**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C. 20549**

**FORM      10-Q**

**March      31, 2007**

*For      The Transition Period from ____ to ____*

| Commission                     |   | Registrant,                State of Incorporation,                            |   | I.R.S.                Employer    |
|--------------------------------|--------|-------------------------------------------------------------------------------|--------|-----------------------------------|
| File                Number     |   | Address                of Principal Executive Offices, and Telephone Number   |   | Identification                No. |
|                           |   |                                                                          |   |                              |
| 1-3525                         |   | AMERICAN                ELECTRIC POWER COMPANY, INC. (A New York Corporation) |   | 13-4922640                        |
| 0-18135                        |   | AEP                GENERATING COMPANY (An Ohio Corporation)                   |   | 31-1033833                        |
| 0-346                          |   | AEP                TEXAS CENTRAL COMPANY (A Texas Corporation)                |   | 74-0550600                        |
| 0-340                          |   | AEP                TEXAS NORTH COMPANY (A Texas Corporation)                  |   | 75-0646790                        |
| 1-3457                         |   | APPALACHIAN                POWER COMPANY (A Virginia Corporation)             |   | 54-0124790                        |
| 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 (An Oklahoma Corporation)   |   | 73-0410895                        |
| 1-3146                         |   | SOUTHWESTERN                ELECTRIC POWER COMPANY (A Delaware Corporation)   |   | 72-0323455                        |
|                           |   |                                                                          |   |                              |
| All                Registrants |   | 1                Riverside Plaza, Columbus, Ohio 43215-2373                   |   |                              |
|                           |   | Telephone                (614) 716-1000                                       |   |                              |

| *Indicate                by check mark whether the registrants (1) have filed all reports                required                to be filed by Section 13 or 15(d) of the Securities Exchange Act                of 1934                during the preceding 12 months (or for such shorter period that the                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 a                large                accelerated filer, an accelerated filer, or a non-accelerated filer.                See                definition of ‘accelerated filer and large accelerated filer’ in Rule                12b-2 of the Exchange Act. (Check One)* |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                          |
| *Large                accelerated filer**  X  **                  Accelerated filer**    **Non-accelerated                filer**      *                                                                                                                                                      |

| *Indicate                by check mark whether AEP Generating Company, AEP Texas Central Company,                AEP Texas North Company, Appalachian Power Company, Columbus Southern                Power Company, Indiana Michigan Power Company, Kentucky Power Company,                Ohio Power Company, Public Service Company of Oklahoma and Southwestern                Electric Power Company, are large accelerated filers, accelerated                filers,                or non-accelerated filers. See definition of ‘accelerated filer and large                accelerated filer’ in Rule 12b-2 of the Exchange Act. (Check                One)* |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| *Large                accelerated filer**    **                  Accelerated filer**    **Non-accelerated                filer**  X  *                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| *Indicate                by check mark whether the registrants are shell companies (as defined                in                Rule 12b-2 of the Exchange Act.)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Yes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | No  X   |

*AEP      Generating Company, AEP Texas Central Company, AEP Texas North Company, Columbus      Southern Power Company, Indiana Michigan Power Company, Kentucky Power Company      and Public Service Company of Oklahoma 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.*

----

|                                                 |   |   |   **Number                of shares of common stock outstanding of the registrants                at****April                30, 2007** |
|------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                 |   |   |                                                                                                                                              |
| AEP                Generating Company                |   |   | 1,000                                                                                                                                             |
|                                                 |   |   | ($1,000                par value)                                                                                                                 |
| AEP                Texas Central Company             |   |   | 2,211,678                                                                                                                                         |
|                                                 |   |   | ($25                par value)                                                                                                                    |
| AEP                Texas North Company               |   |   | 5,488,560                                                                                                                                         |
|                                                 |   |   | ($25                par value)                                                                                                                    |
| American                Electric Power Company, Inc. |   |   |      398,766,908                                                                                                         |
|                                                 |   |   | ($6.50                par value)                                                                                                                  |
| Appalachian                Power Company             |   |   | 13,499,500                                                                                                                                        |
|                                                 |   |   | (no                par value)                                                                                                                     |
| Columbus                Southern Power Company       |   |   | 16,410,426                                                                                                                                        |
|                                                 |   |   | (no                par value)                                                                                                                     |
| Indiana                Michigan Power Company        |   |   | 1,400,000                                                                                                                                         |
|                                                 |   |   | (no                par value)                                                                                                                     |
| Kentucky                Power Company                |   |   | 1,009,000                                                                                                                                         |
|                                                 |   |   | ($50                par value)                                                                                                                    |
| Ohio                Power Company                    |   |   | 27,952,473                                                                                                                                        |
|                                                 |   |   | (no                par value)                                                                                                                     |
| Public                Service Company of Oklahoma    |   |   | 9,013,000                                                                                                                                         |
|                                                 |   |   | ($15                par value)                                                                                                                    |
| Southwestern                Electric Power Company   |   |   | 7,536,640                                                                                                                                         |
|                                                 |   |   | ($18                par value)                                                                                                                    |

----

**AMERICAN      ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES**

**INDEX      TO QUARTERLY REPORTS ON FORM 10-Q**

**March      31, 2007**

|                                                                                              |                                                                                                                                                                                                                      |
|---------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Glossary                of Terms                                                                  |                                                                                                                                                                                                                      |
|                                                                                              |                                                                                                                                                                                                                      |
| Forward-Looking                Information                                                        |                                                                                                                                                                                                                      |
|                                                                                              |                                                                                                                                                                                                                      |
| Part                I. FINANCIAL INFORMATION                                                      |                                                                                                                                                                                                                      |
|                                                                                              |                                                                                                                                                                                                                      |   |
|                                                                                              | Items                1, 2 and 3 - Financial Statements, Management’s Financial Discussion and                Analysis and Quantitative and Qualitative Disclosures About Risk                Management Activities: |   |
| **American                Electric Power Company, Inc. and Subsidiary                Companies:** |                                                                                                                                                                                                                      |
|                                                                                              | Management’s                Financial Discussion and Analysis of Results of Operations                                                                                                                              |   |
|                                                                                              | Quantitative                and Qualitative Disclosures About Risk Management                Activities                                                                                                                   |   |
|                                                                                              | Condensed                Consolidated Financial Statements                                                                                                                                                                |   |
|                                                                                              | Index                to Condensed Notes to Condensed Consolidated Financial                Statements                                                                                                                     |   |
|                                                                                              |                                                                                                                                                                                                                      |   |
| **AEP                Generating Company:**                                                        |                                                                                                                                                                                                                      |
|                                                                                              | Management’s                Narrative Financial Discussion and Analysis                                                                                                                                             |   |
|                                                                                              | Condensed                Financial Statements                                                                                                                                                                             |   |
|                                                                                              | Index                to Condensed Notes to Condensed Financial Statements of Registrant                Subsidiaries                                                                                                       |   |
|                                                                                              |                                                                                                                                                                                                                      |   |
| **AEP                Texas Central Company and Subsidiaries:**                                    |                                                                                                                                                                                                                      |
|                                                                                              | Management’s                Narrative Financial Discussion and Analysis                                                                                                                                             |   |
|                                                                                              | Quantitative                and Qualitative Disclosures About Risk Management                Activities                                                                                                                   |   |
|                                                                                              | Condensed                Consolidated Financial Statements                                                                                                                                                                |   |
|                                                                                              | Index                to Condensed Notes to Condensed Financial Statements of Registrant                Subsidiaries                                                                                                       |   |
|                                                                                              |                                                                                                                                                                                                                      |   |
| **AEP                Texas North Company and Subsidiary:**                                        |                                                                                                                                                                                                                      |
|                                                                                              | Management’s                Narrative Financial Discussion and Analysis                                                                                                                                             |   |
|                                                                                              | Quantitative                and Qualitative Disclosures About Risk Management                Activities                                                                                                                   |   |
|                                                                                              | Condensed                Consolidated Financial Statements                                                                                                                                                                |   |
|                                                                                              | Index                to Condensed Notes to Condensed Financial Statements of Registrant                Subsidiaries                                                                                                       |   |
|                                                                                              |                                                                                                                                                                                                                      |   |
| **Appalachian                Power Company and Subsidiaries:**                                    |                                                                                                                                                                                                                      |
|                                                                                              | Management’s                Financial Discussion and Analysis                                                                                                                                                       |   |
|                                                                                              | Quantitative                and Qualitative Disclosures About Risk Management                Activities                                                                                                                   |   |
|                                                                                              | Condensed                Consolidated Financial Statements                                                                                                                                                                |   |
|                                                                                              | Index                to Condensed Notes to Condensed Financial Statements of Registrant                Subsidiaries                                                                                                       |   |
|                                                                                              |                                                                                                                                                                                                                      |   |
| **Columbus                Southern Power Company and Subsidiaries:**                              |                                                                                                                                                                                                                      |
|                                                                                              | Management’s                Narrative Financial Discussion and Analysis                                                                                                                                             |   |
|                                                                                              | Quantitative                and Qualitative Disclosures About Risk Management                Activities                                                                                                                   |   |
|                                                                                              | Condensed                Consolidated Financial Statements                                                                                                                                                                |   |
|                                                                                              | Index                to Condensed Notes to Condensed Financial Statements of Registrant                Subsidiaries                                                                                                       |   |
|                                                                                              |                                                                                                                                                                                                                      |   |
| **Indiana                Michigan Power Company and Subsidiaries:**                               |                                                                                                                                                                                                                      |
|                                                                                              | Management’s                Narrative Financial Discussion and Analysis                                                                                                                                             |   |
|                                                                                              | Quantitative                and Qualitative Disclosures About Risk Management                Activities                                                                                                                   |   |
|                                                                                              | Condensed                Consolidated Financial Statements                                                                                                                                                                |   |
|                                                                                              | Index                to Condensed Notes to Condensed Financial Statements of Registrant                Subsidiaries                                                                                                       |   |
|                                                                                              |                                                                                                                                                                                                                      |   |

| **Kentucky                Power Company:**                                                                   |                                                                                                                |
|--------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|
|                                                                                                         | Management’s                Narrative Financial Discussion and Analysis                                       |   |
|                                                                                                         | Quantitative                and Qualitative Disclosures About Risk Management                Activities             |   |
|                                                                                                         | Condensed                Financial Statements                                                                       |   |
|                                                                                                         | Index                to Condensed Notes to Condensed Financial Statements of Registrant                Subsidiaries |   |
|                                                                                                         |                                                                                                                |   |
| **Ohio                Power Company Consolidated:**                                                          |                                                                                                                |
|                                                                                                         | Management’s                Financial Discussion and Analysis                                                 |   |
|                                                                                                         | Quantitative                and Qualitative Disclosures About Risk Management                Activities             |   |
|                                                                                                         | Condensed                Consolidated Financial Statements                                                          |   |
|                                                                                                         | Index                to Condensed Notes to Condensed Financial Statements of Registrant                Subsidiaries |   |
|                                                                                                         |                                                                                                                |   |
| **Public                Service Company of Oklahoma:**                                                       |                                                                                                                |
|                                                                                                         | Management’s                Narrative Financial Discussion and Analysis                                       |   |
|                                                                                                         | Quantitative                and Qualitative Disclosures About Risk Management                Activities             |   |
|                                                                                                         | Condensed                Financial Statements                                                                       |   |
|                                                                                                         | Index                to Condensed Notes to Condensed Financial Statements of Registrant                Subsidiaries |   |
|                                                                                                         |                                                                                                                |   |
| **Southwestern                Electric Power Company Consolidated:**                                         |                                                                                                                |
|                                                                                                         | Management’s                Financial Discussion and Analysis                                                 |   |
|                                                                                                         | Quantitative                and Qualitative Disclosures About Risk Management                Activities             |   |
|                                                                                                         | Condensed                Consolidated Financial Statements                                                          |   |
|                                                                                                         | Index                to Condensed Notes to Condensed Financial Statements of Registrant                Subsidiaries |   |
|                                                                                                         |                                                                                                                |   |
| Condensed                Notes to Condensed Financial Statements of Registrant                Subsidiaries   |                                                                                                                |
|                                                                                                         |                                                                                                                |   |
| Combined                Management’s Discussion and Analysis of Registrant                Subsidiaries |                                                                                                                |
|                                                                                                         |                                                                                                                |   |
| Controls                and Procedures                                                                       |                                                                                                                |
|                                                                                                         |                                                                                                                |   |   |
| Part                II. OTHER INFORMATION                                                                    |                                                                                                                |
|                                                                                                         |                                                                                                                |
|                                                                                                         | Item                1.                                                                                              | Legal                Proceedings |   |
|                                                                                                         | Item                1A.                                                                                             | Risk                Factors |   |
|                                                                                                         | Item                2.                                                                                              | Unregistered                Sales of Equity Securities and Use of Proceeds |   |
|                                                                                                         | Item                5.                                                                                              | Other                Information |   |
|                                                                                                         | Item                6.                                                                                              | Exhibits: |   |
|                                                                                                         |                                                                                                                |   |   |   | Exhibit                12 |   |
|                                                                                                         |                                                                                                                |   |   |   | Exhibit                31(a) |   |
|                                                                                                         |                                                                                                                |   |   |   | Exhibit                31(b) |   |
|                                                                                                         |                                                                                                                |   |   |   | Exhibit                31(c) |   |
|                                                                                                         |                                                                                                                |   |   |   | Exhibit                31(d) |   |
|                                                                                                         |                                                                                                                |   |   |   | Exhibit                32(a) |   |
|                                                                                                         |                                                                                                                |   |   |   | Exhibit                32(b) |   |
|                                                                                                         |                                                                                                                |   |   |   |   |   |
| SIGNATURE                                                                                                    |                                                                                                                |   |

| This                combined Form 10-Q is separately filed by American Electric Power                Company,                Inc., AEP Generating Company, AEP Texas Central Company, AEP Texas                North                Company, Appalachian Power Company, Columbus Southern Power Company,                Indiana Michigan Power Company, Kentucky Power Company, Ohio Power                Company, Public Service Company of Oklahoma and Southwestern Electric                Power 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. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**GLOSSARY      OF TERMS**

**When      the following terms and abbreviations appear in the text of this report, they      have the meanings indicated below.**

|  **Term** |   |  **M****eaning** |
|----------------|--------|-----------------------|

| ADITC                                                                                   |   | Accumulated                Deferred Investment Tax Credits.                                                                                                                                                                                               |
|-----------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| AEGCo                                                                                   |   | AEP                Generating Company, an AEP electric utility subsidiary.                                                                                                                                                                                |
| AEP                or Parent                                                            |   | American                Electric Power Company, Inc.                                                                                                                                                                                                      |
| AEP                Consolidated                                                         |   | AEP                and its majority owned consolidated subsidiaries and consolidated                affiliates.                                                                                                                                           |
| AEP                Credit                                                               |   | AEP                Credit, Inc., a subsidiary of AEP which factors accounts receivable                and                accrued utility revenues for affiliated domestic electric utility                companies.                                      |
| AEP                East companies                                                       |   | APCo,                CSPCo, I&M, KPCo and OPCo.                                                                                                                                                                                                       |
| AEP                System or the System                                                 |   | American                Electric Power System, an integrated electric utility system, owned                and                operated by AEP’s electric utility subsidiaries.                                                                      |
| AEP                System Power Pool or                   AEP Power Pool |   | Members                are APCo, CSPCo, I&M, KPCo and OPCo. The Pool shares the generation,                cost of generation and resultant wholesale off-system sales of the                member                companies.                         |
| AEPSC                                                                                   |   | American                Electric Power Service Corporation, a service subsidiary providing                management and professional services to AEP and its                subsidiaries.                                                                |
| AEP                West companies                                                       |   | PSO,                SWEPCo, TCC and TNC.                                                                                                                                                                                                                  |
| AFUDC                                                                                   |   | Allowance                for Funds Used During Construction.                                                                                                                                                                                              |
| ALJ                                                                                     |   | Administrative                Law Judge.                                                                                                                                                                                                                  |
| AOCI                                                                                    |   | Accumulated                Other Comprehensive Income (Loss).                                                                                                                                                                                             |
| APCo                                                                                    |   | Appalachian                Power Company, an AEP electric utility subsidiary.                                                                                                                                                                             |
| ARO                                                                                     |   | Asset                Retirement Obligations.                                                                                                                                                                                                              |
| CAA                                                                                     |   | Clean                Air Act.                                                                                                                                                                                                                             |
| CO2                                                                                     |   | Carbon                Dioxide.                                                                                                                                                                                                                            |
| Cook                Plant                                                               |   | Donald                C. Cook Nuclear Plant, a two-unit, 2,110 MW nuclear plant owned by                I&M.                                                                                                                                          |
| CSPCo                                                                                   |   | Columbus                Southern Power Company, an AEP electric utility                subsidiary.                                                                                                                                                        |
| CSW                                                                                     |   | Central                and South West Corporation, a subsidiary of AEP (Effective January                21,                2003, the legal name of Central and South West Corporation was changed                to                AEP Utilities, Inc.). |
| CSW                Operating Agreement                                                  |   | Agreement,                dated January 1, 1997, by and among PSO, SWEPCo, TCC and TNC governing                generating capacity allocation. AEPSC acts as the                agent.                                                                   |
| CTC                                                                                     |   | Competition                Transition Charge.                                                                                                                                                                                                             |
| DETM                                                                                    |   | Duke                Energy Trading and Marketing L.L.C., a risk management                counterparty.                                                                                                                                                   |
| ECAR                                                                                    |   | East                Central Area Reliability Council.                                                                                                                                                                                                     |
| EDFIT                                                                                   |   | Excess                Deferred Federal Income Taxes.                                                                                                                                                                                                      |
| ERCOT                                                                                   |   | Electric                Reliability Council of Texas.                                                                                                                                                                                                     |
| FASB                                                                                    |   | Financial                Accounting Standards Board.                                                                                                                                                                                                      |
| Federal                EPA                                                              |   | United                States Environmental Protection Agency.                                                                                                                                                                                             |
| FERC                                                                                    |   | Federal                Energy Regulatory Commission.                                                                                                                                                                                                      |
| FIN                46                                                                   |   | FASB                Interpretation No. 46, “Consolidation of Variable Interest                Entities.”                                                                                                                                      |
| FIN                48                                                                   |   | FASB                Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” and                FASB Staff Position FIN 48-1, "Definition of *Settlement*in FASB                Interpretation No. 48."                            |
| GAAP                                                                                    |   | Accounting                Principles Generally Accepted in the United States of                America.                                                                                                                                                   |
| HPL                                                                                     |   | Houston                Pipeline Company, a former AEP                subsidiary.                                                                                                                                                                          |

| IGCC                                     |   | Integrated                Gasification Combined Cycle, technology that turns coal into a                cleaner-burning gas.                                               |
|------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| IPP                                      |   | Independent                Power Producer.                                                                                                                                 |
| IRS                                      |   | Internal                Revenue Service.                                                                                                                                   |
| IURC                                     |   | Indiana                Utility Regulatory Commission.                                                                                                                      |
| I&M                                  |   | Indiana                Michigan Power Company, an AEP electric utility                subsidiary.                                                                          |
| JMG                                      |   | JMG                Funding LP.                                                                                                                                             |
| KGPCo                                    |   | Kingsport                Power Company, an AEP electric distribution subsidiary.                                                                                           |
| KPCo                                     |   | Kentucky                Power Company, an AEP electric utility subsidiary.                                                                                                 |
| KPSC                                     |   | Kentucky                Public Service Commission.                                                                                                                         |
| kV                                       |   | Kilovolt.                                                                                                                                                                  |
| KWH                                      |   | Kilowatthour.                                                                                                                                                              |
| LPSC                                     |   | Louisiana                Public Service Commission.                                                                                                                        |
| MISO                                     |   | Midwest                Independent Transmission System Operator.                                                                                                           |
| MTM                                      |   | Mark-to-Market.                                                                                                                                                            |
| MW                                       |   | Megawatt.                                                                                                                                                                  |
| MWH                                      |   | Megawatthour.                                                                                                                                                              |
| NOx                                      |   | Nitrogen                oxide.                                                                                                                                             |
| Nonutility                Money Pool     |   | AEP                System’s Nonutility Money Pool.                                                                                                                   |
| NRC                                      |   | Nuclear                Regulatory Commission.                                                                                                                              |
| NSR                                      |   | New                Source Review.                                                                                                                                          |
| NYMEX                                    |   | New                York Mercantile Exchange.                                                                                                                               |
| OATT                                     |   | Open                Access Transmission Tariff.                                                                                                                            |
| OCC                                      |   | Corporation                Commission of the State of Oklahoma.                                                                                                            |
| OPCo                                     |   | Ohio                Power Company, an AEP electric utility subsidiary.                                                                                                     |
| OTC                                      |   | Over                the counter.                                                                                                                                           |
| OVEC                                     |   | Ohio                Valley Electric Corporation, which is 43.47% owned by                AEP.                                                                              |
| PJM                                      |   | Pennsylvania                - New Jersey - Maryland regional transmission                organization.                                                                     |
| PSO                                      |   | Public                Service Company of Oklahoma, an AEP electric utility                subsidiary.                                                                      |
| PUCO                                     |   | Public                Utilities Commission of Ohio.                                                                                                                        |
| PUCT                                     |   | Public                Utility Commission of Texas.                                                                                                                         |
| Registrant                Subsidiaries   |   | AEP                subsidiaries which are SEC registrants; AEGCo, APCo, CSPCo, I&M, KPCo,                OPCo, PSO, SWEPCo, TCC and TNC.                               |
| REP                                      |   | Texas                Retail Electric Provider.                                                                                                                             |
| Risk                Management Contracts |   | Trading                and nontrading derivatives, including those derivatives designated                as cash                flow and fair value hedges.                |
| Rockport                Plant            |   | A                generating plant, consisting of two 1,300 MW coal-fired generating                units                near Rockport, Indiana owned by AEGCo and I&M. |
| RSP                                      |   | Rate                Stabilization Plan.                                                                                                                                    |
| RTO                                      |   | Regional                Transmission Organization.                                                                                                                         |
| S&P                                  |   | Standard                and Poor’s.                                                                                                                                  |

| SEC                                                           |   | United                States Securities and Exchange Commission.                                                                                                                                                                                                                                                           |
|---------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| SECA                                                          |   | Seams                Elimination Cost Allocation.                                                                                                                                                                                                                                                                          |
| 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                133                                       |   | Statement                of Financial Accounting Standards No. 133, “Accounting for Derivative                Instruments and Hedging Activities.”                                                                                                                                                             |
| SFAS                158                                       |   | Statement                of Financial Accounting Standards No. 158, “Employers’ Accounting for                Defined Benefit Pension and Other Postretirement                Plans.”                                                                                                                    |
| SFAS                159                                       |   | Statement                of Financial Accounting Standards No. 159, “The Fair Value Option for                Financial Assets and Financial Liabilities.”                                                                                                                                                     |
| SIA                                                           |   | System                Integration Agreement.                                                                                                                                                                                                                                                                               |
| SO2                                                           |   | Sulfur                Dioxide.                                                                                                                                                                                                                                                                                             |
| SPP                                                           |   | Southwest                Power Pool.                                                                                                                                                                                                                                                                                       |
| Sweeny                                                        |   | Sweeny                Cogeneration Limited Partnership, owner and operator of a four unit,                480                MW gas-fired generation facility, owned 50% by AEP.                                                                                                                                           |
| SWEPCo                                                        |   | Southwestern                Electric Power Company, an AEP electric utility                subsidiary.                                                                                                                                                                                                                     |
| TCC                                                           |   | AEP                Texas Central Company, an AEP electric utility subsidiary.                                                                                                                                                                                                                                              |
| TEM                                                           |   | SUEZ                Energy Marketing NA, Inc. (formerly known as Tractebel Energy Marketing,                Inc.).                                                                                                                                                                                                         |
| Texas                Restructuring Legislation           |   | Legislation                enacted in 1999 to restructure the electric utility industry in                Texas.                                                                                                                                                                                                           |
| TNC                                                           |   | AEP                Texas North Company, an AEP electric utility subsidiary.                                                                                                                                                                                                                                                |
| Transmission                Equalization  Agreement |   | Transmission                Equalization Agreement by and among APCo, CSPCo, I&M, KPCo and OPCo                with AEPSC as agent, promoting the allocation of the cost of                ownership and operation of the transmission system in proportion                to their                demand ratios. |
| True-up                Proceeding                             |   | A                filing made under the Texas Restructuring Legislation to finalize                the                amount of stranded costs and other true-up items and the recovery                of such                amounts.                                                                                      |
| Utility                Money Pool                             |   | AEP                System’s Utility Money Pool.                                                                                                                                                                                                                                                                      |
| 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.                                                                                                                                                                                                                                            |
| WVPSC                                                         |   | Public                Service Commission of West                Virginia.                                                                                                                                                                                                                                                  |

----

**FORWARD-LOOKING      INFORMATION**

| · | Electric                load and customer growth.                                                                                                                                                                                                                                         |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Weather                conditions, including storms.                                                                                                                                                                                                                                      |
| · | Available                sources, costs and transportation for fuels and the creditworthiness                of                fuel suppliers and transporters.                                                                                                                           |
| · | Availability                of generating capacity and the performance of our generating                plants.                                                                                                                                                                           |
| · | Our                ability to recover regulatory assets and stranded costs in connection                with                deregulation.                                                                                                                                                 |
| · | Our                ability to recover increases in fuel and other energy costs through                regulated or competitive electric rates.                                                                                                                                            |
| · | Our                ability to build or acquire generating capacity when needed at acceptable                prices and terms and to recover those costs through applicable rate                cases                or competitive rates.                                                 |
| · | New                legislation, litigation and government regulation including requirements                for reduced emissions of sulfur, nitrogen, mercury, carbon, soot                or                particulate matter and other substances.                                     |
| · | Timing                and resolution of pending and future rate cases, negotiations and                other                regulatory decisions (including rate or other recovery for new                investments, transmission service and environmental                compliance). |
| · | Resolution                of litigation (including pending Clean Air Act enforcement actions                and                disputes arising from the bankruptcy of Enron Corp. and related                matters).                                                                   |
| · | Our                ability to constrain operation and maintenance costs.                                                                                                                                                                                                                  |
| · | The                economic climate and growth in our service territory and changes                in market                demand and demographic patterns.                                                                                                                              |
| · | Inflationary                and interest rate trends.                                                                                                                                                                                                                                     |
| · | Our                ability to develop and execute a strategy based on a view regarding                prices                of electricity, natural gas and other energy-related                commodities.                                                                              |
| · | Changes                in the creditworthiness of the counterparties with whom we have                contractual arrangements, including participants in the energy trading                market.                                                                                       |
| · | Actions                of rating agencies, including changes in the ratings of                debt.                                                                                                                                                                                       |
| · | Volatility                and changes in markets for electricity, natural gas and other                energy-related commodities.                                                                                                                                                        |
| · | Changes                in utility regulation, including recent legislation in Virginia,                the                potential for new legislation in Ohio and membership in and integration                into regional transmission organizations.                                |
| · | Accounting                pronouncements periodically issued by accounting standard-setting                bodies.                                                                                                                                                                        |
| · | The                performance of our pension and other postretirement benefit                plans.                                                                                                                                                                                      |
| · | Prices                for power that we generate and sell at wholesale.                                                                                                                                                                                                                   |
| · | Changes                in technology, particularly with respect to new, developing or alternative                sources of generation.                                                                                                                                                   |
| · | Other                risks and unforeseen events, including wars, the effects of terrorism                (including increased security costs), embargoes and other catastrophic                events.                                                                                   |

| The                registrants expressly disclaim any obligation to update any                forward-looking information. |
|----------------------------------------------------------------------------------------------------------------------------|

----

**AMERICAN      ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES**

**MANAGEMENT’S      FINANCIAL DISCUSSION AND ANALYSIS OF RESULTS OF      OPERATIONS**

**EXECUTIVE      OVERVIEW**

***Regulatory      Activity***

| · | In                March 2007, the Texas District Court judge reversed his earlier                preliminary decision and concluded the sale of assets method used                by TCC                to value its nuclear plant stranded costs was appropriate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | In                March 2007, various intervenors and the PUCT staff filed their                recommendations in TCC’s and TNC’s energy delivery base rate filings.                Though the recommendations varied, the range of recommended increase                was                $8 million to $30 million for TCC and $1 million to $14 million for                TNC.                In April 2007, TCC and TNC filed rebuttal testimony and continue                to pursue                $70 million and $22 million, respectively, in annual base rate increases.                Hearings began in April 2007 and are scheduled to conclude in May                2007.                                                                                                                                                                                         |
| · | In                April 2007, the Virginia legislature approved amendments recommended                by                the Governor to the legislature’s recently adopted, comprehensive bill                providing for the re-regulation of electric utilities generation/supply                rates. The effective date of the new amendments is July 1, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| · | In                March 2007, a Hearing Examiner (HE) in Virginia issued a report                recommending a $76 million increase in APCo’s base rates and $45 million                credit to the fuel factor for off-system sales margins. APCo                continues to pursue an annual base rate increase of $225 million                and a $27                million credit for off-system sales margins. We expect a ruling during                2007.                                                                                                                                                                                                                                                                                                                                                                                                                 |
| · | In                April 2007, the FERC issued an order reversing an initial favorable                ALJ                decision which had found the existing PJM zonal rate design to be                unjust                and determined that it should be replaced. In the April 2007 order,                the                FERC ruled that the existing PJM rate design is just and reasonable.                As a                result of this order, our retail customers will be asked to bear                the full                cost of the existing AEP east transmission zone facilities. We presently                recover approximately 85% of these costs from retail customers. The                FERC                further ruled that the cost of new facilities of 500 kV and above                would be                shared among all PJM participants. |
| · | In                March 2007, the OCC staff and various intervenors filed testimony                in PSO’s                base rate case. The recommendations were base rate reductions that                ranged                from $18 million to $52 million. In April 2007, PSO filed rebuttal                testimony and continues to pursue an increase in annual base rates                of $48                million.                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| · | Beginning                with the May 2007 billing cycle, CSPCo and OPCo implemented rates                filed                with the PUCO under the 4% provision of their RSPs to increase their                annual generation rates for 2007 by $24 million and $8 million,                respectively, to recover governmentally-mandated costs. These increases                are subject to refund until the PUCO issues a final order in the                matter.                The hearing is scheduled to begin in late May 2007.                                                                                                                                                                                                                                                                                                                                             |
| · | In                March 2007, CSPCo filed an application under the 4% provision of                the RSP                to adjust the Power Acquisition Rider (PAR) which was authorized                in 2005                by the PUCO in connection with CSPCo's acquisition of Monongahela                Power                Company's certified territory in Ohio. If approved, CSPCo's revenues                would                increase by $22 million and $38 million for 2007 and 2008,                respectively.                                                                                                                                                                                                                                                                                                                                                          |
| · | In                April 2007, CSPCo and OPCo filed a joint motion with the PUCO staff                and                other intervenors to withdraw the proposed enhanced reliability                plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

***Investment      Activity***

| · | We                completed the 480 MW Darby Electric Generation Station acquisition                in                April 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | In                April 2007, we signed a memorandum of understanding with Allegheny                Energy                Inc. to form a joint venture company to build and own certain electric                transmission assets within PJM with the initial focus on a transmission                line between AEP’s Amos power plant in West Virginia and Allegheny’s                proposed Kemptown power plant in Maryland. We expect to execute definitive                agreements for the joint venture with Allegheny Energy Inc. by mid-2007                and anticipate the joint venture will begin activities in the second                half                of 2007. |

**RESULTS      OF OPERATIONS**

**Utility      Operations**

| · | Generation                of electricity for sale to U.S. retail and wholesale                customers. |
|--------|----------------------------------------------------------------------------------------------------------|
| · | Electricity                transmission and distribution in the                U.S.                      |

**MEMCO      Operations**

| · | Barging                  operations that annually transport approximately 34 million tons                  of coal                  and dry bulk commodities primarily on the Ohio, Illinois and Lower                  Mississippi rivers. Approximately 35% of the barging operations                  relates to                  the transportation of coal, 28% relates to agricultural                  products, 21% relates to steel and 16% relates to other                  commodities. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Generation      and Marketing**

| · | IPPs,                wind farms and marketing and risk management activities primarily in                ERCOT. |
|--------|----------------------------------------------------------------------------------------------------------------------|

|                                                                   |   | **Three                Months Ended March 31,** |   |
|------------------------------------------------------------------------|--------|-------------------------------------------------|--------|
|                                                                   |   | **2007**                                        |   | **2006** |   |
|                                                                   |   | **Earnings**                                    |   | **EPS                (b)** |   | **Earnings** |   | **EPS                (b)** |   |
| Utility                Operations                                      |   | $                                               | 253    |   | $ | 0.63 |   | $ | 365 |   | $ | 0.93 |   |
| MEMCO                Operations                                        |   |                                            | 15     |   |   | 0.04 |   |   | 21 |   |   | 0.05 |   |
| Generation                and Marketing                                |   |                                            | (1     | ) |   | - |   |   | 4 |   |   | 0.01 |   |
| All                Other (a)                                           |   |                                            | 4      |   |   | 0.01 |   |   | (12 | ) |   | (0.03 | ) |
| **Income                Before Discontinued Operations**          |   | $                                               | 271    |   | $ | 0.68 |   | $ | 378 |   | $ | 0.96 |   |
|                                                                   |   |                                            |   |   |   |   |   |   |   |   |   |   |   |
| **Weighted                Average Number of Basic Shares Outstanding** |   |                                            |   |   |   | 397 |   |   |   |   |   | 394 |   |

| (a)    | All                Other includes:                                                                                                                                                                                                                                                                                      |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                  | Parent                company’s guarantee revenue received from affiliates, interest income and                interest expense and other nonallocated costs. |
|   | ·                                                                                                                                                                                                                                                                                                                  | Other                energy supply related businesses, including the Plaquemine Cogeneration                Facility, which was sold in the fourth quarter of 2006. |
| (b)    | The                earnings per share of any segment does not represent a direct legal                interest in the assets and liabilities allocated to any one segment                but                rather represents a direct equity interest in AEP’s assets and liabilities                as a whole. |

**Utility      Operations**

|                                                                      |   | **Three                Months Ended** |   |
|---------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                      |   | **March                31,**          |   |
|                                                                      |   | **2007**                              |   | **2006** |   |
|                                                                      |   | **(in                millions)**      |   |
| Revenues                                                                  |   | $                                     | 3,033  |   | $ | 2,966 |   |
| Fuel                and Purchased Power                                   |   |                                  | 1,119  |   |   | 1,126 |   |
| **Gross                Margin**                                           |   |                                  | 1,914  |   |   | 1,840 |   |
| Depreciation                and Amortization                              |   |                                  | 383    |   |   | 340 |   |
| Other                Operating Expenses                                   |   |                                  | 991    |   |   | 836 |   |
| **Operating                Income**                                       |   |                                  | 540    |   |   | 664 |   |
| Other                Income, Net                                          |   |                                  | 18     |   |   | 41 |   |
| Interest                Charges and Preferred Stock Dividend Requirements |   |                                  | 179    |   |   | 154 |   |
| Income                Tax Expense                                         |   |                                  | 126    |   |   | 186 |   |
| **Income                Before Discontinued Operations**                  |   | $                                     | 253    |   | $ | 365 |   |

**Summary      of Selected Sales and Weather Data**

**For      Utility Operations**

**For      the Three Months Ended March 31, 2007 and 2006**

|                                |   |  **2007**                                |   | **2006** |   |
|-------------------------------------|--------|-----------------------------------------------|--------|----------|--------|
| **Energy                Summary**   |   |  **(in                millions of KWH)** |   |
| Retail:                             |   |                                     |   |     |   |
| Residential                         |   |                                          | 14,139 |     |   | 12,938 |   |
| Commercial                          |   |                                          | 9,359  |     |   | 8,909 |   |
| Industrial                          |   |                                          | 13,565 |     |   | 13,222 |   |
| Miscellaneous                       |   |                                          | 614    |     |   | 618 |   |
| Total                Retail         |   |                                          | 37,677 |     |   | 35,687 |   |
|                                |   |                                          |   |     |   |   |   |
| Wholesale                           |   |                                          | 8,778  |     |   | 10,844 |   |
|                                |   |                                          |   |     |   |   |   |
| Texas                Wires Delivery |   |                                          | 5,831  |     |   | 5,546 |   |
| **Total                KWHs**       |   |                                          | 52,286 |     |   | 52,077 |   |

|                                             |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | **2007** |   | **2006** |   |
|--------------------------------------------------|--------|-------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|----------|--------|----------|--------|
| **Weather                Summary**               |   | **(in                degree days)** |   |
| Eastern                Region                    |   |                                |   |   |   |
| Actual                - Heating (a)              |   | 1,816                               |   | 1,456  |   |
| Normal                - Heating (b)              |   | 1,792                               |   | 1,817  |   |
|                                             |   |                                |   |   |   |
| Actual                - Cooling (c)              |   | 14                                  |   | 1      |   |
| Normal                - Cooling (b)              |   | 3                                   |   | 3      |   |
|                                             |   |                                |   |   |   |
| Western                Region                (d) |   |                                |   |   |   |
| Actual                - Heating (a)              |   | 902                                 |   | 658    |   |
| Normal                - Heating (b)              |   | 959                                 |   | 972    |   |
|                                             |   |                                |   |   |   |
| Actual                - Cooling (c)              |   | 56                                  |   | 43     |   |
| Normal                - Cooling (b)              |   | 18                                  |   | 17     |   |

| (a) | Eastern                region and western region heating degree days are calculated on a                55                degree temperature base. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Normal                Heating/Cooling represents the thirty-year average of degree                days.                                            |
| (c) | Eastern                region and western region cooling degree days are calculated on a                65                degree temperature base. |
| (d) | Western                region statistics represent PSO/SWEPCo customer base                only.                                                   |

**Reconciliation      of First Quarter of 2006 to First Quarter of 2007**

**Income      from Utility Operations Before Discontinued Operations**

**(in      millions)**

| **First                Quarter of 2006**                        |   |   |   |   | $      | 365    |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                Margins                                   |   |   | 139    |   |   |   |   |
| Off-system                Sales                                 |   |   | (41    | )      |   |   |   |
| Transmission                Revenues                            |   |   | (29    | )      |   |   |   |
| Other                Revenues                                   |   |   | 5      |   |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | 74     |   |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | (111   | )      |   |   |   |
| Gain                on Dispositions of Assets, Net              |   |   | (47    | )      |   |   |   |
| Depreciation                and Amortization                    |   |   | (43    | )      |   |   |   |
| Carrying                Costs Income                            |   |   | (22    | )      |   |   |   |
| Other                Income, Net                                |   |   | 2      |   |   |   |   |
| Interest                and Other Charges                       |   |   | (25    | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (246   | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | 60     |   |
|                                                            |   |   |   |   |   |   |   |
| **First                Quarter of 2007**                        |   |   |   |   | $      | 253    |   |

| ·                                                                             | Retail                  Margins increased $139 million primarily due to the                  following:                                                                                                                                                                                                                                                        |
|------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                               | ·                                                                                                                                                                                                                                                                                                                                                         | A                  $35 million increase related to new rates implemented in our Ohio                  jurisdictions as approved by the PUCO in our RSPs and a $58 million                  increase related to new rates implemented in other east jurisdictions                  of                  Kentucky, West Virginia and Virginia. See “APCo Virginia Base Rate Case”                  in Note 3 for discussion of the Virginia increase implemented subject                  to                  refund. |
|                                                                               | ·                                                                                                                                                                                                                                                                                                                                                         | A                  $34 million increase related to increased residential and commercial                  usage                  and customer growth. |
|                                                                               | ·                                                                                                                                                                                                                                                                                                                                                         | A                  $40 million increase in usage related to weather. As compared to                  the prior                  year, our eastern region and western region experienced 25% and                  37%                  increases, respectively, in heating degree days. |
|     These                  increases were partially offset by: |
|                                                                               | ·                                                                                                                                                                                                                                                                                                                                                         | A                  $27 million decrease in financial transmission rights revenue,                  net of                  congestion, primarily due to fewer transmission constraints within                  the PJM                  market. |
| ·                                                                             | Margins                  from Off-system Sales decreased $41 million primarily due to lower                  generation availability in the east due to planned outages for                  completion                  of environmental retrofits and higher retail load offset by higher                  margins                  from trading activities. |
| ·                                                                             | Transmission                  Revenues decreased $29 million primarily due to the elimination                  of SECA                  revenues as of April 1, 2006. See the “Transmission Rate Proceedings at                  the FERC” section of Note 3.                                                                                      |

| · | Other                Operation and Maintenance expenses increased $111 million primarily                due to                increases in generation expenses related to plant outages and removal                costs, distribution expenses associated with service reliability                and storm                restoration primarily in Oklahoma and expenses associated with employee                benefits.                                                          |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Gain                on Disposition of Assets, Net decreased $47 million primarily related                to                the earnings sharing agreement with Centrica from the sale of our                REPs in                2002. In 2006, we received $70 million from Centrica for earnings                sharing                and in 2007 we received $20 million as the earnings sharing agreement                ended.                                                |
| · | Depreciation                and Amortization expense increased $43 million primarily due to increased                Ohio regulatory asset amortization related to recovery of IGCC                preconstruction costs, increased Texas amortization of the                securitized transition assets, increased Virginia regulatory amortization                related to environmental and reliability recovery and higher depreciable                property balances. |
| · | Carrying                Costs Income decreased $22 million because TCC started recovering                Texas                stranded costs in October 2006, resulting in lower Texas carrying                costs                income in 2007.                                                                                                                                                                                                                                   |
| · | Interest                and Other Charges increased $25 million primarily due to additional                debt                issued in the fourth quarter of 2006 partially offset by an increase                in                allowance for borrowed funds used for construction.                                                                                                                                                                                              |
| · | Income                Tax Expense decreased $60 million due to a decrease in pretax                income.                                                                                                                                                                                                                                                                                                                                                                            |

**MEMCO      Operations**

**Generation      and Marketing**

**All      Other**

**AEP      System Income Taxes**

**FINANCIAL      CONDITION**

**Debt      and Equity Capitalization**
** **

|                                                                 |   | **March                31, 2007**  |   | **December                31, 2006** |   |
|----------------------------------------------------------------------|--------|------------------------------------|--------|--------------------------------------|--------|
|                                                                 |   | **($                in millions)** |   |
| Long-term                Debt, including amounts due within one year |   | $                                  | 13,902 |                                 |   | 58.7 | %   | $ | 13,698 |   |   | 59.1 | %  |
| Short-term                Debt                                       |   |                               | 175    |                                 |   | 0.7 |   |   | 18 |   |   | 0.0 |   |
| Total                Debt                                            |   |                               | 14,077 |                                 |   | 59.4 |   |   | 13,716 |   |   | 59.1 |   |
| Common                Equity                                         |   |                               | 9,540  |                                 |   | 40.3 |   |   | 9,412 |   |   | 40.6 |   |
| Preferred                Stock                                       |   |                               | 61     |                                 |   | 0.3 |   |   | 61 |   |   | 0.3 |   |
|                                                                 |   |                               |   |                                 |   |   |   |   |   |   |   |   |   |
| **Total                Debt and Equity Capitalization**              |   | $                                  | 23,678 |                                 |   | 100.0 | % | $ | 23,189 |   |   | 100.0 | % |

**Liquidity**

***Credit      Facilities***

|                                                                  |   | **Amount**                       |   | **Maturity** |   |
|-----------------------------------------------------------------------|--------|----------------------------------|--------|--------------|--------|
|                                                                  |   | **(in                millions)** |   |         |   |
| Commercial                Paper Backup:                               |   |                        |   |         |   |
| Revolving                Credit Facility                              |   | $                                | 1,500  |         |   | March                2011 |   |
| Revolving                Credit Facility                              |   |                             | 1,500  |         |   | April                2012 |   |
| **Total**                                                             |   |                             | 3,000  |         |   |   |   |
| Cash                and Cash Equivalents                              |   |                             | 259    |         |   |   |   |
| **Total                Liquidity Sources**                            |   |                             | 3,259  |         |   |   |   |
| Less:                AEP Commercial Paper Outstanding                 |   |                             | 150    |         |   |   |   |
|                      Letters of Credit Drawn |   |                             | 27     |         |   |   |   |
|                                                                  |   |                             |   |         |   |   |   |
| **Net                Available Liquidity**                            |   | $                                | 3,082  |         |   |   |   |

***Debt      Covenants and Borrowing Limitations***

***Credit      Ratings***

|                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | **Moody’s** |   |   | **S&P** |   |   | **Fitch** |
|------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------------|--------|--------|-------------|--------|--------|-----------|
|                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |              |   |   |        |   |   |      |
| AEP                Short Term Debt       | P-2    |   |   | A-2    |   |   | F-2    |
| AEP                Senior Unsecured Debt | Baa2   |   |   | BBB    |   |   | BBB    |

**Cash      Flow**

|                                                                |   | **Three                Months Ended** |   |
|---------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                |   | **March                31,**          |   |
|                                                                |   | **2007**                              |   | **2006** |   |
|                                                                |   | **(in                millions)**      |   |
| **Cash                and Cash Equivalents at Beginning of Period** |   | $                                     | 301    |   | $ | 401 |   |
| Net                Cash Flows From Operating Activities             |   |                                  | 351    |   |   | 583 |   |
| Net                Cash Flows Used For Investing Activities         |   |                                  | (628   | ) |   | (750 | ) |
| Net                Cash Flows From Financing Activities             |   |                                  | 235    |   |   | 42 |   |
| **Net                Decrease in Cash and Cash Equivalents**        |   |                                  | (42    | ) |   | (125 | ) |
| **Cash                and Cash Equivalents at End of Period**       |   | $                                     | 259    |   | $ | 276 |   |

***Operating      Activities***

|                                                        |   | **Three                Months Ended** |   |
|-------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                        |   | **March                31,**          |   |
|                                                        |   | **2007**                              |   | **2006** |   |
|                                                        |   | **(in                millions)**      |   |
| **Net                Income**                               |   | $                                     | 271    |   | $ | 381 |   |
| Less:                Discontinued Operations, Net of Tax    |   |                                  | -      |   |   | (3 | ) |
| **Income                Before Discontinued Operations**    |   |                                  | 271    |   |   | 378 |   |
| Noncash                Items Included in Earnings           |   |                                  | 420    |   |   | 323 |   |
| Changes                in Assets and Liabilities            |   |                                  | (340   | ) |   | (118 | ) |
| **Net                Cash Flows From Operating Activities** |   | $                                     | 351    |   | $ | 583 |   |

***Investing      Activities***

|                                                            |   | **Three                Months Ended** |   |
|-----------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                            |   | **March                31,**          |   |
|                                                            |   | **2007**                              |   | **2006** |   |
|                                                            |   | **(in                millions)**      |   |
| Construction                Expenditures                        |   | $                                     | (907   | ) | $ | (765 | ) |
| Change                in Other Temporary Cash Investments, Net  |   |                                  | (20    | ) |   | 27 |   |
| (Purchases)/Sales                of Investment Securities, Net  |   |                                  | 236    |   |   | (89 | ) |
| Proceeds                from Sales of Assets                    |   |                                  | 68     |   |   | 111 |   |
| Other                                                           |   |                                  | (5     | ) |   | (34 | ) |
| **Net                Cash Flows Used for Investing Activities** |   | $                                     | (628   | ) | $ | (750 | ) |

***Financing      Activities***

|                                                        |   | **Three                Months Ended** |   |
|-------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                        |   | **March                31,**          |   |
|                                                        |   | **2007**                              |   | **2006** |   |
|                                                        |   | **(in                millions)**      |   |
| Issuance                of Common Stock                     |   | $                                     | 54     |   | $ | 5 |   |
| Issuance/Retirement                of Debt, Net             |   |                                  | 355    |   |   | 129 |   |
| Dividends                Paid on Common Stock               |   |                                  | (155   | ) |   | (146 | ) |
| Other                                                       |   |                                  | (19    | ) |   | 54 |   |
| **Net                Cash Flows From Financing Activities** |   | $                                     | 235    |   | $ | 42 |   |

**Off-balance      Sheet Arrangements**

|                                                                |   |                                       |   |                                          |   |   |   |
|---------------------------------------------------------------------|--------|--------------------------------------------|--------|-----------------------------------------------|--------|--------|--------|
|                                                                |   | **March                31,****2007**  |   | **December                31,****2007**  |   |
|                                                                |   | **(in                millions)**           |   |
| AEP                Credit Accounts Receivable Purchase Commitments  |   | $                                          | 549    |                                          | $      | 536    |   |
| Rockport                Plant Unit 2 Future Minimum Lease Payments  |   |                                       | 2,364  |                                          |   | 2,364  |   |
| Railcars                Maximum Potential Loss From Lease Agreement |   |                                       | 31     |                                          |   | 31     |   |

**Summary      Obligation Information**

**Other**

***Texas      REPs***

**SIGNIFICANT      FACTORS**

**Electric      Transmission Texas LLC Joint Venture**

**AEP      Interstate Project**

**Texas      Restructuring**

| · | The                PUCT ruling that TCC did not comply with the statute and PUCT rules                regarding the required auction of 15% of its Texas jurisdictional                installed capacity, which led to a significant disallowance of capacity                auction true-up revenues,                                                                                                                                                                                                                                 |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | The                PUCT ruling that TCC acted in a manner that was commercially unreasonable,                because it failed to determine a minimum price at which it would                reject                bids for the sale of its nuclear generating plant and it bundled                out of                the money gas units with the sale of its coal unit, which led to                the                disallowance of a significant portion of TCC’s net stranded generation                plant cost, and |
| · | The                two federal matters regarding the allocation of off-system sales                related                to fuel recoveries and the potential tax normalization                violation.                                                                                                                                                                                                                                                                                                                              |

