivate  WTU  plants,  a
        write-down of utility assets of approximately  $34 million (pre-tax) was
        recorded  in Other  Operation  expense  during  the third  quarter.  The
        decision  to  inactivate  the CPL plants  resulted  in a  write-down  of
        utility  assets of  approximately  $100  million  which was deferred and
        recorded in Regulatory Assets.
<PAGE>
               Inventory on hand to service the 16 plants is being evaluated for
        use at other  plants  within  the AEP  System  as a part of the  closing
        process.  A  write-down,  if any,  associated  with  inventory  becoming
        obsolete  as a  result  of  the  plant  closings  will  be  recorded  as
        identified during the closing process.  Severance  benefit  arrangements
        for employees at these plants are expected to be finalized in the fourth
        quarter of 2002.
<PAGE>
           REGISTRANTS' COMBINED MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION, ACCOUNTING POLICIES AND OTHER MATTERS

        This  is  our  combined  presentation  of  management's  discussion  and
analysis of financial  condition,  accounting policies and other matters for AEP
and its registrant subsidiaries. Management's discussion and analysis of results
of operations  for AEP and each of its registrant  subsidiaries  for the quarter
and  year-to-date  period  ended  September  30,  2002 is  presented  with their
financial statements earlier in this document.

FINANCIAL CONDITION

Credit Ratings
        The rating agencies have been  conducting  credit reviews of AEP and its
registrant subsidiaries as we prepare for corporate separation.
In April 2002 Moody's  Investors  Service  placed AEP and five of its registrant
subsidiaries  (CPL,  CSPCo,  OPCo,  SWEPCo and WTU) on credit  rating  watch for
possible  downgrade.  The review of SWEPCo could  conclude  with more than a one
notch downgrade.  Moody's confirmed the credit ratings of four of AEP registrant
subsidiaries (APCo, I&M, KPCo, and PSO). In May 2002, Standard & Poors confirmed
AEP and its  registrant  subsidiaries  senior  unsecured debt rating and lowered
First  Mortgage Bond ratings of all the registrant  subsidiaries  to "BBB+" from
"A".  AEP's  commercial  paper  programs'  short-term  ratings of A2 and P2 with
stable  outlook  have  been  confirmed  by  Standard  and  Poor's  and  Moody's,
respectively.
        In June 2002 Fitch Ratings  Service  downgraded  SWEPCo from A to A- for
senior  unsecured  notes,  but had no  further  rating  actions.  Fitch  has all
companies on stable outlook and the commercial paper rating is stable at F-2.
        The review of the  companies'  debt  position and credit rating is being
completed at our request in anticipation of corporate separation. We are working
with the rating  agencies and  providing  information  to support  AEP's current
credit rating.  If our credit ratings are lowered,  the interest rates we pay on
borrowings will potentially rise.
        At September 30, 2002, the ratings of AEP's subsidiaries' first mortgage
bonds are listed in the following table:

Company                      Moody's      S&P        Fitch

APCo                         A3           BBB+       A-
CPL                          A3           BBB+       A
CSPCo                        A3           BBB+       A
I&M                          Baa1         BBB+       BBB+
KPCo                         Baa1         BBB+       BBB+
OPCo                         A3           BBB+       A-
PSO                          A1           BBB+       A+
SWEPCo                       A1           BBB+       A
WTU                          A2           BBB+       A
<PAGE>
         The ratings at September 30, 2002 for senior  unsecured debt are listed
in the following table:

Company                      Moody's      S&P        Fitch

AEP                          Baa1         BBB+       BBB+
AEP Resources*               Baa1         BBB+       BBB+
APCo                         Baa1         BBB+       BBB+
CPL                          Baa1         BBB+       BBB+
CSPCo                        A3           BBB+       A-
I&M                          Baa2         BBB+       BBB
KPCo                         Baa2         BBB+       BBB
OPCo                         A3           BBB+       BBB+
PSO                          A2           BBB+       A
SWEPCo                       A2           BBB+       A-
WTU                           -           BBB+       -

*The rating is for a series of senior notes issued with a Support Agreement from
 AEP.

Liquidity
         Liquidity,  or access to cash,  has  become a more  critical  factor in
determining the financial  integrity of a company,  particularly  because of the
volatility of wholesale power markets and the potential  limitations that credit
rating downgrades place on a company's  ability to raise capital.  Management is
committed to preserving an adequate liquidity position and is already addressing
our financial needs for 2003.
         As of September  30, 2002,  we had an available  liquidity  position of
$3.3 billion as illustrated in the table below:

Credit Facilities                     in $ Millions              Maturity
-----------------                     -------------              --------
Commercial Paper Backup Lines of Credit     $2,500*                5/03
Commercial Paper Backup Lines of Credit      1,000                 5/05
Corporate Separation Revolving Credit        1,725                 4/03
Other Revolving Credit Facilities              295                 10/03
                                            ------
         Total                              $5,520
                                            ======

Cash
US Liquidity Fund                              300**
                                            ------
Total Credit Facilities and Cash            $5,820
                                            ======

Less: Commercial Paper Outstanding           1,967
      Corporate Separation Loans               600
                                            ------
Total Available Liquidity                   $3,253
                                            ======

 * Contains one year term-out provision.
** Unrestricted and excludes $266 million of operational cash on hand.

         Our  goal  is  to  use  cash  from   operations  to  fund  our  capital
expenditures,  dividends  and  working  capital.  Short-term  debt is used as an
interim  vehicle to bridge timing  differences in the needs for cash and to fund
debt maturities until permanent financing is arranged.
         Short-term  debt comes from a  commercial  paper  program at the parent
company.  Proceeds are loaned to the subsidiaries through intercompany notes. We
also operate a money pool and sell accounts  receivable to provide liquidity for
our domestic  electric  subsidiaries.  The commercial paper program is backed by
$3.5 billion in bank  facilities  of which $1 billion  matures in May 2005.  The
remaining $2.5 billion matures in May 2003 and has a one-year term-out provision
at the company's  option. At September 30, 2002  approximately  $1.97 billion of
<PAGE>
commercial paper was outstanding.  A significant portion of the commercial paper
balance  is  related  to  funding  of debt  maturities  of the  Ohio  and  Texas
subsidiaries  pending  a  permanent  financing  program  as  part  of  corporate
separation.  The  Ohio  and  Texas  subsidiaries  plan to  begin  the  permanent
financing  program in the near future and the  commercial  paper balance  should
therefore decrease substantially as early as in the fourth quarter of this year.
         AEP also has a $1.725 billion bank facility maturing in April 2003 that
is available for debt  refinancing in anticipation of corporate  separation.  At
September  30,  2002,  $600  million was  outstanding  under that  facility.  We
anticipate  refinancing  that  amount  as part  of the  permanent  financing  as
discussed  above.  If  the  permanent  financing  for  corporate  separation  is
completed  as planned we do not  anticipate  needing  this  facility  beyond its
maturity in April 2003.
         We also have revolving credit facilities in place for 300 million Euros
to support the wholesale  business in Europe.  As of September 30, 2002, none of
these amounts were drawn. As noted in the table above, AEP also maintains a $300
million  cash  liquidity  reserve  fund to support  its  trading  and  marketing
operations in the U.S.
         In total,  we had  approximately  $5.8 billion in liquidity  sources of
which $3.3 billion were unused and available at September 30, 2002.
         During the first nine months of 2002 cash flow from operations was $755
million,  including $702 million from Net Income from Continuing  Operations and
$973 million  from  depreciation,  amortization,  deferred  taxes,  and deferred
investment tax credits offset by additional working capital requirements.  These
additional  working  capital  requirements  reflect  the one time  impact of the
discontinuance  of the sale of  accounts  receivable  for  Texas  companies  and
billing  delays related to the  transition to customer  choice in Texas,  higher
margin  requirements for gas trading,  seasonal fuel inventory growth, and other
miscellaneous  items. Capital  expenditures  including  acquisitions were $1,147
million.  Major construction  expenditures included amounts for emission control
technology on several  coal-fired  generating  units (see discussion in Note 9).
Dividends on common stock were $590 million. Cash from operations, proceeds from
the sale of SEEBOARD and  CitiPower,  and the issuance of common  stock,  common
equity units, 15-year notes for a wind generation project and transition funding
bonds provided funds to reduce debt, fund construction and pay dividends.
        During the fourth  quarter of 2001,  Quaker Coal Co.,  MEMCO Barge Line,
Inc.  and  two  coal-fired  generating  plants  in the UK  were  acquired  using
short-term  borrowings  and a  portion  of  available  cash.  Interim  financing
arrangements  are being  negotiated  for the UK  generating  plants to replace a
portion of the existing (pound)403 million bridge financing that is currently in
place.  Completion of this interim  financing is anticipated  prior to year-end.
During 2003 long-term financing will be sought to replace the interim financing.
        In  anticipation  of corporate  separation,  CPL and WTU both  initiated
tenders for their first mortgage bonds in July. The cumulative  amounts tendered
for CPL and WTU were $406 million and $89 million, respectively. In order to pay
for a portion of these retired bonds,  as well as previously  retired bonds,  we
borrowed $600 million under the $1,725 million  corporate  separation  revolving
credit facility.
<PAGE>
        In June 2002 we issued 16  million  shares of AEP  common  stock and 6.9
million equity units. We used the proceeds from the issuances of $968 million to
establish a $300 million  cash  liquidity  reserve and to reduce debt.  The cash
reserve  enhances our liquidity and is included in Cash and Cash  Equivalents on
our consolidated balance sheet.
        Total consolidated plant and property additions including capital leases
for the nine months ended September 30, 2002 were $1,148 million.  The following
table shows the plant and property additions by certain registrant subsidiaries:
        Company                     Amount
        -------                     ------
                                (in millions)
        APCo                         $175
        CPL                            99
        I&M                            95
        OPCo                          224
        SWEPCo                         73

Completed, Pending and Possible Divestitures

         We  have a  strong  commitment  to  continually  evaluate  the  need to
reallocate  resources  to areas  that  effectively  match  investments  with our
strategy and provide greater potential for meaningful  financial returns, and to
dispose of investments that do not meet these principles.
         In July 2002 we completed the sale of SEEBOARD,  an energy delivery and
power  supply  business  in the UK,  receiving  net cash of  approximately  $941
million  which  was used to reduce  debt.  The sale  resulted  in a loss of $299
million (see Note 4).
         We have entered  into a  definitive  agreement to dispose of two of our
Texas  retail  electric  providers  which  serve  retail  residential  and small
commercial customers in Texas. The disposal price will not be determined until a
date  closer to the  consummation  of the  transaction,  which is expected to be
during the fourth quarter of 2002.
         In 2002 we completed  the sale of  CitiPower,  our energy  delivery and
retail supply businesses in Australia.  AEP received  approximately $175 million
in net cash which we used to reduce  debt.  The sale  resulted in a $133 million
loss (see Note 4).
         AEP   provides    telecommunications   services   to   businesses   and
telecommunication  companies  through  a  broadband  fiber  optic  network.  AEP
conducts its  telecommunication  operations  through an ownership  interest in a
joint venture,  AFN Networks,  LLC (AFN), and through its AEP Communications and
C3 subsidiaries.
        Management  is currently  reassessing  its  telecommunications  business
strategy and considering  certain changes that could include the reorganization,
divestiture   or  dissolution   of  AFN.   Management  is  also   considering  a
reorganization  or  divestiture  of its other  telecommunications  operations in
order to optimize the value of such assets. The review of the telecommunications
business  strategy,  which was started in the third quarter of 2002, is expected
to be completed in the fourth quarter of 2002. In connection with the completion
of this assessment,  management will review its investment in  telecommunication
companies for any impairment of value. Management is unable to determine the
extent of any impairment  until  such  evaluation  is  complete.  At
September 30, 2002,  AEP's investment in telecommunications companies was
approximately $252 million.
<PAGE>
        In October 2002 the City Commission of Elk City,  Oklahoma voted to hold
a referendum  seeking  voter  approval of a $20.4 million  acquisition  of PSO's
distribution  assets  within the city  limits.  The vote is expected to occur in
December  2002.  If the  referendum  passes,  Elk  City,  per the terms of their
franchise with PSO, will buy the assets at their fair market value, estimated to
be  approximately  $20 million.  Estimated  annual  revenues  from the customers
served in Elk City is $7.5  million.  Management is unable to predict the result
of this vote.

