**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C. 20549**

**FORM      10-Q**

**September      30, 2006**

*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 North Company, Columbus Southern 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****October                31, 2006** |
|------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                 |   |   |                                                                                                                                                |
| 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. |   |   |       395,572,735                                                                                                     |
|                                                 |   |   | ($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**

**September      30, 2006**

| 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                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                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 |                                                                                                                |                                                                       |
|                                                                                                         |                                                                                                                |                                                                       |   |
|                                                                                                         | Item                4.                                                                                              | 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** |
|----------------|--------|-----------------------|

| ADFIT                                                                             |   | Accumulated                Deferred Federal Income Taxes.                                                                                                                                                                                                 |
|-----------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ADITC                                                                             |   | Accumulated                Deferred Investment Tax Credits.                                                                                                                                                                                               |
| AEGCo                                                                             |   | AEP                Generating Company, an AEP electric generating                subsidiary.                                                                                                                                                              |
| AEP                or Parent                                                      |   | American                Electric Power Company, Inc.                                                                                                                                                                                                      |
| AEP                Consolidated                                                   |   | AEP                and its majority owned consolidated subsidiaries and consolidated                entities.                                                                                                                                             |
| AEP                East companies                                                 |   | APCo,                CSPCo, I&M, KPCo and OPCo.                                                                                                                                                                                                       |
| AEPES                                                                             |   | AEP                Energy Services, Inc., a subsidiary of AEP Resources,                Inc.                                                                                                                                                              |
| 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.                                                                                                                                                                                                    |
| APCo                                                                              |   | Appalachian                Power Company, an AEP electric utility subsidiary.                                                                                                                                                                             |
| CAA                                                                               |   | Clean                Air Act.                                                                                                                                                                                                                             |
| 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                their 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.                                                                                                                                                                                                      |
| EITF                                                                              |   | Financial                Accounting Standards Board’s Emerging Issues Task                Force.                                                                                                                                                    |
| EPACT                                                                             |   | Energy                Policy Act of 2005.                                                                                                                                                                                                                 |
| ERCOT                                                                             |   | Electric                Reliability Council of Texas.                                                                                                                                                                                                     |
| FASB                                                                              |   | Financial                Accounting Standards Board.                                                                                                                                                                                                      |
| Federal                EPA                                                        |   | United                States Environmental Protection Agency.                                                                                                                                                                                             |
| FERC                                                                              |   | Federal                Energy Regulatory Commission.                                                                                                                                                                                                      |
| GAAP                                                                              |   | Accounting                Principles Generally Accepted in the United States of                America.                                                                                                                                                   |
| HPL                                                                               |   | Houston                Pipe Line Company LP, a former AEP subsidiary that was sold in January                2005.                                                                                                                                        |
| IGCC                                                                              |   | Integrated                Gasification Combined Cycle, technology that turns coal into a                cleaner-burning gas.                                                                                                                              |
| I&M                                                                           |   | Indiana                Michigan Power Company, an AEP electric utility                subsidiary.                                                                                                                                                         |
| IPP                                                                               |   | Independent                Power Producers.                                                                                                                                                                                                               |
| IRS                                                                               |   | Internal                Revenue Service.                                                                                                                                                                                                                  |
| IURC                                                                              |   | Indiana                Utility Regulatory Commission.                                                                                                                                                                                                     |
| KPCo                                                                              |   | Kentucky                Power Company, an AEP electric utility subsidiary.                                                                                                                                                                                |
| KPSC                                                                              |   | Kentucky                Public Service Commission.                                                                                                                                                                                                        |
| kV                                                                                |   | Kilovolt.                                                                                                                                                                                                                                                 |
| KWH                                                                               |   | Kilowatthour.                                                                                                                                                                                                                                             |
| 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.                                                                                                                                                                                                              |
| PJM                                                   |   | Pennsylvania                  - New Jersey - Maryland regional transmission                  organization.                                                                                                                                      |
| PSO                                                   |   | Public                  Service Company of Oklahoma, an AEP electric utility                  subsidiary.                                                                                                                                       |
| PTB                                                   |   | Price-to-Beat.                                                                                                                                                                                                                                  |
| PUCO                                                  |   | Public                  Utilities Commission of Ohio.                                                                                                                                                                                           |
| PUCT                                                  |   | Public                  Utility Commission of Texas.                                                                                                                                                                                            |
| PURPA                                                 |   | Public                  Utility Regulatory Policies Act of 1978.                                                                                                                                                                                |
| 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 or leased 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 FASB.                                                                                                                                                                |
| SFAS                  133                             |   | Statement                  of Financial Accounting Standards No. 133, “Accounting for Derivative                  Instruments and Hedging Activities.”                                                                              |
| SIA                                                   |   | System                  Integration Agreement.                                                                                                                                                                                                  |
| SO2                                                   |   | Sulfur                  Dioxide.                                                                                                                                                                                                                |
| SPP                                                   |   | Southwest                  Power Pool.                                                                                                                                                                                                          |
| STP                                                   |   | South                  Texas Project Nuclear Generating Plant.                                                                                                                                                                                  |
| 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.                                                                                                                                                                   |
| 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 and costs of, 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.                                                                                       |
| · | Changes                in the financial markets, particularly those affecting the availability                of                capital and our ability to refinance existing debt at attractive                rates.                                                                    |
| · | 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 implementation of EPACT and membership                in                and integration into regional transmission structures.                                                                                                    |
| · | 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.                                                                                   |

----

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

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

**EXECUTIVE      OVERVIEW**

***Regulatory      Activity***

| · | In                July 2006, an ALJ rendered an initial decision to the FERC recommending                that current transmission rates in PJM are unjust and unreasonable                and                should be redesigned to replace the PJM license plate rates effective                April 1, 2006. If approved by the FERC, the new regional rates would                result in parties outside of the AEP zone in PJM contributing a                significant portion of AEP’s transmission revenue requirement, some of                which may be treated as a refund to retail customers. The favorable                impact                of the initial ALJ decision is not determinable pending the decision                of                the FERC and subject to analysis of refunds to retail customers,                if                any. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | In                July 2006, the FERC approved our request for use of an incentive                rate                treatment for our proposed 550-mile 765 kV transmission line project.                The                approval is conditioned upon PJM including the project in its formal                Regional Transmission Expansion Plan, which should be finalized in                early                2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| · | In                July 2006, the West Virginia Public Service Commission approved a                settlement agreement in APCo and WPCo’s base rate case, providing for a                $44 million annual increase in rates effective July 28, 2006. These                rates                include a surcharge for recovery of the cost of the Wyoming-Jacksons                Ferry                765 kV line, which was energized and placed in service in June                2006.                                                                                                                                                                                                                                                                                                                                                                                    |
| · | In                August 2006, an ALJ rendered an initial decision to the FERC indicating                the rate design for recovery of SECA charges was flawed and that                the SECA                rates charged were unfair, unjust and discriminatory and that refunds                should be made. We believe this decision is contrary to other FERC                rulings                and intend to defend against a SECA rates refund.                                                                                                                                                                                                                                                                                                                                                                                                                        |
| · | In                September 2006, the Virginia SCC’s chief hearing examiner issued an                opinion recommending disallowance of our $21 million environmental                and                reliability cost recovery case filed in June 2005. We subsequently                wrote                off our related assets which reduced pretax earnings by $36 million                in the                third quarter of 2006. We believe the hearing examiner’s recommendation is                contrary to the law and have urged the Virginia SCC not to adopt                that                recommendation.                                                                                                                                                                                                                                     |
| · | In                September 2006, we announced our intention to file transmission and                distribution wires rate cases in Texas in late 2006.  We anticipate                requesting an $83 million increase for TCC and a $25 million increase                for                TNC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| · | In                September 2006, we filed a notice of intent in Oklahoma to file a                base                rate case in November 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| · | In                October 2006, we filed state environmental permit applications for                clean-coal power plants in Ohio and West Virginia, representing another                step towards the commencement of construction of our IGCC                plants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| · | In                October 2006, we implemented an interim increase in Virginia retail                base                rates, subject to refund, as ordered by the Virginia SCC related                to our                $198 million net base rate case filing from May 2006. Hearings are                scheduled for December 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| · | In                October 2006, TCC issued $1.74 billion senior secured transition                bonds as                previously approved by the PUCT. In October 2006, TCC repaid $345                million                of intercompany notes to AEP and also paid a special dividend of                $585                million to AEP. We will use the remaining proceeds to reduce a portion                of                TCC’s debt and equity.                                                                                                                                                                                                                                                                                                                                                                                                              |
| · | In                October 2006, the IURC denied our request to revise I&M’s book                depreciation rates without adjusting base tariff                rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

***Fuel      Costs***

***Barging      Operations***

***Power        Generation Facility***

***Dividend      Increase***

**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. |
| **Investments                - Other** |
|                                   | · | Bulk                commodity barging operations, wind farms, IPPs and other energy                supply-related businesses. |

|                                                                                                      |   | **Three                Months Ended September 30,** |   | **Nine                Months Ended September 30,** |   |
|-----------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|----------------------------------------------------|--------|
|                                                                                                      |   | **2006**                                            |   | **2005**                                           |   | **2006** |   | **2005** |   |
|                                                                                                      |   | **Earnings**                                        |   | **EPS                (c)**                         |   | **Earnings** |   | **EPS                (c)** |   | **Earnings** |   | **EPS                (c)** |   | **Earnings** |   | **EPS                (c)** |   |
| Utility                Operations                                                                         |   | $                                                   | 379    |                                               | $      | 0.96 |   | $ | 352 |   | $ | 0.91 |   | $ | 904 |   | $ | 2.29 |   | $ | 952 |   | $ | 2.45 |   |
| Investments                - Other                                                                        |   |                                                | (109   | )                (d)                               |   | (0.28 | )                (d) |   | 28 |   |   | 0.07 |   |   | (80 | )                (d) |   | (0.20 | )                (d) |   | 32 |   |   | 0.08 |   |
| All                Other (a)                                                                              |   |                                                | (2     | )                                                  |   | - |   |   | (5 | ) |   | (0.01 | ) |   | (7 | ) |   | (0.02 | ) |   | (45 | ) |   | (0.12 | ) |
| Investments                - Gas Operations (b)                                                           |   |                                                | (3     | )                                                  |   | (0.01 | ) |   | (10 | ) |   | (0.03 | ) |   | (2 | ) |   | - |   |   | (2 | ) |   | - |   |
| **Income                Before Discontinued Operations**                                             |   | $                                                   | 265    |                                               | $      | 0.67 |   | $ | 365 |   | $ | 0.94 |   | $ | 815 |   | $ | 2.07 |   | $ | 937 |   | $ | 2.41 |   |
|                                                                                                      |   |                                                |   |                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Weighted                Average Number of Basic****                 Shares Outstanding** |   |                                                |   |                                               |   | 394 |   |   |   |   |   | 389 |   |   |   |   |   | 394 |   |   |   |   |   | 389 |   |

| (a)        | All                Other includes the parent company’s guarantee revenues, interest income                and expense, as well as other nonallocated costs.                                                                                                                                                       |   |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| (b)        | We                sold our remaining gas pipeline and storage assets in                2005.                                                                                                                                                                                                                            |   |
| (c)        | 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. |   |
|   (d) | Loss primarily due to              an              after-tax impairment of $136 million (approximately $0.34 per share)              related to our Plaquemine Cogeneration Facility.                                                                                                                                   |   |

**Utility      Operations**

|                                                                            |   | **Three                Months Ended****September                30,** |   | **Nine                Months Ended****September                30,** |   |
|---------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                            |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
|                                                                            |   | **(in                millions)**                                      |   |
| Revenues                                                                        |   | $                                                                     | 3,441  |                                                                 | $      | 3,237 |   | $ | 9,209 |   | $ | 8,623 |   |
| Fuel                and Purchased Energy                                        |   |                                                                  | 1,384  |                                                                 |   | 1,252 |   |   | 3,637 |   |   | 3,163 |   |
| **Gross                Margin**                                                 |   |                                                                  | 2,057  |                                                                 |   | 1,985 |   |   | 5,572 |   |   | 5,460 |   |
| Depreciation                and Amortization                                    |   |                                                                  | 369    |                                                                 |   | 328 |   |   | 1,041 |   |   | 963 |   |
| Other                Operating Expenses                                         |   |                                                                  | 973    |                                                                 |   | 1,014 |   |   | 2,806 |   |   | 2,757 |   |
| **Operating                Income**                                             |   |                                                                  | 715    |                                                                 |   | 643 |   |   | 1,725 |   |   | 1,740 |   |
| Other                Income, Net                                                |   |                                                                  | 20     |                                                                 |   | 43 |   |   | 105 |   |   | 122 |   |
| Interest                Expense and Preferred Stock Dividend  Requirements |   |                                                                  | 161    |                                                                 |   | 145 |   |   | 475 |   |   | 445 |   |
| Income                Tax Expense                                               |   |                                                                  | 195    |                                                                 |   | 189 |   |   | 451 |   |   | 465 |   |
| **Income                Before Discontinued Operations**                        |   | $                                                                     | 379    |                                                                 | $      | 352 |   | $ | 904 |   | $ | 952 |   |

**Summary      of Selected Sales and Weather Data**

**For      Utility Operations**

**For      the Three and Nine Months Ended September 30, 2006 and      2005**

|                                  |   | **Three                Months Ended****September                30,** |   | **Nine                Months Ended****September                30,** |   |
|---------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                  |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
|                                  |   | **(in                millions of KWH)**                               |   |
| **Energy                Summary**     |   |                                                             |   |                                                            |   |    |   |    |   |
| Retail:                               |   |                                                             |   |                                                            |   |    |   |    |   |
| Residential                           |   |                                                                  | 13,482 |                                                                 |   | 14,152 |   |   | 36,010 |   |   | 37,332 |   |
| Commercial                            |   |                                                                  | 10,799 |                                                                 |   | 10,900 |   |   | 29,149 |   |   | 29,204 |   |
| Industrial                            |   |                                                                  | 13,468 |                                                                 |   | 13,380 |   |   | 40,405 |   |   | 39,633 |   |
| Miscellaneous                         |   |                                                                  | 677    |                                                                 |   | 682 |   |   | 1,890 |   |   | 1,968 |   |
| Subtotal                              |   |                                                                  | 38,426 |                                                                 |   | 39,114 |   |   | 107,454 |   |   | 108,137 |   |
| Texas                Retail and Other |   |                                                                  | 105    |                                                                 |   | 115 |   |   | 312 |   |   | 504 |   |
| Total                Retail           |   |                                                                  | 38,531 |                                                                 |   | 39,229 |   |   | 107,766 |   |   | 108,641 |   |
|                                  |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Wholesale                             |   |                                                                  | 13,465 |                                                                 |   | 13,135 |   |   | 35,131 |   |   | 37,515 |   |
|                                  |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Texas                Wires Delivery   |   |                                                                  | 7,877  |                                                                 |   | 8,093 |   |   | 20,338 |   |   | 20,348 |   |
|                                  |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Total                KWHs             |   |                                                                  | 59,873 |                                                                 |   | 60,457 |   |   | 163,235 |   |   | 166,504 |   |

|                                             |   | **Three                Months Ended****September                30,** |   | **Nine                Months Ended****September                30,** |   |
|--------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                             |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
|                                             |   | **(in                degree days)**                                   |   |
| **Weather                Summary**               |   |                                                             |   |                                                            |   |    |   |    |   |
| Eastern                Region                    |   |                                                             |   |                                                            |   |    |   |    |   |
| Actual                - Heating (a)              |   |                                                                  | 10     |                                                                 |   | 1 |   |   | 1,573 |   |   | 1,940 |   |
| Normal                - Heating (b)              |   |                                                                  | 7      |                                                                 |   | 7 |   |   | 1,999 |   |   | 1,995 |   |
|                                             |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Actual                - Cooling (c)              |   |                                                                  | 685    |                                                                 |   | 834 |   |   | 914 |   |   | 1,122 |   |
| Normal                - Cooling (b)              |   |                                                                  | 688    |                                                                 |   | 674 |   |   | 970 |   |   | 955 |   |
|                                             |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Western                Region                (d) |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Actual                - Heating (a)              |   |                                                                  | 0      |                                                                 |   | 0 |   |   | 664 |   |   | 795 |   |
| Normal                - Heating (b)              |   |                                                                  | 2      |                                                                 |   | 2 |   |   | 1,007 |   |   | 1,007 |   |
|                                             |   |                                                                  |   |                                                                 |   |   |   |   |   |   |   |   |   |
| Actual                - Cooling (c)              |   |                                                                  | 1,468  |                                                                 |   | 1,523 |   |   | 2,325 |   |   | 2,225 |   |
| Normal                - Cooling (b)              |   |                                                                  | 1,410  |                                                                 |   | 1,397 |   |   | 2,079 |   |   | 2,059 |   |

| (a) | Eastern                Region and Western Region heating degree days are calculated on a                55                degree temperature base. |   |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| (b) | Normal                Heating/Cooling represents the 30-year average of degree                days.                                                |   |
| (c) | Eastern                Region and Western Region cooling days are calculated on a 65 degree                temperature base.                       |   |
| (d) | Western                Region statistics represent PSO/SWEPCo customer base only.                                                                  |   |

**Third      Quarter of 2006 Compared to Third Quarter of 2005**

**Reconciliation      of Third Quarter of 2005 to Third Quarter of 2006**

**Income      from Utility Operations Before Discontinued Operations**

**(in      millions)**

| **Third                Quarter of 2005**                        |   |   |   |   | $      | 352    |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                Margins                                   |   |   | 29     |   |   |   |   |
| Off-system                Sales                                 |   |   | 75     |   |   |   |   |
| Transmission                Revenues                            |   |   | (38    | )      |   |   |   |
| Other                                                           |   |   | 6      |   |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | 72     |   |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Maintenance                and Other Operation                  |   |   | (15    | )      |   |   |   |
| Asset                Impairments and Other Related Charges      |   |   | 39     |   |   |   |   |
| Depreciation                and Amortization                    |   |   | (41    | )      |   |   |   |
| Taxes                Other Than Income Taxes                    |   |   | 17     |   |   |   |   |
| Other                Income, Net                                |   |   | (23    | )      |   |   |   |
| Interest                and Other Charges                       |   |   | (16    | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (39    | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | (6     | )      |
|                                                            |   |   |   |   |   |   |   |
| **Third                Quarter of 2006**                        |   |   |   |   | $      | 379    |   |

| · | Retail                    Margins increased $29 million primarily due to the                    following:                                                                                                                                                                                                                                                                                                                  |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                      | A                    $72 million increase related to new rates implemented in our                    Ohio                    jurisdictions as approved by the PUCO in our Rate Stabilization                    Plans                    (RSPs) and a $12 million increase related to new rates implemented                    in                    Kentucky as approved in our base rate case; |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                      | A                    $20 million increase related to increased sales to municipal,                    cooperative                    and other wholesale customers primarily as a result of new power                    supply                    contracts; and |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                      | An                    $18 million increase related to the purchase of the Ohio service                    territory                    of Monongahela Power in December 2005; partially offset                    by |
|   |  ·                                                                                                                                                                                                                                                                                                                                                                                                           | A                    $22 million decrease in financial transmission rights revenue,                    net of                    congestion, primarily due to fewer transmission constraints within                    the PJM                    market; |
|   |  ·                                                                                                                                                                                                                                                                                                                                                                                                           | A                  $33 million decrease related to increased refunds to retail customers                  of a                  portion of off-system sales margins due to higher off-system sales                  and the                  reinstatement of the off-system sales margins sharing mechanism                  in West                  Virginia effective July 1, 2006 in conjunction with the West Virginia                  rate                  case settlement; |
|   |  ·                                                                                                                                                                                                                                                                                                                                                                                                           | A                  $14 million increase in delivered fuel costs, which relates to                  AEP East                  companies with inactive, capped or frozen fuel clauses;                  and |
|   |  ·                                                                                                                                                                                                                                                                                                                                                                                                           | A                  $30 million decrease in usage related to mild weather. As compared                  to the                  prior year, we experienced an 18% decrease in cooling degree days                  in the                  eastern region and a 4% decrease in the western region. |
| · | Margins                    from Off-system Sales for 2006 increased $75 million primarily                    due to                    positive margins from hedges of plant output and strong physical                    sales in                    the east, where AEP’s generation availability factor was high in July and                    August when wholesale prices were favorable.                      |
| · | Transmission                    Revenues decreased $38 million primarily due to the elimination                    of SECA                    revenues as of April 1, 2006. At this time, we have a pending                    proposal                    with the FERC to replace SECA revenues. See the “Transmission Rate                    Proceedings at the FERC” section of Note                    3. |

| · | Maintenance                and Other Operation expenses increased $15 million primarily due                to                increases in generation expenses for base operations, maintenance                and an                abandonment of digital turbine control equipment at the Cook Plant,                increases in transmission and distribution expenses related to vegetation                management and storm restoration and the establishment of a regulatory                asset for PJM administrative fees in 2005 which reduced expenses                in the                prior period, offset by the establishment of a net regulatory asset                for                recovery of prior years’ Ohio ice storm damage costs and lower incentive                pay accruals. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Asset                Impairments and Other Related Charges were $39 million in 2005 due                to our                commitment to a plan in September 2005 to retire two units at our                Conesville Plant. We retired the two units effective December 29,                2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| · | Depreciation                and Amortization expense increased $41 million primarily due to increased                Ohio regulatory asset amortization in conjunction with rate increases,                higher depreciable property balances and the write off of Virginia                environmental and reliability regulatory assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| · | Taxes                Other Than Income Taxes decreased $17 million primarily due to adjustments                related to real and personal property taxes and sales and use                taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| · | Other                Income, Net decreased $23 million primarily related to the write                off of                carrying costs on Virginia environmental and reliability regulatory                assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| · | Interest                and Other Charges increased $16 million primarily due to additional                debt                issued in late 2005 and early 2006 and an increase in regulatory                interest                related to Texas regulatory liabilities partially offset by an increase                in                allowance for borrowed funds used during construction.                                                                                                                                                                                                                                                                                                                                                                                                                        |
| · | Income                Tax Expense increased $6 million due to the increase in pretax                income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

**Nine      Months Ended September 30, 2006 Compared to Nine Months Ended September 30,      2005**

**Reconciliation      of Nine Months Ended September 30, 2005 to Nine Months Ended September 30,      2006**

**Income      from Utility Operations Before Discontinued Operations**

**(in      millions)**

| **Nine                Months Ended September 30, 2005**         |   |   |   |   | $      | 952    |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                Margins                                   |   |   | 198    |   |   |   |   |
| Off-system                Sales                                 |   |   | 2      |   |   |   |   |
| Transmission                Revenues                            |   |   | (93    | )      |   |   |   |
| Other                                                           |   |   | 5      |   |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | 112    |   |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Maintenance                and Other Operation                  |   |   | (42    | )      |   |   |   |
| Gain                on Disposition of Assets, Net               |   |   | (47    | )      |   |   |   |
| Asset                Impairments and Other Related Charges      |   |   | 39     |   |   |   |   |
| Depreciation                and Amortization                    |   |   | (78    | )      |   |   |   |
| Other                Income, Net                                |   |   | (16    | )      |   |   |   |
| Interest                and Other Charges                       |   |   | (30    | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (174   | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | 14     |   |
|                                                            |   |   |   |   |   |   |   |
| **Nine                Months Ended September 30, 2006**         |   |   |   |   | $      | 904    |   |

| · | Retail                    Margins increased $198 million primarily due to the                    following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | A                    $175 million increase related to new rates implemented in our                    Ohio                    jurisdictions as approved by the PUCO in our RSPs, a $22 million                    increase                    related to new rates implemented in Kentucky as approved in our                    base rate                    case and a $12 million increase related to new rates implemented                    in                    Oklahoma in June 2005; |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | A                    $21 million increase in financial transmission rights revenue,                    net of                    congestion, due to improved management of price risk related                    to serving                    retail load within PJM under current transmission                    constraints; |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | A                    $58 million increase related to increased usage and customer                    growth in the                    industrial and commercial classes of which $47 million relates                    to the                    purchase of the Ohio service territory of Monongahela Power in                    December                    2005; and |
|   |  ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | A                    $50 million increase related to increased sales to municipal,                    cooperative                    and other wholesale customers primarily as a result of new power                    supply                    contracts; partially offset by |
|   |  ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | An                  $84 million increase in delivered fuel cost, which relates to the                  AEP East                  companies with inactive, capped or frozen fuel clauses; |
|   |  ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | A                  $66 million decrease in usage related to mild weather. As compared                  to the                  prior year, our eastern region and western region experienced 19%                  and 17%                  declines, respectively, in heating degree days. Also compared to                  the prior                  year, our eastern region experienced a 19% decrease in cooling                  degree                  days. These decreases were partially offset by an increase of 5%                  in                  cooling degree days in the western region; and |
|   |  ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | A                  $15 million decrease related to increased refunds to retail customers                  of a                  portion of off-system sales margins due to higher off-system sales                  and the                  reinstatement of the off-system sales margins sharing mechanism                  in West                  Virginia effective July 1, 2006 in conjunction with the West Virginia                  rate                  case settlement. |
| · | Transmission                    Revenues decreased $93 million primarily due to the elimination                    of SECA                    revenues as of April 1, 2006 and a provision of $19 million recorded                    in                    2006 related to potential SECA refunds pending settlement negotiations                    with various intervenors. At this time, we have a pending proposal                    with                    the FERC to replace SECA revenues. See the “Transmission Rate Proceedings                    at the FERC” section of Note                    3. |

| · | Maintenance                and Other Operation expenses increased $42 million primarily due                to                increases in generation expenses related to base operations, maintenance                and planned and forced plant outages, distribution expenses related                to                vegetation management and the establishment of a regulatory asset                for PJM                administrative fees in 2005 which reduced expenses in the prior period.                These increases were partially offset by favorable variances related                to                expenses from the January 2005 ice storm in Ohio and Indiana, decreases                related to the sale of STP in May 2005 and lower incentive                accruals. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Asset                Impairments and Other Related Charges were $39 million in 2005 due                to our                commitment to a plan in September 2005 to retire two units at our                Conesville Plant. We retired the two units effective December 29,                2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| · | Gain                on Disposition of Assets, Net decreased $47 million resulting from                revenues related to the earnings sharing agreement with Centrica                as                stipulated in the purchase-and-sale agreement from the sale of our                REPs in                2002. In 2005, we reached a settlement with Centrica and received                $112                million related to two years of earnings sharing whereas in 2006                we                received $70 million related to one year of earnings                sharing.                                                                                                                                                                                                      |
| · | Depreciation                and Amortization expense increased $78 million primarily due to increased                Ohio regulatory asset amortization in conjunction with rate increases,                higher depreciable property balances and the write off of Virginia                environmental and reliability regulatory assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| · | Other                Income, Net decreased $16 million primarily due to the write off                of                carrying costs on Virginia environmental and reliability regulatory                assets                and a decrease in Ohio carrying costs income as a result of the                implementation of the Ohio rate stabilization plans in January 2006,                partially offset by an increase in the allowance for equity funds                used                during construction.                                                                                                                                                                                                                                                                              |
| · | Interest                and Other Charges increased $30 million from the prior period primarily                due to additional debt issued in late 2005 and early 2006 and increasing                interest rates, partially offset by an increase in allowance for                borrowed                funds used during construction.                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| · | Income                Tax Expense decreased $14 million due to the decrease in pretax                income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

**Investments      - Other**

**Third      Quarter of 2006 Compared to Third Quarter of 2005**

**Nine      Months Ended September 30, 2006 Compared to Nine Months Ended September 30,      2005**

**Other**

*Parent*

**Third      Quarter of 2006 Compared to Third Quarter of 2005**

**Nine      Months Ended September 30, 2006 Compared to Nine Months Ended September 30,      2005**

*Investments      - Gas Operations*

**Third      Quarter of 2006 Compared to Third Quarter of 2005**

**Nine      Months Ended September 30, 2006 Compared to Nine Months Ended September 30,      2005**

**AEP      System Income Taxes**

**FINANCIAL      CONDITION**

**Debt      and Equity Capitalization**
**      ($ in millions)**

|                                                                 |   | **September                30, 2006** |   | **December                31, 2005** |   |
|----------------------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
| Long-term                Debt, including amounts due within one year |   | $                                     | 12,763 |                                 |   | 57.0 | % | $ | 12,226 |   |   | 57.2 | % |
| Short-term                Debt                                       |   |                                  | 23     |                                 |   | 0.1 |   |   | 10 |   |   | 0.0 |   |
| Total                Debt                                            |   |                                  | 12,786 |                                 |   | 57.1 |   |   | 12,236 |   |   | 57.2 |   |
| Common                Equity                                         |   |                                  | 9,525  |                                 |   | 42.6 |   |   | 9,088 |   |   | 42.5 |   |
| Preferred                Stock                                       |   |                                  | 61     |                                 |   | 0.3 |   |   | 61 |   |   | 0.3 |   |
|                                                                 |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **Total                Debt and Equity Capitalization**              |   | $                                     | 22,372 |                                 |   | 100.0 | % | $ | 21,385 |   |   | 100.0 | % |

**Liquidity**

***Credit      Facilities***

|                                        |   | **Amount**                       |   | **Maturity** |   |
|---------------------------------------------|--------|----------------------------------|--------|--------------|--------|
|                                        |   | **(in                millions)** |   |         |   |
| Commercial                Paper Backup:     |   |                        |   |         |   |
| Revolving                Credit Facility    |   | $                                | 1,500  |         |   | March                2010 |   |
| Revolving                Credit Facility    |   |                             | 1,500  |         |   | April                2011 |   |
| **Total**                                   |   |                             | 3,000  |         |   |   |   |
| Cash                and Cash Equivalents    |   |                             | 259    |         |   |   |   |
| **Total                Liquidity Sources**  |   |                             | 3,259  |         |   |   |   |
| Less:                Letter of Credit Drawn |   |                             | 34     |         |   |   |   |
| **Net                Available Liquidity**  |   | $                                | 3,225  |         |   |   |   |

***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**

|                                                                    |   | **Nine                Months Ended****September                30,** |   |
|-------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                    |   | **2006**                                                             |   | **2005** |   |
|                                                                    |   | **(in                millions)**                                     |   |
| **Cash                and Cash Equivalents at Beginning of Period**     |   | $                                                                    | 401    |   | $ | 320 |   |
| Net                Cash Flows From Operating Activities                 |   |                                                                 | 2,213  |   |   | 1,699 |   |
| Net                Cash Flows Used For Investing Activities             |   |                                                                 | (2,474 | ) |   | (60 | ) |
| Net                Cash Flows From (Used For) Financing Activities      |   |                                                                 | 119    |   |   | (1,110 | ) |
| **Net                Increase (Decrease) in Cash and Cash Equivalents** |   |                                                                 | (142   | ) |   | 529 |   |
| **Cash                and Cash Equivalents at End of Period**           |   | $                                                                    | 259    |   | $ | 849 |   |

***Operating      Activities***

|                                                        |   | **Nine                Months Ended****September                30,** |   |
|-------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                        |   | **2006**                                                             |   | **2005** |   |
|                                                        |   | **(in                millions)**                                     |   |
| **Net                Income**                               |   | $                                                                    | 821    |   | $ | 963 |   |
| Less:                Discontinued Operations, Net of Tax    |   |                                                                 | (6     | ) |   | (26 | ) |
| **Income                Before Discontinued Operations**    |   |                                                                 | 815    |   |   | 937 |   |
| Noncash                Items Included in Earnings           |   |                                                                 | 1,164  |   |   | 987 |   |
| Changes                in Assets and Liabilities            |   |                                                                 | 234    |   |   | (225 | ) |
| **Net                Cash Flows From Operating Activities** |   | $                                                                    | 2,213  |   | $ | 1,699 |   |

***Investing      Activities***

|                                                            |   | **Nine                Months Ended****September                30,** |   |
|-----------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                            |   | **2006**                                                             |   | **2005** |   |
|                                                            |   | **(in                millions)**                                     |   |
| Investment                Securities:                           |   |                                                            |   |    |   |
| Purchases                of Investment Securities               |   | $                                                                    | (8,153 | ) | $ | (4,319 | ) |
| Sales                of Investment Securities                   |   |                                                                 | 8,056  |   |   | 4,378 |   |
| Change                in Investment Securities, Net             |   |                                                                 | (97    | ) |   | 59 |   |
| Construction                Expenditures                        |   |                                                                 | (2,445 | ) |   | (1,610 | ) |
| Acquisition                of Waterford Plant                   |   |                                                                 | -      |   |   | (218 | ) |
| Change                in Other Temporary Cash Investments, Net  |   |                                                                 | 20     |   |   | 99 |   |
| Proceeds                from Sales of Assets                    |   |                                                                 | 120    |   |   | 1,599 |   |
| Other                                                           |   |                                                                 | (72    | ) |   | 11 |   |
| **Net                Cash Flows Used for Investing Activities** |   | $                                                                    | (2,474 | ) | $ | (60 | ) |

***Financing      Activities***

|                                                                   |   | **Nine                Months Ended****September                30,** |   |
|------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                   |   | **2006**                                                             |   | **2005** |   |
|                                                                   |   | **(in                millions)**                                     |   |
| Issuance                of Common Stock                                |   | $                                                                    | 24     |   | $ | 393 |   |
| Repurchase                of Common Stock                              |   |                                                                 | -      |   |   | (427 | ) |
| Issuance/Retirement                of Debt, Net                        |   |                                                                 | 529    |   |   | (562 | ) |
| Dividends                Paid on Common Stock                          |   |                                                                 | (437   | ) |   | (408 | ) |
| Other                                                                  |   |                                                                 | 3      |   |   | (106 | ) |
| **Net                Cash Flows From (Used for) Financing Activities** |   | $                                                                    | 119    |   | $ | (1,110 | ) |

**Off-balance      Sheet Arrangements**

|                                 |   | **September                30,****2006** |   | **December                31,****2005** |   |
|--------------------------------------|--------|------------------------------------------|--------|-----------------------------------------|--------|
|                                 |   | **(in                millions)**         |   |
| AEP                Credit            |   | $                                        | 548    |                                    | $      | 516 |   |
| Rockport                Plant Unit 2 |   |                                     | 2,437  |                                    |   | 2,511 |   |
| Railcars                             |   |                                     | 31     |                                    |   | 31 |   |

**Summary      Obligation Information**

**Other**

***Cook      Plant Outage***

***Texas      REPs***

***New      Generation***

** **

**SIGNIFICANT      FACTORS**

**ERCOT        Transmission Project**

**AEP      Interstate Project**

**Texas      Regulatory Activity**

***Texas      Restructuring***

**-**
**:**

|                                                                         |   | **(in                millions)** |   |
|------------------------------------------------------------------------------|--------|----------------------------------|--------|
| Wholesale                Capacity Auction True-up                            |   | $                                | 61     |   |
| Carrying                Costs on Wholesale Capacity Auction True-up          |   |                             | 31     |   |
| Retail                Clawback including Carrying Costs                      |   |                             | (65    | ) |
| Deferred                Over-recovered Fuel Balance                          |   |                             | (184   | ) |
| Retrospective                ADFIT Benefit                                   |   |                             | (77    | ) |
| Other                                                                        |   |                             | (4     | ) |
| **Recorded                Net Regulatory Liabilities - Other True-up Items** |   |                             | (238   | ) |
| Unrecorded                Prospective ADFIT Benefit                          |   |                             | (240   | ) |
| **Gross                CTC Refund Proposed**                                 |   |                             | (478   | ) |
| FERC                Jurisdictional Fuel Refund Deferral                      |   |                             | 16     |   |
| ADITC                and EDFIT Benefit Refund Deferral                       |   |                             | 98     |   |
| **Net                CTC Refund Proposed, After Deferrals**                  |   |                             | (364   | ) |
| True-up                Proceeding Expense Surcharge                          |   |                             | 7      |   |
| **Net                CTC Refund Proposed, After Deferrals and Expenses**     |   | $                                | (357   | ) |

| · | the                  PUCT ruled that TCC did not comply with the statute and PUCT rules                  regarding the auction of 15% of its Texas jurisdictional installed                  capacity,                                                                                                                                                                  |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | 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 gas units with the                  sale of its                  coal unit, |
| · | and                  two federal matters regarding the allocation of off-system sales                  related                  to fuel recoveries and the potential tax normalization                  violation.                                                                                                                                                      |

|                                                                                    |   | **(in                millions)** |   |
|-----------------------------------------------------------------------------------------|--------|----------------------------------|--------|
| ADITC                and EDFIT Benefits Reducing Securitization                         |   | $                                | 98     |   |
| ADFIT                Benefit Applied to Reduce 2002 Securitization of Regulatory Assets |   |                             | (60    | ) |
| Securitization                Settlement                                                |   |                             | (77    | ) |
| Unrecorded                Prospective ADFIT Benefit Increasing the CTC Refund           |   |                             | (240   | ) |
| Unrecorded                Equity Carrying Costs Recognized as Collected                 |   |                             | 224    |   |
| Future                Interest Payable on Proposed CTC Refund                           |   |                             | (19    | ) |
| Deferred                Fuel - Federal Jurisdictional Issue                             |   |                             | 16     |   |
| **Net                Adverse Earnings Impact Over 14 Years**                            |   | $                                | (58    | ) |

**Litigation**

**Environmental      Matters**

| · | Requirements                under the CAA to reduce emissions of SO2,                NOx,                particulate matter and mercury from fossil fuel-fired power                plants; |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Requirements                under the Clean Water Act to reduce the impacts of water intake structures                on aquatic species at certain of our power plants; and                |
| · | Possible                future requirements to reduce carbon dioxide emissions to address                concerns                about global climate change.                               |

***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**

**September      30, 2006**

**(in      millions)**

|                                                                                                                 |   | **Utility                  Operations** |   | **Investments                  - Gas Operations** |   | **Sub-Total                  MTM Risk Management Contracts** |   | **PLUS:                  MTM of Cash Flow and Fair Value Hedges** |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------------------|--------|--------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|-----------|--------|
| Current                  Assets                                                                                      |   | $                                       | 444    |                                              | $      | 99                                                           |   | $                                                                 | 543    |      | $      | 26 |   | $ | 569 |   |
| Noncurrent                  Assets                                                                                   |   |                                    | 337    |                                              |   | 130                                                          |   |                                                              | 467    |      |   | 4 |   |   | 471 |   |
| **Total                  Assets**                                                                                    |   |                                    | 781    |                                              |   | 229                                                          |   |                                                              | 1,010  |      |   | 30 |   |   | 1,040 |   |
|                                                                                                                 |   |                                    |   |                                              |   |                                                         |   |                                                              |   |      |   |   |   |   |   |   |
| Current                  Liabilities                                                                                 |   |                                    | (373   | )                                                 |   | (99                                                          | )      |                                                              | (472   | )         |   | (24 | ) |   | (496 |  ) |
| Noncurrent                  Liabilities                                                                              |   |                                    | (184   | )                                                 |   | (137                                                         | )      |                                                              | (321   | )         |   | (3 | ) |   | (324 |  ) |
| **Total                  Liabilities**                                                                               |   |                                    | (557   | )                                                 |   | (236                                                         | )      |                                                              | (793   | )         |   | (27 | ) |   | (820 |  ) |
|                                                                                                                 |   |                                    |   |                                              |   |                                                         |   |                                                              |   |      |   |   |   |   |   |   |
| **Total                  MTM** **Derivative                  Contract Net Assets****  (Liabilities)** |   | $                                       | 224    |                                              | $      | (7                                                           | )      | $                                                                 | 217    |      | $      | 3 |   | $ | 220 |   |

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

**Nine      Months Ended September 30, 2006**

**(in      millions)**

|                                                                                                                                                                      |   | **Utility****Operations** |   | **Investments-****Gas****Operations** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|--------|---------------------------------------|--------|-----------|--------|
| **Total                MTM Risk Management ****Contract                Net Assets (Liabilities) at****  December                31, 2005**                 |   | $                         | 215    |                                  | $      | (19       | )      | $ | 196 |   |
| (Gain)                Loss from Contracts Realized/Settled During                the Period and Entered in a Prior Period                                  |   |                      | (8     | )                                     |   | 10        |   |   | 2 |   |
| Fair                Value of New Contracts at Inception When                Entered During the Period (a)                                                            |   |                      | 1      |                                  |   | -         |   |   | 1 |   |
| Net                Option Premiums Paid/(Received) for Unexercised                or Unexpired Option   Contracts                Entered During The Period |   |                      | (1     | )                                     |   | -         |   |   | (1 | ) |
| Changes                in Fair Value Due to Valuation Methodology                Changes on Forward Contracts                                                             |   |                      | 1      |                                  |   | -         |   |   | 1 |   |
| Changes                in Fair Value due to Market Fluctuations During the Period                (b)                                                                 |   |                      | 19     |                                  |   | 2         |   |   | 21 |   |
| Changes                in Fair Value Allocated to Regulated                Jurisdictions (c)                                                                              |   |                      | (3     | )                                     |   | -         |   |   | (3 | ) |
| **Total                MTM Risk Management Contract**** Net                Assets (Liabilities) at****                 September 30, 2006**                     |   | $                         | 224    |                                  | $      | (7        | )      |   | 217 |   |
| Net                Cash Flow and Fair Value Hedge Contracts                                                                                                               |   |                      |   |                                  |   |      |   |   | 3 |   |
| **Ending                Net Risk Management Assets at****September                30, 2006**                                                                              |   |                      |   |                                  |   |      |   | $ | 220 |   |

| (a) | Most                of the fair value comes from longer term fixed price contracts with                customers that seek 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 Operations. These net gains (losses) are                recorded as regulatory assets/liabilities for those subsidiaries                that                operate in regulated jurisdictions. Approximately $7 million of the                regulatory deferral change is due to the change in the SIA. See the                “Allocation Agreement between AEP East companies and AEP West companies                and CSW Operating Agreement” section of Note                3. |

**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, giving 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 September 30, 2006**