**SECA      Revenue Subject to Refund**

**Virginia      Restructuring**

**New      Generation**

**Litigation**

**Environmental      Matters**

| · | Requirements                under the Clean Air Act (CAA) to reduce emissions of sulfur dioxide                (SO2),                nitrogen oxide (NOx),                particulate matter (PM) and mercury from fossil fuel-fired power                plants;                and |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Requirements                under the Clean Water Act (CWA) to reduce the impacts of water intake                structures on aquatic species at certain of our power                plants.                                                                                        |

***Environmental      Litigation***

**Critical      Accounting Estimates**

**Adoption      of New Accounting Pronouncements**

----

**QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT      ACTIVITIES**

**Market      Risks**

**Mark-to-Market      Risk Management Contract Net Assets (Liabilities)**

**Reconciliation      of MTM Risk Management Contracts to**

**Condensed      Consolidated Balance Sheet**

**March      31, 2007**

**(in      millions)**

|                                                                                                                            | **Utility                Operations** |   | **Generation                and****Marketing** |   | **All                Other** |   | **Sub-Total                MTM Risk Management Contracts** |   | **PLUS:                MTM of Cash Flow and Fair Value Hedges** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------------------------|---------------------------------------|--------|------------------------------------------------|--------|------------------------------|--------|------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|-----------|--------|
| Current                Assets                                                                                                   | $                                     | 319    |                                           | $      | 30                           |   | $                                                          | 121    |                                                            | $      | 470       |   | $ | 6 |   | $ | 476 |   |
| Noncurrent                Assets                                                                                                |                                  | 210    |                                           |   | 21                           |   |                                                       | 110    |                                                            |   | 341       |   |   | 10 |   |   | 351 |   |
| **Total                Assets**                                                                                                 |                                  | 529    |                                           |   | 51                           |   |                                                       | 231    |                                                            |   | 811       |   |   | 16 |   |   | 827 |   |
|                                                                                                                            |                                  |   |                                           |   |                         |   |                                                       |   |                                                            |   |      |   |   |   |   |   |   |   |
| Current                Liabilities                                                                                              |                                  | (228   | )                                              |   | (35                          | )      |                                                       | (120   | )                                                               |   | (383      | )      |   | (20 | ) |   | (403 | ) |
| Noncurrent                Liabilities                                                                                           |                                  | (92    | )                                              |   | (8                           | )      |                                                       | (117   | )                                                               |   | (217      | )      |   | (2 | ) |   | (219 | ) |
| **Total                Liabilities**                                                                                            |                                  | (320   | )                                              |   | (43                          | )      |                                                       | (237   | )                                                               |   | (600      | )      |   | (22 | ) |   | (622 | ) |
|                                                                                                                            |                                  |   |                                           |   |                         |   |                                                       |   |                                                            |   |      |   |   |   |   |   |   |   |
| **Total                MTM** **Derivative****  Contract                Net Assets****  (Liabilities)** | $                                     | 209    |                                           | $      | 8                            |   | $                                                          | (6     | )                                                               | $      | 211       |   | $ | (6 | ) | $ | 205 |   |

**MTM      Risk Management Contract Net Assets (Liabilities)**

**Three      Months Ended March 31, 2007**

**(in      millions)**

|                                                                                                                                                                      |   | **Utility                Operations** |   | **Generation****and****Marketing** |   | **All                Other** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|------------------------------------|--------|------------------------------|--------|-----------|--------|
| **Total                MTM Risk Management Contract Net Assets   (Liabilities)  at                December 31, 2006**                                      |   | $                                     | 236    |                               | $      | 2                            |   | $         | (5     | ) | $ | 233 |   |
| (Gain)                Loss from Contracts Realized/Settled During                   the Period and Entered in a Prior Period                     |   |                                  | (23    | )                                  |   | -                            |   |      | -      |   |   | (23 | ) |
| Fair                Value of New Contracts at Inception When Entered  During                the Period (a)                                            |   |                                  | 1      |                               |   | 3                            |   |      | -      |   |   | 4 |   |
| Net                Option Premiums Paid/(Received) for Unexercised or                  Unexpired Option Contracts Entered During The                Period |   |                                  | -      |                               |   | -                            |   |      | -      |   |   | - |   |
| Changes                in Fair Value Due to Valuation Methodology  Changes                on Forward Contracts                                             |   |                                  | -      |                               |   | -                            |   |      | -      |   |   | - |   |
| Changes                in Fair Value Due to Market Fluctuations During   the                Period (b)                                                |   |                                  | 5      |                               |   | 3                            |   |      | (1     | ) |   | 7 |   |
| Changes                in Fair Value Allocated to Regulated Jurisdictions                (c)                                                                         |   |                                  | (10    | )                                  |   | -                            |   |      | -      |   |   | (10 | ) |
| **Total                MTM Risk Management Contract Net Assets                  (Liabilities) at March 31, 2007**                                     |   | $                                     | 209    |                               | $      | 8                            |   | $         | (6     | ) |   | 211 |   |
| Net                Cash Flow and Fair Value Hedge** **Contracts                                                                                                      |   |                                  |   |                               |   |                         |   |      |   |   |   | (6 | ) |
| **Total                MTM Risk Management Contract Net Assets at   March  31,                2007**                                                       |   |                                  |   |                               |   |                         |   |      |   |   | $ | 205 |   |

| (a) | Reflects                fair value on long-term contracts which are typically with customers                that                seek fixed pricing to limit their risk against fluctuating energy                prices.                Inception value is only recorded if observable market data can be                obtained                for valuation inputs for the entire contract term. The contract prices                are                valued against market curves associated with the delivery location                and                delivery term. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                fluctuations are attributable to various factors such as supply/demand,                weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (c) | “Change                in Fair Value Allocated to Regulated Jurisdictions” relates to the net                gains (losses) of those contracts that are not reflected on the Condensed                Consolidated Statements of Income. These net gains (losses) are recorded                as regulatory assets/liabilities for those subsidiaries that operate                in                regulated jurisdictions.                                                                                                                                      |

**Maturity      and Source of Fair Value of MTM Risk Management Contract Net Assets      (Liabilities)**

| · | The                method of measuring fair value used in determining the carrying amount                of                our total MTM asset or liability (external sources or modeled                internally). |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | The                maturity, by year, of our net assets/liabilities, to give an indication                of                when these MTM amounts will settle and generate                cash.                     |

**Maturity      and Source of Fair Value of MTM**

**Risk      Management Contract Net Assets (Liabilities)**

**Fair      Value of Contracts as of March 31, 2007**

**(in      millions)**

|                                                                                                                       |   | **Remainder****2007** |   | **2008**     |   | **2009**     |   | **2010**     |   | **2011**     |   | **After****2011** |   | **Total**    |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|--------------|--------|--------------|--------|--------------|--------|--------------|--------|-------------------|--------|--------------|--------|
| **Utility                Operations:**                                                                                     |   |             |   |    |   |    |   |    |   |    |   |         |   |    |   |
| Prices                Actively Quoted - Exchange Traded                Contracts                                      |   | $                     | 14     |         | $      | 1            |   | $            | 2      |         | $      | -                 |   | $            | -      |   | $ | - |   | $ | 17 |   |
| Prices                Provided by Other External Sources                -   OTC                Broker Quotes (a) |   |                  | 85     |         |   | 50           |   |         | 33     |         |   | 14                |   |         | -      |   |   | - |   |   | 182 |   |
| Prices                Based on Models and Other Valuation                Methods (b)                                       |   |                  | (18    | )            |   | (7           | )      |         | 9      |         |   | 17                |   |         | 4      |   |   | 5 |   |   | 10 |   |
| **Total**                                                                                                                  |   | $                     | 81     |         | $      | 44           |   | $            | 44     |         | $      | 31                |   | $            | 4      |   | $ | 5 |   | $ | 209 |   |
|                                                                                                                       |   |                  |   |         |   |         |   |         |   |         |   |              |   |         |   |   |   |   |   |   |   |   |
| **Generation                and Marketing:**                                                                               |   |                  |   |         |   |         |   |         |   |         |   |              |   |         |   |   |   |   |   |   |   |   |
| Prices                Actively Quoted - Exchange Traded Contracts                                                |   | $                     | (5     | )            | $      | (4           | )      | $            | 1      |         | $      | -                 |   | $            | -      |   | $ | - |   | $ | (8 | ) |
| Prices                Provided by Other External Sources                -                  OTC Broker Quotes (a)      |   |                  | (3     | )            |   | 8            |   |         | 1      |         |   | -                 |   |         | -      |   |   | - |   |   | 6 |   |
| Prices                Based on Models and Other Valuation                Methods (b)                                       |   |                  | 3      |         |   | 6            |   |         | (1     | )            |   | -                 |   |         | -      |   |   | 2 |   |   | 10 |   |
| **Total**                                                                                                                  |   | $                     | (5     | )            | $      | 10           |   | $            | 1      |         | $      | -                 |   | $            | -      |   | $ | 2 |   | $ | 8 |   |
|                                                                                                                       |   |                  |   |         |   |         |   |         |   |         |   |              |   |         |   |   |   |   |   |   |   |   |
| **All                Other:**                                                                                              |   |                  |   |         |   |         |   |         |   |         |   |              |   |         |   |   |   |   |   |   |   |   |
| Prices                Actively Quoted - Exchange Traded Contracts                                                |   | $                     | 4      |         | $      | -            |   | $            | -      |         | $      | -                 |   | $            | -      |   | $ | - |   | $ | 4 |   |
| Prices                Provided by Other External Sources                -                  OTC Broker Quotes (a)      |   |                  | (3     | )            |   | -            |   |         | -      |         |   | -                 |   |         | -      |   |   | - |   |   | (3 | ) |
| Prices                Based on Models and Other Valuation                Methods (b)                                       |   |                  | -      |         |   | (1           | )      |         | (4     | )            |   | (4                | )      |         | 2      |   |   | - |   |   | (7 | ) |
| **Total**                                                                                                                  |   | $                     | 1      |         | $      | (1           | )      | $            | (4     | )            | $      | (4                | )      | $            | 2      |   | $ | - |   | $ | (6 | ) |
|                                                                                                                       |   |                  |   |         |   |         |   |         |   |         |   |              |   |         |   |   |   |   |   |   |   |   |
| **Total:**                                                                                                                 |   |                  |   |         |   |         |   |         |   |         |   |              |   |         |   |   |   |   |   |   |   |   |
| Prices                Actively Quoted - Exchange Traded                Contracts                                 |   | $                     | 13     |         | $      | (3           | )      | $            | 3      |         | $      | -                 |   | $            | -      |   | $ | - |   | $ | 13 |   |
| Prices                Provided by Other External Sources                -                  OTC Broker Quotes (a)      |   |                  | 79     |         |   | 58           |   |         | 34     |         |   | 14                |   |         | -      |   |   | - |   |   | 185 |   |
| Prices                Based on Models and Other Valuation                Methods (b)                                       |   |                  | (15    | )            |   | (2           | )      |         | 4      |         |   | 13                |   |         | 6      |   |   | 7 |   |   | 13 |   |
| **Total**                                                                                                                  |   | $                     | 77     |         | $      | 53           |   | $            | 41     |         | $      | 27                |   | $            | 6      |   | $ | 7 |   | $ | 211 |   |

| (a)    | Prices                Provided by Other External Sources - OTC Broker Quotes reflects                information obtained from over-the-counter brokers (OTC), industry                services, or multiple-party online platforms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)    | Prices                Based on Models and Other Valuation Methods is used in the absence                of                pricing information from external sources. Modeled information is                derived                using valuation models developed by the reporting entity, reflecting                when                appropriate, option pricing theory, discounted cash flow concepts,                valuation adjustments, etc. and may require projection of prices                for                underlying commodities beyond the period that prices are available                from                third-party sources. In addition, where external pricing information                or                market liquidity is limited, such valuations are classified as                modeled. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | Contract                values that are measured using models or valuation methods other                than                active quotes or OTC broker quotes (because of the lack of such data                for                all delivery quantities, locations and periods) incorporate in the                model                or other valuation methods, to the extent possible, OTC broker quotes                and                active quotes for deliveries in years and at locations for which                such                quotes are available.                                                                                                                                                                                                                                                       |

**Maximum      Tenor of the Liquid Portion of Risk Management Contracts**

**As      of March 31, 2007**

| **Commodity**              |   | **Transaction                Class**           |                                   | **Market/Region**                                          |   | **Tenor**                      |
|----------------------------|--------|------------------------------------------------|----------------------------------------|------------------------------------------------------------|--------|--------------------------------|
|                       |   |                                           |                                   |                                                       |   | **(in                Months)** |
| Natural                Gas |   | Futures                                        |                                   | NYMEX                / Henry Hub                           |   | 60                             |
|                       |   |                                           |                                   |                                                       |   |                           |
|                       |   | Physical                Forwards               |                                   | Gulf                Coast, Texas                           |   | 19                             |
|                       |   |                                           |                                   |                                                       |   |                           |
|                       |   | Swaps                                          |                                   | Northeast,                Mid-Continent, Gulf Coast, Texas |   | 19                             |
|                       |   |                                           |                                   |                                                       |   |                           |
|                       |   | Exchange                Option Volatility      |                                   | NYMEX                / Henry Hub                           |   | 12                             |
|                       |   |                                           |                                   |                                                       |   |                           |
| Power                      |   | Futures                                        |                                   | AEP                East - PJM                              |   | 33                             |
|                       |   |                                           |                                   |                                                       |   |                           |
|                       |   | Physical                Forwards               |                                   | AEP                East                                    |   | 45                             |
|                       |   |                                           |                                   |                                                       |   |                           |
|                       |   | Physical                Forwards               |                                   | AEP                West                                    |   | 33                             |
|                       |   |                                           |                                   |                                                       |   |                           |
|                       |   | Physical                Forwards               |                                   | West                Coast                                  |   | 33                             |
|                       |   |                                           |                                   |                                                       |   |                           |
|                       |   | Peak                Power Volatility (Options) | AEP                East - Cinergy, PJM |                                                       | 12     |
|                       |   |                                           |                                   |                                                       |   |                           |
| Emissions                  |   | Credits                                        |                                   | SO2,                NOx                                    |   | 33                             |
|                       |   |                                           |                                   |                                                       |   |                           |
| Coal                       |   | Physical                Forwards               |                                   | PRB,                NYMEX, CSX                             |   | 33                             |

**Cash      Flow Hedges Included in Accumulated Other Comprehensive Income (Loss) (AOCI)      on      the Condensed Consolidated Balance Sheets**

**Total      Accumulated Other Comprehensive Income (Loss) Activity for Cash Flow      Hedges**

**Three      Months Ended March 31, 2007**

**(in      millions)**

|                                                                                                                                    |   |  **Power** |   |  **Interest                Rate and****Foreign****Currency** |   |  **Total** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|--------|-------------------------------------------------------------------|--------|-----------------|--------|
| **Beginning                Balance in AOCI, December 31, 2006**                                                                         |   | $               | 17     |                                                              | $      | (23             | )      | $ | (6 | ) |
| Changes                in Fair Value                                                                                                    |   |            | (15    | )                                                                 |   | -               |   |   | (15 | ) |
| Reclassifications                from AOCI to Net Income for  Cash                Flow Hedges Settled                         |   |            | (7     | )                                                                 |   | -               |   |   | (7 | ) |
| **Ending                Balance in AOCI, March 31, 2007**                                                                               |   | $               | (5     | )                                                                 | $      | (23             | )      | $ | (28 | ) |
|                                                                                                                                    |   |            |   |                                                              |   |            |   |   |   |   |
| **After                Tax Portion Expected to be Reclassified ****                  to Earnings During Next 12 Months** |   | $               | (10    | )                                                                 | $      | (1              | )      | $ | (11 | ) |

**Credit      Risk**

| **Counterparty                Credit Quality**   |   | **Exposure                Before Credit Collateral** |   | **Credit                Collateral** |   | **Net                Exposure** |   | **Number                of Counterparties >10% of****Net                Exposure** |   | **Net                Exposure of Counterparties >10%** |   |
|--------------------------------------------------|--------|------------------------------------------------------|--------|--------------------------------------|--------|---------------------------------|--------|---------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|--------|
| Investment                Grade                  |   | $                                                    | 665    |                                 | $      | 102                             |   | $                                                                                     | 563    |                                                      |   | 1 |   | $ | 72 |   |
| Split                Rating                      |   |                                                 | 7      |                                 |   | 2                               |   |                                                                                  | 5      |                                                      |   | 2 |   |   | 4 |   |
| Noninvestment                Grade               |   |                                                 | 7      |                                 |   | -                               |   |                                                                                  | 7      |                                                      |   | 2 |   |   | 7 |   |
| No                External Ratings:              |   |                                                 |   |                                 |   |                            |   |                                                                                  |   |                                                      |   |   |   |   |   |   |
| Internal                Investment Grade         |   |                                                 | 15     |                                 |   | -                               |   |                                                                                  | 15     |                                                      |   | 3 |   |   | 11 |   |
| Internal                Noninvestment Grade      |   |                                                 | 45     |                                 |   | 33                              |   |                                                                                  | 12     |                                                      |   | 2 |   |   | 8 |   |
| **Total                as of March 31, 2007**    |   | $                                                    | 739    |                                 | $      | 137                             |   | $                                                                                     | 602    |                                                      |   | 10 |   | $ | 102 |   |
|                                             |   |                                                 |   |                                 |   |                            |   |                                                                                  |   |                                                      |   |   |   |   |   |   |
| **Total                as of December 31, 2006** |   | $                                                    | 998    |                                 | $      | 161                             |   | $                                                                                     | 837    |                                                      |   | 9 |   | $ | 169 |   |

**Generation      Plant Hedging Information**

**Generation      Plant Hedging Information**

**Estimated      Next Three Years**

**As      of March 31, 2007**

|                                         | **Remainder** |   |     |   |     |
|----------------------------------------------|---------------|--------|----------|--------|----------|
|                                         | **2007**      |   | **2008** |   | **2009** |
| Estimated                Plant Output Hedged | 93%           |   | 89%      |   | 90%      |

**VaR      Associated with Risk Management Contracts**

***Commodity      Price Risk***

**VaR      Model**

| **Three                Months Ended****March                31, 2007** |   |     |   |        | **Twelve                Months Ended****December                31, 2006** |
|------------------------------------------------------------------------|--------|----------|--------|-------------|----------------------------------------------------------------------------|
| **(in                millions)**                                       |   |     |   |        | **(in                millions)**                                           |
| **End**                                                                |   | **High** |   | **Average** |                                                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $2                                                                     |   | $6       |   | $2          |                                                                       | $1 |   |   |   |   | $3 |   | $10 |   | $3 |   | $1 |

***Interest      Rate Risk***

----

**AMERICAN      ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF INCOME**

**For      the Three Months Ended March 31, 2007 and 2006**

**(in      millions, except per-share amounts and shares outstanding)**

**(Unaudited)**

|                                                                                                                             |   | **2007** |        | **2006** |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|----------|-------------|----------|--------|
| **REVENUES**                                                                                                                     |   |     |        |     |   |
| Utility                Operations                                                                                                |   | $        | 2,886       |     | $      | 2,982 |   |
| Other                                                                                                                            |   |     | 283         |     |   | 126 |   |
| **TOTAL**                                                                                                                        |   |     | 3,169       |     |   | 3,108 |   |
|                                                                                                                             |   |     |        |     |   |   |   |
| **EXPENSES**                                                                                                                     |   |     |        |     |   |   |   |
| Fuel                and Other Consumables Used for Electric Generation                                                           |   |     | 886         |     |   | 961 |   |
| Purchased                Energy for Resale                                                                                       |   |     | 246         |     |   | 166 |   |
| Other                Operation and Maintenance                                                                                   |   |     | 938         |     |   | 821 |   |
| Gain/Loss                on Disposition of Assets, Net                                                                           |   |     | (23         | )        |   | (68 | ) |
| Depreciation                and Amortization                                                                                     |   |     | 391         |     |   | 348 |   |
| Taxes                Other Than Income Taxes                                                                                     |   |     | 186         |     |   | 191 |   |
| **TOTAL**                                                                                                                        |   |     | 2,624       |     |   | 2,419 |   |
|                                                                                                                             |   |     |        |     |   |   |   |
| **OPERATING                INCOME**                                                                                              |   |     | 545         |     |   | 689 |   |
|                                                                                                                             |   |     |        |     |   |   |   |
| Interest                and Investment Income                                                                                    |   |     | 23          |     |   | 8 |   |
| Carrying                Costs Income                                                                                             |   |     | 8           |     |   | 30 |   |
| Allowance                For Equity Funds Used During Construction                                                               |   |     | 8           |     |   | 6 |   |
| Gain                on Disposition of Equity Investments, Net                                                                    |   |     | -           |     |   | 3 |   |
|                                                                                                                             |   |     |        |     |   |   |   |
| **INTEREST                AND OTHER CHARGES**                                                                                    |   |     |        |     |   |   |   |
| Interest                Expense                                                                                                  |   |     | 186         |     |   | 168 |   |
| Preferred                Stock Dividend Requirements of Subsidiaries                                                             |   |     | 1           |     |   | 1 |   |
| **TOTAL**                                                                                                                        |   |     | 187         |     |   | 169 |   |
|                                                                                                                             |   |     |        |     |   |   |   |
| **INCOME                BEFORE INCOME TAX EXPENSE, MINORITY****  INTEREST                EXPENSE AND EQUITY EARNINGS** |   |     | 397         |     |   | 567 |   |
|                                                                                                                             |   |     |        |     |   |   |   |
| Income                Tax Expense                                                                                                |   |     | 130         |     |   | 189 |   |
| Minority                Interest Expense                                                                                         |   |     | 1           |     |   | - |   |
| Equity                Earnings of Unconsolidated Subsidiaries                                                                    |   |     | 5           |     |   | - |   |
|                                                                                                                             |   |     |        |     |   |   |   |
| **INCOME                BEFORE DISCONTINUED OPERATIONS**                                                                         |   |     | 271         |     |   | 378 |   |
|                                                                                                                             |   |     |        |     |   |   |   |
| **DISCONTINUED                OPERATIONS, Net of Tax**                                                                           |   |     | -           |     |   | 3 |   |
|                                                                                                                             |   |     |        |     |   |   |   |
| **NET                INCOME**                                                                                                    |   | $        | 271         |     | $      | 381 |   |
|                                                                                                                             |   |     |        |     |   |   |   |
| **WEIGHTED                AVERAGE NUMBER OF BASIC SHARES OUTSTANDING**                                                           |   |     | 397,314,642 |     |   | 393,653,162 |   |
|                                                                                                                             |   |     |        |     |   |   |   |
| **BASIC                EARNINGS PER SHARE**                                                                                      |   |     |        |     |   |   |   |
| Income                Before Discontinued Operations                                                                             |   | $        | 0.68        |     | $      | 0.96 |   |
| Discontinued                Operations, Net of Tax                                                                               |   |     | -           |     |   | 0.01 |   |
| **TOTAL                BASIC EARNINGS PER SHARE**                                                                                |   | $        | 0.68        |     | $      | 0.97 |   |
|                                                                                                                             |   |     |        |     |   |   |   |
| **WEIGHTED                AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING**                                                         |   |     | 398,552,113 |     |   | 395,580,106 |   |
|                                                                                                                             |   |     |        |     |   |   |   |
| **DILUTED                EARNINGS PER SHARE**                                                                                    |   |     |        |     |   |   |   |
| Income                Before Discontinued Operations                                                                             |   | $        | 0.68        |     | $      | 0.95 |   |
| Discontinued                Operations, Net of Tax                                                                               |   |     | -           |     |   | 0.01 |   |
| **TOTAL                DILUTED EARNINGS PER SHARE**                                                                              |   | $        | 0.68        |     | $      | 0.96 |   |
|                                                                                                                             |   |     |        |     |   |   |   |
| **CASH                DIVIDENDS PAID PER SHARE**                                                                                 |   | $        | 0.39        |     | $      | 0.37 |   |
|                                                                                                                             |   |     |        |     |   |   |   |

*See      Condensed Notes to Condensed Consolidated Financial      Statements.*

----

**AMERICAN      ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**March      31, 2007 and December 31, 2006**

**(in      millions)**

**(Unaudited)**

|                                                           |   | **2007**     |    | **2006**     |   |
|----------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **CURRENT                ASSETS**                              |   |    |    |    |   |
| Cash                and Cash Equivalents                       |   | $            | 259     |         | $      | 301 |   |
| Other                Temporary Cash Investments                |   |         | 197     |         |   | 425 |   |
| Accounts                Receivable:                            |   |         |    |         |   |   |   |
| Customers                                                      |   |         | 757     |         |   | 676 |   |
| Accrued                Unbilled Revenues                       |   |         | 304     |         |   | 350 |   |
| Miscellaneous                                                  |   |         | 59      |         |   | 44 |   |
| Allowance                for Uncollectible Accounts            |   |         | (31     | )            |   | (30 | ) |
|                   Total Accounts Receivable          |   |         | 1,089   |         |   | 1,040 |   |
| Fuel,                Materials and Supplies                    |   |         | 942     |         |   | 913 |   |
| Risk                Management Assets                          |   |         | 476     |         |   | 680 |   |
| Regulatory                Asset for Under-Recovered Fuel Costs |   |         | 22      |         |   | 38 |   |
| Margin                Deposits                                 |   |         | 88      |         |   | 120 |   |
| Prepayments                and Other                           |   |         | 90      |         |   | 71 |   |
| **TOTAL**                                                      |   |         | 3,163   |         |   | 3,588 |   |
|                                                           |   |         |    |         |   |   |   |
| **PROPERTY,                PLANT AND EQUIPMENT**               |   |         |    |         |   |   |   |
| Electric:                                                      |   |         |    |         |   |   |   |
| Production                                                     |   |         | 17,736  |         |   | 16,787 |   |
| Transmission                                                   |   |         | 7,094   |         |   | 7,018 |   |
| Distribution                                                   |   |         | 11,539  |         |   | 11,338 |   |
| Other                (including coal mining and nuclear fuel)  |   |         | 3,423   |         |   | 3,405 |   |
| Construction                Work in Progress                   |   |         | 2,902   |         |   | 3,473 |   |
| **Total**                                                      |   |         | 42,694  |         |   | 42,021 |   |
| Accumulated                Depreciation and Amortization       |   |         | (15,391 | )            |   | (15,240 | ) |
| **TOTAL                - NET**                                 |   |         | 27,303  |         |   | 26,781 |   |
|                                                           |   |         |    |         |   |   |   |
| **OTHER                NONCURRENT ASSETS**                     |   |         |    |         |   |   |   |
| Regulatory                Assets                               |   |         | 2,385   |         |   | 2,477 |   |
| Securitized                Transition Assets                   |   |         | 2,134   |         |   | 2,158 |   |
| Spent                Nuclear Fuel and Decommissioning Trusts   |   |         | 1,263   |         |   | 1,248 |   |
| Goodwill                                                       |   |         | 76      |         |   | 76 |   |
| Long-term                Risk Management Assets                |   |         | 351     |         |   | 378 |   |
| Employee                Benefits and Pension Assets            |   |         | 316     |         |   | 327 |   |
| Deferred                Charges and Other                      |   |         | 945     |         |   | 910 |   |
| **TOTAL**                                                      |   |         | 7,470   |         |   | 7,574 |   |
|                                                           |   |         |    |         |   |   |   |
| **Assets                Held for Sale**                        |   |         | -       |         |   | 44 |   |
|                                                           |   |         |    |         |   |   |   |
| **TOTAL                ASSETS**                                |   | $            | 37,936  |         | $      | 37,987 |   |

*See      Condensed Notes to Condensed Consolidated Financial      Statements.*

----

**AMERICAN      ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**LIABILITIES      AND SHAREHOLDERS’ EQUITY**

**March      31, 2007 and December 31, 2006**

**(Unaudited)**

|                                                                                             |   |                             |        |   |   | **2007**    |   | **2006** |   |
|--------------------------------------------------------------------------------------------------|--------|----------------------------------|-------------|--------|--------|-------------|--------|----------|--------|
| **CURRENT                LIABILITIES**                                                           |   | **(in                millions)** |        |
| Accounts                Payable                                                                  | $      | 1,263                            |        | $      | 1,360  |        |
| Short-term                Debt                                                                   |   | 175                              |        |   | 18     |        |
| Long-term                Debt Due Within One Year                                                |   | 1,377                            |        |   | 1,269  |        |
| Risk                Management Liabilities                                                       |   | 403                              |        |   | 541    |        |
| Customer                Deposits                                                                 |   | 315                              |        |   | 339    |        |
| Accrued                Taxes                                                                     |   | 758                              |        |   | 781    |        |
| Accrued                Interest                                                                  |   | 247                              |        |   | 186    |        |
| Other                                                                                            |   | 770                              |        |   | 962    |        |
| **TOTAL**                                                                                        |   | 5,308                            |        |   | 5,456  |        |
|                                                                                             |   |                             |        |   |   |        |
| **NONCURRENT                LIABILITIES**                                                        |   |                             |        |   |   |        |
| Long-term                Debt                                                                    |   | 12,525                           |        |   | 12,429 |        |
| Long-term                Risk Management Liabilities                                             |   | 219                              |        |   | 260    |        |
| Deferred                Income Taxes                                                             |   | 4,581                            |        |   | 4,690  |        |
| Regulatory                Liabilities and Deferred Investment Tax Credits                        |   | 2,759                            |        |   | 2,910  |        |
| Asset                Retirement Obligations                                                      |   | 1,035                            |        |   | 1,023  |        |
| Employee                Benefits and Pension Obligations                                         |   | 829                              |        |   | 823    |        |
| Deferred                Gain on Sale and Leaseback - Rockport Plant Unit 2                       |   | 146                              |        |   | 148    |        |
| Deferred                Credits and Other                                                        |   | 933                              |        |   | 775    |        |
| **TOTAL**                                                                                        |   | 23,027                           |        |   | 23,058 |        |
|                                                                                             |   |                             |        |   |   |        |
| **TOTAL                LIABILITIES**                                                             |   | 28,335                           |        |   | 28,514 |        |
|                                                                                             |   |                             |        |   |   |        |
| Cumulative                Preferred Stock Not Subject to Mandatory Redemption                    |   | 61                               |        |   | 61     |        |
|                                                                                             |   |                             |        |   |   |        |
| Commitments                and Contingencies (Note 4)                                            |   |                             |        |   |   |        |
|                                                                                             |   |                             |        |   |   |        |
| **COMMON                SHAREHOLDERS’ EQUITY**                                             |   |                             |        |   |   |        |
| Common                Stock Par Value $6.50:                                                     |   |                             |        |   |   |        |
|                                                                                             |   |                             | 2007        |   |   | 2006        |   |     |   |   |   |   |   |
| Shares                Authorized                                                                 |   |                             | 600,000,000 |   |   | 600,000,000 |   |     |   |   |   |   |   |
| Shares                Issued                                                                     |   |                             | 419,667,962 |   |   | 418,174,728 |   |     |   |   |   |   |   |
| (21,499,992                shares were held in treasury at March 31, 2007 and December 31, 2006) |   | 2,728                            |        |   | 2,718  |        |
| Paid-in                Capital                                                                   |   | 4,270                            |        |   | 4,221  |        |
| Retained                Earnings                                                                 |   | 2,795                            |        |   | 2,696  |        |
| Accumulated                Other Comprehensive Income (Loss)                                     |   | (253                             | )           |   | (223   | )           |
| **TOTAL**                                                                                        |   | 9,540                            |        |   | 9,412  |        |
|                                                                                             |   |                             |        |   |   |        |
| **TOTAL                LIABILITIES AND SHAREHOLDERS’ EQUITY**                              | $      | 37,936                           |        | $      | 37,987 |        |

*See      Condensed Notes to Condensed Consolidated Financial      Statements.*

----

**AMERICAN      ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For      the Three Months Ended March 31, 2007 and 2006**

**(in      millions)**

**(Unaudited)**

|                                                                                                |   | **2007**     |   | **2006**     |   |
|-----------------------------------------------------------------------------------------------------|--------|--------------|--------|--------------|--------|
| **OPERATING                ACTIVITIES**                                                             |   |    |   |    |   |
| **Net                Income**                                                                       |   | $            | 271    |         | $      | 381 |   |
| Less:                Discontinued Operations, Net of Tax                                            |   |         | -      |         |   | (3 | ) |
| **Income                before Discontinued Operations**                                            |   |         | 271    |         |   | 378 |   |
| **Adjustments                for Noncash Items:**                                                   |   |         |   |         |   |   |   |
| Depreciation                and Amortization                                                        |   |         | 391    |         |   | 348 |   |
| Deferred                Income Taxes                                                                |   |         | 5      |         |   | 7 |   |
| Deferred                Investment Tax Credits                                                      |   |         | (6     | )            |   | (7 | ) |
| Carrying                Costs Income                                                                |   |         | (8     | )            |   | (30 | ) |
| Mark-to-Market                of Risk Management Contracts                                          |   |         | 22     |         |   | (9 | ) |
| Amortization                of Nuclear Fuel                                                         |   |         | 16     |         |   | 14 |   |
| Deferred                Property Taxes                                                              |   |         | (67    | )            |   | (82 | ) |
| Fuel                Over/Under-Recovery, Net                                                        |   |         | (62    | )            |   | 103 |   |
| Gain                on Sales of Assets and Equity Investments, Net                                  |   |         | (23    | )            |   | (71 | ) |
| Change                in Other Noncurrent Assets                                                    |   |         | 44     |         |   | 45 |   |
| Change                in Other Noncurrent Liabilities                                               |   |         | 16     |         |   | 10 |   |
| **Changes                in Certain Components of Working Capital:**                                |   |         |   |         |   |   |   |
| Accounts                Receivable, Net                                                             |   |         | (29    | )            |   | 214 |   |
| Fuel,                Materials and Supplies                                                         |   |         | (3     | )            |   | (50 | ) |
| Margin                Deposits                                                                      |   |         | 33     |         |   | 50 |   |
| Accounts                Payable                                                                     |   |         | (31    | )            |   | (115 | ) |
| Accrued                Taxes                                                                        |   |         | 32     |         |   | 176 |   |
| Customer                Deposits                                                                    |   |         | (23    | )            |   | (157 | ) |
| Other                Current Assets                                                                 |   |         | (40    | )            |   | 19 |   |
| Other                Current Liabilities                                                            |   |         | (187   | )            |   | (260 | ) |
| **Net                Cash Flows From Operating Activities**                                         |   |         | 351    |         |   | 583 |   |
|                                                                                                |   |         |   |         |   |   |   |
| **INVESTING                ACTIVITIES**                                                             |   |         |   |         |   |   |   |
| Construction                Expenditures                                                            |   |         | (907   | )            |   | (765 | ) |
| Change                in Other Temporary Cash Investments, Net                                      |   |         | (20    | )            |   | 27 |   |
| Purchases                of Investment Securities                                                   |   |         | (3,693 | )            |   | (2,469 | ) |
| Sales                of Investment Securities                                                       |   |         | 3,929  |         |   | 2,380 |   |
| Proceeds                from Sales of Assets                                                        |   |         | 68     |         |   | 111 |   |
| Other                                                                                               |   |         | (5     | )            |   | (34 | ) |
| **Net                Cash Flows Used For Investing Activities**                                     |   |         | (628   | )            |   | (750 | ) |
|                                                                                                |   |         |   |         |   |   |   |
| **FINANCING                ACTIVITIES**                                                             |   |         |   |         |   |   |   |
| Issuance                of Common Stock                                                             |   |         | 54     |         |   | 5 |   |
| Change                in Short-term Debt, Net                                                       |   |         | 157    |         |   | 216 |   |
| Issuance                of Long-term Debt                                                           |   |         | 247    |         |   | 55 |   |
| Retirement                of Long-term Debt                                                         |   |         | (49    | )            |   | (142 | ) |
| Dividends                Paid on Common Stock                                                       |   |         | (155   | )            |   | (146 | ) |
| Other                                                                                               |   |         | (19    | )            |   | 54 |   |
| **Net                Cash Flows From Financing Activities**                                         |   |         | 235    |         |   | 42 |   |
|                                                                                                |   |         |   |         |   |   |   |
| **Net                Decrease in Cash and Cash Equivalents**                                        |   |         | (42    | )            |   | (125 | ) |
| **Cash                and Cash Equivalents at Beginning of Period**                                 |   |         | 301    |         |   | 401 |   |
| **Cash                and Cash Equivalents at End of Period**                                       |   | $            | 259    |         | $      | 276 |   |
|                                                                                                |   |         |   |         |   |   |   |
| **SUPPLEMENTARY                INFORMATION**                                                        |   |         |   |         |   |   |   |
| Cash                Paid for Interest, Net of Capitalized Amounts                                   |   | $            | 152    |         | $      | 159 |   |
| Net                Cash Paid for Income Taxes                                                       |   |         | 66     |         |   | 13 |   |
| Noncash                Acquisitions Under Capital Leases                                            |   |         | 11     |         |   | 20 |   |
| Construction                Expenditures Included in Accounts Payable at March 31,                  |   |         | 323    |         |   | 246 |   |
|                                                                                                |   |         |   |         |   |   |   |
| *See                Condensed Notes to Condensed Consolidated Financial                Statements.* |   |         |   |         |   |   |   |

----

**AMERICAN      ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS’ EQUITY      AND**

**COMPREHENSIVE      INCOME (LOSS)**

**For      the Three Months Ended March 31, 2007 and 2006**

**(in      millions)**

**(Unaudited)**

|                                                       |                                                            | **Common                Stock** |   |       |   |                               |   | **Accumulated                Other Comprehensive Income (Loss)** |   |   |      |
|------------------------------------------------------------|-----------------------------------------------------------------|---------------------------------|--------|------------|--------|------------------------------------|--------|------------------------------------------------------------------|--------|--------|-----------|
|                                                       |                                                            | **Shares**                      |   | **Amount** |   | **Paid-in                Capital** |   | **Retained                Earnings**                             |   |   | **Total** |   |
| **DECEMBER                31, 2005**                       |                                                            |                            | 415    |       | $      | 2,699                              |   | $                                                                | 4,131  |   | $         | 2,285 |   | $ | (27 | ) | $ | 9,088 |   |
| Issuance                of Common Stock                    |                                                            |                            |   |       |   | 1                                  |   |                                                             | 4      |   |      |   |   |   |   |   |   | 5 |   |
| Common                Stock Dividends                      |                                                            |                            |   |       |   |                               |   |                                                             |   |   |      | (146 | ) |   |   |   |   | (146 | ) |
| Other                                                      |                                                            |                            |   |       |   |                               |   |                                                             | 2      |   |      |   |   |   |   |   |   | 2 |   |
| **TOTAL**                                                  |                                                            |                            |   |       |   |                               |   |                                                             |   |   |      |   |   |   |   |   |   | 8,949 |   |
|                                                       |                                                            |                            |   |       |   |                               |   |                                                             |   |   |      |   |   |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                    |                                                            |                            |   |       |   |                               |   |                                                             |   |   |      |   |   |   |   |   |   |   |   |
| **Other                Comprehensive Income, Net of Tax:** |                                                            |                            |   |       |   |                               |   |                                                             |   |   |      |   |   |   |   |   |   |   |   |
|                                                       | Cash                Flow Hedges, Net of Tax of $19              |                            |   |       |   |                               |   |                                                             |   |   |      |   |   |   |   | 35 |   |   | 35 |   |
|                                                       | Securities                Available for Sale, Net of Tax of $10 |                            |   |       |   |                               |   |                                                             |   |   |      |   |   |   |   | 19 |   |   | 19 |   |
| **NET                INCOME**                              |                                                            |                            |   |       |   |                               |   |                                                             |   |   |      | 381 |   |   |   |   |   | 381 |   |
| **TOTAL                COMPREHENSIVE INCOME**              |                                                            |                            |   |       |   |                               |   |                                                             |   |   |      |   |   |   |   |   |   | 435 |   |
| **MARCH                31, 2006**                          |                                                            |                            | 415    |       | $      | 2,700                              |   | $                                                                | 4,137  |   | $         | 2,520 |   | $ | 27 |   | $ | 9,384 |   |
|                                                       |                                                            |                            |   |       |   |                               |   |                                                             |   |   |      |   |   |   |   |   |   |   |   |
| **DECEMBER                31, 2006**                       |                                                            |                            | 418    |       | $      | 2,718                              |   | $                                                                | 4,221  |   | $         | 2,696 |   | $ | (223 | ) | $ | 9,412 |   |
|                                                       |                                                            |                            |   |       |   |                               |   |                                                             |   |   |      |   |   |   |   |   |   |   |   |
| FIN                48 Adoption, Net of Tax                 |                                                            |                            |   |       |   |                               |   |                                                             |   |   |      | (17 | ) |   |   |   |   | (17 | ) |
| Issuance                of Common Stock                    |                                                            |                            | 2      |       |   | 10                                 |   |                                                             | 44     |   |      |   |   |   |   |   |   | 54 |   |
| Common                Stock Dividends                      |                                                            |                            |   |       |   |                               |   |                                                             |   |   |      | (155 | ) |   |   |   |   | (155 | ) |
| Other                                                      |                                                            |                            |   |       |   |                               |   |                                                             | 5      |   |      |   |   |   |   |   |   | 5 |   |
| **TOTAL**                                                  |                                                            |                            |   |       |   |                               |   |                                                             |   |   |      |   |   |   |   |   |   | 9,299 |   |
|                                                       |                                                            |                            |   |       |   |                               |   |                                                             |   |   |      |   |   |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                    |                                                            |                            |   |       |   |                               |   |                                                             |   |   |      |   |   |   |   |   |   |   |   |
| **Other                Comprehensive Loss, Net of Tax:**   |                                                            |                            |   |       |   |                               |   |                                                             |   |   |      |   |   |   |   |   |   |   |   |
|                                                       | Cash                Flow Hedges, Net of Tax of $12              |                            |   |       |   |                               |   |                                                             |   |   |      |   |   |   |   | (22 | ) |   | (22 | ) |
|                                                       | Securities                Available for Sale, Net of Tax of $4  |                            |   |       |   |                               |   |                                                             |   |   |      |   |   |   |   | (8 | ) |   | (8 | ) |
| **NET                INCOME**                              |                                                            |                            |   |       |   |                               |   |                                                             |   |   |      | 271 |   |   |   |   |   | 271 |   |
| **TOTAL                COMPREHENSIVE INCOME**              |                                                            |                            |   |       |   |                               |   |                                                             |   |   |      |   |   |   |   |   |   | 241 |   |
| **MARCH                31, 2007**                          |                                                            |                            | 420    |       | $      | 2,728                              |   | $                                                                | 4,270  |   | $         | 2,795 |   | $ | (253 | ) | $ | 9,540 |   |

*        See Condensed Notes to Condensed Consolidated Financial      Statements.*

----

**AMERICAN      ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES**

**INDEX      TO CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL      STATEMENTS**

|     |                                                                                                       |
|----------|------------------------------------------------------------------------------------------------------------|
|  1. | Significant                Accounting Matters                                                              |
|  2. | New                Accounting Pronouncements                                                               |
| 3.       | Rate                Matters                                                                                |
|  4. | Commitments,                Guarantees and Contingencies                                                   |
| 5.       | Acquisitions,                Dispositions, Discontinued Operations and Assets Held for                Sale |
| 6.       | Benefit                Plans                                                                               |
| 7.       | Business                Segments                                                                           |
| 8.       | Income                Taxes                                                                                |
| 9.       | Financing                Activities                                                                        |

----

**AMERICAN      ELECTRIC POWER COMPANY, INC. AND SUBSIDIARY COMPANIES**

**CONDENSED      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**              1.**
**SIGNIFICANT      ACCOUNTING MATTERS**

***General***

***Components      of Accumulated Other Comprehensive Income (Loss)      (AOCI)***

|                                                     |   | **March                31,**     |   | **December                31,** |   |
|----------------------------------------------------------|--------|----------------------------------|--------|---------------------------------|--------|
|                                                     |   | **2007**                         |   | **2006**                        |   |
| **Components**                                           |   | **(in                millions)** |   |
| Securities                Available for Sale, Net of Tax |   | $                                | 10     |                            | $      | 18 |   |
| Cash                Flow Hedges, Net of Tax              |   |                             | (28    | )                               |   | (6 | ) |
| SFAS                158 Adoption, Net of Tax             |   |                             | (235   | )                               |   | (235 | ) |
| **Total**                                                |   | $                                | (253   | )                               | $      | (223 | ) |

***Earnings      Per Share (EPS)***

|                                                            |   | **Three                Months Ended March 31,**         |   |
|-----------------------------------------------------------------|--------|---------------------------------------------------------|--------|
|                                                            |   | **2007**                                                |   | **2006** |   |
|                                                            |   | **(in                millions, except per share data)** |   |
|                                                            |   |                                               |   | **$/share** |   |    |   | **$/share** |   |
| **Earnings                Applicable to Common Stock**          |   | $                                                       | 271    |   |   |   |   | $ | 381 |   |   |   |   |
|                                                            |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Average                Number of Basic Shares Outstanding       |   |                                                    | 397.3  |   | $ | 0.68 |   |   | 393.7 |   | $ | 0.97 |   |
| Average                Dilutive Effect of:                      |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Performance                Share Units                          |   |                                                    | 0.6    |   |   | - |   |   | 1.4 |   |   | (0.01 | ) |
| Stock                Options                                    |   |                                                    | 0.5    |   |   | - |   |   | 0.3 |   |   | - |   |
| Restricted                Stock Units                           |   |                                                    | 0.1    |   |   | - |   |   | 0.1 |   |   | - |   |
| Restricted                Shares                                |   |                                                    | 0.1    |   |   | - |   |   | 0.1 |   |   | - |   |
| **Average                Number of Diluted Shares Outstanding** |   |                                                    | 398.6  |   | $ | 0.68 |   |   | 395.6 |   | $ | 0.96 |   |

***Supplementary      Information***

|                                                                                                                                                                                        |   | **Three                Months Ended****March                31,** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|
|                                                                                                                                                                                        |   | **2007**                                                          |   | **2006** |   |
| **Related                Party Transactions**                                                                                                                                               |   | **(in                millions)**                                  |   |
| AEP                Consolidated Purchased Energy:                                                                                                                                           |   |                                                         |   |    |   |
| Ohio                Valley Electric Corporation (43.47% Owned)                                                                                                                              |   | $                                                                 | 49     |   | $ | 55 |   |
| Sweeny                Cogeneration Limited Partnership (50% Owned)                                                                                                                          |   |                                                              | 30     |   |   | 34 |   |
| AEP                Consolidated Other Revenues - Barging and Other                  Transportation Services - Ohio Valley Electric Corporation (43.47%                Owned) |   |                                                              | 9      |   |   | 7 |   |

***Reclassifications***

**              2.**
**NEW      ACCOUNTING PRONOUNCEMENTS**

***SFAS      157 “Fair Value Measurements” (SFAS 157)***

***SFAS      159 “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS      159)***

***FIN      48 “Accounting for Uncertainty in Income Taxes” and FASB Staff Position FIN 48-1      "Definition of Settlement in FASB Interpretation No.      48"***

*Settlement*

***Future      Accounting Changes***

**              3.**
**RATE      MATTERS**
** **

**Ohio      Rate Matters **

***Ohio      Restructuring and Rate Stabilization Plans***

***Customer      Choice Deferrals***

***IGCC      Plant***

***Distribution      Reliability Plan***

***Ormet***

**Texas      Rate Matters**

**TCC      TEXAS RESTRUCTURING **

***Texas      District Court Appeal Proceedings***

| · | The                PUCT ruling that TCC did not comply with the statute and PUCT rules                regarding the required auction of 15% of its Texas jurisdictional                installed capacity, which led to a significant disallowance of capacity                auction true-up revenues,                                                                                                                                                                                                                                 |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | The                PUCT ruling that TCC acted in a manner that was commercially unreasonable,                because it failed to determine a minimum price at which it would                reject                bids for the sale of its nuclear generating plant and it bundled                out of                the money gas units with the sale of its coal unit, which led to                the                disallowance of a significant portion of TCC’s net stranded generation                plant cost, and |
| · | The                two federal matters regarding the allocation of off-system sales                related                to fuel recoveries and the potential tax normalization violation.                See                “TCC                and TNC Deferred Fuel” and“TCC                Deferred Investment Tax Credits and Excess Deferred Federal Income                Taxes”                sections below.                                                                                         |