Corporate Separation
        As discussed in the 2001 Annual Report,  we have filed with the FERC and
SEC seeking approval to separate our regulated and unregulated  operations.  Our
plan for corporate  separation  allows us to meet the  requirements of Texas and
Ohio restructuring  legislation.  In Texas, we intend to transfer the generation
assets  from  the  integrated  electric  operating  companies  (CPL  and WTU) to
unregulated  generation  companies.  In Ohio, we intend to transfer transmission
and distribution assets from the integrated companies to two new wires companies
leaving CSPCo and OPCo as generating  companies.  We proposed  amendments to the
power pooling agreements to remove the four Ohio and Texas generating companies.
Only those  operating  companies that continue to exist as integrated  utilities
would be included in the amended  power pooling  agreements,  which would govern
energy  exchanges among members and the allocation of their off system purchases
and  sales.  Several  state  commissions,  wholesale  customer  groups and other
interested  parties  intervened in the FERC  proceeding.  Negotiated  settlement
agreements with the state  regulatory  commissions  and other major  intervenors
were  filed  with  the  FERC in  December  2001.  In  September  2002  the  FERC
conditionally  approved our corporate  separation  plan including the settlement
agreements.  Terms in the settlement  agreements,  which would be effective upon
implementation  of corporation  separation,  include  extension of the base rate
freeze and fuel clause cap for Indiana  through  2007 and  extension  of certain
power supply contracts.  In addition,  SEC approval of our corporate  separation
plan is required for its implementation.  The Arkansas Public Service Commission
intervened  at the SEC which may extend the length of time  needed for the SEC's
review.  In order to  execute  this  separation,  we may be  required  to retire
various debt securities and will need to transfer assets between legal entities.

RTO Formation
         As discussed in the 2001 Annual Report, FERC Order No. 2000 and many of
the settlement  agreements with the state regulatory  commissions to approve the
AEP-CSW merger  required the transfer of control of our  transmission  system to
RTOs.  Certain AEP  subsidiaries  participated  in the formation of the Alliance
RTO. Other subsidiaries are members of ERCOT or the SPP.
         In  December  2001  the  FERC  rejected  the  Alliance   RTO's  filing.
Subsequently,   in  May  2002  AEP   announced   an   agreement   with  the  PJM
Interconnection to pursue terms for certain  subsidiaries to participate in PJM.
Final  agreements  are  currently  being  negotiated.  In  July  2002  the  FERC
tentatively  approved certain AEP subsidiaries'  decision to join PJM subject to
certain  conditions  being met. The  performance  of these  conditions  are only
partially under AEP's control.
<PAGE>
         In  other  RTO  developments  FERC  recently  accepted,  conditionally,
filings related to a proposed  consolidation of the Midwest  Independent  System
Operator  (MISO)  and  the  SPP.  In  that  order  the  FERC  required  the  AEP
subsidiaries  in SPP to  file  reasons  why  those  subsidiaries  should  not be
required to join MISO.  In September  2002 AEP notified the FERC of a memorandum
of  understanding  which  would  permit  western  transmission  assets in SPP to
participate  in MISO.  The SPP  companies  are also  regulated  by state  public
utility  commissions,  and the  Louisiana  and Arkansas  commissions  also filed
responses  to the FERC's  RTO order  indicating  that  additional  analysis  was
required.
         Management is unable to predict the final outcome of these transmission
regulatory  actions and  proceedings or their impact on the timing and operation
of RTOs, our transmission operations or results of operations and cash flows.

ACCOUNTING POLICIES

Critical Accounting Policies - Revenue Recognition
Regulatory  Accounting - The  consolidated  financial  statements of AEP and the
financial  statements of electric operating subsidiary companies with cost-based
rate-regulated operations (APCo, CPL, CSPCo, OPCo, SWEPCo, WTU, I&M, KPCo, PSO),
reflect the actions of regulators that can result in the recognition of revenues
and  expenses in  different  time  periods  than  enterprises  that are not rate
regulated.  In accordance with SFAS 71, regulatory assets (deferred  expenses to
be recovered in the future) and regulatory  liabilities (deferred future revenue
reductions  or  refunds)  are  recorded  to  reflect  the  economic  effects  of
regulation by matching expenses with their recovery through  regulated  revenues
in the same  accounting  period  and by  matching  income  with its  passage  to
customers through regulated revenues in the same accounting  period.  Regulatory
liabilities are also recorded to provide currently for refunds to customers that
have not yet been made.

        When regulatory assets are probable of recovery through regulated rates,
we record  them as assets  on the  balance  sheet.  We test for  probability  of
recovery whenever new events occur, for example a regulatory commission order or
passage of new legislation.  If we determine that recovery of a regulatory asset
is no longer  probable,  we write off that regulatory  asset as a charge against
net income.  A write off of regulatory  assets may also reduce future cash flows
since there may be no recovery through regulated rates.

Traditional Electricity Supply and Delivery Activities - Revenues are recognized
on the accrual or settlement  basis for normal retail and wholesale  electricity
supply sales and electricity  transmission and distribution  delivery  services.
The revenues are recognized in our income statement when the energy is delivered
to the  customer  and include  unbilled as well as billed  amounts.  In general,
expenses are recorded when  purchased  electricity is received and when expenses
are incurred.

Domestic  Gas Pipeline and Storage  Activities  - Revenues are  recognized  from
domestic gas pipeline and storage  services when gas is delivered to contractual
meter points or when services are provided.  Transportation and storage revenues
also include the accrual of earned, but unbilled and/or not yet metered gas.
         Substantially  all of the  forward  gas  purchase  and sale  contracts,
excluding  wellhead purchases of natural gas, swaps and options for the domestic
pipeline operations,  qualify as derivative financial  instruments as defined by
SFAS 133. Accordingly,  net gains and losses resulting from revaluation of these
contacts to fair value during the period are recognized currently in the results
of  operations,  appropriately  discounted  and  net of  applicable  credit  and
liquidity reserves.

Energy Marketing and Trading Activities - AEP engages in non-regulated wholesale
electricity  and  natural  gas  marketing  and  trading  transactions   (trading
activities). A portion of the revenues and costs associated with AEP's wholesale
electricity  trading  activities is allocated to CPL, SWEPCo, PSO and WTU and to
members of the AEP Power Pool (APCo,  CSPCo,  I&M,  KPCo,  OPCo).  AEP's trading
activities  involve the purchase and sale of energy under  forward  contracts at
fixed and  variable  prices  and the  buying and  selling  of  financial  energy
contracts which include exchange traded futures and options and over-the-counter
options and swaps; however CPL, SWEPCo, PSO and WTU are only allocated a portion
of the forward transactions.

         AEP  recognizes  revenues from trading  activities  generally  based on
changes in the fair value of open energy  trading  contracts.  Recording the net
change  in the fair  value of open  trading  contracts  prior to  settlement  is
commonly  referred to as mark-to-market  (MTM) accounting.  Under MTM accounting
the  change in the  unrealized  gain or loss  throughout  a  contract's  term is
recognized in each accounting  period.  When the contract settles,  that is, the
energy is actually  delivered in a sale or received in a purchase or the parties
agree to forego delivery and receipt and net settle in cash, the unrealized gain
or loss is reversed out of revenues and the actual realized cash gain or loss is
recognized.  Unrealized  mark-to-market  gains and  losses are  included  in the
Balance  Sheet as "Energy  Trading and  Derivative  Contracts."  Our  cost-based
rate-regulated  electric public utility companies (I&M, KPCo, PSO, and a portion
of SWEPCo) defer,  as regulatory  liabilities  (unrealized  gains) or regulatory
assets (unrealized  losses),  changes in the fair value of physical forward sale
and purchase  contracts in AEP's  traditional  marketing area. AEP's traditional
marketing area is up to two transmission systems from the AEP service territory.
For contracts which are outside of AEP's traditional  marketing area, the change
in fair value is included in nonoperating income on a net basis.

         The majority of trading activities represent physical forward contracts
that are typically settled by entering into offsetting contracts.  An example of
our energy trading activities is when, in January, we enter into a forward sales
contract to deliver  energy in July. At the end of each month until the contract
settles in July, we would record any  difference  between the contract price and
the market price as an  unrealized  gain or loss in  revenues.  In July when the
<PAGE>
contract  settles,  we  would  realize  a gain or loss in cash  and  reverse  to
revenues the previously  recorded  cumulative  unrealized gain or loss. Prior to
settlement,  the change in the fair value of physical  forward sale and purchase
contracts is included in revenues on a net basis.  Upon  settlement of a forward
trading contract, the amount realized for a sales contract and the realized cost
for a purchase  contract are included on a net basis in revenues  with the prior
change in unrealized fair value reversed out of revenues.

         For I&M, PSO, KPCo and a portion of SWEPCo,  when the contract  settles
the  total  gain or loss  is  realized  in cash  and the  impact  on the  income
statement  depends  on  whether  the  contract's  delivery  points are within or
outside of AEP's traditional  marketing area. For contracts with delivery points
in AEP's traditional marketing area, the total gain or loss realized in cash for
sales and the cost of purchased  energy are included in revenues on a net basis.
Prior to  settlement,  changes in the fair value of  physical  forward  sale and
purchase  contracts  in  AEP's  traditional   marketing  area  are  deferred  as
regulatory liabilities (gains) or regulatory assets (losses). For contracts with
delivery points outside of AEP's traditional  marketing area only the difference
between the accumulated unrealized net gains or losses recorded in prior periods
and the cash  proceeds is  recognized  in the income  statement as  nonoperating
income. Prior to settlement,  changes in the fair value of physical forward sale
and  purchase  contracts  with  delivery  points  outside  of AEP's  traditional
marketing area are included in  nonoperating  income on a net basis.  Unrealized
mark-to-market  gains and losses are  included  in the  Balance  Sheet as energy
trading contract assets or liabilities as appropriate.

           For APCo, CSPCo and OPCo, depending on whether the delivery point for
the electricity is in AEP's  traditional  marketing area or not determines where
the contract is reported in the income statement.  Physical forward trading sale
and purchase contracts with delivery points in AEP's traditional  marketing area
are  included in revenues on a net basis.  Prior to  settlement,  changes in the
fair value of physical forward sale and purchase  contracts in AEP's traditional
marketing  area are also included in revenues on a net basis.  Physical  forward
sale and purchase contracts for delivery outside of AEP's traditional  marketing
area are included in  nonoperating  income when the contract  settles.  Prior to
settlement,  changes in the fair value of  physical  forward  sale and  purchase
contracts with delivery points outside of AEP's  traditional  marketing area are
included in nonoperating income on a net basis.