**(in      millions)**

|                                                                                                                            |   | **Remainder****2006** |   | **2007**     |   | **2008**     |   | **2009**     |   | **2010**     |   | **After****2010** |   | **Total**    |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|--------------|--------|--------------|--------|--------------|--------|--------------|--------|-------------------|--------|--------------|--------|
| **Utility                Operations:**                                                                                          |   |             |   |    |   |    |   |    |   |    |   |         |   |    |   |
| Prices                Actively Quoted -   Exchange Traded Contracts                                                   |   | $                     | -      |         | $      | (9           | )      | $            | 22     |         | $      | (1                | )      | $            | -      |   | $ | - |   | $ | 12 |   |
| Prices                Provided by Other External   Sources                - OTC Broker Quotes                (a) |   |                  | (4     | )            |   | 119          |   |         | 29     |         |   | 23                |   |         | -      |   |   | - |   |   | 167 |   |
| Prices                Based on Models and Other Valuation                Methods (b)                                            |   |                  | (1     | )            |   | (15          | )      |         | 5      |         |   | 19                |   |         | 28     |   |   | 9 |   |   | 45 |   |
| **Total**                                                                                                                       |   | $                     | (5     | )            | $      | 95           |   | $            | 56     |         | $      | 41                |   | $            | 28     |   | $ | 9 |   | $ | 224 |   |
|                                                                                                                            |   |                  |   |         |   |         |   |         |   |         |   |              |   |         |   |   |   |   |   |   |   |   |
| **Investments**-                **Gas                Operations:**                                                              |   |                  |   |         |   |         |   |         |   |         |   |              |   |         |   |   |   |   |   |   |   |   |
| Prices                Actively Quoted - Exchange Traded Contracts                                                          |   | $                     | -      |         | $      | 7            |   | $            | -      |         | $      | -                 |   | $            | -      |   | $ | - |   | $ | 7 |   |
| Prices                Provided by Other External  Sources                - OTC Broker Quotes (a)                      |   |                  | (2     | )            |   | (4           | )      |         | -      |         |   | -                 |   |         | -      |   |   | - |   |   | (6 | ) |
| Prices                Based on Models and Other Valuation                Methods (b)                                       |   |                  | -      |         |   | -            |   |         | (2     | )            |   | (4                | )      |         | (3     | ) |   | 1 |   |   | (8 | ) |
| **Total**                                                                                                                       |   | $                     | (2     | )            | $      | 3            |   | $            | (2     | )            | $      | (4                | )      | $            | (3     | ) | $ | 1 |   | $ | (7 | ) |
|                                                                                                                            |   |                  |   |         |   |         |   |         |   |         |   |              |   |         |   |   |   |   |   |   |   |   |
| **Total:**                                                                                                                      |   |                  |   |         |   |         |   |         |   |         |   |              |   |         |   |   |   |   |   |   |   |   |
| Prices                Actively Quoted - Exchange Traded Contracts                                                          |   | $                     | -      |         | $      | (2           | )      | $            | 22     |         | $      | (1                | )      | $            | -      |   | $ | - |   | $ | 19 |   |
| Prices                Provided by Other External  Sources                - OTC Broker Quotes (a)                      |   |                  | (6     | )            |   | 115          |   |         | 29     |         |   | 23                |   |         | -      |   |   | - |   |   | 161 |   |
| Prices                Based on Models and Other Valuation                Methods (b)                                            |   |                  | (1     | )            |   | (15          | )      |         | 3      |         |   | 15                |   |         | 25     |   |   | 10 |   |   | 37 |   |
| **Total**                                                                                                                       |   | $                     | (7     | )            | $      | 98           |   | $            | 54     |         | $      | 37                |   | $            | 25     |   | $ | 10 |   | $ | 217 |   |

| (a)    | Prices                Provided by Other External Sources - OTC Broker Quotes reflects                information obtained from over-the-counter (OTC) brokers, industry                services, or multiple-party on-line platforms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)    | Prices                Based on Models and Other Valuation Methods is 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 September 30, 2006**

| **Commodity**              |   | **Transaction                Class**           |                                   | **Market/Region**                                                |   | **Tenor**                      |
|----------------------------|--------|------------------------------------------------|----------------------------------------|------------------------------------------------------------------|--------|--------------------------------|
|                       |   |                                           |                                   |                                                             |   | **(in                Months)** |
| Natural                Gas |   | Futures                                        |                                   | NYMEX                / Henry Hub                                 |   | 60                             |
|                       |   |                                           |                                   |                                                             |   |                           |
|                       |   | Physical                Forwards               |                                   | Gulf                Coast, Texas                                 |   | 18                             |
|                       |   |                                           |                                   |                                                             |   |                           |
|                       |   | Swaps                                          |                                   | Northeast,                Mid-Continent, Gulf  Coast, Texas |   | 18                             |
|                       |   |                                           |                                   |                                                             |   |                           |
|                       |   | Exchange                Option Volatility      |                                   | NYMEX                / Henry Hub                                 |   | 12                             |
|                       |   |                                           |                                   |                                                             |   |                           |
| Power                      |   | Futures                                        |                                   | AEP                East - PJM                                    |   | 36                             |
|                       |   |                                           |                                   |                                                             |   |                           |
|                       |   | Physical                Forwards               |                                   | AEP                East                                          |   | 39                             |
|                       |   |                                           |                                   |                                                             |   |                           |
|                       |   | Physical                Forwards               |                                   | AEP                West                                          |   | 39                             |
|                       |   |                                           |                                   |                                                             |   |                           |
|                       |   | Physical                Forwards               |                                   | West                Coast                                        |   | 39                             |
|                       |   |                                           |                                   |                                                             |   |                           |
|                       |   | Peak                Power Volatility (Options) | AEP                East - Cinergy, PJM |                                                             | 12     |
|                       |   |                                           |                                   |                                                             |   |                           |
| Emissions                  |   | Credits                                        |                                   | SO2,                NOx                                          |   | 27                             |
|                       |   |                                           |                                   |                                                             |   |                           |
| Coal                       |   | Physical                Forwards               |                                   | PRB,                NYMEX, CSX                                   |   | 27                             |

**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**

**Nine      Months Ended September 30, 2006**

**(in      millions)**

|                                                                                                                   |   |  **Power                and****Gas** |   |  **Interest****Rate** |   |  **Total** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|----------------------------|--------|-----------------|--------|
| **Beginning                Balance in AOCI, December 31, 2005**                                                        |   | $                                         | (6     | )                          | $      | (21             | )      | $ | (27 | ) |
| Changes                in Fair Value                                                                                   |   |                                      | 13     |                       |   | (3              | )      |   | 10 |   |
| Reclassifications                from AOCI to Net Income for Cash                Flow Hedges Settled                   |   |                                      | 7      |                       |   | 1               |   |   | 8 |   |
| **Ending                Balance in AOCI, September 30, 2006**                                                          |   | $                                         | 14     |                       | $      | (23             | )      | $ | (9 | ) |
|                                                                                                                   |   |                                      |   |                       |   |            |   |   |   |   |
| **After-Tax                Portion Expected to be Reclassified to Earnings During Next 12                Months** |   | $                                         | 15     |                       | $      | (2              | )      | $ | 13 |   |

**Credit      Risk**

| **Counterparty                Credit Quality**    |   | **Exposure****Before****Credit****Collateral** |   | **Credit****Collateral** |   | **Net****Exposure** |   | **Number****of****Counterparties****>10%** |   | **Net                Exposure****of****Counterparties****>10%** |   |
|---------------------------------------------------|--------|------------------------------------------------|--------|--------------------------|--------|---------------------|--------|-----------------------------------------------|--------|--------------------------------------------------------------------|--------|
| Investment                Grade                   |   | $                                              | 802    |                     | $      | 140                 |   | $                                             | 662    |                                                               |   | 1 |   | $ | 70 |   |
| Split                Rating                       |   |                                           | 4      |                     |   | 4                   |   |                                          | -      |                                                               |   | 1 |   |   | - |   |
| Noninvestment                Grade                |   |                                           | 15     |                     |   | 15                  |   |                                          | -      |                                                               |   | 2 |   |   | - |   |
| No                External Ratings:               |   |                                           |   |                     |   |                |   |                                          |   |                                                               |   |   |   |   |   |   |
| Internal                Investment Grade          |   |                                           | 33     |                     |   | -                   |   |                                          | 33     |                                                               |   | 3 |   |   | 21 |   |
| Internal                Noninvestment Grade       |   |                                           | 40     |                     |   | 22                  |   |                                          | 18     |                                                               |   | 3 |   |   | 17 |   |
| **Total                as of September 30, 2006** |   | $                                              | 894    |                     | $      | 181                 |   | $                                             | 713    |                                                               |   | 10 |   | $ | 108 |   |
|                                              |   |                                           |   |                     |   |                |   |                                          |   |                                                               |   |   |   |   |   |   |
| **As                of December 31, 2005**        |   | $                                              | 1,366  |                     | $      | 484                 |   | $                                             | 882    |                                                               |   | 10 |   | $ | 322 |   |

**Generation      Plant Hedging Information**

**Generation      Plant Hedging Information**

**Estimated      Next Three Years**

**As      of September 30, 2006**

|                                         | **Remainder****2006** |   | **2007** |   | **2008** |
|----------------------------------------------|-----------------------|--------|----------|--------|----------|
| Estimated                Plant Output Hedged | 91%                   |   | 88%      |   | 87%      |

**VaR      Associated with Risk Management Contracts**

***Commodity      Price Risk***

**VaR      Model**

| **Nine                Months Ended****September                30, 2006** |   |     |   |        | **Twelve                Months Ended****December                31, 2005** |
|---------------------------------------------------------------------------|--------|----------|--------|-------------|----------------------------------------------------------------------------|
| **(in                millions)**                                          |   |     |   |        | **(in                millions)**                                           |
| **End**                                                                   |   | **High** |   | **Average** |                                                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $2                                                                        |   | $10      |   | $3          |                                                                       | $1 |   |   |   |   | $3 |   | $5 |   | $3 |   | $1 |

***Interest      Rate Risk***

----

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

**CONDENSED      CONSOLIDATED STATEMENTS OF OPERATIONS**

**For      the Three and Nine Months Ended September 30, 2006 and      2005**

**(in      millions, except per-share amounts)**

**(Unaudited)**

|                                                                                                                          |   | **Three                Months Ended** |   | **Nine                Months Ended** |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                                                                                                          |   | **2006**                              |   | **2005**                             |   | **2006** |   | **2005** |   |
| **REVENUES**                                                                                                                  |   |                             |   |                            |   |   |   |   |   |
| Utility                Operations                                                                                             |   | $                                     | 3,485  |                                 | $      | 3,152 |   | $ | 9,282 |   | $ | 8,437 |   |
| Gas                Operations                                                                                                 |   |                                  | (47    | )                                    |   | 73 |   |   | (80 | ) |   | 449 |   |
| Other                                                                                                                         |   |                                  | 156    |                                 |   | 103 |   |   | 436 |   |   | 326 |   |
| **TOTAL**                                                                                                                     |   |                                  | 3,594  |                                 |   | 3,328 |   |   | 9,638 |   |   | 9,212 |   |
|                                                                                                                          |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                                                                                  |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Fuel                and Other Consumables Used for Electric Generation                                                        |   |                                  | 1,113  |                                 |   | 1,066 |   |   | 2,962 |   |   | 2,659 |   |
| Purchased                Energy for Resale                                                                                    |   |                                  | 267    |                                 |   | 181 |   |   | 670 |   |   | 494 |   |
| Purchased                Gas for Resale                                                                                       |   |                                  | 4      |                                 |   | 5 |   |   | 4 |   |   | 255 |   |
| Maintenance                and Other Operation                                                                                |   |                                  | 904    |                                 |   | 873 |   |   | 2,634 |   |   | 2,588 |   |
| Gain/Loss                on Disposition of Assets, Net                                                                        |   |                                  | -      |                                 |   | (1 | ) |   | (68 | ) |   | (116 | ) |
| Asset                Impairments and Other Related Charges                                                                    |   |                                  | 209    |                                 |   | 39 |   |   | 209 |   |   | 39 |   |
| Depreciation                and Amortization                                                                                  |   |                                  | 376    |                                 |   | 336 |   |   | 1,065 |   |   | 988 |   |
| Taxes                Other Than Income Taxes                                                                                  |   |                                  | 186    |                                 |   | 205 |   |   | 567 |   |   | 566 |   |
| **TOTAL**                                                                                                                     |   |                                  | 3,059  |                                 |   | 2,704 |   |   | 8,043 |   |   | 7,473 |   |
|                                                                                                                          |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **OPERATING                INCOME**                                                                                           |   |                                  | 535    |                                 |   | 624 |   |   | 1,595 |   |   | 1,739 |   |
|                                                                                                                          |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Interest                and Investment Income                                                                                 |   |                                  | 22     |                                 |   | 18 |   |   | 41 |   |   | 43 |   |
| Carrying                Costs Income                                                                                          |   |                                  | 3      |                                 |   | 27 |   |   | 66 |   |   | 83 |   |
| Allowance                For Equity Funds Used During Construction                                                            |   |                                  | 12     |                                 |   | 5 |   |   | 25 |   |   | 17 |   |
| Gain                on Disposition of Equity Investments, Net                                                                 |   |                                  | -      |                                 |   | 56 |   |   | 3 |   |   | 56 |   |
| Investment                Value Losses                                                                                        |   |                                  | -      |                                 |   | (7 | ) |   | - |   |   | (7 | ) |
|                                                                                                                          |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **INTEREST                AND OTHER CHARGES**                                                                                 |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Interest                Expense                                                                                               |   |                                  | 174    |                                 |   | 163 |   |   | 518 |   |   | 524 |   |
| Preferred                Stock Dividend Requirements of Subsidiaries                                                          |   |                                  | 1      |                                 |   | 1 |   |   | 2 |   |   | 6 |   |
| **TOTAL**                                                                                                                     |   |                                  | 175    |                                 |   | 164 |   |   | 520 |   |   | 530 |   |
|                                                                                                                          |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **INCOME                BEFORE INCOME TAX EXPENSE, MINORITY   INTEREST EXPENSE AND                EQUITY EARNINGS** |   |                                  | 397    |                                 |   | 559 |   |   | 1,210 |   |   | 1,401 |   |
|                                                                                                                          |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Income                Tax Expense                                                                                             |   |                                  | 133    |                                 |   | 196 |   |   | 394 |   |   | 471 |   |
| Minority                Interest Expense                                                                                      |   |                                  | 1      |                                 |   | 1 |   |   | 2 |   |   | 3 |   |
| Equity                Earnings of Unconsolidated Subsidiaries                                                                 |   |                                  | 2      |                                 |   | 3 |   |   | 1 |   |   | 10 |   |
|                                                                                                                          |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **INCOME                BEFORE DISCONTINUED OPERATIONS**                                                                      |   |                                  | 265    |                                 |   | 365 |   |   | 815 |   |   | 937 |   |
|                                                                                                                          |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **DISCONTINUED                OPERATIONS, Net of Tax**                                                                        |   |                                  | -      |                                 |   | 22 |   |   | 6 |   |   | 26 |   |
|                                                                                                                          |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **NET                INCOME**                                                                                                 |   | $                                     | 265    |                                 | $      | 387 |   | $ | 821 |   | $ | 963 |   |
|                                                                                                                          |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **WEIGHTED                AVERAGE NUMBER OF BASIC SHARES                  OUTSTANDING**                             |   |                                  | 394    |                                 |   | 389 |   |   | 394 |   |   | 389 |   |
|                                                                                                                          |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **BASIC                EARNINGS PER SHARE**                                                                                   |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Income                Before Discontinued Operations                                                                          |   | $                                     | 0.67   |                                 | $      | 0.94 |   | $ | 2.07 |   | $ | 2.41 |   |
| Discontinued                Operations, Net of Tax                                                                            |   |                                  | -      |                                 |   | 0.05 |   |   | 0.01 |   |   | 0.07 |   |
| **TOTAL                BASIC EARNINGS PER SHARE**                                                                             |   | $                                     | 0.67   |                                 | $      | 0.99 |   | $ | 2.08 |   | $ | 2.48 |   |
|                                                                                                                          |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **WEIGHTED                AVERAGE NUMBER OF DILUTED SHARES                  OUTSTANDING**                           |   |                                  | 396    |                                 |   | 390 |   |   | 396 |   |   | 390 |   |
|                                                                                                                          |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **DILUTED                EARNINGS PER SHARE**                                                                                 |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Income                Before Discontinued Operations                                                                          |   | $                                     | 0.67   |                                 | $      | 0.94 |   | $ | 2.06 |   | $ | 2.40 |   |
| Discontinued                Operations, Net of Tax                                                                            |   |                                  | -      |                                 |   | 0.05 |   |   | 0.01 |   |   | 0.07 |   |
| **TOTAL                DILUTED EARNINGS PER SHARE**                                                                           |   | $                                     | 0.67   |                                 | $      | 0.99 |   | $ | 2.07 |   | $ | 2.47 |   |
|                                                                                                                          |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **CASH                DIVIDENDS PAID PER SHARE**                                                                              |   | $                                     | 0.37   |                                 | $      | 0.35 |   | $ | 1.11 |   | $ | 1.05 |   |
|                                                                                                                          |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |

*See      Condensed Notes to Condensed Consolidated Financial      Statements.*

----

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

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**September      30, 2006 and December 31, 2005**

**(in      millions)**

**(Unaudited)**

|                                                           |   | **2006**     |   | **2005**     |   |
|----------------------------------------------------------------|--------|--------------|--------|--------------|--------|
| **CURRENT                ASSETS**                              |   |    |   |    |   |
| Cash                and Cash Equivalents                       |   | $            | 259    |         | $      | 401 |   |
| Other                Temporary Cash Investments                |   |         | 198    |         |   | 127 |   |
| Accounts                Receivable:                            |   |         |   |         |   |   |   |
| Customers                                                      |   |         | 751    |         |   | 826 |   |
| Accrued                Unbilled Revenues                       |   |         | 314    |         |   | 374 |   |
| Miscellaneous                                                  |   |         | 52     |         |   | 51 |   |
| Allowance                for Uncollectible Accounts            |   |         | (34    | )            |   | (31 | ) |
|                  Total Receivables                        |   |         | 1,083  |         |   | 1,220 |   |
| Fuel,                Materials and Supplies                    |   |         | 810    |         |   | 726 |   |
| Risk                Management Assets                          |   |         | 569    |         |   | 926 |   |
| Margin                Deposits                                 |   |         | 90     |         |   | 221 |   |
| Regulatory                Asset for Under-Recovered Fuel Costs |   |         | 66     |         |   | 197 |   |
| Other                                                          |   |         | 100    |         |   | 127 |   |
| **TOTAL**                                                      |   |         | 3,175  |         |   | 3,945 |   |
|                                                           |   |         |   |         |   |   |   |
| **PROPERTY,                PLANT AND EQUIPMENT**               |   |         |   |         |   |   |   |
| Electric:                                                      |   |         |   |         |   |   |   |
| Production                                                     |   |         | 16,712 |         |   | 16,653 |   |
| Transmission                                                   |   |         | 6,952  |         |   | 6,433 |   |
| Distribution                                                   |   |         | 11,179 |         |   | 10,702 |   |
| Other                (including coal mining and nuclear fuel)  |   |         | 3,277  |         |   | 3,116 |   |
| Construction                Work in Progress                   |   |         | 2,848  |         |   | 2,217 |   |
| **Total**                                                      |   |         | 40,968 |         |   | 39,121 |   |
| Accumulated                Depreciation and Amortization       |   |         | 15,146 |         |   | 14,837 |   |
| **TOTAL                - NET**                                 |   |         | 25,822 |         |   | 24,284 |   |
|                                                           |   |         |   |         |   |   |   |
| **OTHER                NONCURRENT ASSETS**                     |   |         |   |         |   |   |   |
| Regulatory                Assets                               |   |         | 3,196  |         |   | 3,262 |   |
| Securitized                Transition Assets and Other         |   |         | 558    |         |   | 593 |   |
| Spent                Nuclear Fuel and Decommissioning Trusts   |   |         | 1,191  |         |   | 1,134 |   |
| Investments                in Power and Distribution Projects  |   |         | 45     |         |   | 97 |   |
| Goodwill                                                       |   |         | 76     |         |   | 76 |   |
| Long-term                Risk Management Assets                |   |         | 471    |         |   | 886 |   |
| Employee                Benefits and Pension Assets            |   |         | 1,059  |         |   | 1,105 |   |
| Other                                                          |   |         | 682    |         |   | 746 |   |
| **TOTAL**                                                      |   |         | 7,278  |         |   | 7,899 |   |
|                                                           |   |         |   |         |   |   |   |
| **Assets                Held for Sale**                        |   |         | 110    |         |   | 44 |   |
|                                                           |   |         |   |         |   |   |   |
| **TOTAL                ASSETS**                                |   | $            | 36,385 |         | $      | 36,172 |   |

*See      Condensed Notes to Condensed Consolidated Financial      Statements.*

----

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

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**LIABILITIES      AND SHAREHOLDERS’ EQUITY**

**September      30, 2006 and December 31, 2005**

**(Unaudited)**

|                                                                                                                            |   | **2006**                         |        | **2005** |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|-------------|----------|--------|
| **CURRENT                LIABILITIES**                                                                                          |   | **(in                millions)** |        |
| Accounts                Payable                                                                                                 | $      | 1,180                            |        | $        | 1,144  |   |
| Short-term                Debt                                                                                                  |   | 23                               |        |     | 10     |   |
| Long-term                Debt Due Within One Year                                                                               |   | 1,789                            |        |     | 1,153  |   |
| Risk                Management Liabilities                                                                                      |   | 496                              |        |     | 906    |   |
| Accrued                Taxes                                                                                                    |   | 828                              |        |     | 651    |   |
| Accrued                Interest                                                                                                 |   | 192                              |        |     | 183    |   |
| Customer                Deposits                                                                                                |   | 336                              |        |     | 571    |   |
| Other                                                                                                                           |   | 752                              |        |     | 842    |   |
| **TOTAL**                                                                                                                       |   | 5,596                            |        |     | 5,460  |   |
|                                                                                                                            |   |                             |        |     |   |   |
| **NONCURRENT                LIABILITIES**                                                                                       |   |                             |        |     |   |   |
| Long-term                Debt                                                                                                   |   | 10,974                           |        |     | 11,073 |   |
| Long-term                Risk Management Liabilities                                                                            |   | 324                              |        |     | 723    |   |
| Deferred                Income Taxes                                                                                            |   | 4,673                            |        |     | 4,810  |   |
| Regulatory                Liabilities and Deferred Investment Tax Credits                                                       |   | 2,955                            |        |     | 2,747  |   |
| Asset                Retirement Obligations                                                                                     |   | 975                              |        |     | 936    |   |
| Employee                Benefits and Pension Obligations                                                                        |   | 349                              |        |     | 355    |   |
| Deferred                Gain on Sale and Leaseback - Rockport Plant Unit 2                                                      |   | 150                              |        |     | 157    |   |
| Deferred                Credits and Other                                                                                       |   | 803                              |        |     | 762    |   |
| **TOTAL**                                                                                                                       |   | 21,203                           |        |     | 21,563 |   |
|                                                                                                                            |   |                             |        |     |   |   |
| **TOTAL                LIABILITIES**                                                                                            |   | 26,799                           |        |     | 27,023 |   |
|                                                                                                                            |   |                             |        |     |   |   |
| Cumulative                Preferred Stock Not Subject to Mandatory Redemption                                                   |   | 61                               |        |     | 61     |   |
|                                                                                                                            |   |                             |        |     |   |   |
| Commitments                and Contingencies (Note 5)                                                                           |   |                             |        |     |   |   |
|                                                                                                                            |   |                             |        |     |   |   |
| **COMMON                SHAREHOLDERS’ EQUITY**                                                                            |   |                             |        |     |   |   |
| Common                Stock Par Value $6.50:                                                                                    |   |                             |        |     |   |   |
|                                                                                                                            |   |                             | 2006        |     |   | 2005 |   |   |   |   |   |   |   |
| Shares                Authorized                                                                                                |   |                             | 600,000,000 |     |   | 600,000,000 |   |   |   |   |   |   |   |
| Shares                Issued                                                                                                    |   |                             | 415,979,691 |     |   | 415,218,830 |   |   |   |   |   |   |   |
| (21,499,992                shares were held in treasury at September 30, 2006 and** **December                31**,**2005) |   | 2,704                            |        |     | 2,699  |   |
| Paid-in                Capital                                                                                                  |   | 4,153                            |        |     | 4,131  |   |
| Retained                Earnings                                                                                                |   | 2,669                            |        |     | 2,285  |   |
| Accumulated                Other Comprehensive Income (Loss)                                                                    |   | (1                               | )           |     | (27    | ) |
| **TOTAL**                                                                                                                       |   | 9,525                            |        |     | 9,088  |   |
|                                                                                                                            |   |                             |        |     |   |   |
| **TOTAL                LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                             | $      | 36,385                           |        | $        | 36,172 |   |

*        See Condensed Notes to Condensed Consolidated Financial      Statements.*

----

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

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For      the Nine Months Ended September 30, 2006 and 2005**

**(in      millions)**

**(Unaudited)**

|                                                                                               |   | **2006**     |    | **2005**     |   |
|----------------------------------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **OPERATING                ACTIVITIES**                                                            |   |    |    |    |   |
| **Net                Income**                                                                      |   | $            | 821     |         | $      | 963 |   |
| Less:                Discontinued Operations, Net of Tax                                           |   |         | (6      | )            |   | (26 | ) |
| **Income                Before Discontinued Operations**                                           |   |         | 815     |         |   | 937 |   |
| **Adjustments                for Noncash Items:**                                                  |   |         |    |         |   |   |   |
| Depreciation                and Amortization                                                       |   |         | 1,065   |         |   | 988 |   |
| Accretion                of Asset Retirement Obligations                                           |   |         | 47      |         |   | 50 |   |
| Deferred                Income Taxes                                                               |   |         | (88     | )            |   | (33 | ) |
| Deferred                Investment Tax Credits                                                     |   |         | (20     | )            |   | (23 | ) |
| Asset                Impairments, Investment Value Losses and Other Related                Charges |   |         | 209     |         |   | 46 |   |
| Carrying                Costs Income                                                               |   |         | (66     | )            |   | (83 | ) |
| Mark-to-Market                of Risk Management Contracts                                         |   |         | (21     | )            |   | - |   |
| Amortization                of Nuclear Fuel                                                        |   |         | 38      |         |   | 42 |   |
| Deferred                Property Taxes                                                             |   |         | 105     |         |   | 94 |   |
| Pension Contributions to              Qualified Plan Trusts                                        |   |         | -  |         |   | (306 | ) |
| Fuel                Over/Under-Recovery, Net                                                       |   |         | 158     |         |   | (183 | ) |
| Gain                on Sales of Assets and Equity Investments, Net                                 |   |         | (71     | )            |   | (172 | ) |
| Change                in Other Noncurrent Assets                                                   |   |         | 72      |         |   | (84 | ) |
| Change                in Other Noncurrent Liabilities                                              |   |         | (21     | )            |   | 34 |   |
| **Changes                in Certain Components of Working Capital:**                               |   |         |    |         |   |   |   |
| Accounts                Receivable, Net                                                            |   |         | 139     |         |   | 5 |   |
| Fuel,                Materials and Supplies                                                        |   |         | (84     | )            |   | 54 |   |
| Accounts                Payable                                                                    |   |         | (49     | )            |   | 173 |   |
| Accrued                Taxes                                                                       |   |         | 176     |         |   | 118 |   |
| Customer                Deposits                                                                   |   |         | (235    | )            |   | 311 |   |
| Other                Current Assets                                                                |   |         | 142     |         |   | (246 | ) |
| Other                Current Liabilities                                                           |   |         | (98     | )            |   | (23 | ) |
| **Net                Cash Flows From Operating Activities**                                        |   |         | 2,213   |         |   | 1,699 |   |
|                                                                                               |   |         |    |         |   |   |   |
| **INVESTING                ACTIVITIES**                                                            |   |         |    |         |   |   |   |
| Construction                Expenditures                                                           |   |         | (2,445  | )            |   | (1,610 | ) |
| Acquisition                of Waterford Plant                                                      |   |         | -       |         |   | (218 | ) |
| Change                in Other Temporary Cash Investments, Net                                     |   |         | 20      |         |   | 99 |   |
| Purchases                of Investment Securities                                                  |   |         | (8,153  | )            |   | (4,319 | ) |
| Sales                of Investment Securities                                                      |   |         | 8,056   |         |   | 4,378 |   |
| Proceeds                from Sales of Assets                                                       |   |         | 120     |         |   | 1,599 |   |
| Other                                                                                              |   |         | (72     | )            |   | 11 |   |
| **Net                Cash Flows Used For Investing Activities**                                    |   |         | (2,474  | )            |   | (60 | ) |
|                                                                                               |   |         |    |         |   |   |   |
| **FINANCING                ACTIVITIES**                                                            |   |         |    |         |   |   |   |
| Issuance                of Common Stock                                                            |   |         | 24      |         |   | 393 |   |
| Repurchase                of Common Stock                                                          |   |         | -       |         |   | (427 | ) |
| Change                in Short-term Debt, Net                                                      |   |         | 11      |         |   | (8 | ) |
| Issuance                of Long-term Debt                                                          |   |         | 1,229   |         |   | 2,045 |   |
| Retirement                of Long-term Debt                                                        |   |         | (711    | )            |   | (2,599 | ) |
| Dividends                Paid on Common Stock                                                      |   |         | (437    | )            |   | (408 | ) |
| Other                                                                                              |   |         | 3       |         |   | (106 | ) |
| **Net                Cash Flows From (Used For) Financing Activities**                             |   |         | 119     |         |   | (1,110 | ) |
|                                                                                               |   |         |    |         |   |   |   |
| **Net                Increase (Decrease) in Cash and Cash Equivalents**                            |   |         | (142    | )            |   | 529 |   |
| **Cash                and Cash Equivalents at Beginning of Period**                                |   |         | 401     |         |   | 320 |   |
| **Cash                and Cash Equivalents at End of Period**                                      |   | $            | 259     |         | $      | 849 |   |
|                                                                                               |   |         |    |         |   |   |   |
| **SUPPLEMENTARY                INFORMATION**                                                       |   |         |    |         |   |   |   |
| Cash                Paid for Interest, Net of Capitalized Amounts                                  |   | $            | 462     |         | $      | 492 |   |
| Net                Cash Paid for Income Taxes                                                      |   |         | 206     |         |   | 277 |   |
| Noncash                Acquisitions Under Capital Leases                                           |   |         | 66      |         |   | 42 |   |
| Construction                Expenditures Included in Accounts Payable at September 30,             |   |         | 334     |         |   | 182 |   |
| Disposition                of Liabilities Related to Acquisitions/Divestitures, Net                |   |         | -       |         |   | 20 |   |

*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 Nine Months Ended September 30, 2006 and 2005**

**(in      millions)**

**(Unaudited)**

|                                                                                                        |   | **Common                Stock** |   |       |   |                               |   | **Accumulated**          |   |                                                 |   |
|-------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|------------|--------|------------------------------------|--------|--------------------------|--------|------------------------------------------------------|--------|
|                                                                                                        |   | **Shares**                      |   | **Amount** |   | **Paid-in                Capital** |   | **Retained****Earnings** |   | **Other                Comprehensive Income (Loss)** |   | **Total** |   |
| **DECEMBER                31, 2004**                                                                        |   |                            | 405    |       | $      | 2,632                              |   | $                        | 4,203  |                                                 | $      | 2,024 |   | $ | (344 | ) | $ | 8,515 |   |
| Issuance                of Common Stock                                                                     |   |                            | 10     |       |   | 65                                 |   |                     | 328    |                                                 |   |   |   |   |   |   |   | 393 |   |
| Common                Stock Dividends                                                                       |   |                            |   |       |   |                               |   |                     |   |                                                 |   | (408 | ) |   |   |   |   | (408 | ) |
| Repurchase                of Common Stock                                                                   |   |                            |   |       |   |                               |   |                     | (427   | )                                                    |   |   |   |   |   |   |   | (427 | ) |
| Other                                                                                                       |   |                            |   |       |   |                               |   |                     | 17     |                                                 |   |   |   |   |   |   |   | 17 |   |
| **TOTAL**                                                                                                   |   |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   | 8,090 |   |
|                                                                                                        |   |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   |   |   |
| **COMPREHENSIVE INCOME**                                                                               |   |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   |   |   |
| **Other Comprehensive                Income (Loss),   Net of Tax:**                |   |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   |   |   |
| Foreign                Currency Translation Adjustments,                    Net of Tax of $0 |   |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   | (6 | ) |   | (6 | ) |
| Cash                Flow Hedges, Net of Tax of $36                                                          |   |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   | (67 | ) |   | (67 | ) |
| Minimum                Pension Liability, Net of Tax of $0                                                  |   |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   | 4 |   |   | 4 |   |
| Securities                Available for Sale, Net of Tax of $0                                              |   |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   | 1 |   |   | 1 |   |
| **NET                INCOME**                                                                               |   |                            |   |       |   |                               |   |                     |   |                                                 |   | 963 |   |   |   |   |   | 963 |   |
| **TOTAL COMPREHENSIVE INCOME**                                                                    |   |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   | 895 |   |
| **SEPTEMBER                30, 2005**                                                                       |   |                            | 415    |       | $      | 2,697                              |   | $                        | 4,121  |                                                 | $      | 2,579 |   | $ | (412 | ) | $ | 8,985 |   |
|                                                                                                        |   |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   |   |   |
| **DECEMBER                31, 2005**                                                                        |   |                            | 415    |       | $      | 2,699                              |   | $                        | 4,131  |                                                 | $      | 2,285 |   | $ | (27 | ) | $ | 9,088 |   |
| Issuance                of Common Stock                                                                     |   |                            | 1      |       |   | 5                                  |   |                     | 19     |                                                 |   |   |   |   |   |   |   | 24 |   |
| Common                Stock Dividends                                                                       |   |                            |   |       |   |                               |   |                     |   |                                                 |   | (437 | ) |   |   |   |   | (437 | ) |
| Other                                                                                                       |   |                            |   |       |   |                               |   |                     | 3      |                                                 |   |   |   |   |   |   |   | 3 |   |
| **TOTAL**                                                                                                   |   |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   | 8,678 |   |
|                                                                                                        |   |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   |   |   |
| **COMPREHENSIVE INCOME**                                                                               |   |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   |   |   |
| **Other Comprehensive Income, Net of Tax:**                                        |   |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $10                                                          |   |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   | 18 |   |   | 18 |   |
| Securities                Available for Sale, Net of Tax of $4                                              |   |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   | 8 |   |   | 8 |   |
| **NET                INCOME**                                                                               |   |                            |   |       |   |                               |   |                     |   |                                                 |   | 821 |   |   |   |   |   | 821 |   |
| **TOTAL COMPREHENSIVE INCOME**                                                                    |   |                            |   |       |   |                               |   |                     |   |                                                 |   |   |   |   |   |   |   | 847 |   |
| **SEPTEMBER                30, 2006**                                                                       |   |                            | 416    |       | $      | 2,704                              |   | $                        | 4,153  |                                                 | $      | 2,669 |   | $ | (1 | ) | $ | 9,525 |   |

*        See Condensed Notes to Condensed Consolidated Financial      Statements.*

----

**AMERICAN      ELECTRIC POWER, 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. |   | Customer                Choice and Industry Restructuring                                                                     |
|  5. |   | Commitments                and Contingencies                                                                                  |
|  6. |   | Guarantees                                                                                                                    |
|  7. |   | Company-wide                Staffing and Budget Review                                                                        |
| 8.       |   | Acquisitions,                Dispositions, Discontinued Operations, Assets Held for Sale and Asset                Impairments |
| 9.       |   | Benefit                Plans                                                                                                  |
| 10.      |   | Stock-Based                Compensation                                                                                       |
| 11.      |   | Income                Taxes                                                                                                   |
| 12.      |   | Business                Segments                                                                                              |
| 13.      |   | 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)***

|                                                     |   | **September                30,** |   | **December                31,** |   |
|----------------------------------------------------------|--------|----------------------------------|--------|---------------------------------|--------|
|                                                     |   | **2006**                         |   | **2005**                        |   |
| **Components**                                           |   | **(in                millions)** |   |
| Securities                Available for Sale, Net of Tax |   | $                                | 27     |                            | $      | 19 |   |
| Cash                Flow Hedges, Net of Tax              |   |                             | (9     | )                               |   | (27 | ) |
| Minimum                Pension Liability, Net of Tax     |   |                             | (19    | )                               |   | (19 | ) |
| **Total**                                                |   | $                                | (1     | )                               | $      | (27 | ) |

***Stock-Based      Compensation Plans***
* *

*Pro      Forma Information Under SFAS 123, “Accounting for Stock-Based Compensation,” for      Periods Presented Prior to January 1, 2006*

* *

|                                                                                                                                                                                  |   | **Three                Months****Ended**                |   | **Nine                Months****Ended** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                                                                                                                                  |   | **(in                millions, except per share data)** |   |
|                                                                                                                                                                                  |   |                                               |   |                               |   |
| Net                Income, As Reported                                                                                                                                                |   | $                                                       | 387    |                                    | $      | 963 |   |
| Add:                Stock-based Compensation Expense Included in Reported Net Income, Net                of Related Tax Effects                                                  |   |                                                    | 4      |                                    |   | 10 |   |
| Deduct:                Stock-based Compensation Expense Determined Under Fair Value Based                Method for All Awards,                  Net of Related Tax Effects |   |                                                    | (5     | )                                       |   | (11 | ) |
| Pro                Forma Net Income                                                                                                                                                   |   | $                                                       | 386    |                                    | $      | 962 |   |
|                                                                                                                                                                                  |   |                                                    |   |                                    |   |   |   |
| Earnings                Per Share:                                                                                                                                                    |   |                                                    |   |                                    |   |   |   |
| Basic                - As Reported                                                                                                                                                    |   | $                                                       | 0.99   |                                    | $      | 2.48 |   |
| Basic                - Pro Forma (a)                                                                                                                                                  |   | $                                                       | 0.99   |                                    | $      | 2.48 |   |
|                                                                                                                                                                                  |   |                                                    |   |                                    |   |   |   |
| Diluted                - As Reported                                                                                                                                                  |   | $                                                       | 0.99   |                                    | $      | 2.47 |   |
| Diluted                - Pro Forma (a)                                                                                                                                                |   | $                                                       | 0.99   |                                    | $      | 2.47 |   |

| (a) | The                pro forma amounts are not representative of the effects on reported                net                income for future years. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                                                        |   | **Three                Months Ended September 30,**     |   |
|-------------------------------------------------------------|--------|---------------------------------------------------------|--------|
|                                                        |   | **2006**                                                |   | **2005** |   |
|                                                        |   | **(in                millions, except per share data)** |   |
|                                                        |   |                                               |   | **$/share** |   |    |   | **$/share** |   |
| Earnings                applicable to common stock          |   | $                                                       | 265    |   |   |   |   | $ | 387 |   |   |   |   |
|                                                        |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Average                number of basic shares outstanding   |   |                                                    | 393.9  |   | $ | 0.67 |   |   | 388.9 |   | $ | 0.99 |   |
| Average                dilutive effect of:                  |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Performance                Share Units                      |   |                                                    | 2.0    |   |   | - |   |   | 1.0 |   |   | - |   |
| Stock                Options                                |   |                                                    | 0.2    |   |   | - |   |   | 0.5 |   |   | - |   |
| Restricted                Stock Units                       |   |                                                    | 0.1    |   |   | - |   |   | 0.1 |   |   | - |   |
| Restricted                Shares                            |   |                                                    | 0.1    |   |   | - |   |   | - |   |   | - |   |
| Average                number of diluted shares outstanding |   |                                                    | 396.3  |   | $ | 0.67 |   |   | 390.5 |   | $ | 0.99 |   |

|                                                        |   | **Nine                Months Ended September 30,**      |   |
|-------------------------------------------------------------|--------|---------------------------------------------------------|--------|
|                                                        |   | **2006**                                                |   | **2005** |   |
|                                                        |   | **(in                millions, except per share data)** |   |
|                                                        |   |                                               |   | **$/share** |   |    |   | **$/share** |   |
| Earnings                applicable to common stock          |   | $                                                       | 821    |   |   |   |   | $ | 963 |   |   |   |   |
|                                                        |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Average                number of basic shares outstanding   |   |                                                    | 393.8  |   | $ | 2.08 |   |   | 388.7 |   | $ | 2.48 |   |
| Average                dilutive effect of:                  |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |
| Performance                Share Units                      |   |                                                    | 1.6    |   |   | (0.01 | ) |   | 0.9 |   |   | (0.01 | ) |
| Stock                Options                                |   |                                                    | 0.2    |   |   | - |   |   | 0.3 |   |   | - |   |
| Restricted                Stock Units                       |   |                                                    | 0.1    |   |   | - |   |   | 0.1 |   |   | - |   |
| Restricted                Shares                            |   |                                                    | 0.1    |   |   | - |   |   | - |   |   | - |   |
| Average                number of diluted shares outstanding |   |                                                    | 395.8  |   | $ | 2.07 |   |   | 390.0 |   | $ | 2.47 |   |

***Related      Party Transactions***

|                                                                                                                                                                                               |   | **Three                Months Ended****September                30,** |   | **Nine                Months Ended****September                30,** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|                                                                                                                                                                                               |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
|                                                                                                                                                                                               |   | **(in                millions)**                                      |   |
| AEP                Consolidated Purchased Energy:                                                                                                                                                  |   |                                                                  |   |
|   Ohio                Valley Electric Corporation (43.47% Owned)                                                                                                                         |   | $                                                                     | 54     |                                                                 | $      | 49 |   | $ | 167 |   | $ | 140 |   |
|   Sweeny                Cogeneration Limited Partnership (50% Owned)                                                                                                                     |   |                                                                  | 30     |                                                                 |   | 38 |   |   | 92 |   |   | 98 |   |
| AEP                Consolidated Other Revenues - Barging and Other   Transportation                Services - Ohio Valley Electric Corporation   (43.47%                Owned) |   |                                                                  | 8      |                                                                 |   | 6 |   |   | 23 |   |   | 14 |   |

***Reclassifications***

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

***SFAS      123 (revised 2004) “Share-Based Payment” (SFAS 123R)***

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

***SFAS      158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement      Plans”***

***EITF      Issue 06-3 “How Taxes Collected from Customers and Remitted to Governmental      Authorities Should Be Presented in the Income Statement (That Is, Gross versus      Net Presentation)” (EITF 06-3)***

***FASB      Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN      48)***

***SAB      No. 108 “Considering the Effects of Prior Year Misstatements When Quantifying      Misstatements in the Current Year Financial Statements” (SAB      108)***

***Future      Accounting Changes***

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

***APCo      Virginia Environmental and Reliability Costs***

***APCo      Virginia Base Rate Case***

***APCo      and WPCo West Virginia Rate Case***

| · | A                $56 million increase in Expanded Net Energy Cost (ENEC) for fuel,                purchased power expenses, off system sales credits and other energy                related costs;                                                                                                              |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | A                $23 million special construction surcharge providing recovery of                the costs                of scrubbers and the new Wyoming-Jacksons Ferry 765 kV line to                date;                                                                                                    |
| · | An                $18 million general base rate reduction resulting predominantly from                a                reduction in the return on equity to 10.5% and a $9 million reduction                in                depreciation expense which affects cash flows but not earnings;                and |
| · | A                $17 million credit to refund a portion of deferred prior over-recoveries                of ENEC of $51 million, recorded in regulatory liabilities on the                Condensed Consolidated Balance Sheets, which will impact cash flows                but                not earnings.    |

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

***KPCo      Rate Filing***

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

***PSO      Rate Filing***

***SWEPCo      Louisiana Fuel Inquiry***

***SWEPCo      PUCT Staff Review of Earnings***

***SWEPCo      Louisiana Compliance Filing***

***TCC      and TNC Rate Filings***

***ERCOT      Price-to-Beat (PTB) Fuel Factor Appeal***

***RTO      Formation/Integration Costs***

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

*SECA      Revenue Subject to Refund *

|                                                    |   | **(in                millions)** |   |
|---------------------------------------------------------|--------|----------------------------------|--------|
| Three                Months Ended September 30, 2006    |   | $                                | -      |   |
| Three                Months Ended September 30, 2005    |   |                             | 43     |   |
| Nine                Months Ended September 30, 2006 (a) |   |                             | 43     |   |
| Nine                Months Ended September 30, 2005     |   |                             | 120    |   |

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

*AEP      East Transmission Revenue Requirement and Rates *

*The      Elimination of T&O and SECA Rates and 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 than the AEP/AP proposal.           |
| · | In                    a 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 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 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 the FERC-approved OATT which 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 yet filed to seek recovery of the lost                transmission revenues.                                                                                                                                            |