**OTHER      TEXAS RESTRUCTURING MATTERS**

***TCC      Deferred Investment Tax Credits and Excess Deferred Federal Income      Taxes***

* *

***TCC      and TNC Deferred Fuel***

***Excess      Earnings***

**OTHER      TEXAS RATE MATTERS**

***TCC      and TNC Energy Delivery Base Rate Filings***

** **

***SWEPCo      Fuel Reconciliation - Texas***

**Virginia      Rate Matters**
*** ***

***Virginia      Restructuring***

***APCo      Virginia Base Rate Case***

**West      Virginia Rate Matters**

***APCo      and WPCo ENEC Filing***

***APCo      IGCC***

**Indiana      Rate Matters**

***I&M      Depreciation Study Filing***

**Kentucky      Rate Matters**

***KPCo      Environmental Surcharge Filing***

**Oklahoma      Rate Matters**

***PSO      Fuel and Purchased Power and its Possible Impact on AEP East companies and      AEP      West companies***

** **

***PSO      Rate Filing***

***PSO      Lawton and Peaking Generation Settlement Agreement***

**Louisiana      Rate Matters**

***SWEPCo      Louisiana Compliance Filing***

**FERC      Rate Matters**

***Transmission      Rate Proceedings at the FERC***

*The      FERC PJM Regional Transmission Rate Proceeding *

| · | AEP/AP                proposed a Highway/Byway rate design in which:                                                                                                                                                                                                                                                                                                          |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                                        | The                cost of all transmission facilities in the PJM region operated at                345 kV                or higher would be included in a “Highway” rate that all load serving                entities (LSEs) would pay based on peak demand. The AEP/AP proposal                would                produce about $125 million in additional revenues per year for AEP                from                users in other zones of PJM. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                        | The                cost of transmission facilities operating at lower voltages would                be                collected in the zones where those costs are presently charged under                PJM’s                existing rate design. |
| · | Two                other utilities, Baltimore Gas & Electric Company (BG&E) and Old                Dominion Electric Cooperative (ODEC), proposed a Highway/Byway rate                that                includes transmission facilities above 200 kV, which would produce                lower                revenues for AEP than the AEP/AP proposal.           |
| · | In                another competing Highway/Byway proposal, a group of LSEs proposed                rates                that would include existing 500 kV and higher voltage facilities                and new                facilities above 200 kV in the Highway rate, which would produce                considerably lower revenues for AEP than the AEP/AP proposal. |
| · | In                January 2006, the FERC staff issued testimony and exhibits supporting                a                PJM-wide flat rate or “Postage Stamp” type of rate design that would                include all transmission facilities, which would produce higher                transmission revenues for AEP than the AEP/AP                proposal. |

| · | In                Kentucky, KPCo settled a rate case, which provided for the recovery                of its                share of the transmission revenue reduction in new rates effective                March                30, 2006.                          |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | In                Ohio, CSPCo and OPCo recover their FERC-approved OATT that reflects                their                share of the full transmission revenue requirement retroactive to                April 1,                2006 under a May 2006 PUCO order. |
| · | In                West Virginia, APCo settled a rate case, which provided for the recovery                of its share of the T&O/SECA transmission revenue reduction beginning                July 28, 2006.                                                    |
| · | In                Virginia, APCo filed a request for revised rates, which includes                recovery                of its share of the T&O/SECA transmission revenue reduction starting                October 2, 2006, subject to refund.                |
| · | In                Indiana, I&M is precluded by a rate cap from raising its rates until                July 1, 2007.                                                                                                                                              |
| · | In                Michigan, I&M has not filed to seek recovery of the lost transmission                revenues.                                                                                                                                                 |

*SECA      Revenue Subject to Refund*

|                                            |   | **Gross                SECA Revenues Recognized** |   |
|-------------------------------------------------|--------|---------------------------------------------------|--------|
|                                            |   | **(in                millions)**                  |   |
| Year                Ended December 31, 2006 (a) |   | $                                                 | 43     |   |
| Year                Ended December 31, 2005     |   |                                              | 163    |   |
| Year                Ended December 31, 2004     |   |                                              | 14     |   |

| (a) | Represents                revenues through March 31, 2006, when SECA rates expired, and excludes                all                provisions for refund**.** |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

**              4.**
**COMMITMENTS,      GUARANTEES AND CONTINGENCIES**

**GUARANTEES**

***Letters      Of Credit***

***Guarantees      Of Third-Party Obligations***

*SWEPCo*

***Indemnifications      And Other Guarantees***

*Contracts*

*Master      Operating Lease*

*Railcar      Lease*

**CONTINGENCIES**

***Federal      EPA Complaint and Notice of Violation***

***SWEPCo      Notice of Enforcement and Notice of Citizen Suit***

***Carbon      Dioxide (CO***
***2***

***)      Public Nuisance Claims***

***TEM      Litigation***

***Enron      Bankruptcy***

***Shareholder      Lawsuits***

***Natural      Gas Markets Lawsuits***

***FERC      Long-term Contracts***

**              5.**
**ACQUISITIONS,      DISPOSITIONS, DISCONTINUED OPERATIONS AND ASSETS HELD FOR      SALE**

**ACQUISITIONS**

**2007**

***Darby      Electric Generating Station (Utility Operations      segment)***

***Lawrenceburg      Generating Station (Utility Operations segment)***

**2006**

**DISPOSITIONS**

**2007**

***Texas      Plants - Oklaunion Power Station (Utility Operations      segment)***

***Intercontinental      Exchange, Inc. (ICE) (All Other)***

***Texas        REPs (Utility Operations Segment)***

**2006**

***Compresion      Bajio S de R.L. de C.V. (All Other)***

**DISCONTINUED      OPERATIONS**

**ASSETS      HELD FOR SALE**

***Texas      Plants - Oklaunion Power Station (Utility Operations      segment)***

**Our      Assets Held for Sale were as follows:**

|                                              |   | **March                31,**     |   | **December                31,** |   |
|---------------------------------------------------|--------|----------------------------------|--------|---------------------------------|--------|
|                                              |   | **2007**                         |   | **2006**                        |   |
| **Texas                Plants**                   |   | **(in                millions)** |   |
| Other                Current Assets               |   | $                                | -      |                            | $      | 1 |   |
| Property,                Plant and Equipment, Net |   |                             | -      |                            |   | 43 |   |
| **Total                Assets Held for Sale**     |   | $                                | -      |                            | $      | 44 |   |

**              6.**
**BENEFIT      PLANS**
** **

***Components      of Net Periodic Benefit Cost***

|                                                 |   |                             |   | **Other**                        |   |
|------------------------------------------------------|--------|----------------------------------|--------|----------------------------------|--------|
|                                                 |   |                             |   | **Postretirement**               |   |
|                                                 |   | **Pension                Plans** |   | **Benefit                Plans** |   |
|                                                 |   | **2007**                         |   | **2006**                         |   | **2007** |   | **2006** |   |
|                                                 |   | **(in                millions)** |   |
| Service                Cost                          |   | $                                | 24     |                             | $      | 24 |   | $ | 10 |   | $ | 10 |   |
| Interest                Cost                         |   |                             | 59     |                             |   | 57 |   |   | 26 |   |   | 25 |   |
| Expected                Return on Plan Assets        |   |                             | (85    | )                                |   | (83 | ) |   | (26 | ) |   | (23 | ) |
| Amortization                of Transition Obligation |   |                             | -      |                             |   | - |   |   | 7 |   |   | 7 |   |
| Amortization                of Net Actuarial Loss    |   |                             | 15     |                             |   | 20 |   |   | 3 |   |   | 5 |   |
| **Net                Periodic Benefit Cost**         |   | $                                | 13     |                             | $      | 18 |   | $ | 20 |   | $ | 24 |   |

**              7. **
**BUSINESS      SEGMENTS**

**Utility      Operations**

| · | Generation                of electricity for sale to U.S. retail and wholesale                customers. |
|--------|----------------------------------------------------------------------------------------------------------|
| · | Electricity                transmission and distribution in the                U.S.                      |

**MEMCO      Operations**

| · | Barging                  operations that annually transport approximately 34 million tons                  of coal                  and dry bulk commodities primarily on the Ohio, Illinois and Lower                  Mississippi rivers. Approximately 35% of the barging operations                  relates to                  the transportation of coal, 28% relates to agricultural                  products, 21% relates to steel and 16% relates to other                  commodities. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Generation      and Marketing**

| · | IPPs,                wind farms and marketing and risk management activities primarily in                ERCOT. |
|--------|----------------------------------------------------------------------------------------------------------------------|

| · | Parent                company’s guarantee revenue received from affiliates, interest income and                interest expense and other nonallocated costs.                |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Other                energy supply related businesses, including the Plaquemine Cogeneration                Facility, which was sold in the fourth quarter of                2006. |

|                                                 |                                    |                                  |   | **Nonutility                Operations** |   |                               |   |                             |   |                                       |   |
|------------------------------------------------------|-----------------------------------------|---------------------------------------|--------|------------------------------------------|--------|------------------------------------|--------|----------------------------------|--------|--------------------------------------------|--------|
|                                                 |                                    | **Utility                Operations** |   | **MEMCO****Operations**                  |   | **Generation****and****Marketing** |   | **All                Other (a)** |   | **Reconciling                Adjustments** |   | **Consolidated** |   |
|                                                 |                                    | **(in                millions)**      |
| **Three                Months Ended March 31, 2007** |                                    |                                  |   |                                     |   |                               |   |                             |   |                                       |   |   |   |   |   |   |   |   |   |
| Revenues                from:                        |                                    |                                  |   |                                     |   |                               |   |                             |   |                                       |   |   |   |   |   |   |   |   |   |
|                                                 | External                Customers       |                                  | $      | 2,886                                    |   | $                                  | 117    |                             | $      | 115                                        |   | $ | 51 |   | $ | - |   | $ | 3,169 |   |
|                                                 | Other                Operating Segments |                                  |   | 147                                      |   |                               | 3      |                             |   | (73                                        | )      |   | (45 | ) |   | (32 | ) |   | - |   |
| **Total                Revenues**                    |                                    | $                                     | 3,033  |                                     | $      | 120                                |   | $                                | 42     |                                       | $      | 6 |   | $ | (32 | ) | $ | 3,169 |   |
|                                                 |                                    |                                  |   |                                     |   |                               |   |                             |   |                                       |   |   |   |   |   |   |   |   |   |
| Net                Income (Loss)                     |                                    | $                                     | 253    |                                     | $      | 15                                 |   | $                                | (1     | )                                          | $      | 4 |   | $ | - |   | $ | 271 |   |

|                                                                   |   |                                  |   | **Nonutility                Operations** |   |                               |   |                             |   |                                       |   |
|------------------------------------------------------------------------|--------|---------------------------------------|--------|------------------------------------------|--------|------------------------------------|--------|----------------------------------|--------|--------------------------------------------|--------|
|                                                                   |   | **Utility                Operations** |   | **MEMCO****Operations**                  |   | **Generation****and****Marketing** |   | **All                Other (a)** |   | **Reconciling                Adjustments** |   | **Consolidated** |   |
|                                                                   |   | **(in                millions)**      |   |
| **Three                Months Ended March 31, 2006**                   |   |                             |   |                                |   |                          |   |                        |   |                                  |   |    |   |
| Revenues                from:                                          |   |                             |   |                                |   |                          |   |                        |   |                                  |   |    |   |
| External                Customers                                      |   | $                                     | 2,982  |                                     | $      | 116                                |   | $                                | 13     |                                       | $      | (3 | ) | $ | - |   | $ | 3,108 |   |
| Other                Operating Segments                                |   |                                  | (16    | )                                        |   | 3                                  |   |                             | -      |                                       |   | 22 |   |   | (9 | ) |   | - |   |
| **Total                Revenues**                                      |   | $                                     | 2,966  |                                     | $      | 119                                |   | $                                | 13     |                                       | $      | 19 |   | $ | (9 | ) | $ | 3,108 |   |
|                                                                   |   |                                  |   |                                     |   |                               |   |                             |   |                                       |   |   |   |   |   |   |   |   |   |
| Income                (Loss) Before Discontinued  Operations |   | $                                     | 365    |                                     | $      | 21                                 |   | $                                | 4      |                                       | $      | (12 | ) | $ | - |   | $ | 378 |   |
| Discontinued                Operations, Net of Tax                     |   |                                  | **-**  |                                     |   | -                                  |   |                             | -      |                                       |   | 3 |   |   | - |   |   | 3 |   |
| **Net                Income (Loss)**                                   |   | $                                     | 365    |                                     | $      | 21                                 |   | $                                | 4      |                                       | $      | (9 | ) | $ | - |   | $ | 381 |   |

|                                                                  |   |                                  |   | **Nonutility                Operations** |   |                               |   |                             |   |                                       |   |
|-----------------------------------------------------------------------|--------|---------------------------------------|--------|------------------------------------------|--------|------------------------------------|--------|----------------------------------|--------|--------------------------------------------|--------|
|                                                                  |   | **Utility                Operations** |   | **MEMCO****Operations**                  |   | **Generation****and****Marketing** |   | **All                Other (a)** |   | **Reconciling                Adjustments** |   | **Consolidated** |   |
| **March                31, 2007**                                     |   | **(in                millions)**      |   |
| Total                Property, Plant and Equipment                    |   | $                                     | 42,092 |                                     | $      | 239                                |   | $                                | 565    |                                       | $      | 35 |   | $ | (237 | )(c) | $ | 42,694 |   |
| Accumulated                Depreciation and Amortization              |   |                                  | 15,244 |                                     |   | 53                                 |   |                             | 90     |                                       |   | 7 |   |   | (3 | )(c) |   | 15,391 |   |
| **Total                Property, Plant and Equipment - ****Net** |   | $                                     | 26,848 |                                     | $      | 186                                |   | $                                | 475    |                                       | $      | 28 |   | $ | (234 | )(c) | $ | 27,303 |   |
|                                                                  |   |                                  |   |                                     |   |                               |   |                             |   |                                       |   |   |   |   |   |   |   |   |   |
| Total                Assets                                           |   | $                                     | 36,789 |                                     | $      | 305                                |   | $                                | 705    |                                       | $      | 11,732 |   | $ | (11,595 | )(b) | $ | 37,936 |   |

|                                                              |   |                                  |   |                    | **Nonutility                Operations** |                               |   |                             |   |                                       |   |             |   |   |    |
|-------------------------------------------------------------------|--------|---------------------------------------|--------|-------------------------|------------------------------------------|------------------------------------|--------|----------------------------------|--------|--------------------------------------------|--------|------------------|--------|--------|---------|
|                                                              |   | **Utility                Operations** |   | **MEMCO****Operations** |                                     | **Generation****and****Marketing** |   | **All                Other (a)** |   | **Reconciling                Adjustments** |   | **Consolidated** |   |
| **December                31, 2006**                              |   | **(in                millions)**      |   |
| Total                Property, Plant and Equipment                |   | $                                     | 41,420 |                    | $                                        | 239                                |   | $                                | 327    |                                       | $      | 35               |   | $      | -       |   | $ | 42,021 |   |
| Accumulated                Depreciation and Amortization          |   |                                  | 15,101 |                    |                                     | 51                                 |   |                             | 83     |                                       |   | 5                |   |   | -       |   |   | 15,240 |   |
| **Total                Property, Plant and Equipment - Net** |   | $                                     | 26,319 |                    | $                                        | 188                                |   | $                                | 244    |                                       | $      | 30               |   | $      | -       |   | $ | 26,781 |   |
|                                                              |   |                                  |   |                    |                                     |                               |   |                             |   |                                       |   |             |   |   |    |   |   |   |   |
| Total                Assets                                       |   | $                                     | 36,632 |                    | $                                        | 315                                |   | $                                | 342    |                                       | $      | 11,460           |   | $      | (10,762 | )(b) | $ | 37,987 |   |
| Assets                Held for Sale                               |   |                                  | 44     |                    |                                     | -                                  |   |                             | -      |                                       |   | -                |   |   | -       |   |   | 44 |   |

| (a)    | All                Other includes:                                                                                                                                                                                                                                                                                    |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                | Parent                company’s guarantee revenue received from affiliates, interest income and                interest expense and other nonallocated costs. |
|   | ·                                                                                                                                                                                                                                                                                                                | Other                energy supply related businesses, including the Plaquemine Cogeneration                Facility, which was sold in the fourth quarter of 2006. |
| (b)    | Reconciling                Adjustments for Total Assets primarily include the elimination of                intercompany advances to affiliates and intercompany accounts receivable                along with the elimination of AEP’s investments in subsidiary companies.                                    |
| (c)    | Reconciling                Adjustments for Total Property, Plant and Equipment and Accumulated                Depreciation and Amortization as of March 31, 2007 represent the                elimination of an intercompany capital lease that began during the                first                quarter of 2007. |

**               8.   **
**INCOME      TAXES**

***Audit      Status***

***FIN      48 Adoption***

**              9.   **
**FINANCING      ACTIVITIES**

***Long-term      Debt***

|                                                |   | **March                31,**     |   | **December                31,** |   |
|-----------------------------------------------------|--------|----------------------------------|--------|---------------------------------|--------|
| **Type                of Debt**                     |   | **2007**                         |   | **2006**                        |   |
|                                                |   | **(in                millions)** |   |
| Senior                Unsecured Notes               |   | $                                | 8,903  |                            | $      | 8,653 |   |
| Pollution                Control Bonds              |   |                             | 1,950  |                            |   | 1,950 |   |
| First                Mortgage Bonds                 |   |                             | 90     |                            |   | 90 |   |
| Defeased                First Mortgage Bonds (a)    |   |                             | 27     |                            |   | 27 |   |
| Notes                Payable                        |   |                             | 320    |                            |   | 337 |   |
| Securitization                Bonds                 |   |                             | 2,303  |                            |   | 2,335 |   |
| Notes                Payable To Trust               |   |                             | 113    |                            |   | 113 |   |
| Spent                Nuclear Fuel Obligation (b)    |   |                             | 251    |                            |   | 247 |   |
| Other                Long-term Debt                 |   |                             | 2      |                            |   | 2 |   |
| Unamortized                Discount (net)           |   |                             | (57    | )                               |   | (56 | ) |
| **Total                Long-term Debt Outstanding** |   |                             | 13,902 |                            |   | 13,698 |   |
| **Less                Portion Due Within One Year** |   |                             | 1,377  |                            |   | 1,269 |   |
| **Long-term                Portion**                |   | $                                | 12,525 |                            | $      | 12,429 |   |

| (a) | In                May 2004, we deposited cash and treasury securities with a trustee                to                defease all of TCC’s outstanding First Mortgage Bonds. The defeased TCC                First Mortgage Bonds had a balance of $19 million at both March 31,                2007                and December 31, 2006. Trust Fund Assets related to this obligation                of $23                million and $2 million at March 31, 2007 and December 31, 2006,                respectively, are included in Other Temporary Cash Investments and                $0 and                $21 million at March 31, 2007 and December 31, 2006, respectively,                are                included in Other Noncurrent Assets on our Condensed Consolidated                Balance                Sheets. In December 2005, we deposited cash and treasury securities                with a                trustee to defease the remaining TNC outstanding First Mortgage Bond.                The                defeased TNC First Mortgage Bond had a balance of $8 million at both                March                31, 2007 and December 31, 2006. Trust fund assets related to this                obligation of $9 million at both March 31, 2007 and December 31,                2006 are                included in Other Temporary Cash Investments on our Condensed Consolidated                Balance Sheet. Trust fund assets are restricted for exclusive use                in                funding the interest and principal due on the First Mortgage                Bonds. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Pursuant                to the Nuclear Waste Policy Act of 1982, I&M (a nuclear licensee) has                an obligation with the United States Department of Energy for spent                nuclear fuel disposal. The obligation includes a one-time fee for                nuclear                fuel consumed prior to April 7, 1983. Trust Fund assets related to                this                obligation of $276 million and $274 million at March 31, 2007 and                December                31, 2006, respectively, are included in Spent Nuclear Fuel and                Decommissioning Trusts on our Condensed Consolidated Balance                Sheets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

| **Company**                        |   | **Type                of Debt**       |   | **Principal                Amount** |   | **Interest                Rate** |   | **Due                Date** |   |
|------------------------------------|--------|---------------------------------------|--------|-------------------------------------|--------|----------------------------------|--------|-----------------------------|--------|
|                               |   |                                  |   | **(in                millions)**    |   | **(%)**                          |   |                        |   |
| **Issuances:**                     |   |                                  |   |                                |   |                             |   |                        |   |
| SWEPCo                             |   | Senior                Unsecured Notes |   | $                                   | 250    |                             | 5.55   |                        | 2017   |   |
| **Total                Issuances** |   |                                  |   | $                                   | 250    | (a)                              |   |                        |   |   |

| The above borrowing              arrangement does not contain guarantees, collateral or dividend              restrictions. |
|-----------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                        |   |
| (a)                                                                                                                         | Amount                indicated on statement of cash flows of $247 million is net of issuance                costs and unamortized premium or                discount. |

|  **Company**                                            |   | **Type                of Debt**     |   | **Principal                Amount Paid** |   | **Interest                Rate** |     | **Due                Date** |   |
|--------------------------------------------------------------|--------|-------------------------------------|--------|------------------------------------------|--------|----------------------------------|----------|-----------------------------|--------|
|                                                         |   |                                |   | **(in                millions)**         |   | **(%)**                          |     |                        |   |
| **Retirements                and  Principal Payments:** |   |                                |   |                                     |   |                             |     |                        |   |
| OPCo                                                         |   | Notes                Payable        |   | $                                        | 1      |                             | 6.81     |                        | 2008   |   |
| OPCo                                                         |   | Notes                Payable        |   |                                     | 6      |                             | 6.27     |                        | 2009   |   |
| SWEPCo                                                       |   | Notes                Payable        |   |                                     | 2      |                             | 4.47     |                        | 2011   |   |
| SWEPCo                                                       |   | Notes                Payable        |   |                                     | 4      |                             | 6.36     |                        | 2007   |   |
| SWEPCo                                                       |   | Notes                Payable        |   |                                     | 1      |                             | Variable |                        | 2008   |   |
| TCC                                                          |   | Securitization                Bonds |   |                                     | 32     |                             | 5.01     |                        | 2008   |   |
|                                                         |   |                                |   |                                     |   |                             |     |                        |   |   |
| *Non-Registrant:*                                            |   |                                |   |                                     |   |                             |     |                        |   |   |
| AEP                Subsidiaries                              |   | Notes                Payable        |   |                                     | 3      |                             | Variable |                        | 2017   |   |
| **Total                Retirements**                         |   |                                |   | $                                        | 49     |                             |     |                        |   |   |

***Short-term      Debt***

|                                       |   | **March                31, 2007** |   |                 | **December                31, 2006** |   |
|--------------------------------------------|--------|-----------------------------------|--------|----------------------|--------------------------------------|--------|
|                                       |   | **Outstanding****Amount**         |   | **Interest****Rate** |                                 |   | **Outstanding****Amount** |   | **Interest****Rate** |   |
| **Type                of Debt**            |   | **(in                millions)**  |   |                 |                                 |   |   | **(in                millions)** |   |   |   |   |
| Commercial                Paper - AEP      |   | $                                 | 150    |                 |                                 | 5.43   | % | (a) | $ | - |   |   | - |   |
| Commercial                Paper - JMG (b)  |   |                              | 5      |                 |                                 | 5.56   | % |   |   | 1 |   |   | 5.56 | % |
| Line                of Credit - Sabine (c) |   |                              | 20     |                 |                                 | 6.52   | % |   |   | 17 |   |   | 6.38 | % |
| **Total**                                  |   | $                                 | 175    |                 |                                 |   |   |   | $ | 18 |   |   |   |   |

| (a) | Weighted                average rate.                                                                                                                                                                                                                                                                          |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | This                commercial paper is specifically associated with the Gavin Scrubber                and is                backed by a separate credit facility. This commercial paper does                not                reduce available liquidity under AEP’s credit                facilities. |
| (c) | Sabine                is consolidated under FIN 46. This line of credit does not reduce                available liquidity under AEP’s credit                facilities.                                                                                                                                 |

***Credit      Facilities***

----

**AEP          GENERATING COMPANY**

----

**AEP          GENERATING COMPANY**

**MANAGEMENT’S          NARRATIVE FINANCIAL DISCUSSION AND ANALYSIS**

**Results          of Operations**

**Reconciliation          of First Quarter of 2006 to First Quarter of 2007 **

**Net          Income**

**(in          millions)**

| **First                    Quarter of 2006**                        |   |   |   |   | $      | 2.9    |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                |   |   |   |   |   |   |   |
| **Change                    in Gross Margin:**                      |   |   |   |   |   |   |   |
| Wholesale                    Sales                                  |   |   |   |   |   | (0.7   | )      |
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                    Operation and Maintenance                  |   |   | (1.3   | )      |   |   |   |
| Interest                    Expense                                 |   |   | (0.5   | )      |   |   |   |
| **Total                    Change in Operating Expenses and Other** |   |   |   |   |   | (1.8   | )      |
|                                                                |   |   |   |   |   |   |   |
| Income                    Tax Expense (Credit)                      |   |   |   |   |   | 1.2    |   |
|                                                                |   |   |   |   |   |   |   |
| **First                    Quarter of 2007**                        |   |   |   |   | $      | 1.6    |   |

*Income          Taxes*

**Significant          Factors**

***Lawrenceburg          Generating Station***

**Critical          Accounting Estimates**

**Adoption          of New Accounting Pronouncements**

----

**AEP          GENERATING COMPANY**

**CONDENSED          STATEMENTS OF INCOME**

**For          the Three Months Ended March 31, 2007 and 2006**

**(in          thousands)**

**(Unaudited)**

|                                                 |   | **2007** |   | **2006** |   |
|------------------------------------------------------|--------|----------|--------|----------|--------|
|                                                 |   |     |   |     |   |
| **OPERATING                    REVENUES**            |   | $        | 77,151 |     | $      | 78,151 |   |
|                                                 |   |     |   |     |   |   |   |
| **EXPENSES**                                         |   |     |   |     |   |   |   |
| Fuel                    Used for Electric Generation |   |     | 43,649 |     |   | 43,961 |   |
| Rent                    - Rockport Plant Unit 2      |   |     | 17,071 |     |   | 17,071 |   |
| Other                    Operation                   |   |     | 3,326  |     |   | 3,068 |   |
| Maintenance                                          |   |     | 3,811  |     |   | 2,786 |   |
| Depreciation                    and Amortization     |   |     | 5,990  |     |   | 5,975 |   |
| Taxes                    Other Than Income Taxes     |   |     | 1,081  |     |   | 1,070 |   |
| **TOTAL**                                            |   |     | 74,928 |     |   | 73,931 |   |
|                                                 |   |     |   |     |   |   |   |
| **OPERATING                    INCOME**              |   |     | 2,223  |     |   | 4,220 |   |
|                                                 |   |     |   |     |   |   |   |
| Interest                    Expense                  |   |     | (1,252 | )        |   | (722 | ) |
|                                                 |   |     |   |     |   |   |   |
| **INCOME                    BEFORE INCOME TAXES**    |   |     | 971    |     |   | 3,498 |   |
|                                                 |   |     |   |     |   |   |   |
| Income                    Tax Expense (Credit)       |   |     | (620   | )        |   | 570 |   |
|                                                 |   |     |   |     |   |   |   |
| **NET                    INCOME**                    |   | $        | 1,591  |     | $      | 2,928 |   |

**CONDENSED          STATEMENTS OF RETAINED EARNINGS**

**For          the Three Months Ended March 31, 2007 and 2006**

**(in          thousands)**

**(Unaudited)**

|                                                  |   | **2007** |   | **2006** |   |
|-------------------------------------------------------|--------|----------|--------|----------|--------|
|                                                  |   |     |   |     |   |
| **BALANCE                    AT BEGINNING OF PERIOD** |   | $        | 30,942 |     | $      | 26,038 |   |
|                                                  |   |     |   |     |   |   |   |
| FIN                    48 Adoption, Net of Tax        |   |     | 27     |     |   | - |   |
|                                                  |   |     |   |     |   |   |   |
| Net                    Income                         |   |     | 1,591  |     |   | 2,928 |   |
|                                                  |   |     |   |     |   |   |   |
| Cash                    Dividends Declared            |   |     | -      |     |   | 1,998 |   |
|                                                  |   |     |   |     |   |   |   |
| **BALANCE                    AT END OF PERIOD**       |   | $        | 32,560 |     | $      | 26,968 |   |

*The          common stock of AEGCo is wholly-owned by AEP.*

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**AEP          GENERATING COMPANY**

**CONDENSED          BALANCE SHEETS**

**ASSETS**

**March          31, 2007 and December 31, 2006**

**(in          thousands)**

**(Unaudited)**

|                                                          |   | **2007**     |    | **2006**     |   |
|---------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **CURRENT                    ASSETS**                         |   |    |    |    |   |
| Accounts                    Receivable - Affiliated Companies |   | $            | 29,380  |         | $      | 31,060 |   |
| Fuel                                                          |   |         | 28,414  |         |   | 37,701 |   |
| Materials                    and Supplies                     |   |         | 8,024   |         |   | 7,873 |   |
| Accrued                    Tax Benefits                       |   |         | 1,820   |         |   | 3,808 |   |
| Prepayments                    and Other                      |   |         | 38      |         |   | 57 |   |
| **TOTAL**                                                     |   |         | 67,676  |         |   | 80,499 |   |
|                                                          |   |         |    |         |   |   |   |
| **PROPERTY,                    PLANT AND EQUIPMENT**          |   |         |    |         |   |   |   |
| Electric                    - Production                      |   |         | 688,599 |         |   | 686,776 |   |
| Other                                                         |   |         | 2,567   |         |   | 2,460 |   |
| Construction                    Work in Progress              |   |         | 15,931  |         |   | 15,198 |   |
| **Total**                                                     |   |         | 707,097 |         |   | 704,434 |   |
| Accumulated                    Depreciation and Amortization  |   |         | 405,676 |         |   | 398,422 |   |
| **TOTAL                    - NET**                            |   |         | 301,421 |         |   | 306,012 |   |
|                                                          |   |         |    |         |   |   |   |
| **OTHER                    NONCURRENT ASSETS**                |   |         |    |         |   |   |   |
| Regulatory                    Assets                          |   |         | 5,403   |         |   | 5,438 |   |
| Deferred                    Charges and Other                 |   |         | 3,667   |         |   | 1,382 |   |
| **TOTAL**                                                     |   |         | 9,070   |         |   | 6,820 |   |
|                                                          |   |         |    |         |   |   |   |
| **TOTAL                    ASSETS**                           |   | $            | 378,167 |         | $      | 393,331 |   |

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**AEP          GENERATING COMPANY**

**CONDENSED          BALANCE SHEETS**

**LIABILITIES          AND SHAREHOLDER’S EQUITY**

**March          31, 2007 and December 31, 2006**

**(Unaudited)**

|                                                                                                                                                                             |   | **2007**                              |    | **2006** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|----------|--------|
| **CURRENT                    LIABILITIES**                                                                                                                                       |   | **(in                    thousands)** |    |
| Advances                    from Affiliates                                                                                                                                      |   | $                                     | 29,997  |     | $      | 53,646 |   |
| Accounts                    Payable:                                                                                                                                             |   |                                  |    |     |   |   |   |
| General                                                                                                                                                                          |   |                                  | 6       |     |   | 549 |   |
| Affiliated                    Companies                                                                                                                                          |   |                                  | 18,918  |     |   | 27,935 |   |
| Accrued                    Taxes                                                                                                                                                 |   |                                  | 7,092   |     |   | 3,685 |   |
| Accrued                    Rent - Rockport Plant Unit 2                                                                                                                          |   |                                  | 23,427  |     |   | 4,963 |   |
| Other                                                                                                                                                                            |   |                                  | 521     |     |   | 1,200 |   |
| **TOTAL**                                                                                                                                                                        |   |                                  | 79,961  |     |   | 91,978 |   |
|                                                                                                                                                                             |   |                                  |    |     |   |   |   |
| **NONCURRENT                    LIABILITIES**                                                                                                                                    |   |                                  |    |     |   |   |   |
| Long-term                    Debt - Nonaffiliated                                                                                                                                |   |                                  | 44,839  |     |   | 44,837 |   |
| Deferred                    Income Taxes                                                                                                                                         |   |                                  | 19,792  |     |   | 19,749 |   |
| Regulatory                    Liabilities and Deferred Investment Tax Credits                                                                                                    |   |                                  | 76,069  |     |   | 79,650 |   |
| Deferred                    Gain on Sale and Leaseback - Rockport Plant Unit 2                                                                                                   |   |                                  | 87,370  |     |   | 88,762 |   |
| Deferred                    Credits and Other                                                                                                                                    |   |                                  | 13,142  |     |   | 12,979 |   |
| **TOTAL**                                                                                                                                                                        |   |                                  | 241,212 |     |   | 245,977 |   |
|                                                                                                                                                                             |   |                                  |    |     |   |   |   |
| **TOTAL                    LIABILITIES**                                                                                                                                         |   |                                  | 321,173 |     |   | 337,955 |   |
|                                                                                                                                                                             |   |                                  |    |     |   |   |   |
| Commitments                    and Contingencies (Note 4)                                                                                                                        |   |                                  |    |     |   |   |   |
|                                                                                                                                                                             |   |                                  |    |     |   |   |   |
| **COMMON                    SHAREHOLDER’S EQUITY**                                                                                                                         |   |                                  |    |     |   |   |   |
| Common                    Stock - Par Value - $1,000 Per Share:  Authorized                    - 1,000 Shares  Outstanding                    - 1,000 Shares |   |                                  | 1,000   |     |   | 1,000 |   |
| Paid-in                    Capital                                                                                                                                               |   |                                  | 23,434  |     |   | 23,434 |   |
| Retained                    Earnings                                                                                                                                             |   |                                  | 32,560  |     |   | 30,942 |   |
| **TOTAL**                                                                                                                                                                        |   |                                  | 56,994  |     |   | 55,376 |   |
|                                                                                                                                                                             |   |                                  |    |     |   |   |   |
| **TOTAL                    LIABILITIES AND SHAREHOLDER’S EQUITY**                                                                                                          |   | $                                     | 378,167 |     | $      | 393,331 |   |

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**AEP          GENERATING COMPANY**

**CONDENSED          STATEMENTS OF CASH FLOWS**

**For          the Three Months Ended March 31, 2007 and 2006**

**(in          thousands)**

**(Unaudited)**

|                                                                                                              |   | **2007**     |    | **2006**     |   |
|-------------------------------------------------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **OPERATING                    ACTIVITIES**                                                                       |   |    |    |    |   |
| **Net                    Income**                                                                                 |   | $            | 1,591   |         | $      | 2,928 |   |
| **Adjustments                    for Noncash Items:**                                                             |   |         |    |         |   |   |   |
| Depreciation                    and Amortization                                                                  |   |         | 5,990   |         |   | 5,975 |   |
| Deferred                    Income Taxes                                                                          |   |         | (1,205  | )            |   | (1,126 | ) |
| Deferred                    Investment Tax Credits                                                                |   |         | (820    | )            |   | (827 | ) |
| Amortization                    of Deferred Gain on Sale and Leaseback - Rockport Plant Unit                    2 |   |         | (1,392  | )            |   | (1,392 | ) |
| Deferred                    Property Taxes                                                                        |   |         | (2,516  | )            |   | (2,734 | ) |
| Changes                    in Other Noncurrent Assets                                                             |   |         | 47      |         |   | (403 | ) |
| Changes                    in Other Noncurrent Liabilities                                                        |   |         | 200     |         |   | 374 |   |
| **Changes                    in Certain Components of Working Capital:**                                          |   |         |    |         |   |   |   |
| Accounts                    Receivable                                                                            |   |         | 1,680   |         |   | 1,607 |   |
| Fuel,                    Materials and Supplies                                                                   |   |         | 9,136   |         |   | (1,044 | ) |
| Accounts                    Payable                                                                               |   |         | (9,560  | )            |   | (2,068 | ) |
| Accrued                    Taxes, Net                                                                             |   |         | 5,252   |         |   | 6,179 |   |
| Accrued                    Rent - Rockport Plant Unit 2                                                           |   |         | 18,464  |         |   | 18,464 |   |
| Other                    Current Assets                                                                           |   |         | (28     | )            |   | (35 | ) |
| Other                    Current Liabilities                                                                      |   |         | (332    | )            |   | (379 | ) |
| **Net                    Cash Flows From Operating Activities**                                                   |   |         | 26,507  |         |   | 25,519 |   |
|                                                                                                              |   |         |    |         |   |   |   |
| **INVESTING                    ACTIVITIES**                                                                       |   |         |    |         |   |   |   |
| Construction                    Expenditures                                                                      |   |         | (2,841  | )            |   | (1,693 | ) |
|                                                                                                              |   |         |    |         |   |   |   |
| **FINANCING                    ACTIVITIES**                                                                       |   |         |    |         |   |   |   |
| Change                    in Advances from Affiliates, Net                                                        |   |         | (23,649 | )            |   | (21,814 | ) |
| Principal                    Payments for Capital Lease Obligations                                               |   |         | (17     | )            |   | (14 | ) |
| Dividends                    Paid on Common Stock                                                                 |   |         | -       |         |   | (1,998 | ) |
| **Net                    Cash Flows Used For Financing Activities**                                               |   |         | (23,666 | )            |   | (23,826 | ) |
|                                                                                                              |   |         |    |         |   |   |   |
| **Net                    Change in Cash and Cash Equivalents**                                                    |   |         | -       |         |   | - |   |
| **Cash                    and Cash Equivalents at Beginning of Period**                                           |   |         | -       |         |   | - |   |
| **Cash                    and Cash Equivalents at End of Period**                                                 |   | $            | -       |         | $      | - |   |

| **SUPPLEMENTARY                    INFORMATION**                      |   |    |   |    |   |
|-----------------------------------------------------------------------|--------|--------------|--------|--------------|--------|
| Cash                    Paid for Interest, Net of Capitalized Amounts |   | $            | 1,398  |         | $      | 1,109 |   |
| Net                    Cash Received for Income Taxes                 |   |         | (439   | )            |   | - |   |
| Noncash                    Acquisitions Under Capital Leases          |   |         | 1      |         |   | 27 |   |

*            See Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**AEP          GENERATING COMPANY**

**INDEX          TO CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS OF REGISTRANT          SUBSIDIARIES**

|                                                                   | **Footnote                    Reference** |
|------------------------------------------------------------------------|-------------------------------------------|
| Significant                    Accounting Matters                      | Note                    1                 |
| New                    Accounting Pronouncements                       | Note                    2                 |
| Commitments,                    Guarantees and Contingencies           | Note                    4                 |
| Acquisitions,                    Dispositions and Assets Held for Sale | Note                    5                 |
| Business                    Segments                                   | Note                    7                 |
| Income                    Taxes                                        | Note                    8                 |
| Financing                    Activities                                | Note                    9                 |

----

**AEP          TEXAS CENTRAL COMPANY AND SUBSIDIARIES**

----

**AEP          TEXAS CENTRAL COMPANY AND SUBSIDIARIES**

**MANAGEMENT’S          NARRATIVE FINANCIAL DISCUSSION AND ANALYSIS**

**Results          of Operations**

**Reconciliation          of First Quarter of 2006 to First Quarter of 2007 **

**Net          Income**

**(in          millions)**

| **First                    Quarter of 2006**                        |   |   |   |   | $      | 4      |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Gross Margin:**                     |   |   |   |   |   |   |   |
| Off-system                    Sales                                 |   |   | 7      |   |   |   |   |
| Texas                    Wires                                      |   |   | 6      |   |   |   |   |
| Transmission                    Revenues                            |   |   | 1      |   |   |   |   |
| Other                                                               |   |   | 28     |   |   |   |   |
| **Total                    Change in Gross Margin**                 |   |   |   |   |   | 42     |   |
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                    Operation and Maintenance                  |   |   | 2      |   |   |   |   |
| Depreciation                    and Amortization                    |   |   | (13    | )      |   |   |   |
| Taxes                    Other Than Income Taxes                    |   |   | 2      |   |   |   |   |
| Carrying                    Costs Income                            |   |   | (19    | )      |   |   |   |
| Other                    Income                                     |   |   | 5      |   |   |   |   |
| Interest                    Expense                                 |   |   | (19    | )      |   |   |   |
| **Total                    Change in Operating Expenses and Other** |   |   |   |   |   | (42    | )      |
|                                                                |   |   |   |   |   |   |   |
| **First                    Quarter of 2007**                        |   |   |   |   | $      | 4      |   |

| · | Margins                    from Off-system Sales increased $7 million primarily due to lower                    margins                    from optimization activities of $5 million in 2006. An additional                    $2                    million increase was primarily due to a $4 million provision                    for refund                    recorded in 2006 related to the pending and subsequent sale of                    our portion                    of the Oklaunion Plant offset in part by reduced sales margins                    upon                    completion of the sale.                                                                                                                                                                                                                                                                                            |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Texas                    Wires revenues increased $6 million primarily due to increased                    usage and                    favorable weather conditions. As compared to the prior year, heating                    degree days more than doubled.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| · | Other                    revenues increased $28 million. This increase was due in part                    to $36                    million of revenue from securitization transition charges primarily                    resulting from new financing in October 2006. Securitization                    transition                    charges represent amounts collected to recover securitization                    bond                    principal and interest payments related to our securitized transition                    assets and are fully offset by amortization and interest expenses.                    This                    increase was partially offset by a $7 million decrease in third                    party                    construction project revenues mainly related to work performed                    for the                    Lower Colorado River Authority. |

| · | Other                    Operation and Maintenance expenses decreased $2 million primarily                    due to a                    $5 million decrease from lower expenses related to construction                    projects                    performed for third parties, primarily Lower Colorado River Authority.                    This decrease is partially offset by an increase of $2 million                    in payments                    made for transmission services and approximately $1 million increase                    related to the replacement of meters. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                    and Amortization expense increased $13 million primarily due                    to the                    recovery and amortization of the securitization assets of $15                    million                    offset in part by $2 million related to the amortization of the                    CTC                    liability (see “TCC’s 2006 Securitization Proceeding” and “TCC’s 2006 CTC                    Proceeding” sections of Note 4 of the 2006 Annual                    Report).                    |
| · | Taxes                    Other Than Income Taxes decreased $2 million primarily due to                    lower                    property-related taxes related to Texas tax legislation and the                    sale of                    our portion of Oklaunion in February 2007.                                                                                                                                                                                                                                                                                                       |
| · | Carrying                    Costs Income decreased $19 million primarily due to the absence                    of                    carrying cost on stranded cost recovery.                                                                                                                                                                                                                                                                                                                                                                                                                     |
| · | Other                    Income increased $5 million primarily due to larger invested                    balances in                    the Utility Money Pool.                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | Interest                    Expense increased $19 million primarily due to a $22 million                    increase in                    long-term debt interest primarily related to the Securitization                    Bonds                    issued in October 2006, offset in part by the retirement of other                    long-term debt.                                                                                                                                                                                                                                       |

*Income          Taxes*

**Financial          Condition**

**Credit          Ratings**

**Critical          Accounting Estimates**

**Adoption          of New Accounting Pronouncements**

----

**QUANTITATIVE          AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT          ACTIVITIES**

**VaR          Associated with Debt Outstanding**

----

**AEP          TEXAS CENTRAL COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED STATEMENTS OF INCOME**

**For          the Three Months Ended March 31, 2007 and 2006**

**(in          thousands)**

**(Unaudited)**

|                                                                       |   | **2007** |    | **2006** |   |
|----------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| **REVENUES**                                                               |   |     |    |     |   |
| Electric                    Generation, Transmission and Distribution      |   | $        | 171,987 |     | $      | 123,211 |   |
| Sales                    to AEP Affiliates                                 |   |     | 1,130   |     |   | 1,598 |   |
| Other                                                                      |   |     | 3,814   |     |   | 10,479 |   |
| **TOTAL**                                                                  |   |     | 176,931 |     |   | 135,288 |   |
|                                                                       |   |     |    |     |   |   |   |
| **EXPENSES**                                                               |   |     |    |     |   |   |   |
| Fuel                    and Other Consumables Used for Electric Generation |   |     | 825     |     |   | 1,726 |   |
| Purchased                    Electricity for Resale                        |   |     | 1,509   |     |   | 1,680 |   |
| Other                    Operation                                         |   |     | 57,396  |     |   | 58,902 |   |
| Maintenance                                                                |   |     | 7,785   |     |   | 7,789 |   |
| Depreciation                    and Amortization                           |   |     | 46,020  |     |   | 33,360 |   |
| Taxes                    Other Than Income Taxes                           |   |     | 18,524  |     |   | 20,363 |   |
| **TOTAL**                                                                  |   |     | 132,059 |     |   | 123,820 |   |
|                                                                       |   |     |    |     |   |   |   |
| **OPERATING                    INCOME**                                    |   |     | 44,872  |     |   | 11,468 |   |
|                                                                       |   |     |    |     |   |   |   |
| **Other                    Income (Expense):**                             |   |     |    |     |   |   |   |
| Interest                    Income                                         |   |     | 4,959   |     |   | 505 |   |
| Carrying                    Costs Income                                   |   |     | -       |     |   | 19,423 |   |
| Allowance                    for Equity Funds Used During Construction     |   |     | 1,159   |     |   | 373 |   |
| Interest                    Expense                                        |   |     | (46,021 | )        |   | (26,773 | ) |
|                                                                       |   |     |    |     |   |   |   |
| **INCOME                    BEFORE INCOME TAXES**                          |   |     | 4,969   |     |   | 4,996 |   |
|                                                                       |   |     |    |     |   |   |   |
| Income                    Tax Expense                                      |   |     | 1,431   |     |   | 1,223 |   |
|                                                                       |   |     |    |     |   |   |   |
| **NET                    INCOME**                                          |   |     | 3,538   |     |   | 3,773 |   |
|                                                                       |   |     |    |     |   |   |   |
| Preferred                    Stock Dividend Requirements                   |   |     | 60      |     |   | 60 |   |
|                                                                       |   |     |    |     |   |   |   |
| **EARNINGS                    APPLICABLE TO COMMON STOCK**                 |   | $        | 3,478   |     | $      | 3,713 |   |

*The          common stock of TCC is owned by a wholly-owned subsidiary of          AEP.*

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**AEP          TEXAS CENTRAL COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDER’S**

**EQUITY          AND COMPREHENSIVE INCOME**

**For          the Three Months Ended March 31, 2007 and 2006**

**(in          thousands)**

**(Unaudited)**

|                                                                  |   | **Common                    Stock** |   | **Paid-in                    Capital** |   | **Retained                    Earnings** |   | **Accumulated                    Other Comprehensive Income (Loss)** |    | **Total**    |   |
|-----------------------------------------------------------------------|--------|-------------------------------------|--------|----------------------------------------|--------|------------------------------------------|--------|----------------------------------------------------------------------|---------|--------------|--------|
|                                                                  |   |                           |   |                              |   |                                |   |                                                            |    |    |   |
| **DECEMBER                    31, 2005**                              |   | $                                   | 55,292 |                                   | $      | 132,606                                  |   | $                                                                    | 760,884 |         | $      | (1,152 | ) | $ | 947,630 |   |
|                                                                  |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| Preferred                    Stock Dividends                          |   |                                |   |                                   |   |                                     |   |                                                                 | (60     | )            |   |   |   |   | (60 | ) |
| **TOTAL**                                                             |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   | 947,570 |   |
|                                                                  |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                           |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **Other                    Comprehensive Income, Net of Taxes:** |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $141               |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   | 262 |   |   | 262 |   |
| **NET                    INCOME**                                     |   |                                |   |                                   |   |                                     |   |                                                                 | 3,773   |         |   |   |   |   | 3,773 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                     |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   | 4,035 |   |
|                                                                  |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **MARCH                    31, 2006**                                 |   | $                                   | 55,292 |                                   | $      | 132,606                                  |   | $                                                                    | 764,597 |         | $      | (890 | ) | $ | 951,605 |   |
|                                                                  |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **DECEMBER                    31, 2006**                              |   | $                                   | 55,292 |                                   | $      | 132,606                                  |   | $                                                                    | 217,218 |         | $      | - |   | $ | 405,116 |   |
|                                                                  |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| FIN                    48 Adoption, Net of Tax                        |   |                                |   |                                   |   |                                     |   |                                                                 | (2,187  | )            |   |   |   |   | (2,187 | ) |
| Preferred                    Stock Dividends                          |   |                                |   |                                   |   |                                     |   |                                                                 | (60     | )            |   |   |   |   | (60 | ) |
| **TOTAL**                                                             |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   | 402,869 |   |
|                                                                  |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                           |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **NET                    INCOME**                                     |   |                                |   |                                   |   |                                     |   |                                                                 | 3,538   |         |   |   |   |   | 3,538 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                     |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   | 3,538 |   |
|                                                                  |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **MARCH                    31, 2007**                                 |   | $                                   | 55,292 |                                   | $      | 132,606                                  |   | $                                                                    | 218,509 |         | $      | - |   | $ | 406,407 |   |

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**AEP          TEXAS CENTRAL COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**March          31, 2007 and December 31, 2006**