         Continuing with the above example for AEP, APCo,  OPCo, CPL, WTU, CSPCo
and a portion of SWEPCo,  assume  that later in January or  sometime in February
through July we enter into an offsetting forward contract to buy energy in July.
If we do nothing else with these contracts  until  settlement in July and if the
commodity type,  volumes,  delivery  point,  schedule and other key terms match,
then the difference  between the sale price and the purchase price  represents a
fixed value to be realized  when the  contracts  settle in July.  Mark-to-market
accounting  for these  contracts  from this point  forward  will have no further
impact on operating  results but has an  offsetting  and equal effect on trading
contract assets and liabilities. If the sale and purchase contracts do not match
exactly as to commodity type,  volumes,  delivery point,  schedule and other key
terms,  then there could be continuing  mark-to-market  effects on revenues from
recording additional changes in fair values using mark-to-market accounting.
<PAGE>
         For AEP, the trading of energy options,  futures and swaps,  represents
financial  transactions  with  unrealized  gains and losses from changes in fair
values reported net in revenues until the contracts settle. When these contracts
settle, we record the net proceeds in revenues and reverse to revenues the prior
cumulative  unrealized net gain or loss.  APCo,  CSPCo,  OPCo, I&M and KPCo also
have financial transactions, but record the unrealized gains and losses, as well
as the net proceeds upon settlement, in nonoperating income.

         The fair  values  of open  short-term  trading  contracts  are based on
exchange  prices and broker quotes.  We  mark-to-market  open long-term  trading
contracts based primarily on valuation models that estimate future energy prices
based on existing market and broker quotes and supply and demand market data and
assumptions.  The fair values  determined  are reduced by reserves to adjust for
credit risk and liquidity risk. Credit risk is the risk that the counterparty to
the contract will fail to perform or fail to pay amounts due AEP. Liquidity risk
represents the risk that  imperfections in the market will cause the price to be
less  than or more than what the  price  should  be based  purely on supply  and
demand. There are inherent risks related to the underlying assumptions in models
used to  fair  value  open  long-term  trading  contracts.  We have  independent
controls to evaluate the reasonableness of our valuation models. However, energy
markets,   especially  electricity  markets,  are  imperfect  and  volatile  and
unforeseen  events can and will cause  reasonable  price  curves to differ  from
actual prices throughout a contract's term and when contracts settle. Therefore,
there could be  significant  adverse or favorable  effects on future  results of
operations  and cash flows if market prices at settlement do not correlate  with
the  aforementioned  valuation  models.  This is particularly true for long-term
contracts.

         AEP  applies  MTM  accounting  to  derivatives  that  are  not  trading
contracts  in  accordance  with  generally   accepted   accounting   principles.
Derivatives  are  contracts  whose value is derived  from the market value of an
underlying commodity.

         Volatility in energy commodities markets affects the fair values of all
of our open  trading  and  derivative  contracts  exposing us to market risk and
causing our results of operations to be subject to volatility. See "Quantitative
and  Qualitative  Disclosures  About Market Risks"  section of this report for a
discussion of the policies and procedures  used to manage our exposure to market
and other risks from trading activities.
<PAGE>
New Accounting Pronouncements

           During 2002,  the EITF  discussed  Issue No. 02-3,  "Recognition  and
Reporting  of Gains and Losses on Energy  Contracts  under  Issues No. 98-10 and
00-17"  (EITF  02-3) and  reached  consensus  on  certain  issues.  EITF  98-10,
"Accounting  for  Contracts   Involving   Energy  Trading  and  Risk  Management
Activities,"  requires  that energy  trading  contracts be accounted for at fair
value.  EITF 02-3  rescinds  Issue No.  98-10  effective  for any new  contracts
entered into after October 25, 2002. For energy trading  contracts  entered into
through  October 25, 2002,  such  contracts will continue to be accounted for at
fair value through December 31, 2002.  Effective January 1, 2003, such contracts
are required to be accounted for at historical cost and we will report this as a
cumulative effect of an accounting  change. Our energy contracts that qualify as
derivatives will continue to be accounted for at fair value under SFAS 133.
           EITF 02-3 requires  that energy  trading  contracts and  derivatives,
whether settled  financially or physically,  be reported in the income statement
on a net basis  effective  January  1,  2003.  Previous  guidance  in EITF 98-10
permitted  non-financial  settled energy trading contracts to be reported either
gross or net in the income  statement.  Prior to the third  quarter of 2002,  we
recorded and reported upon settlement,  sales under forward trading contracts as
revenues and  purchases  under  forward  trading  contracts as purchased  energy
expenses.  Effective July 1, 2002, we reclassified such forward trading revenues
and purchases on a net basis, as permitted by EITF 98-10.  The  reclassification
of such trading  activity to a net basis of reporting  resulted in a substantial
reduction in both revenues and purchased  energy  expense,  but did not have any
impact on our financial condition, results of operations or cash flows.
           The FASB  issued  SFAS  146  which  addresses  accounting  for  costs
associated with exit or disposal activities.  This statement supersedes previous
accounting  guidance,  principally  EITF No. 94-3,  "Liability  Recognition  for
Certain  Employee  Termination  Benefits  and  Other  Costs to Exit an  Activity
(including Certain Costs Incurred in a  Restructuring)."  Under EITF No. 94-3, a
liability for an exit cost was recognized at the date of an entity's  commitment
to an exit plan. SFAS 146 requires that the liability for costs  associated with
an exit or disposal activity be recognized when the liability is incurred.  SFAS
146 also  establishes  that the  liability  should  initially  be  measured  and
recorded at fair value.  The timing of recognizing  future costs related to exit
or  disposal  activities,  including  restructuring,  as  well  as  the  amounts
recognized may be affected by SFAS 146. We will adopt the provisions of SFAS 146
for exit or disposal activities initiated after December 31, 2002.

OTHER MATTERS

Industry Restructuring
         As discussed in Note 5 and the 2001 Annual  Report,  restructuring  and
customer choice began in four of the eleven state retail  jurisdictions in which
the AEP electric utility companies operate.  Restructuring  legislation provides
for a transition  from  cost-based  regulation  of bundled  electric  service to
customer  choice and market  pricing  for the  supply of  electricity.  Customer
choice of  electricity  supplier began on January 1, 2001 for Ohio customers and
on January 1, 2002,  for Michigan,  Texas and Virginia  customers.  In the Texas
jurisdiction,  competition  began in the ERCOT  area but was  delayed in the SPP
area. In Ohio, Michigan and Virginia virtually all customers continue to receive
electric  generation,  transmission and distribution  services from our electric
operating companies.
<PAGE>
         On June 27, 2002, the Ohio Consumers' Counsel,  Industrial Energy Users
- Ohio and  American  Municipal  Power - Ohio  filed a  complaint  with the PUCO
alleging  that  CSPCo  and  OPCo  have  violated  the  PUCO's  orders  regarding
implementation  of their  transition  plan and violated other  applicable law by
failing to participate in an RTO.

         The  complainants  seek,  among  other  relief,  an order from the PUCO
suspending  collection of transition charges by CSPCo and OPCo until transfer of
control  of their  transmission  assets has  occurred,  pricing  standard  offer
electric  generation  effective  January 1, 2006 at the market price used by the
companies  to  estimate  transition  costs and  imposing a $25,000  per  company
forfeiture  for each day AEP fails to comply  with its  commitment  to  transfer
control of transmission assets to an RTO.

         Due to FERC delays in the approval of our RTO  filings,  CSPCo and OPCo
have been  delayed  in the  implementation  their RTO  participation  plans.  We
continue  to  pursue  integration  of CSPCo,  OPCo and  other AEP East  electric
operating companies into PJM and anticipate completing that integration in 2003.
Management  is unable to predict  the  timing of FERC's  final  approval  of RTO
participation.

         In 2001 the  PUCT  issued  an  order  requiring  CPL to  reduce  future
distribution rates by $54.8 million over a five-year period beginning January 1,
2002 in order to return  estimated  excess earnings for 1999, 2000 and 2001. The
Texas Restructuring  Legislation intended that excess earnings be used to reduce
stranded costs. Final stranded cost amounts and the treatment of excess earnings
will be determined in the 2004 true-up proceeding.  The PUCT currently estimates
that CPL will have no stranded cost and has ordered the rate reduction to return
excess  earnings,  pending  the  outcome  of the 2004  true-up  proceeding.  CPL
expensed excess earnings amounts in 1999, 2000 and 2001. Consequently, the order
has no effect on reported net income.

         Beginning  January 1, 2002,  fuel costs for CPL and WTU in ERCOT are no
longer  subject  to  PUCT  fuel  reconciliation   proceedings  under  the  Texas
Restructuring  Legislation.  Consequently,  CPL and WTU  will  file  final  fuel
reconciliation  with the PUCT to reconcile  their fuel costs  through the period
ended  December 31,  2001.  These final fuel  balances  will be included in each
company's 2004 true-up proceeding. The elimination of the fuel clause recoveries
in 2002 in Texas will subject AEP to the risk of fuel market price increases and
could adversely affect future results of operations.

         In order to obtain a market value of  generating  plant for purposes of
determining  stranded  costs for the 2004 true-up  proceeding,  CPL  anticipates
filing a plan of divestiture with the PUCT in the fourth quarter of 2002 seeking
approval of a sales process for all of its generating facilities.
<PAGE>
         Two unaffiliated Texas utilities reached settlement agreements approved
by  the  PUCT  regarding  recovery  of  stranded  generation  costs.  CPL is not
presently  engaged in any settlement  discussions with the PUCT. Under the Texas
Legislation, a 2004 true-up proceeding will determine recovery of stranded costs
including  final  fuel  recovery  balances,   net  regulatory  assets,   certain
environmental  costs,  accumulated  excess  earnings  and  other  issues.  CPL's
generation-related  regulatory  assets subject to recovery as stranded costs are
approximately  $1.1  billion  of which $949  million  has been  securitized  for
recovery  through  distribution  rates  pending  the 2004  true-up  proceeding's
determination  of  stranded  cost  recovery.  WTU and  SWEPCo  do not  have  any
recoverable Texas generation-related regulatory assets.

         In the event CPL,  SWEPCo,  and WTU are unable  after the 2004  true-up
proceeding  to recover all or a portion of their  generation-related  regulatory
assets, unrecovered fuel balances,  stranded plant costs and other restructuring
related costs, it could have a material adverse effect on results of operations,
cash flows and possibly financial condition.

Reduction of Trading Exposure
         In October  2002,  we  announced  our plans to reduce our  exposure  to
speculative  energy  trading  markets and to downsize our trading and  wholesale
marketing  operations.  It is  expected  that  in the  future  our  trading  and
marketing operations will be limited to risk management around our assets.