***Calpine      Oneta Power, L.P.’s Request at the FERC for Reactive Power Compensation From      SPP***

***Allocation      Agreement between AEP East companies and AEP West companies and CSW Operating      Agreement***

**              4.**
**CUSTOMER      CHOICE AND INDUSTRY RESTRUCTURING**

**TEXAS      RESTRUCTURING **

***TCC      Securitization Proceeding***

|                                                                               |   | **(in                millions)** |   |
|------------------------------------------------------------------------------------|--------|----------------------------------|--------|
| Stranded                Generation Plant Costs                                     |   | $                                | 974    |   |
| Net                Generation-related Regulatory Asset                             |   |                             | 249    |   |
| Excess                Earnings                                                     |   |                             | (49    | ) |
| **Recorded                Net Stranded Generation Plant Costs**                    |   |                             | 1,174  |   |
| Recorded                Debt Carrying Costs on Net Stranded Generation Plant Costs |   |                             | 400    |   |
| **Recorded                Securitizable True-up Regulatory Asset**                 |   |                             | 1,574  |   |
| Unrecorded                But Recoverable Equity Carrying Costs                    |   |                             | 224    |   |
| Unrecorded                Estimated October 2006 Debt Carrying Costs               |   |                             | 3      |   |
| Unrecorded                Excess Earnings, Related Carrying Costs and Other        |   |                             | 53     |   |
| Unrecorded                Settlement Reduction                                     |   |                             | (77    | ) |
| Reduction                for the Present Value of ADITC and EDFIT Benefits         |   |                             | (61    | ) |
| **Approved                Securitizable Amount as of October 11, 2006**            |   |                             | 1,716  |   |
| Unrecorded                Securitization Bond Issuance Costs                       |   |                             | 24     |   |
| **Amount                Securitized on October 11, 2006**                          |   | $                                | 1,740  |   |

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

***CTC      Proceeding for Other True-up Items***

|                                                                         |   | **(in                millions)** |   |
|------------------------------------------------------------------------------|--------|----------------------------------|--------|
| Wholesale                Capacity Auction True-up                            |   | $                                | 61     |   |
| Carrying                Costs on Wholesale Capacity Auction True-up          |   |                             | 31     |   |
| Retail                Clawback including Carrying Costs                      |   |                             | (65    | ) |
| Deferred                Over-recovered Fuel Balance                          |   |                             | (184   | ) |
| Retrospective                ADFIT Benefit                                   |   |                             | (77    | ) |
| Other                                                                        |   |                             | (4     | ) |
| **Recorded                Net Regulatory Liabilities - Other True-up Items** |   |                             | (238   | ) |
| Unrecorded                Prospective ADFIT Benefit                          |   |                             | (240   | ) |
| **Gross                CTC Refund Proposed**                                 |   |                             | (478   | ) |
| FERC                Jurisdictional Fuel Refund Deferral                      |   |                             | 16     |   |
| ADITC                and EDFIT Benefit Refund Deferral                       |   |                             | 98     |   |
| **Net                CTC Refund Proposed, After Deferrals**                  |   |                             | (364   | ) |
| True-up                Proceeding Expense Surcharge                          |   |                             | 7      |   |
| **Net                CTC Refund Proposed, After Deferrals and Expenses**     |   | $                                | (357   | ) |

***Fuel      Balance Recoveries***

***Carrying      Costs on Net True-up Regulatory Assets Impacting Securitization and CTC      Proceedings***

***TNC      True-up Proceeding***

***Excess      Earnings***

***Summary***

***Texas      Restructuring - SPP***

**OHIO      RESTRUCTURING **

***Rate      Stabilization Plans***

***IGCC      Plant***

***Transmission      Rate Filing***

***Distribution      Service Reliability and Restoration Costs***

***Ormet***

***Customer      Choice Deferrals***

**              5.**
**COMMITMENTS      AND CONTINGENCIES**

**ENVIRONMENTAL**

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

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

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

***)      Public Nuisance Claims***

***Ontario      Litigation***

**OPERATIONAL**

***Power      Generation Facility***
* *
***and      TEM Litigation***

***Enron      Bankruptcy***

***Shareholder      Lawsuits***

***Natural      Gas Markets Lawsuits***

***Cornerstone      Lawsuit***

***FERC      Long-term Contracts***

**              6.**
**GUARANTEES**

**LETTERS      OF CREDIT**

**GUARANTEES      OF THIRD-PARTY OBLIGATIONS**

***SWEPCo***

**INDEMNIFICATIONS      AND OTHER GUARANTEES**

***Contracts***

***Master      Operating Lease***

***Railcar      Lease***

**              7.**
**COMPANY-WIDE      STAFFING AND BUDGET REVIEW**

|                                         |   | **Amount****(in                millions)** |   |
|----------------------------------------------|--------|--------------------------------------------|--------|
| Accrual                at December 31, 2005  |   | $                                          | 12     |   |
| Less:                Total Payments          |   |                                       | 8      |   |
| Less:                Accrual Adjustments     |   |                                       | 4      |   |
| Accrual                at September 30, 2006 |   | $                                          | -      |   |

**              8.**
**ACQUISITIONS,      DISPOSITIONS, DISCONTINUED OPERATIONS, ASSETS HELD FOR SALE AND ASSET      IMPAIRMENTS**

**ACQUISITIONS**

**2005**

***Waterford      Plant (Utility Operations segment)***

**DISPOSITIONS**

**2006**

***Compresion      Bajio S de R.L. de C.V. (Investments - Other segment)***

**2005**

***Houston      Pipe Line Company LP (HPL) (Investments - Gas Operations      segment)***

***Texas      REPs (Utility Operations segment)***

**DISCONTINUED      OPERATIONS**

| **Three                  Months ended September 30, 2006 and 2005:**     |   |
|--------------------------------------------------------------------------|--------|
|                                                                     |   | **SEEBOARD                  (a)** |   | **U.K.                  Generation** **(b)** |   | **Total** |   |
| 2006                  Revenue                                            |   | $ | - |   | $ | - |   | $ | - |   |
| 2006                  Pretax Income                                      |   |   | - |   |   | - |   |   | - |   |
| 2006                  Earnings, Net of Tax                          |   |   | - |   |   | - |   |   | - |   |
|                                                                     |   |   |   |   |   |   |   |   |   |   |
| 2005                  Revenue                                            |   | $ | 13 |   | $ | - |   | $ | 13 |   |
| 2005                  Pretax Income                                      |   |   | 13 |   |   | - |   |   | 13 |   |
| 2005                  Earnings, Net of Tax                          |   |   | 20 |   |   | 2 |   |   | 22 |   |
|                                                                     |
| **Nine Months                  ended September 30, 2006 and 2005:** |
|                                                                     |   |  **SEEBOARD                (a)** |   | **U.K.****Generation****(c)** |   | **Total** |   |
| 2006                  Revenue                                            |   | $ | - |   | $ | - |   | $ | - |   |
| 2006                  Pretax Income                                      |   |   | - |   |   | 9 |   |   | 9 |   |
| 2006                  Earnings, Net of Tax                          |   |   | - |   |   | 6 |   |   | 6 |   |
|                                                                     |   |   |   |   |   |   |   |   |   |   |
| 2005                  Revenue (Expense)                                  |   | $ | 13 |   | $ | (8 | ) | $ | 5 |   |
| 2005                  Pretax Income (Loss)                               |   |   | 13 |   |   | (8 | ) |   | 5 |   |
| 2005                  Earnings (Loss), Net of Tax                   |   |   | 29 |   |   | (3 | ) |   | 26 |   |

| (a) | The                amounts relate to purchase price true-up adjustments and tax adjustments                from the sale of SEEBOARD.                                                                                                                                                                 |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | The                amount relates to a tax adjustment from the sale.                                                                                                                                                                                                                                  |
| (c) | The                2006 amounts relate to a release of accrued liabilities for the London                office lease and tax adjustments from the sale. Amounts in 2005 relate                to                purchase price true-up adjustments and tax adjustments from the                sale. |

**ASSETS      HELD FOR SALE AND ASSET IMPAIRMENTS**

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

***Power      Generation Facility (Investments - Other segment)***

***Conesville      Units 1 and 2 (Utility Operations segment)***

**Assets      Held for Sale at September 30, 2006 and December 31, 2005 are as      follows:**

| **September                  30, 2006**             |   | **Texas                  Plants**  |   | **Power                  Generation Facility** |   | **Total** |   |
|-----------------------------------------------------|--------|------------------------------------|--------|------------------------------------------------|--------|-----------|--------|
| **Assets:**                                         |   | **(in                  millions)** |   |
| Other                  Current Assets               |   | $                                  | 2      |                                           | $      | -         |   | $ | 2 |   |
| Property,                  Plant and Equipment, Net |   |                               | 44     |                                           |   | 64        |   |   | 108 |   |
| **Total                  Assets Held for Sale**     |   | $                                  | 46     |                                           | $      | 64        |   | $ | 110 |   |

| **December                31, 2005**              |   | **Texas                Plants**  |   |
|---------------------------------------------------|--------|----------------------------------|--------|
| **Assets:**                                       |   | **(in                millions)** |   |
| Other                Current Assets               |   | $                                | 1      |   |
| Property,                Plant and Equipment, Net |   |                             | 43     |   |
| **Total                Assets Held for Sale**     |   | $                                | 44     |   |

**         9.       BE**
**NEFIT      PLANS**

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

|                                                               |   | **Pension                Plans** |   | **Other                Postretirement****Benefit                Plans** |   |
|--------------------------------------------------------------------|--------|----------------------------------|--------|-------------------------------------------------------------------------|--------|
| **Three                Months Ended September 30, 2006 and 2005:** |   | **2006**                         |   | **2005**                                                                |   | **2006** |   | **2005** |   |
|                                                               |   | **(in                millions)** |   |
| Service                Cost                                        |   | $                                | 23     |                                                                    | $      | 23 |   | $ | 10 |   | $ | 10 |   |
| Interest                Cost                                       |   |                             | 57     |                                                                    |   | 57 |   |   | 26 |   |   | 26 |   |
| Expected                Return on Plan Assets                      |   |                             | (82    | )                                                                       |   | (77 | ) |   | (24 | ) |   | (23 | ) |
| Amortization                of Transition (Asset) Obligation       |   |                             | -      |                                                                    |   | (1 | ) |   | 7 |   |   | 6 |   |
| Amortization                of Net Actuarial Loss                  |   |                             | 20     |                                                                    |   | 13 |   |   | 5 |   |   | 5 |   |
| **Net                Periodic Benefit Cost**                       |   | $                                | 18     |                                                                    | $      | 15 |   | $ | 24 |   | $ | 24 |   |

|                                                              |   | **Pension                Plans** |   | **Other                Postretirement****Benefit                Plans** |   |
|-------------------------------------------------------------------|--------|----------------------------------|--------|-------------------------------------------------------------------------|--------|
| **Nine                Months Ended September 30, 2006 and 2005:** |   | **2006**                         |   | **2005**                                                                |   | **2006** |   | **2005** |   |
|                                                              |   | **(in                millions)** |   |
| Service                Cost                                       |   | $                                | 71     |                                                                    | $      | 69 |   | $ | 30 |   | $ | 31 |   |
| Interest                Cost                                      |   |                             | 171    |                                                                    |   | 169 |   |   | 76 |   |   | 79 |   |
| Expected                Return on Plan Assets                     |   |                             | (248   | )                                                                       |   | (232 | ) |   | (70 | ) |   | (68 | ) |
| Amortization                of Transition (Asset) Obligation      |   |                             | -      |                                                                    |   | (1 | ) |   | 21 |   |   | 20 |   |
| Amortization                of Net Actuarial Loss                 |   |                             | 59     |                                                                    |   | 40 |   |   | 15 |   |   | 19 |   |
| **Net                Periodic Benefit Cost**                      |   | $                                | 53     |                                                                    | $      | 45 |   | $ | 72 |   | $ | 81 |   |

**             10.**
**STOCK-BASED      COMPENSATION**

**Stock      Options**

|                                               |   | **Options**                         |   | **Weighted                  Average Exercise Price** |   |
|----------------------------------------------------|--------|-------------------------------------|--------|------------------------------------------------------|--------|
|                                               |   | **(in                  thousands)** |   |
| Outstanding                  at January 1, 2006    |   |                                | 6,222  |                                                 | $      | 34.16 |   |
| Granted                                            |   |                                | -      |                                                 |   | - |   |
| Exercised/Converted                                |   |                                | (369   | )                                                    |   | 30.17 |   |
| Expired                                            |   |                                | -      |                                                 |   | - |   |
| Forfeited                                          |   |                                | (209   | )                                                    |   | 41.62 |   |
| Outstanding                  at September 30, 2006 |   |                                | 5,644  |                                                 |   | 34.15 |   |
|                                               |   |                                |   |                                                 |   |   |   |
| Exercisable                  at September 30, 2006 |   |                                | 5,384  |                                                 | $      | 34.41 |   |

** **
**Options      Outstanding**

| **2006                Range of****Exercise                Prices** |   |  **Number****Exercisable**         |   |  **Weighted****Average****Remaining****Life** |   | **Weighted****Average****Exercise                Price** |   | **Aggregate****Intrinsic****Value** |   |
|--------------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------------------|--------|----------------------------------------------------------|--------|-------------------------------------|--------|
|                                                               |   |  **(in                thousands)** |   |  **(in                years)**                |   |                                                |   | **(in                thousands)**   |   |
| $25.73                - $27.95                                     |   |                                    | 1,359  |                                               |   | 5.9                                                      |   | $                                   | 27.38  |   | $ | 12,220 |   |
| $30.76                - $38.65                                     |   |                                    | 3,917  |                                               |   | 3.2                                                      |   |                                | 35.44  |   |   | 3,665 |   |
| $43.79                - $49.00                                     |   |                                    | 368    |                                               |   | 4.6                                                      |   |                                | 45.43  |   |   | - |   |
|                                                               |   |                                    | 5,644  |                                               |   | 4.0                                                      |   |                                | 34.15  |   | $ | 15,885 |   |

** **
**Options      Exercisable**

| **2006                Range of****Exercise                Prices** |   |  **Number****Exercisable**         |   |  **Weighted****Average****Remaining****Life** |   | **Weighted****Average****Exercise                Price** |   | **Aggregate****Intrinsic****Value** |   |
|--------------------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------------------|--------|----------------------------------------------------------|--------|-------------------------------------|--------|
|                                                               |   |  **(in                thousands)** |   |  **(in                years)**                |   |                                                |   | **(in                thousands)**   |   |
| $25.73                - $27.95                                     |   |                                    | 1,158  |                                               |   | 5.7                                                      |   | $                                   | 27.29  |   | $ | 10,519 |   |
| $30.76                - $35.63                                     |   |                                    | 3,858  |                                               |   | 3.2                                                      |   |                                | 35.49  |   |   | 3,386 |   |
| $43.79                - $49.00                                     |   |                                    | 368    |                                               |   | 4.6                                                      |   |                                | 45.43  |   |   | - |   |
|                                                               |   |                                    | 5,384  |                                               |   | 3.8                                                      |   |                                | 34.41  |   | $ | 13,905 |   |

**Performance      Units**

| **Performance                Units**         |   |    |   |
|----------------------------------------------|--------|--------------|--------|
| Awarded                Units (in thousands)  |   |  864    |   |
| Unit                Fair Value at Grant Date |   | $            | 37.36  |   |
| Vesting                Period (years)        |   |         | 3      |   |

| **Performance                Units and AEP Career Shares****(Reinvested                Dividends Portion)** |   |    |   |
|-------------------------------------------------------------------------------------------------------------|--------|--------------|--------|
| Awarded                Units (in thousands)                                                                 |   |  91     |   |
| Weighted                Average Grant Date Fair Value                                                       |   | $            | 35.37  |   |
| Vesting                Period (years) (a)                                                                   |   |         | 3      |   |

| (a) | Vesting                Period (years) range from 0 to 3 years. The Vesting Period of the                reinvested dividends is equal to the remaining life of the related                performance units and AEP Career                Shares. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

** **

**Restricted      Shares and Restricted Stock Units **

| **Nonvested                  Restricted Shares and Restricted Stock Units** |   | **Shares/Units**                    |   | **Weighted                  Average Grant Date Fair Value** |   |
|-----------------------------------------------------------------------------|--------|-------------------------------------|--------|-------------------------------------------------------------|--------|
|                                                                        |   | **(in                  thousands)** |   |                                                   |   |
| Nonvested                  at January 1, 2006                               |   |                                | 497    |                                                        | $      | 32.19 |   |
| Granted                                                                     |   |                                | 47     |                                                        |   | 35.58 |   |
| Vested                                                                      |   |                                | (127   | )                                                           |   | 30.56 |   |
| Forfeited                                                                   |   |                                | (22    | )                                                           |   | 35.52 |   |
| Nonvested                  at September 30, 2006                            |   |                                | 395    |                                                        |   | 32.93 |   |

***Share-based      Compensation Plans***

| **Share-based                Compensation Plans**                         |   | **(in                thousands)** |   |
|---------------------------------------------------------------------------|--------|-----------------------------------|--------|
| Compensation                Cost for Share-based Payment Arrangements (a) |   | $                                 | 16,671 |   |
| Actual                Tax Benefit Realized                                |   |                              | 5,835  |   |
| Total                Compensation Cost Capitalized                        |   |                              | 3,746  |   |

| (a) | Compensation                cost for share-based payment arrangements is included in Maintenance                and                Other Operation on our Condensed Consolidated Statements of                Operations. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**              11.**
**INCOME      TAXES**

**        12.**
**BUSINESS      SEGMENTS**

**Utility      Operations**

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

**Investments      - Gas Operations **

| · | Gas                pipeline and storage services.                                                                                                                                               |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Gas                marketing and risk management activities.                                                                                                                                    |
| · | We                disposed of our gas pipeline and storage assets in 2005 with the                sale of                HPL (see “Dispositions” section of Note                8). |

**Investments      - UK Operations**

| · | International                generation of electricity for sale to wholesale                customers.                                 |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|
| · | Coal                procurement and transportation to our plants.                                                                      |
| · | We                classified UK Operations as Discontinued Operations during 2003 and                sold                them in 2004. |

**Investments      - Other **

| · | Bulk                commodity barging operations, wind farms, IPPs and other energy                supply-related businesses. |
|--------|-------------------------------------------------------------------------------------------------------------------------------|

|                                      |   |                                    |   | **Investments**                     |   |                               |   |         |   |                               |   |
|-------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------|--------|------------------------------------|--------|--------------|--------|------------------------------------|--------|
|                                      |   | **Utility                  Operations** |   | **Gas                  Operations** |   | **UK                  Operations** |   | **Other**    |   | **All                  Other (a)** |   | **Reconciling                  Adjustments** |   | **Consolidated** |   |
|                                      |   | **(in                  millions)**      |   |
| **Three                  Months Ended**   |   |                               |   |                           |   |                          |   |    |   |                          |   |    |   |    |   |
| **September                  30, 2006**   |   |                               |   |                           |   |                          |   |    |   |                          |   |    |   |    |   |
| Revenues                  from:           |   |                               |   |                           |   |                          |   |    |   |                          |   |    |   |    |   |
| External                  Customers       |   | $                                       | 3,485  |                                | $      | (47                                | )      | $            | -      |                               | $      | 156 |   | $ | - |   | $ | - |   | $ | 3,594 |   |
| Other                  Operating Segments |   |                                    | (44    | )                                   |   | 51                                 |   |         | -      |                               |   | 4 |   |   | 1 |   |   | (12 | ) |   | - |   |
| Total                  Revenues           |   | $                                       | 3,441  |                                | $      | 4                                  |   | $            | -      |                               | $      | 160 |   | $ | 1 |   | $ | (12 | ) | $ | 3,594 |   |
|                                      |   |                                    |   |                                |   |                               |   |         |   |                               |   |  |   |   |   |   |   |  |   |   |   |   |
| Net                  Income (Loss)        |   | $                                       | 379    |                                | $      | (3                                 | )      | $            | -      |                               | $      | (109 | ) | $ | (2 | ) | $ | - |   | $ | 265 |   |

|                                                                                  |   |                                    |   | **Investments**                     |   |                               |   |         |   |                               |   |
|---------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------|--------|------------------------------------|--------|--------------|--------|------------------------------------|--------|
|                                                                                  |   | **Utility                  Operations** |   | **Gas                  Operations** |   | **UK                  Operations** |   | **Other**    |   | **All                  Other (a)** |   | **Reconciling                  Adjustments** |   | **Consolidated** |   |
|                                                                                  |   | **(in                  millions)**      |   |
| **Three                  Months Ended**                                               |   |                               |   |                           |   |                          |   |    |   |                          |   |    |   |    |   |
| **September                  30, 2005**                                               |   |                               |   |                           |   |                          |   |    |   |                          |   |    |   |    |   |
| Revenues                  from:                                                       |   |                               |   |                           |   |                          |   |    |   |                          |   |    |   |    |   |
| External                  Customers                                                   |   | $                                       | 3,152  |                                | $      | 73                                 |   | $            | -      |                               | $      | 103 |   | $ | - |   | $ | - |   | $ | 3,328 |   |
| Other                  Operating Segments                                             |   |                                    | 85     |                                |   | (77                                | )      |         | -      |                               |   | 3 |   |   | 1 |   |   | (12 | ) |   | - |   |
| Total                  Revenues                                                       |   | $                                       | 3,237  |                                | $      | (4                                 | )      | $            | -      |                               | $      | 106 |   | $ | 1 |   | $ | (12 | ) | $ | 3,328 |   |
|                                                                                  |   |                                    |   |                                |   |                               |   |         |   |                               |   |  |   |   |   |   |   |  |   |   |   |   |
| Income                  (Loss) Before Discontinued                    Operations |   | $                                       | 352    |                                | $      | (10                                | )      | $            | -      |                               | $      | 28 |   | $ | (5 | ) | $ | - |   | $ | 365 |   |
| Discontinued                  Operations, Net of Tax                                  |   |                                    | -      |                                |   | -                                  |   |         | 2      |                               |   | 20 |   |   | - |   |   | - |   |   | 22 |   |
| Net                  Income (Loss)                                                    |   | $                                       | 352    |                                | $      | (10                                | )      | $            | 2      |                               | $      | 48 |   | $ | (5 | ) | $ | - |   | $ | 387 |   |

|                                                                                  |   |                                    |   | **Investments**                     |   |                               |   |         |   |                               |   |
|---------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------|--------|------------------------------------|--------|--------------|--------|------------------------------------|--------|
|                                                                                  |   | **Utility                  Operations** |   | **Gas                  Operations** |   | **UK                  Operations** |   | **Other**    |   | **All                  Other (a)** |   | **Reconciling                  Adjustments** |   | **Consolidated** |   |
|                                                                                  |   | **(in                  millions)**      |   |
| **Nine                  Months Ended**                                                |   |                               |   |                           |   |                          |   |    |   |                          |   |    |   |    |   |
| **September                  30, 2006**                                               |   |                               |   |                           |   |                          |   |    |   |                          |   |    |   |    |   |
| Revenues                  from:                                                       |   |                               |   |                           |   |                          |   |    |   |                          |   |    |   |    |   |
| External                  Customers                                                   |   | $                                       | 9,282  |                                | $      | (80                                | )      | $            | -      |                               | $      | 436 |   | $ | - |   | $ | - |   | $ | 9,638 |   |
| Other                  Operating Segments                                             |   |                                    | (73    | )                                   |   | 89                                 |   |         | -      |                               |   | 9 |   |   | 2 |   |   | (27 | ) |   | - |   |
| Total                  Revenues                                                       |   | $                                       | 9,209  |                                | $      | 9                                  |   | $            | -      |                               | $      | 445 |   | $ | 2 |   | $ | (27 | ) | $ | 9,638 |   |
|                                                                                  |   |                                    |   |                                |   |                               |   |         |   |                               |   |  |   |   |   |   |   |  |   |   |   |   |
| Income                  (Loss) Before Discontinued                    Operations |   | $                                       | 904    |                                | $      | (2                                 | )      | $            | -      |                               | $      | (80 | ) | $ | (7 | ) | $ | - |   | $ | 815 |   |
| Discontinued                  Operations, Net of Tax                                  |   |                                    | -      |                                |   | -                                  |   |         | 6      |                               |   | - |   |   | - |   |   | - |   |   | 6 |   |
| Net                  Income (Loss)                                                    |   | $                                       | 904    |                                | $      | (2                                 | )      | $            | 6      |                               | $      | (80 | ) | $ | (7 | ) | $ | - |   | $ | 821 |   |

|                                                              |   |                                        |   | **Investments**                         |   |                                   |   |         |   |                                   |   |
|-------------------------------------------------------------------|--------|---------------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|--------------|--------|----------------------------------------|--------|
|                                                              |   | **Utility                      Operations** |   | **Gas                      Operations** |   | **UK                      Operations** |   | **Other**    |   | **All                      Other (a)** |   | **Reconciling                      Adjustments** |   | **Consolidated** |   |
|                                                              |   | **(in                      millions)**      |   |
| **Nine                      Months Ended**                        |   |                                   |   |                               |   |                              |   |    |   |                              |   |    |   |    |   |
| **September                      30, 2005**                       |   |                                   |   |                               |   |                              |   |    |   |                              |   |    |   |    |   |
| Revenues                      from:                               |   |                                   |   |                               |   |                              |   |    |   |                              |   |    |   |    |   |
| External                      Customers                           |   | $                                           | 8,437  |                                    | $      | 449                                    |   | $            | -      |                                   | $      | 326 |   | $ | - |   | $ | - |   | $ | 9,212 |   |
| Other                      Operating Segments                     |   |                                        | 186    |                                    |   | (167                                   | )      |         | -      |                                   |   | 12 |   |   | 2 |   |   | (33 | ) |   | - |   |
| Total                      Revenues                               |   | $                                           | 8,623  |                                    | $      | 282                                    |   | $            | -      |                                   | $      | 338 |   | $ | 2 |   | $ | (33 | ) | $ | 9,212 |   |
|                                                              |   |                                        |   |                                    |   |                                   |   |         |   |                                   |   |  |   |   |   |   |   |  |   |   |   |   |
| Income                      (Loss) Before Discontinued Operations |   | $                                           | 952    |                                    | $      | (2                                     | )      | $            | -      |                                   | $      | 32 |   | $ | (45 | ) | $ | - |   | $ | 937 |   |
| Discontinued                      Operations, Net of Tax          |   |                                        | -      |                                    |   | -                                      |   |         | (3     | )                                      |   | 29 |   |   | - |   |   | - |   |   | 26 |   |
| Net                      Income (Loss)                            |   | $                                           | 952    |                                    | $      | (2                                     | )      | $            | (3     | )                                      | $      | 61 |   | $ | (45 | ) | $ | - |   | $ | 963 |   |

|                                                         |   |                                      |   |   | **Investments**                       |   |   |                                 |   |   |      |   |   |                            |   |
|--------------------------------------------------------------|--------|-------------------------------------------|--------|--------|---------------------------------------|--------|--------|--------------------------------------|--------|--------|-----------|--------|--------|--------------------------------------|--------|
|                                                         |   | **Utility                    Operations** |   |   | **Gas                    Operations** |   |   | **UK                    Operations** |   |   | **Other** |   |   | **All                    Other (b)** |   |   | **Reconciling                    Adjustments (b)** |   |   | **Consolidated** |   |
|                                                         |   | **(in                    millions)**      |   |
| **As                    of September 30, 2006**              |   |                                      |   |   |                                  |   |   |                                 |   |   |      |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                    Property, Plant and Equipment       |   | $                                         | 40,397 |   |                                  | $      | 1      |                                 |   | $      | -         |   |   | $                                    | 567    |   |   | $ | 3 |   |   | $ | - |   |   | $ | 40,968 |   |
| Accumulated                    Depreciation and Amortization |   |                                      | 15,014 |   |                                  |   | -      |                                 |   |   | -         |   |   |                                 | 130    |   |   |   | 2 |   |   |   | - |   |   |   | 15,146 |   |
| Total                    Property, Plant and Equipment - Net |   | $                                         | 25,383 |   |                                  | $      | 1      |                                 |   | $      | -         |   |   | $                                    | 437    |   |   | $ | 1 |   |   | $ | - |   |   | $ | 25,822 |   |
|                                                         |   |                                      |   |   |                                  |   |   |                                 |   |   |      |   |   |                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                    Assets                              |   | $                                         | 35,185 |   |                                  | $      | 591    | (c)                                  |   | $      | 639       | (d)    |   | $                                    | 72     |   |   | $ | 10,372 |   |   | $ | (10,474 | ) |   | $ | 36,385 |   |
| Assets                    Held for Sale                      |   |                                      | 46     |   |                                  |   | -      |                                 |   |   | -         |   |   |                                 | 64     |   |   |   | - |   |   |   | - |   |   |   | 110 |   |

|                                                           |   |                                         |   |   | **Investments**                         |   |   |                                   |   |   |      |   |   |                              |   |
|----------------------------------------------------------------|--------|----------------------------------------------|--------|--------|-----------------------------------------|--------|--------|----------------------------------------|--------|--------|-----------|--------|--------|----------------------------------------|--------|
|                                                           |   | **Utility                      Operations**  |   |   | **Gas                      Operations** |   |   | **UK                      Operations** |   |   | **Other** |   |   | **All                      Other (b)** |   |   | **Reconciling                      Adjustments (b)** |   |   | **Consolidated** |   |
|                                                           |
|                                                           |   |  **(in                      millions)** |   |
| **As                      of December 31, 2005**               |   |                                         |   |   |                                    |   |   |                                   |   |   |      |   |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                      Property, Plant and Equipment       |   | $                                            | 38,283 |   |                                    | $      | 2      |                                   |   | $      | -         |   |   | $                                      | 833    |   |   | $ | 3 |   |   | $ | - |   |   | $ | 39,121 |   |
| Accumulated                      Depreciation and Amortization |   |                                         | 14,723 |   |                                    |   | 1      |                                   |   |   | -         |   |   |                                   | 112    |   |   |   | 1 |   |   |   | - |   |   |   | 14,837 |   |
| Total                      Property, Plant and Equipment - Net |   | $                                            | 23,560 |   |                                    | $      | 1      |                                   |   | $      | -         |   |   | $                                      | 721    |   |   | $ | 2 |   |   | $ | - |   |   | $ | 24,284 |   |
|                                                           |   |                                         |   |   |                                    |   |   |                                   |   |   |      |   |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                      Assets                              |   | $                                            | 34,339 |   |                                    | $      | 1,199  | (e)                                    |   | $      | 632       | (f)    |   | $                                      | 509    |   |   | $ | 9,463 |   |   | $ | (9,970 | ) |   | $ | 36,172 |   |
| Assets                      Held for Sale                      |   |                                         | 44     |   |                                    |   | -      |                                   |   |   | -         |   |   |                                   | -      |   |   |   | - |   |   |   | - |   |   |   | 44 |   |

| (a) | All                Other includes the parent company’s guarantee revenue, interest income and                expense, as well as other nonallocated costs.                                                                                                                                                                                                                                                                                                                                                                      |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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 (included in All Other) in                subsidiary companies.                                                                                                                                                                                                             |
| (c) | Total                Assets of $591 million for the Investments-Gas Operations segment                include                $321 million in affiliated accounts receivable related to the corporate                borrowing program and risk management contracts that are eliminated                in                consolidation. The majority of the remaining $270 million in assets                represents third party risk management contracts, margin deposits                and                accounts receivable.  |
| (d) | Total                Assets of $639 million for the Investments-UK Operations segment                include                $625 million in affiliated accounts receivable related mainly to                federal                income taxes that are eliminated in consolidation. The majority of                the                remaining $14 million in assets represents cash                equivalents.                                                                                                                   |
| (e) | Total                Assets of $1.2 billion for the Investments-Gas Operations segment                include                $429 million in affiliated accounts receivable related to the corporate                borrowing program and risk management contracts that are eliminated                in                consolidation. The majority of the remaining $770 million in assets                represents third party risk management contracts, margin deposits,                and                accounts receivable. |
| (f) | Total                Assets of $632 million for the Investments-UK Operations segment                include                $613 million in affiliated accounts receivable related to federal                income                taxes that are eliminated in consolidation. The majority of the remaining                $19 million in assets represents cash equivalents and value-added                tax                receivables.                                                                                          |

**             13.   **
**FINANCING      ACTIVITIES**

***Long-term      Debt***

|                                                |   | **September                30,** |   | **December                31,** |   |
|-----------------------------------------------------|--------|----------------------------------|--------|---------------------------------|--------|
| **Type                of Debt**                     |   | **2006**                         |   | **2005**                        |   |
|                                                |   | **(in                millions)** |   |
|                                                |   |                        |   |                       |   |
| Pollution                Control Bonds              |   | $                                | 2,051  |                            | $      | 1,935 |   |
| Senior                Unsecured Notes               |   |                             | 8,827  |                            |   | 8,226 |   |
| First                Mortgage Bonds                 |   |                             | 96     |                            |   | 196 |   |
| Defeased                First Mortgage Bonds (a)    |   |                             | 26     |                            |   | 26 |   |
| Notes                Payable                        |   |                             | 872    |                            |   | 904 |   |
| Securitization                Bonds                 |   |                             | 596    |                            |   | 648 |   |
| Notes                Payable To Trust               |   |                             | 113    |                            |   | 113 |   |
| Other                Long-Term Debt (b)             |   |                             | 247    |                            |   | 236 |   |
| Unamortized                Discount (net)           |   |                             | (65    | )                               |   | (58 | ) |
| **Total                Long-term Debt Outstanding** |   |                             | 12,763 |                            |   | 12,226 |   |
| **Less                Portion Due Within One Year** |   |                             | 1,789  |                            |   | 1,153 |   |
| **Long-term                Portion**                |   | $                                | 10,974 |                            | $      | 11,073 |   |

| (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 $18 million at both September                30,                2006 and December 31, 2005. Trust fund assets related to this obligation                of $2 million are included in Other Temporary Cash Investments at                both                September 30, 2006 and December 31, 2005 and $21 million is included                in                Other Noncurrent Assets in the Condensed Consolidated Balance Sheets                at                both September 30, 2006 and December 31, 2005. 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 September 30, 2006                and                December 31, 2005. Trust fund assets related to this obligation of                $9                million and $1 million at September 30, 2006 and December 31, 2005,                respectively, are included in Other Temporary Cash Investments and                $0 and                $8 million are included in Other Noncurrent Assets in the Condensed                Consolidated Balance Sheets at September 30, 2006 and December 31,                2005,                respectively. 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 of $270 million                and $264 million related to this obligation are included in Spent                Nuclear                Fuel and Decommissioning Trusts in the Condensed Consolidated Balance                Sheets at September 30, 2006 and December 31, 2005,                respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

| **Company**                        |   | **Type                of Debt**        |   | **Principal                Amount** |   | **Interest                Rate** |     | **Due                Date** |   |
|------------------------------------|--------|----------------------------------------|--------|-------------------------------------|--------|----------------------------------|----------|-----------------------------|--------|
|                               |   |                                   |   | **(in                millions)**    |   | **(%)**                          |     |                        |   |
| **Issuances:**                     |   |                                   |   |                                |   |                             |     |                        |   |
| APCo                               |   | Pollution                Control Bonds |   | $                                   | 50     |                             | Variable |                        | 2036   |   |
| APCo                               |   | Senior                Unsecured Notes  |   |                                | 250    |                             | 5.55     |                        | 2011   |   |
| APCo                               |   | Senior                Unsecured Notes  |   |                                | 250    |                             | 6.375    |                        | 2036   |   |
| I&M                            |   | Pollution                Control Bonds |   |                                | 50     |                             | Variable |                        | 2025   |   |
| OPCo                               |   | Pollution                Control Bonds |   |                                | 65     |                             | Variable |                        | 2036   |   |
| OPCo                               |   | Senior                Unsecured Notes  |   |                                | 350    |                             | 6.00     |                        | 2016   |   |
| PSO                                |   | Senior                Unsecured Notes  |   |                                | 150    |                             | 6.15     |                        | 2016   |   |
| SWEPCo                             |   | Pollution                Control Bonds |   |                                | 82     |                             | Variable |                        | 2018   |   |
| **Total                Issuances** |   |                                   |   | $                                   | 1,247  | (a)                              |     |                        |   |   |

| (a) | Amount                indicated on statement of cash flows of $1,229 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:**               |   |                                   |   |                                     |   |                             |     |                        |   |
| AEP                                                                       |   | Senior                Unsecured Notes  |   | $                                        | 396    |                             | 6.125    |                        | 2006   |   |
| APCo                                                                      |   | First                Mortgage Bonds    |   |                                     | 100    |                             | 6.80     |                        | 2006   |   |
| I&M                                                                   |   | Pollution                Control Bonds |   |                                     | 50     |                             | 6.55     |                        | 2025   |   |
| OPCo                                                                      |   | Notes                Payable           |   |                                     | 4      |                             | 6.81     |                        | 2008   |   |
| OPCo                                                                      |   | Notes                Payable           |   |                                     | 7      |                             | 6.27     |                        | 2009   |   |
| SWEPCo                                                                    |   | Notes                Payable           |   |                                     | 5      |                             | 4.47     |                        | 2011   |   |
| SWEPCo                                                                    |   | Notes                Payable           |   |                                     | 2      |                             | Variable |                        | 2008   |   |
| SWEPCo                                                                    |   | Pollution                Control Bonds |   |                                     | 82     |                             | 6.10     |                        | 2018   |   |
| TCC                                                                       |   | Securitization                Bonds    |   |                                     | 52     |                             | 5.01     |                        | 2010   |   |
| **Non-Registrant:**                                                       |   |                                   |   |                                     |   |                             |     |                        |   |   |
| AEP                subsidiaries                                           |   | Notes                Payable           |   |                                     | 9      |                             | Variable |                        | 2017   |   |
| CSW                Energy, Inc.                                           |   | Notes                Payable           |   |                                     | 4      |                             | 5.88     |                        | 2011   |   |
| **Total                Retirements and Principal**** Payments** |   |                                   |   | $                                        | 711    |                             |     |                        |   |   |

| **Principal** |                             | **Interest** |    | **Scheduled                Final** |
|---------------|----------------------------------|--------------|---------|------------------------------------|
| **Amount**    |                             | **Rate**     |    | **Payment                Date**    |
|          | **(in                millions)** |         | **(%)** |                               |   |
|          |                             |         |    |                               |   |
| $             | 217                              |         | 4.98    |                               | 2010 |
|          | 341                              |         | 4.98    |                               | 2013 |
|          | 250                              |         | 5.09    |                               | 2015 |
|          | 437                              |         | 5.17    |                               | 2018 |
|          | 495                              |         | 5.3063  |                               | 2020 |

***Credit      Facilities***

----

**AEP      GENERATING COMPANY**

----

**AEP      GENERATING COMPANY**

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

**Results      of Operations**

**Reconciliation      of Third Quarter of 2005 to Third Quarter of 2006 Net      Income**

**(in      millions)**

| **Third                Quarter of 2005**                        |   |   |   |   | $      | 2.2    |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Change                in Gross Margin:**                      |   |   |   |   |   |   |   |
| Wholesale                Sales                                  |   |   |   |   |   | 0.2    |   |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | (0.7   | )      |   |   |   |
| Taxes                Other Than Income Taxes                    |   |   | 0.7    |   |   |   |   |
| Interest                Expense                                 |   |   | (0.1   | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (0.1   | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | (0.1   | )      |
|                                                            |   |   |   |   |   |   |   |
| **Third                Quarter of 2006**                        |   |   |   |   | $      | 2.2    |   |

**Reconciliation      of Nine Months Ended September 30, 2005 to **

**Nine      Months Ended September 30, 2006 Net Income**

**(in      millions)**

| **Nine                Months Ended September 30, 2005**         |   |   |   |   | $      | 6.8    |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Wholesale                Sales                                  |   |   |   |   |   | 3.2    |   |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | (2.0   | )      |   |   |   |
| Taxes                Other Than Income Taxes                    |   |   | 0.7    |   |   |   |   |
| Interest                Expense                                 |   |   | (0.3   | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (1.6   | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | (1.0   | )      |
|                                                            |   |   |   |   |   |   |   |
| **Nine                Months Ended September 30, 2006**         |   |   |   |   | $      | 7.4    |   |

*Income      Taxes*

**Off-Balance      Sheet Arrangements**

**Summary      Obligation Information**

**Significant      Factors**

**Critical      Accounting Estimates**

----

**AEP      GENERATING COMPANY**

**CONDENSED      STATEMENTS OF INCOME**

**For      the Three and Nine Months Ended September 30, 2006 and      2005**

**(Unaudited)**

**(in      thousands)**

|                                                                    |   | **Three                Months Ended** |   | **Nine                Months Ended** |   |
|-------------------------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                                                    |   | **2006**                              |   | **2005**                             |   | **2006** |   | **2005** |   |
|                                                                    |   |                             |   |                            |   |   |   |   |   |
| **OPERATING                REVENUES**                                   |   | $                                     | 74,756 |                                 | $      | 69,640 |   | $ | 230,102 |   | $ | 201,268 |   |
|                                                                    |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                            |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Fuel                for Electric Generation                             |   |                                  | 42,354 |                                 |   | 37,403 |   |   | 131,402 |   |   | 105,771 |   |
| Rent                - Rockport Plant Unit 2                             |   |                                  | 17,070 |                                 |   | 17,070 |   |   | 51,212 |   |   | 51,212 |   |
| Other                Operation                                          |   |                                  | 3,381  |                                 |   | 2,803 |   |   | 9,598 |   |   | 8,376 |   |
| Maintenance                                                             |   |                                  | 2,522  |                                 |   | 2,421 |   |   | 7,238 |   |   | 6,411 |   |
| Depreciation                and Amortization                            |   |                                  | 5,951  |                                 |   | 5,956 |   |   | 17,858 |   |   | 17,901 |   |
| Taxes                Other Than Income Taxes                            |   |                                  | 368    |                                 |   | 1,074 |   |   | 2,466 |   |   | 3,149 |   |
| **TOTAL**                                                               |   |                                  | 71,646 |                                 |   | 66,727 |   |   | 219,774 |   |   | 192,820 |   |
|                                                                    |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **OPERATING                INCOME**                                     |   |                                  | 3,110  |                                 |   | 2,913 |   |   | 10,328 |   |   | 8,448 |   |
|                                                                    |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **Other                Income (Expense):**                              |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Interest                Income                                          |   |                                  | -      |                                 |   | - |   |   | - |   |   | 24 |   |
| Allowance                for Equity Funds Used During Construction |   |                                  | -      |                                 |   | - |   |   | 24 |   |   | 60 |   |
| Interest                Expense                                         |   |                                  | (774   | )                                    |   | (652 | ) |   | (2,137 | ) |   | (1,848 | ) |
|                                                                    |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **INCOME                BEFORE INCOME TAXES**                           |   |                                  | 2,336  |                                 |   | 2,261 |   |   | 8,215 |   |   | 6,684 |   |
| Income                Tax Expense (Credit)                              |   |                                  | 117    |                                 |   | 22 |   |   | 848 |   |   | (144 | ) |
|                                                                    |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **NET                INCOME**                                           |   | $                                     | 2,219  |                                 | $      | 2,239 |   | $ | 7,367 |   | $ | 6,828 |   |