**(in          thousands)**

**(Unaudited)**

|                                                                 |   | **2007**     |      | **2006**     |   |
|----------------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                    ASSETS**                                |   |    |      |    |   |
| Cash                    and Cash Equivalents                         |   | $            | 52        |         | $      | 779 |   |
| Other                    Cash Deposits                               |   |         | 131,824   |         |   | 104,203 |   |
| Advances                    to Affiliates                            |   |         | 216,953   |         |   | 394,004 |   |
| Accounts                    Receivable:                              |   |         |      |         |   |   |   |
| Customers                                                            |   |         | 44,519    |         |   | 31,215 |   |
| Affiliated                    Companies                              |   |         | 6,513     |         |   | 8,613 |   |
| Accrued                    Unbilled Revenues                         |   |         | 17,969    |         |   | 10,093 |   |
| Allowance                    for Uncollectible Accounts              |   |         | (45       | )            |   | (49 | ) |
|                       Total Accounts Receivable            |   |         | 68,956    |         |   | 49,872 |   |
| Materials                    and Supplies                            |   |         | 30,526    |         |   | 28,347 |   |
| Prepayments                    and Other                             |   |         | 11,107    |         |   | 5,672 |   |
| **TOTAL**                                                            |   |         | 459,418   |         |   | 582,877 |   |
|                                                                 |   |         |      |         |   |   |   |
| **PROPERTY,                    PLANT AND EQUIPMENT**                 |   |         |      |         |   |   |   |
| Electric:                                                            |   |         |      |         |   |   |   |
| Transmission                                                         |   |         | 917,708   |         |   | 904,527 |   |
| Distribution                                                         |   |         | 1,602,745 |         |   | 1,579,498 |   |
| Other                                                                |   |         | 224,856   |         |   | 220,028 |   |
| Construction                    Work in Progress                     |   |         | 166,300   |         |   | 165,979 |   |
| **Total**                                                            |   |         | 2,911,609 |         |   | 2,870,032 |   |
| Accumulated                    Depreciation and Amortization         |   |         | 636,740   |         |   | 630,239 |   |
| **TOTAL                    - NET**                                   |   |         | 2,274,869 |         |   | 2,239,793 |   |
|                                                                 |   |         |      |         |   |   |   |
| **OTHER                    NONCURRENT ASSETS**                       |   |         |      |         |   |   |   |
| Regulatory                    Assets                                 |   |         | 187,765   |         |   | 193,111 |   |
| Securitized                    Transition Assets                     |   |         | 2,133,966 |         |   | 2,158,408 |   |
| Employee                    Benefits and Pension Assets              |   |         | 35,534    |         |   | 35,574 |   |
| Deferred                    Charges and Other                        |   |         | 68,393    |         |   | 69,493 |   |
| **TOTAL**                                                            |   |         | 2,425,658 |         |   | 2,456,586 |   |
|                                                                 |   |         |      |         |   |   |   |
| **Assets                    Held for Sale - Texas Generation Plant** |   |         | -         |         |   | 44,475 |   |
|                                                                 |   |         |      |         |   |   |   |
| **TOTAL                    ASSETS**                                  |   | $            | 5,159,945 |         | $      | 5,323,731 |   |

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**AEP          TEXAS CENTRAL COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED BALANCE SHEETS**

**LIABILITIES          AND SHAREHOLDERS’ EQUITY**

**March          31, 2007 and December 31, 2006**

**(Unaudited)**

|                                                                              |   | **2007**                              |      | **2006**     |   |
|-----------------------------------------------------------------------------------|--------|---------------------------------------|-----------|--------------|--------|
| **CURRENT                    LIABILITIES**                                        |   | **(in                    thousands)** |      |
| Accounts                    Payable:                                              |   |                             |      |    |   |
| General                                                                           |   | $                                     | 17,857    |         | $      | 26,934 |   |
| Affiliated                    Companies                                           |   |                                  | 17,329    |         |   | 21,234 |   |
| Long-term                    Debt Due Within One Year - Nonaffiliated             |   |                                  | 138,507   |         |   | 78,227 |   |
| Customer                    Deposits                                              |   |                                  | 17,851    |         |   | 18,742 |   |
| Accrued                    Taxes                                                  |   |                                  | 33,474    |         |   | 74,499 |   |
| Accrued                    Interest                                               |   |                                  | 57,625    |         |   | 44,712 |   |
| Other                                                                             |   |                                  | 21,138    |         |   | 34,762 |   |
| **TOTAL**                                                                         |   |                                  | 303,781   |         |   | 299,110 |   |
|                                                                              |   |                                  |      |         |   |   |   |
| **NONCURRENT                    LIABILITIES**                                     |   |                                  |      |         |   |   |   |
| Long-term                    Debt - Nonaffiliated                                 |   |                                  | 2,845,020 |         |   | 2,937,387 |   |
| Deferred                    Income Taxes                                          |   |                                  | 1,037,080 |         |   | 1,034,123 |   |
| Regulatory                    Liabilities and Deferred Investment Tax Credits     |   |                                  | 503,627   |         |   | 598,027 |   |
| Deferred                    Credits and Other                                     |   |                                  | 58,109    |         |   | 44,047 |   |
| **TOTAL**                                                                         |   |                                  | 4,443,836 |         |   | 4,613,584 |   |
|                                                                              |   |                                  |      |         |   |   |   |
| **TOTAL                    LIABILITIES**                                          |   |                                  | 4,747,617 |         |   | 4,912,694 |   |
|                                                                              |   |                                  |      |         |   |   |   |
| Cumulative                    Preferred Stock Not Subject to Mandatory Redemption |   |                                  | 5,921     |         |   | 5,921 |   |
|                                                                              |   |                                  |      |         |   |   |   |
| Commitments                    and Contingencies (Note 4)                         |   |                                  |      |         |   |   |   |
|                                                                              |   |                                  |      |         |   |   |   |
| **COMMON                    SHAREHOLDER’S EQUITY**                          |   |                                  |      |         |   |   |   |
| Common                    Stock - Par Value - $25 Per Share:                      |   |                                  |      |         |   |   |   |
| Authorized                    - 12,000,000 Shares                                 |   |                                  |      |         |   |   |   |
| Outstanding                    - 2,211,678 Shares                                 |   |                                  | 55,292    |         |   | 55,292 |   |
| Paid-in                    Capital                                                |   |                                  | 132,606   |         |   | 132,606 |   |
| Retained                    Earnings                                              |   |                                  | 218,509   |         |   | 217,218 |   |
| **TOTAL**                                                                         |   |                                  | 406,407   |         |   | 405,116 |   |
|                                                                              |   |                                  |      |         |   |   |   |
| **TOTAL                    LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                     | 5,159,945 |         | $      | 5,323,731 |   |

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**AEP          TEXAS CENTRAL COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For          the Three Months Ended March 31, 2007 and 2006**

**(in          thousands)**

**(Unaudited)**

|                                                                       |   | **2007**     |     | **2006**     |   |
|----------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                    ACTIVITIES**                                |   |    |     |    |   |
| **Net                    Income**                                          |   | $            | 3,538    |         | $      | 3,773 |   |
| **Adjustments                    for Noncash Items:**                      |   |         |     |         |   |   |   |
| Depreciation                    and Amortization                           |   |         | 46,020   |         |   | 33,360 |   |
| Deferred                    Income Taxes                                   |   |         | 11,102   |         |   | 2,928 |   |
| Carrying                    Costs on Stranded Cost Recovery                |   |         | -        |         |   | (19,423 | ) |
| Mark-to-Market                    of Risk Management Contracts             |   |         | -        |         |   | 5,125 |   |
| Fuel                    Over/Under Recovery, Net                           |   |         | (98,665  | )            |   | - |   |
| Deferred                    Property Taxes                                 |   |         | (20,064  | )            |   | (25,755 | ) |
| Change                    in Other Noncurrent Assets                       |   |         | (753     | )            |   | (1,330 | ) |
| Change                    in Other Noncurrent Liabilities                  |   |         | 3,187    |         |   | 1,398 |   |
| **Changes                    in Certain Components of Working Capital:**   |   |         |     |         |   |   |   |
| Accounts                    Receivable, Net                                |   |         | (19,084  | )            |   | 121,367 |   |
| Fuel,                    Materials and Supplies                            |   |         | (2,543   | )            |   | (2,569 | ) |
| Accounts                    Payable                                        |   |         | (3,957   | )            |   | (53,124 | ) |
| Customer                    Deposits                                       |   |         | (891     | )            |   | (6,514 | ) |
| Accrued                    Taxes, Net                                      |   |         | (40,642  | )            |   | 6,854 |   |
| Accrued                    Interest                                        |   |         | 11,019   |         |   | (16,152 | ) |
| Other                    Current Assets                                    |   |         | 681      |         |   | 2,629 |   |
| Other                    Current Liabilities                               |   |         | (13,867  | )            |   | (7,461 | ) |
| **Net                    Cash Flows From (Used for) Operating Activities** |   |         | (124,919 | )            |   | 45,106 |   |
|                                                                       |   |         |     |         |   |   |   |
| **INVESTING                    ACTIVITIES**                                |   |         |     |         |   |   |   |
| Construction                    Expenditures                               |   |         | (59,872  | )            |   | (58,645 | ) |
| Change                    in Other Cash Deposits, Net                      |   |         | (6,071   | )            |   | 29,736 |   |
| Change                    in Advances to Affiliates, Net                   |   |         | 177,051  |         |   | (32,101 | ) |
| Proceeds                    from Sale of Assets                            |   |         | 45,619   |         |   | 3,837 |   |
| **Net                    Cash Flows From (Used For) Investing Activities** |   |         | 156,727  |         |   | (57,173 | ) |
|                                                                       |   |         |     |         |   |   |   |
| **FINANCING                    ACTIVITIES**                                |   |         |     |         |   |   |   |
| Issuance                    of Long-term Debt - Affiliated                 |   |         | -        |         |   | 125,000 |   |
| Change                    in Advances from Affiliates, Net                 |   |         | -        |         |   | (82,080 | ) |
| Retirement                    of Long-term Debt - Nonaffiliated            |   |         | (32,125  | )            |   | (30,641 | ) |
| Principal                    Payments for Capital Lease Obligations        |   |         | (350     | )            |   | (152 | ) |
| Dividends                    Paid on Cumulative Preferred Stock            |   |         | (60      | )            |   | (60 | ) |
| **Net                    Cash From (Used For) Financing Activities**       |   |         | (32,535  | )            |   | 12,067 |   |
|                                                                       |   |         |     |         |   |   |   |
| **Net                    Decrease in Cash and Cash Equivalents**           |   |         | (727     | )            |   | - |   |
| **Cash                    and Cash Equivalents at Beginning of Period**    |   |         | 779      |         |   | - |   |
| **Cash                    and Cash Equivalents at End of Period**          |   | $            | 52       |         | $      | - |   |

| **SUPPLEMENTARY                    INFORMATION**                                       |   |    |   |    |   |
|----------------------------------------------------------------------------------------|--------|--------------|--------|--------------|--------|
| Cash                    Paid for Interest, Net of Capitalized Amounts                  |   | $            | 27,961 |         | $      | 40,646 |   |
| Net                    Cash Paid for Income Taxes                                      |   |         | 32,601 |         |   | 485 |   |
| Noncash                    Acquisitions Under Capital Leases                           |   |         | 363    |         |   | 680 |   |
| Construction                    Expenditures Included in Accounts Payable at March 31, |   |         | 7,477  |         |   | 9,970 |   |

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries*

----

**AEP          TEXAS CENTRAL COMPANY AND **
**SUBSIDIARIES**

**INDEX          TO CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS OF **

**REGISTRANT          SUBSIDIARIES**

|                                                                   | **Footnote                    Reference** |
|------------------------------------------------------------------------|-------------------------------------------|
| Significant                    Accounting Matters                      | Note                    1                 |
| New                    Accounting Pronouncements                       | Note                    2                 |
| Rate                    Matters                                        | Note                    3                 |
| Commitments,                    Guarantees and Contingencies           | Note                    4                 |
| Acquisitions,                    Dispositions and Assets Held for Sale | Note                    5                 |
| Benefit                    Plans                                       | Note                    6                 |
| Business                    Segments                                   | Note                    7                 |
| Income                    Taxes                                        | Note                    8                 |
| Financing                    Activities                                | Note                    9                 |

----

**AEP          TEXAS NORTH COMPANY AND SUBSIDIARY **

----

**AEP          TEXAS NORTH COMPANY AND SUBSIDIARY**

**MANAGEMENT’S          NARRATIVE FINANCIAL DISCUSSION AND ANALYSIS**

**Results          of Operations**

**Reconciliation          of First Quarter of 2006 to First Quarter of 2007**

**Net          Income**

**(in          millions)**

| **First                    Quarter of 2006**                        |   |   |   |   | $      | 4      |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Gross Margin:**                     |   |   |   |   |   |   |   |
| Off-system                    Sales                                 |   |   | 3      |   |   |   |   |
| Texas                    Wires                                      |   |   | 2      |   |   |   |   |
| Transmission                    Revenues                            |   |   | 1      |   |   |   |   |
| **Total                    Change in Gross Margin**                 |   |   |   |   |   | 6      |   |
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                    Operation and Maintenance                  |   |   | (4     | )      |   |   |   |
| **Total                    Change in Operating Expenses and Other** |   |   |   |   |   | (4     | )      |
|                                                                |   |   |   |   |   |   |   |
| Income                    Tax** **Expense                      |   |   |   |   |   | (1     | )      |
|                                                                |   |   |   |   |   |   |   |
| **First                    Quarter of 2007**                        |   |   |   |   | $      | 5      |   |

| · | Margins                    from Off-system Sales increased $3 million primarily due to lower                    margins                    from optimization activities of $2 million in 2006. An additional                    $1                    million increase was primarily due to the implementation of the                    Power                    Purchase Agreement with AEP Energy Partners in January 2007.                    Under this                    agreement, we recover our costs and capacity charges regardless                    of plant                    availability. See “Oklaunion PPA between TNC and AEP Energy Partners”                    section of Note 1. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Texas                    Wires revenues increased $2 million primarily due to increased                    usage and                    favorable weather conditions. As compared to the prior year,                    heating                    degree days increased 77%.                                                                                                                                                                                                                                                                                                                                                                                                                                          |

| · | Other                    Operation and Maintenance expenses increased $4 million primarily                    resulting from planned and forced outages at our Oklaunion Plant                    during                    the first quarter of 2007. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Income          Taxes*

**Critical          Accounting Estimates**

**Adoption          of New Accounting Pronouncements**

----

**QUANTITATIVE          AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT          ACTIVITIES**

**Market          Risks**

**VaR          Associated with Debt Outstanding**

----

**AEP          TEXAS NORTH COMPANY AND SUBSIDIARY**

**CONDENSED          CONSOLIDATED STATEMENTS OF INCOME**

**For          the Three Months Ended March 31, 2007 and 2006**

**(in          thousands)**

**(Unaudited)**

|                                                                       |   | **2007** |   | **2006** |   |
|----------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| **REVENUES**                                                               |   |     |   |     |   |
| Electric                    Generation, Transmission and Distribution      |   | $        | 38,079 |     | $      | 68,825 |   |
| Sales                    to AEP Affiliates                                 |   |     | 24,654 |     |   | 6,025 |   |
| Other                                                                      |   |     | 230    |     |   | (184 | ) |
| **TOTAL**                                                                  |   |     | 62,963 |     |   | 74,666 |   |
|                                                                       |   |     |   |     |   |   |   |
| **EXPENSES**                                                               |   |     |   |     |   |   |   |
| Fuel                    and Other Consumables Used for Electric Generation |   |     | 6,276  |     |   | 12,115 |   |
| Purchased                    Electricity for Resale                        |   |     | 2,802  |     |   | 14,396 |   |
| Other                    Operation                                         |   |     | 19,563 |     |   | 18,478 |   |
| Maintenance                                                                |   |     | 7,467  |     |   | 5,201 |   |
| Depreciation                    and Amortization                           |   |     | 10,346 |     |   | 10,301 |   |
| Taxes                    Other Than Income Taxes                           |   |     | 4,841  |     |   | 5,540 |   |
| **TOTAL**                                                                  |   |     | 51,295 |     |   | 66,031 |   |
|                                                                       |   |     |   |     |   |   |   |
| **OPERATING                    INCOME**                                    |   |     | 11,668 |     |   | 8,635 |   |
|                                                                       |   |     |   |     |   |   |   |
| **Other                    Income (Expense):**                             |   |     |   |     |   |   |   |
| Interest                    Income                                         |   |     | 133    |     |   | 219 |   |
| Allowance                    for Equity Funds Used During Construction     |   |     | 52     |     |   | 382 |   |
| Interest                    Expense                                        |   |     | (4,346 | )        |   | (4,362 | ) |
|                                                                       |   |     |   |     |   |   |   |
| **INCOME                    BEFORE INCOME TAXES**                          |   |     | 7,507  |     |   | 4,874 |   |
|                                                                       |   |     |   |     |   |   |   |
| Income                    Tax Expense                                      |   |     | 2,230  |     |   | 1,040 |   |
|                                                                       |   |     |   |     |   |   |   |
| **NET                    INCOME**                                          |   |     | 5,277  |     |   | 3,834 |   |
|                                                                       |   |     |   |     |   |   |   |
| Preferred                    Stock Dividend Requirements                   |   |     | 26     |     |   | 26 |   |
| Gain                    on Reacquired Preferred Stock                      |   |     | -      |     |   | 2 |   |
|                                                                       |   |     |   |     |   |   |   |
| **EARNINGS                    APPLICABLE TO COMMON STOCK**                 |   | $        | 5,251  |     | $      | 3,810 |   |

*The          *
*common          stock of TNC is owned by a wholly-owned subsidiary of AEP.*

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**AEP          TEXAS NORTH COMPANY AND SUBSIDIARY**

**CONDENSED          CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDER’S**

**EQUITY          AND COMPREHENSIVE INCOME **

**For          the Three Months Ended March 31, 2007 and 2006**

**(in          thousands)**

**(Unaudited)**

|                                                                  |   | **Common                    Stock** |    | **Paid-in                    Capital** |   | **Retained                    Earnings** |   | **Accumulated                    Other Comprehensive Income (Loss)** |    | **Total** |   |
|-----------------------------------------------------------------------|--------|-------------------------------------|---------|----------------------------------------|--------|------------------------------------------|--------|----------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                    31, 2005**                              |   | $                                   | 137,214 |                                   | $      | 2,351                                    |   | $                                                                    | 174,858 |      | $      | (504 | ) | $ | 313,919 |   |
|                                                                  |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| Common                    Stock Dividends                             |   |                                |    |                                   |   |                                     |   |                                                                 | (8,000  | )         |   |   |   |   | (8,000 | ) |
| Preferred                    Stock Dividends                          |   |                                |    |                                   |   |                                     |   |                                                                 | (26     | )         |   |   |   |   | (26 | ) |
| Gain                    on Reacquired Preferred Stock                 |   |                                |    |                                   |   |                                     |   |                                                                 | 2       |      |   |   |   |   | 2 |   |
| **TOTAL**                                                             |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 305,895 |   |
|                                                                  |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **Other                    Comprehensive Income, Net of Taxes:** |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $102               |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   | 189 |   |   | 189 |   |
| **NET                    INCOME**                                     |   |                                |    |                                   |   |                                     |   |                                                                 | 3,834   |      |   |   |   |   | 3,834 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                     |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 4,023 |   |
|                                                                  |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **MARCH                    31, 2006**                                 |   | $                                   | 137,214 |                                   | $      | 2,351                                    |   | $                                                                    | 170,668 |      | $      | (315 | ) | $ | 309,918 |   |
|                                                                  |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **DECEMBER                    31, 2006**                              |   | $                                   | 137,214 |                                   | $      | 2,351                                    |   | $                                                                    | 176,950 |      | $      | (10,159 | ) | $ | 306,356 |   |
|                                                                  |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| FIN                    48 Adoption, Net of Tax                        |   |                                |    |                                   |   |                                     |   |                                                                 | (557    | )         |   |   |   |   | (557 | ) |
| Preferred                    Stock Dividends                          |   |                                |    |                                   |   |                                     |   |                                                                 | (26     | )         |   |   |   |   | (26 | ) |
| **TOTAL**                                                             |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 305,773 |   |
|                                                                  |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **Other                    Comprehensive Income, Net of Taxes:**      |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $378               |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   | 702 |   |   | 702 |   |
| **NET                    INCOME**                                     |   |                                |    |                                   |   |                                     |   |                                                                 | 5,277   |      |   |   |   |   | 5,277 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                     |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 5,979 |   |
|                                                                  |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **MARCH                    31, 2007**                                 |   | $                                   | 137,214 |                                   | $      | 2,351                                    |   | $                                                                    | 181,644 |      | $      | (9,457 | ) | $ | 311,752 |   |

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**AEP          TEXAS NORTH COMPANY AND SUBSIDIARY**

**CONDENSED          CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**March          31, 2007 and December 31, 2006**

**(in          thousands)**

**(Unaudited)**

|                                                         |   | **2007**     |      | **2006**     |   |
|--------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                    ASSETS**                        |   |    |      |    |   |
| Cash                    and Cash Equivalents                 |   | $            | 3         |         | $      | 84 |   |
| Other                    Cash Deposits                       |   |         | 8,958     |         |   | 8,863 |   |
| Advances                    to Affiliates                    |   |         | -         |         |   | 13,543 |   |
| Accounts                    Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                    |   |         | 11,080    |         |   | 21,742 |   |
| Affiliated                    Companies                      |   |         | 13,177    |         |   | 5,634 |   |
| Accrued                    Unbilled Revenues                 |   |         | 2,917     |         |   | 2,292 |   |
| Allowance                    for Uncollectible Accounts      |   |         | (18       | )            |   | (9 | ) |
|                       Total Accounts Receivable    |   |         | 27,156    |         |   | 29,659 |   |
| Fuel                                                         |   |         | 11,401    |         |   | 8,559 |   |
| Materials                    and Supplies                    |   |         | 9,544     |         |   | 9,319 |   |
| Prepayments                    and Other                     |   |         | 1,879     |         |   | 1,681 |   |
| **TOTAL**                                                    |   |         | 58,941    |         |   | 71,708 |   |
|                                                         |   |         |      |         |   |   |   |
| **PROPERTY,                    PLANT AND EQUIPMENT**         |   |         |      |         |   |   |   |
| Electric:                                                    |   |         |      |         |   |   |   |
| Production                                                   |   |         | 290,654   |         |   | 290,485 |   |
| Transmission                                                 |   |         | 330,272   |         |   | 327,845 |   |
| Distribution                                                 |   |         | 506,752   |         |   | 512,265 |   |
| Other                                                        |   |         | 160,141   |         |   | 159,451 |   |
| Construction                    Work in Progress             |   |         | 36,145    |         |   | 38,847 |   |
| **Total**                                                    |   |         | 1,323,964 |         |   | 1,328,893 |   |
| Accumulated                    Depreciation and Amortization |   |         | 483,960   |         |   | 486,961 |   |
| **TOTAL                    - NET**                           |   |         | 840,004   |         |   | 841,932 |   |
|                                                         |   |         |      |         |   |   |   |
| **OTHER                    NONCURRENT ASSETS**               |   |         |      |         |   |   |   |
| Regulatory                    Assets                         |   |         | 38,356    |         |   | 38,402 |   |
| Employee                    Benefits and Pension Assets      |   |         | 12,824    |         |   | 12,867 |   |
| Deferred                    Charges and Other                |   |         | 12,807    |         |   | 2,605 |   |
| **TOTAL**                                                    |   |         | 63,987    |         |   | 53,874 |   |
|                                                         |   |         |      |         |   |   |   |
| **TOTAL                    ASSETS**                          |   | $            | 962,932   |         | $      | 967,514 |   |

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**AEP          TEXAS NORTH COMPANY AND SUBSIDIARY**

**CONDENSED          CONSOLIDATED BALANCE SHEETS**

**LIABILITIES          AND **
**SHAREHOLDERS’**
**          EQUITY**

**March          31, 2007 and December 31, 2006**

**(Unaudited)**

|                                                                              |   | **2007**                              |    | **2006** |   |
|-----------------------------------------------------------------------------------|--------|---------------------------------------|---------|----------|--------|
| **CURRENT                    LIABILITIES**                                        |   | **(in                    thousands)** |    |
| Advances                    from Affiliates                                       |   | $                                     | 11,185  |     | $      | - |   |
| Accounts                    Payable:                                              |   |                                  |    |     |   |   |   |
| General                                                                           |   |                                  | 6,328   |     |   | 4,448 |   |
| Affiliated                    Companies                                           |   |                                  | 34,129  |     |   | 43,993 |   |
| Long-term                    Debt Due Within One Year - Nonaffiliated             |   |                                  | 8,151   |     |   | 8,151 |   |
| Accrued                    Taxes                                                  |   |                                  | 19,477  |     |   | 21,782 |   |
| Other                                                                             |   |                                  | 8,687   |     |   | 14,934 |   |
| **TOTAL**                                                                         |   |                                  | 87,957  |     |   | 93,308 |   |
|                                                                              |   |                                  |    |     |   |   |   |
| **NONCURRENT                    LIABILITIES**                                     |   |                                  |    |     |   |   |   |
| Long-term                    Debt - Nonaffiliated                                 |   |                                  | 268,807 |     |   | 268,785 |   |
| Long-term                    Risk Management Liabilities                          |   |                                  | -       |     |   | 1,081 |   |
| Deferred                    Income Taxes                                          |   |                                  | 120,261 |     |   | 124,048 |   |
| Regulatory                    Liabilities and Deferred Investment Tax Credits     |   |                                  | 132,646 |     |   | 139,429 |   |
| Deferred                    Credits and Other                                     |   |                                  | 39,160  |     |   | 32,158 |   |
| **TOTAL**                                                                         |   |                                  | 560,874 |     |   | 565,501 |   |
|                                                                              |   |                                  |    |     |   |   |   |
| **TOTAL                    LIABILITIES**                                          |   |                                  | 648,831 |     |   | 658,809 |   |
|                                                                              |   |                                  |    |     |   |   |   |
| Cumulative                    Preferred Stock Not Subject to Mandatory Redemption |   |                                  | 2,349   |     |   | 2,349 |   |
|                                                                              |   |                                  |    |     |   |   |   |
| Commitments                    and Contingencies (Note 4)                         |   |                                  |    |     |   |   |   |
|                                                                              |   |                                  |    |     |   |   |   |
| **COMMON                    SHAREHOLDER’S EQUITY**                          |   |                                  |    |     |   |   |   |
| Common                    Stock - Par Value - $25 Per Share:                      |   |                                  |    |     |   |   |   |
| Authorized                    - 7,800,000 Shares                                  |   |                                  |    |     |   |   |   |
| Outstanding                    - 5,488,560 Shares                                 |   |                                  | 137,214 |     |   | 137,214 |   |
| Paid-in                    Capital                                                |   |                                  | 2,351   |     |   | 2,351 |   |
| Retained                    Earnings                                              |   |                                  | 181,644 |     |   | 176,950 |   |
| Accumulated                    Other Comprehensive Income (Loss)                  |   |                                  | (9,457  | )        |   | (10,159 | ) |
| **TOTAL**                                                                         |   |                                  | 311,752 |     |   | 306,356 |   |
|                                                                              |   |                                  |    |     |   |   |   |
| **TOTAL                    LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                     | 962,932 |     | $      | 967,514 |   |

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**AEP          TEXAS NORTH COMPANY AND SUBSIDIARY**

**CONDENSED          CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For          the Three Months Ended March 31, 2007 and 2006**

**(in          thousands)**

**(Unaudited)**

|                                                                       |   | **2007**     |    | **2006**     |   |
|----------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **OPERATING                    ACTIVITIES**                                |   |    |    |    |   |
| **Net                    Income**                                          |   | $            | 5,277   |         | $      | 3,834 |   |
| **Adjustments                    for Noncash Items:**                      |   |         |    |         |   |   |   |
| Depreciation                    and Amortization                           |   |         | 10,346  |         |   | 10,301 |   |
| Deferred                    Income Taxes                                   |   |         | (1,016  | )            |   | (1,323 | ) |
| Mark-to-Market                    of Risk Management Contracts             |   |         | -       |         |   | 1,989 |   |
| Deferred                    Property Taxes                                 |   |         | (10,862 | )            |   | (12,360 | ) |
| Change                    in Other Noncurrent Assets                       |   |         | 1,508   |         |   | (2,081 | ) |
| Change                    in Other Noncurrent Liabilities                  |   |         | (5,713  | )            |   | 652 |   |
| **Changes                    in Certain Components of Working Capital:**   |   |         |    |         |   |   |   |
| Accounts                    Receivable, Net                                |   |         | 2,503   |         |   | 36,836 |   |
| Fuel,                    Materials and Supplies                            |   |         | (3,067  | )            |   | (2,156 | ) |
| Accounts                    Payable                                        |   |         | (9,176  | )            |   | (36,932 | ) |
| Accrued                    Taxes, Net                                      |   |         | (302    | )            |   | 4,059 |   |
| Other                    Current Assets                                    |   |         | (255    | )            |   | 1,676 |   |
| Other                    Current Liabilities                               |   |         | (5,975  | )            |   | (9,775 | ) |
| **Net                    Cash Flows Used For Operating Activities**        |   |         | (16,732 | )            |   | (5,280 | ) |
|                                                                       |   |         |    |         |   |   |   |
| **INVESTING                    ACTIVITIES**                                |   |         |    |         |   |   |   |
| Construction                    Expenditures                               |   |         | (19,793 | )            |   | (18,662 | ) |
| Change                    in Other Cash Deposits, Net                      |   |         | (95     | )            |   | 792 |   |
| Change                    In Advances to Affiliates, Net                   |   |         | 13,543  |         |   | 31,240 |   |
| Proceeds                    from Sale of Assets                            |   |         | 11,965  |         |   | - |   |
| **Net                    Cash Flows From Investing Activities**            |   |         | 5,620   |         |   | 13,370 |   |
|                                                                       |   |         |    |         |   |   |   |
| **FINANCING                    ACTIVITIES**                                |   |         |    |         |   |   |   |
| Change                    in Advances from Affiliates, Net                 |   |         | 11,185  |         |   | - |   |
| Principal                    Payments for Capital Lease Obligations        |   |         | (128    | )            |   | (64 | ) |
| Dividends                    Paid on Common Stock                          |   |         | -       |         |   | (8,000 | ) |
| Dividends                    Paid on Cumulative Preferred Stock            |   |         | (26     | )            |   | (26 | ) |
| **Net                    Cash Flows From (Used For) Financing Activities** |   |         | 11,031  |         |   | (8,090 | ) |
|                                                                       |   |         |    |         |   |   |   |
| **Net                    Decrease in Cash and Cash Equivalents**           |   |         | (81     | )            |   | - |   |
| **Cash                    and Cash Equivalents at Beginning of Period**    |   |         | 84      |         |   | - |   |
| **Cash                    and Cash Equivalents at End of Period**          |   | $            | 3       |         | $      | - |   |

| **SUPPLEMENTARY                    INFORMATION**                                       |   |    |   |    |   |
|----------------------------------------------------------------------------------------|--------|--------------|--------|--------------|--------|
| Cash                    Paid for Interest, Net of Capitalized Amounts                  |   | $            | 6,150  |         | $      | 6,113 |   |
| Net                    Cash Paid for Income Taxes                                      |   |         | 2,288  |         |   | - |   |
| Noncash                    Acquisitions Under Capital Leases                           |   |         | 98     |         |   | 224 |   |
| Construction                    Expenditures Included in Accounts Payable at March 31, |   |         | 2,509  |         |   | 2,372 |   |

* See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**AEP          TEXAS NORTH COMPANY AND SUBSIDIARY**

**INDEX          TO CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS OF REGISTRANT          SUBSIDIARIES**

|                                                         | **Footnote                    Reference** |
|--------------------------------------------------------------|-------------------------------------------|
| Significant                    Accounting Matters            | Note                    1                 |
| New                    Accounting Pronouncements             | Note                    2                 |
| Rate                    Matters                              | Note                    3                 |
| Commitments,                    Guarantees and Contingencies | Note                    4                 |
| Benefit                    Plans                             | Note                    6                 |
| Business                    Segments                         | Note                    7                 |
| Income                    Taxes                              | Note                    8                 |
| Financing                    Activities                      | Note                    9                 |

----

**APPALACHIAN          POWER COMPANY**

**AND          SUBSIDIARIES**

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**MANAGEMENT’S          FINANCIAL DISCUSSION AND ANALYSIS**

**Results          of Operations**

**Reconciliation          of First Quarter of 2006 to First Quarter of 2007**

**Net          Income**

**(in          millions)**

| **First                    Quarter of 2006**                        |   |   |   |   | $      | 74     |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                    Margins                                   |   |   | 29     |   |   |   |   |
| Off-system                    Sales                                 |   |   | (6     | )      |   |   |   |
| Transmission                    Revenues                            |   |   | (11    | )      |   |   |   |
| Other                                                               |   |   | 1      |   |   |   |   |
| **Total                    Change in Gross Margin**                 |   |   |   |   |   | 13     |   |
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                    Operation and Maintenance                  |   |   | (5     | )      |   |   |   |
| Depreciation                    and Amortization                    |   |   | (11    | )      |   |   |   |
| Taxes                    Other Than Income Taxes                    |   |   | 2      |   |   |   |   |
| Carrying                    Costs Income                            |   |   | (3     | )      |   |   |   |
| Interest                    Expense                                 |   |   | (2     | )      |   |   |   |
| **Total                    Change in Operating Expenses and Other** |   |   |   |   |   | (19    | )      |
|                                                                |   |   |   |   |   |   |   |
| Income                    Tax Expense                               |   |   |   |   |   | 2      |   |
|                                                                |   |   |   |   |   |   |   |
| **   First                    Quarter of 2007**      |   |   |   |   | $      | 70     |   |

| · | Retail                    Margins increased $29 million in comparison to 2006 primarily                    due                    to:                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | A                    $42 million increase in retail revenues primarily related to                    new rates                    implemented in relation to our Virginia general rate case, which                    are being                    collected subject to refund, and recovery of Virginia Environmental                    and                    Reliability (E&R) costs. See the “APCo Virginia Base Rate Case”                    section of Note 3. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | A                    $9 million increase in retail sales primarily due to increased                    demand in                    the residential class associated with favorable weather conditions.                    Heating degree days increased approximately 19%. |
|   | These                    increases were partially offset by:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | A                    $14 million decrease in revenues related to financial transmission                    rights,                    net of congestion, primarily due to fewer transmission constraints                    in the                    PJM market. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | A                    $9 million decrease in revenues related to the Expanded Net Energy                    Cost                    (ENEC) mechanism with West Virginia retail customers primarily                    due to                    pass-through of off-system sales margins. The mechanism                    was reinstated in West Virginia effective July 1, 2006 in conjunction                    with                    our West Virginia rate case. |
| · | Margins                    from Off-system Sales decreased $6 million primarily due to an                    $18 million                    decrease in physical sales margins partially offset by a $10                    million                    increase in margins from optimization activities and a $2 million                    increase                    in our allocation of off-system sales margins under the SIA.                    The change in                    allocation methodology of the SIA occurred on April 1, 2006. |
| · | Transmission                    Revenues decreased $11 million primarily due to the elimination                    of SECA                    revenues as of April 1, 2006. See the “Transmission Rate Proceedings at                    the FERC” section of Note 3.                                                                                                                                                                                                                                                                     |

| · | Other                    Operation and Maintenance expenses increased $5 million mainly                    due to a $6                    million increase in expenses for overhead line right-of-way clearing,                    overhead line repairs and increases in various other operation                    and                    maintenance expenses totaling $8 million. These increases were                    partially                    offset by a $9 million decrease in expenses related to the AEP                    Transmission Equalization Agreement due to the addition of our                    Wyoming-Jacksons Ferry 765 kV line which was energized and placed                    into                    service in June 2006. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                    and Amortization expenses increased $11 million primarily due                    to the                    amortization of carrying charges and depreciation expense that                    are being                    collected through the E&R surcharges and increased plant in service                    related to the Wyoming-Jacksons Ferry 765 kV line, which was                    energized and                    placed in service in June 2006.                                                                                                                                                                                                                                                             |
| · | Carrying                    Costs Income decreased $3 million related to carrying costs associated                    with our E&R case.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

*Income          Taxes*

**Financial          Condition**

**Credit          Ratings**

|                                     | **Moody’s** |   | **S&P** |   | **Fitch** |
|------------------------------------------|-------------------|--------|-------------|--------|-----------|
|                                     |              |   |        |   |      |
| Senior                    Unsecured Debt | Baa2              |   | BBB         |   | BBB+      |

**Cash          Flow**

|                                                                    |   | **2007**                              |     | **2006** |   |
|-------------------------------------------------------------------------|--------|---------------------------------------|----------|----------|--------|
|                                                                    |   | **(in                    thousands)** |     |
| **Cash                    and Cash Equivalents at Beginning of Period** |   | $                                     | 2,318    |     | $      | 1,741 |   |
| Cash                    Flows From (Used For):                          |   |                                  |     |     |   |   |   |
| Operating                    Activities                                 |   |                                  | 176,029  |     |   | 210,980 |   |
| Investing                    Activities                                 |   |                                  | (200,894 | )        |   | (194,897 | ) |
| Financing                    Activities                                 |   |                                  | 24,534   |     |   | (16,372 | ) |
| Net                    Decrease in Cash and Cash Equivalents            |   |                                  | (331     | )        |   | (289 | ) |
| **Cash                    and Cash Equivalents at End of Period**       |   | $                                     | 1,987    |     | $      | 1,452 |   |

*Operating          Activities*

*Investing          Activities*

*Financing          Activities*

**Financing          Activity**

**Liquidity**

**Summary          Obligation Information**

**Significant          Factors**

***New          Generation***

***Virginia          Restructuring***

***Litigation          and Regulatory Activity***

**Critical          Accounting Estimates**

**Adoption          of New Accounting Pronouncements**

----

**QUANTITATIVE          AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT          ACTIVITIES**

**Market          Risks**

**MTM          Risk Management Contract Net Assets**

**Reconciliation          of MTM Risk Management Contracts to**

**Condensed          Consolidated Balance Sheet**

**As          of March 31, 2007**

**(in          thousands)**

|                                                                                                  |   | **MTM                    Risk Management Contracts** |    | **Cash                    Flow &****Fair                    Value****Hedges** |   | **DETM****Assignment                    (a)** |   | **Total** |    |
|-------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------|---------|-----------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|-----------|---------|
| Current                    Assets                                                                     |   | $                                                    | 66,058  |                                                                              | $      | 1,405                                         |   | $         | -       |   | $ | 67,463 |   |
| Noncurrent                    Assets                                                                  |   |                                                 | 84,718  |                                                                              |   | 1,269                                         |   |      | -       |   |   | 85,987 |   |
| **Total                    MTM Derivative Contract Assets**                                           |   |                                                 | 150,776 |                                                                              |   | 2,674                                         |   |      | -       |   |   | 153,450 |   |
|                                                                                                  |   |                                                 |    |                                                                              |   |                                          |   |      |    |   |   |   |   |
| Current                    Liabilities                                                                |   |                                                 | (47,767 | )                                                                                 |   | (6,899                                        | )      |      | (3,152  | ) |   | (57,818 | ) |
| Noncurrent                    Liabilities                                                             |   |                                                 | (49,833 | )                                                                                 |   | (804                                          | )      |      | (8,358  | ) |   | (58,995 | ) |
| **Total                    MTM Derivative Contract Liabilities**                                 |   |                                                 | (97,600 | )                                                                                 |   | (7,703                                        | )      |      | (11,510 | ) |   | (116,813 | ) |
|                                                                                                  |   |                                                 |    |                                                                              |   |                                          |   |      |    |   |   |   |   |
| **Total                    MTM Derivative Contract Net Assets                    (Liabilities)** |   | $                                                    | 53,176  |                                                                              | $      | (5,029                                        | )      | $         | (11,510 | ) | $ | 36,637 |   |

| (a) | See                    “Natural Gas Contracts with DETM” section of Note 16 of the 2006 Annual                    Report. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------|

**MTM          Risk Management Contract Net Assets**

**Three          Months Ended March 31, 2007**

**(in          thousands)**

| **Total                    MTM Risk Management Contract Net Assets at December 31,                    2006**                                                              |   | $      | 52,489  |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| (Gain)                    Loss from Contracts Realized/Settled During the Period and Entered                    in a                    Prior Period                      |   |   | (5,389  | )      |
| Fair                    Value of New Contracts at Inception When Entered During the Period                    (a)                                                         |   |   | 255     |   |
| Net                    Option Premiums Paid/(Received) for Unexercised or Unexpired                    Option                    Contracts Entered During the Period |   |   | (35     | )      |
| Change                    in Fair Value Due to Valuation Methodology Changes on Forward                    Contracts                                                      |   |   | -       |   |
| Changes                    in Fair Value Due to Market Fluctuations During the Period                    (b)                                                              |   |   | 4,918   |   |
| Changes                    in Fair Value Allocated to Regulated Jurisdictions (c)                                                                                         |   |   | 938     |   |
| **Total                    MTM Risk Management Contract Net Assets**                                                                                                      |   |   | 53,176  |   |
| Net                    Cash Flow & Fair Value Hedge Contracts                                                                                                         |   |   | (5,029  | )      |
| DETM                    Assignment (d)                                                                                                                                    |   |   | (11,510 | )      |
| **Total                    MTM Risk Management Contract Net Assets at March 31, 2007**                                                                                    |   | $      | 36,637  |   |

| (a) | Reflects                    fair value on long-term contracts which are typically with customers                    that                    seek fixed pricing to limit their risk against fluctuating energy                    prices.                    Inception value is only recorded if observable market data can                    be obtained                    for valuation inputs for the entire contract term. The contract                    prices are                    valued against market curves associated with the delivery location                    and                    delivery term. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                    fluctuations are attributable to various factors such as supply/demand,                    weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (c) | “Changes                    in Fair Value Allocated to Regulated Jurisdictions” relates to the net                    gains (losses) of those contracts that are not reflected in the                    Condensed                    Consolidated Statements of Income. These net gains (losses) are                    recorded                    as regulatory liabilities/assets for those subsidiaries that                    operate in                    regulated jurisdictions.                                                                                                                   |
| (d) | See                    “Natural Gas Contracts with DETM” section of Note 16 of the 2006 Annual                    Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

**Maturity          and Source of Fair Value of MTM Risk Management Contract Net          Assets**

| · | The                    method of measuring fair value used in determining the carrying                    amount of                    our total MTM asset or liability (external sources or modeled                    internally). |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | The                    maturity, by year, of our net assets/liabilities to give an indication                    of                    when these MTM amounts will settle and generate                    cash.                      |

**Maturity          and Source of Fair Value of MTM**

**Risk          Management Contract Net Assets**

**Fair          Value of Contracts as of March 31, 2007**

**(in          thousands)**

|                                                                                                                                         |   | **Remainder****2007** |   | **2008** |   | **2009** |   | **2010** |   | **2011** |   | **After****2011** |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                    Actively Quoted - Exchange Traded                    Contracts                                                |   | $                     | 15,650 |     | $      | (644     | )      | $        | 706    |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | 15,712 |   |
| Prices                    Provided by Other External Sources                    -                       OTC Broker Quotes (a) |   |                  | 3,482  |     |   | 13,908   |   |     | 11,448 |     |   | 4,542             |   |      | -      |   |   | - |   |   | 33,380 |   |
| Prices                    Based on Models and Other Valuation                    Methods (b)                                            |   |                  | (3,723 | )        |   | (2,358   | )      |     | 1,822  |     |   | 5,482             |   |      | 1,235  |   |   | 1,626 |   |   | 4,084 |   |
| **Total**                                                                                                                                    |   | $                     | 15,409 |     | $      | 10,906   |   | $        | 13,976 |     | $      | 10,024            |   | $         | 1,235  |   | $ | 1,626 |   | $ | 53,176 |   |

| (a)    | “Prices                    Provided by Other External Sources - OTC Broker Quotes” reflects                    information obtained from over-the-counter brokers, industry                    services, or                    multiple-party on-line platforms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)    | “Prices                    Based on Models and Other Valuation Methods” is used in absence of pricing                    information from external sources. Modeled information is derived                    using                    valuation models developed by the reporting entity, reflecting                    when                    appropriate, option pricing theory, discounted cash flow concepts,                    valuation adjustments, etc. and may require projection of prices                    for                    underlying commodities beyond the period that prices are available                    from                    third-party sources. In addition, where external pricing information                    or                    market liquidity are limited, such valuations are classified                    as modeled.                    The determination of the point at which a market is no longer                    liquid for                    placing it in the modeled category varies by market. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | Contract                    values that are measured using models or valuation methods other                    than                    active quotes or OTC broker quotes (because of the lack of such                    data for                    all delivery quantities, locations and periods) incorporate in                    the model                    or other valuation methods, to the extent possible, OTC broker                    quotes and                    active quotes for deliveries in years and at locations for which                    such                    quotes are available.                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

**Cash          Flow Hedges Included in Accumulated Other Comprehensive Income (Loss) (AOCI)          on          the Condensed Consolidated Balance Sheet **

**Total          Accumulated Other Comprehensive Income (Loss) Activity**

**Three          Months Ended March 31, 2007**

**(in          thousands)**

|                                                                                                                                                  |   | **Power** |   | **Foreign****Currency** |   | **Interest****Rate** |   | **Total** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|-------------------------|--------|----------------------|--------|-----------|--------|
| **Beginning                    Balance in AOCI December 31, 2006**                                                                                    |   | $         | 5,332  |                    | $      | (164                 | )      | $         | (7,715 | ) | $ | (2,547 | ) |
| Changes                    in Fair Value                                                                                                              |   |      | (5,612 | )                       |   | -                    |   |      | -      |   |   | (5,612 | ) |
| Reclassifications                    from AOCI to Net Income for   Cash                    Flow Hedges                    Settled |   |      | (2,221 | )                       |   | 2                    |   |      | 347    |   |   | (1,872 | ) |
| **Ending                    Balance in AOCI March 31, 2007**                                                                                          |   | $         | (2,501 | )                       | $      | (162                 | )      | $         | (7,368 | ) | $ | (10,031 | ) |

**Credit          Risk**

**VaR          Associated with Risk Management Contracts**

| **Three                    Months Ended****March                    31, 2007** |   |     |   |        | **Twelve                    Months Ended****December                    31, 2006** |
|--------------------------------------------------------------------------------|--------|----------|--------|-------------|------------------------------------------------------------------------------------|
| **(in                    thousands)**                                          |   |     |   |        | **(in                    thousands)**                                              |
| **End**                                                                        |   | **High** |   | **Average** |                                                                               | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $712                                                                           |   | $2,328   |   | $1,037      |                                                                               | $282 |   |   |   |   | $756 |   | $1,915 |   | $658 |   | $358 |

**VaR          Associated with Debt Outstanding**

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED STATEMENTS OF INCOME**

**For          the Three Months Ended March 31, 2007 and 2006**

**(in          thousands)**

**(Unaudited)**

|                                                                                              |   | **2007** |    | **2006** |   |
|---------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| **REVENUES**                                                                                      |   |     |    |     |   |
| Electric                    Generation, Transmission and Distribution                             |   | $        | 601,546 |     | $      | 559,993 |   |
| Sales                    to AEP Affiliates                                                        |   |     | 61,545  |     |   | 71,772 |   |
| Other                                                                                             |   |     | 2,637   |     |   | 2,676 |   |
| **TOTAL**                                                                                         |   |     | 665,728 |     |   | 634,441 |   |
|                                                                                              |   |     |    |     |   |   |   |
| **EXPENSES**                                                                                      |   |     |    |     |   |   |   |
| Fuel                    and Other Consumables Used for Electric Generation                        |   |     | 171,186 |     |   | 166,853 |   |
| Purchased                    Electricity for Resale                                               |   |     | 35,950  |     |   | 27,616 |   |
| Purchased                    Electricity from AEP Affiliates                                      |   |     | 127,601 |     |   | 122,399 |   |
| Other                    Operation                                                                |   |     | 67,629  |     |   | 69,901 |   |
| Maintenance                                                                                       |   |     | 45,753  |     |   | 37,839 |   |
| Depreciation                    and Amortization                                                  |   |     | 59,160  |     |   | 48,268 |   |
| Taxes                    Other Than Income Taxes                                                  |   |     | 21,275  |     |   | 23,092 |   |
| **TOTAL**                                                                                         |   |     | 528,554 |     |   | 495,968 |   |
|                                                                                              |   |     |    |     |   |   |   |
| **OPERATING                    INCOME**                                                           |   |     | 137,174 |     |   | 138,473 |   |
|                                                                                              |   |     |    |     |   |   |   |
| **Other                    Income (Expense):**                                                    |   |     |    |     |   |   |   |
| Interest                    Income                                                                |   |     | 639     |     |   | 951 |   |
| Carrying                    Costs Income                                                          |   |     | 3,166   |     |   | 6,011 |   |
| Allowance                    for Equity Funds Used During Construction                            |   |     | 2,777   |     |   | 2,476 |   |
| Interest                    Expense                                                               |   |     | (31,823 | )        |   | (30,268 | ) |
|                                                                                              |   |     |    |     |   |   |   |
| **INCOME                    BEFORE INCOME TAXES**                                                 |   |     | 111,933 |     |   | 117,643 |   |
|                                                                                              |   |     |    |     |   |   |   |
| Income                    Tax Expense                                                             |   |     | 41,706  |     |   | 44,049 |   |
|                                                                                              |   |     |    |     |   |   |   |
| **NET                    INCOME**                                                                 |   |     | 70,227  |     |   | 73,594 |   |
|                                                                                              |   |     |    |     |   |   |   |
| Preferred                    Stock Dividend Requirements including Capital Stock** **Expense |   |     | 238     |     |   | 238 |   |
|                                                                                              |   |     |    |     |   |   |   |
| **EARNINGS                    APPLICABLE TO COMMON STOCK**                                        |   | $        | 69,989  |     | $      | 73,356 |   |