Litigation
Federal EPA Complaint and Notice of Violation - Affecting AEP, APCo, CSPCo, I&M,
      and OPCo
        As discussed in the 2001 Annual Report,  AEPSC,  APCo,  CSPCo,  I&M, and
OPCo have been  involved in litigation  since 1999  regarding  generating  plant
emissions  under the Clean Air Act.  Federal EPA and a number of states  alleged
APCo, CSPCo, I&M, OPCo and eleven  unaffiliated  utilities made modifications to
generating units at coal-fired  generating  plants in violation of the Clean Air
Act.  Federal EPA filed  complaints  against AEP  subsidiaries in U.S.  District
Court for the Southern District of Ohio. A separate lawsuit initiated by certain
special interest groups was consolidated  with the Federal EPA case. The alleged
modification of the generating units occurred over a 20 year period.

        Under the Clean Air Act, if a plant undertakes a major modification that
directly  results in an emissions  increase,  permitting  requirements  might be
triggered and the plant may be required to install additional  pollution control
technology.  This  requirement  does not  apply to  activities  such as  routine
maintenance,  replacement of degraded equipment or failed  components,  or other
repairs needed for the reliable,  safe and efficient operation of the plant. The
Clean Air Act authorizes  civil penalties of up to $27,500 per day per violation
at each generating unit ($25,000 per day prior to January 30, 1997). In 2001 the
Court ruled claims for civil  penalties  based on activities  that occurred more
than five years  before the filing  date of the  complaints  cannot be  imposed.
There is no time limit on claims for injunctive relief.
<PAGE>
        In  February   2001  the   government   filed  a  motion   requesting  a
determination  that four  projects  undertaken  on units at Sporn,  Cardinal and
Clinch  River  plants  do  not  constitute  "routine  maintenance,   repair  and
replacement"  as used in the Clean Air Act. The  District  Court  dismissed  the
motion as premature. Management believes its maintenance, repair and replacement
activities  were in conformity  with the Clean Air Act and intends to vigorously
pursue its defense.
        Management  is unable to estimate  the loss or range of loss  related to
the contingent liability for civil penalties under the Clear Air Act proceedings
and  unable to predict  the timing of  resolution  of these  matters  due to the
number of  alleged  violations  and the  significant  number of issues yet to be
determined by the Court.  In the event the AEP System  companies do not prevail,
any capital and operating costs of additional  pollution  control equipment that
may be required as well as any penalties  imposed would adversely  affect future
results of operations,  cash flows and possibly financial  condition unless such
costs  can  be  recovered   through   regulated  rates  and  market  prices  for
electricity.
        In December 2000 Cinergy Corp., an unaffiliated utility,  which operates
certain  plants  jointly  owned by CSPCo,  reached a  tentative  agreement  with
Federal EPA and other parties to settle  litigation  regarding  generating plant
emissions  under the Clean Air Act.  Negotiations  are  continuing  between  the
parties in an attempt to reach  final  settlement  terms.  Cinergy's  settlement
could impact the operation of Zimmer Plant and W.C. Beckjord  Generating Station
Unit 6 (owned 25.4% and 12.5%, respectively, by CSPCo). Until a final settlement
is reached,  CSPCo will be unable to determine  the  settlement's  impact on its
jointly owned facilities and its future results of operations and cash flows.

NOx Reductions - Affecting AEP, AEGCo, APCo, CPL, CSPCo, I&M, KPCo, OPCo and
    SWEPCo
        Federal EPA issued a NOx Rule  requiring  substantial  reductions in NOx
emissions in a number of eastern states,  including  certain states in which the
AEP  System's  generating  plants are  located.  The NOx Rule has been upheld on
appeal. The compliance date for the NOx Rule is May 31, 2004.
        The NOx  Rule  required  states  to  submit  plans  to  comply  with its
provisions.  In 2000 Federal EPA ruled that eleven states,  including  states in
which AEGCo's,  APCo's,  CSPCo's,  I&M's, KPCo's and OPCo's generating units are
located,  failed to submit approvable compliance plans which could have resulted
in the imposition of stringent sanctions including limits on construction of new
sources of air emissions,  loss of federal highway funding and possible  Federal
EPA assumption of state air quality  management  programs.  Most of those states
have  submitted  conforming  compliance  plans  and  the  appeal  filed  by  AEP
subsidiaries and other utilities in the D.C. Circuit Court to review this ruling
has been dismissed.
        In 2000  Federal EPA also  adopted a revised rule (the Section 126 Rule)
granting petitions filed by certain northeastern states under the Clean Air Act.
The rule imposed  emissions  reduction  requirements  comparable to the NOx Rule
beginning May 1, 2003, for most of AEP's coal-fired  generating units.  Affected
utilities including certain AEP operating companies, petitioned the D.C. Circuit
Court to review the Section 126 Rule.
<PAGE>
        After review,  the D.C. Circuit Court instructed  Federal EPA to justify
the methods it used to allocate  allowances  and project growth for both the NOx
Rule and the Section 126 Rule. AEP  subsidiaries  and other utilities  requested
that the D.C.  Circuit Court vacate the Section 126 Rule or suspend its May 2003
compliance  date. In August 2001 the D.C.  Circuit Court issued an order tolling
the compliance  schedule until Federal EPA responded to the Court's  remand.  On
April 30, 2002,  Federal EPA announced that May 31, 2004 is the compliance  date
for the Section 126 Rule. Federal EPA published a notice in the Federal Register
in May 2002 advising  that no changes in the growth  factors used to set the NOx
budgets were warranted. In June 2002 AEP subsidiaries joined other utilities and
industrial organizations in seeking a review of Federal EPA's action in the D.C.
Circuit Court.
        In 2000 the Texas  Commission  on  Environmental  Quality  (formerly the
Texas  Natural  Resource   Conservation   Commission)  adopted  rules  requiring
significant reductions in NOx emissions from utility sources,  including CPL and
SWEPCo. The compliance date is May 2003 for CPL and May 2005 for SWEPCo.
        AEP is installing a variety of emission  control  technologies to reduce
NOx emissions to comply with the applicable state and Federal NOx  requirements.
This includes  selective  catalytic  reduction (SCR) technology on certain units
and non-SCR  technologies  on a larger number of units.  During 2001 SCR systems
commenced  operations on OPCo's Gavin Plant.  Installation  of SCR technology on
Amos and Mountaineer  plants was completed and commenced  operation in May 2002.
Construction of SCR technology at certain other AEP generating  units continues.
Non-SCR  technologies  have been  installed  and begun  operation on a number of
units  across the AEP System and  additional  units will be equipped  with these
technologies.
        The AEP  NOx  compliance  plan is a  dynamic  plan  that is  continually
reviewed and revised as new information  becomes available on the performance of
installed technologies and the cost of planned technologies.  Certain compliance
steps may or may not be necessary  dependent on this information.  The result is
that the plan has a range of possible  outcomes.  Our current estimate indicates
that AEP's  compliance with the NOx Rule, the Texas  Commission on Environmental
Quality  rule  and the  Section  126  Rule  could  result  in  required  capital
expenditures in the range of $1.3 billion to $2 billion, including amounts spent
through  September  30,  2002.  The  range in the  cost  estimate  reflects  the
uncertainty over the need for certain SCR projects.
        The following  table shows the estimated  range of compliance  costs for
certain of AEP's registrant subsidiaries.

                                     Company                Amount
                                     -------                ------
                                                           (in millions)

                                     APCo                   $445
                                     CPL                      5
                                     I&M                    42-210
                                     OPCo                  535-864
                                     SWEPCo                  40

        Since  compliance  costs cannot be estimated with certainty,  the actual
cost to comply could be  significantly  different  than the estimates  depending
upon  the  compliance   alternatives  selected  to  achieve  reductions  in  NOx
emissions.  Unless  any  capital or  operating  costs for  additional  pollution
control equipment are recovered from customers, they will have an adverse effect
on future results of operations, cash flows and possibly financial condition.
<PAGE>
Enron Bankruptcy -  Affecting AEP, APCo, CSPCo, I&M, KPCo and OPCo
         On October 15, 2002,  certain  subsidiaries of AEP filed claims against
Enron Corp. and its subsidiaries in the bankruptcy proceeding filed by the Enron
entities  which  are  pending  in the U.S.  Bankruptcy  Court  for the  Southern
District of New York.  At the date of Enron's  bankruptcy  AEP had open  trading
contracts and trading accounts receivables and payables with Enron. In addition,
on May 31,  2001,  we  purchased  Houston  Pipe Line  Company  (HPL) from Enron.
Various HPL related contingencies and indemnities remained unsettled at the date
of  Enron's  bankruptcy.  The  timing  of the  resolution  of the  claims by the
Bankruptcy Court is not certain.
               In  connection  with the 2001  acquisition  of HPL,  we  acquired
exclusive rights to use and operate the underground  Bammel gas storage facility
pursuant to an agreement  with BAM Lease Company,  a now-bankrupt  subsidiary of
Enron.  This exclusive right to use the referenced  facility is for a term of 30
years,  with a renewal  right for another 20 years and  includes  the use of the
Bammel  storage  reservoir  and the related  compression,  treating and delivery
systems.  We also entered into an agreement  with BAM Lease Company which grants
the right to use approximately 65 billion cubic feet of cushion gas (or pad gas)
required for the normal operation of the Bammel gas storage facility. The Bammel
Gas Trust,  which purportedly  owned  approximately 55 billion cubic feet of the
gas, had entered into a financing  arrangement in 1997 with Enron and a group of
banks. These banks purported to have certain rights to the gas in certain events
of default.  In connection with AEP's acquisition of HPL, the banks entered into
an  agreement  granting  HPL's  use of the  cushion  gas and  released  HPL from
liabilities and obligations under the financing arrangement.  HPL was thereafter
informed by the banks of a purported  default under the terms of the  referenced
financing  arrangement.  In July 2002 the  banks  filed a  lawsuit  against  HPL
seeking a declaratory  judgment that they have a valid and enforceable  security
interest in this cushion gas which would permit them to cause the  withdrawal of
this gas from the storage facility. In September 2002 HPL filed a general denial
and certain counterclaims against the banks. Management is unable to predict the
outcome of this lawsuit or its impact on results of operations and cash flows.
          In the fourth  quarter of 2001 AEP  provided  $47 million ($31 million
net of tax) for our estimated  loss from the Enron  bankruptcy.  The amounts for
certain subsidiary registrants were:
                                                                      Amounts
                                           Amounts                     Net of
        Registrant                        Provided                      Tax
                                                          (in millions)

        APCo                                $5.2                       $3.4
        CSPCo                                3.2                        2.1
        I&M                                  3.4                        2.2
        KPCo                                 1.3                        0.8
        OPCo                                 4.3                        2.8
<PAGE>
           The amounts provided were based on an analysis of contracts where AEP
and Enron are  counterparties,  the offsetting of receivables and payables,  the
application of deposits from Enron and management's  analysis of the HPL related
purchase   contingencies  and   indemnifications.   If  there  are  any  adverse
developments in the bankruptcy  proceeding or the lawsuit related to the cushion
gas  financing  agreement  our  future  results  of  operations,  cash flows and
possibly financial condition could be adversely impacted.

Shareholder Lawsuits - Affecting AEP
         In October and November 2002 several lawsuits  alleging  securities law
violations and seeking class action certification were filed in Federal District
Court,  Columbus,  Ohio against AEP,  certain AEP  executives and in some of the
lawsuits against certain  investment  banking firms.  Some of the lawsuits claim
that AEP failed to disclose  that alleged  "round  trip"  trades  resulted in an
overstatement  of  revenues  and all of the  lawsuits  claim  that AEP failed to
disclose that AEP traders falsely  reported energy prices to trade  publications
that publish gas price  indices.  The  plaintiffs  seek  recovery of an unstated
amount of compensatory damages,  attorney fees and costs. The time period within
which  others  may file to  attempt to become  lead  plaintiff  will end in late
December 2002. AEP cannot predict whether any additional lawsuits will be filed.
AEP intends to vigorously defend against these actions.