**CONDENSED      STATEMENTS OF RETAINED EARNINGS**

**For      the Three and Nine Months Ended September 30, 2006 and      2005**

**(Unaudited)**

**(in      thousands)**

|                                              |   | **Three                Months Ended** |   | **Nine                Months Ended** |   |
|---------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                              |   | **2006**                              |   | **2005**                             |   | **2006** |   | **2005** |   |
|                                              |   |                             |   |                            |   |   |   |   |   |
| **BALANCE                AT BEGINNING OF PERIOD** |   | $                                     | 27,176 |                                 | $      | 26,947 |   | $ | 26,038 |   | $ | 24,237 |   |
|                                              |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Net                Income                         |   |                                  | 2,219  |                                 |   | 2,239 |   |   | 7,367 |   |   | 6,828 |   |
|                                              |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Cash                Dividends Declared            |   |                                  | -      |                                 |   | 3,015 |   |   | 4,010 |   |   | 4,894 |   |
|                                              |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **BALANCE                AT END OF PERIOD**       |   | $                                     | 29,395 |                                 | $      | 26,171 |   | $ | 29,395 |   | $ | 26,171 |   |

| *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**

**September      30, 2006 and December 31, 2005**

**(Unaudited)**

**(in      thousands)**

|                                                      |   | **2006**     |    | **2005**     |   |
|-----------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **CURRENT                ASSETS**                         |   |    |    |    |   |
| Accounts                Receivable - Affiliated Companies |   | $            | 24,356  |         | $      | 29,671 |   |
| Fuel                                                      |   |         | 24,139  |         |   | 14,897 |   |
| Materials                and Supplies                     |   |         | 7,913   |         |   | 7,017 |   |
| Accrued                Tax Benefits                       |   |         | 2,009   |         |   | 2,074 |   |
| Prepayments                and Other                      |   |         | 105     |         |   | 9 |   |
| **TOTAL**                                                 |   |         | 58,522  |         |   | 53,668 |   |
|                                                      |   |         |    |         |   |   |   |
| **PROPERTY,                PLANT AND EQUIPMENT**          |   |         |    |         |   |   |   |
| Electric                - Production                      |   |         | 686,025 |         |   | 684,721 |   |
| Other                                                     |   |         | 2,385   |         |   | 2,369 |   |
| Construction                Work in Progress              |   |         | 11,391  |         |   | 12,252 |   |
| **Total**                                                 |   |         | 699,801 |         |   | 699,342 |   |
| Accumulated                Depreciation and Amortization  |   |         | 393,529 |         |   | 382,925 |   |
| **TOTAL                - NET**                            |   |         | 306,272 |         |   | 316,417 |   |
|                                                      |   |         |    |         |   |   |   |
| Noncurrent                Assets                          |   |         | 7,738   |         |   | 6,618 |   |
|                                                      |   |         |    |         |   |   |   |
| **TOTAL                ASSETS**                           |   | $            | 372,532 |         | $      | 376,703 |   |

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

----

**AEP      GENERATING COMPANY**

**CONDENSED      BALANCE SHEETS**

**LIABILITIES      AND SHAREHOLDER’S EQUITY**

**September      30, 2006 and December 31, 2005**

**(Unaudited)**

|                                                                                                                                    |   | **2006**                          |    | **2005** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|----------|--------|
| **CURRENT                LIABILITIES**                                                                                                  |   | **(in                thousands)** |    |
| Advances                from Affiliates                                                                                                 |   | $                                 | 14,938  |     | $      | 35,131 |   |
| Accounts                Payable:                                                                                                        |   |                              |    |     |   |   |   |
| General                                                                                                                                 |   |                              | 1,311   |     |   | 926 |   |
| Affiliated                Companies                                                                                                     |   |                              | 21,018  |     |   | 22,161 |   |
| Long-term                Debt Due Within One Year                                                                                       |   |                              | -       |     |   | 44,828 |   |
| Accrued                Taxes                                                                                                            |   |                              | 5,880   |     |   | 3,055 |   |
| Accrued                Rent - Rockport Plant Unit 2                                                                                     |   |                              | 23,427  |     |   | 4,963 |   |
| Other                                                                                                                                   |   |                              | 805     |     |   | 1,228 |   |
| **TOTAL**                                                                                                                               |   |                              | 67,379  |     |   | 112,292 |   |
|                                                                                                                                    |   |                              |    |     |   |   |   |
| **NONCURRENT                LIABILITIES**                                                                                               |   |                              |    |     |   |   |   |
| Long-term                Debt                                                                                                           |   |                              | 44,835  |     |   | - |   |
| Deferred                Income Taxes                                                                                                    |   |                              | 20,852  |     |   | 23,617 |   |
| Asset                Retirement Obligations                                                                                             |   |                              | 1,399   |     |   | 1,370 |   |
| Regulatory                Liabilities and Deferred Investment Tax Credits                                                               |   |                              | 82,331  |     |   | 82,689 |   |
| Deferred                Gain on Sale and Leaseback - Rockport Plant Unit 2                                                              |   |                              | 90,155  |     |   | 94,333 |   |
| Obligations                Under Capital Leases                                                                                         |   |                              | 11,752  |     |   | 11,930 |   |
| **TOTAL**                                                                                                                               |   |                              | 251,324 |     |   | 213,939 |   |
|                                                                                                                                    |   |                              |    |     |   |   |   |
| **TOTAL                LIABILITIES**                                                                                                    |   |                              | 318,703 |     |   | 326,231 |   |
|                                                                                                                                    |   |                              |    |     |   |   |   |
| Commitments                and Contingencies (Note 5)                                                                                   |   |                              |    |     |   |   |   |
|                                                                                                                                    |   |                              |    |     |   |   |   |
| **COMMON                SHAREHOLDER’S EQUITY**                                                                                    |   |                              |    |     |   |   |   |
| Common                Stock - $1,000 Par Value Per Share   Authorized                and Outstanding - 1,000 Shares |   |                              | 1,000   |     |   | 1,000 |   |
| Paid-in                Capital                                                                                                          |   |                              | 23,434  |     |   | 23,434 |   |
| Retained                Earnings                                                                                                        |   |                              | 29,395  |     |   | 26,038 |   |
| **TOTAL**                                                                                                                               |   |                              | 53,829  |     |   | 50,472 |   |
|                                                                                                                                    |   |                              |    |     |   |   |   |
| **TOTAL                LIABILITIES AND SHAREHOLDER’S EQUITY**                                                                     |   | $                                 | 372,532 |     | $      | 376,703 |   |

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

----

**AEP      GENERATING COMPANY**

**CONDENSED      STATEMENTS OF CASH FLOWS**

**For      the Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                                                                      |   | **2006**     |    | **2005**     |   |
|-----------------------------------------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **OPERATING                ACTIVITIES**                                                                   |   |    |    |    |   |
| **Net                Income**                                                                             |   | $            | 7,367   |         | $      | 6,828 |   |
| **Adjustments                for Noncash Items:**                                                         |   |         |    |         |   |   |   |
| Depreciation                and Amortization                                                              |   |         | 17,858  |         |   | 17,901 |   |
| Deferred                Income Taxes                                                                      |   |         | (3,468  | )            |   | (3,539 | ) |
| Deferred                Investment Tax Credits                                                            |   |         | (2,482  | )            |   | (2,501 | ) |
| Amortization                of Deferred Gain on Sale and Leaseback - Rockport Plant Unit                2 |   |         | (4,178  | )            |   | (4,178 | ) |
| Deferred                Property Taxes                                                                    |   |         | (893    | )            |   | (1,010 | ) |
| Changes                in Other Noncurrent Assets                                                         |   |         | (2,885  | )            |   | (1,736 | ) |
| Changes                in Other Noncurrent Liabilities                                                    |   |         | 2,776   |         |   | 2,201 |   |
| **Changes                in Components of Working Capital:**                                              |   |         |    |         |   |   |   |
| Accounts                Receivable                                                                        |   |         | 5,315   |         |   | (2,469 | ) |
| Fuel,                Materials and Supplies                                                               |   |         | (10,138 | )            |   | 4,278 |   |
| Accounts                Payable                                                                           |   |         | (758    | )            |   | (1,188 | ) |
| Accrued                Taxes, Net                                                                         |   |         | 2,890   |         |   | (2,982 | ) |
| Rent                Accrued - Rockport Plant Unit 2                                                       |   |         | 18,464  |         |   | 18,464 |   |
| Other                Current Assets                                                                       |   |         | (96     | )            |   | (17 | ) |
| Other                Current Liabilities                                                                  |   |         | (423    | )            |   | (363 | ) |
| **Net                Cash Flows From Operating Activities**                                               |   |         | 29,349  |         |   | 29,689 |   |
|                                                                                                      |   |         |    |         |   |   |   |
| **INVESTING                ACTIVITIES**                                                                   |   |         |    |         |   |   |   |
| Construction                Expenditures                                                                  |   |         | (4,978  | )            |   | (9,041 | ) |
|                                                                                                      |   |         |    |         |   |   |   |
| **FINANCING                ACTIVITIES**                                                                   |   |         |    |         |   |   |   |
| Change                in Advances from Affiliates, Net                                                    |   |         | (20,193 | )            |   | (15,601 | ) |
| Principal                Payments for Capital Lease Obligations                                           |   |         | (168    | )            |   | (153 | ) |
| Dividends                Paid                                                                             |   |         | (4,010  | )            |   | (4,894 | ) |
| **Net                Cash Flows Used For Financing Activities**                                           |   |         | (24,371 | )            |   | (20,648 | ) |
|                                                                                                      |   |         |    |         |   |   |   |
| **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                                         |   | $            | 2,413   |         | $      | 2,104 |   |
| Net                Cash Paid for Income Taxes                                                             |   |         | 6,037   |         |   | 11,025 |   |
| Noncash                Acquisitions Under Capital Leases                                                  |   |         | 78      |         |   | 31 |   |

*        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                and Contingencies           | Note                5                 |
| Guarantees                                             | Note                6                 |
| Company-wide                Staffing and Budget Review | Note                7                 |
| Business                Segments                       | Note                11                |
| Financing                Activities                    | Note                12                |

----

**AEP      TEXAS CENTRAL COMPANY AND SUBSIDIARIES**

----

**AEP      TEXAS CENTRAL COMPANY AND SUBSIDIARIES**

**MANAGEMENT’S      FINANCIAL DISCUSSION AND ANALYSIS**

**Allocation      Agreement between AEP East companies and AEP West      companies**

**Results      of Operations**

**Reconciliation      of Third Quarter of 2005 to Third Quarter of 2006 Net      Income**

**(in      millions)**

| **Third                Quarter of 2005**                        |   |   |   |   | $      | 40     |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Texas                Supply                                     |   |   | (4     | )      |   |   |   |
| Texas                Wires                                      |   |   | (1     | )      |   |   |   |
| Off-system                Sales                                 |   |   | (18    | )      |   |   |   |
| Transmission                Revenues                            |   |   | (3     | )      |   |   |   |
| Other                                                           |   |   | (3     | )      |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | (29    | )      |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | 1      |   |   |   |   |
| Carrying                Costs Income                            |   |   | 10     |   |   |   |   |
| Other                Income                                     |   |   | (7     | )      |   |   |   |
| Interest                Expense                                 |   |   | (11    | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (7     | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | 13     |   |
|                                                            |   |   |   |   |   |   |   |
| **Third                Quarter of 2006**                        |   |   |   |   | $      | 17     |   |

| · | Texas                Supply margins decreased $4 million primarily due to lower nonaffiliated                sales of $3 million.                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Margins                from Off-system Sales decreased $18 million due to an $11 million                decrease                in margin sharing under the SIA (no current margin sharing under                the CSW                Operating Agreement and the SIA) and a $7 million decrease in margins                from                optimization activities. See the “Allocation Agreement between AEP East                companies and AEP West companies and CSW Operating Agreement” section of                Note 3. |
| · | Transmission                Revenues decreased $3 million primarily due to lower ERCOT transmission                rates and reduced affiliated transmission fees resulting from the                elimination of the affiliated OATT in 2005.                                                                                                                                                                                                                                                                                                    |
| · | Other                revenues decreased $3 million primarily due to lower securitization                revenues of $3 million. Securitization revenues 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.                                                                                                                            |

| · | Carrying                Costs Income increased $10 million primarily due to a negative adjustment                of $8 million made in the third quarter of 2005 related to our True-up                Proceeding orders received from the PUCT.                                                                                              |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Other                Income decreased $7 million primarily due to interest income recorded                in                the prior year related to the 2005 Texas Court of Appeals order (see                “Texas Restructuring - Excess Earnings” section of Note                4).                                        |
| · | Interest                Expense increased $11 million primarily due to a $9 million increase                in                accrued interest related to the Texas competition transition charge                liability (See “Texas Restructuring - CTC Proceeding for Other True-up                Items” section of Note 4). |

*Income      Taxes*

**Reconciliation      of Nine Months Ended September 30, 2005 to **

**Nine      Months Ended September 30, 2006 Net Income**

**(in      millions)**

| **Nine                Months Ended September 30, 2005**         |   |   |   |   | $      | 70     |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Texas                Supply                                     |   |   | (78    | )      |   |   |   |
| Texas                Wires                                      |   |   | 14     |   |   |   |   |
| Off-system                Sales                                 |   |   | (21    | )      |   |   |   |
| Transmission                Revenues                            |   |   | (12    | )      |   |   |   |
| Other                                                           |   |   | (9     | )      |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | (106   | )      |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | 50     |   |   |   |   |
| Depreciation                and Amortization                    |   |   | (6     | )      |   |   |   |
| Taxes                Other Than Income Taxes                    |   |   | 6      |   |   |   |   |
| Carrying                Costs Income                            |   |   | 35     |   |   |   |   |
| Other                Income                                     |   |   | (13    | )      |   |   |   |
| Interest                Expense                                 |   |   | (8     | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | 64     |   |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | 10     |   |
|                                                            |   |   |   |   |   |   |   |
| **Nine                Months Ended September 30, 2006**         |   |   |   |   | $      | 38     |   |

| · | Texas                Supply margins decreased $78 million primarily due to the sale of                STP,                which resulted in lower nonaffiliated sales of $101 million and a                $6                million provision for refund primarily due to the fuel reconciliation                adjustment in 2005. These decreases were partially offset by lower                fuel                and purchased power expenses of $30 million.                                                                                                                                                                    |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Texas                Wires revenues increased $14 million primarily due to favorable prices                and                a five percent increase in degree days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | Margins                from Off-system Sales decreased $21 million due to a $15 million                decrease                in margin sharing under the SIA and a $6 million decrease in margins                from                optimization activities. See the “Allocation Agreement between AEP East                companies and AEP West companies and CSW Operating Agreement” section of                Note 3.                                                                                                                                                                                               |
| · | Transmission                Revenues decreased $12 million primarily due to lower ERCOT transmission                rates and reduced affiliated transmission fees resulting from the                elimination of the affiliated OATT in 2005.                                                                                                                                                                                                                                                                                                                                                                                        |
| · | Other                revenues decreased $9 million primarily due to lower third party                construction project revenues of $4 million related to work performed                for                the Lower Colorado River Authority and reduced securitization revenues                of                $6 million. Securitization revenues 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. |

| · | Other                Operation and Maintenance expenses decreased $50 million primarily                due to                a $12 million decrease in plant operations, a $14 million decrease                in                plant maintenance, a $6 million decrease in administrative and general                expenses and the absence of $7 million in accretion expense all related                to                the sale of STP. An additional $4 million decrease resulted from                lower                expenses related to construction activities performed for third parties,                primarily the Lower Colorado River Authority. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                and Amortization expense increased $6 million primarily related to                the                refund and amortization of excess earnings credits in 2005 partially                offset by the recovery and amortization of securitized                assets.                                                                                                                                                                                                                                                                                                                                                                         |
| · | Taxes                Other Than Income Taxes decreased $6 million primarily due to lower                property-related taxes as a result of the sale of STP in 2005 and                the                favorable settlement of a state use tax audit in 2006.                                                                                                                                                                                                                                                                                                                                                                                                         |
| · | Carrying                Costs Income increased $35 million primarily due to negative adjustments                of $29 million and $8 million made in the first and third quarters                of                2005, respectively, related to our True-up Proceeding orders received                from                the PUCT.                                                                                                                                                                                                                                                                                                                                     |
| · | Other                Income decreased $13 million primarily due to interest income recorded                in                the prior year related to the 2005 Texas Court of Appeals order (See                “Texas Restructuring - Excess Earnings” section of Note                4).                                                                                                                                                                                                                                                                                                                                                                    |
| · | Interest                Expense increased $8 million primarily due to a $12 million increase                in                accrued interest related to the Texas CTC liability (see “Texas                Restructuring - CTC Proceeding for Other True-up Items” section of Note 4)                partially offset by a $2 million decrease in interest expense associated                with securitization revenues.                                                                                                                                                                                                                                   |

*Income      Taxes*

**Financial      Condition**

**Credit      Ratings**

|                                 | **Moody’s** |   | **S&P** |   | **Fitch** |
|--------------------------------------|-------------------|--------|-------------|--------|-----------|
|                                 |              |   |        |   |      |
| First                Mortgage Bonds  | Baa1              |   | BBB         |   | A         |
| Senior                Unsecured Debt | Baa2              |   | BBB         |   | A-        |

**Cash      Flow**

|                                                                |   | **2006**                          |     | **2005** |   |
|---------------------------------------------------------------------|--------|-----------------------------------|----------|----------|--------|
|                                                                |   | **(in                thousands)** |     |
| **Cash                and Cash Equivalents at Beginning of Period** |   | $                                 | -        |     | $      | 26 |   |
| Net                Cash Flows From (Used For):                      |   |                              |     |     |   |   |   |
| Operating                Activities                                 |   |                              | 137,471  |     |   | (95,431 | ) |
| Investing                Activities                                 |   |                              | (197,269 | )        |   | 293,461 |   |
| Financing                Activities                                 |   |                              | 59,803   |     |   | (198,053 | ) |
| Net                Increase (Decrease) in Cash and Cash Equivalents |   |                              | 5        |     |   | (23 | ) |
| **Cash                and Cash Equivalents at End of Period**       |   | $                                 | 5        |     | $      | 3 |   |

*Operating      Activities*

*Investing      Activities*

*Financing      Activities*

**Financing      Activity**

|                                      |   | **Principal****Amount** |                              | **Interest** |     | **Due** |
|-------------------------------------------|--------|-------------------------|-----------------------------------|--------------|----------|---------|
| **Type                of Debt**           |   |                    | **Rate**                          |         | **Date** |
|                                      |   |                    | **(in                thousands)** |         | **(%)**  |    |   |
|                                      |   |                    |                              |         |     |    |   |
| Notes                Payable - Affiliated |   | $                       | 125,000                           |         | 5.14     |    | 2007 |
| Notes                Payable - Affiliated |   |                    | 70,000                            |         | 5.86     |    | 2007 |

|                                |   | **Principal****Amount** |                              | **Interest** |     | **Due** |
|-------------------------------------|--------|-------------------------|-----------------------------------|--------------|----------|---------|
| **Type                of Debt**     |   |                    | **Rate**                          |         | **Date** |
|                                |   |                    | **(in                thousands)** |         | **(%)**  |    |   |
|                                |   |                    |                              |         |     |    |   |
| Securitization                Bonds |   | $                       | 52,265                            |         | 5.01     |    | 2010 |

| **Principal** |                              | **Interest** |    | **Scheduled                Final** |
|---------------|-----------------------------------|--------------|---------|------------------------------------|
| **Amount**    |                              | **Rate**     |    | **Payment                Date**    |
|          | **(in                thousands)** |         | **(%)** |                               |   |
|          |                              |         |    |                               |   |
| $             | 217,000                           |         | 4.98    |                               | 2010 |
|          | 341,000                           |         | 4.98    |                               | 2013 |
|          | 250,000                           |         | 5.09    |                               | 2015 |
|          | 437,000                           |         | 5.17    |                               | 2018 |
|          | 494,700                           |         | 5.3063  |                               | 2020 |

| **Principal****Amount** |                              | **Interest** |     | **Due** |
|-------------------------|-----------------------------------|--------------|----------|---------|
|                    | **Rate**                          |         | **Date** |
|                    | **(in                thousands)** |         | **(%)**  |    |   |
|                    |                              |         |     |    |   |
| $                       | 150,000                           |         | 4.58     |    | 2007 |
|                    | 125,000                           |         | 5.14     |    | 2007 |
|                    | 70,000                            |         | 5.86     |    | 2007 |

**Liquidity**

**Summary      Obligation Information**

**Significant      Factors**

***Texas      Restructuring***

**:**

|                                                                         |   | **(in                millions)** |   |
|------------------------------------------------------------------------------|--------|----------------------------------|--------|
| Wholesale                Capacity Auction True-up                            |   | $                                | 61     |   |
| Carrying                Costs on Wholesale Capacity Auction True-up          |   |                             | 31     |   |
| Retail                Clawback including Carrying Costs                      |   |                             | (65    | ) |
| Deferred                Over-recovered Fuel Balance                          |   |                             | (184   | ) |
| Retrospective                ADFIT Benefit                                   |   |                             | (77    | ) |
| Other                                                                        |   |                             | (4     | ) |
| **Recorded                Net Regulatory Liabilities - Other True-up Items** |   |                             | (238   | ) |
| Unrecorded                Prospective ADFIT Benefit                          |   |                             | (240   | ) |
| **Gross                CTC Refund Proposed**                                 |   |                             | (478   | ) |
| FERC                Jurisdictional Fuel Refund Deferral                      |   |                             | 16     |   |
| ADITC                and EDFIT Benefit Refund Deferral                       |   |                             | 98     |   |
| **Net                CTC Refund Proposed, After Deferrals**                  |   |                             | (364   | ) |
| True-up                Proceeding Expense Surcharge                          |   |                             | 7      |   |
| **Net                CTC Refund Proposed, After Deferrals and Expenses**     |   | $                                | (357   | ) |

| · | the                  PUCT ruled that TCC did not comply with the statute and PUCT rules                  regarding the auction of 15% of its Texas jurisdictional installed                  capacity,                                                                                                                                                                  |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | 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 gas units with the                  sale of its                  coal unit, |
| · | and                  two federal matters regarding the allocation of off-system sales                  related                  to fuel recoveries and the potential tax normalization                  violation.                                                                                                                                                      |

|                                                                                    |   | **(in                millions)** |   |
|-----------------------------------------------------------------------------------------|--------|----------------------------------|--------|
| ADITC                and EDFIT Benefits Reducing Securitization                         |   | $                                | 98     |   |
| ADFIT                Benefit Applied to Reduce 2002 Securitization of Regulatory Assets |   |                             | (60    | ) |
| Securitization                Settlement                                                |   |                             | (77    | ) |
| Unrecorded                Prospective ADFIT Benefit Increasing the CTC Refund           |   |                             | (240   | ) |
| Unrecorded                Equity Carrying Costs Recognized as Collected                 |   |                             | 224    |   |
| Future                Interest Payable on Proposed CTC Refund                           |   |                             | (19    | ) |
| Deferred                Fuel - Federal Jurisdictional Issue                             |   |                             | 16     |   |
| **Net                Adverse Earnings Impact Over 14 Years**                            |   | $                                | (58    | ) |

***Litigation      and Regulatory Activity***

**Critical      Accounting Estimates**

----

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

**Market      Risks**

**MTM      Risk Management Contract Net Assets**

**MTM      Risk Management Contract Net Assets**

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

| **Total                MTM Risk Management Contract Net Assets at December 31,                2005**                                           |   | $      | 5,426  |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                Loss from Contracts Realized/Settled During the Period and Entered                in a                Prior Period       |   |   | (1,175 | )      |
| 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 |   |   | -      |   |
| Changes                in Fair Value Due to Valuation Methodology Changes on Forward                Contracts                                  |   |   | -      |   |
| Changes                in Fair Value Due to Market Fluctuations During the Period                (b)                                           |   |   | (3,868 | )      |
| Changes                Due to SIA and CSW Operating Agreement (c)                                                                              |   |   | (383   | )      |
| Changes                in Fair Value Allocated to Regulated Jurisdictions (d)                                                                  |   |   | -      |   |
| **Total                MTM Risk Management Contract Net Assets**                                                                               |   |   | -      |   |
| Net                Cash Flow Hedge Contracts                                                                                                   |   |   | -      |   |
| **Total                MTM Risk Management Contract Net Assets at September 30,                2006**                                          |   | $      | -      |   |

| (a) | Most                of the fair value comes from longer term fixed price contracts with                customers that seek 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) | See                “Allocation Agreement between AEP East companies and AEP West companies”                section of this Management’s Financial Discussion and                Analysis.                                                                                                                                                                                                                                                                                                                                           |
| (d) | “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**

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

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

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

|                                                                                                                        |   | **Power** |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|
| **Beginning                Balance in AOCI December 31, 2005**                                                              |   | $         | (224   | ) |
| Changes                in Fair Value                                                                                        |   |      | -      |   |
| Impact                Due to Changes in SIA (a)                                                                             |   |      | 218    |   |
| Reclassifications                from AOCI to Net Income for Cash Flow                   Hedges Settled |   |      | 6      |   |
| **Ending                Balance in AOCI September 30, 2006**                                                                |   | $         | -      |   |

| (a) | See                “Allocation Agreement between AEP East companies and AEP West companies”                section of this Management’s Financial Discussion and                Analysis. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Credit      Risk**

**VaR      Associated with Risk Management Contracts**

| **Nine                Months Ended****September                30, 2006** |   |     |   |        | **Twelve                Months Ended****December                31, 2005** |
|---------------------------------------------------------------------------|--------|----------|--------|-------------|----------------------------------------------------------------------------|
| **(in                thousands)**                                         |   |     |   |        | **(in                thousands)**                                          |
| **End**                                                                   |   | **High** |   | **Average** |                                                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $-                                                                        |   | $11      |   | $2          |                                                                       | $- |   |   |   |   | $111 |   | $184 |   | $88 |   | $32 |

**VaR      Associated with Debt Outstanding**

----

**AEP      TEXAS CENTRAL COMPANY AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF INCOME**

**For      the Three and Nine Months Ended September 30, 2006 and      2005**

**(in      thousands)**

**(Unaudited)**

|                                                               |   | **Three                Months Ended** |    | **Nine                Months Ended** |   |
|--------------------------------------------------------------------|--------|---------------------------------------|---------|--------------------------------------|--------|
|                                                               |   | **2006**                              |    | **2005**                             |   | **2006** |   | **2005** |   |
| **REVENUES**                                                       |   |                             |    |                            |   |   |   |   |   |
| Electric                Generation, Transmission and Distribution  |   | $                                     | 162,902 |                                 | $      | 192,932 |   | $ | 435,801 |   | $ | 559,822 |   |
| Sales                to AEP Affiliates                             |   |                                  | 1,559   |                                 |   | 2,528 |   |   | 4,703 |   |   | 12,794 |   |
| Other                - Nonaffiliated                               |   |                                  | 9,462   |                                 |   | 7,905 |   |   | 30,196 |   |   | 34,432 |   |
| **TOTAL**                                                          |   |                                  | 173,923 |                                 |   | 203,365 |   |   | 470,700 |   |   | 607,048 |   |
|                                                               |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                       |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Fuel                and Other Consumables for Electric Generation  |   |                                  | 2,006   |                                 |   | 1,915 |   |   | 4,728 |   |   | 12,047 |   |
| Purchased                Electricity for Resale                    |   |                                  | 725     |                                 |   | 1,691 |   |   | 3,557 |   |   | 27,057 |   |
| Other                Operation                                     |   |                                  | 61,057  |                                 |   | 64,408 |   |   | 183,241 |   |   | 221,741 |   |
| Maintenance                                                        |   |                                  | 10,679  |                                 |   | 8,782 |   |   | 27,255 |   |   | 38,254 |   |
| Depreciation                and Amortization                       |   |                                  | 40,298  |                                 |   | 40,342 |   |   | 110,848 |   |   | 105,062 |   |
| Taxes                Other Than Income Taxes                       |   |                                  | 23,387  |                                 |   | 22,828 |   |   | 60,421 |   |   | 66,282 |   |
| **TOTAL**                                                          |   |                                  | 138,152 |                                 |   | 139,966 |   |   | 390,050 |   |   | 470,443 |   |
|                                                               |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **OPERATING                INCOME**                                |   |                                  | 35,771  |                                 |   | 63,399 |   |   | 80,650 |   |   | 136,605 |   |
|                                                               |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **Other                Income (Expense):**                         |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Interest                Income                                     |   |                                  | 560     |                                 |   | 8,295 |   |   | 1,592 |   |   | 15,722 |   |
| Carrying                Costs Income                               |   |                                  | 25,443  |                                 |   | 15,349 |   |   | 65,279 |   |   | 30,146 |   |
| Allowance                for Equity Funds Used During Construction |   |                                  | 667     |                                 |   | (59 | ) |   | 1,671 |   |   | 641 |   |
| Interest                Expense                                    |   |                                  | (36,746 | )                                    |   | (25,374 | ) |   | (93,401 | ) |   | (85,095 | ) |
|                                                               |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **INCOME                BEFORE INCOME TAXES**                      |   |                                  | 25,695  |                                 |   | 61,610 |   |   | 55,791 |   |   | 98,019 |   |
|                                                               |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Income                Tax Expense                                  |   |                                  | 8,460   |                                 |   | 21,134 |   |   | 17,808 |   |   | 28,038 |   |
|                                                               |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **NET                INCOME**                                      |   |                                  | 17,235  |                                 |   | 40,476 |   |   | 37,983 |   |   | 69,981 |   |
|                                                               |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Preferred                Stock Dividend Requirements               |   |                                  | 60      |                                 |   | 60 |   |   | 181 |   |   | 181 |   |
|                                                               |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **EARNINGS                APPLICABLE TO COMMON STOCK**             |   | $                                     | 17,175  |                                 | $      | 40,416 |   | $ | 37,802 |   | $ | 69,800 |   |

*           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 (LOSS)**

**For      the Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                                                        |   | **Common                Stock** |   | **Paid-in                Capital** |   | **Retained                Earnings** |   | **Accumulated                Other Comprehensive Income (Loss)** |      | **Total**    |   |
|---------------------------------------------------------------------------------------------|--------|---------------------------------|--------|------------------------------------|--------|--------------------------------------|--------|------------------------------------------------------------------|-----------|--------------|--------|
|                                                                                        |   |                       |   |                          |   |                            |   |                                                        |      |    |   |
| **DECEMBER                31, 2004**                                                        |   | $                               | 55,292 |                               | $      | 132,606                              |   | $                                                                | 1,084,904 |         | $      | (4,159 | ) | $ | 1,268,643 |   |
|                                                                                        |   |                            |   |                               |   |                                 |   |                                                             |      |         |   |   |   |   |   |   |
| Common                Stock Dividends                                                       |   |                            |   |                               |   |                                 |   |                                                             | (150,000  | )            |   |   |   |   | (150,000 | ) |
| Preferred                Stock Dividends                                                    |   |                            |   |                               |   |                                 |   |                                                             | (181      | )            |   |   |   |   | (181 | ) |
| **TOTAL**                                                                                   |   |                            |   |                               |   |                                 |   |                                                             |      |         |   |   |   |   | 1,118,462 |   |
|                                                                                        |   |                            |   |                               |   |                                 |   |                                                             |      |         |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                                                     |   |                            |   |                               |   |                                 |   |                                                             |      |         |   |   |   |   |   |   |
| **Other                Comprehensive Income (Loss), ****Net                of Taxes:** |   |                            |   |                               |   |                                 |   |                                                             |      |         |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $1,626                                       |   |                            |   |                               |   |                                 |   |                                                             |      |         |   | (3,021 | ) |   | (3,021 | ) |
| Minimum                Pension Liability, Net of Tax of                $0                   |   |                            |   |                               |   |                                 |   |                                                             |      |         |   | 3,810 |   |   | 3,810 |   |
| **NET                INCOME**                                                               |   |                            |   |                               |   |                                 |   |                                                             | 69,981    |         |   |   |   |   | 69,981 |   |
| **TOTAL                COMPREHENSIVE INCOME**                                               |   |                            |   |                               |   |                                 |   |                                                             |      |         |   |   |   |   | 70,770 |   |
|                                                                                        |   |                            |   |                               |   |                                 |   |                                                             |      |         |   |   |   |   |   |   |
| **SEPTEMBER                30, 2005**                                                       |   | $                               | 55,292 |                               | $      | 132,606                              |   | $                                                                | 1,004,704 |         | $      | (3,370 | ) | $ | 1,189,232 |   |
|                                                                                        |   |                            |   |                               |   |                                 |   |                                                             |      |         |   |   |   |   |   |   |
| **DECEMBER                31, 2005**                                                        |   | $                               | 55,292 |                               | $      | 132,606                              |   | $                                                                | 760,884   |         | $      | (1,152 | ) | $ | 947,630 |   |
|                                                                                        |   |                            |   |                               |   |                                 |   |                                                             |      |         |   |   |   |   |   |   |
| Preferred                Stock Dividends                                                    |   |                            |   |                               |   |                                 |   |                                                             | (181      | )            |   |   |   |   | (181 | ) |
| **TOTAL**                                                                                   |   |                            |   |                               |   |                                 |   |                                                             |      |         |   |   |   |   | 947,449 |   |
|                                                                                        |   |                            |   |                               |   |                                 |   |                                                             |      |         |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                                                     |   |                            |   |                               |   |                                 |   |                                                             |      |         |   |   |   |   |   |   |
| **Other                Comprehensive Income, Net of Taxes:**                           |   |                            |   |                               |   |                                 |   |                                                             |      |         |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $121                                         |   |                            |   |                               |   |                                 |   |                                                             |      |         |   | 224 |   |   | 224 |   |
| **NET                INCOME**                                                               |   |                            |   |                               |   |                                 |   |                                                             | 37,983    |         |   |   |   |   | 37,983 |   |
| **TOTAL                COMPREHENSIVE INCOME**                                               |   |                            |   |                               |   |                                 |   |                                                             |      |         |   |   |   |   | 38,207 |   |
|                                                                                        |   |                            |   |                               |   |                                 |   |                                                             |      |         |   |   |   |   |   |   |
| **SEPTEMBER                30, 2006**                                                       |   | $                               | 55,292 |                               | $      | 132,606                              |   | $                                                                | 798,686   |         | $      | (928 | ) | $ | 985,656 |   |

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

----

**AEP      TEXAS CENTRAL COMPANY AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**September      30, 2006 and December 31, 2005**

**(in      thousands)**

**(Unaudited)**

|                                                              |   | **2006**     |      | **2005**     |   |
|-------------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                ASSETS**                                 |   |    |      |    |   |
| Cash                and Cash Equivalents                          |   | $            | 5         |         | $      | - |   |
| Other                Cash Deposits                                |   |         | 41,728    |         |   | 66,153 |   |
| Advances                to Affiliates                             |   |         | 25,304    |         |   | - |   |
| Accounts                Receivable:                               |   |         |      |         |   |   |   |
| Customers                                                         |   |         | 65,875    |         |   | 209,957 |   |
| Affiliated                Companies                               |   |         | 8,633     |         |   | 23,486 |   |
| Accrued                Unbilled Revenues                          |   |         | 25,350    |         |   | 25,606 |   |
| Allowance                for Uncollectible Accounts               |   |         | (217      | )            |   | (143 | ) |
|                  Total Accounts Receivable                   |   |         | 99,641    |         |   | 258,906 |   |
| Unbilled                Construction Costs                        |   |         | 6,352     |         |   | 19,440 |   |
| Materials                and Supplies                             |   |         | 24,995    |         |   | 13,897 |   |
| Risk                Management Assets                             |   |         | -         |         |   | 14,311 |   |
| Prepayments                and Other                              |   |         | 5,645     |         |   | 5,231 |   |
| **TOTAL**                                                         |   |         | 203,670   |         |   | 377,938 |   |
|                                                              |   |         |      |         |   |   |   |
| **PROPERTY,                PLANT AND EQUIPMENT**                  |   |         |      |         |   |   |   |
| Electric:                                                         |   |         |      |         |   |   |   |
| Transmission                                                      |   |         | 900,774   |         |   | 817,351 |   |
| Distribution                                                      |   |         | 1,559,593 |         |   | 1,476,683 |   |
| Other                                                             |   |         | 232,023   |         |   | 233,361 |   |
| Construction                Work in Progress                      |   |         | 126,418   |         |   | 129,800 |   |
| **Total**                                                         |   |         | 2,818,808 |         |   | 2,657,195 |   |
| Accumulated                Depreciation and Amortization          |   |         | 637,517   |         |   | 636,078 |   |
| **TOTAL                - NET**                                    |   |         | 2,181,291 |         |   | 2,021,117 |   |
|                                                              |   |         |      |         |   |   |   |
| **OTHER                NONCURRENT ASSETS**                        |   |         |      |         |   |   |   |
| Regulatory                Assets                                  |   |         | 1,710,352 |         |   | 1,688,787 |   |
| Securitized                Transition Assets                      |   |         | 557,520   |         |   | 593,401 |   |
| Long-term                Risk Management Assets                   |   |         | -         |         |   | 11,609 |   |
| Employee                Benefits and Pension Assets               |   |         | 112,594   |         |   | 114,733 |   |
| Deferred                Charges and Other                         |   |         | 57,276    |         |   | 53,011 |   |
| **TOTAL**                                                         |   |         | 2,437,742 |         |   | 2,461,541 |   |
|                                                              |   |         |      |         |   |   |   |
| **Assets                Held for Sale - Texas Generation Plants** |   |         | 45,863    |         |   | 44,316 |   |
|                                                              |   |         |      |         |   |   |   |
| **TOTAL                ASSETS**                                   |   | $            | 4,868,566 |         | $      | 4,904,912 |   |

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

----

**AEP      TEXAS CENTRAL COMPANY AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**LIABILITIES      AND SHAREHOLDERS’ EQUITY**

**September      30, 2006 and December 31, 2005**

**(Unaudited)**

|                                                                          |   | **2006**                          |      | **2005** |   |
|-------------------------------------------------------------------------------|--------|-----------------------------------|-----------|----------|--------|
| **CURRENT                LIABILITIES**                                        |   | **(in                thousands)** |      |
| Advances                from Affiliates                                       |   | $                                 | -         |     | $      | 82,080 |   |
| Accounts                Payable:                                              |   |                              |      |     |   |   |   |
| General                                                                       |   |                              | 20,889    |     |   | 82,666 |   |
| Affiliated                Companies                                           |   |                              | 18,160    |     |   | 65,574 |   |
| Long-term                Debt Due Within One Year - Nonaffiliated             |   |                              | 153,364   |     |   | 152,900 |   |
| Long-term                Debt Due Within One Year - Affiliated                |   |                              | 345,000   |     |   | - |   |
| Risk                Management Liabilities                                    |   |                              | -         |     |   | 13,024 |   |
| Accrued                Taxes                                                  |   |                              | 74,887    |     |   | 54,566 |   |
| Accrued                Interest                                               |   |                              | 16,011    |     |   | 32,497 |   |
| Other                                                                         |   |                              | 32,500    |     |   | 45,927 |   |
| **TOTAL**                                                                     |   |                              | 660,811   |     |   | 529,234 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **NONCURRENT                LIABILITIES**                                     |   |                              |      |     |   |   |   |
| Long-term                Debt - Nonaffiliated                                 |   |                              | 1,498,031 |     |   | 1,550,596 |   |
| Long-term                Debt - Affiliated                                    |   |                              | -         |     |   | 150,000 |   |
| Long-term                Risk Management Liabilities                          |   |                              | -         |     |   | 7,857 |   |
| Deferred                Income Taxes                                          |   |                              | 1,014,840 |     |   | 1,048,372 |   |
| Regulatory                Liabilities and Deferred Investment Tax Credits     |   |                              | 684,566   |     |   | 652,143 |   |
| Deferred                Credits and Other                                     |   |                              | 18,723    |     |   | 13,140 |   |
| **TOTAL**                                                                     |   |                              | 3,216,160 |     |   | 3,422,108 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **TOTAL                LIABILITIES**                                          |   |                              | 3,876,971 |     |   | 3,951,342 |   |
|                                                                          |   |                              |      |     |   |   |   |
| Cumulative                Preferred Stock Not Subject to Mandatory Redemption |   |                              | 5,939     |     |   | 5,940 |   |
|                                                                          |   |                              |      |     |   |   |   |
| Commitments                and Contingencies (Note 5)                         |   |                              |      |     |   |   |   |
|                                                                          |   |                              |      |     |   |   |   |
| **COMMON                SHAREHOLDER’S EQUITY**                          |   |                              |      |     |   |   |   |
| Common                Stock - $25 Par Value 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                                              |   |                              | 798,686   |     |   | 760,884 |   |
| Accumulated                Other Comprehensive Income (Loss)                  |   |                              | (928      | )        |   | (1,152 | ) |
| **TOTAL**                                                                     |   |                              | 985,656   |     |   | 947,630 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **TOTAL                LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                 | 4,868,566 |     | $      | 4,904,912 |   |

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

----

**AEP      TEXAS CENTRAL COMPANY AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For      the Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                                                   |   | **2006**     |     | **2005**     |   |
|----------------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                ACTIVITIES**                                                |   |    |     |    |   |
| **Net                Income**                                                          |   | $            | 37,983   |         | $      | 69,981 |   |
| **Adjustments                for Noncash Items:**                                      |   |         |     |         |   |   |   |
| Depreciation                and Amortization                                           |   |         | 110,848  |         |   | 105,062 |   |
| Accretion                of Asset Retirement Obligations                               |   |         | 55       |         |   | 7,549 |   |
| Deferred                Income Taxes                                                   |   |         | 5,770    |         |   | (63,426 | ) |
| Carrying                Costs on Stranded Cost Recovery                                |   |         | (65,279  | )            |   | (30,146 | ) |
| Mark-to-Market                of Risk Management Contracts                             |   |         | 5,426    |         |   | (1,139 | ) |
| Over/Under                Fuel Recovery                                                |   |         | 7,225    |         |   | (2,000 | ) |
| Deferred                Property Taxes                                                 |   |         | (8,296   | )            |   | (7,600 | ) |
| Change                in Other Noncurrent Assets                                       |   |         | 17,653   |         |   | (9,777 | ) |
| Change                in Other Noncurrent Liabilities                                  |   |         | (17,249  | )            |   | (1,390 | ) |
| **Changes                in Components of Working Capital:**                           |   |         |     |         |   |   |   |
| Accounts                Receivable, Net                                                |   |         | 159,265  |         |   | (22,504 | ) |
| Fuel,                Materials and Supplies                                            |   |         | (11,508  | )            |   | (1,763 | ) |
| Accounts                Payable                                                        |   |         | (107,505 | )            |   | (10,533 | ) |
| Customer                Deposits                                                       |   |         | (6,461   | )            |   | 12,844 |   |
| Accrued                Taxes, Net                                                      |   |         | 16,387   |         |   | (110,975 | ) |
| Accrued                Interest                                                        |   |         | (16,486  | )            |   | (24,495 | ) |
| Other                Current Assets                                                    |   |         | 16,611   |         |   | (13,709 | ) |
| Other                Current Liabilities                                               |   |         | (6,968   | )            |   | 8,590 |   |
| **Net                Cash Flows From (Used For) Operating Activities**                 |   |         | 137,471  |         |   | (95,431 | ) |
|                                                                                   |   |         |     |         |   |   |   |
| **INVESTING                ACTIVITIES**                                                |   |         |     |         |   |   |   |
| Construction                Expenditures                                               |   |         | (203,116 | )            |   | (109,372 | ) |
| Change                in Other Cash Deposits, Net                                      |   |         | 25,068   |         |   | 93,427 |   |
| Change                in Advances to Affiliates, Net                                   |   |         | (25,304  | )            |   | - |   |
| Purchases                of Investment Securities                                      |   |         | -        |         |   | (154,364 | ) |
| Sales                of Investment Securities                                          |   |         | -        |         |   | 149,804 |   |
| Proceeds                from Sale of Assets                                            |   |         | 6,083    |         |   | 313,966 |   |
| **Net                Cash Flows From (Used For) Investing Activities**                 |   |         | (197,269 | )            |   | 293,461 |   |
|                                                                                   |   |         |     |         |   |   |   |
| **FINANCING                ACTIVITIES**                                                |   |         |     |         |   |   |   |
| Issuance                of Long-term Debt - Nonaffiliated                              |   |         | -        |         |   | 276,663 |   |
| Issuance                of Long-term Debt - Affiliated                                 |   |         | 195,000  |         |   | 150,000 |   |
| Change                in Advances from Affiliates, Net                                 |   |         | (82,080  | )            |   | 11,814 |   |
| Retirement                of Long-term Debt                                            |   |         | (52,265  | )            |   | (486,007 | ) |
| Retirement                of Preferred Stock                                           |   |         | (1       | )            |   | - |   |
| Principal                Payments for Capital Lease Obligations                        |   |         | (670     | )            |   | (342 | ) |
| Dividends                Paid on Common Stock                                          |   |         | -        |         |   | (150,000 | ) |
| Dividends                Paid on Cumulative Preferred Stock                            |   |         | (181     | )            |   | (181 | ) |
| **Net                Cash Flows From (Used For) Financing Activities**                 |   |         | 59,803   |         |   | (198,053 | ) |
|                                                                                   |   |         |     |         |   |   |   |
| **Net                Increase (Decrease) in Cash and Cash Equivalents**                |   |         | 5        |         |   | (23 | ) |
| **Cash                and Cash Equivalents at Beginning of Period**                    |   |         | -        |         |   | 26 |   |
| **Cash                and Cash Equivalents at End of Period**                          |   | $            | 5        |         | $      | 3 |   |
|                                                                                   |   |         |     |         |   |   |   |
| **SUPPLEMENTAL                DISCLOSURE**                                             |   |         |     |         |   |   |   |
| Cash                Paid for Interest, Net of Capitalized Amounts                      |   | $            | 93,165   |         | $      | 95,066 |   |
| Net                Cash Paid (Received) for Income Taxes                               |   |         | (2,764   | )            |   | 207,079 |   |
| Noncash                Acquisitions Under Capital Leases                               |   |         | 3,282    |         |   | 277 |   |
| Construction                Expenditures Included in Accounts Payable at September 30, |   |         | 9,351    |         |   | 8,797 |   |

| *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                 |
| Customer                Choice and Industry Restructuring               | Note                4                 |
| Commitments                and Contingencies                            | Note                5                 |
| Guarantees                                                              | Note                6                 |
| Company-wide                Staffing and Budget Review                  | Note                7                 |
| Acquisitions,                Assets Held for Sale and Asset Impairments | Note                8                 |
| Benefit                Plans                                            | Note                9                 |
| Income                Taxes                                             | Note                10                |
| Business                Segments                                        | Note                11                |
| Financing                Activities                                     | Note                12                |