*The          common stock of APCo is wholly-owned by AEP.*

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDER’S**

**EQUITY          AND COMPREHENSIVE INCOME (LOSS)**

**For          the Three Months Ended March 31, 2007 and 2006**

**(in          thousands)**

**(Unaudited)**

|                                                                                  |   | **Common                    Stock** |    | **Paid-in                    Capital** |   | **Retained                    Earnings** |   | **Accumulated                    Other Comprehensive Income (Loss)** |    | **Total**    |   |
|---------------------------------------------------------------------------------------|--------|-------------------------------------|---------|----------------------------------------|--------|------------------------------------------|--------|----------------------------------------------------------------------|---------|--------------|--------|
|                                                                                  |   |                           |    |                              |   |                                |   |                                                            |    |    |   |
| **DECEMBER                    31, 2005**                                              |   | $                                   | 260,458 |                                   | $      | 924,837                                  |   | $                                                                    | 635,016 |         | $      | (16,610 | ) | $ | 1,803,701 |   |
|                                                                                  |   |                                |    |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| Common                    Stock Dividends                                             |   |                                |    |                                   |   |                                     |   |                                                                 | (2,500  | )            |   |   |   |   | (2,500 | ) |
| Preferred                    Stock Dividends                                          |   |                                |    |                                   |   |                                     |   |                                                                 | (200    | )            |   |   |   |   | (200 | ) |
| Capital                    Stock Expense                                              |   |                                |    |                                   |   | 38                                       |   |                                                                 | (38     | )            |   |   |   |   | - |   |
| **TOTAL**                                                                             |   |                                |    |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   | 1,801,001 |   |
|                                                                                  |   |                                |    |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **Other                    Comprehensive Income, Net of Taxes:**                 |   |                                |    |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax** **of                    $7,144 |   |                                |    |                                   |   |                                     |   |                                                                 |    |         |   | 13,268 |   |   | 13,268 |   |
| **NET                    INCOME**                                                     |   |                                |    |                                   |   |                                     |   |                                                                 | 73,594  |         |   |   |   |   | 73,594 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                                     |   |                                |    |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   | 86,862 |   |
|                                                                                  |   |                                |    |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **MARCH                    31, 2006**                                                 |   | $                                   | 260,458 |                                   | $      | 924,875                                  |   | $                                                                    | 705,872 |         | $      | (3,342 | ) | $ | 1,887,863 |   |
|                                                                                  |   |                                |    |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **DECEMBER                    31, 2006**                                              |   | $                                   | 260,458 |                                   | $      | 1,024,994                                |   | $                                                                    | 805,513 |         | $      | (54,791 | ) | $ | 2,036,174 |   |
|                                                                                  |   |                                |    |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| FIN                    48 Adoption, Net of Tax                                        |   |                                |    |                                   |   |                                     |   |                                                                 | (2,685  | )            |   |   |   |   | (2,685 | ) |
| Common                    Stock Dividends                                             |   |                                |    |                                   |   |                                     |   |                                                                 | (15,000 | )            |   |   |   |   | (15,000 | ) |
| Preferred                    Stock Dividends                                          |   |                                |    |                                   |   |                                     |   |                                                                 | (200    | )            |   |   |   |   | (200 | ) |
| Capital                    Stock Expense                                              |   |                                |    |                                   |   | 38                                       |   |                                                                 | (38     | )            |   |   |   |   | - |   |
| **TOTAL**                                                                             |   |                                |    |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   | 2,018,289 |   |
|                                                                                  |   |                                |    |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **Other                    Comprehensive Loss, Net of Taxes:**                        |   |                                |    |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $4,030                             |   |                                |    |                                   |   |                                     |   |                                                                 |    |         |   | (7,484 | ) |   | (7,484 | ) |
| **NET                    INCOME**                                                     |   |                                |    |                                   |   |                                     |   |                                                                 | 70,227  |         |   |   |   |   | 70,227 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                                     |   |                                |    |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   | 62,743 |   |
|                                                                                  |   |                                |    |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **MARCH                    31, 2007**                                                 |   | $                                   | 260,458 |                                   | $      | 1,025,032                                |   | $                                                                    | 857,817 |         | $      | (62,275 | ) | $ | 2,081,032 |   |

*           See Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**March          31, 2007 and December 31, 2006**

**(in          thousands)**

**(Unaudited)**

|                                                               |   | **2007**     |      | **2006**     |   |
|--------------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                    ASSETS**                              |   |    |      |    |   |
| Cash                    and Cash Equivalents                       |   | $            | 1,987     |         | $      | 2,318 |   |
| Accounts                    Receivable:                            |   |         |      |         |   |   |   |
| Customers                                                          |   |         | 199,112   |         |   | 180,190 |   |
| Affiliated                    Companies                            |   |         | 85,919    |         |   | 98,237 |   |
| Accrued                    Unbilled Revenues                       |   |         | 29,618    |         |   | 46,281 |   |
| Miscellaneous                                                      |   |         | 4,849     |         |   | 3,400 |   |
| Allowance                    for Uncollectible Accounts            |   |         | (4,573    | )            |   | (4,334 | ) |
|                       Total Accounts Receivable          |   |         | 314,925   |         |   | 323,774 |   |
| Fuel                                                               |   |         | 72,075    |         |   | 77,077 |   |
| Materials                    and Supplies                          |   |         | 69,428    |         |   | 56,235 |   |
| Risk                    Management Assets                          |   |         | 67,463    |         |   | 105,376 |   |
| Accrued                    Tax Benefits                            |   |         | 9,189     |         |   | 3,748 |   |
| Regulatory                    Asset for Under-Recovered Fuel Costs |   |         | 17,789    |         |   | 29,526 |   |
| Prepayments                    and Other                           |   |         | 15,682    |         |   | 20,126 |   |
| **TOTAL**                                                          |   |         | 568,538   |         |   | 618,180 |   |
|                                                               |   |         |      |         |   |   |   |
| **PROPERTY,                    PLANT AND EQUIPMENT**               |   |         |      |         |   |   |   |
| Electric:                                                          |   |         |      |         |   |   |   |
| Production                                                         |   |         | 3,363,911 |         |   | 2,844,803 |   |
| Transmission                                                       |   |         | 1,640,046 |         |   | 1,620,512 |   |
| Distribution                                                       |   |         | 2,276,327 |         |   | 2,237,887 |   |
| Other                                                              |   |         | 342,014   |         |   | 339,450 |   |
| Construction                    Work in Progress                   |   |         | 512,388   |         |   | 957,626 |   |
| **Total**                                                          |   |         | 8,134,686 |         |   | 8,000,278 |   |
| Accumulated                    Depreciation and Amortization       |   |         | 2,470,106 |         |   | 2,476,290 |   |
| **TOTAL                    - NET**                                 |   |         | 5,664,580 |         |   | 5,523,988 |   |
|                                                               |   |         |      |         |   |   |   |
| **OTHER                    NONCURRENT ASSETS**                     |   |         |      |         |   |   |   |
| Regulatory                    Assets                               |   |         | 612,352   |         |   | 622,153 |   |
| Long-term                    Risk Management Assets                |   |         | 85,987    |         |   | 88,906 |   |
| Deferred                    Charges and Other                      |   |         | 167,913   |         |   | 163,089 |   |
| **TOTAL**                                                          |   |         | 866,252   |         |   | 874,148 |   |
|                                                               |   |         |      |         |   |   |   |
| **TOTAL                    ASSETS**                                |   | $            | 7,099,370 |         | $      | 7,016,316 |   |

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED BALANCE SHEETS**

**LIABILITIES          AND SHAREHOLDERS’ EQUITY**

**March          31, 2007 and December 31, 2006**

**(Unaudited)**

|                                                                              |   | **2007**                              |      | **2006** |   |
|-----------------------------------------------------------------------------------|--------|---------------------------------------|-----------|----------|--------|
| **CURRENT                    LIABILITIES**                                        |   | **(in                    thousands)** |      |
| Advances                    from Affiliates                                       |   | $                                     | 82,860    |     | $      | 34,975 |   |
| Accounts                    Payable:                                              |   |                                  |      |     |   |   |   |
| General                                                                           |   |                                  | 286,892   |     |   | 296,437 |   |
| Affiliated                    Companies                                           |   |                                  | 77,642    |     |   | 105,525 |   |
| Long-term                    Debt Due Within One Year - Nonaffiliated             |   |                                  | 324,169   |     |   | 324,191 |   |
| Risk                    Management Liabilities                                    |   |                                  | 57,818    |     |   | 81,114 |   |
| Customer                    Deposits                                              |   |                                  | 54,193    |     |   | 56,364 |   |
| Accrued                    Taxes                                                  |   |                                  | 87,864    |     |   | 60,056 |   |
| Accrued                    Interest                                               |   |                                  | 55,787    |     |   | 30,617 |   |
| Other                                                                             |   |                                  | 119,509   |     |   | 142,326 |   |
| **TOTAL**                                                                         |   |                                  | 1,146,734 |     |   | 1,131,605 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| **NONCURRENT                    LIABILITIES**                                     |   |                                  |      |     |   |   |   |
| Long-term                    Debt - Nonaffiliated                                 |   |                                  | 2,174,951 |     |   | 2,174,473 |   |
| Long-term                    Debt - Affiliated                                    |   |                                  | 100,000   |     |   | 100,000 |   |
| Long-term                    Risk Management Liabilities                          |   |                                  | 58,995    |     |   | 64,909 |   |
| Deferred                    Income Taxes                                          |   |                                  | 933,703   |     |   | 957,229 |   |
| Regulatory                    Liabilities and Deferred Investment Tax Credits     |   |                                  | 307,018   |     |   | 309,724 |   |
| Deferred                    Credits and Other                                     |   |                                  | 279,174   |     |   | 224,439 |   |
| **TOTAL**                                                                         |   |                                  | 3,853,841 |     |   | 3,830,774 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| **TOTAL                    LIABILITIES**                                          |   |                                  | 5,000,575 |     |   | 4,962,379 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| Cumulative                    Preferred Stock Not Subject to Mandatory Redemption |   |                                  | 17,763    |     |   | 17,763 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| Commitments                    and Contingencies (Note 4)                         |   |                                  |      |     |   |   |   |
|                                                                              |   |                                  |      |     |   |   |   |
| **COMMON                    SHAREHOLDER’S EQUITY**                          |   |                                  |      |     |   |   |   |
| Common                    Stock - No Par Value:                                   |   |                                  |      |     |   |   |   |
| Authorized                    - 30,000,000 Shares                                 |   |                                  |      |     |   |   |   |
| Outstanding                    - 13,499,500 Shares                                |   |                                  | 260,458   |     |   | 260,458 |   |
| Paid-in                    Capital                                                |   |                                  | 1,025,032 |     |   | 1,024,994 |   |
| Retained                    Earnings                                              |   |                                  | 857,817   |     |   | 805,513 |   |
| Accumulated                    Other Comprehensive Income (Loss)                  |   |                                  | (62,275   | )        |   | (54,791 | ) |
| **TOTAL**                                                                         |   |                                  | 2,081,032 |     |   | 2,036,174 |   |
|                                                                              |   |                                  |      |     |   |   |   |
| **TOTAL                    LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                     | 7,099,370 |     | $      | 7,016,316 |   |

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For          the Three Months Ended March 31, 2007 and 2006**

**(in          thousands)**

**(Unaudited)**

|                                                                       |   | **2007**     |     | **2006**     |   |
|----------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                    ACTIVITIES**                                |   |    |     |    |   |
| **Net                    Income**                                          |   | $            | 70,227   |         | $      | 73,594 |   |
| **Adjustments                    for Noncash Items:**                      |   |         |     |         |   |   |   |
| Depreciation                    and Amortization                           |   |         | 59,160   |         |   | 48,268 |   |
| Deferred                    Income Taxes                                   |   |         | (3,901   | )            |   | (11,423 | ) |
| Carrying                    Costs Income                                   |   |         | (3,166   | )            |   | (6,011 | ) |
| Mark-to-Market                    of Risk Management Contracts             |   |         | (401     | )            |   | (5,696 | ) |
| Change                    in Other Noncurrent Assets                       |   |         | (12,747  | )            |   | 4,020 |   |
| Change                    in Other Noncurrent Liabilities                  |   |         | 30,172   |         |   | 5,848 |   |
| **Changes                    in Certain Components of Working Capital:**   |   |         |     |         |   |   |   |
| Accounts                    Receivable, Net                                |   |         | 8,849    |         |   | 75,278 |   |
| Fuel,                    Materials and Supplies                            |   |         | (1,034   | )            |   | 13,028 |   |
| Accounts                    Payable                                        |   |         | (19,891  | )            |   | (30,148 | ) |
| Customer                    Deposits                                       |   |         | (2,171   | )            |   | (13,530 | ) |
| Accrued                    Taxes, Net                                      |   |         | 29,539   |         |   | 56,180 |   |
| Accrued                    Interest                                        |   |         | 21,608   |         |   | 15,511 |   |
| Fuel                    Over/Under Recovery, Net                           |   |         | 12,987   |         |   | 7,832 |   |
| Other                    Current Assets                                    |   |         | 3,899    |         |   | (1,718 | ) |
| Other                    Current Liabilities                               |   |         | (17,101  | )            |   | (20,053 | ) |
| **Net                    Cash Flows From Operating Activities**            |   |         | 176,029  |         |   | 210,980 |   |
|                                                                       |   |         |     |         |   |   |   |
| **INVESTING                    ACTIVITIES**                                |   |         |     |         |   |   |   |
| Construction                    Expenditures                               |   |         | (202,007 | )            |   | (196,561 | ) |
| Change                    in Other Cash Deposits, Net                      |   |         | (29      | )            |   | - |   |
| Proceeds                    from Sales of Assets                           |   |         | 1,142    |         |   | 1,664 |   |
| **Net                    Cash Flows Used For Investing Activities**        |   |         | (200,894 | )            |   | (194,897 | ) |
|                                                                       |   |         |     |         |   |   |   |
| **FINANCING                    ACTIVITIES**                                |   |         |     |         |   |   |   |
| Issuance                    of Long-term Debt - Nonaffiliated              |   |         | -        |         |   | 49,677 |   |
| Change                    in Advances from Affiliates, Net                 |   |         | 47,885   |         |   | (29,941 | ) |
| Retirement                    of Long-term Debt - Nonaffiliated            |   |         | (3       | )            |   | (100,003 | ) |
| Principal                    Payments for Capital Lease Obligations        |   |         | (1,112   | )            |   | (1,483 | ) |
| Funds                    From Amended Coal Contract                        |   |         | -        |         |   | 68,078 |   |
| Amortization                    of Funds From Amended Coal Contract        |   |         | (7,036   | )            |   | - |   |
| Dividends                    Paid on Common Stock                          |   |         | (15,000  | )            |   | (2,500 | ) |
| Dividends                    Paid on Cumulative Preferred Stock            |   |         | (200     | )            |   | (200 | ) |
| **Net                    Cash Flows From (Used For) Financing Activities** |   |         | 24,534   |         |   | (16,372 | ) |
|                                                                       |   |         |     |         |   |   |   |
| **Net                    Decrease in Cash and Cash Equivalents**           |   |         | (331     | )            |   | (289 | ) |
| **Cash                    and Cash Equivalents at Beginning of Period**    |   |         | 2,318    |         |   | 1,741 |   |
| **Cash                    and Cash Equivalents at End of Period**          |   | $            | 1,987    |         | $      | 1,452 |   |

| **SUPPLEMENTARY                    INFORMATION**                                       |   |    |    |    |   |
|----------------------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| Cash                    Paid for Interest, Net of Capitalized Amounts                  |   | $            | 7,084   |         | $      | 14,686 |   |
| Net                    Cash Paid for Income Taxes                                      |   |         | 7,775   |         |   | 1,771 |   |
| Noncash                    Acquisitions Under Capital Leases                           |   |         | 444     |         |   | 1,184 |   |
| Construction                    Expenditures Included in Accounts Payable at March 31, |   |         | 113,021 |         |   | 83,682 |   |

* See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**INDEX          TO CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS OF REGISTRANT          SUBSIDIARIES**

|                                                         | **Footnote                    Reference** |
|--------------------------------------------------------------|-------------------------------------------|
| Significant                    Accounting Matters            | Note                    1                 |
| New                    Accounting Pronouncements             | Note                    2                 |
| Rate                    Matters                              | Note                    3                 |
| Commitments,                    Guarantees and Contingencies | Note                    4                 |
| Benefit                    Plans                             | Note                    6                 |
| Business                    Segments                         | Note                    7                 |
| Income                    Taxes                              | Note                    8                 |
| Financing                    Activities                      | Note                    9                 |

----

**COLUMBUS          SOUTHERN POWER COMPANY**

**AND          SUBSIDIARIES**

----

**COLUMBUS          SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**MANAGEMENT’S          NARRATIVE FINANCIAL DISCUSSION AND ANALYSIS **

**Results          of Operations**

**Reconciliation          of First Quarter of 2006 to First Quarter of 2007**

**Net          Income **

**(in          millions)**

| **First                    Quarter of 2006**                        |   |   |   |   | $      | 51     |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                    Margins                                   |   |   | 27     |   |   |   |   |
| Off-system                    Sales                                 |   |   | (11    | )      |   |   |   |
| Transmission                    Revenues                            |   |   | (7     | )      |   |   |   |
| Other                                                               |   |   | (4     | )      |   |   |   |
| **Total                    Change in Gross Margin**                 |   |   |   |   |   | 5      |   |
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                    Operation and Maintenance                  |   |   | (10    | )      |   |   |   |
| Depreciation                    and Amortization                    |   |   | (4     | )      |   |   |   |
| Taxes                    Other Than Income Taxes                    |   |   | (1     | )      |   |   |   |
| Interest                    Expense                                 |   |   | 2      |   |   |   |   |
| Other                                                               |   |   | 1      |   |   |   |   |
| **Total                    Change in Operating Expenses and Other** |   |   |   |   |   | (12    | )      |
|                                                                |   |   |   |   |   |   |   |
| Income                    Tax Expense                               |   |   |   |   |   | 3      |   |
|                                                                |   |   |   |   |   |   |   |
| **First                    Quarter of 2007**                        |   |   |   |   | $      | 47     |   |

| · | Retail                    Margins increased $27 million primarily due to:                                                                                                                                                                                                               |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                  | An                      $11 million increase in residential and commercial revenue                      primarily due                      to a 27% increase in heating degree days. |
|   | ·                                                                                                                                                                                                                                                                                  | A                    $10 million increase in rate revenues related to a $4 million                    increase in                    our RSP, a $3 million increase related to rate recovery of storm                    costs and                    a $3 million increase related to rate recovery of IGCC preconstruction                    costs (see “Ohio Rate Matters” section of Note 3). The                    increase in rate recovery of storm costs was offset by the amortization                    of                    deferred expenses in Other Operation and Maintenance. The increase                    in rate                    recovery of IGCC preconstruction costs was offset by the amortization                    of                    deferred expenses in Depreciation and                    Amortization. |
|   | ·                                                                                                                                                                                                                                                                                  | A                    $7 million increase in industrial revenue due to the addition                    of Ormet, a                    major industrial customer (see “Ormet” section of Note                    3). |
| · | Margins                    from Off-system Sales decreased $11 million primarily due to                    an $8 million                    decrease in physical sales margins and a $4 million decrease                    in margins                    from optimization activities. |
| · | Transmission                    Revenues decreased $7 million primarily due to the elimination                    of SECA                    revenues as of April 1, 2006. See the “Transmission Rate Proceedings at                    the FERC” section of Note 3.        |
| · | Other                    revenues decreased $4 million primarily due to lower gains on                    sales of                    emission allowances.                                                                                                                              |

| ·                   | Other                    Operation and Maintenance expenses increased $10 million primarily                    due                    to:                                                                                                                                                                                                                                                                                              |
|--------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·    | A                    $5 million increase in overhead line expenses due in part to                    the                    amortization of deferred storm expenses recovered through a cost-recovery                    rider. The increase in amortization of deferred storm expenses                    was offset                    by a corresponding increase in Retail Margins.                                                |
| ·    | A                    $3 million increase in our net allocated transmission costs related                    to the                    Transmission Equalization Agreement as a result of the addition                    of APCo’s                    Wyoming-Jacksons Ferry 765 kV line, which was energized and placed                    in                    service in June 2006.                                          |
| ·                   | Depreciation                      and Amortization increased $4 million primarily due to the                      amortization of                      IGCC preconstruction costs of $3 million in the first quarter                      of 2007. The                      increase in amortization of IGCC preconstruction costs was                      offset by a                      corresponding increase in Retail Margins. |
| ·                   | Interest                    Expense decreased $2 million primarily due to an increase in                    allowance for                    borrowed funds used during                    construction.                                                                                                                                                                                                                               |

*Income          Taxes*

**Critical          Accounting Estimates**

**Adoption          of New Accounting Pronouncements**

----

**QUANTITATIVE          AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT          ACTIVITIES**

**Market          Risks**

**VaR          Associated with Debt Outstanding**

----

**COLUMBUS          SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED STATEMENTS OF INCOME**

**For          the Three Months Ended March 31, 2007 and 2006**

**(in          thousands)**

**(Unaudited)**

|                                                                       |   | **2007** |         | **2006** |   |
|----------------------------------------------------------------------------|--------|----------|--------------|----------|--------|
| **REVENUES**                                                               |   |     |         |     |   |
| Electric                    Generation, Transmission and Distribution      |   | $        | 423,466      |     | $      | 413,669 |   |
| Sales                    to AEP Affiliates                                 |   |     | 23,013       |     |   | 13,769 |   |
| Other                                                                      |   |     | 1,433        |     |   | 1,330 |   |
| **TOTAL**                                                                  |   |     | 447,912      |     |   | 428,768 |   |
|                                                                       |   |     |         |     |   |   |   |
| **EXPENSES**                                                               |   |     |         |     |   |   |   |
| Fuel                    and Other Consumables Used for Electric Generation |   |     | 75,862       |     |   | 69,820 |   |
| Purchased                    Electricity for Resale                        |   |     | 31,311       |     |   | 24,765 |   |
| Purchased                    Electricity from AEP Affiliates               |   |     | 83,541       |     |   | 82,477 |   |
| Other                    Operation                                         |   |     | 61,159       |     |   | 55,945 |   |
| Maintenance                                                                |   |     | 22,564       |     |   | 17,934 |   |
| Depreciation                    and Amortization                           |   |     | 50,297       |     |   | 45,828 |   |
| Taxes                    Other Than Income Taxes                           |   |     | 40,582       |     |   | 39,502 |   |
| **TOTAL**                                                                  |   |     | 365,316      |     |   | 336,271 |   |
|                                                                       |   |     |         |     |   |   |   |
| **OPERATING                    INCOME**                                    |   |     | 82,596       |     |   | 92,497 |   |
|                                                                       |   |     |         |     |   |   |   |
| **Other                    Income (Expense):**                             |   |     |         |     |   |   |   |
| Interest                    Income                                         |   |     | 422          |     |   | 455 |   |
| Carrying                    Costs Income                                   |   |     | 1,092        |     |   | 716 |   |
| Allowance                    for Equity Funds Used During Construction     |   |     | 772          |     |   | 464 |   |
| Interest                    Expense                                        |   |     | (15,281      | )        |   | (17,520 | ) |
|                                                                       |   |     |         |     |   |   |   |
| **INCOME                    BEFORE INCOME TAXES**                          |   |     | 69,601       |     |   | 76,612 |   |
|                                                                       |   |     |         |     |   |   |   |
| Income                    Tax Expense                                      |   |     | 22,620       |     |   | 25,275 |   |
|                                                                       |   |     |         |     |   |   |   |
| **NET INCOME**                                                        |   |     |  46,981 |     |   |  51,337 |   |
|                                                                       |   |     |         |     |   |   |   |
| Capital                    Stock Expense                                   |   |     | 39           |     |   | 39 |   |
|                                                                       |   |     |         |     |   |   |  |
| **EARNINGS                  APPLICABLE TO COMMON STOCK**                   |   | $        |  46,942 |     | $      |  51,298 |   |

*The          common stock of CSPCo is wholly-owned by AEP.*

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**COLUMBUS          SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDER’S**

**EQUITY          AND COMPREHENSIVE INCOME (LOSS)**

**For          the Three Months Ended March 31, 2007 and 2006**

**(in          thousands)**

**(Unaudited)**

|                                                                  |   | **Common                    Stock** |   | **Paid-in                    Capital** |   | **Retained                    Earnings** |   | **Accumulated                    Other Comprehensive Income (Loss)** |    | **Total**    |   |
|-----------------------------------------------------------------------|--------|-------------------------------------|--------|----------------------------------------|--------|------------------------------------------|--------|----------------------------------------------------------------------|---------|--------------|--------|
|                                                                  |   |                           |   |                              |   |                                |   |                                                            |    |    |   |
| **DECEMBER                    31, 2005**                              |   | $                                   | 41,026 |                                   | $      | 580,035                                  |   | $                                                                    | 361,365 |         | $      | (880 | ) | $ | 981,546 |   |
|                                                                  |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| Common                    Stock Dividends                             |   |                                |   |                                   |   |                                     |   |                                                                 | (22,500 | )            |   |   |   |   | (22,500 | ) |
| Capital                    Stock Expense                              |   |                                |   |                                   |   | 39                                       |   |                                                                 | (39     | )            |   |   |   |   | - |   |
| **TOTAL**                                                             |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   | 959,046 |   |
|                                                                  |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                           |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **Other                    Comprehensive Income, Net of Taxes:** |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $2,176             |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   | 4,041 |   |   | 4,041 |   |
| **NET                    INCOME**                                     |   |                                |   |                                   |   |                                     |   |                                                                 | 51,337  |         |   |   |   |   | 51,337 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                     |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   | 55,378 |   |
|                                                                  |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **MARCH                    31, 2006**                                 |   | $                                   | 41,026 |                                   | $      | 580,074                                  |   | $                                                                    | 390,163 |         | $      | 3,161 |   | $ | 1,014,424 |   |
|                                                                  |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **DECEMBER                    31, 2006**                              |   | $                                   | 41,026 |                                   | $      | 580,192                                  |   | $                                                                    | 456,787 |         | $      | (21,988 | ) | $ | 1,056,017 |   |
|                                                                  |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| FIN                    48 Adoption, Net of Tax                        |   |                                |   |                                   |   |                                     |   |                                                                 | (3,022  | )            |   |   |   |   | (3,022 | ) |
| Common                    Stock Dividends                             |   |                                |   |                                   |   |                                     |   |                                                                 | (20,000 | )            |   |   |   |   | (20,000 | ) |
| Capital                    Stock Expense                              |   |                                |   |                                   |   | 39                                       |   |                                                                 | (39     | )            |   |   |   |   | - |   |
| **TOTAL**                                                             |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   | 1,032,995 |   |
|                                                                  |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                           |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **Other                    Comprehensive Loss, Net of Taxes:**        |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $2,841             |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   | (5,276 | ) |   | (5,276 | ) |
| **NET                    INCOME**                                     |   |                                |   |                                   |   |                                     |   |                                                                 | 46,981  |         |   |   |   |   | 46,981 |   |
| **TOTAL                    COMPREHENSIVE INCOME**                     |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   | 41,705 |   |
|                                                                  |   |                                |   |                                   |   |                                     |   |                                                                 |    |         |   |   |   |   |   |   |
| **MARCH                    31, 2007**                                 |   | $                                   | 41,026 |                                   | $      | 580,231                                  |   | $                                                                    | 480,707 |         | $      | (27,264 | ) | $ | 1,074,700 |   |

*            See Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**COLUMBUS          SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**March          31, 2007 and December 31, 2006**

**(in          thousands)**

**(Unaudited)**

|                                                         |   | **2007**     |      | **2006**     |   |
|--------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                    ASSETS**                        |   |    |      |    |   |
| Cash                    and Cash Equivalents                 |   | $            | 237       |         | $      | 1,319 |   |
| Advances                    to Affiliates                    |   |         | 922       |         |   | - |   |
| Accounts                    Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                    |   |         | 59,380    |         |   | 49,362 |   |
| Affiliated                    Companies                      |   |         | 35,351    |         |   | 62,866 |   |
| Accrued                    Unbilled Revenues                 |   |         | 8,011     |         |   | 11,042 |   |
| Miscellaneous                                                |   |         | 5,626     |         |   | 4,895 |   |
| Allowance                    for Uncollectible Accounts      |   |         | (588      | )            |   | (546 | ) |
|                       Total Accounts Receivable    |   |         | 107,780   |         |   | 127,619 |   |
| Fuel                                                         |   |         | 31,320    |         |   | 37,348 |   |
| Materials                    and Supplies                    |   |         | 34,575    |         |   | 31,765 |   |
| Emission                    Allowances                       |   |         | 8,971     |         |   | 3,493 |   |
| Risk                    Management Assets                    |   |         | 36,969    |         |   | 66,238 |   |
| Accrued                    Tax Benefits                      |   |         | -         |         |   | 4,763 |   |
| Prepayments                    and Other                     |   |         | 11,734    |         |   | 16,107 |   |
| **TOTAL**                                                    |   |         | 232,508   |         |   | 288,652 |   |
|                                                         |   |         |      |         |   |   |   |
| **PROPERTY,                    PLANT AND EQUIPMENT**         |   |         |      |         |   |   |   |
| Electric:                                                    |   |         |      |         |   |   |   |
| Production                                                   |   |         | 1,954,377 |         |   | 1,896,073 |   |
| Transmission                                                 |   |         | 481,875   |         |   | 479,119 |   |
| Distribution                                                 |   |         | 1,496,080 |         |   | 1,475,758 |   |
| Other                                                        |   |         | 190,645   |         |   | 191,103 |   |
| Construction                    Work in Progress             |   |         | 269,771   |         |   | 294,138 |   |
| **Total**                                                    |   |         | 4,392,748 |         |   | 4,336,191 |   |
| Accumulated                    Depreciation and Amortization |   |         | 1,629,386 |         |   | 1,611,043 |   |
| **TOTAL                    - NET**                           |   |         | 2,763,362 |         |   | 2,725,148 |   |
|                                                         |   |         |      |         |   |   |   |
| **OTHER                    NONCURRENT ASSETS**               |   |         |      |         |   |   |   |
| Regulatory                    Assets                         |   |         | 277,251   |         |   | 298,304 |   |
| Long-term                    Risk Management Assets          |   |         | 46,978    |         |   | 56,206 |   |
| Deferred                    Charges and Other                |   |         | 131,818   |         |   | 152,379 |   |
| **TOTAL**                                                    |   |         | 456,047   |         |   | 506,889 |   |
|                                                         |   |         |      |         |   |   |   |
| **TOTAL                    ASSETS**                          |   | $            | 3,451,917 |         | $      | 3,520,689 |   |

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**COLUMBUS          SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED BALANCE SHEETS**

**LIABILITIES          AND SHAREHOLDER’S EQUITY**

**March          31, 2007 and December 31, 2006**

**(Unaudited)**

|                                                                          |   | **2007**                              |      | **2006** |   |
|-------------------------------------------------------------------------------|--------|---------------------------------------|-----------|----------|--------|
| **CURRENT                    LIABILITIES**                                    |   | **(in                    thousands)** |      |
| Advances                    from Affiliates                                   |   | $                                     | -         |     | $      | 696 |   |
| Accounts                    Payable:                                          |   |                                  |      |     |   |   |   |
| General                                                                       |   |                                  | 97,767    |     |   | 112,431 |   |
| Affiliated                    Companies                                       |   |                                  | 51,552    |     |   | 59,538 |   |
| Long-term                    Debt Due Within One Year - Nonaffiliated         |   |                                  | 52,000    |     |   | - |   |
| Risk                    Management Liabilities                                |   |                                  | 31,365    |     |   | 49,285 |   |
| Customer                    Deposits                                          |   |                                  | 37,563    |     |   | 34,991 |   |
| Accrued                    Taxes                                              |   |                                  | 144,223   |     |   | 166,551 |   |
| Accrued                    Interest                                           |   |                                  | 17,698    |     |   | 20,868 |   |
| Other                                                                         |   |                                  | 34,767    |     |   | 37,143 |   |
| **TOTAL**                                                                     |   |                                  | 466,935   |     |   | 481,503 |   |
|                                                                          |   |                                  |      |     |   |   |   |
| **NONCURRENT                    LIABILITIES**                                 |   |                                  |      |     |   |   |   |
| Long-term                    Debt - Nonaffiliated                             |   |                                  | 1,045,422 |     |   | 1,097,322 |   |
| Long-term                    Debt - Affiliated                                |   |                                  | 100,000   |     |   | 100,000 |   |
| Long-term                    Risk Management Liabilities                      |   |                                  | 32,396    |     |   | 40,477 |   |
| Deferred                    Income Taxes                                      |   |                                  | 462,516   |     |   | 475,888 |   |
| Regulatory                    Liabilities and Deferred Investment Tax Credits |   |                                  | 168,597   |     |   | 179,048 |   |
| Deferred                    Credits and Other                                 |   |                                  | 101,351   |     |   | 90,434 |   |
| **TOTAL**                                                                     |   |                                  | 1,910,282 |     |   | 1,983,169 |   |
|                                                                          |   |                                  |      |     |   |   |   |
| **TOTAL                    LIABILITIES**                                      |   |                                  | 2,377,217 |     |   | 2,464,672 |   |
|                                                                          |   |                                  |      |     |   |   |   |
| Commitments                    and Contingencies (Note 4)                     |   |                                  |      |     |   |   |   |
|                                                                          |   |                                  |      |     |   |   |   |
| **COMMON                    SHAREHOLDER’S EQUITY**                      |   |                                  |      |     |   |   |   |
| Common                    Stock - No Par Value:                               |   |                                  |      |     |   |   |   |
| Authorized                    - 24,000,000 Shares                             |   |                                  |      |     |   |   |   |
| Outstanding                    - 16,410,426 Shares                            |   |                                  | 41,026    |     |   | 41,026 |   |
| Paid-in                    Capital                                            |   |                                  | 580,231   |     |   | 580,192 |   |
| Retained                    Earnings                                          |   |                                  | 480,707   |     |   | 456,787 |   |
| Accumulated                    Other Comprehensive Income (Loss)              |   |                                  | (27,264   | )        |   | (21,988 | ) |
| **TOTAL**                                                                     |   |                                  | 1,074,700 |     |   | 1,056,017 |   |
|                                                                          |   |                                  |      |     |   |   |   |
| **TOTAL                    LIABILITIES AND SHAREHOLDER’S EQUITY**       |   | $                                     | 3,451,917 |     | $      | 3,520,689 |   |

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**COLUMBUS          SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For          the Three Months Ended March 31, 2007 and 2006**

**(in          thousands)**

**(Unaudited)**

|                                                                     |   | **2007**     |    | **2006**     |   |
|--------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **OPERATING                    ACTIVITIES**                              |   |    |    |    |   |
| **Net                    Income**                                        |   | $            | 46,981  |         | $      | 51,337 |   |
| **Adjustments                    for Noncash Items:**                    |   |         |    |         |   |   |   |
| Depreciation                    and Amortization                         |   |         | 50,297  |         |   | 45,828 |   |
| Deferred                    Income Taxes                                 |   |         | (716    | )            |   | 3,816 |   |
| Carrying                    Costs Income                                 |   |         | (1,092  | )            |   | (716 | ) |
| Mark-to-Market                    of Risk Management Contracts           |   |         | 4,400   |         |   | (3,624 | ) |
| Deferred                    Property Taxes                               |   |         | 18,954  |         |   | 10,884 |   |
| Change                    in Other Noncurrent Assets                     |   |         | (912    | )            |   | (11,325 | ) |
| Change                    in Other Noncurrent Liabilities                |   |         | (15,510 | )            |   | 5,800 |   |
| **Changes                    in Certain Components of Working Capital:** |   |         |    |         |   |   |   |
| Accounts                    Receivable, Net                              |   |         | 19,839  |         |   | 33,295 |   |
| Fuel,                    Materials and Supplies                          |   |         | 3,218   |         |   | (7,431 | ) |
| Accounts                    Payable                                      |   |         | (7,659  | )            |   | 12,540 |   |
| Customer                    Deposits                                     |   |         | 2,572   |         |   | (7,901 | ) |
| Accrued                    Taxes, Net                                    |   |         | (8,651  | )            |   | (7,873 | ) |
| Accrued                    Interest                                      |   |         | (5,658  | )            |   | (4,127 | ) |
| Other                    Current Assets                                  |   |         | 5,694   |         |   | (728 | ) |
| Other                    Current Liabilities                             |   |         | (5,056  | )            |   | (6,571 | ) |
| **Net                    Cash Flows From Operating Activities**          |   |         | 106,701 |         |   | 113,204 |   |
|                                                                     |   |         |    |         |   |   |   |
| **INVESTING                    ACTIVITIES**                              |   |         |    |         |   |   |   |
| Construction                    Expenditures                             |   |         | (85,641 | )            |   | (65,032 | ) |
| Change                    in Other Cash Deposits, Net                    |   |         | (20     | )            |   | (1,151 | ) |
| Change                    in Advances to Affiliates, Net                 |   |         | (922    | )            |   | (6,867 | ) |
| Proceeds                    from Sale of Assets                          |   |         | 189     |         |   | 531 |   |
| **Net                    Cash Flows Used For Investing Activities**      |   |         | (86,394 | )            |   | (72,519 | ) |
|                                                                     |   |         |    |         |   |   |   |
| **FINANCING                    ACTIVITIES**                              |   |         |    |         |   |   |   |
| Change                    in Advances from Affiliates, Net               |   |         | (696    | )            |   | (17,609 | ) |
| Principal                    Payments for Capital Lease Obligations      |   |         | (693    | )            |   | (759 | ) |
| Dividends                    Paid on Common Stock                        |   |         | (20,000 | )            |   | (22,500 | ) |
| **Net                    Cash Flows Used For Financing Activities**      |   |         | (21,389 | )            |   | (40,868 | ) |
|                                                                     |   |         |    |         |   |   |   |
| **Net                    Decrease in Cash and Cash Equivalents**         |   |         | (1,082  | )            |   | (183 | ) |
| **Cash                    and Cash Equivalents at Beginning of Period**  |   |         | 1,319   |         |   | 940 |   |
| **Cash                    and Cash Equivalents at End of Period**        |   | $            | 237     |         | $      | 757 |   |

| **SUPPLEMENTARY                    INFORMATION**                                       |   |    |   |    |   |
|----------------------------------------------------------------------------------------|--------|--------------|--------|--------------|--------|
| Cash                    Paid for Interest, Net of Capitalized Amounts                  |   | $            | 20,132 |         | $      | 22,320 |   |
| Net                    Cash Paid (Received) for Income Taxes                           |   |         | (2,907 | )            |   | 2,533 |   |
| Noncash                    Acquisitions Under Capital Leases                           |   |         | 275    |         |   | 1,102 |   |
| Construction                    Expenditures Included in Accounts Payable at March 31, |   |         | 20,636 |         |   | 12,054 |   |

*See          Condensed Notes to Condensed Financial Statements of Registrant          Subsidiaries.*

----

**COLUMBUS          SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**INDEX          TO CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS OF **

**REGISTRANT          SUBSIDIARIES**

|                                                                   | **Footnote****Reference** |
|------------------------------------------------------------------------|---------------------------|
| Significant                    Accounting Matters                      | Note                    1 |
| New                    Accounting Pronouncements                       | Note                    2 |
| Rate                    Matters                                        | Note                    3 |
| Commitments,                    Guarantees and Contingencies           | Note                    4 |
| Acquisitions,                    Dispositions and Assets Held for Sale | Note                    5 |
| Benefit                    Plans                                       | Note                    6 |
| Business                    Segments                                   | Note                    7 |
| Income                    Taxes                                        | Note                    8 |
| Financing                    Activities                                | Note                    9 |

----

**INDIANA        MICHIGAN POWER COMPANY**

**AND        SUBSIDIARIES**

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**MANAGEMENT’S        NARRATIVE FINANCIAL DISCUSSION AND ANALYSIS**

**Results        of Operations**

**Reconciliation        of First Quarter of 2006 to First Quarter of 2007**

**Net        Income**

**(in        millions)**

| **First                  Quarter of 2006**                        |   |   |   |   | $      | 58     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | (24    | )      |   |   |   |
| FERC                  Municipals and Cooperatives                 |   |   | 9      |   |   |   |   |
| Off-system                  Sales                                 |   |   | (4     | )      |   |   |   |
| Transmission                  Revenues                            |   |   | (2     | )      |   |   |   |
| Other                                                             |   |   | (7     | )      |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | (28    | )      |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (6     | )      |   |   |   |
| Depreciation                  and Amortization                    |   |   | (7     | )      |   |   |   |
| Other                  Income                                     |   |   | (1     | )      |   |   |   |
| Interest                  Expense                                 |   |   | (2     | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (16    | )      |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | 15     |   |
|                                                              |   |   |   |   |   |   |   |
| **First                  Quarter of 2007**                        |   |   |   |   | $      | 29     |   |

| · | Retail                  Margins decreased $24 million primarily due to a reduction in capacity                  settlement revenues of $23 million under the Interconnection Agreement                  reflecting our new peak demand in July 2006.                                                                                                                                                                                                                                                                                                                                               |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | FERC                  Municipals and Cooperatives margins increased $9 million due to                  the                  addition of new municipal contracts including new rates and increased                  demand effective July 2006 and January 2007.                                                                                                                                                                                                                                                                                                                                    |
| · | Margins                  from Off-system Sales decreased $4 million primarily due to an                  $11 million                  decrease in physical sales margins partially offset by a $6 million                  increase in margins from optimization activities.                                                                                                                                                                                                                                                                                                                       |
| · | Transmission                  Revenues decreased $2 million primarily due to the elimination                  of SECA                  revenues as of April 1, 2006. See the “Transmission Rate Proceedings at                  the FERC” section of Note 3.                                                                                                                                                                                                                                                                                                                           |
| · | Other                  revenues                  decreased                  $7 million primarily due to decreased River Transportation Division                  (RTD)                  revenues for barging coal and decreased gains on sales of emission                  allowances. RTD related expenses which offset the RTD revenue decrease                  are                  included in Other Operation on the Condensed Consolidated Statements                  of                  Income resulting in our earning only a return approved under regulatory                  order. |

| · | Other                  Operation and Maintenance expenses increased $6 million primarily                  due to a                  $5 million increase in transmission expense due to our reduced                  credits                  under the Transmission Equalization Agreement. Our credits decreased                  due                  to our July 2006 peak and due to APCo’s addition of the Wyoming-Jacksons                  Ferry 765 kV line, which was energized and placed in service in                  June 2006                  thus decreasing our share of the transmission investment                  pool. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                  and Amortization expense increased $7 million primarily due to a $5                  million increase in depreciation related to capital additions                  and a $2 million increase in amortization related to capitalized                  software                  development costs.                                                                                                                                                                                                                                                                                                     |
| · | Interest                  Expense increased $2 million primarily due to an increase in outstanding                  long-term debt and higher interest                  rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

*Income        Taxes*

**Critical        Accounting Estimates**

**Adoption        of New Accounting Pronouncements**

----

**QUANTITATIVE        AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT        ACTIVITIES**

**Market        Risks**

**VaR        Associated with Debt Outstanding**

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF INCOME**

**For        the Three Months Ended March 31, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                     |   | **2007** |    | **2006** |   |
|--------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| **REVENUES**                                                             |   |     |    |     |   |
| Electric                  Generation, Transmission and Distribution      |   | $        | 405,164 |     | $      | 403,769 |   |
| Sales                  to AEP Affiliates                                 |   |     | 67,429  |     |   | 88,534 |   |
| Other                  - Affiliated                                      |   |     | 12,667  |     |   | 15,094 |   |
| Other                  - Nonaffiliated                                   |   |     | 7,609   |     |   | 8,382 |   |
| **TOTAL**                                                                |   |     | 492,869 |     |   | 515,779 |   |
|                                                                     |   |     |    |     |   |   |   |
| **EXPENSES**                                                             |   |     |    |     |   |   |   |
| Fuel                  and Other Consumables Used for Electric Generation |   |     | 96,117  |     |   | 89,452 |   |
| Purchased                  Electricity for Resale                        |   |     | 17,940  |     |   | 11,010 |   |
| Purchased                  Electricity from AEP Affiliates               |   |     | 77,513  |     |   | 86,422 |   |
| Other                  Operation                                         |   |     | 120,733 |     |   | 111,617 |   |
| Maintenance                                                              |   |     | 42,430  |     |   | 45,219 |   |
| Depreciation                  and Amortization                           |   |     | 56,307  |     |   | 49,715 |   |
| Taxes                  Other Than Income Taxes                           |   |     | 17,994  |     |   | 18,906 |   |
| **TOTAL**                                                                |   |     | 429,034 |     |   | 412,341 |   |
|                                                                     |   |     |    |     |   |   |   |
| **OPERATING                  INCOME**                                    |   |     | 63,835  |     |   | 103,438 |   |
|                                                                     |   |     |    |     |   |   |   |
| **Other                  Income (Expense):**                             |   |     |    |     |   |   |   |
| Interest                  Income                                         |   |     | 588     |     |   | 694 |   |
| Allowance                  for Equity Funds Used During Construction     |   |     | 265     |     |   | 1,924 |   |
| Interest                  Expense                                        |   |     | (19,821 | )        |   | (17,533 | ) |
|                                                                     |   |     |    |     |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                          |   |     | 44,867  |     |   | 88,523 |   |
|                                                                     |   |     |    |     |   |   |   |
| Income                  Tax Expense                                      |   |     | 15,404  |     |   | 30,645 |   |
|                                                                     |   |     |    |     |   |   |   |
| **NET                  INCOME**                                          |   |     | 29,463  |     |   | 57,878 |   |
|                                                                     |   |     |    |     |   |   |   |
| Preferred                  Stock Dividend Requirements                   |   |     | 85      |     |   | 85 |   |
|                                                                     |   |     |    |     |   |   |   |
| **EARNINGS                  APPLICABLE TO COMMON STOCK**                 |   | $        | 29,378  |     | $      | 57,793 |   |

*The        common stock of I&M is wholly-owned by AEP.*

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDER’S**

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Three Months Ended March 31, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                                     |   | **Common                  Stock** |   | **Paid-in                  Capital** |   | **Retained                  Earnings** |   | **Accumulated                  Other Comprehensive Income (Loss)** |    | **Total** |   |
|------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|--------------------------------------|--------|----------------------------------------|--------|--------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                  31, 2005**                                                   |   | $                                 | 56,584 |                                 | $      | 861,290                                |   | $                                                                  | 305,787 |      | $      | (3,569 | ) | $ | 1,220,092 |   |
|                                                                                     |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Common                  Stock Dividends                                                  |   |                              |   |                                 |   |                                   |   |                                                               | (10,000 | )         |   |   |   |   | (10,000 | ) |
| Preferred                  Stock Dividends                                               |   |                              |   |                                 |   |                                   |   |                                                               | (85     | )         |   |   |   |   | (85 | ) |
| **TOTAL**                                                                                |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 1,210,007 |   |
|                                                                                     |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                                |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **Other                  Comprehensive Income, ****Net                  of Taxes:** |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $2,265                                  |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   | 4,207 |   |   | 4,207 |   |
| **NET                  INCOME**                                                          |   |                              |   |                                 |   |                                   |   |                                                               | 57,878  |      |   |   |   |   | 57,878 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                          |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 62,085 |   |
|                                                                                     |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **MARCH                  31, 2006**                                                      |   | $                                 | 56,584 |                                 | $      | 861,290                                |   | $                                                                  | 353,580 |      | $      | 638 |   | $ | 1,272,092 |   |
|                                                                                     |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **DECEMBER                  31, 2006**                                                   |   | $                                 | 56,584 |                                 | $      | 861,290                                |   | $                                                                  | 386,616 |      | $      | (15,051 | ) | $ | 1,289,439 |   |
|                                                                                     |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| FIN                  48 Adoption, Net of Tax                                             |   |                              |   |                                 |   |                                   |   |                                                               | 327     |      |   |   |   |   | 327 |   |
| Common                  Stock Dividends                                                  |   |                              |   |                                 |   |                                   |   |                                                               | (10,000 | )         |   |   |   |   | (10,000 | ) |
| Preferred                  Stock Dividends                                               |   |                              |   |                                 |   |                                   |   |                                                               | (85     | )         |   |   |   |   | (85 | ) |
| **TOTAL**                                                                                |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 1,279,681 |   |
|                                                                                     |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                                |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **Other                  Comprehensive Loss, Net of Taxes:**                             |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $2,850                                  |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   | (5,293 | ) |   | (5,293 | ) |
| **NET                  INCOME**                                                          |   |                              |   |                                 |   |                                   |   |                                                               | 29,463  |      |   |   |   |   | 29,463 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                          |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 24,170 |   |
|                                                                                     |   |                              |   |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **MARCH                  31, 2007**                                                      |   | $                                 | 56,584 |                                 | $      | 861,290                                |   | $                                                                  | 406,321 |      | $      | (20,344 | ) | $ | 1,303,851 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**March        31, 2007 and December 31, 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                  |   | **2007**     |      | **2006**     |   |
|-----------------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                  ASSETS**                                   |   |    |      |    |   |
| Cash                  and Cash Equivalents                            |   | $            | 753       |         | $      | 1,369 |   |
| Accounts                  Receivable:                                 |   |         |      |         |   |   |   |
| Customers                                                             |   |         | 86,128    |         |   | 82,102 |   |
| Affiliated                  Companies                                 |   |         | 66,155    |         |   | 108,288 |   |
| Accrued                  Unbilled Revenues                            |   |         | 806       |         |   | 2,206 |   |
| Miscellaneous                                                         |   |         | 2,571     |         |   | 1,838 |   |
| Allowance                  for Uncollectible Accounts                 |   |         | (616      | )            |   | (601 | ) |
|                     Total Accounts Receivable               |   |         | 155,044   |         |   | 193,833 |   |
| Fuel                                                                  |   |         | 47,818    |         |   | 64,669 |   |
| Materials                  and Supplies                               |   |         | 136,373   |         |   | 129,953 |   |
| Risk                  Management Assets                               |   |         | 39,175    |         |   | 69,752 |   |
| Accrued                  Tax Benefits                                 |   |         | 8,680     |         |   | 27,378 |   |
| Prepayments                  and Other                                |   |         | 13,500    |         |   | 15,170 |   |
| **TOTAL**                                                             |   |         | 401,343   |         |   | 502,124 |   |
|                                                                  |   |         |      |         |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**                    |   |         |      |         |   |   |   |
| Electric:                                                             |   |         |      |         |   |   |   |
| Production                                                            |   |         | 3,383,343 |         |   | 3,363,813 |   |
| Transmission                                                          |   |         | 1,052,730 |         |   | 1,047,264 |   |
| Distribution                                                          |   |         | 1,143,815 |         |   | 1,102,033 |   |
| Other                  (including nuclear fuel and coal mining)       |   |         | 516,972   |         |   | 529,727 |   |
| Construction                  Work in Progress                        |   |         | 144,856   |         |   | 183,893 |   |
| **Total**                                                             |   |         | 6,241,716 |         |   | 6,226,730 |   |
| Accumulated                  Depreciation, Depletion and Amortization |   |         | 2,949,796 |         |   | 2,914,131 |   |
| **TOTAL                  - NET**                                      |   |         | 3,291,920 |         |   | 3,312,599 |   |
|                                                                  |   |         |      |         |   |   |   |
| **OTHER                  NONCURRENT ASSETS**                          |   |         |      |         |   |   |   |
| Regulatory                  Assets                                    |   |         | 292,704   |         |   | 314,805 |   |
| Spent                  Nuclear Fuel and Decommissioning Trusts        |   |         | 1,262,960 |         |   | 1,248,319 |   |
| Long-term                  Risk Management Assets                     |   |         | 49,470    |         |   | 59,137 |   |
| Deferred                  Charges and Other                           |   |         | 117,384   |         |   | 109,453 |   |
| **TOTAL**                                                             |   |         | 1,722,518 |         |   | 1,731,714 |   |
|                                                                  |   |         |      |         |   |   |   |
| **TOTAL                  ASSETS**                                     |   | $            | 5,415,781 |         | $      | 5,546,437 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDERS’ EQUITY**