Spent Nuclear Fuel Disposal Fund Litigation - Affecting AEP, CPL and I&M
           As discussed in the 2001 Annual Report,  I&M and STPNOC, on behalf of
STP's joint  owners,  joined a lawsuit  against DOE,  filed in November  2000 by
unaffiliated  utilities,  related  to DOE's  nuclear  waste  fund cost  recovery
settlement with PECO Energy Company (now Exelon  Generation  Company,  LLC). The
settlement  adjusted  the fees Exelon was required to pay to DOE for disposal of
SNF. The fee  adjustment  allowed  Exelon to skip payments to the DOE to make up
for Exelon's damages from DOE's breach of its contract  obligation to dispose of
SNF from commercial  nuclear power plants. The companies believed the settlement
was  unlawful  as it would have  forced  other  utilities  (rather  than DOE) to
compensate Exelon for the damages it had incurred from DOE's breach of contract.
In September 2002 the U.S. Court of Appeals for the Eleventh  Circuit found that
DOE  acted  improperly  by  adopting  the  fee  adjustment   provision  of  this
settlement,  that the fee adjustment  provisions of the settlement  harmed other
utilities  who pay  into  the  fund  and  violated  the  federal  nuclear  waste
management  laws and that the fee adjustment  provisions of the settlement  were
null and void.

Arbitration of Williams Claim - Affecting AEP
           In  October  2002 AEP  filed  its  demand  for  arbitration  with the
American Arbitration Association to initiate formal arbitration proceedings in a
dispute with the Williams  Companies  (Williams).  The  proceeding  results from
Williams'  failure to provide the  monetary  security  required  for natural gas
deliveries by AEP. Consequently, both parties claimed default and terminated all
outstanding  natural  gas and  electric  power  trading  deals among the various
Williams and AEP affiliates.  Williams claimed that AEP owes  approximately $130
million in connection with the termination and liquidation of all trading deals.
AEP believes it has valid claims  arising from Williams  actions and is seeking,
in part, a determination that either no amount is due or that a lesser amount is
due from AEP to  Williams  and the  extent  of any  other  damages  and legal or
equitable relief available. Although management is unable to predict the outcome
of this  matter,  it is not  expected  to have a  material  impact on results of
operations, cash flows or financial condition.
<PAGE>
Energy Market Investigations - Affecting AEP
        In February 2002 the FERC issued an order directing its Staff to conduct
a fact-finding  investigation  into whether any entity,  including  Enron Corp.,
manipulated  short-term  prices in electric energy or natural gas markets in the
West or otherwise  exercised undue influence over wholesale  prices in the West,
for the period  January 1, 2000,  forward.  In April 2002 AEP furnished  certain
information to the FERC in response to their related data request.
        Pursuant to the FERC's  February  order, on May 8, 2002, the FERC issued
further  data  requests,  including  requests  for  admissions,  with respect to
certain trading strategies engaged in by Enron Corp. and, allegedly,  traders of
other  companies  active in the wholesale  electricity  and  ancillary  services
markets in the West,  particularly  California,  during the years 2000 and 2001.
This data  request  was  issued  to AEP as part of a group of over 100  entities
designated by the FERC as all sellers of wholesale  electricity and/or ancillary
services to the California  Independent  System  Operator  and/or the California
Power Exchange.
        The May 8, 2002 FERC data request required senior  management to conduct
an investigation into our trading activities during 2000 and 2001 and to provide
an affidavit as to whether we engaged in certain trading practices that the FERC
characterized  in the data  request as being  potentially  manipulative.  Senior
management complied with the order and denied our involvement with those trading
practices.
        On May 21, 2002,  the FERC issued a further data request with respect to
this matter to us and over 100 other market participants  requesting information
for the years 2000 and 2001 concerning  "wash",  "round trip" or "sale/buy back"
trading in the Western System  Coordinating  Council (WSCC),  which involves the
sale of an electricity  product to another company  together with a simultaneous
purchase of the same  product at the same price  (collectively,  "wash  sales").
Similarly,  on May 22,  2002,  the FERC issued an  additional  data request with
respect to this matter to us and other market  participants  requesting  similar
information for the same period with respect to the sale of natural gas products
in the WSCC and Texas.  After  reviewing  our records,  we responded to the FERC
that we did not participate in any "wash sale"  transactions  involving power or
gas in the  relevant  market.  We further  informed the FERC that certain of our
traders did engage in trades on the  Intercontinental  Exchange,  an  electronic
electricity  trading platform owned by a group of electricity trading companies,
including us, on September 21, 2001, the day on which all brokerage  commissions
for trades on that  exchange  were donated to  charities  for the victims of the
September 11, 2001 terrorist attacks,  which do not meet the FERC criteria for a
"wash sale" but do have certain  characteristics  in common with such sales.  In
response to a request from the California  attorney  general for a copy of AEP's
responses to the FERC inquires, we provided the pertinent information.
<PAGE>
        The PUCT also  issued  similar  data  requests  to AEP and  other  power
marketers. AEP responded to such data request by the July 2, 2002 response date.
The US Commodity Futures Trading Commission (CFTC) issued a subpoena on June 17,
2002 requesting  information with respect to "wash sale" trading  practices.  We
responded  to CFTC.  In  addition,  the US  Department  of Justice  made a civil
investigation  demand to us and other electric generating  companies  concerning
their investigation of the Intercontinental Exchange. We have recently completed
a review of our trading activities in the United States for the last three years
involving sequential trades with the same terms and counterparties.  The revenue
from such trading is not material to our financial  statements.  We believe that
substantially  all  these  transactions  involve  economic  substance  and  risk
transference and do not constitute "wash sales".
        In August 2002 we received an informal  data request from the SEC asking
us to voluntarily provide documents related to "round trip" or "wash" trades. We
have provided the requested information to the SEC.
        In  September   2002  we  received  a  subpoena  from  FERC   requesting
information about our natural gas transactions and their potential impact on gas
commodity  prices in the New York City area.  We  responded  to the  subpoena in
October 2002.
        On October 9, 2002, AEP dismissed several employees  involved in natural
gas  marketing  and trading  after the  company  determined  that they  provided
inaccurate price  information for use in indexes compiled and published by trade
publications.  We have and will  continue  to  provide  to the FERC and the CFTC
information relating to price data given to energy industry publications.

Foreign Distribution Projects - Affecting AEP
        We own a 44% equity  interest in Vale,  a Brazilian  electric  operating
company which was purchased for a total of $149 million.  On December 1, 2001 we
converted a $66 million note  receivable and accrued  interest into a 20% equity
interest in Caiua (Brazilian electric operating company),  a subsidiary of Vale.
Vale and Caiua have  experienced  losses from  operations and our investment has
been affected by the  devaluation of the Brazilian  Real. The cumulative  equity
share of operating and foreign currency translation losses through September 30,
2002 is approximately $88 million and $105 million, respectively. The cumulative
equity  share of  operating  and foreign  currency  translation  losses  through
December 31, 2001 was approximately  $71 million and $83 million,  respectively.
Both investments are covered by a put option, which, if exercised,  requires our
partners in Vale to purchase our Vale and Caiua shares at a minimum  price equal
to the U.S.  dollar  equivalent  of the original  purchase  price.  As a result,
management  has  concluded  that the  investment  carrying  amount should not be
reduced  below the put  option  value  unless  it is deemed to be an other  than
temporary impairment and our partners in Vale are deemed unable to fulfill their
responsibilities  under the put option.  In January 2002,  management  evaluated
through an independent third-party,  the ability of its Vale partners to fulfill
their  responsibilities  under the put option  agreement and concluded  that our
partners should be able to fulfill their responsibilities.
        During 2002, Vale and other participants in the electricity  industry in
Brazil have  experienced  reduced  cash flows due to the effects of  significant
currency devaluation, electricity rationing, and lower than expected tariffs and
demand.  There  is  additional  uncertainty  related  to the  current  political
environment and the ability to
<PAGE>
obtain higher future tariffs from regulators. Vale has principal payments of $55
million due in November of 2002 and is  currently  attempting  to  refinance  or
restructure debt and sell assets in order to improve its cash flows.
        The  ability  of  Vale  to  honor  its  responsibilities  under  the put
obligation  is dependent on its current and future cash flows and its ability to
refinance  or  restructure  debt  and  sell  assets.  Due to  Vale's  cash  flow
difficulties  and the current industry and market  conditions in Brazil,  we are
updating the previous reviews of the  collectibility and value of the put option
in order to determine if there is an other than temporary impairment of our $215
million investment.

FERC Proposed Security Standards - Affecting AEP System
        In July  2002 the FERC  published  for  comment  its  proposed  security
standards as part of the Standards for Market Design (SMD).  These standards are
intended to ensure all market  participants  have a basic security  program that
effectively protects the electric grid and related market activities and require
compliance  by January  1,  2004.  The  impact of these  proposed  standards  is
far-reaching and has significant  penalties for non-compliance.  These standards
apply to marketers, transmission owners, and power producers. For the AEP System
this includes: regulated and non-regulated power generation plants, transmission
systems,  distribution systems,  regulated and non-regulated energy trading, and
related areas of business.  These standards  represent a significant effort that
will  impact the  entire  AEP  System.  Unless  the cost can be  recovered  from
customers, results of operations and cash flows would be adversely affected.

FERC Market Power Mitigation - Affecting AEP System
        A FERC  order on AEP's  triennial  market  based  wholesale  power  rate
authorization  update required certain mitigation actions that AEP would need to
take for  sales/purchases  within  its  control  area and  required  AEP to post
information on its website  regarding its power systems status. As a result of a
request for rehearing filed by AEP and other market participants, FERC issued an
order delaying the effective  date of the mitigation  plan until after a planned
technical conference on market power determination.  No such conference has been
held and management is unable to predict the timing of any further action by the
FERC or its affect on future results of operations and cash flows.