----

**AEP      TEXAS NORTH COMPANY AND SUBSIDIARY**

----

**AEP      TEXAS NORTH COMPANY AND SUBSIDIARY**

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

**Allocation      Agreement between AEP East companies and AEP West      companies**

**AEP      Texas North Generation Company, LLC**

**Results      of Operations**

**Reconciliation      of Third Quarter of 2005 to Third Quarter of 2006 Net      Income**

**(in      millions)**

| **Third                Quarter of 2005**                    |   |   |   |   | $      | 22     |   |
|-------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                        |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                 |   |   |   |   |   |   |   |
| Texas                Supply                                 |   |   | (12    | )      |   |   |   |
| Texas                Wires                                  |   |   | (1     | )      |   |   |   |
| Off-system                Sales                             |   |   | (10    | )      |   |   |   |
| Transmission                Revenues                        |   |   | 1      |   |   |   |   |
| **Total                Change in Gross Margin**             |   |   |   |   |   | (22    | )      |
|                                                        |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:** |   |   |   |   |   |   |   |
| Other                Operation and Maintenance              |   |   |   |   |   | 1      |   |
|                                                        |   |   |   |   |   |   |   |
| Income                Tax** **Expense                  |   |   |   |   |   | 7      |   |
|                                                        |   |   |   |   |   |   |   |
| **Third                Quarter of 2006**                    |   |   |   |   | $      | 8      |   |

| · | Texas                Supply margins decreased $12 million primarily due to a $28 million                decrease in dedicated energy and capacity sales, offset by $16 million                of                lower fuel and purchased power costs. This decrease in Texas Supply                margins was affected by market conditions within ERCOT.                                                                                                                                                                                       |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Margins                from Off-system Sales decreased $10 million due to a $5 million decrease                in margin sharing under the SIA (no current margin sharing under                the CSW                Operating Agreement and the SIA) and a $5 million decrease in margins                from                optimization activities. See                the “Allocation Agreement between AEP East companies and AEP West                companies and CSW Operating Agreement” section of Note                3. |

*Income      Taxes*

**Reconciliation      of Nine**
**      Months Ended September 30, **
**2005      to **

**Nine      **
**Months      Ended September 30, **
**2006      Net Income**

**(in      millions)**

| **Nine                Months Ended September 30,****2005**      |   |   |   |   | $      | 42     |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Texas                Supply                                     |   |   | (29    | )      |   |   |   |
| Texas                Wires                                      |   |   | (2     | )      |   |   |   |
| Off-system                Sales                                 |   |   | (11    | )      |   |   |   |
| Transmission                Revenues                            |   |   | (5     | )      |   |   |   |
| Other                                                           |   |   | (39    | )      |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | (86    | )      |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | 38     |   |   |   |   |
| Interest                Expense                                 |   |   | 1      |   |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | 39     |   |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax** **Expense                      |   |   |   |   |   | 17     |   |
|                                                            |   |   |   |   |   |   |   |
| **Nine                Months Ended September 30,****2006**      |   |   |   |   | $      | 12     |   |

| · | Texas                Supply margins decreased $29 million primarily due to a $58 million                decrease in dedicated energy and capacity sales, offset by $28 million                of                lower fuel and purchased power costs. This decrease in Texas Supply                margins was affected by market conditions within ERCOT.                                                                               |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Margins                from Off-system Sales decreased $11 million due to a $6 million decrease                in margin sharing under the SIA and a $5 million decrease in margins                from                optimization activities. See                the “Allocation Agreement between AEP East companies and AEP West                companies and CSW Operating Agreement” section of Note                3. |
| · | Transmission                Revenues decreased $5 million primarily due to reduced affiliated                transmission fees resulting from the elimination of the affiliated                OATT in                2005.                                                                                                                                                                                                              |
| · | Other                revenues decreased $39 million primarily resulting from the completion                of                certain third party construction projects related to work performed                for                the Lower Colorado River Authority.                                                                                                                                                                   |

| · | Other                Operation and Maintenance expenses decreased $38 million primarily                due to                lower expenses related to the completion of certain third party                construction projects related to work performed for the Lower Colorado                River Authority. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Income      Taxes*

**Financial      Condition**

**Credit      Ratings**

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

**Financing      Activity**

**Liquidity**

**Summary      Obligation Information**

**Significant      Factors**

***Litigation      and Regulatory Activity***

**Critical      Accounting Estimates**

----

**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 September 30, 2006**

**(in      thousands)**

|                                                                      |   | **MTM                Risk Management Contracts** |   | **Cash                Flow Hedges** |   | **Total** |   |
|---------------------------------------------------------------------------|--------|--------------------------------------------------|--------|-------------------------------------|--------|-----------|--------|
| Current                Assets                                             |   | $                                                | -      |                                | $      | -         |   | $ | - |   |
| Noncurrent                Assets                                          |   |                                             | -      |                                |   | -         |   |   | - |   |
| **Total                MTM Derivative Contract Assets**                   |   |                                             | -      |                                |   | -         |   |   | - |   |
|                                                                      |   |                                             |   |                                |   |      |   |   |   |   |
| Current                Liabilities                                        |   |                                             | (2,138 | )                                   |   | -         |   |   | (2,138 | ) |
| Noncurrent                Liabilities                                     |   |                                             | -      |                                |   | (2,057    | )      |   | (2,057 | ) |
| **Total                MTM Derivative Contract Liabilities**              |   |                                             | (2,138 | )                                   |   | (2,057    | )      |   | (4,195 | ) |
|                                                                      |   |                                             |   |                                |   |      |   |   |   |   |
| **Total                MTM Derivative Contract Net Assets (Liabilities)** |   | $                                                | (2,138 | )                                   | $      | (2,057    | )      | $ | (4,195 | ) |

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

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

| **Total                MTM Risk Management Contract Net Assets at December 31,                2005**                                           |   | $      | 2,698  |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                Loss from Contracts Realized/Settled During the Period and Entered                in a                Prior Period       |   |   | (585   | )      |
| 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)                                           |   |   | (3,437 | )      |
| Changes                Due to SIA and CSW Operating Agreement (c)                                                                              |   |   | (814   | )      |
| Changes                in Fair Value Allocated to Regulated Jurisdictions (d)                                                                  |   |   | -      |   |
| **Total                MTM Risk Management Contract Net Assets                (Liabilities)**                                                  |   |   | (2,138 | )      |
| Net                Cash Flow Hedge Contracts                                                                                                   |   |   | (2,057 | )      |
| **Total                MTM Risk Management Contract Net Assets (Liabilities) at September                30,                2006**             |   | $      | (4,195 | )      |

| (a) | Most                of the fair value comes from longer term fixed price contracts with                customers that seek 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) | See                “Allocation Agreement between AEP East companies and AEP West companies”                section of this Management’s Financial Discussion and                Analysis.                                                                                                                                                                                                                                                                                                                                           |
| (d) | “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**

|                                                                                                                       |   | **Remainder****2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                Actively Quoted - Exchange Traded                Contracts                                      |   | $                     | -      |     | $      | -        |   | $        | -      |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | - |   |
| Prices                Provided by Other External Sources                - OTC Broker                  Quotes (a) |   |                  | (2,138 | )        |   | -        |   |     | -      |     |   | -                 |   |      | -      |   |   | - |   |   | (2,138 | ) |
| Prices                Based on Models and Other Valuation                Methods (b)                                  |   |                  | -      |     |   | -        |   |     | -      |     |   | -                 |   |      | -      |   |   | - |   |   | - |   |
| **Total**                                                                                                                  |   | $                     | (2,138 | )        | $      | -        |   | $        | -      |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | (2,138 | ) |

| (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. |

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

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

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

|                                                                                  |   | **Power** |   |
|---------------------------------------------------------------------------------------|--------|-----------|--------|
| **Beginning                Balance in AOCI December 31, 2005**                        |   | $         | (111   | ) |
| Changes                in Fair Value                                                  |   |      | (1,337 | ) |
| Impact                Due to Change in SIA (a)                                        |   |      | 98     |   |
| Reclassifications                from AOCI to Net Income for Cash Flow Hedges Settled |   |      | 13     |   |
| **Ending                Balance in AOCI September 30, 2006**                          |   | $         | (1,337 | ) |

| (a) | See                “Allocation Agreement between AEP East companies and AEP West companies”                section of this Management’s Financial Discussion and                Analysis. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Credit      Risk**

**VaR      Associated with Risk Management Contracts**

| **Nine                Months Ended****September                30, 2006** |   |     |   |        | **Twelve                Months Ended****December                31, 2005** |
|---------------------------------------------------------------------------|--------|----------|--------|-------------|----------------------------------------------------------------------------|
| **(in                thousands)**                                         |   |     |   |        | **(in                thousands)**                                          |
| **End**                                                                   |   | **High** |   | **Average** |                                                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $-                                                                        |   | $23      |   | $4          |                                                                       | $- |   |   |   |   | $55 |   | $92 |   | $44 |   | $16 |

**VaR      Associated with Debt Outstanding**

----

**AEP      TEXAS NORTH COMPANY AND SUBSIDIARY**

**CONDENSED      CONSOLIDATED STATEMENTS OF INCOME**

**For      the Three and Nine Months Ended September 30, 2006 and      2005**

**(in      thousands)**

**(Unaudited)**

|                                                               |   | **Three                Months Ended** |   | **Nine                Months Ended** |   |
|--------------------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                                               |   | **2006**                              |   | **2005**                             |   | **2006** |   | **2005** |   |
| **REVENUES**                                                       |   |                             |   |                            |   |   |   |   |   |
| Electric                Generation, Transmission and Distribution  |   | $                                     | 79,805 |                                 | $      | 111,107 |   | $ | 219,681 |   | $ | 280,195 |   |
| Sales                to AEP Affiliates                             |   |                                  | 7,711  |                                 |   | 13,019 |   |   | 25,596 |   |   | 37,189 |   |
| Other                                                              |   |                                  | 246    |                                 |   | 1,971 |   |   | 149 |   |   | 42,324 |   |
| **TOTAL**                                                          |   |                                  | 87,762 |                                 |   | 126,097 |   |   | 245,426 |   |   | 359,708 |   |
|                                                               |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                       |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Fuel                and Other Consumables for Electric Generation  |   |                                  | 14,016 |                                 |   | 13,433 |   |   | 33,175 |   |   | 37,772 |   |
| Purchased                Electricity for Resale                    |   |                                  | 14,606 |                                 |   | 34,425 |   |   | 60,343 |   |   | 88,367 |   |
| Purchased                Electricity from AEP Affiliates           |   |                                  | 2,436  |                                 |   | 1 |   |   | 3,978 |   |   | 23 |   |
| Other                Operation                                     |   |                                  | 19,003 |                                 |   | 18,878 |   |   | 59,192 |   |   | 97,135 |   |
| Maintenance                                                        |   |                                  | 5,088  |                                 |   | 5,954 |   |   | 15,505 |   |   | 15,093 |   |
| Depreciation                and Amortization                       |   |                                  | 10,767 |                                 |   | 10,435 |   |   | 31,172 |   |   | 30,952 |   |
| Taxes                Other Than Income Taxes                       |   |                                  | 5,478  |                                 |   | 6,047 |   |   | 16,874 |   |   | 17,465 |   |
| **TOTAL**                                                          |   |                                  | 71,394 |                                 |   | 89,173 |   |   | 220,239 |   |   | 286,807 |   |
|                                                               |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **OPERATING                INCOME**                                |   |                                  | 16,368 |                                 |   | 36,924 |   |   | 25,187 |   |   | 72,901 |   |
|                                                               |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **Other                Income (Expense):**                         |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Interest                Income                                     |   |                                  | 203    |                                 |   | 890 |   |   | 542 |   |   | 1,688 |   |
| Allowance                for Equity Funds Used During Construction |   |                                  | 146    |                                 |   | 137 |   |   | 636 |   |   | 366 |   |
| Interest                Expense                                    |   |                                  | (4,472 | )                                    |   | (4,931 | ) |   | (13,351 | ) |   | (14,784 | ) |
|                                                               |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **INCOME                BEFORE INCOME TAXES**                      |   |                                  | 12,245 |                                 |   | 33,020 |   |   | 13,014 |   |   | 60,171 |   |
|                                                               |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Income                Tax Expense                                  |   |                                  | 3,799  |                                 |   | 10,716 |   |   | 1,326 |   |   | 18,469 |   |
|                                                               |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **NET                INCOME**                                      |   |                                  | 8,446  |                                 |   | 22,304 |   |   | 11,688 |   |   | 41,702 |   |
|                                                               |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| Preferred                Stock Dividend Requirements               |   |                                  | 26     |                                 |   | 26 |   |   | 78 |   |   | 78 |   |
| Gain                on Reacquired Preferred Stock                  |   |                                  | -      |                                 |   | - |   |   | 2 |   |   | - |   |
|                                                               |   |                                  |   |                                 |   |   |   |   |   |   |   |   |   |
| **EARNINGS                APPLICABLE TO COMMON STOCK**             |   | $                                     | 8,420  |                                 | $      | 22,278 |   | $ | 11,612 |   | $ | 41,624 |   |

*           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 (LOSS)**

**For      the Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                            |   | **Common                Stock** |    | **Paid-in                Capital** |   | **Retained                Earnings** |   | **Accumulated                Other Comprehensive Income (Loss)** |    | **Total** |   |
|-----------------------------------------------------------------|--------|---------------------------------|---------|------------------------------------|--------|--------------------------------------|--------|------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                31, 2004**                            |   | $                               | 137,214 |                               | $      | 2,351                                |   | $                                                                | 170,984 |      | $      | (128 | ) | $ | 310,421 |   |
|                                                            |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Common                Stock Dividends                           |   |                            |    |                               |   |                                 |   |                                                             | (20,827 | )         |   |   |   |   | (20,827 | ) |
| Preferred                Stock Dividends                        |   |                            |    |                               |   |                                 |   |                                                             | (78     | )         |   |   |   |   | (78 | ) |
| **TOTAL**                                                       |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 289,516 |   |
|                                                            |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                         |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **Other                Comprehensive Loss, Net of Taxes:**      |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $698             |   |                            |    |                               |   |                                 |   |                                                             |    |      |   | (1,296 | ) |   | (1,296 | ) |
| **NET                INCOME**                                   |   |                            |    |                               |   |                                 |   |                                                             | 41,702  |      |   |   |   |   | 41,702 |   |
| **TOTAL                COMPREHENSIVE INCOME**                   |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 40,406 |   |
|                                                            |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **SEPTEMBER                30, 2005**                           |   | $                               | 137,214 |                               | $      | 2,351                                |   | $                                                                | 191,781 |      | $      | (1,424 | ) | $ | 329,922 |   |
|                                                            |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **DECEMBER                31, 2005**                            |   | $                               | 137,214 |                               | $      | 2,351                                |   | $                                                                | 174,858 |      | $      | (504 | ) | $ | 313,919 |   |
|                                                            |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Common                Stock Dividends                           |   |                            |    |                               |   |                                 |   |                                                             | (12,750 | )         |   |   |   |   | (12,750 | ) |
| Preferred                Stock Dividends                        |   |                            |    |                               |   |                                 |   |                                                             | (78     | )         |   |   |   |   | (78 | ) |
| Gain                on Reacquired Preferred Stock               |   |                            |    |                               |   |                                 |   |                                                             | 2       |      |   |   |   |   | 2 |   |
| **TOTAL**                                                       |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 301,093 |   |
|                                                            |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                         |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **Other                Comprehensive Loss, Net of Taxes:** |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $660             |   |                            |    |                               |   |                                 |   |                                                             |    |      |   | (1,226 | ) |   | (1,226 | ) |
| **NET                INCOME**                                   |   |                            |    |                               |   |                                 |   |                                                             | 11,688  |      |   |   |   |   | 11,688 |   |
| **TOTAL                COMPREHENSIVE INCOME**                   |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 10,462 |   |
|                                                            |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **SEPTEMBER                30, 2006**                           |   | $                               | 137,214 |                               | $      | 2,351                                |   | $                                                                | 173,720 |      | $      | (1,730 | ) | $ | 311,555 |   |

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

----

**AEP      TEXAS NORTH COMPANY AND SUBSIDIARY**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**September      30, 2006 and December 31, 2005**

**(in      thousands)**

**(Unaudited)**

|                                                     |   | **2006**     |      | **2005**     |   |
|----------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                ASSETS**                        |   |    |      |    |   |
| Cash                and Cash Equivalents                 |   | $            | -         |         | $      | - |   |
| Other                Cash Deposits                       |   |         | 9,087     |         |   | 1,432 |   |
| Advances                to Affiliates                    |   |         | 4,383     |         |   | 34,286 |   |
| Accounts                Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                |   |         | 23,367    |         |   | 77,678 |   |
| Affiliated                Companies                      |   |         | 11,910    |         |   | 26,149 |   |
| Accrued                Unbilled Revenues                 |   |         | 2,567     |         |   | 5,016 |   |
| Allowance                for Uncollectible Accounts      |   |         | (24       | )            |   | (18 | ) |
| Total                Accounts Receivable                 |   |         | 37,820    |         |   | 108,825 |   |
| Fuel                                                     |   |         | 5,528     |         |   | 2,636 |   |
| Materials                and Supplies                    |   |         | 8,459     |         |   | 6,858 |   |
| Risk                Management Assets                    |   |         | -         |         |   | 7,114 |   |
| Prepayments                and Other                     |   |         | 1,537     |         |   | 3,772 |   |
| **TOTAL**                                                |   |         | 66,814    |         |   | 164,923 |   |
|                                                     |   |         |      |         |   |   |   |
| **PROPERTY,                PLANT AND EQUIPMENT**         |   |         |      |         |   |   |   |
| Electric:                                                |   |         |      |         |   |   |   |
| Production                                               |   |         | 290,391   |         |   | 288,934 |   |
| Transmission                                             |   |         | 324,724   |         |   | 289,029 |   |
| Distribution                                             |   |         | 507,307   |         |   | 492,878 |   |
| Other                                                    |   |         | 165,403   |         |   | 167,849 |   |
| Construction                Work in Progress             |   |         | 31,991    |         |   | 46,424 |   |
| **Total**                                                |   |         | 1,319,816 |         |   | 1,285,114 |   |
| Accumulated                Depreciation and Amortization |   |         | 486,131   |         |   | 478,519 |   |
| **TOTAL                - NET**                           |   |         | 833,685   |         |   | 806,595 |   |
|                                                     |   |         |      |         |   |   |   |
| **OTHER                NONCURRENT ASSETS**               |   |         |      |         |   |   |   |
| Regulatory                Assets                         |   |         | 8,920     |         |   | 9,787 |   |
| Long-term                Risk Management Assets          |   |         | -         |         |   | 5,772 |   |
| Employee                Benefits and Pension Assets      |   |         | 45,409    |         |   | 46,289 |   |
| Deferred                Charges and Other                |   |         | 7,153     |         |   | 10,468 |   |
| **TOTAL**                                                |   |         | 61,482    |         |   | 72,316 |   |
|                                                     |   |         |      |         |   |   |   |
| **TOTAL                ASSETS**                          |   | $            | 961,981   |         | $      | 1,043,834 |   |

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

----

**AEP      TEXAS NORTH COMPANY AND SUBSIDIARY**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

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

**September      30, 2006 and December 31, 2005**

**(Unaudited)**

|                                                                          |   | **2006**                          |    | **2005** |   |
|-------------------------------------------------------------------------------|--------|-----------------------------------|---------|----------|--------|
| **CURRENT                LIABILITIES**                                        |   | **(in                thousands)** |    |
| Accounts                Payable:                                              |   |                              |    |     |   |   |   |
| General                                                                       |   | $                                 | 9,151   |     | $      | 19,739 |   |
| Affiliated                Companies                                           |   |                              | 27,854  |     |   | 84,923 |   |
| Long-term                Debt Due Within One Year - Nonaffiliated             |   |                              | 8,151   |     |   | - |   |
| Risk                Management Liabilities                                    |   |                              | 2,138   |     |   | 6,475 |   |
| Accrued                Taxes                                                  |   |                              | 29,458  |     |   | 21,212 |   |
| Other                                                                         |   |                              | 11,203  |     |   | 21,050 |   |
| **TOTAL**                                                                     |   |                              | 87,955  |     |   | 153,399 |   |
|                                                                          |   |                              |    |     |   |   |   |
| **NONCURRENT                LIABILITIES**                                     |   |                              |    |     |   |   |   |
| Long-term                Debt - Nonaffiliated                                 |   |                              | 268,762 |     |   | 276,845 |   |
| Long-term                Risk Management Liabilities                          |   |                              | 2,057   |     |   | 3,906 |   |
| Deferred                Income Taxes                                          |   |                              | 123,991 |     |   | 132,335 |   |
| Regulatory                Liabilities and Deferred Investment Tax Credits     |   |                              | 143,506 |     |   | 139,732 |   |
| Deferred                Credits and Other                                     |   |                              | 21,806  |     |   | 21,341 |   |
| **TOTAL**                                                                     |   |                              | 560,122 |     |   | 574,159 |   |
|                                                                          |   |                              |    |     |   |   |   |
| **TOTAL                LIABILITIES**                                          |   |                              | 648,077 |     |   | 727,558 |   |
|                                                                          |   |                              |    |     |   |   |   |
| Cumulative                Preferred Stock Not Subject to Mandatory Redemption |   |                              | 2,349   |     |   | 2,357 |   |
|                                                                          |   |                              |    |     |   |   |   |
| Commitments                and Contingencies (Note 5)                         |   |                              |    |     |   |   |   |
|                                                                          |   |                              |    |     |   |   |   |
| **COMMON                SHAREHOLDER’S EQUITY**                          |   |                              |    |     |   |   |   |
| Common                Stock - $25 Par Value 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                                              |   |                              | 173,720 |     |   | 174,858 |   |
| Accumulated                Other Comprehensive Income (Loss)                  |   |                              | (1,730  | )        |   | (504 | ) |
| **TOTAL**                                                                     |   |                              | 311,555 |     |   | 313,919 |   |
|                                                                          |   |                              |    |     |   |   |   |
| **TOTAL                LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                 | 961,981 |     | $      | 1,043,834 |   |

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

----

**AEP      TEXAS NORTH COMPANY AND SUBSIDIARY**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For      the Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                                                   |   | **2006**     |    | **2005**     |   |
|----------------------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **OPERATING                ACTIVITIES**                                                |   |    |    |    |   |
| **Net                Income**                                                          |   | $            | 11,688  |         | $      | 41,702 |   |
| **Adjustments                for Noncash Items:**                                      |   |         |    |         |   |   |   |
| Depreciation                and Amortization                                           |   |         | 31,172  |         |   | 30,952 |   |
| Deferred                Income Taxes                                                   |   |         | (4,667  | )            |   | (313 | ) |
| Mark-to-Market                of Risk Management Contracts                             |   |         | 4,836   |         |   | (452 | ) |
| Deferred                Property Taxes                                                 |   |         | (4,359  | )            |   | (4,072 | ) |
| Change                in Other Noncurrent Assets                                       |   |         | (5,173  | )            |   | (1,109 | ) |
| Change                in Other Noncurrent Liabilities                                  |   |         | (630    | )            |   | (71 | ) |
| **Changes                in Components of Working Capital:**                           |   |         |    |         |   |   |   |
| Accounts                Receivable, Net                                                |   |         | 71,005  |         |   | 9,366 |   |
| Fuel,                Materials and Supplies                                            |   |         | (4,493  | )            |   | 922 |   |
| Accounts                Payable                                                        |   |         | (66,653 | )            |   | 16,834 |   |
| Customer                Deposits                                                       |   |         | (3,571  | )            |   | 5,471 |   |
| Accrued                Taxes, Net                                                      |   |         | 7,984   |         |   | (10,097 | ) |
| Other                Current Assets                                                    |   |         | 2,496   |         |   | 11,189 |   |
| Other                Current Liabilities                                               |   |         | (5,304  | )            |   | (551 | ) |
| **Net                Cash Flows From Operating Activities**                            |   |         | 34,331  |         |   | 99,771 |   |
|                                                                                   |   |         |    |         |   |   |   |
| **INVESTING                ACTIVITIES**                                                |   |         |    |         |   |   |   |
| Construction                Expenditures                                               |   |         | (52,366 | )            |   | (44,865 | ) |
| Change                in Other Cash Deposits, Net                                      |   |         | 979     |         |   | 1,508 |   |
| Change                In Advances to Affiliates, Net                                   |   |         | 29,903  |         |   | (36,147 | ) |
| Proceeds                from Sale of Assets                                            |   |         | 250     |         |   | 1,033 |   |
| **Net                Cash Flows Used For Investing Activities**                        |   |         | (21,234 | )            |   | (78,471 | ) |
|                                                                                   |   |         |    |         |   |   |   |
| **FINANCING                ACTIVITIES**                                                |   |         |    |         |   |   |   |
| Retirement                of Preferred Stock                                           |   |         | (6      | )            |   | - |   |
| Principal                Payments for Capital Lease Obligations                        |   |         | (263    | )            |   | (180 | ) |
| Dividends                Paid on Common Stock                                          |   |         | (12,750 | )            |   | (20,827 | ) |
| Dividends                Paid on Cumulative Preferred Stock                            |   |         | (78     | )            |   | (78 | ) |
| **Net                Cash Flows Used For Financing Activities**                        |   |         | (13,097 | )            |   | (21,085 | ) |
|                                                                                   |   |         |    |         |   |   |   |
| **Net                Increase in Cash and Cash Equivalents**                           |   |         | -       |         |   | 215 |   |
| **Cash                and Cash Equivalents at Beginning of Period**                    |   |         | -       |         |   | - |   |
| **Cash                and Cash Equivalents at End of Period**                          |   | $            | -       |         | $      | 215 |   |
|                                                                                   |   |         |    |         |   |   |   |
| **SUPPLEMENTAL                DISCLOSURE**                                             |   |         |    |         |   |   |   |
| Cash                Paid for Interest, Net of Capitalized Amounts                      |   | $            | 13,988  |         | $      | 15,192 |   |
| Net                Cash Paid (Received) for Income Taxes                               |   |         | (252    | )            |   | 30,486 |   |
| Noncash                Acquisitions Under Capital Leases                               |   |         | 1,178   |         |   | 193 |   |
| Construction                Expenditures Included in Accounts Payable at September 30, |   |         | 2,155   |         |   | 2,289 |   |

| *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                 |
| Customer                Choice and Industry Restructuring | Note                4                 |
| Commitments                and Contingencies              | Note                5                 |
| Guarantees                                                | Note                6                 |
| Company-wide                Staffing and Budget Review    | Note                7                 |
| Benefit                Plans                              | Note                9                 |
| Income                Taxes                               | Note                10                |
| Business                Segments                          | Note                11                |
| Financing                Activities                       | Note                12                |

----

**APPALACHIAN      POWER COMPANY**

**AND      SUBSIDIARIES**

----

**APPALACHIAN      POWER COMPANY AND SUBSIDIARIES**

**MANAGEMENT’S      FINANCIAL DISCUSSION AND ANALYSIS**

**Results      of Operations**

**Reconciliation      of Third Quarter of 2005 to Third Quarter of 2006 Net      Income**

**(in      millions)**

| **Third                Quarter of 2005**                        |   |   |   |   | $      | 37     |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                Margins                                   |   |   | (23    | )      |   |   |   |
| Off-system                Sales                                 |   |   | 33     |   |   |   |   |
| Transmission                Revenues                            |   |   | (10    | )      |   |   |   |
| Other                                                           |   |   | 16     |   |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | 16     |   |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | 6      |   |   |   |   |
| Depreciation                and Amortization                    |   |   | (11    | )      |   |   |   |
| Carrying                Costs Income (Expense)                  |   |   | (29    | )      |   |   |   |
| Other                Income                                     |   |   | 7      |   |   |   |   |
| Interest                Expense                                 |   |   | (2     | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (29    | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | 7      |   |
|                                                            |   |   |   |   |   |   |   |
| **Third                Quarter of 2006**                        |   |   |   |   | $      | 31     |   |

| · | Retail                Margins decreased $23 million in comparison to 2005 primarily due                to:                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | a                $28 million decrease related to an increase in sharing of off-system                sales                margins with retail customers due to higher off-system sales. This                sharing                mechanism was reinstated in West Virginia effective July 1, 2006                in                conjunction with our West Virginia rate case. Retail Margins further                decreased due to; |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | a                $13 million decrease in revenues related to financial transmission                rights,                net of congestion, primarily due to fewer transmission constraints                in the                PJM market partially offset by; |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | a                $19 million increase in fuel recovery caused by the activation of                the West                Virginia fuel clause in July 2006. |
| · | Off-system                Sales increased $33 million primarily due to $19 million increase                in                physical sales margins and an $18 million increase from lower sharing                of                off-system sales margins under the SIA slightly offset by a $3 million                decrease in margins from optimization activities. See the “Allocation                Agreement between AEP East companies and AEP West companies and CSW                Operating Agreement” section of Note 3. |
| · | Transmission                Revenues decreased $10 million primarily due to the elimination of                SECA                revenues as of April 1, 2006. At this time, we have a pending proposal                with the FERC to replace SECA revenues. See the “Transmission Rate                Proceedings at the FERC” section of Note 3.                                                                                                                                                                                     |
| · | Other                revenue increased $16 million primarily due to a write off of previously                deferred gains on sales of allowances associated with the Virginia                Environmental and Reliability Costs (E&R) case. See “APCo Virginia                Environmental and Reliability Costs” section of Note                3.                                                                                                                                                                               |

| · | Other                Operation and Maintenance expenses decreased $6 million mainly due                to a                decrease in expenses associated with the Transmission Equalization                Agreement with the addition of the Wyoming-Jacksons Ferry 765 kV                line,                which was energized and placed in service in June 2006. This decrease                was                partially offset by a write off of deferred maintenance expenses                associated with the E&R case. See “APCo Virginia Environmental and                Reliability Costs” section of Note 3. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                and Amortization expenses increased $11 million primarily due to                a write                off of previously deferred depreciation expenses associated with                the                E&R case. See “APCo Virginia Environmental and Reliability Costs”                section of Note 3.                                                                                                                                                                                                                                                                                         |
| · | Carrying                Costs Income (Expense) decreased $29 million primarily due to a write                off                of previously recorded carrying costs income associated with the                E&R                case. See “APCo Virginia Environmental and Reliability Costs” section of                Note 3.                                                                                                                                                                                                                                                                                                |
| · | Other                Income increased $7 million primarily due to interest income related                to an                increase in Advances to Affiliates and an increase in allowance for                funds                during construction (AFUDC).                                                                                                                                                                                                                                                                                                                                                                                |

*Income      Taxes*

**Reconciliation      of Nine Months Ended September 30, 2005 to **

**Nine      Months Ended September 30, 2006 Net Income**

**(in      millions)**

| **Nine                Months Ended September 30, 2005**         |   |   |   |   | $      | 108    |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                Margins                                   |   |   | 12     |   |   |   |   |
| Off-system                Sales                                 |   |   | 34     |   |   |   |   |
| Transmission                Revenues                            |   |   | (27    | )      |   |   |   |
| Other                                                           |   |   | 15     |   |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | 34     |   |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | 9      |   |   |   |   |
| Depreciation                and Amortization                    |   |   | (11    | )      |   |   |   |
| Taxes                Other Than Income Taxes                    |   |   | 1      |   |   |   |   |
| Carrying                Costs Income (Expense)                  |   |   | (19    | )      |   |   |   |
| Other                Income                                     |   |   | 12     |   |   |   |   |
| Interest                Expense                                 |   |   | (13    | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (21    | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | (7     | )      |
|                                                            |   |   |   |   |   |   |   |
| **Nine                Months Ended September 30, 2006**         |   |   |   |   | $      | 114    |   |

| · | Retail                    Margins increased $12 million in comparison to 2005 primarily                    due                    to:                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | a                    $16 million increase in retail revenues primarily related to                    two new                    industrial customers; |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | a                    $14 million reduction in capacity settlement payments under the                    Interconnection Agreement due to our lower member load ratio                    (MLR) share                    and our increased generation capacity and; |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | an                    $11 million increase in revenues related to financial transmission                    rights,                    net of congestion. The increase in financial transmission rights                    revenue                    is due to improved management of price risk related to serving                    retail load                    under current transmission constraints. Retail Margin increases                    were                    partially offset by; |
|   |  ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  a                $28 million decrease related to an increase in sharing of off-system                sales                margins with retail customers due to higher off-system sales.  This                sharing mechanism was reinstated in West Virginia effective July                1, 2006                in conjunction with our West Virginia rate case. |
| · | Off-system                    Sales increased $34 million primarily due to $42 million increase                    in                    physical sales margins and a $22 million increase from lower                    sharing of                    off-system sales margins under the SIA offset by a $30 million                    decrease in                    margins from optimization activities. See the “Allocation Agreement                    between AEP East companies and AEP West companies and CSW Operating                    Agreement” section of Note 3.        |
| · | Transmission                    Revenues decreased $27 million primarily due to the elimination                    of SECA                    revenues as of April 1, 2006 and a provision of $5 million for                    potential                    SECA refunds pending settlement negotiations with various intervenors.                    At                    this time, we have a pending proposal with the FERC to replace                    SECA                    revenues. See the “Transmission Rate Proceedings at the FERC” section of                    Note 3. |
| · | Other                    revenue increased $15 million primarily due to a write off of                    previously                    deferred gains on sales of allowances associated with the E&R case and                    higher gains on sales of allowances. See “APCo Virginia Environmental and                    Reliability Costs” section of Note                    3.                                                                                                                                                                                                |

| · | Other                Operation and Maintenance expenses decreased $9 million mainly due                to a                decrease in expenses associated with the Transmission Equalization                Agreement with the addition of the Wyoming-Jacksons Ferry 765 kV                line,                which was energized and placed in service in June 2006, partially                offset                by a write off of previously deferred maintenance expenses associated                with                the E&R case. See “APCo Virginia Environmental and Reliability Costs”                section of Note 3. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                and Amortization expenses increased $11 million primarily due to                a write                off of previously deferred depreciation expenses associated with                the                E&R case. See “APCo Virginia Environmental and Reliability Costs”                section of Note 3.                                                                                                                                                                                                                                                                                                 |
| · | Carrying                Costs Income (Expense) decreased $19 million primarily due to write                off of                previously recorded carrying costs income associated with the E&R                case. See “APCo Virginia Environmental and Reliability Costs” section of                Note 3.                                                                                                                                                                                                                                                                                                                         |
| · | Other                Income increased $12 million primarily due to interest income related                to                an increase in Advances to Affiliates and an increase in                AFUDC.                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| · | Interest                Expense increased $13 million primarily due to long-term debt issuances                in                2006, partially offset by an increase in allowance for borrowed funds                used                during construction and a write off of previously deferred AFUDC                associated with the E&R case. See “APCo Virginia Environmental and                Reliability Costs” section of Note                3.                                                                                                                                                                          |

*Income      Taxes*

**Financial      Condition**

**Credit      Ratings**

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

**Cash      Flow **

|                                                                |   | **2006**                          |     | **2005** |   |
|---------------------------------------------------------------------|--------|-----------------------------------|----------|----------|--------|
|                                                                |   | **(in                thousands)** |     |
| **Cash                and Cash Equivalents at Beginning of Period** |   | $                                 | 1,741    |     | $      | 1,543 |   |
| Net                Cash Flows From (Used For):                      |   |                              |     |     |   |   |   |
| Operating                Activities                                 |   |                              | 436,795  |     |   | 180,504 |   |
| Investing                Activities                                 |   |                              | (725,650 | )        |   | (479,420 | ) |
| Financing                Activities                                 |   |                              | 288,363  |     |   | 298,938 |   |
| Net                Increase (Decrease) in Cash and Cash Equivalents |   |                              | (492     | )        |   | 22 |   |
| **Cash                and Cash Equivalents at End of Period**       |   | $                                 | 1,249    |     | $      | 1,565 |   |

*Operating      Activities *

*Investing      Activities*

*Financing      Activities*

**Financing      Activity**

|                                   |   | **Principal****Amount** |                              | **Interest** |     | **Due** |
|----------------------------------------|--------|-------------------------|-----------------------------------|--------------|----------|---------|
| **Type                of Debt**        |   |                    | **Rate**                          |         | **Date** |
|                                   |   |                    | **(in                thousands)** |         | **(%)**  |    |   |
|                                   |   |                    |                              |         |     |    |   |
| Senior                Unsecured Notes  |   | $                       | 250,000                           |         | 5.55     |    | 2011 |
| Senior                Unsecured Notes  |   |                    | 250,000                           |         | 6.375    |    | 2036 |
| Pollution                Control Bonds |   |                    | 50,275                            |         | Variable |    | 2036 |

|                                |   | **Principal****Amount** |                              | **Interest** |     | **Due** |
|-------------------------------------|--------|-------------------------|-----------------------------------|--------------|----------|---------|
| **Type                of Debt**     |   |                    | **Rate**                          |         | **Date** |
|                                |   |                    | **(in                thousands)** |         | **(%)**  |    |   |
|                                |   |                    |                              |         |     |    |   |
| First                Mortgage Bonds |   | $                       | 100,000                           |         | 6.80     |    | 2006 |
| Other                Debt           |   |                    | 8                                 |         | 13.718   |    | 2026 |

**Liquidity**

**Summary      Obligation Information**

**Significant      Factors**

***Coal      Contract Amendment***

***Litigation      and Regulatory Activity***

**Critical      Accounting Estimates**

----

**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 September 30, 2006**

**(in      thousands)**

|                                                                                          |   | **MTM                Risk Management Contracts** |     | **Cash                Flow &****Fair                Value Hedges** |   | **DETM                Assignment (a)** |   | **Total** |    |
|-----------------------------------------------------------------------------------------------|--------|--------------------------------------------------|----------|------------------------------------------------------------------------|--------|----------------------------------------|--------|-----------|---------|
| Current                Assets                                                                 |   | $                                                | 85,654   |                                                                   | $      | 7,481                                  |   | $         | -       |   | $ | 93,135 |   |
| Noncurrent                Assets                                                              |   |                                             | 107,705  |                                                                   |   | 510                                    |   |      | -       |   |   | 108,215 |   |
| **Total                MTM Derivative Contract Assets**                                       |   |                                             | 193,359  |                                                                   |   | 7,991                                  |   |      | -       |   |   | 201,350 |   |
|                                                                                          |   |                                             |     |                                                                   |   |                                   |   |      |    |   |   |   |   |
| Current                Liabilities                                                            |   |                                             | (64,432  | )                                                                      |   | (1,979                                 | )      |      | (1,881  | ) |   | (68,292 | ) |
| Noncurrent                Liabilities                                                         |   |                                             | (70,002  | )                                                                      |   | (699                                   | )      |      | (9,138  | ) |   | (79,839 | ) |
| **Total                MTM Derivative Contract Liabilities**                             |   |                                             | (134,434 | )                                                                      |   | (2,678                                 | )      |      | (11,019 | ) |   | (148,131 | ) |
|                                                                                          |   |                                             |     |                                                                   |   |                                   |   |      |    |   |   |   |   |
| **Total                MTM Derivative Contract Net Assets                (Liabilities)** |   | $                                                | 58,925   |                                                                   | $      | 5,313                                  |   | $         | (11,019 | ) | $ | 53,219 |   |

| (a) | See                “Natural Gas Contracts with DETM” section of Note 17 of the 2005 Annual                Report. |
|-----|-------------------------------------------------------------------------------------------------------------------------------|

**MTM      Risk Management Contract Net Assets**

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

| **Total                MTM Risk Management Contract Net Assets at December 31,                2005**                                      |   | $      | 56,407  |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| (Gain)                Loss from Contracts Realized/Settled During the Period and Entered                in a                Prior Period  |   |   | (6,079  | )      |
| Fair                Value of New Contracts at Inception When Entered During the Period                (a)                                 |   |   | 121     |   |
| Net                Option Premiums Paid/(Received) for Unexercised or Unexpired Option                Contracts Entered During the Period |   |   | (315    | )      |
| Change                in Fair Value Due to Valuation Methodology Changes on Forward                Contracts                              |   |   | 316     |   |
| Changes                in Fair Value Due to Market Fluctuations During the Period                (b)                                      |   |   | 6,107   |   |
| Changes                due to SIA Agreement (c)                                                                                           |   |   | (6,533  | )      |
| Changes                in Fair Value Allocated to Regulated Jurisdictions (d)                                                             |   |   | 8,901   |   |
| **Total                MTM Risk Management Contract Net Assets**                                                                          |   |   | 58,925  |   |
| Net                Cash Flow & Fair Value Hedge Contracts                                                                             |   |   | 5,313   |   |
| DETM                Assignment (e)                                                                                                        |   |   | (11,019 | )      |
| **Total                MTM Risk Management Contract Net Assets at September 30,                2006**                                     |   | $      | 53,219  |   |

| (a) | Most                of the fair value comes from longer term fixed price contracts with                customers that seek 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) | See                “Allocation Agreement between AEP East companies and AEP West companies                and CSW Operating Agreement” section of Note 3.                                                                                                                                                                                                                                                                                                                                                                                 |
| (d) | “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.                                                                                                             |
| (e) | See                “Natural Gas Contracts with DETM” section of Note 17 of the 2005 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 giving 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 September 30, 2006**