**March        31, 2007 and December 31, 2006**

**(Unaudited)**

|                                                                            |   | **2007**                            |      | **2006** |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|-----------|----------|--------|
| **CURRENT                  LIABILITIES**                                        |   | **(in                  thousands)** |      |
| Advances                  from Affiliates                                       |   | $                                   | 45,759    |     | $      | 91,173 |   |
| Accounts                  Payable:                                              |   |                                |      |     |   |   |   |
| General                                                                         |   |                                | 99,223    |     |   | 146,733 |   |
| Affiliated                  Companies                                           |   |                                | 57,940    |     |   | 65,497 |   |
| Long-term                  Debt Due Within One Year - Nonaffiliated             |   |                                | 50,000    |     |   | 50,000 |   |
| Risk                  Management Liabilities                                    |   |                                | 33,643    |     |   | 52,083 |   |
| Customer                  Deposits                                              |   |                                | 31,436    |     |   | 34,946 |   |
| Accrued                  Taxes                                                  |   |                                | 76,087    |     |   | 59,652 |   |
| Other                                                                           |   |                                | 115,714   |     |   | 128,461 |   |
| **TOTAL**                                                                       |   |                                | 509,802   |     |   | 628,545 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **NONCURRENT                  LIABILITIES**                                     |   |                                |      |     |   |   |   |
| Long-term                  Debt - Nonaffiliated                                 |   |                                | 1,508,695 |     |   | 1,505,135 |   |
| Long-term                  Risk Management Liabilities                          |   |                                | 34,243    |     |   | 42,641 |   |
| Deferred                  Income Taxes                                          |   |                                | 311,584   |     |   | 335,000 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits     |   |                                | 739,972   |     |   | 753,402 |   |
| Asset                  Retirement Obligations                                   |   |                                | 820,371   |     |   | 809,853 |   |
| Deferred                  Credits and Other                                     |   |                                | 179,181   |     |   | 174,340 |   |
| **TOTAL**                                                                       |   |                                | 3,594,046 |     |   | 3,620,371 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES**                                          |   |                                | 4,103,848 |     |   | 4,248,916 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption |   |                                | 8,082     |     |   | 8,082 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Commitments                  and Contingencies (Note 4)                         |   |                                |      |     |   |   |   |
|                                                                            |   |                                |      |     |   |   |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                          |   |                                |      |     |   |   |   |
| Common                  Stock - No Par Value:                                   |   |                                |      |     |   |   |   |
| Authorized                  - 2,500,000 Shares                                  |   |                                |      |     |   |   |   |
| Outstanding                  - 1,400,000 Shares                                 |   |                                | 56,584    |     |   | 56,584 |   |
| Paid-in                  Capital                                                |   |                                | 861,290   |     |   | 861,290 |   |
| Retained                  Earnings                                              |   |                                | 406,321   |     |   | 386,616 |   |
| Accumulated                  Other Comprehensive Income (Loss)                  |   |                                | (20,344   | )        |   | (15,051 | ) |
| **TOTAL**                                                                       |   |                                | 1,303,851 |     |   | 1,289,439 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                   | 5,415,781 |     | $      | 5,546,437 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For        the Three Months Ended March 31, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                                                            |   | **2007**     |     | **2006**     |   |
|-----------------------------------------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                  ACTIVITIES**                                                                       |   |    |     |    |   |
| **Net                  Income**                                                                                 |   | $            | 29,463   |         | $      | 57,878 |   |
| **Adjustments                  for Noncash Items:**                                                             |   |         |     |         |   |   |   |
| Depreciation                  and Amortization                                                                  |   |         | 56,307   |         |   | 49,715 |   |
| Deferred                  Income Taxes                                                                          |   |         | (3,638   | )            |   | 3,493 |   |
| Amortization                  (Deferral) of Incremental Nuclear Refueling Outage Expenses,                  Net |   |         | 12,191   |         |   | (1,639 | ) |
| Amortization                  of Nuclear Fuel                                                                   |   |         | 16,372   |         |   | 13,596 |   |
| Mark-to-Market                  of Risk Management Contracts                                                    |   |         | 4,897    |         |   | (4,060 | ) |
| Deferred                  Property Taxes                                                                        |   |         | (10,836  | )            |   | (9,839 | ) |
| Change                  in Other Noncurrent Assets                                                              |   |         | 5,729    |         |   | 4,381 |   |
| Change                  in Other Noncurrent Liabilities                                                         |   |         | (1,971   | )            |   | 18,839 |   |
| **Changes                  in Certain Components of Working Capital:**                                          |   |         |     |         |   |   |   |
| Accounts                  Receivable, Net                                                                       |   |         | 38,789   |         |   | 43,019 |   |
| Fuel,                  Materials and Supplies                                                                   |   |         | 14,985   |         |   | (7,194 | ) |
| Accounts                  Payable                                                                               |   |         | (38,233  | )            |   | (7,010 | ) |
| Customer                  Deposits                                                                              |   |         | (3,510   | )            |   | (8,031 | ) |
| Accrued                  Taxes, Net                                                                             |   |         | 39,525   |         |   | 42,871 |   |
| Accrued                  Rent - Rockport Plant Unit 2                                                           |   |         | 18,464   |         |   | 18,464 |   |
| Other                  Current Assets                                                                           |   |         | 1,959    |         |   | 428 |   |
| Other                  Current Liabilities                                                                      |   |         | (35,720  | )            |   | (20,797 | ) |
| **Net                  Cash Flows From Operating Activities**                                                   |   |         | 144,773  |         |   | 194,114 |   |
|                                                                                                            |   |         |     |         |   |   |   |
| **INVESTING                  ACTIVITIES**                                                                       |   |         |     |         |   |   |   |
| Construction                  Expenditures                                                                      |   |         | (62,252  | )            |   | (89,411 | ) |
| Purchases                  of Investment Securities                                                             |   |         | (204,874 | )            |   | (150,239 | ) |
| Sales                  of Investment Securities                                                                 |   |         | 183,927  |         |   | 134,258 |   |
| Acquisitions                  of Nuclear Fuel                                                                   |   |         | (5,366   | )            |   | (34,427 | ) |
| Proceeds                  from Sales of Assets and Other                                                        |   |         | 248      |         |   | 1,384 |   |
| **Net                  Cash Flows Used For Investing Activities**                                               |   |         | (88,317  | )            |   | (138,435 | ) |
|                                                                                                            |   |         |     |         |   |   |   |
| **FINANCING                  ACTIVITIES**                                                                       |   |         |     |         |   |   |   |
| Change                  in Advances from Affiliates, Net                                                        |   |         | (45,414  | )            |   | (44,565 | ) |
| Principal                  Payments for Capital Lease Obligations                                               |   |         | (1,573   | )            |   | (1,274 | ) |
| Dividends                  Paid on Common Stock                                                                 |   |         | (10,000  | )            |   | (10,000 | ) |
| Dividends                  Paid on Cumulative Preferred Stock                                                   |   |         | (85      | )            |   | (85 | ) |
| **Net                  Cash Flows Used For Financing Activities**                                               |   |         | (57,072  | )            |   | (55,924 | ) |
|                                                                                                            |   |         |     |         |   |   |   |
| **Net                  Decrease in Cash and Cash Equivalents**                                                  |   |         | (616     | )            |   | (245 | ) |
| **Cash                  and Cash Equivalents at Beginning of Period**                                           |   |         | 1,369    |         |   | 854 |   |
| **Cash                  and Cash Equivalents at End of Period**                                                 |   | $            | 753      |         | $      | 609 |   |

| **SUPPLEMENTARY                  INFORMATION**                                       |   |    |   |    |   |
|--------------------------------------------------------------------------------------|--------|--------------|--------|--------------|--------|
| Cash                  Paid for Interest, Net of Capitalized Amounts                  |   | $            | 15,048 |         | $      | 4,776 |   |
| Net                  Cash Paid (Received) for Income Taxes                           |   |         | (2,768 | )            |   | 1,324 |   |
| Noncash                  Acquisitions Under Capital Leases                           |   |         | 369    |         |   | 2,218 |   |
| Construction                  Expenditures Included in Accounts Payable at March 31, |   |         | 20,243 |         |   | 27,624 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**INDIANA        MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**INDEX        TO CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS OF REGISTRANT        SUBSIDIARIES**

|                                                       | **Footnote****Reference** |
|------------------------------------------------------------|---------------------------|
|                                                       |                      |
| Significant                  Accounting Matters            | Note                  1   |
| New                  Accounting Pronouncements             | Note                  2   |
| Rate                  Matters                              | Note                  3   |
| Commitments,                  Guarantees and Contingencies | Note                  4   |
| Benefit                  Plans                             | Note                  6   |
| Business                  Segments                         | Note                  7   |
| Income                  Taxes                              | Note                  8   |
| Financing                  Activities                      | Note                  9   |

----

**KENTUCKY        POWER COMPANY**

----

**KENTUCKY        POWER COMPANY**

**MANAGEMENT’S        NARRATIVE FINANCIAL DISCUSSION AND ANALYSIS**

**Results        of Operations**

**Reconciliation        of First Quarter of 2006 to First Quarter of 2007**

**Net        Income**

**(in        millions)**

| **First                  Quarter of 2006**        |   |   |   |   | $      | 10     |   |
|---------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**     |   |   |   |   |   |   |   |
| Retail                  Margins                   |   |   | 17     |   |   |   |   |
| Off-system                  Sales                 |   |   | (2     | )      |   |   |   |
| Transmission                  Revenues            |   |   | (3     | )      |   |   |   |
| Other                                             |   |   | (1     | )      |   |   |   |
| **Total                  Change in Gross Margin** |   |   |   |   |   | 11     |   |
|                                              |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance  |   |   |   |   |   | (3     | )      |
|                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense               |   |   |   |   |   | (3     | )      |
|                                              |   |   |   |   |   |   |   |
| **First                  Quarter of 2007**        |   |   |   |   | $      | 15     |   |

| · | Retail                  Margins increased $17 million primarily due to rate relief of $14                  million                  from the March 2006 approval of the settlement agreement in our                  base rate                  case.                    |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Transmission                  Revenues decreased $3 million primarily due to the elimination                  of SECA                  revenues as of April 1, 2006. See the “Transmission Rate Proceedings at                  the FERC” section of Note 3. |

*Other        Operation and Maintenance *

*Income        Taxes*

**Critical        Accounting Estimates**

**Adoption        of New Accounting Pronouncements**

----

**QUANTITATIVE        AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT        ACTIVITIES**

**Market        Risks**

**VaR        Associated with Debt Outstanding**

----

**KENTUCKY        POWER COMPANY**

**CONDENSED        STATEMENTS OF INCOME**

**For        the Three Months Ended March 31, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                     |   | **2007** |    | **2006** |   |
|--------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| **REVENUES**                                                             |   |     |    |     |   |
| Electric                  Generation, Transmission and Distribution      |   | $        | 140,486 |     | $      | 137,620 |   |
| Sales                  to AEP Affiliates                                 |   |     | 13,461  |     |   | 13,968 |   |
| Other                                                                    |   |     | 149     |     |   | 259 |   |
| **TOTAL**                                                                |   |     | 154,096 |     |   | 151,847 |   |
|                                                                     |   |     |    |     |   |   |   |
| **EXPENSES**                                                             |   |     |    |     |   |   |   |
| Fuel                  and Other Consumables Used for Electric Generation |   |     | 38,304  |     |   | 43,966 |   |
| Purchased                  Electricity for Resale                        |   |     | 3,305   |     |   | 973 |   |
| Purchased                  Electricity from AEP Affiliates               |   |     | 43,257  |     |   | 49,526 |   |
| Other                  Operation                                         |   |     | 15,886  |     |   | 13,726 |   |
| Maintenance                                                              |   |     | 8,210   |     |   | 7,141 |   |
| Depreciation                  and Amortization                           |   |     | 11,796  |     |   | 11,479 |   |
| Taxes                  Other Than Income Taxes                           |   |     | 2,803   |     |   | 2,512 |   |
| **TOTAL**                                                                |   |     | 123,561 |     |   | 129,323 |   |
|                                                                     |   |     |    |     |   |   |   |
| **OPERATING                  INCOME**                                    |   |     | 30,535  |     |   | 22,524 |   |
|                                                                     |   |     |    |     |   |   |   |
| **Other                  Income (Expense):**                             |   |     |    |     |   |   |   |
| Interest                  Income                                         |   |     | 112     |     |   | 166 |   |
| Allowance                  for Equity Funds Used During Construction     |   |     | 14      |     |   | 101 |   |
| Interest                  Expense                                        |   |     | (7,011  | )        |   | (7,296 | ) |
|                                                                     |   |     |    |     |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                          |   |     | 23,650  |     |   | 15,495 |   |
|                                                                     |   |     |    |     |   |   |   |
| Income                  Tax Expense                                      |   |     | 8,439   |     |   | 5,665 |   |
|                                                                     |   |     |    |     |   |   |   |
| **NET                  INCOME**                                          |   | $        | 15,211  |     | $      | 9,830 |   |

*The        common stock of KPCo is wholly-owned by AEP.*

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**KENTUCKY        POWER COMPANY**

**CONDENSED        STATEMENTS OF CHANGES IN COMMON SHAREHOLDER’S**

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Three Months Ended March 31, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                                     |   | **Common****Stock** |   | **Paid-in****Capital**  |   | **Retained                  Earnings** |   | **Accumulated                  Other Comprehensive Income                  (Loss)** |    | **Total** |   |
|------------------------------------------------------------------------------------------|--------|---------------------|--------|------------------------------|--------|----------------------------------------|--------|-------------------------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                  31, 2005**                                                   |   | $                   | 50,450 |                         | $      | 208,750                                |   | $                                                                                   | 88,864  |      | $      | (223 | ) | $ | 347,841 |   |
|                                                                                     |   |                |   |                         |   |                                   |   |                                                                                |    |      |   |   |   |   |   |   |
| Common                  Stock Dividends                                                  |   |                |   |                         |   |                                   |   |                                                                                | (2,500  | )         |   |   |   |   | (2,500 | ) |
| **TOTAL**                                                                                |   |                |   |                         |   |                                   |   |                                                                                |    |      |   |   |   |   | 345,341 |   |
|                                                                                     |   |                |   |                         |   |                                   |   |                                                                                |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                                |   |                |   |                         |   |                                   |   |                                                                                |    |      |   |   |   |   |   |   |
| **Other                  Comprehensive Income,** **Net                  of Taxes:** |   |                |   |                         |   |                                   |   |                                                                                |    |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $873                                    |   |                |   |                         |   |                                   |   |                                                                                |    |      |   | 1,621 |   |   | 1,621 |   |
| **NET                  INCOME**                                                          |   |                |   |                         |   |                                   |   |                                                                                | 9,830   |      |   |   |   |   | 9,830 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                          |   |                |   |                         |   |                                   |   |                                                                                |    |      |   |   |   |   | 11,451 |   |
|                                                                                     |   |                |   |                         |   |                                   |   |                                                                                |    |      |   |   |   |   |   |   |
| **MARCH                  31, 2006**                                                      |   | $                   | 50,450 |                         | $      | 208,750                                |   | $                                                                                   | 96,194  |      | $      | 1,398 |   | $ | 356,792 |   |
|                                                                                     |   |                |   |                         |   |                                   |   |                                                                                |    |      |   |   |   |   |   |   |
| **DECEMBER                  31, 2006**                                                   |   | $                   | 50,450 |                         | $      | 208,750                                |   | $                                                                                   | 108,899 |      | $      | 1,552 |   | $ | 369,651 |   |
|                                                                                     |   |                |   |                         |   |                                   |   |                                                                                |    |      |   |   |   |   |   |   |
| FIN                  48 Adoption, Net of Tax                                             |   |                |   |                         |   |                                   |   |                                                                                | (786    | )         |   |   |   |   | (786 | ) |
| Common                  Stock Dividends                                                  |   |                |   |                         |   |                                   |   |                                                                                | (5,000  | )         |   |   |   |   | (5,000 | ) |
| **TOTAL**                                                                                |   |                |   |                         |   |                                   |   |                                                                                |    |      |   |   |   |   | 363,865 |   |
|                                                                                     |   |                |   |                         |   |                                   |   |                                                                                |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                                |   |                |   |                         |   |                                   |   |                                                                                |    |      |   |   |   |   |   |   |
| **Other                  Comprehensive Loss, Net of Taxes:**                             |   |                |   |                         |   |                                   |   |                                                                                |    |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $1,100                                  |   |                |   |                         |   |                                   |   |                                                                                |    |      |   | (2,042 | ) |   | (2,042 | ) |
| **NET                  INCOME**                                                          |   |                |   |                         |   |                                   |   |                                                                                | 15,211  |      |   |   |   |   | 15,211 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                          |   |                |   |                         |   |                                   |   |                                                                                |    |      |   |   |   |   | 13,169 |   |
|                                                                                     |   |                |   |                         |   |                                   |   |                                                                                |    |      |   |   |   |   |   |   |
| **MARCH                  31, 2007**                                                      |   | $                   | 50,450 |                         | $      | 208,750                                |   | $                                                                                   | 118,324 |      | $      | (490 | ) | $ | 377,034 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**KENTUCKY        POWER COMPANY**

**CONDENSED        BALANCE SHEETS**

**ASSETS**

**March        31, 2007 and December 31, 2006**

**(in        thousands)**

**(Unaudited)**

|                                                       |   | **2007**     |      | **2006**     |   |
|------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                  ASSETS**                        |   |    |      |    |   |
| Cash                  and Cash Equivalents                 |   | $            | 775       |         | $      | 702 |   |
| Accounts                  Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                  |   |         | 30,027    |         |   | 30,112 |   |
| Affiliated                  Companies                      |   |         | 9,142     |         |   | 10,540 |   |
| Accrued                  Unbilled Revenues                 |   |         | 6,093     |         |   | 3,602 |   |
| Miscellaneous                                              |   |         | 684       |         |   | 327 |   |
| Allowance                  for Uncollectible Accounts      |   |         | (242      | )            |   | (227 | ) |
|                     Total Accounts Receivable    |   |         | 45,704    |         |   | 44,354 |   |
| Fuel                                                       |   |         | 12,852    |         |   | 16,070 |   |
| Materials                  and Supplies                    |   |         | 10,277    |         |   | 8,726 |   |
| Risk                  Management Assets                    |   |         | 16,110    |         |   | 25,624 |   |
| Accrued                  Tax Benefits                      |   |         | -         |         |   | 1,021 |   |
| Margin                  Deposits                           |   |         | 1,458     |         |   | 2,923 |   |
| Prepayments                  and Other                     |   |         | 2,637     |         |   | 2,425 |   |
| **TOTAL**                                                  |   |         | 89,813    |         |   | 101,845 |   |
|                                                       |   |         |      |         |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**         |   |         |      |         |   |   |   |
| Electric:                                                  |   |         |      |         |   |   |   |
| Production                                                 |   |         | 480,501   |         |   | 478,955 |   |
| Transmission                                               |   |         | 395,646   |         |   | 394,419 |   |
| Distribution                                               |   |         | 480,690   |         |   | 481,083 |   |
| Other                                                      |   |         | 60,047    |         |   | 61,089 |   |
| Construction                  Work in Progress             |   |         | 27,705    |         |   | 29,587 |   |
| **Total**                                                  |   |         | 1,444,589 |         |   | 1,445,133 |   |
| Accumulated                  Depreciation and Amortization |   |         | 441,565   |         |   | 442,778 |   |
| **TOTAL                  - NET**                           |   |         | 1,003,024 |         |   | 1,002,355 |   |
|                                                       |   |         |      |         |   |   |   |
| **OTHER                  NONCURRENT ASSETS**               |   |         |      |         |   |   |   |
| Regulatory                  Assets                         |   |         | 135,241   |         |   | 136,139 |   |
| Long-term                  Risk Management Assets          |   |         | 19,313    |         |   | 21,282 |   |
| Deferred                  Charges and Other                |   |         | 46,953    |         |   | 48,944 |   |
| **TOTAL**                                                  |   |         | 201,507   |         |   | 206,365 |   |
|                                                       |   |         |      |         |   |   |   |
| **TOTAL                  ASSETS**                          |   | $            | 1,294,344 |         | $      | 1,310,565 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**KENTUCKY        POWER COMPANY**

**CONDENSED        BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDER’S EQUITY**

**March        31, 2007 and December 31, 2006 **

**(Unaudited)**

|                                                                        |   | **2007**                            |      | **2006** |   |
|-----------------------------------------------------------------------------|--------|-------------------------------------|-----------|----------|--------|
| **CURRENT                  LIABILITIES**                                    |   | **(in                  thousands)** |      |
| Advances                  from Affiliates                                   |   | $                                   | 20,769    |     | $      | 30,636 |   |
| Accounts                  Payable:                                          |   |                                |      |     |   |   |   |
| General                                                                     |   |                                | 33,876    |     |   | 31,490 |   |
| Affiliated                  Companies                                       |   |                                | 17,615    |     |   | 23,658 |   |
| Long-term                  Debt Due Within One Year - Nonaffiliated         |   |                                | 322,554   |     |   | 322,048 |   |
| Risk                  Management Liabilities                                |   |                                | 14,167    |     |   | 20,001 |   |
| Customer                  Deposits                                          |   |                                | 15,273    |     |   | 16,095 |   |
| Accrued                  Taxes                                              |   |                                | 18,933    |     |   | 18,775 |   |
| Other                                                                       |   |                                | 22,759    |     |   | 26,303 |   |
| **TOTAL**                                                                   |   |                                | 465,946   |     |   | 489,006 |   |
|                                                                        |   |                                |      |     |   |   |   |
| **NONCURRENT                  LIABILITIES**                                 |   |                                |      |     |   |   |   |
| Long-term                  Debt - Nonaffiliated                             |   |                                | 104,944   |     |   | 104,920 |   |
| Long-term                  Debt - Affiliated                                |   |                                | 20,000    |     |   | 20,000 |   |
| Long-term                  Risk Management Liabilities                      |   |                                | 13,464    |     |   | 15,426 |   |
| Deferred                  Income Taxes                                      |   |                                | 239,776   |     |   | 242,133 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits |   |                                | 47,426    |     |   | 49,109 |   |
| Deferred                  Credits and Other                                 |   |                                | 25,754    |     |   | 20,320 |   |
| **TOTAL**                                                                   |   |                                | 451,364   |     |   | 451,908 |   |
|                                                                        |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES**                                      |   |                                | 917,310   |     |   | 940,914 |   |
|                                                                        |   |                                |      |     |   |   |   |
| Commitments                  and Contingencies (Note 4)                     |   |                                |      |     |   |   |   |
|                                                                        |   |                                |      |     |   |   |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                      |   |                                |      |     |   |   |   |
| Common                  Stock - $50 Par Value Per Share:                    |   |                                |      |     |   |   |   |
| Authorized                  - 2,000,000 Shares                              |   |                                |      |     |   |   |   |
| Outstanding                  - 1,009,000 Shares                             |   |                                | 50,450    |     |   | 50,450 |   |
| Paid-in                  Capital                                            |   |                                | 208,750   |     |   | 208,750 |   |
| Retained                  Earnings                                          |   |                                | 118,324   |     |   | 108,899 |   |
| Accumulated                  Other Comprehensive Income (Loss)              |   |                                | (490      | )        |   | 1,552 |   |
| **TOTAL**                                                                   |   |                                | 377,034   |     |   | 369,651 |   |
|                                                                        |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDER’S EQUITY**       |   | $                                   | 1,294,344 |     | $      | 1,310,565 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**KENTUCKY        POWER COMPANY**

**CONDENSED        STATEMENTS OF CASH FLOWS**

**For        the Three Months Ended March 31, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                      |   | **2007**     |    | **2006**     |   |
|---------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **OPERATING                  ACTIVITIES**                                 |   |    |    |    |   |
| **Net                  Income**                                           |   | $            | 15,211  |         | $      | 9,830 |   |
| **Adjustments                  for Noncash Items:**                       |   |         |    |         |   |   |   |
| Depreciation                  and Amortization                            |   |         | 11,796  |         |   | 11,479 |   |
| Deferred                  Income Taxes                                    |   |         | 956     |         |   | 2,217 |   |
| Mark-to-Market                  of Risk Management Contracts              |   |         | 1,092   |         |   | (1,378 | ) |
| Change                  in Other Noncurrent Assets                        |   |         | 980     |         |   | 2,518 |   |
| Change                  in Other Noncurrent Liabilities                   |   |         | (78     | )            |   | 1,845 |   |
| **Changes                  in Certain Components of Working Capital:**    |   |         |    |         |   |   |   |
| Accounts                  Receivable, Net                                 |   |         | (1,350  | )            |   | 16,149 |   |
| Fuel,                  Materials and Supplies                             |   |         | 3,609   |         |   | (2,808 | ) |
| Accounts                  Payable                                         |   |         | (2,557  | )            |   | (6,212 | ) |
| Customer                  Deposits                                        |   |         | (822    | )            |   | (3,127 | ) |
| Accrued                  Taxes, Net                                       |   |         | 1,447   |         |   | 2,676 |   |
| Other                  Current Assets                                     |   |         | 1,012   |         |   | 2,069 |   |
| Other                  Current Liabilities                                |   |         | (3,348  | )            |   | (1,480 | ) |
| **Net                  Cash Flows From Operating Activities**             |   |         | 27,948  |         |   | 33,778 |   |
|                                                                      |   |         |    |         |   |   |   |
| **INVESTING                  ACTIVITIES**                                 |   |         |    |         |   |   |   |
| Construction                  Expenditures                                |   |         | (13,001 | )            |   | (19,376 | ) |
| Change                  in Advances to Affiliates, Net                    |   |         | -       |         |   | (5,923 | ) |
| Proceeds                  from Sale of Assets                             |   |         | 231     |         |   | 301 |   |
| **Net                  Cash Flows Used For Investing Activities**         |   |         | (12,770 | )            |   | (24,998 | ) |
|                                                                      |   |         |    |         |   |   |   |
| **FINANCING                  ACTIVITIES**                                 |   |         |    |         |   |   |   |
| Change                  in Advances from Affiliates, Net                  |   |         | (9,867  | )            |   | (6,040 | ) |
| Principal                  Payments for Capital Lease Obligations         |   |         | (238    | )            |   | (343 | ) |
| Dividends                  Paid on Common Stock                           |   |         | (5,000  | )            |   | (2,500 | ) |
| **Net                  Cash Flows Used For Financing Activities**         |   |         | (15,105 | )            |   | (8,883 | ) |
|                                                                      |   |         |    |         |   |   |   |
| **Net                  Increase (Decrease) in Cash and Cash Equivalents** |   |         | 73      |         |   | (103 | ) |
| **Cash                  and Cash Equivalents at Beginning of Period**     |   |         | 702     |         |   | 526 |   |
| **Cash                  and Cash Equivalents at End of Period**           |   | $            | 775     |         | $      | 423 |   |

| **SUPPLEMENTARY                  INFORMATION**                                       |   |    |   |    |   |
|--------------------------------------------------------------------------------------|--------|--------------|--------|--------------|--------|
| Cash                  Paid for Interest, Net of Capitalized Amounts                  |   | $            | 5,371  |         | $      | 4,156 |   |
| Net                  Cash Paid for Income Taxes                                      |   |         | 738    |         |   | 214 |   |
| Noncash                  Acquisitions Under Capital Leases                           |   |         | 139    |         |   | 224 |   |
| Construction                  Expenditures Included in Accounts Payable at March 31, |   |         | 2,257  |         |   | 3,079 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**KENTUCKY        POWER COMPANY**

**INDEX        TO CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS OF **

**REGISTRANT        SUBSIDIARIES**

|                                                       | **Footnote                  Reference** |
|------------------------------------------------------------|-----------------------------------------|
|                                                       |                                    |
| Significant                  Accounting Matters            | Note                  1                 |
| New                  Accounting Pronouncements             | Note                  2                 |
| Rate                  Matters                              | Note                  3                 |
| Commitments,                  Guarantees and Contingencies | Note                  4                 |
| Benefit                  Plans                             | Note                  6                 |
| Business                  Segments                         | Note                  7                 |
| Income                  Taxes                              | Note                  8                 |
| Financing                  Activities                      | Note                  9                 |

----

**OHIO        POWER COMPANY CONSOLIDATED**

----

**OHIO        POWER COMPANY CONSOLIDATED**

**MANAGEMENT’S        FINANCIAL DISCUSSION AND ANALYSIS**

**Results        of Operations**

**Reconciliation        of First Quarter of 2006 to First Quarter of 2007**

**Net        Income**

**(in        millions)**

| **First                  Quarter of 2006**                        |   |   |   |   | $      | 95     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  Margins                                   |   |   | 59     |   |   |   |   |
| Off-system                  Sales                                 |   |   | (22    | )      |   |   |   |
| Transmission                  Revenues                            |   |   | (9     | )      |   |   |   |
| Other                                                             |   |   | (10    | )      |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | 18     |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (28    | )      |   |   |   |
| Depreciation                  and Amortization                    |   |   | (5     | )      |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | (1     | )      |   |   |   |
| Interest                  Expense                                 |   |   | (3     | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (37    | )      |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | 3      |   |
|                                                              |   |   |   |   |   |   |   |
| **First                  Quarter of 2007**                        |   |   |   |   | $      | 79     |   |

| · | Retail                  Margins increased $59 million primarily due to the                  following:                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | A                  $25 million increase in capacity settlements under the Interconnection                  Agreement related to certain of our affiliates’ peaks and the expiration                  of our supplemental capacity and energy obligation to Buckeye Power,                  Inc.                  under the Cardinal Station Agreement. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | A                    $14 million increase in rate revenues related to an $8 million                    increase in                    our RSP, a $3 million increase related to rate recovery of storm                    costs and                    a $3 million increase related to rate recovery of IGCC preconstruction                    costs (see “Ohio Rate Matters” section of Note 3). The                    increase in rate recovery of storm costs was offset by the amortization                    of                    deferred expenses in Other Operation and Maintenance. The increase                    in rate                    recovery of IGCC preconstruction costs was offset by the amortization                    of                    deferred expenses in Depreciation and                    Amortization. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | A                  $9 million increase in fuel margins. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | A                  $7 million increase in industrial revenue due to the addition of                  Ormet, a                  major industrial customer (see “Ormet” section of Note                  3). |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | A                  $6 million increase in residential revenue primarily due to a 25%                  increase                  in heating degree days. |
|   | These                  increases were partially offset by:                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | A                  $9 million decrease in revenues associated with SO2                  allowances received in 2006 from Buckeye Power, Inc. under the                  Cardinal                  Station Allowances Agreement. |
| · | Margins                  from Off-system Sales decreased $22 million due to a $19 million                  decrease                  in physical sales margins and a $4 million decrease in margins                  from                  optimization activities.                                                                                                                                                                                                                                                           |
| · | Transmission                  Revenues decreased $9 million primarily due to the elimination                  of SECA                  revenues as of April 1, 2006 (see the “Transmission Rate Proceedings at                  the FERC” section of Note 3).                                                                                                                                                                                                                                                     |
| · | Other                  revenues decreased $10 million primarily due to a $4 million decrease                  related to the expiration of an obligation to sell supplemental                  capacity                  and energy to Buckeye Power, Inc. under the Cardinal Station Agreement,                  a                  $3 million decrease in gains on sales of emission allowances and                  a $2                  million decrease in revenue associated with Cook Coal                  Terminal. |

| · | Other                  Operation and Maintenance expenses increased $28 million primarily                  due to                  a $19 million increase in maintenance and removal costs related                  to planned                  and forced outages at the Gavin, Muskingum, Mitchell and Cardinal                  plants                  and a $5 million increase due to the prior period adjustment of                  liabilities related to sold coal companies.                                                                                                |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                    and Amortization increased $5 million primarily due to the amortization                    of                    IGCC preconstruction costs of $3 million in the first quarter                    of 2007 and                    a $1 million increase in depreciation related to environmental                    improvements placed in service at the Mitchell plant. The increase                    in                    amortization of IGCC preconstruction costs was offset by a corresponding                    increase in Retail Margins. |
| · | Interest                  Expense increased $3 million primarily due to a $5 million increase                  related to long-term debt issuances since June 2006 and a $3 million                  increase related to higher borrowings from the Utility Money Pool                  partially offset by a $6 million increase in allowance for borrowed                  funds                  used during construction.                                                                                                                                                          |

*Income        Taxes*

**Financial        Condition**

**Credit        Ratings**

|                                   | **Moody’s** |   | **S&P** |   | **Fitch** |
|----------------------------------------|-------------------|--------|-------------|--------|-----------|
|                                   |              |   |        |   |      |
| Senior                  Unsecured Debt | A3                |   | BBB         |   | BBB+      |

**Cash        Flow**

|                                                                  |   | **2007**                            |     | **2006** |   |
|-----------------------------------------------------------------------|--------|-------------------------------------|----------|----------|--------|
|                                                                  |   | **(in                  thousands)** |     |
| **Cash                  and Cash Equivalents at Beginning of Period** |   | $                                   | 1,625    |     | $      | 1,240 |   |
| Cash                  Flows From (Used For):                          |   |                                |     |     |   |   |   |
| Operating                  Activities                                 |   |                                | 96,864   |     |   | 182,002 |   |
| Investing                  Activities                                 |   |                                | (306,826 | )        |   | (221,862 | ) |
| Financing                  Activities                                 |   |                                | 209,598  |     |   | 39,577 |   |
| Net                  Decrease in Cash and Cash Equivalents            |   |                                | (364     | )        |   | (283 | ) |
| **Cash                  and Cash Equivalents at End of Period**       |   | $                                   | 1,261    |     | $      | 957 |   |

*Operating        Activities*

*Investing        Activities*

*Financing        Activities*

**Financing        Activity**

|                                           |   | **Principal****Amount                  Paid** |                                | **Interest** |     | **Due** |
|------------------------------------------------|--------|-----------------------------------------------|-------------------------------------|--------------|----------|---------|
| **Type                  of Debt**              |   |                                          | **Rate**                            |         | **Date** |
|                                           |   |                                          | **(in                  thousands)** |         | **(%)**  |    |   |
| Notes                  Payable - Nonaffiliated |   | $                                             | 1,463                               |         | 6.81     |    | 2008 |
| Notes                  Payable - Nonaffiliated |   |                                          | 6,000                               |         | 6.27     |    | 2009 |

**Liquidity**

**Summary        Obligation Information**

**Significant        Factors**

***Litigation        and Regulatory Activity***

**Critical        Accounting Estimates**

**Adoption        of New Accounting Pronouncements**

----

**QUANTITATIVE        AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT        ACTIVITIES**

**Market        Risks**

**MTM        Risk Management Contract Net Assets**

**Reconciliation        of MTM Risk Management Contracts to**

**Condensed        Consolidated Balance Sheet**

**As        of March 31, 2007**

**(in        thousands)**

|                                                                                              |   | **MTM                  Risk Management Contracts** |    | **Cash                  Flow Hedges** |   | **DETM                  Assignment (a)** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|---------|---------------------------------------|--------|------------------------------------------|--------|-----------|--------|
| Current                  Assets                                                                   |   | $                                                  | 49,092  |                                  | $      | 756                                      |   | $         | -      |   | $ | 49,848 |   |
| Noncurrent                  Assets                                                                |   |                                               | 57,316  |                                  |   | 96                                       |   |      | -      |   |   | 57,412 |   |
| **Total                  MTM Derivative Contract Assets**                                         |   |                                               | 106,408 |                                  |   | 852                                      |   |      | -      |   |   | 107,260 |   |
|                                                                                              |   |                                               |    |                                  |   |                                     |   |      |   |   |   |   |   |
| Current                  Liabilities                                                              |   |                                               | (42,532 | )                                     |   | (3,980                                   | )      |      | (2,071 | ) |   | (48,583 | ) |
| Noncurrent                  Liabilities                                                           |   |                                               | (35,731 | )                                     |   | (312                                     | )      |      | (5,493 | ) |   | (41,536 | ) |
| **Total                  MTM Derivative Contract ****Liabilities**                           |   |                                               | (78,263 | )                                     |   | (4,292                                   | )      |      | (7,564 | ) |   | (90,119 | ) |
|                                                                                              |   |                                               |    |                                  |   |                                     |   |      |   |   |   |   |   |
| **Total                  MTM Derivative Contract Net Assets                  (Liabilities)** |   | $                                                  | 28,145  |                                  | $      | (3,440                                   | )      | $         | (7,564 | ) | $ | 17,141 |   |

| (a) | See                  “Natural Gas Contracts with DETM” section of Note 16 in the 2006 Annual                  Report. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------|

**MTM        Risk Management Contract Net Assets**

**Three        Months Ended March 31, 2007**

**(in        thousands)**

| **Total                  MTM Risk Management Contract Net Assets at December 31,                  2006**                                           |   | $      | 33,042 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                  Loss from Contracts Realized/Settled During the Period and Entered                  in a                  Prior Period     |   |   | (4,433 | )      |
| Fair                  Value of New Contracts at Inception When Entered During the Period                  (a)                                      |   |   | 311    |   |
| Net                  Option Premiums Paid/(Received) for Unexercised or Unexpired Option                  Contracts Entered During the Period |   |   | (23    | )      |
| Change                  in Fair Value Due to Valuation Methodology Changes on Forward                  Contracts                                   |   |   | -      |   |
| Changes                  in Fair Value Due to Market Fluctuations During the Period                  (b)                                           |   |   | (317   | )      |
| Changes                  in Fair Value Allocated to Regulated Jurisdictions (c)                                                                    |   |   | (435   | )      |
| **Total                  MTM Risk Management Contract Net Assets**                                                                                 |   |   | 28,145 |   |
| Net                  Cash Flow Hedge Contracts                                                                                                     |   |   | (3,440 | )      |
| DETM                  Assignment (d)                                                                                                               |   |   | (7,564 | )      |
| **Total                  MTM Risk Management Contract Net Assets at March 31, 2007**                                                               |   | $      | 17,141 |   |

| (a) | Reflects                  fair value on long-term contracts which are typically with customers                  that                  seek fixed pricing to limit their risk against fluctuating energy                  prices.                  Inception value is only recorded if observable market data can                  be obtained                  for valuation inputs for the entire contract term. The contract                  prices are                  valued against market curves associated with the delivery location                  and                  delivery term. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                  fluctuations are attributable to various factors such as supply/demand,                  weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (c) | “Changes                  in Fair Value Allocated to Regulated Jurisdictions” relates to the net                  gains (losses) of those contracts that are not reflected in the                  Condensed                  Consolidated Statements of Income. These net gains (losses) are                  recorded                  as regulatory liabilities/assets for those subsidiaries that operate                  in                  regulated jurisdictions.                                                                                                             |
| (d) | See                  “Natural Gas Contracts with DETM” section of Note 16 in our 2006 Annual                  Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

**Maturity        and Source of Fair Value of MTM Risk Management Contract Net        Assets**

| · | The                  method of measuring fair value used in determining the carrying                  amount of                  our total MTM asset or liability (external sources or modeled                  internally). |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | The                  maturity, by year, of our net assets/liabilities to give an indication                  of                  when these MTM amounts will settle and generate                  cash.                      |

**Maturity        and Source of Fair Value of MTM**

**Risk        Management Contract Net Assets**

**Fair        Value of Contracts as of March 31, 2007**

**(in        thousands)**

|                                                                                                                                  |   | **Remainder****2007** |   | **2008** |   | **2009** |   | **2010** |   | **2011** |   | **After****2011** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                  Actively Quoted - Exchange Traded Contracts                                                              |   | $                     | 11,122 |     | $      | (399     | )      | $        | 464    |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | 11,187 |   |
| Prices                  Provided by Other External Sources                  - OTC Broker                    Quotes (a) |   |                  | (621   | )        |   | 9,668    |   |     | 7,524  |     |   | 2,985             |   |      | -      |   |   | - |   |   | 19,556 |   |
| Prices                  Based on Models and Other Valuation Methods (b)                                                     |   |                  | (5,725 | )        |   | (3,527   | )      |     | 1,165  |     |   | 3,608             |   |      | 812    |   |   | 1,069 |   |   | (2,598 | ) |
| **Total**                                                                                                                             |   | $                     | 4,776  |     | $      | 5,742    |   | $        | 9,153  |     | $      | 6,593             |   | $         | 812    |   | $ | 1,069 |   | $ | 28,145 |   |

| (a)    | “Prices                  Provided by Other External Sources - OTC Broker Quotes” reflects                  information obtained from over-the-counter brokers, industry services,                  or                  multiple-party on-line platforms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)    | “Prices                  Based on Models and Other Valuation Methods” is used in absence of pricing                  information from external sources. Modeled information is derived                  using                  valuation models developed by the reporting entity, reflecting                  when                  appropriate, option pricing theory, discounted cash flow concepts,                  valuation adjustments, etc. and may require projection of prices                  for                  underlying commodities beyond the period that prices are available                  from                  third-party sources. In addition, where external pricing information                  or                  market liquidity are limited, such valuations are classified as                  modeled.                  The determination of the point at which a market is no longer liquid                  for                  placing it in the modeled category varies by market. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | Contract                  values that are measured using models or valuation methods other                  than                  active quotes or OTC broker quotes (because of the lack of such                  data for                  all delivery quantities, locations and periods) incorporate in                  the model                  or other valuation methods, to the extent possible, OTC broker                  quotes and                  active quotes for deliveries in years and at locations for which                  such                  quotes are available.                                                                                                                                                                                                                                                                                                                                                                                                                                          |

**Cash        Flow Hedges Included in Accumulated Other Comprehensive Income (Loss) (AOCI)        on        the Condensed Consolidated Balance Sheet **

**Total        Accumulated Other Comprehensive Income (Loss) Activity**

**Three        Months Ended March 31, 2007**

**(in        thousands)**

|                                                                                                                      |   | **Power** |   | **Foreign****Currency** |   | **Interest                  Rate** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|-------------------------|--------|------------------------------------|--------|-----------|--------|
| **Beginning                  Balance in AOCI December 31, 2006**                                                          |   | $         | 4,040  |                    | $      | (331                               | )      | $         | 3,553  |   | $ | 7,262 |   |
| Changes                  in Fair Value                                                                                    |   |      | (4,677 | )                       |   | -                                  |   |      | -      |   |   | (4,677 | ) |
| Reclassifications                  from AOCI to Net Income for   Cash                  Flow Hedges Settled |   |      | (1,595 | )                       |   | 3                                  |   |      | (202   | ) |   | (1,794 | ) |
| **Ending                  Balance in AOCI March 31, 2007**                                                                |   | $         | (2,232 | )                       | $      | (328                               | )      | $         | 3,351  |   | $ | 791 |   |

**Credit        Risk**

**VaR        Associated with Risk Management Contracts**

| **Three                  Months Ended March 31, 2007** |   |     |   |        | **Twelve                  Months Ended December 31, 2006** |
|--------------------------------------------------------|--------|----------|--------|-------------|------------------------------------------------------------|
| **(in                  thousands)**                    |   |     |   |        | **(in                  thousands)**                        |
| **End**                                                |   | **High** |   | **Average** |                                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $678                                                   |   | $2,054   |   | $924        |                                                       | $255 |   |   |   |   | $573 |   | $1,451 |   | $500 |   | $271 |

**VaR        Associated with Debt Outstanding**

----

**OHIO        POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED STATEMENTS OF INCOME**

**For        the Three Months Ended March 31, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                     |   | **2007** |    | **2006** |   |
|--------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| **REVENUES**                                                             |   |     |    |     |   |
| Electric                  Generation, Transmission and Distribution      |   | $        | 492,534 |     | $      | 544,639 |   |
| Sales                  to AEP Affiliates                                 |   |     | 178,894 |     |   | 149,259 |   |
| Other                  - Affiliated                                      |   |     | 4,038   |     |   | 3,709 |   |
| Other                  - Nonaffiliated                                   |   |     | 3,975   |     |   | 4,999 |   |
| **TOTAL**                                                                |   |     | 679,441 |     |   | 702,606 |   |
|                                                                     |   |     |    |     |   |   |   |
| **EXPENSES**                                                             |   |     |    |     |   |   |   |
| Fuel                  and Other Consumables Used for Electric Generation |   |     | 198,293 |     |   | 235,130 |   |
| Purchased                  Electricity for Resale                        |   |     | 24,854  |     |   | 21,714 |   |
| Purchased                  Electricity from AEP Affiliates               |   |     | 20,966  |     |   | 28,572 |   |
| Other                  Operation                                         |   |     | 102,987 |     |   | 86,629 |   |
| Maintenance                                                              |   |     | 59,148  |     |   | 47,524 |   |
| Depreciation                  and Amortization                           |   |     | 84,276  |     |   | 78,821 |   |
| Taxes                  Other Than Income Taxes                           |   |     | 48,385  |     |   | 47,153 |   |
| **TOTAL**                                                                |   |     | 538,909 |     |   | 545,543 |   |
|                                                                     |   |     |    |     |   |   |   |
| **OPERATING                  INCOME**                                    |   |     | 140,532 |     |   | 157,063 |   |
|                                                                     |   |     |    |     |   |   |   |
| **Other                  Income (Expense):**                             |   |     |    |     |   |   |   |
| Interest                  Income                                         |   |     | 412     |     |   | 637 |   |
| Carrying                  Costs Income                                   |   |     | 3,541   |     |   | 3,383 |   |
| Allowance                  for Equity Funds Used During Construction     |   |     | 571     |     |   | 738 |   |
| Interest                  Expense                                        |   |     | (25,931 | )        |   | (23,414 | ) |
|                                                                     |   |     |    |     |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                          |   |     | 119,125 |     |   | 138,407 |   |
|                                                                     |   |     |    |     |   |   |   |
| Income                  Tax Expense                                      |   |     | 39,864  |     |   | 43,375 |   |
|                                                                     |   |     |    |     |   |   |   |
| **NET                  INCOME**                                          |   |     | 79,261  |     |   | 95,032 |   |
|                                                                     |   |     |    |     |   |   |   |
| Preferred                  Stock Dividend Requirements                   |   |     | 183     |     |   | 183 |   |
|                                                                     |   |     |    |     |   |   |   |
| **EARNINGS                  APPLICABLE TO COMMON STOCK**                 |   | $        | 79,078  |     | $      | 94,849 |   |

*The        common stock of OPCo is wholly-owned by AEP.*

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**OHIO        POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDER’S**