Other
        AEP and its  subsidiary  registrants  continue to be involved in certain
other matters discussed in the 2001 Annual Report.
<PAGE>
Pension Plan Funded Status

        AEP sponsors two qualified  pension plans and two  nonqualified  pension
plans in the U.S.  Substantially all employees are covered by one or both of the
pension plans.  AEP no longer sponsors foreign pension plans for SEEBOARD in the
U.K. and CitiPower in Australia  since the  divestiture of these  investments in
2002 (see Note 4).
        During the first three  quarters of 2002, the market value of the assets
in AEP's qualified pension plans declined by approximately  $690 million,  or 20
percent,  to $2.75 billion due to plan benefit payments and the poor performance
of  the  financial  markets.  The  actuarially   estimated  accumulated  benefit
obligation  (ABO) for the year ended  December  31, 2002 is  approximately  $3.5
billion. There have been no contributions to these plans in 2002 to date. AEP is
in full  compliance  with all  regulations  governing  such plans  including all
Employee  Retirement  Income  Security Act of 1974 (ERISA)  laws.  Management is
currently evaluating the appropriateness of making contributions to the plans to
improve their funded status.
        If the ABO of these plans  continues  to exceed the market value of plan
assets at December  31,  2002,  AEP would be  required to record an  unfavorable
adjustment to the accumulated  other  comprehensive  income (AOCI)  component of
shareholders'  equity (net of tax) and a pension  liability in its  consolidated
balance  sheet.  AEP cannot  currently  estimate  either the  magnitude  of this
potential  adjustment or any additional required  contributions to the plans due
to uncertainty  about the factors  impacting these  computations,  including the
performance of plan investments over the remainder of the year and the impact of
any changes in actuarial  assumptions  used to determine the ABO.  However,  AEP
estimates  that if using the  current  market  value of pension  plan assets and
updated  actuarial  assumptions,  including  the effect of the current  discount
assumption,  an unfavorable  after-tax  adjustment of approximately $600 million
would be required to the AOCI component of shareholders'  equity at December 31,
2002.
        Continued poor performance of the financial markets could  significantly
increase  the future  cost of pension  and other  post-employment  benefits  and
increase funding requirements beyond 2002.
<PAGE>
           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risks - Affecting AEP, AEGCo,  APCo, CPL,  CSPCo,  I&M, KPCo,  OPCo, PSO,
SWEPCo and WTU
        As a major  power  producer  and  trader of  wholesale  electricity  and
natural gas, we have certain market risks  inherent in our business  activities.
These risks include commodity price risk,  interest rate risk,  foreign exchange
risk and credit risk.  They represent the risk of loss that may impact us due to
changes in the underlying market prices or rates.
        Policies and procedures have been established to identify,  assess,  and
manage  market risk  exposures in our day to day  operations.  Our risk policies
have been  reviewed with the Board of  Directors,  approved by a Risk  Executive
Committee and administered by a Chief Risk Officer. The Risk Executive Committee
establishes  risk  limits,  approves  risk  policies,  assigns  responsibilities
regarding the oversight  and  management of risk and monitors risk levels.  This
committee receives daily,  weekly, and monthly reports regarding compliance with
policies, limits and procedures. The committee meets monthly and consists of the
Chief Risk Officer, Chief Credit Officer, V.P. Market Risk Oversight, and senior
financial and operating managers.
        We use a risk measurement  model which calculates Value at Risk (VaR) to
measure our commodity price risk in the trading  portfolio.  The VaR is based on
the  variance  -  covariance   method  using   historical   prices  to  estimate
volatilities  and correlations and assuming a 95% confidence level and a one-day
holding  period.  Based on this VaR analysis,  at September 30, 2002 a near term
typical change in commodity  prices is not expected to have a material effect on
our results of  operations,  cash flows or financial  condition.  The  following
table shows the high, average, and low market risk as measured by VaR for the:
          Nine Months Ended      Year Ended
            September 30,      December 31,
               2002               2001
               ----               ----
          High Average Low   High Average Low
             (in millions)    (in millions)

AEP        $21    $12   $7    $28    $14   $5

APCo         2      1    1      4      1    -
CPL          -      -    -      3      1    -
CSPCo        2      1    -      2      1    -
I&M          2      1    -      3      1    -
KPCo         1      -    -      1      -    -
OPCo         2      1    -      3      1    -
PSO          -      -    -      2      1    -
SWEPCo       -      -    -      3      1    -
WTU          -      -    -      1      1    -

        We also  utilize  a VaR  model to  measure  interest  rate  market  risk
exposure.  The interest rate VaR model is based on a Monte Carlo simulation with
a 95%  confidence  level and a one year holding  period.  The  volatilities  and
correlations  were based on three years of weekly prices.  The risk of potential
loss in fair value  attributable to AEP's exposure to interest rates,  primarily
related  to  long-term  debt with  fixed  interest  rates,  was $481  million at
September  30, 2002 and $673  million at December 31,  2001.  However,  since we
would not expect to  liquidate  our entire debt  portfolio in a one year holding
period,  a near term  change in  interest  rates  should not  materially  affect
results of operations or consolidated financial position.
          AEGCo  is not  exposed  to risk  from  changes  in  interest  rates on
short-term and long-term  borrowings used to finance  operations since financing
costs are recovered through the unit power agreements.
<PAGE>
         AEP is  exposed to risk from  changes in the market  prices of coal and
natural gas used to generate electricity where generation is no longer regulated
or where existing fuel clauses are suspended or frozen. The protection  afforded
by  fuel  clause   recovery   mechanisms  has  either  been  eliminated  by  the
implementation  of customer choice in Ohio (effective  January 1, 2001 for CSPCo
and OPCo) and in the ERCOT area of Texas (effective  January 1, 2002 for CPL and
WTU),  frozen by settlement  agreements in Michigan and West Virginia and capped
in  Indiana.  To the extent  the fuel  supply of the  generating  units in these
states is not under fixed  price  long-term  contracts  AEP is subject to market
price risk. AEP continues to be protected against market price changes by active
fuel clauses in Oklahoma,  Arkansas,  Louisiana,  Kentucky, Virginia and the SPP
area of Texas.
         We  employ  physical  forward  purchase  and sale  contracts,  exchange
futures and  options,  over-the-counter  options,  swaps,  and other  derivative
contracts to offset price risk where appropriate.  However, we engage in trading
of  electricity,  gas and to a lesser  degree  coal,  oil,  natural gas liquids,
weather,  freight,  euro dollars,  and emission  allowances  and as a result the
Company  is subject to price  risk.  The amount of risk taken by the  traders is
controlled by the management of the trading  operations and the Company's  Chief
Risk  Officer  and his  staff.  When the risk from  trading  activities  exceeds
certain  pre-determined  limits,  the positions are modified or hedged to reduce
the risk to those  limits  unless  specifically  approved by the Risk  Executive
Committee.
        We employ  fair value  hedges,  cash flow  hedges and swaps to  mitigate
changes  in  interest  rates or fair  values  on short and  long-term  debt when
management deems it necessary. We do not hedge all interest rate risk.
        We employ cash flow forward hedge contracts to lock-in prices on certain
power  trading  transactions  and certain  transactions  denominated  in foreign
currencies where deemed necessary. International subsidiaries use currency swaps
to hedge exchange rate  fluctuations in debt denominated in foreign  currencies.
We do not hedge all foreign currency exposure.
        AEP limits credit risk by extending  unsecured  credit to entities based
on internal ratings.  In addition,  AEP uses Moody's Investor Service,  Standard
and Poor's and qualitative and  quantitative  data to  independently  assess the
financial  health  of   counterparties  on  an  ongoing  basis.  This  data,  in
conjunction with the ratings information,  is used to determine appropriate risk
parameters.   AEP  also   requires   cash   deposits,   letters  of  credit  and
parental/affiliate  guarantees as security from certain below  investment  grade
counterparties in our normal course of business.
        We trade  electricity  and gas contracts  with numerous  counterparties.
Since our open energy  trading  contracts  are valued based on changes in market
prices of the related  commodities,  our exposures change daily. We believe that
our credit and market exposures with any one counterparty is not material to our
financial  condition at September 30, 2002. At September 30, 2002  approximately
8% of the  counterparties  were below  investment grade as expressed in terms of
Net Mark to Market Assets. Net Mark to Market
<PAGE>
Assets represents the aggregate difference (either positive or negative) between
the  forward  market  price  for  the  remaining  term of the  contract  and the
contractual price. The following table approximates  counterparty credit quality
and exposure for AEP.

                             Futures,
                             Forwards
Counterparty                 and Swap
 Credit Quality:             Contracts        Options       Total
September 30, 2002
                                           (in millions)
AAA/Exchanges                 $    3          $ -           $   3
AA                               156             6            162
A                                329             8            337
BBB                              759           163            922
Below Investment
 Grade                            97            21            118
                              ------          ----          -----

  Total                       $1,344          $198         $1,542
                              ======          ====         ======

             The  counterparty  credit  quality and exposure for the  registrant
subsidiaries is generally consistent with that of AEP.
             We enter into  transactions for electricity and natural gas as part
of wholesale trading operations. Electric and gas transactions are executed over
the counter with  counterparties  or through brokers.  Gas transactions are also
executed  through  brokerage  accounts with brokers who are registered  with the
Commodity Futures Trading Commission. Brokers and counterparties require cash or
cash related instruments to be deposited on these transactions as margin against
open positions.  The combined margin deposits at September 30, 2002 and December
31, 2001 were $317 million and $55 million. These margin accounts are restricted
and  therefore  are not  included  in cash and cash  equivalents  on the Balance
Sheet. We can be subject to further margin requirements should related commodity
prices change.
           We  recognize  the net change in the fair  value of all open  trading
contracts, a practice commonly called mark-to-market  accounting,  in accordance
with  generally  accepted  accounting  principles  and include the net change in
mark-to-market  amounts on a net  discounted  basis in revenues.  The marking to
market of open  trading  contracts in the third  quarter of 2002  resulted in an
unrealized  increase  in revenues of $139  million  and  unrealized  increase in
revenues of $202 million year-to-date. The fair value of open short-term trading
contracts are based on exchange prices and broker quotes. The fair value of open
long-term  trading  contracts  are based mainly on Company  developed  valuation
models.  This fair value is present valued and reduced by  appropriate  reserves
for  counterparty  credit risks and liquidity  risk. The models are derived from
internally  assessed  market  prices with the  exception of the NYMEX gas curve,
where we use daily  settled  prices.  Forward  price  curves are  developed  for
inclusion in the model based on broker quotes and other  available  market data.
The liquid  portions of these  curves are  validated  on a regular  basis by the
mid-office  through  the use of  independent  broker  quotes  and  market  data.
Illiquid portions of the curves are validated through a review of the underlying
market assumptions and variables for consistency and reasonableness.  The end of
the month  liquidity  reserve is based on the  difference  in price  between the
price curve and the bid price if we have a long position and the price curve and
the ask price if we have a short  position.  This  provides  for a  conservative
valuation net of the reserves.
<PAGE>
           The  use of  these  models  to  fair  value  open  long-term  trading
contracts has inherent risks relating to the underlying  assumptions employed by
such models. Independent controls are in place to evaluate the reasonableness of
the price  curve  models.  Significant  adverse or  favorable  effects on future
results of operations and cash flows could occur if market  prices,  at the time
of settlement, do not correlate with the Company developed price models.
           The  effect on the  Consolidated  Statements  of Income of marking to
market  open   electricity   trading   contracts  in  the  Company's   regulated
jurisdictions,  specifically I&M, KPCo, PSO and a portion of SWEPCo, is deferred
as regulatory  assets (losses) or liabilities  (gains) since these  transactions
are included in cost of service on a settlement  basis for ratemaking  purposes.
Unrealized  mark-to-market  gains and losses from trading are reported as assets
and liabilities, respectively.
             The  following  table shows net  revenues  (revenues  less fuel and
purchased energy expense) and their relationship to the mark-to-market  revenues
(the change in fair value of open trading positions).
                                                  Nine Months Ended
                                                     September 30,
                                                            2002

                                                      (in millions)
Revenues (including mark-to-market adjustment)            $10,818
Fuel and Purchased Energy Expense                           4,683
                                                          -------
Net Revenues                                              $ 6,135
                                                          =======
Mark-to-Market Revenues on Open Trading Positions            $202
                                                             ====
Percentage of Net Revenues Represented by
 Mark-to-Market on Open Trading Positions                       3%
                                                                ==