**(in      thousands)**

|                                                                                                                       |   | **Remainder****2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                Actively Quoted - Exchange Traded                Contracts                                      |   | $                     | 1,794  |     | $      | 12,885   |   | $        | 4,663  |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | 19,342 |   |
| Prices                Provided by Other External Sources                - OTC Broker                  Quotes (a) |   |                  | 4,076  |     |   | 11,246   |   |     | 4,922  |     |   | 7,304             |   |      | -      |   |   | - |   |   | 27,548 |   |
| Prices                Based on Models and Other Valuation                Methods (b)                                  |   |                  | (43    | )        |   | (4,690   | )      |     | 1,149  |     |   | 4,648             |   |      | 8,331  |   |   | 2,640 |   |   | 12,035 |   |
| **Total**                                                                                                                  |   | $                     | 5,827  |     | $      | 19,441   |   | $        | 10,734 |     | $      | 11,952            |   | $         | 8,331  |   | $ | 2,640 |   | $ | 58,925 |   |

| (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. |

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

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

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

|                                                                                                             |   | **Power** |   | **Foreign****Currency** |   | **Interest****Rate** |   | **Total** |    |
|------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|-------------------------|--------|----------------------|--------|-----------|---------|
| **Beginning                Balance in AOCI December 31, 2005**                                                   |   | $         | (1,480 | )                       | $      | (171                 | )      | $         | (14,770 | ) | $ | (16,421 | ) |
| Changes                in Fair Value                                                                             |   |      | 4,482  |                    |   | -                    |   |      | 4,951   |   |   | 9,433 |   |
| Impact                due to Changes in SIA (a)                                                                  |   |      | (442   | )                       |   | -                    |   |      | -       |   |   | (442 | ) |
| Reclassifications                from AOCI to Net Income for Cash Flow                  Hedges Settled |   |      | 2,261  |                    |   | 5                    |   |      | 1,757   |   |   | 4,023 |   |
| **Ending                Balance in AOCI September 30, 2006**                                                     |   | $         | 4,821  |                    | $      | (166                 | )      | $         | (8,062  | ) | $ | (3,407 | ) |

| (a) | See                “Allocation Agreement between AEP East companies and AEP West companies                and CSW Operating Agreement” section of Note                3. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Credit      Risk**

**VaR      Associated with Risk Management Contracts**

| **Nine                Months Ended****September                30, 2006** |   |     |   |        | **Twelve                Months Ended****December                31, 2005** |
|---------------------------------------------------------------------------|--------|----------|--------|-------------|----------------------------------------------------------------------------|
| **(in                thousands)**                                         |   |     |   |        | **(in                thousands)**                                          |
| **End**                                                                   |   | **High** |   | **Average** |                                                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $655                                                                      |   | $1,915   |   | $683        |                                                                       | $365 |   |   |   |   | $732 |   | $1,216 |   | $579 |   | $209 |

**VaR      Associated with Debt Outstanding**

----

**APPALACHIAN      POWER COMPANY AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF INCOME**

**For      the Three and Nine Months Ended September 30, 2006 and      2005**

**(in      thousands)**

**(Unaudited)**

|                                                                                                                        |   | **Three                Months Ended** |    | **Nine                Months Ended** |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|--------------------------------------|--------|
|                                                                                                                        |   | **2006**                              |    | **2005**                             |   | **2006** |   | **2005** |   |
| **REVENUES**                                                                                                                |   |                             |    |                            |   |   |   |   |   |
| Electric                Generation, Transmission and Distribution                                                           |   | $                                     | 588,684 |                                 | $      | 468,558 |   | $ | 1,612,735 |   | $ | 1,380,928 |   |
| Sales                to AEP Affiliates                                                                                      |   |                                  | 57,177  |                                 |   | 99,551 |   |   | 177,557 |   |   | 237,648 |   |
| Other                                                                                                                       |   |                                  | 2,740   |                                 |   | 2,013 |   |   | 7,338 |   |   | 6,343 |   |
| **TOTAL**                                                                                                                   |   |                                  | 648,601 |                                 |   | 570,122 |   |   | 1,797,630 |   |   | 1,624,919 |   |
|                                                                                                                        |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                                                                                |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Fuel                and Other Consumables for Electric Generation                                                           |   |                                  | 184,275 |                                 |   | 161,154 |   |   | 506,368 |   |   | 402,057 |   |
| Purchased                Electricity for Resale                                                                             |   |                                  | 41,027  |                                 |   | 24,217 |   |   | 98,622 |   |   | 79,182 |   |
| Purchased                Electricity from AEP Affiliates                                                                    |   |                                  | 130,826 |                                 |   | 108,008 |   |   | 356,682 |   |   | 341,994 |   |
| Other                Operation                                                                                              |   |                                  | 63,259  |                                 |   | 78,421 |   |   | 210,914 |   |   | 228,916 |   |
| Maintenance                                                                                                                 |   |                                  | 53,874  |                                 |   | 44,865 |   |   | 138,381 |   |   | 129,321 |   |
| Depreciation                and Amortization                                                                                |   |                                  | 61,160  |                                 |   | 50,284 |   |   | 157,518 |   |   | 146,734 |   |
| Taxes                Other Than Income Taxes                                                                                |   |                                  | 24,464  |                                 |   | 23,696 |   |   | 70,355 |   |   | 71,127 |   |
| **TOTAL**                                                                                                                   |   |                                  | 558,885 |                                 |   | 490,645 |   |   | 1,538,840 |   |   | 1,399,331 |   |
|                                                                                                                        |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **OPERATING                INCOME**                                                                                         |   |                                  | 89,716  |                                 |   | 79,477 |   |   | 258,790 |   |   | 225,588 |   |
|                                                                                                                        |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **Other                Income (Expense):**                                                                                  |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Interest                Income                                                                                              |   |                                  | 2,463   |                                 |   | 662 |   |   | 6,228 |   |   | 1,667 |   |
| Carrying                Costs Income (Expense)                                                                              |   |                                  | (27,316 | )                                    |   | 1,255 |   |   | (13,532 | ) |   | 5,320 |   |
| Allowance                for Equity Funds Used During Construction                                                          |   |                                  | 6,748   |                                 |   | 1,791 |   |   | 13,307 |   |   | 6,559 |   |
| Interest                Expense                                                                                             |   |                                  | (27,103 | )                                    |   | (24,976 | ) |   | (89,024 | ) |   | (76,320 | ) |
|                                                                                                                        |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **INCOME                BEFORE INCOME TAXES**                                                                               |   |                                  | 44,508  |                                 |   | 58,209 |   |   | 175,769 |   |   | 162,814 |   |
|                                                                                                                        |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Income                Tax Expense                                                                                           |   |                                  | 13,972  |                                 |   | 20,837 |   |   | 61,992 |   |   | 54,557 |   |
|                                                                                                                        |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **NET                INCOME**                                                                                               |   |                                  | 30,536  |                                 |   | 37,372 |   |   | 113,777 |   |   | 108,257 |   |
|                                                                                                                        |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Preferred                Stock Dividend Requirements Including Capital Stock** **Expense                and Other |   |                                  | 238     |                                 |   | 238 |   |   | 714 |   |   | 1,940 |   |
|                                                                                                                        |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **EARNINGS                APPLICABLE TO COMMON STOCK**                                                                      |   | $                                     | 30,298  |                                 | $      | 37,134 |   | $ | 113,063 |   | $ | 106,317 |   |

*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 Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                                          |   | **Common                Stock** |    | **Paid-in                Capital** |   | **Retained                Earnings** |   | **Accumulated                Other Comprehensive Income (Loss)** |    | **Total**    |   |
|-------------------------------------------------------------------------------|--------|---------------------------------|---------|------------------------------------|--------|--------------------------------------|--------|------------------------------------------------------------------|---------|--------------|--------|
|                                                                          |   |                       |    |                          |   |                            |   |                                                        |    |    |   |
| **DECEMBER                31, 2004**                                          |   | $                               | 260,458 |                               | $      | 722,314                              |   | $                                                                | 508,618 |         | $      | (81,672 | ) | $ | 1,409,718 |   |
|                                                                          |   |                            |    |                               |   |                                 |   |                                                             |    |         |   |   |   |   |   |   |
| Capital                Contribution From Parent                               |   |                            |    |                               |   | 150,000                              |   |                                                             |    |         |   |   |   |   | 150,000 |   |
| Preferred                Stock Dividends                                      |   |                            |    |                               |   |                                 |   |                                                             | (600    | )            |   |   |   |   | (600 | ) |
| Capital                Stock Expense and Other                                |   |                            |    |                               |   | 2,485                                |   |                                                             | (1,340  | )            |   |   |   |   | 1,145 |   |
| **TOTAL**                                                                     |   |                            |    |                               |   |                                 |   |                                                             |    |         |   |   |   |   | 1,560,263 |   |
|                                                                          |   |                            |    |                               |   |                                 |   |                                                             |    |         |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                                       |   |                            |    |                               |   |                                 |   |                                                             |    |         |   |   |   |   |   |   |
| **Other                Comprehensive Loss, Net of Taxes:**                    |   |                            |    |                               |   |                                 |   |                                                             |    |         |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $8,340                         |   |                            |    |                               |   |                                 |   |                                                             |    |         |   | (15,490 | ) |   | (15,490 | ) |
| **NET                INCOME**                                                 |   |                            |    |                               |   |                                 |   |                                                             | 108,257 |         |   |   |   |   | 108,257 |   |
| **TOTAL                COMPREHENSIVE INCOME**                                 |   |                            |    |                               |   |                                 |   |                                                             |    |         |   |   |   |   | 92,767 |   |
|                                                                          |   |                            |    |                               |   |                                 |   |                                                             |    |         |   |   |   |   |   |   |
| **SEPTEMBER                30, 2005**                                         |   | $                               | 260,458 |                               | $      | 874,799                              |   | $                                                                | 614,935 |         | $      | (97,162 | ) | $ | 1,653,030 |   |
|                                                                          |   |                            |    |                               |   |                                 |   |                                                             |    |         |   |   |   |   |   |   |
| **DECEMBER                31, 2005**                                          |   | $                               | 260,458 |                               | $      | 924,837                              |   | $                                                                | 635,016 |         | $      | (16,610 | ) | $ | 1,803,701 |   |
|                                                                          |   |                            |    |                               |   |                                 |   |                                                             |    |         |   |   |   |   |   |   |
| Common                Stock Dividends                                         |   |                            |    |                               |   |                                 |   |                                                             | (7,500  | )            |   |   |   |   | (7,500 | ) |
| Preferred                Stock Dividends                                      |   |                            |    |                               |   |                                 |   |                                                             | (600    | )            |   |   |   |   | (600 | ) |
| Capital                Stock Expense and Other                                |   |                            |    |                               |   | 118                                  |   |                                                             | (114    | )            |   |   |   |   | 4 |   |
| **TOTAL**                                                                     |   |                            |    |                               |   |                                 |   |                                                             |    |         |   |   |   |   | 1,795,605 |   |
|                                                                          |   |                            |    |                               |   |                                 |   |                                                             |    |         |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                                       |   |                            |    |                               |   |                                 |   |                                                             |    |         |   |   |   |   |   |   |
| **Other                Comprehensive Income, Net of Taxes:**             |   |                            |    |                               |   |                                 |   |                                                             |    |         |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax** **of                $7,007 |   |                            |    |                               |   |                                 |   |                                                             |    |         |   | 13,014 |   |   | 13,014 |   |
| **NET                INCOME**                                                 |   |                            |    |                               |   |                                 |   |                                                             | 113,777 |         |   |   |   |   | 113,777 |   |
| **TOTAL                COMPREHENSIVE INCOME**                                 |   |                            |    |                               |   |                                 |   |                                                             |    |         |   |   |   |   | 126,791 |   |
|                                                                          |   |                            |    |                               |   |                                 |   |                                                             |    |         |   |   |   |   |   |   |
| **SEPTEMBER                30, 2006**                                         |   | $                               | 260,458 |                               | $      | 924,955                              |   | $                                                                | 740,579 |         | $      | (3,596 | ) | $ | 1,922,396 |   |

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

----

**APPALACHIAN      POWER COMPANY AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**September      30, 2006 and December 31, 2005**

**(in      thousands)**

**(Unaudited)**

|                                                           |   | **2006**     |      | **2005**     |   |
|----------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                ASSETS**                              |   |    |      |    |   |
| Cash                and Cash Equivalents                       |   | $            | 1,249     |         | $      | 1,741 |   |
| Advances                to Affiliates                          |   |         | 93,764    |         |   | - |   |
| Accounts                Receivable:                            |   |         |      |         |   |   |   |
| Customers                                                      |   |         | 165,193   |         |   | 141,810 |   |
| Affiliated                Companies                            |   |         | 126,586   |         |   | 153,453 |   |
| Accrued                Unbilled Revenues                       |   |         | 29,073    |         |   | 51,201 |   |
| Miscellaneous                                                  |   |         | 4,326     |         |   | 527 |   |
| Allowance                for Uncollectible Accounts            |   |         | (4,415    | )            |   | (1,805 | ) |
|                  Total Accounts Receivable                |   |         | 320,763   |         |   | 345,186 |   |
| Fuel                                                           |   |         | 61,892    |         |   | 64,657 |   |
| Materials                and Supplies                          |   |         | 54,286    |         |   | 54,967 |   |
| Risk                Management Assets                          |   |         | 93,135    |         |   | 132,247 |   |
| Accrued                Tax Benefits                            |   |         | 3,470     |         |   | 32,979 |   |
| Regulatory                Asset for Under-Recovered Fuel Costs |   |         | 34,028    |         |   | 30,697 |   |
| Prepayments                and Other                           |   |         | 13,230    |         |   | 44,432 |   |
| **TOTAL**                                                      |   |         | 675,817   |         |   | 706,906 |   |
|                                                           |   |         |      |         |   |   |   |
| **PROPERTY,                PLANT AND EQUIPMENT**               |   |         |      |         |   |   |   |
| Electric:                                                      |   |         |      |         |   |   |   |
| Production                                                     |   |         | 2,836,442 |         |   | 2,798,157 |   |
| Transmission                                                   |   |         | 1,595,963 |         |   | 1,266,855 |   |
| Distribution                                                   |   |         | 2,218,402 |         |   | 2,141,153 |   |
| Other                                                          |   |         | 336,999   |         |   | 323,158 |   |
| Construction                Work in Progress                   |   |         | 784,644   |         |   | 647,638 |   |
| **Total**                                                      |   |         | 7,772,450 |         |   | 7,176,961 |   |
| Accumulated                Depreciation and Amortization       |   |         | 2,458,665 |         |   | 2,524,855 |   |
| **TOTAL                - NET**                                 |   |         | 5,313,785 |         |   | 4,652,106 |   |
|                                                           |   |         |      |         |   |   |   |
| **OTHER                NONCURRENT ASSETS**                     |   |         |      |         |   |   |   |
| Regulatory                Assets                               |   |         | 419,891   |         |   | 457,294 |   |
| Long-term                Risk Management Assets                |   |         | 108,215   |         |   | 176,231 |   |
| Deferred                Charges and Other                      |   |         | 237,113   |         |   | 261,556 |   |
| **TOTAL**                                                      |   |         | 765,219   |         |   | 895,081 |   |
|                                                           |   |         |      |         |   |   |   |
| **TOTAL                ASSETS**                                |   | $            | 6,754,821 |         | $      | 6,254,093 |   |

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

----

**APPALACHIAN      POWER COMPANY AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**LIABILITIES      AND SHAREHOLDERS’ EQUITY**

**September      30, 2006 and December 31, 2005**

**(Unaudited)**

|                                                                          |   | **2006**                          |      | **2005** |   |
|-------------------------------------------------------------------------------|--------|-----------------------------------|-----------|----------|--------|
| **CURRENT                LIABILITIES**                                        |   | **(in                thousands)** |      |
| Advances                from Affiliates                                       |   | $                                 | -         |     | $      | 194,133 |   |
| Accounts                Payable:                                              |   |                              |      |     |   |   |   |
| General                                                                       |   |                              | 274,165   |     |   | 230,570 |   |
| Affiliated                Companies                                           |   |                              | 113,461   |     |   | 85,941 |   |
| Long-term                Debt Due Within One Year - Nonaffiliated             |   |                              | 141,696   |     |   | 146,999 |   |
| Risk                Management Liabilities                                    |   |                              | 68,292    |     |   | 121,165 |   |
| Customer                Deposits                                              |   |                              | 56,263    |     |   | 79,854 |   |
| Accrued                Taxes                                                  |   |                              | 63,395    |     |   | 49,833 |   |
| Accrued                Interest                                               |   |                              | 59,394    |     |   | 28,614 |   |
| Other                                                                         |   |                              | 86,917    |     |   | 80,132 |   |
| **TOTAL**                                                                     |   |                              | 863,583   |     |   | 1,017,241 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **NONCURRENT                LIABILITIES**                                     |   |                              |      |     |   |   |   |
| Long-term                Debt - Nonaffiliated                                 |   |                              | 2,356,175 |     |   | 1,904,379 |   |
| Long-term                Debt - Affiliated                                    |   |                              | 100,000   |     |   | 100,000 |   |
| Long-term                Risk Management Liabilities                          |   |                              | 79,839    |     |   | 147,117 |   |
| Deferred                Income Taxes                                          |   |                              | 937,835   |     |   | 952,497 |   |
| Regulatory                Liabilities and Deferred Investment Tax Credits     |   |                              | 315,346   |     |   | 201,230 |   |
| Deferred                Credits and Other                                     |   |                              | 161,884   |     |   | 110,144 |   |
| **TOTAL**                                                                     |   |                              | 3,951,079 |     |   | 3,415,367 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **TOTAL                LIABILITIES**                                          |   |                              | 4,814,662 |     |   | 4,432,608 |   |
|                                                                          |   |                              |      |     |   |   |   |
| Cumulative                Preferred Stock Not Subject to Mandatory Redemption |   |                              | 17,763    |     |   | 17,784 |   |
|                                                                          |   |                              |      |     |   |   |   |
| Commitments                and Contingencies (Note 5)                         |   |                              |      |     |   |   |   |
|                                                                          |   |                              |      |     |   |   |   |
| **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                                                |   |                              | 924,955   |     |   | 924,837 |   |
| Retained                Earnings                                              |   |                              | 740,579   |     |   | 635,016 |   |
| Accumulated                Other Comprehensive Income (Loss)                  |   |                              | (3,596    | )        |   | (16,610 | ) |
| **TOTAL**                                                                     |   |                              | 1,922,396 |     |   | 1,803,701 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **TOTAL                LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                 | 6,754,821 |     | $      | 6,254,093 |   |

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

----

**APPALACHIAN      POWER COMPANY AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For      the Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                                                   |   | **2006**     |     | **2005**     |   |
|----------------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                ACTIVITIES**                                                |   |    |     |    |   |
| **Net                Income**                                                          |   | $            | 113,777  |         | $      | 108,257 |   |
| **Adjustments                for Noncash Items:**                                      |   |         |     |         |   |   |   |
| Depreciation                and Amortization                                           |   |         | 157,518  |         |   | 146,734 |   |
| Deferred                Income Taxes                                                   |   |         | (7,753   | )            |   | 25,103 |   |
| Carrying                Costs (Income) Expense                                         |   |         | 13,532   |         |   | (5,320 | ) |
| Mark-to-Market                of Risk Management Contracts                             |   |         | (3,817   | )            |   | (21,412 | ) |
| Pension                Contributions to Qualified Plan Trusts                          |   |         | -        |         |   | (59,812 | ) |
| Over/Under                Fuel Recovery, Net                                           |   |         | 830      |         |   | (21,001 | ) |
| Change                in Other Noncurrent Assets                                       |   |         | 8,466    |         |   | 361 |   |
| Change                in Other Noncurrent Liabilities                                  |   |         | 20,187   |         |   | (10,306 | ) |
| **Changes                in Components of Working Capital:**                           |   |         |     |         |   |   |   |
| Accounts                Receivable, Net                                                |   |         | 24,423   |         |   | 2,899 |   |
| Fuel,                Materials and Supplies                                            |   |         | 3,446    |         |   | (7,467 | ) |
| Margin                Deposits                                                         |   |         | 27,103   |         |   | (38,634 | ) |
| Accounts                Payable                                                        |   |         | 22,063   |         |   | 54,994 |   |
| Customer                Deposits                                                       |   |         | (23,591  | )            |   | 52,302 |   |
| Accrued                Taxes, Net                                                      |   |         | 43,071   |         |   | (39,022 | ) |
| Accrued                Interest                                                        |   |         | 30,780   |         |   | 15,467 |   |
| Other                Current Assets                                                    |   |         | 4,972    |         |   | (20,482 | ) |
| Other                Current Liabilities                                               |   |         | 1,788    |         |   | (2,157 | ) |
| **Net                Cash Flows From Operating Activities**                            |   |         | 436,795  |         |   | 180,504 |   |
|                                                                                   |   |         |     |         |   |   |   |
| **INVESTING                ACTIVITIES**                                                |   |         |     |         |   |   |   |
| Construction                Expenditures                                               |   |         | (633,164 | )            |   | (421,544 | ) |
| Change                in Other Cash Deposits, Net                                      |   |         | (873     | )            |   | (24 | ) |
| Change                in Advances to Affiliates, Net                                   |   |         | (93,764  | )            |   | (67,532 | ) |
| Proceeds                from Sales of Assets                                           |   |         | 2,151    |         |   | 9,680 |   |
| **Net                Cash Flows Used For Investing Activities**                        |   |         | (725,650 | )            |   | (479,420 | ) |
|                                                                                   |   |         |     |         |   |   |   |
| **FINANCING                ACTIVITIES**                                                |   |         |     |         |   |   |   |
| Capital                Contributions from Parent                                       |   |         | -        |         |   | 150,000 |   |
| Issuance                of Long-term Debt - Nonaffiliated                              |   |         | 544,364  |         |   | 840,469 |   |
| Issuance                of Long-term Debt - Affiliated                                 |   |         | -        |         |   | 100,000 |   |
| Change                in Advances from Affiliates, Net                                 |   |         | (194,133 | )            |   | (211,060 | ) |
| Retirement                of Long-term Debt - Nonaffiliated                            |   |         | (100,008 | )            |   | (575,007 | ) |
| Retirement                of Preferred Stock                                           |   |         | (16      | )            |   | - |   |
| Principal                Payments for Capital Lease Obligations                        |   |         | (4,008   | )            |   | (4,864 | ) |
| Funds                From Amended Coal Contract, Net                                   |   |         | 50,264   |         |   | - |   |
| Dividends                Paid on Common Stock                                          |   |         | (7,500   | )            |   | - |   |
| Dividends                Paid on Cumulative Preferred Stock                            |   |         | (600     | )            |   | (600 | ) |
| **Net                Cash Flows From Financing Activities**                            |   |         | 288,363  |         |   | 298,938 |   |
|                                                                                   |   |         |     |         |   |   |   |
| **Net                Increase (Decrease) in Cash and Cash Equivalents**                |   |         | (492     | )            |   | 22 |   |
| **Cash                and Cash Equivalents at Beginning of Period**                    |   |         | 1,741    |         |   | 1,543 |   |
| **Cash                and Cash Equivalents at End of Period**                          |   | $            | 1,249    |         | $      | 1,565 |   |
|                                                                                   |   |         |     |         |   |   |   |
| **SUPPLEMENTAL                DISCLOSURE**                                             |   |         |     |         |   |   |   |
| Cash                Paid for Interest, Net of Capitalized Amounts                      |   | $            | 51,537   |         | $      | 56,253 |   |
| Net                Cash Paid for Income Taxes                                          |   |         | 12,047   |         |   | 61,514 |   |
| Noncash                Acquisitions Under Capital Leases                               |   |         | 2,598    |         |   | 1,087 |   |
| Construction                Expenditures Included in Accounts Payable at September 30, |   |         | 131,692  |         |   | 54,380 |   |

| *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                and Contingencies           | Note                5                 |
| Guarantees                                             | Note                6                 |
| Company-wide                Staffing and Budget Review | Note                7                 |
| Benefit                Plans                           | Note                9                 |
| Business                Segments                       | Note                11                |
| Financing                Activities                    | Note                12                |

----

**COLUMBUS      SOUTHERN POWER COMPANY**

**AND      SUBSIDIARIES**

----

**COLUMBUS      SOUTHERN POWER COMPANY AND SUBSIDIARIES**

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

**Results      of Operations**

**Reconciliation      of Third Quarter of 2005 to Third Quarter of 2006 Net      Income**

**(in      millions)**

| **Third                Quarter of 2005**                        |   |   |   |   | $      | 34     |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                Margins                                   |   |   | 36     |   |   |   |   |
| Off-system                Sales                                 |   |   | 20     |   |   |   |   |
| Transmission                Revenues                            |   |   | (6     | )      |   |   |   |
| Other                                                           |   |   | (2     | )      |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | 48     |   |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | (2     | )      |   |   |   |
| Depreciation                and Amortization                    |   |   | (14    | )      |   |   |   |
| Asset                Impairments and Other Related Charges      |   |   | 39     |   |   |   |   |
| Taxes                Other Than Income Taxes                    |   |   | 5      |   |   |   |   |
| Carrying                Costs Income                            |   |   | (1     | )      |   |   |   |
| Interest                Expense                                 |   |   | (2     | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | 25     |   |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | (23    | )      |
|                                                            |   |   |   |   |   |   |   |
| **Third                Quarter of 2006**                        |   |   |   |   | $      | 84     |   |

| · | Retail                Margins were $36 million higher than the prior period primarily due                to                Rate Stabilization Plan (RSP) and Transition Regulatory Asset rate                increases effective January 1, 2006 as well as the addition of Monongahela                Power’s Ohio customers on December 31, 2005, partially offset by an                increase in delivered fuel costs.                    |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Off-system                Sales increased $20 million primarily due to $13 million increase                in                physical sales margins and a $10 million increase from lower sharing                of                off-system sales margins under the SIA. See the “Allocation Agreement                between AEP East companies and AEP West companies and CSW Operating                Agreement” section of Note 3. |
| · | Transmission                Revenues decreased $6 million primarily due to the elimination of                SECA                revenues as of April 1, 2006. At this time, we have a pending proposal                with the FERC to replace SECA revenues. See the “Transmission Rate                Proceedings at the FERC” section of Note                3.                                                                      |

| · | Depreciation                and Amortization expense increased $14 million due to the increase                in the                amortization of regulatory assets and a greater depreciable base                resulting                primarily from the acquisitions of the Waterford Plant and Monongahela                Power’s Ohio assets in late 2005. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Asset                Impairments and Other Related Charges of $39 million were recorded                last                year due to the 2005 retirement of units 1 and 2 at our Conesville                Plant.                                                                                                                                                        |
| · | Taxes                Other Than Income Taxes decreased $5 million due to favorable accrual                adjustments to property taxes in 2006 and unfavorable accrual adjustments                in 2005 partially offset by the increase in property taxes associated                with                the Waterford and Monongahela asset                additions.  |

*Income      Tax*

**Reconciliation      of Nine Months Ended September 30, 2005 to **

**Nine      Months Ended September 30, 2006 Net Income**

**(in      millions)**

| **Nine                Months Ended September 30, 2005**         |   |   |   |   | $      | 116    |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                Margins                                   |   |   | 93     |   |   |   |   |
| Off-system                Sales                                 |   |   | 29     |   |   |   |   |
| Transmission                Revenues                            |   |   | (13    | )      |   |   |   |
| Other                                                           |   |   | 6      |   |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | 115    |   |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | (19    | )      |   |   |   |
| Depreciation                and Amortization                    |   |   | (41    | )      |   |   |   |
| Asset                Impairments and Other Related Charges      |   |   | 39     |   |   |   |   |
| Taxes                Other Than Income Taxes                    |   |   | (7     | )      |   |   |   |
| Carrying                Costs Income                            |   |   | (6     | )      |   |   |   |
| Interest                Expense                                 |   |   | (8     | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (42    | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | (21    | )      |
|                                                            |   |   |   |   |   |   |   |
| **Nine                Months Ended September 30, 2006**         |   |   |   |   | $      | 168    |   |

| · | Retail                Margins increased $93 million primarily due to the RSP and Transition                Regulatory Asset rate increases effective January 1, 2006, lower                capacity                settlement costs, and the addition of Monongahela Power’s Ohio customers                on December 31, 2005, partially offset by an increase in delivered                fuel                costs.                                                                                                                                           |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Off-system                Sales increased $29 million due to $30 million increase in physical                sales                margins and a $12 million increase from lower sharing of off-system                sales                margins under the SIA offset by a decrease in margins from optimization                activities. See the “Allocation Agreement between AEP East companies and                AEP West companies and CSW Operating Agreement” section of Note                3.                                                  |
| · | Transmission                Revenues decreased $13 million primarily due to the elimination of                SECA                revenues as of April 1, 2006 and a provision of $3 million recorded                in                2006 related to potential SECA refunds pending settlement negotiations                with various intervenors. At this time, we have a pending proposal                with                the FERC to replace SECA revenues. See the “Transmission Rate Proceedings                at the FERC” section of Note 3. |
| · | Other                revenues increased $6 million primarily due to higher gains on sales                of                emission allowances.                                                                                                                                                                                                                                                                                                                                                                                                                         |

| · | Other                Operation and Maintenance increased $19 million due to an increase                in PJM                administrative fees, an increase in transmission expenses related                to the                AEP Transmission Equalization Agreement, favorable adjustments in                the                prior year related to the corporate owned life insurance policy and                increased expenses related to factored receivables and uncollectible                accounts. The increases were partially offset by the recognition                of                a regulatory asset related to recent PUCO orders regarding                distribution service reliability and restoration                costs.  |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                and Amortization expense increased $41 million primarily due to the                increase in the amortization of regulatory assets and a greater                depreciable base resulting primarily from the acquisitions of the                Waterford Plant and Monongahela Power’s Ohio assets. In addition, the 2005                RSP order resulted in a reversal of unused shopping credits of $18                million                offset by the establishment of a $7 million regulatory liability                to                benefit low-income customers and for economic                development.                                                                                                          |
| · | Asset                Impairments and Other Related Charges in the amount of $39 million                were                recorded last year due to the 2005 retirement of units 1 and 2 at                our                Conesville Plant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| · | Taxes                Other Than Income Taxes increased $7 million due to the increase                in                property taxes associated with the Waterford and Monongahela asset                additions partially offset by accrual adjustments to property taxes                that                were favorable in 2006 and unfavorable in 2005.                                                                                                                                                                                                                                                                                                                                                                                                              |
| · | Carrying                Costs Income decreased $6 million primarily due to the completion                of                deferrals of carrying costs on environmental capital expenditures                from                2004 and 2005 that are now recovered during 2006 through 2008 according                to                the RSP.                                                                                                                                                                                                                                                                                                                                                                                                                            |
| · | Interest                Expense increased $8 million primarily due to a new long-term debt                issuance during the fourth quarter of                2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

*Income      Tax*

**Financial      Condition**

**Credit      Ratings**

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

**Financing      Activity**

**Liquidity**

**Summary      Obligation Information**

**Significant      Factors**

***Litigation      and Regulatory Activity***

**Critical      Accounting Estimates**

----

**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 September 30, 2006**

**(in      thousands)**

|                                                                                          |   | **MTM                Risk Management Contracts** |    | **Cash                Flow Hedges** |   | **DETM                Assignment (a)** |   | **Total** |   |
|-----------------------------------------------------------------------------------------------|--------|--------------------------------------------------|---------|-------------------------------------|--------|----------------------------------------|--------|-----------|--------|
| Current                Assets                                                                 |   | $                                                | 53,028  |                                | $      | 4,782                                  |   | $         | -      |   | $ | 57,810 |   |
| Noncurrent                Assets                                                              |   |                                             | 68,304  |                                |   | 326                                    |   |      | -      |   |   | 68,630 |   |
| **Total                MTM Derivative Contract Assets**                                       |   |                                             | 121,332 |                                |   | 5,108                                  |   |      | -      |   |   | 126,440 |   |
|                                                                                          |   |                                             |    |                                |   |                                   |   |      |   |   |   |   |   |
| Current                Liabilities                                                            |   |                                             | (39,606 | )                                   |   | (743                                   | )      |      | (1,202 | ) |   | (41,551 | ) |
| Noncurrent                Liabilities                                                         |   |                                             | (44,001 | )                                   |   | (8                                     | )      |      | (5,841 | ) |   | (49,850 | ) |
| **Total                MTM Derivative Contract Liabilities**                             |   |                                             | (83,607 | )                                   |   | (751                                   | )      |      | (7,043 | ) |   | (91,401 | ) |
|                                                                                          |   |                                             |    |                                |   |                                   |   |      |   |   |   |   |   |
| **Total                MTM Derivative Contract Net Assets                (Liabilities)** |   | $                                                | 37,725  |                                | $      | 4,357                                  |   | $         | (7,043 | ) | $ | 35,039 |   |

| (a) | See                “Natural Gas Contracts with DETM” section of Note 17 of the 2005 Annual                Report. |
|-----|-------------------------------------------------------------------------------------------------------------------------------|

**MTM      Risk Management Contract Net Assets**

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

| **Total                MTM Risk Management Contract Net Assets at December 31,                2005**                                      |   | $      | 33,322 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                Loss from Contracts Realized/Settled During the Period and Entered                in a                Prior Period  |   |   | (5,405 | )      |
| Fair                Value of New Contracts at Inception When Entered During the Period                (a)                                 |   |   | 146    |   |
| Net                Option Premiums Paid/(Received) for Unexercised or Unexpired Option                Contracts Entered During the Period |   |   | (138   | )      |
| Change                in Fair Value Due to Valuation Methodology Changes on Forward                Contracts                              |   |   | 381    |   |
| Changes                in Fair Value Due to Market Fluctuations During the Period                (b)                                      |   |   | 12,996 |   |
| Changes                Due to SIA (c)                                                                                                     |   |   | (3,864 | )      |
| Changes                in Fair Value Allocated to Regulated Jurisdictions (d)                                                             |   |   | 287    |   |
| **Total                MTM Risk Management Contract Net Assets**                                                                          |   |   | 37,725 |   |
| Net                Cash Flow Hedge Contracts                                                                                              |   |   | 4,357  |   |
| DETM                Assignment (e)                                                                                                        |   |   | (7,043 | )      |
| **Total                MTM Risk Management Contract Net Assets at September 30,                2006**                                     |   | $      | 35,039 |   |

| (a) | Most                of the fair value comes from longer term fixed price contracts with                customers that seek 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) | See                “Allocation Agreement between AEP East companies and AEP West companies                and CSW Operating Agreement” section of Note 3.                                                                                                                                                                                                                                                                                                                                                                                 |
| (d) | “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.                                                                                                             |
| (e) | See                “Natural Gas Contracts with DETM” section of Note 17 of the 2005 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 giving 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 September 30, 2006**

**(in      thousands)**

|                                                                                                                           |   | **Remainder****2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |
|--------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|
| Prices                Actively Quoted - Exchange Traded                Contracts                                          |   | $                     | 1,146  |     | $      | 8,236    |   | $        | 2,981  |     | $      | -                 |   | $         | - |   | $ | - |   | $ | 12,363 |
| Prices                Provided by Other External Sources                - OTC Broker  Quotes                (a) |   |                  | 2,425  |     |   | 6,394    |   |     | 3,095  |     |   | 4,669             |   |      | - |   |   | - |   |   | 16,583 |
| Prices                Based on Models and Other Valuation                Methods (b)                                      |   |                  | 4      |     |   | (2,247   | )      |     | 1,039  |     |   | 2,971             |   |      | 5,324 |   |   | 1,688 |   |   | 8,779 |
| **Total**                                                                                                                      |   | $                     | 3,575  |     | $      | 12,383   |   | $        | 7,115  |     | $      | 7,640             |   | $         | 5,324 |   | $ | 1,688 |   | $ | 37,725 |

| (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. |

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

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

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

|                                                                                                 |   | **Power** |   |
|------------------------------------------------------------------------------------------------------|--------|-----------|--------|
| **Beginning                Balance in AOCI December 31, 2005**                                       |   | $         | (859   | ) |
| Changes                in Fair Value                                                                 |   |      | 2,853  |   |
| Impact                due to Changes in SIA (a)                                                      |   |      | (261   | ) |
| Reclassifications                from AOCI to Net Income for Cash Flow                Hedges Settled |   |      | 1,348  |   |
| **Ending                Balance in AOCI September 30, 2006**                                         |   | $         | 3,081  |   |

| (a) | See                “Allocation Agreement between AEP East companies and AEP West companies                and CSW Operating Agreement” section of Note                3. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Credit      Risk**

**VaR      Associated with Risk Management Contracts**

| **Nine                Months Ended****September                30, 2006** |   |     |   |        | **Twelve                Months Ended****December                31, 2005** |
|---------------------------------------------------------------------------|--------|----------|--------|-------------|----------------------------------------------------------------------------|
| **(in                thousands)**                                         |   |     |   |        | **(in                thousands)**                                          |
| **End**                                                                   |   | **High** |   | **Average** |                                                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $418                                                                      |   | $1,224   |   | $414        |                                                                       | $233 |   |   |   |   | $424 |   | $705 |   | $335 |   | $121 |

**VaR      Associated with Debt Outstanding**

----

**COLUMBUS      SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF INCOME**

**For      the Three and Nine Months Ended September 30, 2006 and      2005**

**(in      thousands)**

**(Unaudited)**

|                                                               |   | **Three                Months Ended** |         | **Nine                Months Ended** |   |
|--------------------------------------------------------------------|--------|---------------------------------------|--------------|--------------------------------------|--------|
|                                                               |   | **2006**                              |         | **2005**                             |   | **2006** |   | **2005** |   |
| **REVENUES**                                                       |   |                             |         |                            |   |   |   |   |   |
| Electric                Generation, Transmission and Distribution  |   | $                                     | 513,643      |                                 | $      | 406,525 |   | $ | 1,321,422 |   | $ | 1,074,099 |   |
| Sales                to AEP Affiliates                             |   |                                  | 24,806       |                                 |   | 46,698 |   |   | 60,337 |   |   | 103,939 |   |
| Other                                                              |   |                                  | 1,449        |                                 |   | 1,345 |   |   | 4,016 |   |   | 3,653 |   |
| **TOTAL**                                                          |   |                                  | 539,898      |                                 |   | 454,568 |   |   | 1,385,775 |   |   | 1,181,691 |   |
|                                                               |   |                                  |         |                                 |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                       |   |                                  |         |                                 |   |   |   |   |   |   |   |   |   |
| Fuel                and Other Consumables for Electric Generation  |   |                                  | 90,510       |                                 |   | 72,550 |   |   | 231,543 |   |   | 191,188 |   |
| Purchased                Electricity for Resale                    |   |                                  | 35,449       |                                 |   | 9,016 |   |   | 87,902 |   |   | 26,922 |   |
| Purchased                Electricity from AEP Affiliates           |   |                                  | 102,669      |                                 |   | 109,274 |   |   | 272,334 |   |   | 284,221 |   |
| Other                Operation                                     |   |                                  | 66,195       |                                 |   | 56,276 |   |   | 180,022 |   |   | 152,833 |   |
| Maintenance                                                        |   |                                  | 14,704       |                                 |   | 21,863 |   |   | 56,140 |   |   | 63,947 |   |
| Asset                Impairments and Other Related Charges         |   |                                  | -            |                                 |   | 39,109 |   |   | - |   |   | 39,109 |   |
| Depreciation                and Amortization                       |   |                                  | 51,149       |                                 |   | 37,454 |   |   | 143,495 |   |   | 102,985 |   |
| Taxes                Other Than Income Taxes                       |   |                                  | 38,586       |                                 |   | 43,422 |   |   | 119,875 |   |   | 112,657 |   |
| **TOTAL**                                                          |   |                                  | 399,262      |                                 |   | 388,964 |   |   | 1,091,311 |   |   | 973,862 |   |
|                                                               |   |                                  |         |                                 |   |   |   |   |   |   |   |   |   |
| **OPERATING                INCOME**                                |   |                                  | 140,636      |                                 |   | 65,604 |   |   | 294,464 |   |   | 207,829 |   |
|                                                               |   |                                  |         |                                 |   |   |   |   |   |   |   |   |   |
| **Other                Income (Expense):**                         |   |                                  |         |                                 |   |   |   |   |   |   |   |   |   |
| Interest                Income                                     |   |                                  | 989          |                                 |   | 1,038 |   |   | 1,919 |   |   | 2,666 |   |
| Carrying                Costs Income                               |   |                                  | 1,046        |                                 |   | 1,800 |   |   | 3,082 |   |   | 8,716 |   |
| Allowance                for Equity Funds Used During Construction |   |                                  | 659          |                                 |   | 229 |   |   | 1,466 |   |   | 1,036 |   |
| Interest                Expense                                    |   |                                  | (15,813      | )                                    |   | (13,508 | ) |   | (50,247 | ) |   | (42,089 | ) |
|                                                               |   |                                  |         |                                 |   |   |   |   |   |   |   |   |   |
| **INCOME                BEFORE INCOME TAXES**                      |   |                                  | 127,517      |                                 |   | 55,163 |   |   | 250,684 |   |   | 178,158 |   |
|                                                               |   |                                  |         |                                 |   |   |   |   |   |   |   |   |   |
| Income                Tax Expense                                  |   |                                  | 43,496       |                                 |   | 20,938 |   |   | 83,064 |   |   | 61,814 |   |
|                                                               |   |                                  |         |                                 |   |   |   |   |   |   |   |   |   |
| **NET INCOME**                                                     |   |                                  |  84,021 |                                 |   |  34,225 |   |   |  167,620 |   |   |  116,344 |   |
|                                                               |   |                                  |         |                                 |   |   |   |   |   |   |   |   |   |
| Capital                Stock Expense                               |   |                                  | 39           |                                 |   | 254 |   |   | 118 |   |   | 2,366 |   |
|                                                               |   |                                  |         |                                 |   |   |   |   |   |   |   |   |   |
| **EARNINGS              APPLICABLE TO COMMON STOCK**               |   | $                                |  83,982 |                                 | $      |  33,971 |   | $ |  167,502 |   | $ |  113,978 |   |

| *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 Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                              |   | **Common                Stock** |   | **Paid-in                Capital** |   | **Retained                Earnings** |   | **Accumulated                Other Comprehensive Income (Loss)** |    | **Total** |   |
|-------------------------------------------------------------------|--------|---------------------------------|--------|------------------------------------|--------|--------------------------------------|--------|------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                31, 2004**                              |   | $                               | 41,026 |                               | $      | 577,415                              |   | $                                                                | 341,025 |      | $      | (60,816 | ) | $ | 898,650 |   |
|                                                              |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Common                Stock Dividends                             |   |                            |   |                               |   |                                 |   |                                                             | (85,500 | )         |   |   |   |   | (85,500 | ) |
| Capital                Stock Expense and Other                    |   |                            |   |                               |   | 2,366                                |   |                                                             | (2,366  | )         |   |   |   |   | - |   |
| **TOTAL**                                                         |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 813,150 |   |
|                                                              |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                           |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **Other                Comprehensive Loss, Net of Taxes:**        |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $3,655             |   |                            |   |                               |   |                                 |   |                                                             |    |      |   | (6,789 | ) |   | (6,789 | ) |
| **NET                INCOME**                                     |   |                            |   |                               |   |                                 |   |                                                             | 116,344 |      |   |   |   |   | 116,344 |   |
| **TOTAL                COMPREHENSIVE INCOME**                     |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 109,555 |   |
|                                                              |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **SEPTEMBER                30, 2005**                             |   | $                               | 41,026 |                               | $      | 579,781                              |   | $                                                                | 369,503 |      | $      | (67,605 | ) | $ | 922,705 |   |
|                                                              |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **DECEMBER                31, 2005**                              |   | $                               | 41,026 |                               | $      | 580,035                              |   | $                                                                | 361,365 |      | $      | (880 | ) | $ | 981,546 |   |
|                                                              |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Common                Stock Dividends                             |   |                            |   |                               |   |                                 |   |                                                             | (67,500 | )         |   |   |   |   | (67,500 | ) |
| Capital                Stock Expense                              |   |                            |   |                               |   | 118                                  |   |                                                             | (118    | )         |   |   |   |   | - |   |
| **TOTAL**                                                         |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 914,046 |   |
|                                                              |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                           |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **Other                Comprehensive Income, Net of Taxes:** |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $2,121             |   |                            |   |                               |   |                                 |   |                                                             |    |      |   | 3,940 |   |   | 3,940 |   |
| **NET                INCOME**                                     |   |                            |   |                               |   |                                 |   |                                                             | 167,620 |      |   |   |   |   | 167,620 |   |
| **TOTAL                COMPREHENSIVE INCOME**                     |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 171,560 |   |
|                                                              |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **SEPTEMBER                30, 2006**                             |   | $                               | 41,026 |                               | $      | 580,153                              |   | $                                                                | 461,367 |      | $      | 3,060 |   | $ | 1,085,606 |   |