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Three Months Ended March 31, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                |   | **Common                  Stock** |    | **Paid-in                  Capital** |   | **Retained                  Earnings** |   | **Accumulated                  Other Comprehensive Income (Loss)** |      | **Total** |   |
|---------------------------------------------------------------------|--------|-----------------------------------|---------|--------------------------------------|--------|----------------------------------------|--------|--------------------------------------------------------------------|-----------|-----------|--------|
| **DECEMBER                  31, 2005**                              |   | $                                 | 321,201 |                                 | $      | 466,637                                |   | $                                                                  | 979,354   |      | $      | 755 |   | $ | 1,767,947 |   |
|                                                                |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| Capital                  Contribution From Parent                   |   |                              |    |                                 |   | 35,000                                 |   |                                                               |      |      |   |   |   |   | 35,000 |   |
| Preferred                  Stock Dividends                          |   |                              |    |                                 |   |                                   |   |                                                               | (183      | )         |   |   |   |   | (183 | ) |
| **TOTAL**                                                           |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   | 1,802,764 |   |
|                                                                |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                           |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **Other                  Comprehensive Income, Net of Taxes:** |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $3,326             |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   | 6,176 |   |   | 6,176 |   |
| **NET                  INCOME**                                     |   |                              |    |                                 |   |                                   |   |                                                               | 95,032    |      |   |   |   |   | 95,032 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                     |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   | 101,208 |   |
|                                                                |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **MARCH                  31, 2006**                                 |   | $                                 | 321,201 |                                 | $      | 501,637                                |   | $                                                                  | 1,074,203 |      | $      | 6,931 |   | $ | 1,903,972 |   |
|                                                                |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **DECEMBER                  31, 2006**                              |   | $                                 | 321,201 |                                 | $      | 536,639                                |   | $                                                                  | 1,207,265 |      | $      | (56,763 | ) | $ | 2,008,342 |   |
|                                                                |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| FIN                  48 Adoption, Net of Tax                        |   |                              |    |                                 |   |                                   |   |                                                               | (5,380    | )         |   |   |   |   | (5,380 | ) |
| Preferred                  Stock Dividends                          |   |                              |    |                                 |   |                                   |   |                                                               | (183      | )         |   |   |   |   | (183 | ) |
| **TOTAL**                                                           |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   | 2,002,779 |   |
|                                                                |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                           |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **Other                  Comprehensive Loss, Net of Taxes:**        |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $3,485             |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   | (6,471 | ) |   | (6,471 | ) |
| **NET                  INCOME**                                     |   |                              |    |                                 |   |                                   |   |                                                               | 79,261    |      |   |   |   |   | 79,261 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                     |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   | 72,790 |   |
|                                                                |   |                              |    |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **MARCH                  31, 2007**                                 |   | $                                 | 321,201 |                                 | $      | 536,639                                |   | $                                                                  | 1,280,963 |      | $      | (63,234 | ) | $ | 2,075,569 |   |

*          See Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**OHIO        POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**March        31, 2007 and December 31, 2006**

**(in        thousands)**

**(Unaudited)**

|                                                       |   | **2007**     |      | **2006**     |   |
|------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                  ASSETS**                        |   |    |      |    |   |
| Cash                  and Cash Equivalents                 |   | $            | 1,261     |         | $      | 1,625 |   |
| Accounts                  Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                  |   |         | 114,608   |         |   | 86,116 |   |
| Affiliated                  Companies                      |   |         | 109,029   |         |   | 108,214 |   |
| Accrued                  Unbilled Revenues                 |   |         | 17,082    |         |   | 10,106 |   |
| Miscellaneous                                              |   |         | 3,620     |         |   | 1,819 |   |
| Allowance                  for Uncollectible Accounts      |   |         | (838      | )            |   | (824 | ) |
|                     Total Accounts Receivable    |   |         | 243,501   |         |   | 205,431 |   |
| Fuel                                                       |   |         | 139,950   |         |   | 120,441 |   |
| Materials                  and Supplies                    |   |         | 78,866    |         |   | 74,840 |   |
| Emission                  Allowances                       |   |         | 12,302    |         |   | 10,388 |   |
| Risk                  Management Assets                    |   |         | 49,848    |         |   | 86,947 |   |
| Accrued                  Tax Benefits                      |   |         | 3,181     |         |   | 22,909 |   |
| Prepayments                  and Other                     |   |         | 28,395    |         |   | 18,416 |   |
| **TOTAL**                                                  |   |         | 557,304   |         |   | 540,997 |   |
|                                                       |   |         |      |         |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**         |   |         |      |         |   |   |   |
| Electric:                                                  |   |         |      |         |   |   |   |
| Production                                                 |   |         | 4,747,459 |         |   | 4,413,340 |   |
| Transmission                                               |   |         | 1,038,642 |         |   | 1,030,934 |   |
| Distribution                                               |   |         | 1,336,874 |         |   | 1,322,103 |   |
| Other                                                      |   |         | 300,054   |         |   | 299,637 |   |
| Construction                  Work in Progress             |   |         | 1,226,985 |         |   | 1,339,631 |   |
| **Total**                                                  |   |         | 8,650,014 |         |   | 8,405,645 |   |
| Accumulated                  Depreciation and Amortization |   |         | 2,867,416 |         |   | 2,836,584 |   |
| **TOTAL                  - NET**                           |   |         | 5,782,598 |         |   | 5,569,061 |   |
|                                                       |   |         |      |         |   |   |   |
| **OTHER                  NONCURRENT ASSETS**               |   |         |      |         |   |   |   |
| Regulatory                  Assets                         |   |         | 387,201   |         |   | 414,180 |   |
| Long-term                  Risk Management Assets          |   |         | 57,412    |         |   | 70,092 |   |
| Deferred                  Charges and Other                |   |         | 209,873   |         |   | 224,403 |   |
| **TOTAL**                                                  |   |         | 654,486   |         |   | 708,675 |   |
|                                                       |   |         |      |         |   |   |   |
| **TOTAL                  ASSETS**                          |   | $            | 6,994,388 |         | $      | 6,818,733 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**OHIO        POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDERS’ EQUITY**

**March        31, 2007 and December 31, 2006**

**(Unaudited)**

|                                                                            |   | **2007**                            |      | **2006** |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|-----------|----------|--------|
| **CURRENT                  LIABILITIES**                                        |   | **(in                  thousands)** |      |
| Advances                  from Affiliates                                       |   | $                                   | 397,127   |     | $      | 181,281 |   |
| Accounts                  Payable:                                              |   |                                |      |     |   |   |   |
| General                                                                         |   |                                | 225,809   |     |   | 250,025 |   |
| Affiliated                  Companies                                           |   |                                | 116,297   |     |   | 145,197 |   |
| Short-term                  Debt - Nonaffiliated                                |   |                                | 4,503     |     |   | 1,203 |   |
| Long-term                  Debt Due Within One Year - Nonaffiliated             |   |                                | 17,854    |     |   | 17,854 |   |
| Risk                  Management Liabilities                                    |   |                                | 48,583    |     |   | 73,386 |   |
| Customer                  Deposits                                              |   |                                | 31,547    |     |   | 31,465 |   |
| Accrued                  Taxes                                                  |   |                                | 148,057   |     |   | 165,338 |   |
| Accrued                  Interest                                               |   |                                | 34,561    |     |   | 35,497 |   |
| Other                                                                           |   |                                | 126,845   |     |   | 123,631 |   |
| **TOTAL**                                                                       |   |                                | 1,151,183 |     |   | 1,024,877 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **NONCURRENT                  LIABILITIES**                                     |   |                                |      |     |   |   |   |
| Long-term                  Debt - Nonaffiliated                                 |   |                                | 2,176,601 |     |   | 2,183,887 |   |
| Long-term                  Debt - Affiliated                                    |   |                                | 200,000   |     |   | 200,000 |   |
| Long-term                  Risk Management Liabilities                          |   |                                | 41,536    |     |   | 52,929 |   |
| Deferred                  Income Taxes                                          |   |                                | 891,761   |     |   | 911,221 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits     |   |                                | 173,946   |     |   | 185,895 |   |
| Deferred                  Credits and Other                                     |   |                                | 249,254   |     |   | 219,127 |   |
| **TOTAL**                                                                       |   |                                | 3,733,098 |     |   | 3,753,059 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES**                                          |   |                                | 4,884,281 |     |   | 4,777,936 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Minority                  Interest                                              |   |                                | 17,910    |     |   | 15,825 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption |   |                                | 16,628    |     |   | 16,630 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Commitments                  and Contingencies (Note 4)                         |   |                                |      |     |   |   |   |
|                                                                            |   |                                |      |     |   |   |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                          |   |                                |      |     |   |   |   |
| Common                  Stock - No Par Value:                                   |   |                                |      |     |   |   |   |
| Authorized                  - 40,000,000 Shares                                 |   |                                |      |     |   |   |   |
| Outstanding                  - 27,952,473 Shares                                |   |                                | 321,201   |     |   | 321,201 |   |
| Paid-in                  Capital                                                |   |                                | 536,639   |     |   | 536,639 |   |
| Retained                  Earnings                                              |   |                                | 1,280,963 |     |   | 1,207,265 |   |
| Accumulated                  Other Comprehensive Income (Loss)                  |   |                                | (63,234   | )        |   | (56,763 | ) |
| **TOTAL**                                                                       |   |                                | 2,075,569 |     |   | 2,008,342 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                   | 6,994,388 |     | $      | 6,818,733 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**OHIO        POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For        the Three Months Ended March 31, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                   |   | **2007**     |     | **2006**     |   |
|------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                  ACTIVITIES**                              |   |    |     |    |   |
| **Net                  Income**                                        |   | $            | 79,261   |         | $      | 95,032 |   |
| **Adjustments                  for Noncash Items:**                    |   |         |     |         |   |   |   |
| Depreciation                  and Amortization                         |   |         | 84,276   |         |   | 78,821 |   |
| Deferred                  Income Taxes                                 |   |         | 2,851    |         |   | 3,604 |   |
| Carrying                  Costs Income                                 |   |         | (3,541   | )            |   | (3,383 | ) |
| Mark-to-Market                  of Risk Management Contracts           |   |         | 3,958    |         |   | (3,616 | ) |
| Deferred                  Property Taxes                               |   |         | 17,920   |         |   | 17,331 |   |
| Change                  in Other Noncurrent Assets                     |   |         | (4,406   | )            |   | 2,455 |   |
| Change                  in Other Noncurrent Liabilities                |   |         | (4,434   | )            |   | 13,855 |   |
| **Changes                  in Certain Components of Working Capital:** |   |         |     |         |   |   |   |
| Accounts                  Receivable, Net                              |   |         | (38,070  | )            |   | 101,866 |   |
| Fuel,                  Materials and Supplies                          |   |         | (23,535  | )            |   | (18,238 | ) |
| Accounts                  Payable                                      |   |         | (25,807  | )            |   | (60,411 | ) |
| Customer                  Deposits                                     |   |         | 82       |         |   | (12,497 | ) |
| Accrued                  Taxes, Net                                    |   |         | 6,360    |         |   | 3,116 |   |
| Accrued                  Interest                                      |   |         | (2,986   | )            |   | (10,998 | ) |
| Other                  Current Assets                                  |   |         | 1,706    |         |   | (739 | ) |
| Other                  Current Liabilities                             |   |         | 3,229    |         |   | (24,196 | ) |
| **Net                  Cash Flows From Operating Activities**          |   |         | 96,864   |         |   | 182,002 |   |
|                                                                   |   |         |     |         |   |   |   |
| **INVESTING                  ACTIVITIES**                              |   |         |     |         |   |   |   |
| Construction                  Expenditures                             |   |         | (301,635 | )            |   | (222,600 | ) |
| Change                  in Other Cash Deposits, Net                    |   |         | (7,988   | )            |   | (1,651 | ) |
| Proceeds                  from Sale of Assets                          |   |         | 2,797    |         |   | 2,389 |   |
| **Net                  Cash Flows Used For Investing Activities**      |   |         | (306,826 | )            |   | (221,862 | ) |
|                                                                   |   |         |     |         |   |   |   |
| **FINANCING                  ACTIVITIES**                              |   |         |     |         |   |   |   |
| Capital                  Contributions from Parent Company             |   |         | -        |         |   | 35,000 |   |
| Change                  in Short-term Debt, Net - Nonaffiliated        |   |         | 3,300    |         |   | 636 |   |
| Change                  in Advances from Affiliates, Net               |   |         | 215,846  |         |   | 10,972 |   |
| Retirement                  of Long-term Debt - Nonaffiliated          |   |         | (7,463   | )            |   | (4,713 | ) |
| Principal                  Payments for Capital Lease Obligations      |   |         | (1,902   | )            |   | (2,135 | ) |
| Dividends                  Paid on Cumulative Preferred Stock          |   |         | (183     | )            |   | (183 | ) |
| **Net                  Cash Flows From Financing Activities**          |   |         | 209,598  |         |   | 39,577 |   |
|                                                                   |   |         |     |         |   |   |   |
| **Net                  Decrease in Cash and Cash Equivalents**         |   |         | (364     | )            |   | (283 | ) |
| **Cash                  and Cash Equivalents at Beginning of Period**  |   |         | 1,625    |         |   | 1,240 |   |
| **Cash                  and Cash Equivalents at End of Period**        |   | $            | 1,261    |         | $      | 957 |   |

| **SUPPLEMENTARY                  INFORMATION**                                       |   |    |   |    |   |
|--------------------------------------------------------------------------------------|--------|--------------|--------|--------------|--------|
| Cash                  Paid for Interest, Net of Capitalized Amounts                  |   | $            | 29,646 |         | $      | 29,152 |   |
| Net                  Cash Paid (Received) for Income Taxes                           |   |         | (8,899 | )            |   | 922 |   |
| Noncash                  Acquisitions Under Capital Leases                           |   |         | 608    |         |   | 927 |   |
| Construction                  Expenditures Included in Accounts Payable at March 31, |   |         | 98,653 |         |   | 82,024 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**OHIO        POWER COMPANY CONSOLIDATED**

**INDEX        TO CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS OF **

**REGISTRANT        SUBSIDIARIES**

|                                                       | **Footnote****Reference** |
|------------------------------------------------------------|---------------------------|
|                                                       |                      |
| Significant                  Accounting Matters            | Note                  1   |
| New                  Accounting Pronouncements             | Note                  2   |
| Rate                  Matters                              | Note                  3   |
| Commitments,                  Guarantees and Contingencies | Note                  4   |
| Benefit                  Plans                             | Note                  6   |
| Business                  Segments                         | Note                  7   |
| Income                  Taxes                              | Note                  8   |
| Financing                  Activities                      | Note                  9   |

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

**MANAGEMENT’S        NARRATIVE FINANCIAL DISCUSSION AND ANALYSIS**

**Results        of Operations**

**Reconciliation        of First Quarter of 2006 to First Quarter of 2007**

**Net        Loss**

**(in        millions)**

| **First                  Quarter of 2006**                        |   |   |   |   | $      | (5     | )      |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  and Off-system Sales Margins              |   |   | 5      |   |   |   |   |
| Transmission                  Revenues                            |   |   | 1      |   |   |   |   |
| Other                                                             |   |   | (1     | )      |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | 5      |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (27    | )      |   |   |   |
| Depreciation                  and Amortization                    |   |   | (2     | )      |   |   |   |
| Interest                  Expense                                 |   |   | (2     | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (31    | )      |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Credit                                |   |   |   |   |   | 11     |   |
|                                                              |   |   |   |   |   |   |   |
| **First                  Quarter of 2007**                        |   |   |   |   | $      | (20    | )      |

| · | Other                  Operation and Maintenance expenses increased $27 million due to:                        |
|--------|----------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                         | A                  $21 million increase in distribution maintenance expense primarily                  due to                  a January 2007 ice storm. |
|   | ·                                                                                                         | A                  $2 million increase in administrative and general expenses, mostly                  due to                  increased employee-related expenses. |
| · | Interest                  Expense increased $2 million primarily due to increased                  borrowings. |

*Income        Taxes*

**Critical        Accounting Estimates**

**Adoption        of New Accounting Pronouncements**

----

**QUANTITATIVE        AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT        ACTIVITIES**

**Market        Risks**

**VaR        Associated with Debt Outstanding**

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

**CONDENSED        STATEMENTS OF OPERATIONS**

**For        the Three Months Ended March 31, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                     |   | **2007** |    | **2006** |   |
|--------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| **REVENUES**                                                             |   |     |    |     |   |
| Electric                  Generation, Transmission and Distribution      |   | $        | 290,080 |     | $      | 339,601 |   |
| Sales                  to AEP Affiliates                                 |   |     | 24,593  |     |   | 14,068 |   |
| Other                                                                    |   |     | 640     |     |   | 1,060 |   |
| **TOTAL**                                                                |   |     | 315,313 |     |   | 354,729 |   |
|                                                                     |   |     |    |     |   |   |   |
| **EXPENSES**                                                             |   |     |    |     |   |   |   |
| Fuel                  and Other Consumables Used for Electric Generation |   |     | 142,515 |     |   | 213,173 |   |
| Purchased                  Electricity for Resale                        |   |     | 67,409  |     |   | 33,217 |   |
| Purchased                  Electricity from AEP Affiliates               |   |     | 13,484  |     |   | 21,231 |   |
| Other                  Operation                                         |   |     | 41,007  |     |   | 36,756 |   |
| Maintenance                                                              |   |     | 43,085  |     |   | 20,307 |   |
| Depreciation                  and Amortization                           |   |     | 22,706  |     |   | 21,132 |   |
| Taxes                  Other Than Income Taxes                           |   |     | 10,294  |     |   | 10,076 |   |
| **TOTAL**                                                                |   |     | 340,500 |     |   | 355,892 |   |
|                                                                     |   |     |    |     |   |   |   |
| **OPERATING                  LOSS**                                      |   |     | (25,187 | )        |   | (1,163 | ) |
|                                                                     |   |     |    |     |   |   |   |
| **Other                  Income (Expense):**                             |   |     |    |     |   |   |   |
| Interest                  Income                                         |   |     | 646     |     |   | 569 |   |
| Interest                  Expense                                        |   |     | (11,383 | )        |   | (9,135 | ) |
|                                                                     |   |     |    |     |   |   |   |
| **LOSS                  BEFORE INCOME TAXES**                            |   |     | (35,924 | )        |   | (9,729 | ) |
|                                                                     |   |     |    |     |   |   |   |
| Income                  Tax Credit                                       |   |     | (15,498 | )        |   | (4,372 | ) |
|                                                                     |   |     |    |     |   |   |   |
| **NET                  LOSS**                                            |   |     | (20,426 | )        |   | (5,357 | ) |
|                                                                     |   |     |    |     |   |   |   |
| Preferred                  Stock Dividend Requirements                   |   |     | 53      |     |   | 53 |   |
|                                                                     |   |     |    |     |   |   |   |
| **LOSS                  APPLICABLE TO COMMON STOCK**                     |   | $        | (20,479 | )        | $      | (5,410 | ) |

*The        common stock of PSO is owned by a wholly-owned subsidiary of        AEP.*

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

**CONDENSED        STATEMENTS OF CHANGES IN COMMON SHAREHOLDER’S**

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Three Months Ended March 31, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                                     |   | **Common                  Stock** |    | **Paid-in                  Capital** |   | **Retained                  Earnings** |   | **Accumulated                  Other Comprehensive Income (Loss)** |    | **Total** |   |
|------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|--------------------------------------|--------|----------------------------------------|--------|--------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                  31, 2005**                                                   |   | $                                 | 157,230 |                                 | $      | 230,016                                |   | $                                                                  | 162,615 |      | $      | (1,264 | ) | $ | 548,597 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Preferred                  Stock Dividends                                               |   |                              |    |                                 |   |                                   |   |                                                               | (53     | )         |   |   |   |   | (53 | ) |
| **TOTAL**                                                                                |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 548,544 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  LOSS**                                                  |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **Other                  Comprehensive Income,** **Net                  of Taxes:** |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $749                                    |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   | 1,391 |   |   | 1,391 |   |
| **NET                  LOSS**                                                            |   |                              |    |                                 |   |                                   |   |                                                               | (5,357  | )         |   |   |   |   | (5,357 | ) |
| **TOTAL                  COMPREHENSIVE LOSS**                                            |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | (3,966 | ) |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **MARCH                  31, 2006**                                                      |   | $                                 | 157,230 |                                 | $      | 230,016                                |   | $                                                                  | 157,205 |      | $      | 127 |   | $ | 544,578 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **DECEMBER                  31, 2006**                                                   |   | $                                 | 157,230 |                                 | $      | 230,016                                |   | $                                                                  | 199,262 |      | $      | (1,070 | ) | $ | 585,438 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| FIN                  48 Adoption, Net of Tax                                             |   |                              |    |                                 |   |                                   |   |                                                               | (386    | )         |   |   |   |   | (386 | ) |
| Capital                  Contribution from Parent Company                                |   |                              |    |                                 |   | 20,000                                 |   |                                                               |    |      |   |   |   |   | 20,000 |   |
| Preferred                  Stock Dividends                                               |   |                              |    |                                 |   |                                   |   |                                                               | (53     | )         |   |   |   |   | (53 | ) |
| **TOTAL**                                                                                |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 604,999 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  LOSS**                                                  |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **Other                  Comprehensive Income, Net of Taxes:**                           |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $24                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   | 45 |   |   | 45 |   |
| **NET                  LOSS**                                                            |   |                              |    |                                 |   |                                   |   |                                                               | (20,426 | )         |   |   |   |   | (20,426 | ) |
| **TOTAL                  COMPREHENSIVE LOSS**                                            |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | (20,381 | ) |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **MARCH                  31, 2007**                                                      |   | $                                 | 157,230 |                                 | $      | 250,016                                |   | $                                                                  | 178,397 |      | $      | (1,025 | ) | $ | 584,618 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

**CONDENSED        BALANCE SHEETS**

**ASSETS**

**March        31, 2007 and December 31, 2006**

**(in        thousands)**

**(Unaudited)**

|                                                             |   | **2007**     |      | **2006** |   |
|------------------------------------------------------------------|--------|--------------|-----------|----------|--------|
| **CURRENT                  ASSETS**                              |   |    |      |
| Cash                  and Cash Equivalents                       |   | $            | 1,584     |     | $      | 1,651 |   |
| Accounts                  Receivable:                            |   |         |      |     |   |   |   |
| Customers                                                        |   |         | 51,680    |     |   | 70,319 |   |
| Affiliated                  Companies                            |   |         | 73,191    |     |   | 73,318 |   |
| Miscellaneous                                                    |   |         | 13,004    |     |   | 10,270 |   |
| Allowance                  for Uncollectible Accounts            |   |         | (89       | )        |   | (5 | ) |
|                     Total Accounts Receivable          |   |         | 137,786   |     |   | 153,902 |   |
| Fuel                                                             |   |         | 19,028    |     |   | 20,082 |   |
| Materials                  and Supplies                          |   |         | 52,951    |     |   | 48,375 |   |
| Risk                  Management Assets                          |   |         | 56,139    |     |   | 100,802 |   |
| Accrued                  Tax Benefits                            |   |         | 25,206    |     |   | 4,679 |   |
| Regulatory                  Asset for Under-Recovered Fuel Costs |   |         | -         |     |   | 7,557 |   |
| Margin                  Deposits                                 |   |         | 22,705    |     |   | 35,270 |   |
| Prepayments                  and Other                           |   |         | 5,718     |     |   | 5,732 |   |
| **TOTAL**                                                        |   |         | 321,117   |     |   | 378,050 |   |
|                                                             |   |         |      |     |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**               |   |         |      |     |   |   |   |
| Electric:                                                        |   |         |      |     |   |   |   |
| Production                                                       |   |         | 1,095,466 |     |   | 1,091,910 |   |
| Transmission                                                     |   |         | 505,326   |     |   | 503,638 |   |
| Distribution                                                     |   |         | 1,248,077 |     |   | 1,215,236 |   |
| Other                                                            |   |         | 237,383   |     |   | 234,227 |   |
| Construction                  Work in Progress                   |   |         | 158,637   |     |   | 141,283 |   |
| **Total**                                                        |   |         | 3,244,889 |     |   | 3,186,294 |   |
| Accumulated                  Depreciation and Amortization       |   |         | 1,200,212 |     |   | 1,187,107 |   |
| **TOTAL                  - NET**                                 |   |         | 2,044,677 |     |   | 1,999,187 |   |
|                                                             |   |         |      |     |   |   |   |
| **OTHER                  NONCURRENT ASSETS**                     |   |         |      |     |   |   |   |
| Regulatory                  Assets                               |   |         | 138,815   |     |   | 142,905 |   |
| Long-term                  Risk Management Assets                |   |         | 13,748    |     |   | 17,066 |   |
| Employee                  Benefits and Pension Assets            |   |         | 29,761    |     |   | 30,161 |   |
| Deferred                  Charges and Other                      |   |         | 34,237    |     |   | 11,677 |   |
| **TOTAL**                                                        |   |         | 216,561   |     |   | 201,809 |   |
|                                                             |   |         |      |     |   |   |   |
| **TOTAL                  ASSETS**                                |   | $            | 2,582,355 |     | $      | 2,579,046 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA **

**CONDENSED        BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDERS’ EQUITY**

**March        31, 2007 and December 31, 2006**

**(Unaudited)**

|                                                                            |   | **2007**                            |      | **2006** |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|-----------|----------|--------|
| **CURRENT                  LIABILITIES**                                        |   | **(in                  thousands)** |      |
| Advances                  from Affiliates                                       |   | $                                   | 135,694   |     | $      | 76,323 |   |
| Accounts                  Payable:                                              |   |                                |      |     |   |   |   |
| General                                                                         |   |                                | 173,021   |     |   | 165,618 |   |
| Affiliated                  Companies                                           |   |                                | 68,782    |     |   | 65,134 |   |
| Risk                  Management Liabilities                                    |   |                                | 46,530    |     |   | 88,469 |   |
| Customer                  Deposits                                              |   |                                | 41,404    |     |   | 51,335 |   |
| Accrued                  Taxes                                                  |   |                                | 35,144    |     |   | 19,984 |   |
| Regulatory                  Liability for Over-Recovered Fuel Costs             |   |                                | 9,015     |     |   | - |   |
| Other                                                                           |   |                                | 29,898    |     |   | 58,651 |   |
| **TOTAL**                                                                       |   |                                | 539,488   |     |   | 525,514 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **NONCURRENT                  LIABILITIES**                                     |   |                                |      |     |   |   |   |
| Long-term                  Debt - Nonaffiliated                                 |   |                                | 670,042   |     |   | 669,998 |   |
| Long-term                  Risk Management Liabilities                          |   |                                | 8,514     |     |   | 11,448 |   |
| Deferred                  Income Taxes                                          |   |                                | 407,365   |     |   | 414,197 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits     |   |                                | 306,194   |     |   | 315,584 |   |
| Deferred                  Credits and Other                                     |   |                                | 60,872    |     |   | 51,605 |   |
| **TOTAL**                                                                       |   |                                | 1,452,987 |     |   | 1,462,832 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES**                                          |   |                                | 1,992,475 |     |   | 1,988,346 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption |   |                                | 5,262     |     |   | 5,262 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Commitments                  and Contingencies (Note 4)                         |   |                                |      |     |   |   |   |
|                                                                            |   |                                |      |     |   |   |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                          |   |                                |      |     |   |   |   |
| Common                  Stock - $15 Par Value Per Share:                        |   |                                |      |     |   |   |   |
| Authorized                  - 11,000,000 Shares                                 |   |                                |      |     |   |   |   |
| Issued                  - 10,482,000 Shares                                     |   |                                |      |     |   |   |   |
| Outstanding                  - 9,013,000 Shares                                 |   |                                | 157,230   |     |   | 157,230 |   |
| Paid-in                  Capital                                                |   |                                | 250,016   |     |   | 230,016 |   |
| Retained                  Earnings                                              |   |                                | 178,397   |     |   | 199,262 |   |
| Accumulated                  Other Comprehensive Income (Loss)                  |   |                                | (1,025    | )        |   | (1,070 | ) |
| **TOTAL**                                                                       |   |                                | 584,618   |     |   | 585,438 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                   | 2,582,355 |     | $      | 2,579,046 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

**CONDENSED        STATEMENTS OF CASH FLOWS**

**For        the Three Months Ended March 31, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                     |   | **2007**     |    | **2006**     |   |
|--------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **OPERATING                  ACTIVITIES**                                |   |    |    |    |   |
| **Net                  Loss**                                            |   | $            | (20,426 | )            | $      | (5,357 | ) |
| **Adjustments                  for Noncash Items:**                      |   |         |    |         |   |   |   |
| Depreciation                  and Amortization                           |   |         | 22,706  |         |   | 21,132 |   |
| Deferred                  Income Taxes                                   |   |         | 1,039   |         |   | (23,436 | ) |
| Mark-to-Market                  of Risk Management Contracts             |   |         | 3,108   |         |   | 9,106 |   |
| Deferred                  Property Taxes                                 |   |         | (24,809 | )            |   | (24,295 | ) |
| Change                  in Other Noncurrent Assets                       |   |         | 4,393   |         |   | 11,118 |   |
| Change                  in Other Noncurrent Liabilities                  |   |         | (11,269 | )            |   | (20,806 | ) |
| **Changes                  in Certain Components of Working Capital:**   |   |         |    |         |   |   |   |
| Accounts                  Receivable, Net                                |   |         | 16,116  |         |   | 33,852 |   |
| Fuel,                  Materials and Supplies                            |   |         | (3,513  | )            |   | (26 | ) |
| Margin                  Deposits                                         |   |         | 12,565  |         |   | 5,065 |   |
| Accounts                  Payable                                        |   |         | 6,941   |         |   | (77,217 | ) |
| Customer                  Deposits                                       |   |         | (9,931  | )            |   | (13,056 | ) |
| Accrued                  Taxes, Net                                      |   |         | (4,378  | )            |   | 34,196 |   |
| Fuel                  Over/Under Recovery, Net                           |   |         | 16,572  |         |   | 74,281 |   |
| Other                  Current Assets                                    |   |         | (139    | )            |   | 1,021 |   |
| Other                  Current Liabilities                               |   |         | (26,677 | )            |   | (23,048 | ) |
| **Net                  Cash Flows From (Used for) Operating Activities** |   |         | (17,702 | )            |   | 2,530 |   |
|                                                                     |   |         |    |         |   |   |   |
| **INVESTING                  ACTIVITIES**                                |   |         |    |         |   |   |   |
| Construction                  Expenditures                               |   |         | (61,301 | )            |   | (45,539 | ) |
| Change                  in Other Cash Deposits, Net                      |   |         | (29     | )            |   | 6 |   |
| Proceeds                  from Sales of Assets                           |   |         | 17      |         |   | - |   |
| **Net                  Cash Flows Used For Investing Activities**        |   |         | (61,313 | )            |   | (45,533 | ) |
|                                                                     |   |         |    |         |   |   |   |
| **FINANCING                  ACTIVITIES**                                |   |         |    |         |   |   |   |
| Capital                  Contributions from Parent Company               |   |         | 20,000  |         |   | - |   |
| Change                  in Advances from Affiliates, Net                 |   |         | 59,371  |         |   | 42,932 |   |
| Principal                  Payments for Capital Lease Obligations        |   |         | (370    | )            |   | (206 | ) |
| Dividends                  Paid on Cumulative Preferred Stock            |   |         | (53     | )            |   | (53 | ) |
| **Net                  Cash Flows From Financing Activities**            |   |         | 78,948  |         |   | 42,673 |   |
|                                                                     |   |         |    |         |   |   |   |
| **Net                  Decrease in Cash and Cash Equivalents**           |   |         | (67     | )            |   | (330 | ) |
| **Cash                  and Cash Equivalents at Beginning of Period**    |   |         | 1,651   |         |   | 1,520 |   |
| **Cash                  and Cash Equivalents at End of Period**          |   | $            | 1,584   |         | $      | 1,190 |   |

| **SUPPLEMENTARY                  INFORMATION**                                       |   |    |   |    |   |
|--------------------------------------------------------------------------------------|--------|--------------|--------|--------------|--------|
| Cash                  Paid for Interest, Net of Capitalized Amounts                  |   | $            | 12,921 |         | $      | 8,681 |   |
| Net                  Cash Paid for Income Taxes                                      |   |         | 2,623  |         |   | 575 |   |
| Noncash                  Acquisitions Under Capital Leases                           |   |         | 283    |         |   | 564 |   |
| Construction                  Expenditures Included in Accounts Payable at March 31, |   |         | 19,038 |         |   | 6,052 |   |

* See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**PUBLIC        SERVICE COMPANY OF OKLAHOMA**

**INDEX        TO CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS OF REGISTRANT        SUBSIDIARIES**

|                                                       | **Footnote                  Reference** |
|------------------------------------------------------------|-----------------------------------------|
|                                                       |                                    |
| Significant                  Accounting Matters            | Note                  1                 |
| New                  Accounting Pronouncements             | Note                  2                 |
| Rate                  Matters                              | Note                  3                 |
| Commitments,                  Guarantees and Contingencies | Note                  4                 |
| Benefit                  Plans                             | Note                  6                 |
| Business                  Segments                         | Note                  7                 |
| Income                  Taxes                              | Note                  8                 |
| Financing                  Activities                      | Note                  9                 |

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

**MANAGEMENT’S        FINANCIAL DISCUSSION AND ANALYSIS**

**Results        of Operations**

**Reconciliation        of First Quarter of 2006 to First Quarter of 2007**

**Net        Income**

**(in        millions)**

| **First                  Quarter of 2006**                        |   |   |   |   | $      | 18     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                  and Off-system Sales Margins (a)          |   |   | (1     | )      |   |   |   |
| Other                                                             |   |   | (4     | )      |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | (5     | )      |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | (6     | )      |   |   |   |
| Depreciation                  and Amortization                    |   |   | (1     | )      |   |   |   |
| Other                  Income                                     |   |   | 1      |   |   |   |   |
| Interest                  Expense                                 |   |   | (3     | )      |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | (9     | )      |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | 6      |   |
|                                                              |   |   |   |   |   |   |   |
| **First                  Quarter of 2007**                        |   |   |   |   | $      | 10     |   |

| (a) | Includes                  firm wholesale sales to municipals and                  cooperatives. |
|-----|-------------------------------------------------------------------------------------------------|

| · | Other                  Operation and Maintenance expenses increased $6 million primarily                  due to a                  $2 million increase in generation operation and maintenance, a                  $1 million                  increase in transmission expenses due to higher SPP administration                  fees                  and a $1 million increase in administrative and general expenses,                  primarily associated with outside services and employee-related                  expenses. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Interest                  Expense increased $3 million primarily due to increased long-term                  debt.                                                                                                                                                                                                                                                                                                                                                                                                                      |

*Income        Taxes*

**Financial        Condition**

**Credit        Ratings**

|                                   | **Moody’s** |   | **S&P** |   | **Fitch** |
|----------------------------------------|-------------------|--------|-------------|--------|-----------|
|                                   |              |   |        |   |      |
| First                  Mortgage Bonds  | A3                |   | A-          |   | A         |
| Senior                  Unsecured Debt | Baa1              |   | BBB         |   | A-        |

**Cash        Flow**

|                                                                  |   | **2007**                            |     | **2006** |   |
|-----------------------------------------------------------------------|--------|-------------------------------------|----------|----------|--------|
|                                                                  |   | **(in                  thousands)** |     |
| **Cash                  and Cash Equivalents at Beginning of Period** |   | $                                   | 2,618    |     | $      | 3,049 |   |
| Cash                  Flows From (Used For):                          |   |                                |     |     |   |   |   |
| Operating                  Activities                                 |   |                                | 65,590   |     |   | 41,293 |   |
| Investing                  Activities                                 |   |                                | (120,639 | )        |   | (54,294 | ) |
| Financing                  Activities                                 |   |                                | 54,331   |     |   | 12,501 |   |
| **Net                  Decrease in Cash and Cash Equivalents**        |   |                                | (718     | )        |   | (500 | ) |
| **Cash                  and Cash Equivalents at End of Period**       |   | $                                   | 1,900    |     | $      | 2,549 |   |

*Operating        Activities*

*Investing        Activities*

*Financing        Activities*

**Financing        Activity**

|                                    |   | **Principal****Amount                  Paid** |                                | **Interest** |     | **Due** |
|-----------------------------------------|--------|-----------------------------------------------|-------------------------------------|--------------|----------|---------|
| **Type                  of Debt**       |   |                                          | **Rate**                            |         | **Date** |
|                                    |   |                                          | **(in                  thousands)** |         | **(%)**  |    |   |
| Senior                  Unsecured Notes |   | $                                             | 250,000                             |         | 5.55     |    | 2017 |

|                                           |   | **Principal****Amount                  Paid** |                                | **Interest** |     | **Due** |
|------------------------------------------------|--------|-----------------------------------------------|-------------------------------------|--------------|----------|---------|
| **Type                  of Debt**              |   |                                          | **Rate**                            |         | **Date** |
|                                           |   |                                          | **(in                  thousands)** |         | **(%)**  |    |   |
| Notes                  Payable - Nonaffiliated |   | $                                             | 1,645                               |         | 4.47     |    | 2011 |
| Notes                  Payable - Nonaffiliated |   |                                          | 4,000                               |         | 6.36     |    | 2007 |
| Notes                  Payable - Nonaffiliated |   |                                          | 750                                 |         | Variable |    | 2008 |

**Liquidity**

**Summary        Obligation Information**

**Significant        Factors**

***Litigation        and Regulatory Activity***

***New        Generation***

**Critical        Accounting Estimates**

**Adoption        of New Accounting Pronouncements**

----

**QUANTITATIVE        AND QUALITATIVE DISCLOSURES ABOUT RISK MANAGEMENT        ACTIVITIES**

**Market        Risks**

**MTM        Risk Management Contract Net Assets**

**Reconciliation        of MTM Risk Management Contracts to**

**Condensed        Consolidated Balance Sheet**

**As        of March 31, 2007**

**(in        thousands)**

|                                                                        |   | **MTM                  Risk Management Contracts** |    | **Cash                  Flow Hedges** |   | **Total** |   |
|-----------------------------------------------------------------------------|--------|----------------------------------------------------|---------|---------------------------------------|--------|-----------|--------|
| Current                  Assets                                             |   | $                                                  | 66,352  |                                  | $      | 582       |   | $ | 66,934 |   |
| Noncurrent                  Assets                                          |   |                                               | 16,264  |                                  |   | 37        |   |   | 16,301 |   |
| **Total                  MTM Derivative Contract Assets**                   |   |                                               | 82,616  |                                  |   | 619       |   |   | 83,235 |   |
|                                                                        |   |                                               |    |                                  |   |      |   |   |   |   |
| Current                  Liabilities                                        |   |                                               | (55,257 | )                                     |   | (6        | )      |   | (55,263 | ) |
| Noncurrent                  Liabilities                                     |   |                                               | (10,158 | )                                     |   | (16       | )      |   | (10,174 | ) |
| **Total                  MTM Derivative Contract Liabilities**              |   |                                               | (65,415 | )                                     |   | (22       | )      |   | (65,437 | ) |
|                                                                        |   |                                               |    |                                  |   |      |   |   |   |   |
| **Total                  MTM Derivative Contract Net Assets (Liabilities)** |   | $                                                  | 17,201  |                                  | $      | 597       |   | $ | 17,798 |   |

**MTM        Risk Management Contract Net Assets**

**Three        Months Ended March 31, 2007**

**(in        thousands)**

| **Total                  MTM Risk Management Contract Net Assets at December 31,                  2006**                                           |   | $      | 20,166 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                  Loss from Contracts Realized/Settled During the Period and Entered                  in a                  Prior Period     |   |   | (1,013 | )      |
| Fair                  Value of New Contracts at Inception When Entered During the Period                  (a)                                      |   |   | -      |   |
| Net                  Option Premiums Paid/(Received) for Unexercised or Unexpired Option                  Contracts Entered During the Period |   |   | -      |   |
| Change                  in Fair Value Due to Valuation Methodology Changes on Forward                  Contracts                                   |   |   | -      |   |
| Changes                  in Fair Value Due to Market Fluctuations During the Period                  (b)                                           |   |   | 21     |   |
| Changes                  in Fair Value Allocated to Regulated Jurisdictions (c)                                                                    |   |   | (1,973 | )      |
| **Total                  MTM Risk Management Contract Net Assets**                                                                                 |   |   | 17,201 |   |
| Net                  Cash Flow Hedge Contracts                                                                                                     |   |   | 597    |   |
| **Total                  MTM Risk Management Contract Net Assets at March 31,                  2007**                                              |   | $      | 17,798 |   |

| (a) | Reflects                  fair value on long-term contracts which are typically with customers                  that                  seek fixed pricing to limit their risk against fluctuating energy                  prices.                  Inception value is only recorded if observable market data can                  be obtained                  for valuation inputs for the entire contract term. The contract                  prices are                  valued against market curves associated with the delivery location                  and                  delivery term. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Market                  fluctuations are attributable to various factors such as supply/demand,                  weather, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (c) | “Changes                  in Fair Value Allocated to Regulated Jurisdictions” relates to the net                  gains (losses) of those contracts that are not reflected in the                  Condensed                  Consolidated Statements of Income. These net gains (losses) are                  recorded                  as regulatory liabilities/assets for those subsidiaries that operate                  in                  regulated jurisdictions.                                                                                                             |

**Maturity        and Source of Fair Value of MTM Risk Management Contract Net        Assets**

| · | The                  method of measuring fair value used in determining the carrying                  amount of                  our total MTM asset or liability (external sources or modeled                  internally). |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | The                  maturity, by year, of our net assets/liabilities to give an indication                  of                  when these MTM amounts will settle and generate                  cash.                      |

**Maturity        and Source of Fair Value of MTM**

**Risk        Management Contract Net Assets**

**Fair        Value of Contracts as of March 31, 2007**

**(in        thousands)**

|                                                                                                           |   | **Remainder****2007** |    | **2008** |   | **2009** |   | **2010** |   | **2011** |   | **After****2011** |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------------|--------|-----------------------|---------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                  Actively Quoted - Exchange Traded                  Contracts                           |   | $                     | (16,029 | )        | $      | 1,742    |   | $        | (283   | )        | $      | -                 |   | $         | -      |   | $ | - |   | $ | (14,570 | ) |
| Prices                  Provided by Other External  Sources                  - OTC Broker Quotes (a) |   |                  | 29,194  |     |   | 4,143    |   |     | (813   | )        |   | -                 |   |      | -      |   |   | - |   |   | 32,524 |   |
| Prices                  Based on Models and Other   Valuation                  Methods (b)           |   |                  | (2,551  | )        |   | 335      |   |     | 1,461  |     |   | 2                 |   |      | -      |   |   | - |   |   | (753 | ) |
| **Total**                                                                                                      |   | $                     | 10,614  |     | $      | 6,220    |   | $        | 365    |     | $      | 2                 |   | $         | -      |   | $ | - |   | $ | 17,201 |   |

| (a)    | “Prices                  Provided by Other External Sources - OTC Broker Quotes” reflects                  information obtained from over-the-counter brokers, industry services,                  or                  multiple-party on-line platforms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)    | “Prices                  Based on Models and Other Valuation Methods” is used in absence of pricing                  information from external sources. Modeled information is derived                  using                  valuation models developed by the reporting entity, reflecting                  when                  appropriate, option pricing theory, discounted cash flow concepts,                  valuation adjustments, etc. and may require projection of prices                  for                  underlying commodities beyond the period that prices are available                  from                  third-party sources. In addition, where external pricing information                  or                  market liquidity are limited, such valuations are classified as                  modeled.                  The determination of the point at which a market is no longer liquid                  for                  placing it in the modeled category varies by market. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | Contract                  values that are measured using models or valuation methods other                  than                  active quotes or OTC broker quotes (because of the lack of such                  data for                  all delivery quantities, locations and periods) incorporate in                  the model                  or other valuation methods, to the extent possible, OTC broker                  quotes and                  active quotes for deliveries in years and at locations for which                  such                  quotes are available.                                                                                                                                                                                                                                                                                                                                                                                                                                          |

**Cash        Flow Hedges Included in Accumulated Other Comprehensive Income (Loss) (AOCI)        on        the Condensed Consolidated Balance Sheet**

**Total        Accumulated Other Comprehensive Income (Loss) Activity**

**Three        Months Ended March 31, 2007**

**(in        thousands)**

|                                                                                                                      |   | **Interest                  Rate** |   | **Foreign****Currency** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|-------------------------|--------|-----------|--------|
| **Beginning                  Balance in AOCI December 31, 2006**                                                          |   | $                                  | (6,435 | )                       | $      | 25        |   | $ | (6,410 | ) |
| Changes                  in Fair Value                                                                                    |   |                               | (1,019 | )                       |   | 509       |   |   | (510 | ) |
| Reclassifications                  from AOCI to Net Income for   Cash                  Flow Hedges Settled |   |                               | 183    |                    |   | -         |   |   | 183 |   |
| **Ending                  Balance in AOCI March 31, 2007**                                                                |   | $                                  | (7,271 | )                       | $      | 534       |   | $ | (6,737 | ) |

**Credit        Risk**

**VaR        Associated with Risk Management Contracts**

| **Three                  Months Ended March 31, 2007** |   |     |   |        | **Twelve                  Months Ended December 31, 2006** |
|--------------------------------------------------------|--------|----------|--------|-------------|------------------------------------------------------------|
| **(in                  thousands)**                    |   |     |   |        | **(in                  thousands)**                        |
| **End**                                                |   | **High** |   | **Average** |                                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $83                                                    |   | $245     |   | $100        |                                                       | $25 |   |   |   |   | $447 |   | $2,171 |   | $794 |   | $68 |

**VaR        Associated with Debt Outstanding**

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED STATEMENTS OF INCOME**

**For        the Three Months Ended March 31, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                                                          |   | **2007** |    | **2006** |   |
|---------------------------------------------------------------------------------------------------------------|--------|----------|---------|----------|--------|
| **REVENUES**                                                                                                  |   |     |    |     |   |
| Electric                  Generation, Transmission and Distribution                                           |   | $        | 327,284 |     | $      | 293,993 |   |
| Sales                  to AEP Affiliates                                                                      |   |     | 16,415  |     |   | 10,765 |   |
| Other                                                                                                         |   |     | 400     |     |   | 374 |   |
| **TOTAL**                                                                                                     |   |     | 344,099 |     |   | 305,132 |   |
|                                                                                                          |   |     |    |     |   |   |   |
| **EXPENSES**                                                                                                  |   |     |    |     |   |   |   |
| Fuel                  and Other Consumables Used for Electric Generation                                      |   |     | 111,987 |     |   | 90,661 |   |
| Purchased                  Electricity for Resale                                                             |   |     | 52,498  |     |   | 29,218 |   |
| Purchased                  Electricity from AEP Affiliates                                                    |   |     | 22,917  |     |   | 23,337 |   |
| Other                  Operation                                                                              |   |     | 53,783  |     |   | 49,700 |   |
| Maintenance                                                                                                   |   |     | 26,339  |     |   | 24,657 |   |
| Depreciation                  and Amortization                                                                |   |     | 34,122  |     |   | 32,617 |   |
| Taxes                  Other Than Income Taxes                                                                |   |     | 15,991  |     |   | 15,982 |   |
| **TOTAL**                                                                                                     |   |     | 317,637 |     |   | 266,172 |   |
|                                                                                                          |   |     |    |     |   |   |   |
| **OPERATING                  INCOME**                                                                         |   |     | 26,462  |     |   | 38,960 |   |
|                                                                                                          |   |     |    |     |   |   |   |
| **Other                  Income (Expense):**                                                                  |   |     |    |     |   |   |   |
| Interest                  Income                                                                              |   |     | 705     |     |   | 543 |   |
| Allowance                  for Equity Funds Used During Construction                                          |   |     | 1,391   |     |   | 185 |   |
| Interest                  Expense                                                                             |   |     | (15,490 | )        |   | (12,771 | ) |
|                                                                                                          |   |     |    |     |   |   |   |
| **INCOME                  BEFORE INCOME TAXES AND MINORITY****  INTEREST                  EXPENSE** |   |     | 13,068  |     |   | 26,917 |   |
|                                                                                                          |   |     |    |     |   |   |   |
| Income                  Tax Expense                                                                           |   |     | 2,621   |     |   | 8,823 |   |
| Minority                  Interest Expense                                                                    |   |     | 842     |     |   | 222 |   |
|                                                                                                          |   |     |    |     |   |   |   |
| **NET                  INCOME**                                                                               |   |     | 9,605   |     |   | 17,872 |   |
|                                                                                                          |   |     |    |     |   |   |   |
| Preferred                  Stock Dividend Requirements                                                        |   |     | 57      |     |   | 57 |   |
|                                                                                                          |   |     |    |     |   |   |   |
| **EARNINGS                  APPLICABLE TO COMMON STOCK**                                                      |   | $        | 9,548   |     | $      | 17,815 |   |

*The        common stock of SWEPCo is owned by a wholly-owned subsidiary of        AEP.*

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDER’S**

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Three Months Ended March 31, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                                     |   | **Common                  Stock** |    | **Paid-in                  Capital** |   | **Retained                  Earnings** |   | **Accumulated                  Other Comprehensive Income (Loss)** |    | **Total** |   |
|------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|--------------------------------------|--------|----------------------------------------|--------|--------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                  31, 2005**                                                   |   | $                                 | 135,660 |                                 | $      | 245,003                                |   | $                                                                  | 407,844 |      | $      | (6,129 | ) | $ | 782,378 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Common                  Stock Dividends                                                  |   |                              |    |                                 |   |                                   |   |                                                               | (10,000 | )         |   |   |   |   | (10,000 | ) |
| Preferred                  Stock Dividends                                               |   |                              |    |                                 |   |                                   |   |                                                               | (57     | )         |   |   |   |   | (57 | ) |
| **TOTAL**                                                                                |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 772,321 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                                |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **Other                  Comprehensive Income,** **Net                  of Taxes:** |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $930                                    |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   | 1,728 |   |   | 1,728 |   |
| **NET                  INCOME**                                                          |   |                              |    |                                 |   |                                   |   |                                                               | 17,872  |      |   |   |   |   | 17,872 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                          |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 19,600 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **MARCH                  31, 2006**                                                      |   | $                                 | 135,660 |                                 | $      | 245,003                                |   | $                                                                  | 415,659 |      | $      | (4,401 | ) | $ | 791,921 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **DECEMBER                  31, 2006**                                                   |   | $                                 | 135,660 |                                 | $      | 245,003                                |   | $                                                                  | 459,338 |      | $      | (18,799 | ) | $ | 821,202 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| FIN                  48 Adoption, Net of Tax                                             |   |                              |    |                                 |   |                                   |   |                                                               | (1,642  | )         |   |   |   |   | (1,642 | ) |
| Preferred                  Stock Dividends                                               |   |                              |    |                                 |   |                                   |   |                                                               | (57     | )         |   |   |   |   | (57 | ) |
| **TOTAL**                                                                                |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 819,503 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                                |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **Other                  Comprehensive Loss, Net of Taxes:**                             |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $39                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   | (327 | ) |   | (327 | ) |
| **NET                  INCOME**                                                          |   |                              |    |                                 |   |                                   |   |                                                               | 9,605   |      |   |   |   |   | 9,605 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                          |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   | 9,278 |   |
|                                                                                     |   |                              |    |                                 |   |                                   |   |                                                               |    |      |   |   |   |   |   |   |
| **MARCH                  31, 2007**                                                      |   | $                                 | 135,660 |                                 | $      | 245,003                                |   | $                                                                  | 467,244 |      | $      | (19,126 | ) | $ | 828,781 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**March        31, 2007 and December 31, 2006**