        The  following  tables  analyze  the  changes in fair  values of trading
assets and  liabilities.  The first table "Net Fair Value of Energy  Trading and
Derivative  Contracts" shows how the net fair value of energy trading  contracts
was derived  from the amounts  included in the balance  sheet line item  "energy
trading and derivative contracts." The next table "Energy Trading and Derivative
Contracts"   disaggregates  realized  and  unrealized  changes  in  fair  value;
identifies   changes  in  fair  value  as  a  result  of  changes  in  valuation
methodologies; and reconciles the net fair value of energy trading contracts and
related  derivatives  at December 31, 2001 of $448 million to September 30, 2002
of $228 million. Contracts realized/settled during the period include both sales
and purchase contracts.  The third table "Energy Trading and Derivative Contract
Maturities"  shows exposures to changes in fair values and  realization  periods
over time for each method used to determine fair value.
<TABLE>
<CAPTION>
Net Fair Value of Energy Trading and Derivative Contracts
                                                         September 30,           December 31,
                                                                  2002                 2001
                                                                  ----                 ----
                                                           (in millions)        (in millions)
<S>                                                             <C>                  <C>
Energy Trading and Derivative Contracts:
    Current Asset                                               $ 7,897              $ 8,536
    Long-term Asset                                               3,027                2,368
    Current Liability                                            (8,008)              (8,288)
    Long-term Liability                                          (2,693)              (2,176)
                                                                -------
Net Fair Value of Energy Trading and Derivative Contracts           223                  440
Less non-trading related derivatives                                 (5)                 -
Assets held for sale (CitiPower)                                    -                      8
                                                                -------              -------
Net Fair Value of Energy Trading and Derivative Contracts       $   228              $   448
                                                                =======              =======
</TABLE>
<PAGE>
        The above net fair  value of energy  trading  and  derivative  contracts
includes $202 million at September 30, 2002, in unrealized  mark-to-market gains
that are recognized in the income statement at September 30, 2002.
<TABLE>
<CAPTION>
AEP Consolidated Energy Trading and Derivative Contracts
(in millions)
                                                                                          Total
<S>                                                                                      <C>        <C>
Net Fair Value of Energy Trading and Derivative Contracts
 at December 31, 2001                                                                    $ 448

Gain from Contracts realized/settled during period                                        (141)     (a)

Fair Value of new open contracts when entered into during the period                        67      (b)

Net option premiums received                                                              (227)     (c)

Change In fair value due to Methodology Changes                                              1      (d)

Changes in fair market value of energy trading contracts allocated to
 regulated jurisdiction                                                                      3      (e)


Changes in market value of contracts                                                        77      (f)
                                                                                         -----

Net Fair Value of Energy Trading and Derivative Contracts
 at September 30, 2002                                                                   $ 228
                                                                                         =====
</TABLE>
(a)       (Gain) Loss from  Contracts  Realized or Otherwise  Settled During the
          Period"  include  realized  gains from energy  trading  contracts  and
          related  derivatives  that settled  during 2002 that were entered into
          prior to 2002.
(b)       The "Fair Value of New Open Contracts When Entered Into During Period"
          represents  the fair value of  long-term  contracts  entered into with
          customers  during  2002.  The  fair  value  is  calculated  as of  the
          execution  of the  contract.  Most of the fair value comes from longer
          term fixed price  contracts  with  customers  that seek to limit their
          risk against fluctuating energy prices. The contract prices are valued
          against market curves representative of the delivery location.
(c)       Net Option Premiums  Paid/(Received)  reflects the net option premiums
          paid/(received)  as they relate to  unexercised  and unexpired  option
          contracts that were entered into in 2002.
(d)       The Company changed the discount rate applied to its trading portfolio
          from BBB+ Utility to LIBOR in the second quarter which  increased fair
          value by $10 million. In addition, the Company changed its methodology
          in valuing a spread option model so as to more accurately  reflect the
          exercising of power  transactions at optimal prices which reduced fair
          value by $9 million.
(e)       "Change  in  Market   Value  of   Contracts   allocated  to  Regulated
          Jurisdictions"  relates to the net gains of those  contracts  that are
          not reflected in the income statement. These net gains are recorded as
          regulatory   liabilities  for  those   subsidiaries  that  operate  in
          regulated jurisdictions.
(f)       "Change in market value of Contracts" represents the fair value change
          in the trading portfolio due to market fluctuations during the current
          period.  Market  fluctuations are attributable to various factors such
          as supply/demand, weather, storage, etc.
<PAGE>
<TABLE>
<CAPTION>
Energy Trading Contracts
(in thousands)
                                                       APCo            CPL           CSPCo
<S>                                               <C>             <C>            <C>
Net Fair Value of Energy Trading
 Contracts at December 31, 2001                   $ 75,701        $ 3,857        $ 48,449
(Gain) Loss from Contracts
 realized/settled during period                    (12,628)         9,213          (9,847)
Change in Fair Value Due To
 Methodology Changes                                   350             42             228
Changes in fair market value of energy
 trading contracts allocated to
 regulated jurisdictions                              -              -              -
Fair Value of new open Contracts
 when entered into during period                    10,865          1,919           7,039
Net option premium payments                             30           -                 20
Changes in market value of Contracts                29,092         (6,560)         23,594
                                                  --------        -------        --------
Net Fair Value of Energy Trading
 Contracts at September 30, 2002                  $103,410        $ 8,471        $ 69,483
                                                  ========        =======        ========

Energy Trading Contracts
(in thousands)
                                                       I&M            KPCo           OPCo
Net Fair Value of Energy Trading
 Contracts at December 31, 2001                   $ 61,345        $12,729        $ 65,446
(Gain) Loss from Contracts
 realized/settled during period                      2,595          2,041         (13,051)
Change in Fair Value Due To
 Methodology Changes                                   247             90             311
Changes in fair market value of energy
 trading contracts allocated to
 Regulated jurisdiction                              4,742          6,202            -
Fair Value of new open Contracts
 when entered into during period                     2,774          1,013          18,443
Net option premium payments                             21              8              26
Changes in market value of Contracts                 4,078          4,591          28,715
                                                  --------        -------        --------
Net Fair Value of Energy Trading
 Contracts at September 30, 2002                  $ 75,802        $26,674        $ 99,890
                                                  ========        =======        ========

Energy Trading Contracts
(in thousands)
                                                       PSO           SWEPCo           WTU
Net Fair Value of Energy Trading
 Contracts at December 31, 2001                   $ 2,434         $ 2,900        $   915
(Gain) Loss from Contracts
 realized/settled during the period                 6,477           8,058          2,858
Change in Fair Value Due To
 Methodology Changes                                   32              36             12
Changes in fair market value of energy
 trading contracts allocated to
 Regulated jurisdiction                            (5,438)         (2,533)           626
Fair Value of new open Contracts
 when entered into during period                      -               428          1,627
Net option premium payments                           -               -              -
Changes in market value of Contracts                  -            (4,968)        (2,259)
                                                  -------         -------        -------
Net Fair Value of Energy Trading
 Contracts at September 30, 2002                  $ 3,505         $ 3,921        $ 3,779
                                                  =======         =======        =======
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
Energy Trading Contract Maturities
                                                           Fair Value of Contracts at September 30, 2002
                                                                             Maturities
                                                                            (in millions)
                                                                                                        Total Fair
AEP Consolidated                               Less than                   4-5 years    In Excess       Value
                                                                           ---------                    -----
Source of Fair Value                           1 year        1-3 years                  Of 5 years
--------------------                           ------        ---------                  ----------
<S>                                            <C>           <C>           <C>          <C>             <C>
Prices actively quoted (a)                     $(155)        $ 55          $ -          $ -             $(100)
Prices provided by other external
 Sources (b)                                     145          131            3            -               279
Prices based on models and other
 Valuation methods (c)                          (100)          62           52           35                49
                                               -----         ----          ---          ---             -----
Total                                          $(110)        $248          $55          $35             $ 228
                                               =====         ====          ===          ===             =====
</TABLE>
<TABLE>
<CAPTION>
Energy Trading Contract Maturities
                                                          Fair Value of Contracts at September 30, 2002
                                                                            Maturities
                                                                          (in thousands)
                                                                                                        Total Fair
                                               Less than                   4-5 years    In Excess       Value
                                                                           ---------                    -----
Source of Fair Value                           1 year        1-3 years                  Of 5 years
--------------------                           ------        ---------                  ----------
<S>                                            <C>           <C>           <C>          <C>             <C>
APCo
Prices provided by other
 External Sources (b)                          $19,111       $33,878       $   740      $  -            $ 53,729
Prices based on models and other
 Valuation methods (c)                           9,829        17,697        12,279       9,876            49,681
                                               -------       -------       -------      ------          --------
  Total                                        $28,940       $51,575       $13,019      $9,876          $103,410
                                               =======       =======       =======      ======          ========

CPL
Prices provided by other
 External Sources (b)                          $ 2,940       $1,797        $   40       $  -            $  4,777
Prices based on models and other
 Valuation methods (c)                           1,517          967           671          539             3,694
                                               -------       ------        ------       ------          --------
  Total                                        $ 4,457       $2,764        $  711       $  539          $  8,471
                                               =======       ======        ======       ======          ========

CSPCo
Prices provided by other
 External Sources (b)                          $12,814       $22,774       $   498      $  -            $ 36,086
Prices based on models and other
 Valuation methods (c)                           6,608        11,897         8,254       6,638            33,397
                                               -------       -------       -------      ------          --------
  Total                                        $19,422       $34,671       $ 8,752      $6,638          $ 69,483
                                               =======       =======       =======      ======          ========

KPCo
Prices provided by other
 External Sources (b)                          $ 4,919       $ 8,743       $   191      $  -            $ 13,853
Prices based on models and other
 Valuation methods (c)                           2,536         4,564         3,171        2,550           12,821
                                               -------       -------       -------      -------         --------
  Total                                        $ 7,455       $13,307       $ 3,362      $ 2,550         $ 26,674
                                               =======       =======       =======      =======         ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
I&M
<S>                                            <C>           <C>           <C>         <C>             <C>
Prices provided by other
 External Sources (b)                          $18,607       $21,264        $  532      $  -            $40,403
Prices based on models and other
 Valuation methods (c)                           6,764        12,699         8,832       7,104           35,399
                                               -------       -------        ------      ------          -------
  Total                                        $25,371       $33,963        $9,364      $7,104          $75,802
                                               =======       =======        ======      ======          =======

OPCo
Prices provided by other
 External Sources (b)                          $23,606       $32,032       $   660      $  -            $56,298
Prices based on models and other
 Valuation methods (c)                           8,110        15,724        10,951       8,807           43,592
                                               -------       -------       -------      ------          -------
  Total                                        $31,716       $47,756       $11,611      $8,807          $99,890
                                               =======       =======       =======      ======          =======

PSO
Prices provided by other
 External Sources (b)                          $   572        $1,181          $ 27        $-            $ 1,780
Prices based on models and other
 Valuation methods (c)                             295           635           440         355            1,725
                                               -------        ------          ----        ----          -------
  Total                                        $   867        $1,816          $467        $355          $ 3,505
                                               =======        ======          ====        ====          =======

SWEPCo
Prices provided by other
 External Sources (b)                          $   640        $1,321          $ 30        $ -           $ 1,991
Prices based on models and other
 Valuation methods (c)                             330           710           493         397            1,930
                                               -------        ------          ----        ----          -------
  Total                                        $   970        $2,031          $523        $397          $ 3,921
                                               =======        ======          ====        ====          =======