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

----

**COLUMBUS      SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**September      30, 2006 and December 31, 2005**

**(in      thousands)**

**(Unaudited)**

|                                                     |   | **2006**     |      | **2005**     |   |
|----------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                ASSETS**                        |   |    |      |    |   |
| Cash                and Cash Equivalents                 |   | $            | 1,251     |         | $      | 940 |   |
| Advances                to Affiliates                    |   |         | 60,417    |         |   | - |   |
| Accounts                Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                |   |         | 54,517    |         |   | 43,143 |   |
| Affiliated                Companies                      |   |         | 51,218    |         |   | 67,694 |   |
| Accrued                Unbilled Revenues                 |   |         | 15,687    |         |   | 10,086 |   |
| Miscellaneous                                            |   |         | 5,185     |         |   | 2,012 |   |
| Allowance                for Uncollectible Accounts      |   |         | (1,380    | )            |   | (1,082 | ) |
|                  Total Accounts Receivable          |   |         | 125,227   |         |   | 121,853 |   |
| Fuel                                                     |   |         | 33,556    |         |   | 28,579 |   |
| Materials                and Supplies                    |   |         | 30,742    |         |   | 27,519 |   |
| Emission                Allowances                       |   |         | 7,070     |         |   | 20,181 |   |
| Risk                Management Assets                    |   |         | 57,810    |         |   | 76,507 |   |
| Accrued                Tax Benefits                      |   |         | -         |         |   | 36,838 |   |
| Prepayments                and Other                     |   |         | 11,284    |         |   | 23,546 |   |
| **TOTAL**                                                |   |         | 327,357   |         |   | 335,963 |   |
|                                                     |   |         |      |         |   |   |   |
| **PROPERTY,                PLANT AND EQUIPMENT**         |   |         |      |         |   |   |   |
| Electric:                                                |   |         |      |         |   |   |   |
| Production                                               |   |         | 1,889,414 |         |   | 1,874,652 |   |
| Transmission                                             |   |         | 478,513   |         |   | 457,937 |   |
| Distribution                                             |   |         | 1,451,842 |         |   | 1,380,722 |   |
| Other                                                    |   |         | 191,599   |         |   | 184,096 |   |
| Construction                Work in Progress             |   |         | 224,854   |         |   | 129,246 |   |
| **Total**                                                |   |         | 4,236,222 |         |   | 4,026,653 |   |
| Accumulated                Depreciation and Amortization |   |         | 1,589,465 |         |   | 1,500,858 |   |
| **TOTAL                - NET**                           |   |         | 2,646,757 |         |   | 2,525,795 |   |
|                                                     |   |         |      |         |   |   |   |
| **OTHER                NONCURRENT ASSETS**               |   |         |      |         |   |   |   |
| Regulatory                Assets                         |   |         | 216,339   |         |   | 231,599 |   |
| Long-term                Risk Management Assets          |   |         | 68,630    |         |   | 101,512 |   |
| Deferred                Charges and Other                |   |         | 187,915   |         |   | 237,925 |   |
| **TOTAL**                                                |   |         | 472,884   |         |   | 571,036 |   |
|                                                     |   |         |      |         |   |   |   |
| **TOTAL                ASSETS**                          |   | $            | 3,446,998 |         | $      | 3,432,794 |   |

*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**

**September      30, 2006 and December 31, 2005**

**(Unaudited)**

|                                                                      |   | **2006**                          |      | **2005** |   |
|---------------------------------------------------------------------------|--------|-----------------------------------|-----------|----------|--------|
| **CURRENT                LIABILITIES**                                    |   | **(in                thousands)** |      |
| Advances                from Affiliates                                   |   | $                                 | -         |     | $      | 17,609 |   |
| Accounts                Payable:                                          |   |                              |      |     |   |   |   |
| General                                                                   |   |                              | 104,090   |     |   | 59,134 |   |
| Affiliated                Companies                                       |   |                              | 57,910    |     |   | 59,399 |   |
| Risk                Management Liabilities                                |   |                              | 41,551    |     |   | 69,036 |   |
| Customer                Deposits                                          |   |                              | 32,448    |     |   | 47,013 |   |
| Accrued                Taxes                                              |   |                              | 111,910   |     |   | 157,729 |   |
| Other                                                                     |   |                              | 47,351    |     |   | 50,229 |   |
| **TOTAL**                                                                 |   |                              | 395,260   |     |   | 460,149 |   |
|                                                                      |   |                              |      |     |   |   |   |
| **NONCURRENT                LIABILITIES**                                 |   |                              |      |     |   |   |   |
| Long-term                Debt - Nonaffiliated                             |   |                              | 1,097,222 |     |   | 1,096,920 |   |
| Long-term                Debt - Affiliated                                |   |                              | 100,000   |     |   | 100,000 |   |
| Long-term                Risk Management Liabilities                      |   |                              | 49,850    |     |   | 84,291 |   |
| Deferred                Income Taxes                                      |   |                              | 494,805   |     |   | 498,232 |   |
| Regulatory                Liabilities and Deferred Investment Tax Credits |   |                              | 177,801   |     |   | 165,344 |   |
| Deferred                Credits and Other                                 |   |                              | 46,454    |     |   | 46,312 |   |
| **TOTAL**                                                                 |   |                              | 1,966,132 |     |   | 1,991,099 |   |
|                                                                      |   |                              |      |     |   |   |   |
| **TOTAL                LIABILITIES**                                      |   |                              | 2,361,392 |     |   | 2,451,248 |   |
|                                                                      |   |                              |      |     |   |   |   |
| Commitments                and Contingencies (Note 5)                     |   |                              |      |     |   |   |   |
|                                                                      |   |                              |      |     |   |   |   |
| **COMMON                SHAREHOLDER’S EQUITY**                      |   |                              |      |     |   |   |   |
| Common                Stock - No Par Value Per Share:                     |   |                              |      |     |   |   |   |
| Authorized                - 24,000,000 Shares                             |   |                              |      |     |   |   |   |
| Outstanding                - 16,410,426 Shares                            |   |                              | 41,026    |     |   | 41,026 |   |
| Paid-in                Capital                                            |   |                              | 580,153   |     |   | 580,035 |   |
| Retained                Earnings                                          |   |                              | 461,367   |     |   | 361,365 |   |
| Accumulated                Other Comprehensive Income (Loss)              |   |                              | 3,060     |     |   | (880 | ) |
| **TOTAL**                                                                 |   |                              | 1,085,606 |     |   | 981,546 |   |
|                                                                      |   |                              |      |     |   |   |   |
| **TOTAL                LIABILITIES AND SHAREHOLDER’S EQUITY**       |   | $                                 | 3,446,998 |     | $      | 3,432,794 |   |

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

----

**COLUMBUS      SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For      the Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                                                    |   | **2006**     |     | **2005**     |   |
|-----------------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                ACTIVITIES**                                                 |   |    |     |    |   |
| **Net                Income**                                                           |   | $            | 167,620  |         | $      | 116,344 |   |
| **Adjustments                for Noncash Items:**                                       |   |         |     |         |   |   |   |
| Depreciation                and Amortization                                            |   |         | 143,495  |         |   | 102,985 |   |
| Deferred                Income Taxes                                                    |   |         | (5,097   | )            |   | (9,441 | ) |
| Asset                Impairments and Other Related Charges                              |   |         | -        |         |   | 39,109 |   |
| Carrying                Costs Income                                                    |   |         | (3,082   | )            |   | (8,716 | ) |
| Mark-to-Market                of Risk Management Contracts                              |   |         | (4,502   | )            |   | (12,767 | ) |
| Pension                Contributions to Qualified Plan Trusts                           |   |         | -        |         |   | (37,832 | ) |
| Deferred                Property Taxes                                                  |   |         | 49,518   |         |   | 47,640 |   |
| Change                in Other Noncurrent Assets                                        |   |         | (24,297  | )            |   | (24,839 | ) |
| Change                in Other Noncurrent Liabilities                                   |   |         | 11,752   |         |   | 14,747 |   |
| **Changes                in Components of Working Capital:**                            |   |         |     |         |   |   |   |
| Accounts                Receivable, Net                                                 |   |         | (3,374   | )            |   | (7,748 | ) |
| Fuel,                Materials and Supplies                                             |   |         | (8,200   | )            |   | 8,611 |   |
| Accounts                Payable                                                         |   |         | 31,765   |         |   | 2,215 |   |
| Customer                Deposits                                                        |   |         | (14,565  | )            |   | 30,760 |   |
| Accrued                Taxes, Net                                                       |   |         | (8,981   | )            |   | (94,788 | ) |
| Other                Current Assets                                                     |   |         | 26,838   |         |   | (14,809 | ) |
| Other                Current Liabilities                                                |   |         | (2,878   | )            |   | (10,471 | ) |
| **Net                Cash Flows From Operating Activities**                             |   |         | 356,012  |         |   | 141,000 |   |
|                                                                                    |   |         |     |         |   |   |   |
| **INVESTING                ACTIVITIES**                                                 |   |         |     |         |   |   |   |
| Construction                Expenditures                                                |   |         | (207,875 | )            |   | (118,222 | ) |
| Change                in Advances to Affiliates, Net                                    |   |         | (60,417  | )            |   | 141,550 |   |
| Purchase                of Waterford Plant                                              |   |         | -        |         |   | (218,356 | ) |
| Other                                                                                   |   |         | 8        |         |   | 4,639 |   |
| **Net                Cash Flows Used For Investing Activities**                         |   |         | (268,284 | )            |   | (190,389 | ) |
|                                                                                    |   |         |     |         |   |   |   |
| **FINANCING                ACTIVITIES**                                                 |   |         |     |         |   |   |   |
| Change                in Advances from Affiliates, Net                                  |   |         | (17,609  | )            |   | 138,541 |   |
| Principal                Payments for Capital Lease Obligations                         |   |         | (2,308   | )            |   | (2,642 | ) |
| Dividends                Paid on Common Stock                                           |   |         | (67,500  | )            |   | (85,500 | ) |
| **Net                Cash Flows From (Used For) Financing Activities**                  |   |         | (87,417  | )            |   | 50,399 |   |
|                                                                                    |   |         |     |         |   |   |   |
| **Net                Increase (Decrease) in Cash and Cash Equivalents**                 |   |         | 311      |         |   | 1,010 |   |
| **Cash                and Cash Equivalents at Beginning of Period**                     |   |         | 940      |         |   | 58 |   |
| **Cash                and Cash Equivalents at End of Period**                           |   | $            | 1,251    |         | $      | 1,068 |   |
|                                                                                    |   |         |     |         |   |   |   |
| **SUPPLEMENTARY                INFORMATION**                                            |   |         |     |         |   |   |   |
| Cash                Paid for Interest, Net of Capitalized Amounts                       |   | $            | 52,958   |         | $      | 50,095 |   |
| Net                Cash Paid for Income Taxes                                           |   |         | 35,561   |         |   | 109,382 |   |
| Noncash                Acquisitions Under Capital Leases                                |   |         | 2,130    |         |   | 520 |   |
| Construction                Expenditures Included in Accounts Payable at September 30,  |   |         | 22,955   |         |   | 4,974 |   |
| Assumption                of Liabilities in Connection with Waterford Plant Acquisition |   |         | -        |         |   | 2,295 |   |

| *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     |
| Customer                Choice and Industry Restructuring               | Note                4     |
| Commitments                and Contingencies                            | Note                5     |
| Guarantees                                                              | Note                6     |
| Company-wide                Staffing and Budget Review                  | Note                7     |
| Acquisitions,                Assets Held for Sale and Asset Impairments | Note                8     |
| Benefit                Plans                                            | Note                9     |
| Business                Segments                                        | Note                11    |
| Financing                Activities                                     | Note                12    |

----

**INDIANA      MICHIGAN POWER COMPANY**

**AND      SUBSIDIARIES**

----

**INDIANA      MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**MANAGEMENT’S      FINANCIAL DISCUSSION AND ANALYSIS**

**Results      of Operations**

**Reconciliation      of Third Quarter of 2005 to Third Quarter of 2006 Net      Income**

**(in      millions)**

| **Third                Quarter of 2005**                        |   |   |   |   | $      | 53     |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                Margins                                   |   |   | (44    | )      |   |   |   |
| Off-system                Sales (a)                             |   |   | 34     |   |   |   |   |
| Transmission                Revenues                            |   |   | (4     | )      |   |   |   |
| Other                                                           |   |   | 2      |   |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | (12    | )      |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | (17    | )      |   |   |   |
| Depreciation                and Amortization                    |   |   | (5     | )      |   |   |   |
| Other                Income (Expense)                           |   |   | 3      |   |   |   |   |
| Interest                Expense                                 |   |   | (1     | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (20    | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | 14     |   |
|                                                            |   |   |   |   |   |   |   |
| **Third                Quarter of 2006**                        |   |   |   |   | $      | 35     |   |

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

| · | Retail                Margins decreased $44 million primarily due to lower fuel recovery                as fuel                cost increases could not be recovered due to the Indiana fuel cap                and a                reduction in capacity revenues of $22 million under the Interconnection                Agreement. Capacity revenues declined due to our new peak demand                in July                2006 and our affiliates’ addition of generating capacity in                2005.                                                                                    |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Off-system                Sales increased $34 million primarily due to the addition of new                municipal                contracts including new rates and increased demand beginning January                2006,                a $13 million increase in physical sales margins and a $10 million                increase from lower sharing of off-system sales margins under the                SIA. See                the “Allocation Agreement between AEP East companies and AEP West                companies and CSW Operating Agreement” section of Note                3. |
| · | Transmission                Revenues decreased $4 million primarily due to the elimination of                SECA                revenues as of April 1, 2006. At this time, we have a pending proposal                with the FERC to replace SECA revenues. See the “Transmission                Rate Proceedings at the FERC” section of Note                3.                                                                                                                                                                                                                    |

| · | Other Operation                and Maintenance expenses increased $17 million primarily due to the                abandonment of digital turbine control equipment at the Cook                Plant. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                and Amortization increased $5 million primarily due to higher expense                related to capital additions.                                                            |

*Income      Taxes*

**Reconciliation      of Nine Months Ended September 30, 2005 to**

**Nine      Months Ended September 30, 2006 Net Income**

**(in      millions)**

| **Nine                Months Ended September 30, 2005**         |   |   |   |   | $      | 128    |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                Margins                                   |   |   | (55    | )      |   |   |   |
| Off-system                Sales (a)                             |   |   | 63     |   |   |   |   |
| Transmission                Revenues                            |   |   | (11    | )      |   |   |   |
| Other                                                           |   |   | 11     |   |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | 8      |   |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | (12    | )      |   |   |   |
| Depreciation                and Amortization                    |   |   | (9     | )      |   |   |   |
| Taxes                Other Than Income Taxes                    |   |   | (3     | )      |   |   |   |
| Other                Income (Expense)                           |   |   | 4      |   |   |   |   |
| Interest                Expense                                 |   |   | (4     | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (24    | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | 9      |   |
|                                                            |   |   |   |   |   |   |   |
| **Nine                Months Ended September 30, 2006**         |   |   |   |   | $      | 121    |   |

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

| · | Retail                Margins decreased $55 million primarily due to lower fuel recovery                as fuel                cost increases could not be recovered due to the Indiana fuel cap                and a                reduction in capacity settlement revenues of $27 million under the                Interconnection Agreement. Capacity revenues declined due to our                new peak                demand in July 2006 and our affiliates’ addition of generating capacity in                2005.                                                                                                                                                                          |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Off-system                Sales increased $63 million primarily due to the addition of new                municipal                contracts including new rates and increased demand beginning January                2006,                a $33 million increase in physical sales margins and a $12 million                increase from lower sharing of off-system sales margins under the                SIA,                offset by a $12 million decrease in margins from reduced optimization                activities. See the “Allocation Agreement between AEP East companies and                AEP West companies and CSW Operating Agreement” section of Note                3. |
| · | Transmission                Revenues decreased $11 million primarily due to the elimination of                SECA                revenues as of April 1, 2006 and a $3 million provision for potential                SECA                refunds pending settlement negotiations with various intervenors.                At this                time, we have a pending proposal with the FERC to replace SECA                revenues. See the “Transmission Rate Proceedings at the FERC” section of                Note 3.                                                                                                                                                        |
| · | Other                revenues increased                $11 million primarily due to increased River Transportation Division                (RTD)                revenues for barging coal and gains on sales of emission allowances.                Related expenses which offset the RTD revenue increase 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 $12 million primarily due to the                abandonment of digital turbine control equipment at the Cook Plant                and an                increase in RTD expenses. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                and Amortization increased $9 million primarily due to higher expense                related to capital additions.                                                                                                           |

*Income      Taxes*

**Financial      Condition**

**Credit      Ratings**

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

**Cash      Flow**

|                                                                |   | **2006**                          |     | **2005**     |   |
|---------------------------------------------------------------------|--------|-----------------------------------|----------|--------------|--------|
|                                                                |   | **(in                thousands)** |     |
|                                                                |   |                         |     |    |   |
| **Cash                and Cash Equivalents at Beginning of Period** |   | $                                 | 854      |         | $      | 511 |   |
| Net                Cash Flows From (Used For):                      |   |                              |     |         |   |   |   |
| Operating                Activities                                 |   |                              | 456,313  |         |   | 276,523 |   |
| Investing                Activities                                 |   |                              | (355,252 | )            |   | (238,875 | ) |
| Financing                Activities                                 |   |                              | (101,209 | )            |   | (37,428 | ) |
| Net                Increase (Decrease) in Cash and Cash Equivalents |   |                              | (148     | )            |   | 220 |   |
| **Cash                and Cash Equivalents at End of Period**       |   | $                                 | 706      |         | $      | 731 |   |

*Operating      Activities*

*Investing      Activities*

*Financing      Activities*

**Financing      Activity**

|                                   |   | **Principal****Amount** |                              | **Interest** |     | **Due** |
|----------------------------------------|--------|-------------------------|-----------------------------------|--------------|----------|---------|
| **Type                of Debt**        |   |                    | **Rate**                          |         | **Date** |
|                                   |   |                    | **(in                thousands)** |         | **(%)**  |    |   |
|                                   |   |                    |                              |         |     |    |   |
| Pollution                Control Bonds |   | $                       | 50,000                            |         | Variable |    | 2025 |

|                                   |   | **Principal****Amount                Paid** |                              | **Interest** |     | **Due** |
|----------------------------------------|--------|---------------------------------------------|-----------------------------------|--------------|----------|---------|
| **Type                of Debt**        |   |                                        | **Rate**                          |         | **Date** |
|                                   |   |                                        | **(in                thousands)** |         | **(%)**  |    |   |
|                                   |   |                                        |                              |         |     |    |   |
| Pollution                Control Bonds |   | $                                           | 50,000                            |         | 6.55     |    | 2025 |

**Liquidity**

**Off-Balance      Sheet Arrangements**

**Summary      Obligation Information**
** **

**Significant      Factors**

***Cook      Plant Outage***

***Litigation      and Regulatory Activity***

**Critical      Accounting Estimates**

----

**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 September 30, 2006**

**(in      thousands)**

|                                                                                          |   | **MTM                Risk Management Contracts** |    | **Cash                Flow &****Fair                Value Hedges** |   | **DETM                Assignment (a)** |   | **Total** |   |
|-----------------------------------------------------------------------------------------------|--------|--------------------------------------------------|---------|------------------------------------------------------------------------|--------|----------------------------------------|--------|-----------|--------|
| Current                Assets                                                                 |   | $                                                | 55,747  |                                                                   | $      | 5,010                                  |   | $         | -      |   | $ | 60,757 |   |
| Noncurrent                Assets                                                              |   |                                             | 71,650  |                                                                   |   | 342                                    |   |      | -      |   |   | 71,992 |   |
| **Total                MTM Derivative Contract Assets**                                       |   |                                             | 127,397 |                                                                   |   | 5,352                                  |   |      | -      |   |   | 132,749 |   |
|                                                                                          |   |                                             |    |                                                                   |   |                                   |   |      |   |   |   |   |   |
| Current                Liabilities                                                            |   |                                             | (42,116 | )                                                                      |   | (15,586                                | )      |      | (1,259 | ) |   | (58,961 | ) |
| Noncurrent                Liabilities                                                         |   |                                             | (46,349 | )                                                                      |   | (8                                     | )      |      | (6,120 | ) |   | (52,477 | ) |
| **Total                MTM Derivative Contract Liabilities**                             |   |                                             | (88,465 | )                                                                      |   | (15,594                                | )      |      | (7,379 | ) |   | (111,438 | ) |
|                                                                                          |   |                                             |    |                                                                   |   |                                   |   |      |   |   |   |   |   |
| **Total                MTM Derivative Contract Net Assets                (Liabilities)** |   | $                                                | 38,932  |                                                                   | $      | (10,242                                | )      | $         | (7,379 | ) | $ | 21,311 |   |

| (a) | See                “Natural Gas Contracts with DETM” section of Note 17 of the 2005 Annual                Report. |
|-----|-------------------------------------------------------------------------------------------------------------------------------|

**MTM      Risk Management Contract Net Assets**

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

| **Total                MTM Risk Management Contract Net Assets at December 31,                2005**                                                          |   | $      | 33,932  |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| (Gain)                Loss from Contracts Realized/Settled During the Period and Entered                in a                Prior Period                      |   |   | (538    | )      |
| 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 |   |   | (137    | )      |
| Change                in Fair Value Due to Valuation Methodology Changes on Forward                Contracts                                                  |   |   | -       |   |
| Changes                in Fair Value Due to Market Fluctuations During the Period                (b)                                                          |   |   | (310    | )      |
| Changes                Due to SIA (c)                                                                                                                         |   |   | (3,940  | )      |
| Changes                in Fair Value Allocated to Regulated Jurisdictions (d)                                                                                 |   |   | 9,925   |   |
| **Total                MTM Risk Management Contract Net Assets**                                                                                              |   |   | 38,932  |   |
| Net                Cash Flow & Fair Value Hedge Contracts                                                                                                 |   |   | (10,242 | )      |
| DETM                Assignment (e)                                                                                                                            |   |   | (7,379  | )      |
| **Total                MTM Risk Management Contract Net Assets at September 30,                2006**                                                         |   | $      | 21,311  |   |

| (a) | Most                of the fair value comes from longer term fixed price contracts with                customers that seek 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) | See                “Allocation Agreement between AEP East companies and AEP West companies                and CSW Operating Agreement” section of Note 3.                                                                                                                                                                                                                                                                                                                                                                                 |
| (d) | “Changes                in Fair Value Allocated to Regulated Jurisdictions” relates to the net                gains (losses) of those contracts that are not reflected in our Condensed                Consolidated Statements of Income. These net gains (losses) are recorded                as regulatory liabilities/assets for those subsidiaries that operate                in                regulated jurisdictions.                                                                                                             |
| (e) | See                “Natural Gas Contracts with DETM” section of Note 17 of the 2005 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 giving 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 September 30, 2006**

**(in      thousands)**

|                                                                                                                      |   | **Remainder                2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                Actively Quoted - Exchange Traded                Contracts                                          |   | $                                 | 1,202  |     | $      | 8,629    |   | $        | 3,123  |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | 12,954 |   |
| Prices                Provided by Other External Sources                - OTC Broker  Quotes                (a) |   |                              | 2,395  |     |   | 6,585    |   |     | 3,260  |     |   | 4,892             |   |      | -      |   |   | - |   |   | 17,132 |   |
| Prices                Based on Models and Other Valuation                Methods (b)                                 |   |                              | -      |     |   | (2,602   | )      |     | 988    |     |   | 3,113             |   |      | 5,579  |   |   | 1,768 |   |   | 8,846 |   |
| **Total**                                                                                                                 |   | $                                 | 3,597  |     | $      | 12,612   |   | $        | 7,371  |     | $      | 8,005             |   | $         | 5,579  |   | $ | 1,768 |   | $ | 38,932 |   |

| (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. |

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

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

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

|                                                                                                      |   | **Power** |   | **Interest                Rate** |   | **Total** |   |
|-----------------------------------------------------------------------------------------------------------|--------|-----------|--------|----------------------------------|--------|-----------|--------|
| **Beginning                Balance in AOCI December 31, 2005**                                            |   | $         | (877   | )                                | $      | (2,590    | )      | $ | (3,467 | ) |
| Changes                in Fair Value                                                                      |   |      | 2,978  |                             |   | (9,382    | )      |   | (6,404 | ) |
| Impact                due to Changes in SIA (a)                                                           |   |      | (267   | )                                |   | -         |   |   | (267 | ) |
| Reclassifications                from AOCI to Net Income for Cash Flow                Hedges Settled |   |      | 1,394  |                             |   | 241       |   |   | 1,635 |   |
| **Ending                Balance in AOCI September 30, 2006**                                              |   | $         | 3,228  |                             | $      | (11,731   | )      | $ | (8,503 | ) |

| (a) | See                “Allocation Agreement between AEP East companies and AEP West companies                and CSW Operating Agreement” section of Note                3. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Credit      Risk**

**VaR      Associated with Risk Management Contracts**

| **Nine                Months Ended****September                30, 2006** |   |     |   |        | **Twelve                Months Ended****December                31, 2005** |
|---------------------------------------------------------------------------|--------|----------|--------|-------------|----------------------------------------------------------------------------|
| **(in                thousands)**                                         |   |     |   |        | **(in                thousands)**                                          |
| **End**                                                                   |   | **High** |   | **Average** |                                                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $438                                                                      |   | $1,283   |   | $427        |                                                                       | $242 |   |   |   |   | $433 |   | $720 |   | $343 |   | $124 |

**VaR      Associated with Debt Outstanding**

----

**INDIANA      MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF INCOME**

**For      the Three and Nine Months Ended September 30, 2006 and      2005**

**(in      thousands)**

**(Unaudited)**

|                                                                                           |   | **Three                Months Ended** |    | **Nine                Months Ended** |   |
|------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|--------------------------------------|--------|
|                                                                                           |   | **2006**                              |    | **2005**                             |   | **2006** |   | **2005** |   |
| **REVENUES**                                                                                   |   |                             |    |                            |   |   |   |   |   |
| Electric                Generation, Transmission and Distribution                              |   | $                                     | 449,259 |                                 | $      | 391,361 |   | $ | 1,224,609 |   | $ | 1,095,621 |   |
| Sales                to AEP Affiliates                                                         |   |                                  | 54,793  |                                 |   | 103,141 |   |   | 223,728 |   |   | 277,223 |   |
| Other                - Affiliated                                                              |   |                                  | 12,903  |                                 |   | 11,745 |   |   | 37,838 |   |   | 34,215 |   |
| Other                - Nonaffiliated                                                           |   |                                  | 8,580   |                                 |   | 8,832 |   |   | 24,593 |   |   | 23,139 |   |
| **TOTAL**                                                                                      |   |                                  | 525,535 |                                 |   | 515,079 |   |   | 1,510,768 |   |   | 1,430,198 |   |
|                                                                                           |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                                                   |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Fuel                and Other Consumables for Electric Generation                              |   |                                  | 98,135  |                                 |   | 93,557 |   |   | 283,734 |   |   | 253,255 |   |
| Purchased                Electricity for Resale                                                |   |                                  | 20,450  |                                 |   | 11,784 |   |   | 46,993 |   |   | 35,786 |   |
| Purchased                Electricity from AEP Affiliates                                       |   |                                  | 92,052  |                                 |   | 82,763 |   |   | 259,304 |   |   | 228,756 |   |
| Other                Operation                                                                 |   |                                  | 125,170 |                                 |   | 122,927 |   |   | 357,882 |   |   | 343,239 |   |
| Maintenance                                                                                    |   |                                  | 56,960  |                                 |   | 42,300 |   |   | 142,531 |   |   | 144,988 |   |
| Depreciation                and Amortization                                                   |   |                                  | 47,895  |                                 |   | 42,726 |   |   | 136,681 |   |   | 127,695 |   |
| Taxes                Other Than Income Taxes                                                   |   |                                  | 18,472  |                                 |   | 18,268 |   |   | 56,343 |   |   | 53,246 |   |
| **TOTAL**                                                                                      |   |                                  | 459,134 |                                 |   | 414,325 |   |   | 1,283,468 |   |   | 1,186,965 |   |
|                                                                                           |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **OPERATING                INCOME**                                                            |   |                                  | 66,401  |                                 |   | 100,754 |   |   | 227,300 |   |   | 243,233 |   |
|                                                                                           |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **Other                Income (Expense):**                                                     |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Interest                Income                                                                 |   |                                  | 1,102   |                                 |   | 586 |   |   | 2,459 |   |   | 1,437 |   |
| Allowance                for Equity Funds Used During Construction                             |   |                                  | 2,517   |                                 |   | 563 |   |   | 5,881 |   |   | 3,252 |   |
| Interest                Expense                                                                |   |                                  | (17,228 | )                                    |   | (16,343 | ) |   | (52,663 | ) |   | (48,427 | ) |
|                                                                                           |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **INCOME                BEFORE INCOME TAXES**                                                  |   |                                  | 52,792  |                                 |   | 85,560 |   |   | 182,977 |   |   | 199,495 |   |
|                                                                                           |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Income                Tax Expense                                                              |   |                                  | 18,231  |                                 |   | 32,548 |   |   | 62,013 |   |   | 71,221 |   |
|                                                                                           |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **NET                INCOME**                                                                  |   |                                  | 34,561  |                                 |   | 53,012 |   |   | 120,964 |   |   | 128,274 |   |
|                                                                                           |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Preferred                Stock Dividend Requirements including Capital Stock Expense |   |                                  | 85      |                                 |   | 86 |   |   | 255 |   |   | 311 |   |
|                                                                                           |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **EARNINGS                APPLICABLE TO COMMON STOCK**                                         |   | $                                     | 34,476  |                                 | $      | 52,926 |   | $ | 120,709 |   | $ | 127,963 |   |

*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 Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                                               |   | **Common                Stock** |   | **Paid-in                Capital** |   | **Retained                Earnings** |   | **Accumulated                Other Comprehensive Income (Loss)** |    | **Total** |   |
|------------------------------------------------------------------------------------|--------|---------------------------------|--------|------------------------------------|--------|--------------------------------------|--------|------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                31, 2004**                                               |   | $                               | 56,584 |                               | $      | 858,835                              |   | $                                                                | 221,330 |      | $      | (45,251 | ) | $ | 1,091,498 |   |
|                                                                               |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Common                Stock Dividends                                              |   |                            |   |                               |   |                                 |   |                                                             | (52,000 | )         |   |   |   |   | (52,000 | ) |
| Preferred                Stock Dividends                                           |   |                            |   |                               |   |                                 |   |                                                             | (255    | )         |   |   |   |   | (255 | ) |
| Capital                Stock Expense and Other                                     |   |                            |   |                               |   | 2,455                                |   |                                                             | (56     | )         |   |   |   |   | 2,399 |   |
| **TOTAL**                                                                          |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 1,041,642 |   |
|                                                                               |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                                            |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **Other                Comprehensive Loss, Net of Taxes:**                         |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $2,900                              |   |                            |   |                               |   |                                 |   |                                                             |    |      |   | (5,385 | ) |   | (5,385 | ) |
| **NET                INCOME**                                                      |   |                            |   |                               |   |                                 |   |                                                             | 128,274 |      |   |   |   |   | 128,274 |   |
| **TOTAL                COMPREHENSIVE INCOME**                                      |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 122,889 |   |
|                                                                               |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **SEPTEMBER                30, 2005**                                              |   | $                               | 56,584 |                               | $      | 861,290                              |   | $                                                                | 297,293 |      | $      | (50,636 | ) | $ | 1,164,531 |   |
|                                                                               |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **DECEMBER                31, 2005**                                               |   | $                               | 56,584 |                               | $      | 861,290                              |   | $                                                                | 305,787 |      | $      | (3,569 | ) | $ | 1,220,092 |   |
|                                                                               |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Common                Stock Dividends                                              |   |                            |   |                               |   |                                 |   |                                                             | (30,000 | )         |   |   |   |   | (30,000 | ) |
| Preferred                Stock Dividends                                           |   |                            |   |                               |   |                                 |   |                                                             | (255    | )         |   |   |   |   | (255 | ) |
| **TOTAL**                                                                          |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 1,189,837 |   |
|                                                                               |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                                            |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **Other                Comprehensive Loss,** **Net                of Taxes:** |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $2,712                              |   |                            |   |                               |   |                                 |   |                                                             |    |      |   | (5,036 | ) |   | (5,036 | ) |
| **NET                INCOME**                                                      |   |                            |   |                               |   |                                 |   |                                                             | 120,964 |      |   |   |   |   | 120,964 |   |
| **TOTAL                COMPREHENSIVE INCOME**                                      |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 115,928 |   |
|                                                                               |   |                            |   |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **SEPTEMBER                30, 2006**                                              |   | $                               | 56,584 |                               | $      | 861,290                              |   | $                                                                | 396,496 |      | $      | (8,605 | ) | $ | 1,305,765 |   |

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

----

**INDIANA      MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**September      30, 2006 and December 31, 2005**

**(in      thousands)**

**(Unaudited)**

|                                                                                              |   | **2006**     |      | **2005**     |   |
|---------------------------------------------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                ASSETS**                                                                 |   |    |      |    |   |
| Cash                and Cash Equivalents                                                          |   | $            | 706       |         | $      | 854 |   |
| Accounts                Receivable:                                                               |   |         |      |         |   |   |   |
| Customers                                                                                         |   |         | 72,718    |         |   | 62,614 |   |
| Affiliated                Companies                                                               |   |         | 80,334    |         |   | 127,981 |   |
| Miscellaneous                                                                                     |   |         | 2,463     |         |   | 1,982 |   |
| Allowance                for Uncollectible Accounts                                               |   |         | (1,204    | )            |   | (898 | ) |
| Total                Accounts Receivable                                                          |   |         | 154,311   |         |   | 191,679 |   |
| Fuel                                                                                              |   |         | 38,531    |         |   | 25,894 |   |
| Materials                and Supplies                                                             |   |         | 126,067   |         |   | 118,039 |   |
| Risk                Management Assets                                                             |   |         | 60,757    |         |   | 78,134 |   |
| Accrued                Tax Benefits                                                               |   |         | 16,951    |         |   | 51,846 |   |
| Margin                Deposits                                                                    |   |         | 1,258     |         |   | 17,115 |   |
| Prepayments                and Other                                                              |   |         | 9,072     |         |   | 14,188 |   |
| **TOTAL**                                                                                         |   |         | 407,653   |         |   | 497,749 |   |
|                                                                                              |   |         |      |         |   |   |   |
| **PROPERTY,                PLANT AND EQUIPMENT**                                                  |   |         |      |         |   |   |   |
| Electric:                                                                                         |   |         |      |         |   |   |   |
| Production                                                                                        |   |         | 3,217,437 |         |   | 3,128,078 |   |
| Transmission                                                                                      |   |         | 1,041,725 |         |   | 1,028,496 |   |
| Distribution                                                                                      |   |         | 1,084,530 |         |   | 1,029,498 |   |
| Other                (including nuclear fuel and coal mining)                                     |   |         | 523,502   |         |   | 465,130 |   |
| Construction                Work in Progress                                                      |   |         | 283,714   |         |   | 311,080 |   |
| **Total**                                                                                         |   |         | 6,150,908 |         |   | 5,962,282 |   |
| Accumulated                Depreciation, Depletion and Amortization                               |   |         | 2,909,705 |         |   | 2,822,558 |   |
| **TOTAL                - NET**                                                                    |   |         | 3,241,203 |         |   | 3,139,724 |   |
|                                                                                              |   |         |      |         |   |   |   |
| **OTHER                NONCURRENT ASSETS**                                                        |   |         |      |         |   |   |   |
| Regulatory                Assets                                                                  |   |         | 217,070   |         |   | 222,686 |   |
| Nuclear                Decommissioning and Spent Nuclear Fuel Disposal Trust                Funds |   |         | 1,191,142 |         |   | 1,133,567 |   |
| Long-term                Risk Management Assets                                                   |   |         | 71,992    |         |   | 103,645 |   |
| Deferred                Charges and Other                                                         |   |         | 144,890   |         |   | 164,938 |   |
| **TOTAL**                                                                                         |   |         | 1,625,094 |         |   | 1,624,836 |   |
|                                                                                              |   |         |      |         |   |   |   |
| **TOTAL                ASSETS**                                                                   |   | $            | 5,273,950 |         | $      | 5,262,309 |   |

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

----

**INDIANA      MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**LIABILITIES      AND SHAREHOLDERS’ EQUITY**

**September      30, 2006 and December 31, 2005**

**(Unaudited)**

|                                                                          |   | **2006**                          |      | **2005** |   |
|-------------------------------------------------------------------------------|--------|-----------------------------------|-----------|----------|--------|
| **CURRENT                LIABILITIES**                                        |   | **(in                thousands)** |      |
| Advances                from Affiliates                                       |   | $                                 | 27,616    |     | $      | 93,702 |   |
| Accounts                Payable:                                              |   |                              |      |     |   |   |   |
| General                                                                       |   |                              | 137,157   |     |   | 139,334 |   |
| Affiliated                Companies                                           |   |                              | 59,163    |     |   | 60,324 |   |
| Long-term                Debt Due Within One Year                             |   |                              | 349,627   |     |   | 364,469 |   |
| Risk                Management Liabilities                                    |   |                              | 58,961    |     |   | 71,032 |   |
| Customer                Deposits                                              |   |                              | 34,943    |     |   | 49,258 |   |
| Accrued                Taxes                                                  |   |                              | 49,964    |     |   | 56,567 |   |
| Other                                                                         |   |                              | 138,352   |     |   | 112,839 |   |
| **TOTAL**                                                                     |   |                              | 855,783   |     |   | 947,525 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **NONCURRENT                LIABILITIES**                                     |   |                              |      |     |   |   |   |
| Long-term                Debt                                                 |   |                              | 1,104,274 |     |   | 1,080,471 |   |
| Long-term                Risk Management Liabilities                          |   |                              | 52,477    |     |   | 86,159 |   |
| Deferred                Income Taxes                                          |   |                              | 336,194   |     |   | 335,264 |   |
| Regulatory                Liabilities and Deferred Investment Tax Credits     |   |                              | 714,663   |     |   | 710,015 |   |
| Asset                Retirement Obligations                                   |   |                              | 774,061   |     |   | 737,959 |   |
| Deferred                Credits and Other                                     |   |                              | 122,651   |     |   | 136,740 |   |
| **TOTAL**                                                                     |   |                              | 3,104,320 |     |   | 3,086,608 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **TOTAL                LIABILITIES**                                          |   |                              | 3,960,103 |     |   | 4,034,133 |   |
|                                                                          |   |                              |      |     |   |   |   |
| Cumulative                Preferred Stock Not Subject to Mandatory Redemption |   |                              | 8,082     |     |   | 8,084 |   |
|                                                                          |   |                              |      |     |   |   |   |
| Commitments                and Contingencies (Note 5)                         |   |                              |      |     |   |   |   |
|                                                                          |   |                              |      |     |   |   |   |
| **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                                              |   |                              | 396,496   |     |   | 305,787 |   |
| Accumulated                Other Comprehensive Income (Loss)                  |   |                              | (8,605    | )        |   | (3,569 | ) |
| **TOTAL**                                                                     |   |                              | 1,305,765 |     |   | 1,220,092 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **TOTAL                LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                 | 5,273,950 |     | $      | 5,262,309 |   |