**(in        thousands)**

**(Unaudited)**

|                                                       |   | **2007**     |      | **2006**     |   |
|------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                  ASSETS**                        |   |    |      |    |   |
| Cash                  and Cash Equivalents                 |   | $            | 1,900     |         | $      | 2,618 |   |
| Advances                  to Affiliates                    |   |         | 8,959     |         |   | - |   |
| Accounts                  Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                  |   |         | 74,382    |         |   | 88,245 |   |
| Affiliated                  Companies                      |   |         | 48,598    |         |   | 59,679 |   |
| Miscellaneous                                              |   |         | 13,077    |         |   | 8,595 |   |
| Allowance                  for Uncollectible Accounts      |   |         | (137      | )            |   | (130 | ) |
|                     Total Accounts Receivable    |   |         | 135,920   |         |   | 156,389 |   |
| Fuel                                                       |   |         | 73,479    |         |   | 69,426 |   |
| Materials                  and Supplies                    |   |         | 46,101    |         |   | 46,001 |   |
| Risk                  Management Assets                    |   |         | 66,934    |         |   | 120,036 |   |
| Margin                  Deposits                           |   |         | 19,353    |         |   | 41,579 |   |
| Prepayments                  and Other                     |   |         | 28,581    |         |   | 18,256 |   |
| **TOTAL**                                                  |   |         | 381,227   |         |   | 454,305 |   |
|                                                       |   |         |      |         |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**         |   |         |      |         |   |   |   |
| Electric:                                                  |   |         |      |         |   |   |   |
| Production                                                 |   |         | 1,586,238 |         |   | 1,576,200 |   |
| Transmission                                               |   |         | 690,384   |         |   | 668,008 |   |
| Distribution                                               |   |         | 1,262,203 |         |   | 1,228,948 |   |
| Other                                                      |   |         | 611,255   |         |   | 595,429 |   |
| Construction                  Work in Progress             |   |         | 301,251   |         |   | 259,662 |   |
| **Total**                                                  |   |         | 4,451,331 |         |   | 4,328,247 |   |
| Accumulated                  Depreciation and Amortization |   |         | 1,868,974 |         |   | 1,834,145 |   |
| **TOTAL                  - NET**                           |   |         | 2,582,357 |         |   | 2,494,102 |   |
|                                                       |   |         |      |         |   |   |   |
| **OTHER                  NONCURRENT ASSETS**               |   |         |      |         |   |   |   |
| Regulatory                  Assets                         |   |         | 153,080   |         |   | 156,420 |   |
| Long-term                  Risk Management Assets          |   |         | 16,301    |         |   | 20,531 |   |
| Employee                  Benefits and Pension Assets      |   |         | 25,302    |         |   | 26,029 |   |
| Deferred                  Charges and Other                |   |         | 68,855    |         |   | 39,581 |   |
| **TOTAL**                                                  |   |         | 263,538   |         |   | 242,561 |   |
|                                                       |   |         |      |         |   |   |   |
| **TOTAL                  ASSETS**                          |   | $            | 3,227,122 |         | $      | 3,190,968 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDERS’ EQUITY**

**March        31, 2007 and December 31, 2006**

**(Unaudited)**

|                                                                            |   | **2007**                            |      | **2006** |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|-----------|----------|--------|
| **CURRENT                  LIABILITIES**                                        |   | **(in                  thousands)** |      |
| Advances                  from Affiliates                                       |   | $                                   | -         |     | $      | 188,965 |   |
| Accounts                  Payable:                                              |   |                                |      |     |   |   |   |
| General                                                                         |   |                                | 155,206   |     |   | 140,424 |   |
| Affiliated                  Companies                                           |   |                                | 72,448    |     |   | 68,680 |   |
| Short-term                  Debt - Nonaffiliated                                |   |                                | 20,433    |     |   | 17,143 |   |
| Long-term                  Debt Due Within One Year - Nonaffiliated             |   |                                | 97,768    |     |   | 102,312 |   |
| Risk                  Management Liabilities                                    |   |                                | 55,263    |     |   | 109,578 |   |
| Customer                  Deposits                                              |   |                                | 36,798    |     |   | 48,277 |   |
| Accrued                  Taxes                                                  |   |                                | 64,418    |     |   | 31,591 |   |
| Regulatory                  Liability for Over-Recovered Fuel Costs             |   |                                | 33,791    |     |   | 26,012 |   |
| Other                                                                           |   |                                | 66,871    |     |   | 85,086 |   |
| **TOTAL**                                                                       |   |                                | 602,996   |     |   | 818,068 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **NONCURRENT                  LIABILITIES**                                     |   |                                |      |     |   |   |   |
| Long-term                  Debt - Nonaffiliated                                 |   |                                | 822,519   |     |   | 576,694 |   |
| Long-term                  Debt - Affiliated                                    |   |                                | 50,000    |     |   | 50,000 |   |
| Long-term                  Risk Management Liabilities                          |   |                                | 10,174    |     |   | 14,083 |   |
| Deferred                  Income Taxes                                          |   |                                | 362,321   |     |   | 374,548 |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits     |   |                                | 347,951   |     |   | 346,774 |   |
| Deferred                  Credits and Other                                     |   |                                | 196,064   |     |   | 183,087 |   |
| **TOTAL**                                                                       |   |                                | 1,789,029 |     |   | 1,545,186 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES**                                          |   |                                | 2,392,025 |     |   | 2,363,254 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Minority                  Interest                                              |   |                                | 1,619     |     |   | 1,815 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption |   |                                | 4,697     |     |   | 4,697 |   |
|                                                                            |   |                                |      |     |   |   |   |
| Commitments                  and Contingencies (Note 4)                         |   |                                |      |     |   |   |   |
|                                                                            |   |                                |      |     |   |   |   |
| **COMMON                  SHAREHOLDER’S EQUITY**                          |   |                                |      |     |   |   |   |
| Common                  Stock - Par Value - $18 Per Share:                      |   |                                |      |     |   |   |   |
| Authorized                  - 7,600,000 Shares                                  |   |                                |      |     |   |   |   |
| Outstanding                  - 7,536,640 Shares                                 |   |                                | 135,660   |     |   | 135,660 |   |
| Paid-in                  Capital                                                |   |                                | 245,003   |     |   | 245,003 |   |
| Retained                  Earnings                                              |   |                                | 467,244   |     |   | 459,338 |   |
| Accumulated                  Other Comprehensive Income (Loss)                  |   |                                | (19,126   | )        |   | (18,799 | ) |
| **TOTAL**                                                                       |   |                                | 828,781   |     |   | 821,202 |   |
|                                                                            |   |                                |      |     |   |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                   | 3,227,122 |     | $      | 3,190,968 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For        the Three Months Ended March 31, 2007 and 2006**

**(in        thousands)**

**(Unaudited)**

|                                                                   |   | **2007**     |     | **2006**     |   |
|------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                  ACTIVITIES**                              |   |    |     |    |   |
| **Net                  Income**                                        |   | $            | 9,605    |         | $      | 17,872 |   |
| **Adjustments                  for Noncash Items:**                    |   |         |     |         |   |   |   |
| Depreciation                  and Amortization                         |   |         | 34,122   |         |   | 32,617 |   |
| Deferred                  Income Taxes                                 |   |         | (6,677   | )            |   | (9,101 | ) |
| Mark-to-Market                  of Risk Management Contracts           |   |         | 2,965    |         |   | 10,468 |   |
| Deferred                  Property Taxes                               |   |         | (28,815  | )            |   | (28,997 | ) |
| Change                  in Other Noncurrent Assets                     |   |         | (3,198   | )            |   | 9,458 |   |
| Change                  in Other Noncurrent Liabilities                |   |         | (178     | )            |   | (19,121 | ) |
| **Changes                  in Certain Components of Working Capital:** |   |         |     |         |   |   |   |
| Accounts                  Receivable, Net                              |   |         | 20,469   |         |   | 26,848 |   |
| Fuel,                  Materials and Supplies                          |   |         | (4,141   | )            |   | (17,521 | ) |
| Margin                  Deposits                                       |   |         | 22,226   |         |   | 7,915 |   |
| Accounts                  Payable                                      |   |         | 13,806   |         |   | (15,304 | ) |
| Customer                  Deposits                                     |   |         | (11,479  | )            |   | (15,861 | ) |
| Accrued                  Taxes, Net                                    |   |         | 36,113   |         |   | 45,238 |   |
| Fuel                  Over/Under Recovery, Net                         |   |         | 4,212    |         |   | 15,216 |   |
| Other                  Current Assets                                  |   |         | (2,868   | )            |   | 2,821 |   |
| Other                  Current Liabilities                             |   |         | (20,572  | )            |   | (21,255 | ) |
| **Net                  Cash Flows From Operating Activities**          |   |         | 65,590   |         |   | 41,293 |   |
|                                                                   |   |         |     |         |   |   |   |
| **INVESTING                  ACTIVITIES**                              |   |         |     |         |   |   |   |
| Construction                  Expenditures                             |   |         | (107,613 | )            |   | (54,238 | ) |
| Change                  in Advances to Affiliates, Net                 |   |         | (8,959   | )            |   | - |   |
| Other                                                                  |   |         | (4,067   | )            |   | (56 | ) |
| **Net                  Cash Flows Used For Investing Activities**      |   |         | (120,639 | )            |   | (54,294 | ) |
|                                                                   |   |         |     |         |   |   |   |
| **FINANCING                  ACTIVITIES**                              |   |         |     |         |   |   |   |
| Issuance                  of Long-term Debt - Nonaffiliated            |   |         | 247,548  |         |   | - |   |
| Change                  in Short-term Debt, Net - Nonaffiliated        |   |         | 3,290    |         |   | 4,394 |   |
| Change                  in Advances from Affiliates, Net               |   |         | (188,965 | )            |   | 20,988 |   |
| Retirement                  of Long-term Debt - Nonaffiliated          |   |         | (6,395   | )            |   | (2,457 | ) |
| Principal                  Payments for Capital Lease Obligations      |   |         | (1,090   | )            |   | (367 | ) |
| Dividends                  Paid on Common Stock                        |   |         | -        |         |   | (10,000 | ) |
| Dividends                  Paid on Cumulative Preferred Stock          |   |         | (57      | )            |   | (57 | ) |
| **Net                  Cash Flows From Financing Activities**          |   |         | 54,331   |         |   | 12,501 |   |
|                                                                   |   |         |     |         |   |   |   |
| **Net                  Decrease in Cash and Cash Equivalents**         |   |         | (718     | )            |   | (500 | ) |
| **Cash                  and Cash Equivalents at Beginning of Period**  |   |         | 2,618    |         |   | 3,049 |   |
| **Cash                  and Cash Equivalents at End of Period**        |   | $            | 1,900    |         | $      | 2,549 |   |

| **SUPPLEMENTARY                  INFORMATION**                                       |   |    |   |    |   |
|--------------------------------------------------------------------------------------|--------|--------------|--------|--------------|--------|
| Cash                  Paid for Interest, Net of Capitalized Amounts                  |   | $            | 16,747 |         | $      | 11,892 |   |
| Net                  Cash Paid for Income Taxes                                      |   |         | 580    |         |   | 1,282 |   |
| Noncash                  Acquisitions Under Capital Leases                           |   |         | 3,192  |         |   | 3,412 |   |
| Construction                  Expenditures Included in Accounts Payable at March 31, |   |         | 32,460 |         |   | 12,800 |   |

*See        Condensed Notes to Condensed Financial Statements of Registrant        Subsidiaries.*

----

**SOUTHWESTERN        ELECTRIC POWER COMPANY CONSOLIDATED**

**INDEX        TO CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS OF **

**REGISTRANT        SUBSIDIARIES**

|                                                       | **Footnote                  Reference** |
|------------------------------------------------------------|-----------------------------------------|
|                                                       |                                    |
| Significant                  Accounting Matters            | Note                  1                 |
| New                  Accounting Pronouncements             | Note                  2                 |
| Rate                  Matters                              | Note                  3                 |
| Commitments,                  Guarantees and Contingencies | Note                  4                 |
| Benefit                  Plans                             | Note                  6                 |
| Business                  Segments                         | Note                  7                 |
| Income                  Taxes                              | Note                  8                 |
| Financing                  Activities                      | Note                  9                 |

----

**CONDENSED        NOTES TO CONDENSED FINANCIAL STATEMENTS OF **

**REGISTRANT        SUBSIDIARIES**

| The                  condensed notes to condensed financial statements that follow are                  a                  combined presentation for the Registrant Subsidiaries. The following                  list                  indicates the registrants to which the footnotes apply: |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                           |   |   |
| 1.                                                                                                                                                                                                                                                                                             | Significant                  Accounting Matters | AEGCo,                  APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 2.                                                                                                                                                                                                                                                                                             | New                  Accounting Pronouncements | AEGCo,                  APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 3.                                                                                                                                                                                                                                                                                             | Rate                  Matters | APCo,                  CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 4.                                                                                                                                                                                                                                                                                             | Commitments,                  Guarantees and Contingencies | AEGCo,                  APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 5.                                                                                                                                                                                                                                                                                             | Acquisitions,                  Dispositions and Assets Held for Sale | AEGCo,                  CSPCo, TCC |
| 6.                                                                                                                                                                                                                                                                                             | Benefit                  Plans | APCo,                  CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 7.                                                                                                                                                                                                                                                                                             | Business                  Segments | AEGCo,                  APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 8.                                                                                                                                                                                                                                                                                             | Income                  Taxes | AEGCo,                  APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 9.                                                                                                                                                                                                                                                                                             | Financing                  Activities | AEGCo,                  APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC,                  TNC |

----

**                1.**
**SIGNIFICANT        ACCOUNTING MATTERS**

***General***

***Components        of Accumulated Other Comprehensive Income (Loss)        (AOCI)***

|                                    |   | **March                  31,**      |    | **December                  31,** |   |
|-----------------------------------------|--------|-------------------------------------|---------|-----------------------------------|--------|
|                                    |   | **2007**                            |    | **2006**                          |   |
| **Components**                          |   | **(in                  thousands)** |    |
| **Cash                  Flow Hedges:**  |   |                           |    |                         |   |
| APCo                                    |   | $                                   | (10,031 | )                                 | $      | (2,547 | ) |
| CSPCo                                   |   |                                | (1,878  | )                                 |   | 3,398 |   |
| I&M                                 |   |                                | (14,255 | )                                 |   | (8,962 | ) |
| KPCo                                    |   |                                | (490    | )                                 |   | 1,552 |   |
| OPCo                                    |   |                                | 791     |                              |   | 7,262 |   |
| PSO                                     |   |                                | (1,025  | )                                 |   | (1,070 | ) |
| SWEPCo                                  |   |                                | (6,737  | )                                 |   | (6,410 | ) |
| TNC                                     |   |                                | -       |                              |   | (702 | ) |
|                                    |   |                                |    |                              |   |   |   |
| **SFAS                  158 Adoption:** |   |                                |    |                              |   |   |   |
| APCo                                    |   | $                                   | (52,244 | )                                 | $      | (52,244 | ) |
| CSPCo                                   |   |                                | (25,386 | )                                 |   | (25,386 | ) |
| I&M                                 |   |                                | (6,089  | )                                 |   | (6,089 | ) |
| OPCo                                    |   |                                | (64,025 | )                                 |   | (64,025 | ) |
| SWEPCo                                  |   |                                | (12,389 | )                                 |   | (12,389 | ) |
| TNC                                     |   |                                | (9,457  | )                                 |   | (9,457 | ) |

***Related        Party Transactions***

**Oklaunion        PPA between TNC and AEP Energy Partners **

**ERCOT        Contracts Transferred to AEPEP**

|        |   | **For                  the Three Months Ended March 31, 2007**     |   |
|-------------|--------|--------------------------------------------------------------------|--------|
| **Company** |   | **Net                  Settlement****With                  AEPEP** |   | **Third                  Party Amounts****Reclassified                  to Affiliate** |   | **Net                  Amount****included                  in Sales****to                  AEP Affiliates** |   |
|        |   | **(in                  thousands)**                                |   |
| PSO         |   | $                                                                  | 43,150 |   | $ | (35,837 | ) | $ | 7,313 |   |
| SWEPCo      |   |                                                               | 46,876 |   |   | (38,259 | ) |   | 8,617 |   |

|                                                   |   | **As                  of March 31, 2007** |   |
|--------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                   |   | **PSO**                                   |   | **SWEPCo** |   |
| **Current**                                            |   | **(in                  thousands)**       |   |
| Risk                  Management Assets                |   | $                                         | -      |   | $ | - |   |
| Risk                  Management Liabilities           |   |                                      | (8,282 | ) |   | (9,758 | ) |
|                                                   |   |                                      |   |   |   |   |   |
| **Noncurrent**                                         |   |                                      |   |   |   |   |   |
| Long-term                  Risk Management Assets      |   | $                                         | 584    |   | $ | 688 |   |
| Long-term                  Risk Management Liabilities |   |                                      | (2,097 | ) |   | (2,471 | ) |

**Texas        Restructuring - SPP - Affecting TNC and SWEPCo**

***Reclassifications***

|        |   | **Three                  Months Ended** |   |
|-------------|--------|-----------------------------------------|--------|
|        |   | **March                      31, 2006** |   |
| **Company** |   | **(in                  thousands)**     |   |
| AEGCo       |   | $                                       | 27     |   |
| APCo        |   |                                    | 296    |   |
| I&M     |   |                                    | 5,589  |   |

**                2.**
**NEW        ACCOUNTING PRONOUNCEMENTS**

***SFAS        157 “Fair Value Measurements” (SFAS 157)***

***SFAS        159 “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS        159)***

***FIN        48 “Accounting for Uncertainty in Income Taxes” and FASB Staff Position FIN 48-1        "Definition of Settlement in FASB Interpretation No.        48"***

*Settlement*

| **Company** |   | **(in                  thousands)** |   |
|-------------|--------|-------------------------------------|--------|
| AEGCo       |   | $                                   | (27    | ) |
| APCo        |   |                                | 2,685  |   |
| CSPCo       |   |                                | 3,022  |   |
| I&M     |   |                                | (327   | ) |
| KPCo        |   |                                | 786    |   |
| OPCo        |   |                                | 5,380  |   |
| PSO         |   |                                | 386    |   |
| SWEPCo      |   |                                | 1,642  |   |
| TCC         |   |                                | 2,187  |   |
| TNC         |   |                                | 557    |   |

***Future        Accounting Changes***

**                3.**
**RATE        MATTERS**

**Ohio        Rate Matters **

***Ohio        Restructuring and Rate Stabilization Plans - Affecting CSPCo and        OPCo***

***Customer        Choice Deferrals - Affecting CSPCo and OPCo***

***IGCC        Plant - Affecting CSPCo and OPCo***

***Distribution        Reliability Plan - Affecting CSPCo and OPCo***

***Ormet        - Affecting CSPCo and OPCo***

**Texas        Rate Matters**

**TCC        TEXAS RESTRUCTURING - Affecting TCC **

***Texas        District Court Appeal Proceedings***

| · | The                  PUCT ruling that TCC did not comply with the statute and PUCT rules                  regarding the required auction of 15% of its Texas jurisdictional                  installed capacity, which led to a significant disallowance of                  capacity                  auction true-up revenues,                                                                                                                                                                                                                          |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | The                  PUCT ruling that TCC acted in a manner that was commercially unreasonable,                  because it failed to determine a minimum price at which it would                  reject                  bids for the sale of its nuclear generating plant and it bundled                  out of                  the money gas units with the sale of its coal unit, which led to                  the                  disallowance of a significant portion of TCC’s net stranded generation                  plant cost, and |
| · | The                  two federal matters regarding the allocation of off-system sales                  related                  to fuel recoveries and the potential tax normalization violation.                  See                  “TCC                  and TNC Deferred Fuel” and“TCC                  Deferred Investment Tax Credits and Excess Deferred Federal Income                  Taxes”                  sections below.                                                                                         |

**OTHER        TEXAS RESTRUCTURING MATTERS**

***TCC        Deferred Investment Tax Credits and Excess Deferred Federal Income Taxes        -        Affecting TCC***

***TCC        and TNC Deferred Fuel - Affecting TCC and TNC***

***Excess        Earnings - Affecting TCC***

**OTHER        TEXAS RATE MATTERS**

***TCC        and TNC Energy Delivery Base Rate Filings - Affecting TCC and        TNC***

** **

***SWEPCo        Fuel Reconciliation - Texas - Affecting SWEPCo***

**Virginia        Rate Matters**
*** ***

***Virginia        Restructuring - Affecting APCo***

***APCo        Virginia Base Rate Case - Affecting APCo***

**West        Virginia Rate Matters**

***APCo        Expanded Net Energy Cost (ENEC) Filing - Affecting        APCo***

***APCo        IGCC - Affecting APCo***

**Indiana        Rate Matters**

***I&M        Depreciation Study Filing - Affecting I&M***

**Kentucky        Rate Matters**

***KPCo        Environmental Surcharge Filing - Affecting KPCo***

**Oklahoma        Rate Matters**

***PSO        Fuel and Purchased Power and its Possible Impact on AEP East companies and        AEP        West companies***

** **

***PSO        Rate Filing - Affecting PSO***

***PSO        Lawton and Peaking Generation Settlement Agreement - Affecting        PSO***

**Louisiana        Rate Matters**

***SWEPCo        Louisiana Compliance Filing - Affecting SWEPCo***

**FERC        Rate Matters**

***Transmission        Rate Proceedings at the FERC - Affecting APCo, CSPCo, I&M, KPCo and OPCo***

*The        FERC PJM Regional Transmission Rate Proceeding *

| · | AEP/AP                  proposed a Highway/Byway rate design in which:                                                                                                                                                                                                                                                                                                                    |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                                                    | The                  cost of all transmission facilities in the PJM region operated                  at 345 kV                  or higher would be included in a “Highway” rate that all load serving                  entities (LSEs) would pay based on peak demand. The AEP/AP proposal                  would                  produce about $125 million in additional revenues per year for                  AEP from                  users in other zones of PJM. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                    | The                  cost of transmission facilities operating at lower voltages would                  be                  collected in the zones where those costs are presently charged                  under PJM’s                  existing rate design. |
| · | Two                  other utilities, Baltimore Gas & Electric Company (BG&E) and Old                  Dominion Electric Cooperative (ODEC), proposed a Highway/Byway                  rate that                  includes transmission facilities above 200 kV, which would produce                  lower                  revenues for AEP than the AEP/AP proposal.           |
| · | In                  another competing Highway/Byway proposal, a group of LSEs proposed                  rates                  that would include existing 500 kV and higher voltage facilities                  and new                  facilities above 200 kV in the Highway rate, which would produce                  considerably lower revenues for AEP than the AEP/AP proposal. |
| · | In                  January 2006, the FERC staff issued testimony and exhibits supporting                  a                  PJM-wide flat rate or “Postage Stamp” type of rate design that would                  include all transmission facilities, which would produce higher                  transmission revenues for AEP than the AEP/AP                  proposal. |

| · | In                  Kentucky, KPCo settled a rate case, which provided for the recovery                  of its                  share of the transmission revenue reduction in new rates effective                  March                  30, 2006.                          |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | In                  Ohio, CSPCo and OPCo recover their FERC-approved OATT that reflects                  their                  share of the full transmission revenue requirement retroactive                  to April 1,                  2006 under a May 2006 PUCO order. |
| · | In                  West Virginia, APCo settled a rate case, which provided for the                  recovery                  of its share of the T&O/SECA transmission revenue reduction beginning                  July 28, 2006.                                       |
| · | In                  Virginia, APCo filed a request for revised rates, which includes                  recovery                  of its share of the T&O/SECA transmission revenue reduction starting                  October 2, 2006, subject to refund.                  |
| · | In                  Indiana, I&M is precluded by a rate cap from raising its rates until                  July 1, 2007.                                                                                                                                                    |
| · | In                  Michigan, I&M has not filed to seek recovery of the lost transmission                  revenues.                                                                                                                                                       |

*SECA        Revenue Subject to Refund*

|        |   | **Year                  Ended December 31,** |   |
|-------------|--------|----------------------------------------------|--------|
|        |   | **2006                  (a)**                |   | **2005** |   | **2004** |   |
| **Company** |   | **(in                  millions)**           |   |
| APCo        |   | $                                            | 13.4   |   | $ | 52.4 |   | $ | 4.4 |   |
| CSPCo       |   |                                         | 7.9    |   |   | 28.4 |   |   | 2.5 |   |
| I&M     |   |                                         | 8.1    |   |   | 30.4 |   |   | 2.8 |   |
| KPCo        |   |                                         | 3.2    |   |   | 12.4 |   |   | 1.0 |   |
| OPCo        |   |                                         | 10.4   |   |   | 39.4 |   |   | 3.5 |   |

| (a) | Represents                  revenues through March 31, 2006, when SECA rates expired, and excludes                  all                  provisions for refund**.** |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|        |   | **Year                  Ended December 31,** |   |
|-------------|--------|----------------------------------------------|--------|
|        |   | **2006**                                     |   | **2005** |   |
| **Company** |   | **(in                  millions)**           |   |
| APCo        |   | $                                            | 11.0   |   | $ | 1.0 |   |
| CSPCo       |   |                                         | 6.1    |   |   | 0.6 |   |
| I&M     |   |                                         | 6.4    |   |   | 0.6 |   |
| KPCo        |   |                                         | 2.6    |   |   | 0.2 |   |
| OPCo        |   |                                         | 8.3    |   |   | 0.8 |   |

**                4.**
**COMMITMENTS,        GUARANTEES AND CONTINGENCIES**

**GUARANTEES**

***Letters        of Credit***

***Guarantees        of Third-Party Obligations***

*SWEPCo*

***Indemnifications        and Other Guarantees***

*Contracts*

*Master        Operating Lease*

|        |   | **Maximum                  Potential Loss** |   |
|-------------|--------|---------------------------------------------|--------|
| **Company** |   | **(in                  millions)**          |   |
| APCo        |   | $                                           | 7      |   |
| CSPCo       |   |                                        | 4      |   |
| I&M     |   |                                        | 5      |   |
| KPCo        |   |                                        | 2      |   |
| OPCo        |   |                                        | 7      |   |
| PSO         |   |                                        | 5      |   |
| SWEPCo      |   |                                        | 6      |   |
| TCC         |   |                                        | 6      |   |
| TNC         |   |                                        | 3      |   |

**CONTINGENCIES**

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

***Notice        of Enforcement and Notice of Citizen Suit - Affecting        SWEPCo***

***Carbon        Dioxide (CO***
***2***

***)        Public Nuisance Claims - Affecting AEP East Companies and AEP West        Companies***

***TEM        Litigation - Affecting OPCo***

***Coal        Transportation Dispute - Affecting PSO, TCC and TNC***

***Coal        Transportation Rate Dispute - Affecting PSO***

***Claims          by the City of Brownsville, Texas Against TCC - Affecting          TCC***

***FERC        Long-term Contracts - Affecting AEP East Companies and AEP West        Companies***

**                5.**
**ACQUISITIONS,        DISPOSITIONS AND ASSETS HELD FOR SALE**

**ACQUISITIONS**

**2007**

***Darby        Electric Generating Station - Affecting CSPCo***

***Lawrenceburg        Generating Station - Affecting AEGCo***

**2006**

**DISPOSITIONS**

**2007**

***Texas        Plants - Oklaunion Power Station - Affecting TCC***

**2006**

**ASSETS        HELD FOR SALE**

***Texas        Plants - Oklaunion Power Station - Affecting TCC***

**The        Assets Held for Sale were as follows:**

|                                                                     |   | **March                  31,**     |   | **December                  31,** |   |
|--------------------------------------------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
|                                                                     |   | **2007**                           |   | **2006**                          |   |
| **Texas                  Plants (TCC)**                                  |   | **(in                  millions)** |   |
| **Assets:**                                                              |   |                          |   |                         |   |
| Other                  Current Assets                                    |   | $                                  | -      |                              | $      | 1 |   |
| Property,                  Plant and Equipment, Net                      |   |                               | -      |                              |   | 43 |   |
| **Total                  Assets Held for Sale - Texas Generation Plant** |   | $                                  | -      |                              | $      | 44 |   |

**                6.**
**BENEFIT        PLANS**

***Components        of Net Periodic Benefit Cost***

|                                                   |   |                               |   | **Other**                          |   |
|--------------------------------------------------------|--------|------------------------------------|--------|------------------------------------|--------|
|                                                   |   |                               |   | **Postretirement**                 |   |
|                                                   |   | **Pension                  Plans** |   | **Benefit                  Plans** |   |
|                                                   |   | **2007**                           |   | **2006**                           |   | **2007** |   | **2006** |   |
|                                                   |   | **(in                  millions)** |   |
| Service                  Cost                          |   | $                                  | 24     |                               | $      | 24 |   | $ | 10 |   | $ | 10 |   |
| Interest                  Cost                         |   |                               | 59     |                               |   | 57 |   |   | 26 |   |   | 25 |   |
| Expected                  Return on Plan Assets        |   |                               | (85    | )                                  |   | (83 | ) |   | (26 | ) |   | (23 | ) |
| Amortization                  of Transition Obligation |   |                               | -      |                               |   | - |   |   | 7 |   |   | 7 |   |
| Amortization                  of Net Actuarial Loss    |   |                               | 15     |                               |   | 20 |   |   | 3 |   |   | 5 |   |
| **Net                  Periodic Benefit Cost**         |   | $                                  | 13     |                               | $      | 18 |   | $ | 20 |   | $ | 24 |   |

|        |   | **Pension                  Plans**  |   | **Other                  Postretirement****Benefit                  Plans** |   |
|-------------|--------|-------------------------------------|--------|-----------------------------------------------------------------------------|--------|
|        |   | **2007**                            |   | **2006**                                                                    |   | **2007** |   | **2006** |   |
| **Company** |   | **(in                  thousands)** |   |
| APCo        |   | $                                   | 842    |                                                                        | $      | 1,468 |   | $ | 3,560 |   | $ | 4,489 |   |
| CSPCo       |   |                                | (257   | )                                                                           |   | 205 |   |   | 1,491 |   |   | 1,805 |   |
| I&M     |   |                                | 1,900  |                                                                        |   | 2,331 |   |   | 2,530 |   |   | 2,953 |   |
| KPCo        |   |                                | 255    |                                                                        |   | 358 |   |   | 426 |   |   | 513 |   |
| OPCo        |   |                                | 245    |                                                                        |   | 826 |   |   | 2,802 |   |   | 3,396 |   |
| PSO         |   |                                | 424    |                                                                        |   | 977 |   |   | 1,431 |   |   | 1,588 |   |
| SWEPCo      |   |                                | 746    |                                                                        |   | 1,225 |   |   | 1,419 |   |   | 1,578 |   |
| TCC         |   |                                | 101    |                                                                        |   | 773 |   |   | 1,575 |   |   | 1,696 |   |
| TNC         |   |                                | 70     |                                                                        |   | 325 |   |   | 631 |   |   | 715 |   |

**                7.**
**BUSINESS        SEGMENTS**

**                8.**
**INCOME        TAXES**

***Audit        Status***

***FIN        48 Adoption***

| **Company** |   | **(in                  thousands)** |   |
|-------------|--------|-------------------------------------|--------|
| AEGCo       |   | $                                   | (27    | ) |
| APCo        |   |                                | 2,685  |   |
| CSPCo       |   |                                | 3,022  |   |
| I&M     |   |                                | (327   | ) |
| KPCo        |   |                                | 786    |   |
| OPCo        |   |                                | 5,380  |   |
| PSO         |   |                                | 386    |   |
| SWEPCo      |   |                                | 1,642  |   |
| TCC         |   |                                | 2,187  |   |
| TNC         |   |                                | 557    |   |

| **Company** |   | **(in                  millions)** |   |
|-------------|--------|------------------------------------|--------|
| AEGCo       |   | $                                  | 0.1    |   |
| APCo        |   |                               | 21.7   |   |
| CSPCo       |   |                               | 25.0   |   |
| I&M     |   |                               | 18.2   |   |
| KPCo        |   |                               | 3.4    |   |
| OPCo        |   |                               | 49.8   |   |
| PSO         |   |                               | 8.9    |   |
| SWEPCo      |   |                               | 7.1    |   |
| TCC         |   |                               | 20.7   |   |
| TNC         |   |                               | 6.9    |   |

| **Company** |   | **(in                  millions)** |   |
|-------------|--------|------------------------------------|--------|
| AEGCo       |   | $                                  | 0.5    |   |
| APCo        |   |                               | 5.5    |   |
| CSPCo       |   |                               | 9.3    |   |
| I&M     |   |                               | 6.0    |   |
| KPCo        |   |                               | 1.4    |   |
| OPCo        |   |                               | 9.0    |   |
| PSO         |   |                               | 4.4    |   |
| SWEPCo      |   |                               | 2.8    |   |
| TCC         |   |                               | 3.4    |   |
| TNC         |   |                               | 1.6    |   |

| **Company** |   | **(in                  millions)** |   |
|-------------|--------|------------------------------------|--------|
| APCo        |   | $                                  | 5.4    |   |
| CSPCo       |   |                               | 13.8   |   |
| I&M     |   |                               | 5.4    |   |
| KPCo        |   |                               | 0.6    |   |
| OPCo        |   |                               | 23.4   |   |
| PSO         |   |                               | 1.2    |   |
| SWEPCo      |   |                               | 1.2    |   |
| TCC         |   |                               | 9.3    |   |
| TNC         |   |                               | 2.6    |   |

| **Company** |   | **(in                  millions)** |   |
|-------------|--------|------------------------------------|--------|
| AEGCo       |   | $                                  | 0.1    |   |
| APCo        |   |                               | 13.7   |   |
| CSPCo       |   |                               | 3.9    |   |
| I&M     |   |                               | 10.3   |   |
| KPCo        |   |                               | 2.5    |   |
| OPCo        |   |                               | 14.2   |   |
| PSO         |   |                               | 7.1    |   |
| SWEPCo      |   |                               | 5.1    |   |
| TCC         |   |                               | 6.4    |   |
| TNC         |   |                               | 2.9    |   |

| **Company** |   | **(in                  millions)** |   |
|-------------|--------|------------------------------------|--------|
| AEGCo       |   | $                                  | 0.1    |   |
| APCo        |   |                               | 4.6    |   |
| CSPCo       |   |                               | 1.7    |   |
| I&M     |   |                               | 2.8    |   |
| KPCo        |   |                               | 1.2    |   |
| OPCo        |   |                               | 4.3    |   |
| PSO         |   |                               | 2.7    |   |
| SWEPCo      |   |                               | 2.0    |   |
| TCC         |   |                               | 2.5    |   |
| TNC         |   |                               | 1.0    |   |

**9.**
**FINANCING        ACTIVITIES**

***Long-term        Debt***

| **Company**    |   | **Type                  of Debt**       |   | **Principal                  Amount** |    | **Interest                  Rate** |   | **Due                  Date** |
|----------------|--------|-----------------------------------------|--------|---------------------------------------|---------|------------------------------------|--------|-------------------------------|
|           |   |                                    |   | **(in                  thousands)**   |    | **(%)**                            |   |                          |
| **Issuances:** |   |                                    |   |                                  |    |                               |   |                          |   |
| SWEPCo         |   | Senior                  Unsecured Notes |   | $                                     | 250,000 |                               | 5.55   |                          | 2017 |

| **Company**                                                                                     |   | **Type                  of Debt**     |   | **Principal                  Amount** |   | **Interest                  Rate** |     | **Due                  Date** |
|-------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|---------------------------------------|--------|------------------------------------|----------|-------------------------------|
|                                                                                            |   |                                  |   | **(in                  thousands)**   |   | **(%)**                            |     |                          |
| **Retirements                  and ****                    Principal Payments:** |   |                                  |   |                                  |   |                               |     |                          |   |
| OPCo                                                                                            |   | Notes                  Payable        |   | $                                     | 1,463  |                               | 6.81     |                          | 2008 |
| OPCo                                                                                            |   | Notes                  Payable        |   |                                  | 6,000  |                               | 6.27     |                          | 2009 |
| SWEPCo                                                                                          |   | Notes                  Payable        |   |                                  | 1,645  |                               | 4.47     |                          | 2011 |
| SWEPCo                                                                                          |   | Notes                  Payable        |   |                                  | 4,000  |                               | 6.36     |                          | 2007 |
| SWEPCo                                                                                          |   | Notes                  Payable        |   |                                  | 750    |                               | Variable |                          | 2008 |
| TCC                                                                                             |   | Securitization                  Bonds |   |                                  | 32,125 |                               | 5.01     |                          | 2008 |

***Lines        of Credit and Short-term Debt - AEP System***

|                     |   | **Maximum                  Borrowings****from                  Utility****Money                  Pool** |    | **Maximum****Loans                  to Utility Money Pool** |   | **Average****Borrowings                  from Utility Money Pool** |   | **Average                  Loans to Utility Money Pool** |    | **Loans                  (Borrowings) to/from Utility Money Pool as of March 31,                  2007** |   | **Authorized****Short-Term                  Borrowing Limit** |   |
|--------------------------|--------|---------------------------------------------------------------------------------------------------------|---------|-------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|----------------------------------------------------------|---------|----------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|
| **Company**              |   | **(in                  thousands)**                                                                     |    |
| AEGCo                    |   | $                                                                                                       | 75,425  |                                                        | $      | -                                                                  |   | $                                                        | 44,340  |                                                                                                     | $      | -                                                             |   | $ | (29,997 | ) | $ | 125,000 | (a) |
| APCo                     |   |                                                                                                    | 109,259 |                                                        |   | -                                                                  |   |                                                     | 71,378  |                                                                                                     |   | -                                                             |   |   | (82,860 | ) |   | 600,000 |   |
| CSPCo                    |   |                                                                                                    | 15,693  |                                                        |   | 35,270                                                             |   |                                                     | 6,204   |                                                                                                     |   | 14,543                                                        |   |   | 922 |   |   | 350,000 |   |
| I&M                  |   |                                                                                                    | 100,374 |                                                        |   | -                                                                  |   |                                                     | 66,570  |                                                                                                     |   | -                                                             |   |   | (45,759 | ) |   | 500,000 |   |
| KPCo                     |   |                                                                                                    | 46,317  |                                                        |   | -                                                                  |   |                                                     | 30,845  |                                                                                                     |   | -                                                             |   |   | (20,769 | ) |   | 200,000 |   |
| OPCo                     |   |                                                                                                    | 444,153 |                                                        |   | -                                                                  |   |                                                     | 333,467 |                                                                                                     |   | -                                                             |   |   | (397,127 | ) |   | 600,000 |   |
| PSO                      |   |                                                                                                    | 135,694 |                                                        |   | -                                                                  |   |                                                     | 76,776  |                                                                                                     |   | -                                                             |   |   | (135,694 | ) |   | 300,000 |   |
| SWEPCo                   |   |                                                                                                    | 240,786 |                                                        |   | 48,979                                                             |   |                                                     | 215,207 |                                                                                                     |   | 30,267                                                        |   |   | 8,959 |   |   | 350,000 |   |
| TCC                      |   |                                                                                                    | -       |                                                        |   | 394,180                                                            |   |                                                     | -       |                                                                                                     |   | 295,542                                                       |   |   | 216,953 |   |   | 600,000 |   |
| TNC                  (b) |   |                                                                                                    | 35,191  |                                                        |   | 3,200                                                              |   |                                                     | 22,179  |                                                                                                     |   | 2,365                                                         |   |   | (24,487 | ) |   | 250,000 |   |

| (a) | In                  April 2007, limit increased by $285 million under regulatory                  orders.                                                                                                                                                                                                                                                                                                |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Does                  not include short-term lending activity of TNC’s wholly-owned subsidiary,                  AEP Texas North Generation Company LLC (TNGC), who is a participant                  in the                  Nonutility Money Pool. As of March 31, 2007, TNGC had $13.3 million                  in                  outstanding loans to the Nonutility Money                  Pool. |

|                                   |   | **Three                  Months Ended March 31,** |   |
|----------------------------------------|--------|---------------------------------------------------|--------|
|                                   |   | **2007**                                          |   | **2006** |   |
| Maximum                  Interest Rate |   |                                              | 5.43   | % |   | 4.85 | % |
| Minimum                  Interest Rate |   |                                              | 5.30   | % |   | 4.37 | % |

|                     |   | **Average                  Interest Rate for Funds****Borrowed                  from the Utility Money****Pool                  for****Three                  Months Ended March 31,** |   |  **Average                  Interest Rate for Funds****Loaned                  to the Utility Money****Pool                  for****Three                  Months Ended March 31,** |   |
|--------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                     |   | **2007**                                                                                                                                                                               |   | **2006**                                                                                                                                                                                 |   |  **2007** |   | **2006** |   |
| **Company**              |   | **(in                  percentage)**                                                                                                                                                   |   |
| AEGCo                    |   |                                                                                                                                                                                   | 5.34   |                                                                                                                                                                                     |   | 4.57 |   |   | - |   |   | - |   |
| APCo                     |   |                                                                                                                                                                                   | 5.34   |                                                                                                                                                                                     |   | 4.60 |   |   | - |   |   | - |   |
| CSPCo                    |   |                                                                                                                                                                                   | 5.35   |                                                                                                                                                                                     |   | 4.58 |   |   | 5.33 |   |   | 4.66 |   |
| I&M                  |   |                                                                                                                                                                                   | 5.34   |                                                                                                                                                                                     |   | 4.59 |   |   | - |   |   | - |   |
| KPCo                     |   |                                                                                                                                                                                   | 5.34   |                                                                                                                                                                                     |   | 4.54 |   |   | - |   |   | 4.75 |   |
| OPCo                     |   |                                                                                                                                                                                   | 5.34   |                                                                                                                                                                                     |   | 4.60 |   |   | - |   |   | - |   |
| PSO                      |   |                                                                                                                                                                                   | 5.34   |                                                                                                                                                                                     |   | 4.63 |   |   | - |   |   | - |   |
| SWEPCo                   |   |                                                                                                                                                                                   | 5.35   |                                                                                                                                                                                     |   | 4.60 |   |   | 5.34 |   |   | - |   |
| TCC                      |   |                                                                                                                                                                                   | -      |                                                                                                                                                                                     |   | 4.47 |   |   | 5.34 |   |   | 4.68 |   |
| TNC                  (a) |   |                                                                                                                                                                                   | 5.34   |                                                                                                                                                                                     |   | 4.57 |   |   | 5.34 |   |   | 4.54 |   |

| (a) | Does                  not include short-term lending activity for TNGC, who is a participant                  in                  the Nonutility Money Pool. For the three months ended March 31,                  2007, the                  average interest rate for funds loaned to the Nonutility Money                  Pool by                  TNGC was 5.31%. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|        |   |                                     |   | **March                  31, 2007** |   |                 | **December                  31, 2006** |   |
|-------------|--------|------------------------------------------|--------|-------------------------------------|--------|----------------------|----------------------------------------|--------|
|        |   | **Type                  of Debt**        |   | **Outstanding****Amount**           |   | **Interest****Rate** |                                   |   | **Outstanding****Amount** |   | **Interest****Rate** |   |
| **Company** |   |                                     |   | **(in                  millions)**  |   |                 |                                   |   |   | **(in                  millions)** |   |   |   |   |
| OPCo        |   | Commercial                  Paper - JMG  |   | $                                   | 5      |                 |                                   | 5.56   | % |   | $ | 1 |   |   | 5.56 | % |
| SWEPCo      |   | Line                  of Credit - Sabine |   |                                | 20     |                 |                                   | 6.52   | % |   |   | 17 |   |   | 6.38 | % |

----

**COMBINED        MANAGEMENT’S DISCUSSION AND ANALYSIS OF REGISTRANT        SUBSIDIARIES**

**Significant        Factors**

**Ohio        New Generation**

**SECA        Revenue Subject to Refund**

**Environmental        Matters**

| · | Requirements                  under the Clean Air Act (CAA) to reduce emissions of sulfur dioxide                  (SO2),                  nitrogen oxide (NOx),                  particulate matter (PM) and mercury from fossil fuel-fired power                  plants;                  and |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Requirements                  under the Clean Water Act (CWA) to reduce the impacts of water                  intake                  structures on aquatic species at certain power                  plants.                                                                                    |

***Environmental        Litigation***

**Adoption        of New Accounting Pronouncements**

| **Company** |   | **(in                  thousands)** |   |
|-------------|--------|-------------------------------------|--------|
| AEGCo       |   | $                                   | (27    | ) |
| APCo        |   |                                | 2,685  |   |
| CSPCo       |   |                                | 3,022  |   |
| I&M     |   |                                | (327   | ) |
| KPCo        |   |                                | 786    |   |
| OPCo        |   |                                | 5,380  |   |
| PSO         |   |                                | 386    |   |
| SWEPCo      |   |                                | 1,642  |   |
| TCC         |   |                                | 2,187  |   |
| TNC         |   |                                | 557    |   |

----

**CONTROLS        AND PROCEDURES**

----

**PART        II. OTHER INFORMATION**

**Item        1.    **
**Legal        Proceedings**

*Commitments,        Guarantees and Contingencies, *

**Item        1A. **
**Risk        Factors**

**General        Risks of Our Regulated Operations**

**Our        request for rate recovery of additional costs may not be approved in        Virginia.**
*(Applies        to AEP and APCo.)*

**Our        request for rate recovery of additional costs may not be approved in        Texas.**
*(Applies        to AEP, TCC and TNC.)*

**Our        request for rate recovery of additional costs may not be approved in        Oklahoma.**
*(Applies        to AEP and PSO.)*

**The        amount we charged third parties for using our transmission facilities has        been        reduced, is subject to refund and may not be completely restored in the        future.**
* *
*(Applies        to AEP and the *
*AEP        East companies*
*.)*

**We        are exposed to losses resulting from the bankruptcy of Enron        Corp.**
*        (Applies to AEP.)*

**Risks        Relating To State Restructuring**

**In        Ohio, our costs may not be recovered and rates may be reduced.**
*(Applies        to AEP, OPCo and CSPCo.)*

**Some        laws and regulations governing restructuring in Virginia have not yet been        interpreted or adopted and could harm our business, operating results and        financial condition.**
*        (Applies to AEP and APCo.) *

**There        is uncertainty as to our recovery of stranded costs resulting from industry        restructuring in Texas.**
*        (Applies to AEP and TCC.)*

**Risks        Related to Owning and Operating Generation Assets and Selling Power**

**Our        costs of compliance with environmental laws are significant and the cost        of        compliance with future environmental laws could harm our cash flow and        profitability.**
*(Applies        to AEP and each Registrant Subsidiary other than TCC and TNC.)*

**If        Federal and/or State requirements are imposed on electric utility companies        mandating further emission reductions, including limitations on**
**CO**
**2        **

**emissions,        such requirements could make some of our electric generating units uneconomical        to maintain or operate. **
*(Applies        to AEP and each Registrant Subsidiary other than TCC and TNC.)*

**Governmental        authorities may assess penalties on us if it is determined that we have not        complied with environmental laws and regulations.**
* *
*(Applies        to AEP and each Registrant Subsidiary other than TCC and TNC.)*

**Item        2. **
**Unregistered        Sales of Equity Securities and Use of Proceeds**

| **Period**                           |   | **Total                  Number****of                  Shares****Purchased** |   | **Average                  Price****Paid                  per Share** |   |   | **Total                  Number of Shares Purchased as Part of Publicly Announced Plans                  or                  Programs** |   | **Maximum                  Number (or Approximate Dollar Value) of Shares that May Yet Be                  Purchased                  Under the Plans or Programs** |   |
|--------------------------------------|--------|------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 01/01/07                  - 01/31/07 |   |                                                                         | 30     | (a)                                                                   | $      | 79     |                                                                                                                                    |   |                                                                                                                                                                | -      |   | $ | - |   |
| 02/01/07                  - 02/28/07 |   |                                                                         | -      |                                                                  |   | -      |                                                                                                                                    |   |                                                                                                                                                                | -      |   |   | - |   |
| 03/01/07                  - 03/31/07 |   |                                                                         | -      |                                                                  |   | -      |                                                                                                                                    |   |                                                                                                                                                                | -      |   |   | - |   |

| (a) | OPCo                  repurchased 30 shares of its 4.40% cumulative preferred stock,                  in a                  privately-negotiated transaction outside of an announced                  program. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Item        5. **
**Other        Information**

**Item        6. **
**Exhibits**

*AEP,        APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC and TNC*

*AEP*

*AEGCo,        APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC and TNC*

*AEP,        AEGCo, APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC and        TNC*

----

**SIGNATURE**