WTU
Prices provided by other
 External Sources (b)                          $ 1,042        $  984          $ 22        $ -            $2,048
Prices based on models and other
 Valuation methods (c)                             538           531           367         295            1,731
                                               -------        ------          ----        ----           ------
  Total                                        $ 1,580        $1,515          $389        $295           $3,779
                                               =======        ======          ====        ====           ======
</TABLE>
(a)       "Prices  Actively Quoted"  represents the Company's  exchange traded
          futures positions.
(b)       "Prices  Provided by Other  External  Sources"  represents  the
          Company's positions in natural gas, power, and coal at points where
          over-the-counter  broker quotes are available.  Some prices from
          external sources are quoted as strips (one bid/ask for Nov-Mar,
          Apr-Oct, etc). Such transactions have also been included in this
          category.
(c)       "Prices  Based on Models  and Other  Valuation  Methods"  contain  the
          following:  the value of the Company's  adjustments  for liquidity and
          counterparty credit exposure,  the value of contracts not quoted by an
          exchange or an over-the-counter  broker, the value of transactions for
          which an internally developed price curve was developed as a result of
          the long  dated  nature  of  certain  transactions,  and the  value of
          certain structured transactions.
<PAGE>
                             CONTROLS AND PROCEDURES

(a)             Evaluation  of  disclosure  controls and  procedures.  Our chief
                executive  officer  and  our  chief  financial  officer,   after
                evaluating  the  effectiveness  of  the  Company's   "disclosure
                controls and procedures" (as defined in the Securities  Exchange
                Act of 1934 Rules  13a-14(c)  and  15d-14(c))  as of a date (the
                "Evaluation Date") within 90 days before the filing date of this
                quarterly report, have concluded that as of the Evaluation Date,
                our  disclosure   controls  and  procedures  were  adequate  and
                designed to ensure that material  information relating to us and
                our  consolidated  subsidiaries  would be made  known to them by
                others within those entities.
(b)             Changes in internal controls.  There were no significant changes
                in our internal  controls or to our knowledge,  in other factors
                that could  significantly  affect our  disclosure  controls  and
                procedures subsequent to the Evaluation Date.
<PAGE>
                           PART II. OTHER INFORMATION

Item 5.  Other Information

        AEP, APCo, CPL, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo and WTU

        Reference  is made to page 29 of the Annual  Report on Form 10-K for the
year ended  December 31, 2001 and page O-3 of the Quarterly  Report on Form 10-Q
for the quarter  ended June 30, 2002 for a discussion  of regional  haze. On May
24, 2002,  the D.C.  Circuit Court issued an opinion and order  vacating in part
and  upholding in part the regional  haze rule.  The court held that Federal EPA
could not establish  Best  Available  Retrofit  Technology  standards for entire
groups  of  emission   sources  without  regard  to  improvement  in  visibility
attributable  to individual  source  controls.  On September 19, 2002,  the D.C.
Circuit  Court  denied  Federal  EPA's  petition  seeking  rehearing  as well as
petitions filed by several other parties.

Item 6.  Exhibits and Reports on Form 8-K

        (a)    Exhibits:

        AEP, APCo, CPL, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo and WTU

               Exhibit 12 - Computation of Consolidated Ratio of Earnings to
                            Fixed Charges.

        AEP, AEGCo, APCo, CPL, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo and WTU

               Exhibit 99.1 - Certification of Chief Executive  Officer Pursuant
               to Section 1350 of Chapter 63 of Title 18 of the United States
               Code.

               Exhibit 99.2 - Certification of Chief Financial  Officer Pursuant
               to Section 1350 of Chapter 63 of Title 18 of the United States
               Code.

        (b)    Reports on Form 8-K:

        Company Reporting    Date of Report    Item Reported

        AEP                  August 13, 2002   Item 7. Financial Statements and
                                               Exhibits



                                               Item 9. Regulation FD Disclosure


        AEGCo, APCo, CPL, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo and WTU

        No reports on Form 8-K were filed during the quarter ended September 30,
2002.
<PAGE>

                                   SIGNATURES


        Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,
each  registrant  has duly  caused this report to be signed on its behalf by the
undersigned  thereunto duly  authorized.  The  signatures  for each  undersigned
company  shall be deemed to relate  only to  matters  having  reference  to such
company and any subsidiaries thereof.

                                        AMERICAN ELECTRIC POWER COMPANY, INC.



 By: /s/Armando A. Pena            By:  /s/Joseph M. Buonaiuto
     -----------------------            ----------------------------
        Armando A. Pena                 Joseph M. Buonaiuto
        Treasurer                       Controller and Chief Accounting Officer



                             AEP GENERATING COMPANY
                            APPALACHIAN POWER COMPANY
                         CENTRAL POWER AND LIGHT COMPANY
                         COLUMBUS SOUTHERN POWER COMPANY
                         INDIANA MICHIGAN POWER COMPANY
                             KENTUCKY POWER COMPANY
                               OHIO POWER COMPANY
                       PUBLIC SERVICE COMPANY OF OKLAHOMA
                       SOUTHWESTERN ELECTRIC POWER COMPANY
                          WEST TEXAS UTILITIES COMPANY



 By: /s/Armando A. Pena            By:  /s/Joseph M. Buonaiuto
     -----------------------           ----------------------------
        Armando A. Pena                Joseph M. Buonaiuto
        Vice President and             Controller and Chief Accounting Officer
        Treasurer


Date: November 13, 2002
<PAGE>
                                 CERTIFICATIONS

I, E. Linn Draper, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of:

                      American Electric Power Company, Inc.
                             AEP Generating Company
                            Appalachian Power Company
                         Central Power and Light Company
                         Columbus Southern Power Company
                         Indiana Michigan Power Company
                             Kentucky Power Company
                               Ohio Power Company
                       Public Service Company of Oklahoma
                       Southwestern Electric Power Company
                          West Texas Utilities Company;

2.                   Based  on my  knowledge,  this  quarterly  report  does not
                     contain any untrue  statement of a material fact or omit to
                     state a  material  fact  necessary  to make the  statements
                     made,  in  light  of the  circumstances  under  which  such
                     statements  were made, not  misleading  with respect to the
                     period covered by this quarterly report;

3.                   Based on my knowledge, the financial statements,  and other
                     financial  information  included in this quarterly  report,
                     fairly  present  in all  material  respects  the  financial
                     condition,  results  of  operations  and cash  flows of the
                     registrant  as of, and for,  the periods  presented in this
                     quarterly report;

4.                   The  registrant's  other  certifying  officers  and  I  are
                     responsible for  establishing  and  maintaining  disclosure
                     controls and  procedures  (as defined in Exchange Act Rules
                     13a-14 and 15d-14) for the registrant and we have:

  a)                 designed such disclosure  controls and procedures to ensure
                     that  material  information  relating  to  the  registrant,
                     including its consolidated  subsidiaries,  is made known to
                     us by others within those entities, particularly during the
                     period in which this quarterly report is being prepared;

  b)                 evaluated the effectiveness of the  registrant's disclosure
                     controls and procedures as of a date within 90 days prior
                     to the filing date of this quarterly report (the
                     "Evaluation Date"); and

  c)                 presented in this quarterly  report our  conclusions  about
                     the effectiveness of the disclosure controls and procedures
                     based on our evaluation as of the Evaluation Date;

5.                   The  registrant's  other  certifying  officers  and I  have
                     disclosed,  based on our  most  recent  evaluation,  to the
                     registrant's   auditors   and  the   audit   committee   of
                     registrant's  board of directors (or persons performing the
                     equivalent function):

  a)                 all significant  deficiencies in the design or operation of
                     internal   controls  which  could   adversely   affect  the
                     registrant's  ability to  record,  process,  summarize  and
                     report   financial   data  and  have   identified  for  the
                     registrant's  auditors any material  weaknesses in internal
                     controls; and

  b)                 any  fraud,   whether  or  not   material,   that  involves
                     management or other  employees who have a significant  role
                     in the registrant's internal controls; and
<PAGE>
6.          The registrant's other certifying  officers and I have indicated in
            this quarterly report whether or not there were significant  changes
            in internal controls or in other factors  that  could  significantly
            affect internal  controls  subsequent to the date of our most recent
            evaluation,   including  any  corrective   actions  with  regard  to
            significant deficiencies and material weaknesses.


Dated: November 13, 2002                    By:     /s/  E. Linn Draper, Jr.
                                                    ------------------------
                                                         E. Linn Draper, Jr.
                                                         Chief Executive Officer
<PAGE>
I, Susan Tomasky, certify that:

1. I have reviewed this quarterly report on Form 10-Q of:

                      American Electric Power Company, Inc.
                             AEP Generating Company
                            Appalachian Power Company
                         Central Power and Light Company
                         Columbus Southern Power Company
                         Indiana Michigan Power Company
                             Kentucky Power Company
                               Ohio Power Company
                       Public Service Company of Oklahoma
                       Southwestern Electric Power Company
                          West Texas Utilities Company;

2.                Based on my knowledge,  this quarterly report does not contain
                  any untrue  statement  of a  material  fact or omit to state a
                  material fact necessary to make the statements  made, in light
                  of the  circumstances  under which such  statements were made,
                  not  misleading  with  respect to the  period  covered by this
                  quarterly report;

3.                Based on my  knowledge,  the financial  statements,  and other
                  financial  information  included  in  this  quarterly  report,
                  fairly   present  in  all  material   respects  the  financial
                  condition,  results  of  operations  and  cash  flows  of  the
                  registrant  as of,  and for,  the  periods  presented  in this
                  quarterly report;

4.                The  registrant's   other   certifying   officers  and  I  are
                  responsible  for  establishing   and  maintaining   disclosure
                  controls  and  procedures  (as defined in  Exchange  Act Rules
                  13a-14 and 15d-14) for the registrant and we have:

  a.              designed  such  disclosure  controls and  procedures to ensure
                  that  material   information   relating  to  the   registrant,
                  including its consolidated  subsidiaries,  is made known to us
                  by others  within  those  entities,  particularly  during  the
                  period in which this quarterly report is being prepared;

  b.              evaluated the  effectiveness  of the  registrant's  disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this quarterly report (the "Evaluation
                  Date"); and

  c.              presented in this quarterly  report our conclusions  about the
                  effectiveness of the disclosure  controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.                The  registrant's   other  certifying   officers  and  I  have
                  disclosed,  based  on  our  most  recent  evaluation,  to  the
                  registrant's  auditors and the audit committee of registrant's
                  board of  directors  (or  persons  performing  the  equivalent
                  function):

  a.              all  significant  deficiencies  in the design or  operation of
                  internal   controls   which   could   adversely   affect   the
                  registrant's ability to record, process,  summarize and report
                  financial  data  and  have  identified  for  the  registrant's
                  auditors any material weaknesses in internal controls; and

  b.              any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal controls; and
<PAGE>
6.       The registrant's other certifying officers and I have indicated in this
         quarterly  report  whether  or not there  were  significant  changes in
         internal controls or in other factors that could  significantly  affect
         internal controls subsequent to the date of our most recent evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.


Dated: November 13, 2002                    By:     /s/  Susan Tomasky
                                                    ------------------------
                                                         Susan Tomasky
                                                         Chief Financial Officer