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

----

**INDIANA      MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For      the Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                                                                        |   | **2006**     |     | **2005**     |   |
|-------------------------------------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                ACTIVITIES**                                                                     |   |    |     |    |   |
| **Net                Income**                                                                               |   | $            | 120,964  |         | $      | 128,274 |   |
| **Adjustments                for Noncash Items:**                                                           |   |         |     |         |   |   |   |
| Depreciation                and Amortization                                                                |   |         | 136,681  |         |   | 127,695 |   |
| Accretion                of Asset Retirement Obligations                                                    |   |         | 36,309   |         |   | 35,742 |   |
| Deferred                Income Taxes                                                                        |   |         | 7,734    |         |   | 2,269 |   |
| Deferred                Investment Tax Credits                                                              |   |         | (5,460   | )            |   | (5,496 | ) |
| Amortization                (Deferral) of Incremental Nuclear Refueling Outage Expenses,                Net |   |         | (20,673  | )            |   | 10,506 |   |
| Amortization                of Nuclear Fuel                                                                 |   |         | 37,839   |         |   | 41,613 |   |
| Mark-to-Market                of Risk Management Contracts                                                  |   |         | (4,915   | )            |   | (11,275 | ) |
| Pension                Contributions to Qualified Plan Trusts                                               |   |         | -        |         |   | (46,051 | ) |
| Deferred                Property Taxes                                                                      |   |         | 10,854   |         |   | 9,814 |   |
| Change                in Other Noncurrent Assets                                                            |   |         | 25,260   |         |   | 11,650 |   |
| Change                in Other Noncurrent Liabilities                                                       |   |         | 5,071    |         |   | 13,961 |   |
| **Changes                in Components of Working Capital:**                                                |   |         |     |         |   |   |   |
| Accounts                Receivable, Net                                                                     |   |         | 37,368   |         |   | 14,441 |   |
| Fuel,                Materials and Supplies                                                                 |   |         | (20,665  | )            |   | 4,303 |   |
| Accounts                Payable                                                                             |   |         | 29,483   |         |   | 4,065 |   |
| Accrued                Taxes, Net                                                                           |   |         | 28,292   |         |   | (85,750 | ) |
| Customer                Deposits                                                                            |   |         | (14,315  | )            |   | 28,233 |   |
| Accrued                Interest                                                                             |   |         | 11,534   |         |   | 10,358 |   |
| Rent                Accrued - Rockport Plant Unit 2                                                         |   |         | 18,464   |         |   | 18,464 |   |
| Other                Current Assets                                                                         |   |         | 20,997   |         |   | (36,068 | ) |
| Other                Current Liabilities                                                                    |   |         | (4,509   | )            |   | (225 | ) |
| **Net                Cash Flows From Operating Activities**                                                 |   |         | 456,313  |         |   | 276,523 |   |
|                                                                                                        |   |         |     |         |   |   |   |
| **INVESTING                ACTIVITIES**                                                                     |   |         |     |         |   |   |   |
| Construction                Expenditures                                                                    |   |         | (240,806 | )            |   | (190,171 | ) |
| Change                in Advances to Affiliates, Net                                                        |   |         | -        |         |   | 5,093 |   |
| Purchases                of Investment Securities                                                           |   |         | (559,803 | )            |   | (473,802 | ) |
| Sales                of Investment Securities                                                               |   |         | 517,017  |         |   | 434,639 |   |
| Acquisitions                of Nuclear Fuel                                                                 |   |         | (72,614  | )            |   | (28,188 | ) |
| Proceeds                from Sales of Assets                                                                |   |         | 954      |         |   | 13,554 |   |
| **Net                Cash Flows Used For Investing Activities**                                             |   |         | (355,252 | )            |   | (238,875 | ) |
|                                                                                                        |   |         |     |         |   |   |   |
| **FINANCING                ACTIVITIES**                                                                     |   |         |     |         |   |   |   |
| Issuance                of Long-term Debt                                                                   |   |         | 49,745   |         |   | - |   |
| Change                in Advances from Affiliates, Net                                                      |   |         | (66,086  | )            |   | 81,101 |   |
| Retirement                of Long-term Debt                                                                 |   |         | (50,000  | )            |   | - |   |
| Retirement                of Cumulative Preferred Stock                                                     |   |         | (1       | )            |   | (61,445 | ) |
| Principal                Payments for Capital Lease Obligations                                             |   |         | (4,612   | )            |   | (4,829 | ) |
| Dividends                Paid on Common Stock                                                               |   |         | (30,000  | )            |   | (52,000 | ) |
| Dividends                Paid on Cumulative Preferred Stock                                                 |   |         | (255     | )            |   | (255 | ) |
| **Net                Cash Flows Used For Financing Activities**                                             |   |         | (101,209 | )            |   | (37,428 | ) |
|                                                                                                        |   |         |     |         |   |   |   |
| **Net                Increase (Decrease) in Cash and Cash Equivalents**                                     |   |         | (148     | )            |   | 220 |   |
| **Cash                and Cash Equivalents at Beginning of Period**                                         |   |         | 854      |         |   | 511 |   |
| **Cash                and Cash Equivalents at End of Period**                                               |   | $            | 706      |         | $      | 731 |   |
|                                                                                                        |   |         |     |         |   |   |   |
| **SUPPLEMENTAL                DISCLOSURE**                                                                  |   |         |     |         |   |   |   |
| Cash                Paid for Interest, Net of Capitalized Amounts                                           |   | $            | 37,708   |         | $      | 34,999 |   |
| Net                Cash Paid for Income Taxes                                                               |   |         | 20,180   |         |   | 149,058 |   |
| Noncash                Acquisitions Under Capital Leases                                                    |   |         | 4,359    |         |   | 1,465 |   |
| Construction                Expenditures Included in Accounts Payable at September 30,                      |   |         | 29,755   |         |   | 25,008 |   |

| *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                and Contingencies           | Note                5     |
| Guarantees                                             | Note                6     |
| Company-wide                Staffing and Budget Review | Note                7     |
| Benefit                Plans                           | Note                9     |
| Business                Segments                       | Note                11    |
| Financing                Activities                    | Note                12    |
|                                                   |                      |

----

**KENTUCKY      POWER COMPANY**

----

**KENTUCKY      POWER COMPANY**

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

**Results      of Operations**

**Reconciliation      of Third Quarter of 2005 to Third Quarter of 2006 Net      Income**

**(in      millions)**

| **Third                Quarter of 2005**                        |   |   |   |   | $      | 8      |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                Margins                                   |   |   | 1      |   |   |   |   |
| Off-system                Sales                                 |   |   | 8      |   |   |   |   |
| Transmission                Revenues                            |   |   | (3     | )      |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | 6      |   |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | (3     | )      |   |   |   |
| Taxes                Other Than Income Taxes                    |   |   | 1      |   |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (2     | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | (2     | )      |
|                                                            |   |   |   |   |   |   |   |
| **Third                Quarter of 2006**                        |   |   |   |   | $      | 10     |   |

| · | Retail                    Margins increased $1 million primarily due to $12 million of                    rate relief                    from the March 2006 approval of the settlement agreement in our                    base rate                    case. The rate increase was partially offset by the effect                    of:                                                                                                                          |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                              | a                    23% decrease in cooling degree days as a result of mild weather                    on                    residential and commercial sales, |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                              | a                    decrease in financial transmission rights revenue, net of congestion,                    primarily due to fewer transmission constraints in the PJM market                    and |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                              | increased                    capacity charges due to changes in the relative peak demands                    and                    generating capacity of the AEP Power Pool                    members. |
| · | Off-system                    Sales increased $8 million due to $4 million increase in physical                    sales                    margins and a $4 million increase from lower sharing of off-system                    sales                    margins under the SIA. See the “Allocation Agreement between AEP East                    companies and AEP West companies and CSW Operating Agreement” section of                    Note 3. |
| · | Transmission                    Revenues decreased $3 million primarily due to the elimination                    of SECA                    revenues as of April 1, 2006. At this time, we have a pending                    proposal                    with the FERC to replace SECA revenues. See the “Transmission Rate                    Proceedings at the FERC” section of Note                    3.                                     |

| · | Other                Operation and Maintenance expenses increased $3 million primarily                due to                maintenance of overhead lines. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Income      Taxes*

**Reconciliation      of Nine Months Ended September 30, 2005 to **

**Nine      Months Ended September 30, 2006 Net Income**

**(in      millions)**

| **Nine                Months Ended September 30, 2005**         |   |   |   |   | $      | 20     |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                Margins                                   |   |   | 8      |   |   |   |   |
| Off-system                Sales                                 |   |   | 9      |   |   |   |   |
| Transmission                Revenues                            |   |   | (6     | )      |   |   |   |
| Other                                                           |   |   | 3      |   |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | 14     |   |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | (4     | )      |   |   |   |
| Depreciation                and Amortization                    |   |   | (1     | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (5     | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | (4     | )      |
|                                                            |   |   |   |   |   |   |   |
| **Nine                Months Ended September 30, 2006**         |   |   |   |   | $      | 25     |   |
|                                                            |   |   |   |   |   |   |   |

| · | Retail                Margins increased $8 million primarily due to rate relief from the                March                2006 approval of the settlement agreement in our base rate case as                well as                favorable financial transmission rights revenue, net of congestion.                The                above was partially offset by increased capacity charges due to changes                in                the relative peak demands and generating capacity of the AEP Power                Pool                members.    |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Off-system                Sales increased $9 million primarily due to $10 million increase                in                physical sales margins and a $5 million increase from lower sharing                of                off-system sales margins under the SIA offset by a $5 million decrease                in                margins from optimization activities. See the “Allocation Agreement                between AEP East companies and AEP West companies and CSW Operating                Agreement” section of Note 3.               |
| · | Transmission                Revenues decreased $6 million primarily due to the elimination of                SECA                revenues as of April 1, 2006 and a provision of $1 million recorded                in                2006 related to potential SECA refunds pending settlement negotiations                with various intervenors. At this time, we have a pending proposal                with                the FERC to replace SECA revenues. See the “Transmission Rate Proceedings                at the FERC” section of Note 3. |
| · | Other                revenues increased                $3 million primarily due to a $3 million unfavorable adjustment of                the                Demand Side Management Program regulatory asset in March                2005.                                                                                                                                                                                                                                                                                                                         |

| · | Other                Operation and Maintenance expenses increased $4 million primarily                due to                maintenance of overhead lines. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Income      Taxes*

**Financial      Condition**

**Credit      Ratings**

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

**Financing      Activities**

|                                    |   | **Principal**                     |   | **Interest** |   | **Due**  |
|-----------------------------------------|--------|-----------------------------------|--------|--------------|--------|----------|
| **Type                of Debt**         |   | **Amount**                        |   | **Rate**     |   | **Date** |
|                                    |   | **(in                thousands)** |   | **(%)**      |   |     |
|                                    |   |                              |   |         |   |     |   |
| Notes                Payable-Affiliated |   | $                                 | 40,000 |         | 6.501  |     | 2006 |

**Liquidity**

**Summary      Obligation Information**

**Significant      Factors**

***Big      Sandy Plant Scrubber***

***Litigation      and Regulatory Activity***

**Critical      Accounting Estimates**

----

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

**Market      Risks**

**MTM      Risk Management Contract Net Assets**

**Reconciliation      of MTM Risk Management Contracts to**

**Condensed      Balance Sheet**

**As      of September 30, 2006**

**(in      thousands)**

|                                                                                          |   | **MTM                Risk Management Contracts** |    | **Cash                Flow &****Fair                Value Hedges** |   | **DETM                Assignment (a)** |   | **Total** |   |
|-----------------------------------------------------------------------------------------------|--------|--------------------------------------------------|---------|------------------------------------------------------------------------|--------|----------------------------------------|--------|-----------|--------|
| Current                Assets                                                                 |   | $                                                | 19,926  |                                                                   | $      | 1,916                                  |   | $         | -      |   | $ | 21,842 |   |
| Noncurrent                Assets                                                              |   |                                             | 25,640  |                                                                   |   | 122                                    |   |      | -      |   |   | 25,762 |   |
| **Total                MTM Derivative Contract Assets**                                       |   |                                             | 45,566  |                                                                   |   | 2,038                                  |   |      | -      |   |   | 47,604 |   |
|                                                                                          |   |                                             |    |                                                                   |   |                                   |   |      |   |   |   |   |   |
| Current                Liabilities                                                            |   |                                             | (14,945 | )                                                                      |   | (1,156                                 | )      |      | (451   | ) |   | (16,552 | ) |
| Noncurrent                Liabilities                                                         |   |                                             | (16,550 | )                                                                      |   | (2                                     | )      |      | (2,192 | ) |   | (18,744 | ) |
| **Total                MTM Derivative Contract Liabilities**                             |   |                                             | (31,495 | )                                                                      |   | (1,158                                 | )      |      | (2,643 | ) |   | (35,296 | ) |
|                                                                                          |   |                                             |    |                                                                   |   |                                   |   |      |   |   |   |   |   |
| **Total                MTM Derivative Contract Net Assets                (Liabilities)** |   | $                                                | 14,071  |                                                                   | $      | 880                                    |   | $         | (2,643 | ) | $ | 12,308 |   |

| (a) | See                “Natural Gas Contracts with DETM” section of Note 17 of the 2005 Annual                Report. |
|-----|-------------------------------------------------------------------------------------------------------------------------------|

**MTM      Risk Management Contract Net Assets**

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

| **Total                MTM Risk Management Contract Net Assets at December 31,                2005**                                      |   | $      | 13,518 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                Loss from Contracts Realized/Settled During the Period and Entered                in a                Prior Period  |   |   | 32     |   |
| 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 |   |   | (70    | )      |
| Change                in Fair Value Due to Valuation Methodology Changes on Forward                Contracts                              |   |   | -      |   |
| Changes                in Fair Value Due to Market Fluctuations During the Period                (b)                                      |   |   | (462   | )      |
| Changes                Due to SIA (c)                                                                                                     |   |   | (1,565 | )      |
| Changes                in Fair Value Allocated to Regulated Jurisdictions (d)                                                             |   |   | 2,618  |   |
| **Total                MTM Risk Management Contract Net Assets**                                                                          |   |   | 14,071 |   |
| Net                Cash Flow & Fair Value Hedge Contracts                                                                             |   |   | 880    |   |
| DETM                Assignment (e)                                                                                                        |   |   | (2,643 | )      |
| **Total                MTM Risk Management Contract Net Assets at September 30, 2006**                                                    |   | $      | 12,308 |   |

| (a) | Most                of the fair value comes from longer term fixed price contracts with                customers that seek 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) | See                “Allocation Agreement between AEP East companies and AEP West companies                and CSW Operating Agreement” section of Note 3.                                                                                                                                                                                                                                                                                                                                                                                 |
| (d) | “Changes                in Fair Value Allocated to Regulated Jurisdictions” relates to the net                gains (losses) of those contracts that are not reflected in the Condensed                Statements of Income. These net gains (losses) are recorded as regulatory                liabilities/assets for those subsidiaries that operate in regulated                jurisdictions.                                                                                                                                         |
| (e) | See                “Natural Gas Contracts with DETM” section of Note 17 of the 2005 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 giving 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 September 30, 2006**

**(in      thousands)**

|                                                                                                           |   | **Remainder****2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                Actively Quoted - Exchange Traded                Contracts                               |   | $                     | 430    |     | $      | 3,090    |   | $        | 1,118  |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | 4,638 |   |
| Prices                Provided by Other External Sources                - OTC Broker Quotes                (a) |   |                  | 905    |     |   | 2,379    |   |     | 1,164  |     |   | 1,752             |   |      | -      |   |   | - |   |   | 6,200 |   |
| Prices                Based on Models and Other Valuation                Methods (b)                           |   |                  | 1      |     |   | (885     | )      |     | 372    |     |   | 1,114             |   |      | 1,998  |   |   | 633 |   |   | 3,233 |   |
| **Total**                                                                                                      |   | $                     | 1,336  |     | $      | 4,584    |   | $        | 2,654  |     | $      | 2,866             |   | $         | 1,998  |   | $ | 633 |   | $ | 14,071 |   |

| (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. |

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

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

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

|                                                                                       |   | **Power** |   | **Interest                Rate** |   | **Total** |   |
|--------------------------------------------------------------------------------------------|--------|-----------|--------|----------------------------------|--------|-----------|--------|
| **Beginning                Balance in AOCI December 31, 2005**                             |   | $         | (352   | )                                | $      | 158       |   | $ | (194 | ) |
| Changes                in Fair Value                                                       |   |      | 1,072  |                             |   | -         |   |   | 1,072 |   |
| Impact                Due to Changes in SIA (a)                                            |   |      | (106   | )                                |   | -         |   |   | (106 | ) |
| Reclassifications                from AOCI to Net Income for Cash Flow Hedges Settled |   |      | 543    |                             |   | (66       | )      |   | 477 |   |
| **Ending                Balance in AOCI September 30, 2006**                               |   | $         | 1,157  |                             | $      | 92        |   | $ | 1,249 |   |

| (a) | See                “Allocation Agreement between AEP East companies and AEP West companies                and CSW Operating Agreement” section of Note                3. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Credit      Risk**

**VaR      Associated with Risk Management Contracts**

| **Nine                Months Ended****September                30, 2006** |   |     |   |        | **Twelve                Months Ended****December                31, 2005** |
|---------------------------------------------------------------------------|--------|----------|--------|-------------|----------------------------------------------------------------------------|
| **(in                thousands)**                                         |   |     |   |        | **(in                thousands)**                                          |
| **End**                                                                   |   | **High** |   | **Average** |                                                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $157                                                                      |   | $459     |   | $164        |                                                                       | $87 |   |   |   |   | $174 |   | $289 |   | $138 |   | $50 |

**VaR      Associated with Debt Outstanding**

----

**KENTUCKY      POWER COMPANY**

**CONDENSED      STATEMENTS OF INCOME**

**For      the Three and Nine Months Ended September 30, 2006 and      2005**

**(in      thousands)**

**(Unaudited)**

|                                                                   |   | **Three                Months Ended** |    | **Nine                Months Ended** |   |
|------------------------------------------------------------------------|--------|---------------------------------------|---------|--------------------------------------|--------|
|                                                                   |   | **2006**                              |    | **2005**                             |   | **2006** |   | **2005** |   |
| **REVENUES**                                                           |   |                             |    |                            |   |   |   |   |   |
| Electric                Generation, Transmission and Distribution      |   | $                                     | 138,554 |                                 | $      | 120,321 |   | $ | 397,248 |   | $ | 337,912 |   |
| Sales                to AEP Affiliates                                 |   |                                  | 13,466  |                                 |   | 23,341 |   |   | 41,543 |   |   | 55,598 |   |
| Other                                                                  |   |                                  | 299     |                                 |   | 334 |   |   | 678 |   |   | 1,255 |   |
| **TOTAL**                                                              |   |                                  | 152,319 |                                 |   | 143,996 |   |   | 439,469 |   |   | 394,765 |   |
|                                                                   |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                           |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Fuel                and Other Consumables for Electric Generation |   |                                  | 39,580  |                                 |   | 43,603 |   |   | 115,336 |   |   | 104,271 |   |
| Purchased                Electricity for Resale                        |   |                                  | 3,974   |                                 |   | 1,563 |   |   | 6,938 |   |   | 5,473 |   |
| Purchased                Electricity from AEP Affiliates               |   |                                  | 48,755  |                                 |   | 45,300 |   |   | 149,204 |   |   | 131,049 |   |
| Other                Operation                                         |   |                                  | 15,176  |                                 |   | 14,352 |   |   | 42,662 |   |   | 42,549 |   |
| Maintenance                                                            |   |                                  | 9,607   |                                 |   | 7,180 |   |   | 26,041 |   |   | 21,578 |   |
| Depreciation                and Amortization                           |   |                                  | 11,574  |                                 |   | 11,318 |   |   | 34,603 |   |   | 33,695 |   |
| Taxes                Other Than Income Taxes                           |   |                                  | 1,807   |                                 |   | 2,457 |   |   | 6,761 |   |   | 7,101 |   |
| **TOTAL**                                                              |   |                                  | 130,473 |                                 |   | 125,773 |   |   | 381,545 |   |   | 345,716 |   |
|                                                                   |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **OPERATING                INCOME**                                    |   |                                  | 21,846  |                                 |   | 18,223 |   |   | 57,924 |   |   | 49,049 |   |
|                                                                   |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **Other                Income (Expense):**                             |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Interest                Income                                         |   |                                  | 159     |                                 |   | 189 |   |   | 518 |   |   | 456 |   |
| Allowance                for Equity Funds Used During Construction     |   |                                  | 236     |                                 |   | 37 |   |   | 249 |   |   | 209 |   |
| Interest                Expense                                        |   |                                  | (6,581  | )                                    |   | (7,227 | ) |   | (21,317 | ) |   | (21,665 | ) |
|                                                                   |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **INCOME                BEFORE INCOME TAXES**                          |   |                                  | 15,660  |                                 |   | 11,222 |   |   | 37,374 |   |   | 28,049 |   |
|                                                                   |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Income                Tax Expense                                      |   |                                  | 5,791   |                                 |   | 3,495 |   |   | 12,624 |   |   | 7,991 |   |
|                                                                   |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **NET                INCOME**                                          |   | $                                     | 9,869   |                                 | $      | 7,727 |   | $ | 24,750 |   | $ | 20,058 |   |

*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 Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                                                 |   | **Common****Stock** |   |  **Paid-in****Capital** |   | **Retained                Earnings** |   | **Accumulated                Other****Comprehensive                Income (Loss)** |    | **Total** |   |
|--------------------------------------------------------------------------------------|--------|---------------------|--------|------------------------------|--------|--------------------------------------|--------|------------------------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                31, 2004**                                                 |   | $                   | 50,450 |                         | $      | 208,750                              |   | $                                                                                  | 70,555  |      | $      | (8,775 | ) | $ | 320,980 |   |
|                                                                                 |   |                |   |                         |   |                                 |   |                                                                               |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                                              |   |                |   |                         |   |                                 |   |                                                                               |    |      |   |   |   |   |   |   |
| **Other                Comprehensive Loss, Net of Taxes:**                           |   |                |   |                         |   |                                 |   |                                                                               |    |      |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $1,534                                |   |                |   |                         |   |                                 |   |                                                                               |    |      |   | (2,848 | ) |   | (2,848 | ) |
| **NET                INCOME**                                                        |   |                |   |                         |   |                                 |   |                                                                               | 20,058  |      |   |   |   |   | 20,058 |   |
| **TOTAL                COMPREHENSIVE INCOME**                                        |   |                |   |                         |   |                                 |   |                                                                               |    |      |   |   |   |   | 17,210 |   |
|                                                                                 |   |                |   |                         |   |                                 |   |                                                                               |    |      |   |   |   |   |   |   |
| **SEPTEMBER                30, 2005**                                                |   | $                   | 50,450 |                         | $      | 208,750                              |   | $                                                                                  | 90,613  |      | $      | (11,623 | ) | $ | 338,190 |   |
|                                                                                 |   |                |   |                         |   |                                 |   |                                                                               |    |      |   |   |   |   |   |   |
| **DECEMBER                31, 2005**                                                 |   | $                   | 50,450 |                         | $      | 208,750                              |   | $                                                                                  | 88,864  |      | $      | (223 | ) | $ | 347,841 |   |
|                                                                                 |   |                |   |                         |   |                                 |   |                                                                               |    |      |   |   |   |   |   |   |
| Common                Stock Dividends                                                |   |                |   |                         |   |                                 |   |                                                                               | (10,000 | )         |   |   |   |   | (10,000 | ) |
| **TOTAL**                                                                            |   |                |   |                         |   |                                 |   |                                                                               |    |      |   |   |   |   | 337,841 |   |
|                                                                                 |   |                |   |                         |   |                                 |   |                                                                               |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                                              |   |                |   |                         |   |                                 |   |                                                                               |    |      |   |   |   |   |   |   |
| **Other                Comprehensive Income,** **Net                of Taxes:** |   |                |   |                         |   |                                 |   |                                                                               |    |      |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $777                                  |   |                |   |                         |   |                                 |   |                                                                               |    |      |   | 1,443 |   |   | 1,443 |   |
| **NET                INCOME**                                                        |   |                |   |                         |   |                                 |   |                                                                               | 24,750  |      |   |   |   |   | 24,750 |   |
| **TOTAL                COMPREHENSIVE INCOME**                                        |   |                |   |                         |   |                                 |   |                                                                               |    |      |   |   |   |   | 26,193 |   |
|                                                                                 |   |                |   |                         |   |                                 |   |                                                                               |    |      |   |   |   |   |   |   |
| **SEPTEMBER                30, 2006**                                                |   | $                   | 50,450 |                         | $      | 208,750                              |   | $                                                                                  | 103,614 |      | $      | 1,220 |   | $ | 364,034 |   |

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

----

**KENTUCKY      POWER COMPANY**

**CONDENSED      BALANCE SHEETS**

**ASSETS**

**September      30, 2006 and December 31, 2005**

**(in      thousands)**

**(Unaudited)**

|                                                     |   | **2006**     |      | **2005**     |   |
|----------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                ASSETS**                        |   |    |      |    |   |
| Cash                and Cash Equivalents                 |   | $            | 479       |         | $      | 526 |   |
| Accounts                Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                |   |         | 23,776    |         |   | 26,533 |   |
| Affiliated                Companies                      |   |         | 14,337    |         |   | 23,525 |   |
| Accrued                Unbilled Revenues                 |   |         | 1,004     |         |   | 6,311 |   |
| Miscellaneous                                            |   |         | 554       |         |   | 35 |   |
| Allowance                for Uncollectible Accounts      |   |         | (253      | )            |   | (147 | ) |
|   Total                Accounts Receivable     |   |         | 39,418    |         |   | 56,257 |   |
| Fuel                                                     |   |         | 10,780    |         |   | 8,490 |   |
| Materials                and Supplies                    |   |         | 8,854     |         |   | 10,181 |   |
| Risk                Management Assets                    |   |         | 21,842    |         |   | 31,437 |   |
| Accrued                Tax Benefits                      |   |         | 2,535     |         |   | 6,598 |   |
| Margin                Deposits                           |   |         | 453       |         |   | 6,895 |   |
| Prepayments                and Other                     |   |         | 1,955     |         |   | 6,324 |   |
| **TOTAL**                                                |   |         | 86,316    |         |   | 126,708 |   |
|                                                     |   |         |      |         |   |   |   |
| **PROPERTY,                PLANT AND EQUIPMENT**         |   |         |      |         |   |   |   |
| Electric:                                                |   |         |      |         |   |   |   |
| Production                                               |   |         | 477,777   |         |   | 472,575 |   |
| Transmission                                             |   |         | 391,671   |         |   | 386,945 |   |
| Distribution                                             |   |         | 470,606   |         |   | 456,063 |   |
| Other                                                    |   |         | 60,607    |         |   | 63,382 |   |
| Construction                Work in Progress             |   |         | 30,436    |         |   | 35,461 |   |
| **Total**                                                |   |         | 1,431,097 |         |   | 1,414,426 |   |
| Accumulated                Depreciation and Amortization |   |         | 438,023   |         |   | 425,817 |   |
| **TOTAL                - NET**                           |   |         | 993,074   |         |   | 988,609 |   |
|                                                     |   |         |      |         |   |   |   |
| **OTHER                NONCURRENT ASSETS**               |   |         |      |         |   |   |   |
| Regulatory                Assets                         |   |         | 111,089   |         |   | 117,432 |   |
| Long-term                Risk Management Assets          |   |         | 25,762    |         |   | 41,810 |   |
| Deferred                Charges and Other                |   |         | 54,607    |         |   | 45,467 |   |
| **TOTAL**                                                |   |         | 191,458   |         |   | 204,709 |   |
|                                                     |   |         |      |         |   |   |   |
| **TOTAL                ASSETS**                          |   | $            | 1,270,848 |         | $      | 1,320,026 |   |

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

----

**KENTUCKY      POWER COMPANY**

**CONDENSED      BALANCE SHEETS**

**LIABILITIES      AND SHAREHOLDER’S EQUITY**

**September      30, 2006 and December 31, 2005 **

**(Unaudited)**

|                                                                      |   | **2006**                          |      | **2005** |   |
|---------------------------------------------------------------------------|--------|-----------------------------------|-----------|----------|--------|
| **CURRENT                LIABILITIES**                                    |   | **(in                thousands)** |      |
| Advances                from Affiliates                                   |   | $                                 | 24,507    |     | $      | 6,040 |   |
| Accounts                Payable:                                          |   |                              |      |     |   |   |   |
| General                                                                   |   |                              | 31,118    |     |   | 32,454 |   |
| Affiliated                Companies                                       |   |                              | 18,045    |     |   | 29,326 |   |
| Long-term                Debt Due Within One Year - Nonaffiliated         |   |                              | 124,123   |     |   | - |   |
| Long-term                Debt Due Within One Year - Affiliated            |   |                              | -         |     |   | 39,771 |   |
| Risk                Management Liabilities                                |   |                              | 16,552    |     |   | 28,770 |   |
| Customer                Deposits                                          |   |                              | 15,849    |     |   | 21,643 |   |
| Accrued                Taxes                                              |   |                              | 9,322     |     |   | 8,805 |   |
| Accrued                Interest                                           |   |                              | 9,897     |     |   | 7,428 |   |
| Other                                                                     |   |                              | 15,967    |     |   | 14,096 |   |
| **TOTAL**                                                                 |   |                              | 265,380   |     |   | 188,333 |   |
|                                                                      |   |                              |      |     |   |   |   |
| **NONCURRENT                LIABILITIES**                                 |   |                              |      |     |   |   |   |
| Long-term                Debt - Nonaffiliated                             |   |                              | 302,861   |     |   | 427,219 |   |
| Long-term                Debt - Affiliated                                |   |                              | 20,000    |     |   | 20,000 |   |
| Long-term                Risk Management Liabilities                      |   |                              | 18,744    |     |   | 35,302 |   |
| Deferred                Income Taxes                                      |   |                              | 240,423   |     |   | 234,719 |   |
| Regulatory                Liabilities and Deferred Investment Tax Credits |   |                              | 50,500    |     |   | 56,794 |   |
| Deferred                Credits and Other                                 |   |                              | 8,906     |     |   | 9,818 |   |
| **TOTAL**                                                                 |   |                              | 641,434   |     |   | 783,852 |   |
|                                                                      |   |                              |      |     |   |   |   |
| **TOTAL                LIABILITIES**                                      |   |                              | 906,814   |     |   | 972,185 |   |
|                                                                      |   |                              |      |     |   |   |   |
| Commitments                and Contingencies (Note 5)                     |   |                              |      |     |   |   |   |
|                                                                      |   |                              |      |     |   |   |   |
| **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                                          |   |                              | 103,614   |     |   | 88,864 |   |
| Accumulated                Other Comprehensive Income (Loss)              |   |                              | 1,220     |     |   | (223 | ) |
| **TOTAL**                                                                 |   |                              | 364,034   |     |   | 347,841 |   |
|                                                                      |   |                              |      |     |   |   |   |
| **TOTAL                LIABILITIES AND SHAREHOLDER’S EQUITY**       |   | $                                 | 1,270,848 |     | $      | 1,320,026 |   |

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

----

**KENTUCKY      POWER COMPANY**

**CONDENSED      STATEMENTS OF CASH FLOWS**

**For      the Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                                                   |   | **2006**     |    | **2005**     |   |
|----------------------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **OPERATING                ACTIVITIES**                                                |   |    |    |    |   |
| **Net                Income**                                                          |   | $            | 24,750  |         | $      | 20,058 |   |
| **Adjustments                for Noncash Items:**                                      |   |         |    |         |   |   |   |
| Depreciation                and Amortization                                           |   |         | 34,603  |         |   | 33,695 |   |
| Deferred                Income Taxes                                                   |   |         | 2,742   |         |   | 1,836 |   |
| Mark-to-Market                of Risk Management Contracts                             |   |         | (842    | )            |   | (5,204 | ) |
| Pension                Contributions to Qualified Plan Trusts                          |   |         | -       |         |   | (9,137 | ) |
| Over/Under                Fuel Recovery                                                |   |         | 3,608   |         |   | (4,453 | ) |
| Change                in Other Noncurrent Assets                                       |   |         | 5,666   |         |   | (4 | ) |
| Change                in Other Noncurrent Liabilities                                  |   |         | 2,629   |         |   | 10,333 |   |
| **Changes                in Components of Working Capital:**                           |   |         |    |         |   |   |   |
| Accounts                Receivable, Net                                                |   |         | 16,839  |         |   | (2,592 | ) |
| Fuel,                Materials and Supplies                                            |   |         | (963    | )            |   | (4,200 | ) |
| Accounts                Payable                                                        |   |         | (8,149  | )            |   | 12,876 |   |
| Customer                Deposits                                                       |   |         | (5,794  | )            |   | 12,776 |   |
| Accrued                Taxes, Net                                                      |   |         | 4,580   |         |   | (553 | ) |
| Other                Current Assets                                                    |   |         | 7,726   |         |   | (14,231 | ) |
| Other                Current Liabilities                                               |   |         | 3,819   |         |   | 2,297 |   |
| **Net                Cash Flows From Operating Activities**                            |   |         | 91,214  |         |   | 53,497 |   |
|                                                                                   |   |         |    |         |   |   |   |
| **INVESTING                ACTIVITIES**                                                |   |         |    |         |   |   |   |
| Construction                Expenditures                                               |   |         | (59,264 | )            |   | (38,837 | ) |
| Change                in Advances to Affiliates, Net                                   |   |         | -       |         |   | 6,486 |   |
| Other                                                                                  |   |         | 465     |         |   | 191 |   |
| **Net                Cash Flows Used For Investing Activities**                        |   |         | (58,799 | )            |   | (32,160 | ) |
|                                                                                   |   |         |    |         |   |   |   |
| **FINANCING                ACTIVITIES**                                                |   |         |    |         |   |   |   |
| Change                in Advances from Affiliates, Net                                 |   |         | 18,467  |         |   | - |   |
| Retirement                of Long-term Debt - Affiliated                               |   |         | (40,000 | )            |   | (20,000 | ) |
| Principal                Payments for Capital Lease Obligations                        |   |         | (929    | )            |   | (1,122 | ) |
| Dividends                Paid on Common Stock                                          |   |         | (10,000 | )            |   | - |   |
| **Net                Cash Flows Used For Financing Activities**                        |   |         | (32,462 | )            |   | (21,122 | ) |
|                                                                                   |   |         |    |         |   |   |   |
| **Net                Increase (Decrease) in Cash and Cash Equivalents**                |   |         | (47     | )            |   | 215 |   |
| **Cash                and Cash Equivalents at Beginning of Period**                    |   |         | 526     |         |   | 132 |   |
| **Cash                and Cash Equivalents at End of Period**                          |   | $            | 479     |         | $      | 347 |   |
|                                                                                   |   |         |    |         |   |   |   |
| **SUPPLEMENTARY                INFORMATION**                                           |   |         |    |         |   |   |   |
| Cash                Paid for Interest, Net of Capitalized Amounts                      |   | $            | 18,242  |         | $      | 17,250 |   |
| Net                Cash Paid for Income Taxes                                          |   |         | 4,573   |         |   | 7,466 |   |
| Noncash                Acquisitions Under Capital Leases                               |   |         | 551     |         |   | 273 |   |
| Construction                Expenditures Included in Accounts Payable at September 30, |   |         | 2,085   |         |   | 1,386 |   |

| *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                and Contingencies           | Note                5                 |
| Guarantees                                             | Note                6                 |
| Company-wide                Staffing and Budget Review | Note                7                 |
| Benefit                Plans                           | Note                9                 |
| Business                Segments                       | Note                11                |
| Financing                Activities                    | Note                12                |

----

**OHIO      POWER COMPANY CONSOLIDATED**

----

**OHIO      POWER COMPANY CONSOLIDATED**

**MANAGEMENT’S      FINANCIAL DISCUSSION AND ANALYSIS**

**Results      of Operations**

**Reconciliation      of Third Quarter of 2005 to Third Quarter of 2006 Net      Income**

**(in      millions)**

| **Third                Quarter of 2005**                        |   |   |   |   | $      | 56     |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                Margins                                   |   |   | 47     |   |   |   |   |
| Off-system                Sales                                 |   |   | 23     |   |   |   |   |
| Transmission                Revenues                            |   |   | (9     | )      |   |   |   |
| Other                                                           |   |   | (7     | )      |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | 54     |   |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | (5     | )      |   |   |   |
| Depreciation                and Amortization                    |   |   | (9     | )      |   |   |   |
| Taxes                Other Than Income Taxes                    |   |   | 6      |   |   |   |   |
| Other                Income                                     |   |   | (1     | )      |   |   |   |
| Carrying                Costs Income                            |   |   | (6     | )      |   |   |   |
| Interest                Expense                                 |   |   | 4      |   |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (11    | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | (16    | )      |
|                                                            |   |   |   |   |   |   |   |
| **Third                Quarter of 2006**                        |   |   |   |   | $      | 83     |   |

| · | Retail                Margins were $47 million higher than the prior period primarily due                to the                Rate Stabilization Plan (RSP) rate increase effective January 1,                2006,                favorable capacity settlements, and lower consumable expenses. These                increases were partially offset by lower residential revenue due                to mild                weather and lower industrial revenue due to the transfer of a significant                customer to an affiliate.           |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Off-system                Sales increased $23 million primarily due to $19 million increase                in                physical sales margins and a $14 million increase from lower sharing                of                off-system sales margins under the SIA offset by a $10 million decrease                in                margins from optimization activities. See the “Allocation Agreement                between AEP East companies and AEP West companies and CSW Operating                Agreement” section of Note 3. |
| · | Transmission                Revenues decreased $9 million primarily due to the elimination of                SECA                revenues as of April 1, 2006. At this time, we have a pending proposal                with the FERC to replace SECA revenues.  See the “Transmission Rate                Proceedings at the FERC” section of Note 3.                                                                                                                                                                                      |
| · | Other                revenue decreased $7 million primarily due to the expiration of a                contract                to sell supplemental demand to Buckeye Power and a decrease in rental                revenue.                                                                                                                                                                                                                                                                                                                                 |

| · | Other                Operation and Maintenance expense increased $5 million partially                due to an                increase in maintenance from planned and forced outages at the Muskingum                and Sporn plants related to major turbine overhaul and boiler tube                inspections and repairs. The increase was partially offset by the                recognition of a regulatory asset related to recent PUCO orders                regarding distribution service reliability and restoration costs. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                and Amortization increased $9 million due to increased amortization                of                regulatory assets and a greater depreciable base in electric utility                plant.                                                                                                                                                                                                                                                                                                                    |
| · | Taxes                Other Than Income Taxes decreased $6 million primarily due an adjustment                in 2005 to true-up 2004 and 2005 property taxes.                                                                                                                                                                                                                                                                                                                                                                                  |
| · | Carrying                Costs Income decreased $6 million primarily due to the completion                of                deferrals of the environmental carrying costs from 2004 and 2005                that are                now being recovered during 2006 through 2008 according to the                RSP.                                                                                                                                                                                                                           |

*Income      Taxes*

**Reconciliation      of Nine Months Ended September 30, 2005 to **

**Nine      Months Ended September 30, 2006 Net Income**

**(in      millions)**

| **Nine                Months Ended September 30, 2005**         |   |   |   |   | $      | 227    |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                Margins                                   |   |   | 42     |   |   |   |   |
| Off-system                Sales                                 |   |   | 29     |   |   |   |   |
| Transmission                Revenues                            |   |   | (19    | )      |   |   |   |
| Other                                                           |   |   | 4      |   |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | 56     |   |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | (65    | )      |   |   |   |
| Depreciation                and Amortization                    |   |   | (12    | )      |   |   |   |
| Taxes                Other than Income Taxes                    |   |   | 1      |   |   |   |   |
| Carrying                Costs Income                            |   |   | (28    | )      |   |   |   |
| Interest                Expense                                 |   |   | 8      |   |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (96    | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | 15     |   |
|                                                            |   |   |   |   |   |   |   |
| **Nine                Months Ended September 30, 2006**         |   |   |   |   | $      | 202    |   |

| · | Retail                Margins increased $42 million primarily due to the RSP rate increase                effective January 1, 2006, favorable capacity settlements, and lower                consumable expenses. The increase is partially offset by lower fuel                margins, a decrease in residential revenue due to mild weather and                lower                industrial revenue due to the transfer of a significant customer                to an                affiliate.                                                                 |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Off-System                Sales increased $29 million primarily due to $48 million increase                in                physical sales margins and a $17 million increase from lower sharing                of                off-system sales margins under the SIA offset by a $35 million decrease                in                margins related to optimization activities. See the “Allocation Agreement                between AEP East companies and AEP West companies and CSW Operating                Agreement” section of Note 3.       |
| · | Transmission                Revenues decreased $19 million primarily due to the elimination of                SECA                revenues as of April 1, 2006 and a provision of $4 million recorded                in                2006 related to potential SECA refunds pending settlement negotiations                with various intervenors. At this time, we have a pending proposal                with                the FERC to replace SECA revenues. See the “Transmission Rate Proceedings                at the FERC” section of Note 3. |
| · | Other                revenue increased $4 million partially due to an increase in gains                on                sales of emission allowances.                                                                                                                                                                                                                                                                                                                                                                                                                  |

| · | Other                Operation and Maintenance expense increased $65 million primarily                due to                an increase in maintenance from planned and forced outages at the                Gavin,                Muskingum River, Kammer, and Sporn plants related to major boiler                and                turbine overhauls and boiler tube inspections and related removal                costs                and PJM administrative fees. The increase was partially offset by                the                recognition of a regulatory asset related to recent PUCO orders                regarding distribution service reliabiltiy and restoration costs                and major                ice storm expenses in the prior year.  |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                and Amortization increased $12 million primarily due to increased                amortization of regulatory assets and a greater depreciable base                in                electric utility plant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| · | Carrying                Costs Income decreased $28 million primarily due to the completion                of                deferrals of the environmental carrying costs from 2004 and 2005                that are                now being recovered during 2006 through 2008 according to the                RSP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| · | Interest                Expense decreased $8 million primarily due to an increase in allowance                for                borrowed funds used during construction partially offset by interest                on                long-term debt issuances subsequent to September                2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

*Income      Taxes*

**Financial      Condition**

**Credit      Ratings**

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

**Cash      Flow**

|                                                                |   | **2006**                          |     | **2005** |   |
|---------------------------------------------------------------------|--------|-----------------------------------|----------|----------|--------|
|                                                                |   | **(in                thousands)** |     |
| **Cash                and Cash Equivalents at Beginning of Period** |   | $                                 | 1,240    |     | $      | 9,337 |   |
| Net                Cash Flows From (Used For):                      |   |                              |     |     |   |   |   |
| Operating                Activities                                 |   |                              | 476,382  |     |   | 319,579 |   |
| Investing                Activities                                 |   |                              | (709,752 | )        |   | (325,415 | ) |
| Financing                Activities                                 |   |                              | 233,455  |     |   | (2,121 | ) |
| Net                Increase (Decrease) in Cash and Cash Equivalents |   |                              | 85       |     |   | (7,957 | ) |
| **Cash                and Cash Equivalents at End of Period**       |   | $                                 | 1,325    |     | $      | 1,380 |   |

*Operating      Activities*

*Investing      Activities*

*Financing      Activities*

**Financing      Activity**

|                                   |   |   | **Principal**                     |   | **Interest** |   | **Due**  |
|----------------------------------------|--------|--------|-----------------------------------|--------|--------------|--------|----------|
| **Type                of Debt**        |   |   | **Amount**                        |   | **Rate**     |   | **Date** |
|                                   |   |   | **(in                thousands)** |   | **(%)**      |   |     |
| Pollution                Control Bonds |   | $      | 65,000                            |   | Variable     |   | 2036     |
| Senior                Unsecured Notes  |   |   | 350,000                           |   | 6.00         |   | 2016     |

|                                         |   |   | **Principal**                     |   | **Interest** |   | **Due**  |
|----------------------------------------------|--------|--------|-----------------------------------|--------|--------------|--------|----------|
| **Type                of Debt**              |   |   | **Amount**                        |   | **Rate**     |   | **Date** |
|                                         |   |   | **(in                thousands)** |   | **(%)**      |   |     |
| Notes                Payable - Nonaffiliated |   | $      | 4,390                             |   | 6.81         |   | 2008     |
| Notes                Payable - Nonaffiliated |   |   | 6,500                             |   | 6.27         |   | 2009     |
| Notes                Payable - Affiliated    |   |   | 200,000                           |   | 3.32         |   | 2006     |

**Liquidity**

**Summary      Obligation Information**

**Significant      Factors**

***Litigation      and Regulatory Activity***

***Muskingum      River Project Deferral***

**Critical      Accounting Estimates**

----

**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 September 30, 2006**

**(in      thousands)**

|                                                                                          |   | **MTM                Risk Management Contracts** |     | **Cash                Flow Hedges** |   | **DETM                Assignment (a)** |   | **Total** |   |
|-----------------------------------------------------------------------------------------------|--------|--------------------------------------------------|----------|-------------------------------------|--------|----------------------------------------|--------|-----------|--------|
| Current                Assets                                                                 |   | $                                                | 66,808   |                                | $      | 5,639                                  |   | $         | -      |   | $ | 72,447 |   |
| Noncurrent                Assets                                                              |   |                                             | 82,034   |                                |   | 386                                    |   |      | -      |   |   | 82,420 |   |
| **Total                MTM Derivative Contract Assets**                                       |   |                                             | 148,842  |                                |   | 6,025                                  |   |      | -      |   |   | 154,867 |   |
|                                                                                          |   |                                             |     |                                |   |                                   |   |      |   |   |   |   |   |
| Current                Liabilities                                                            |   |                                             | (55,074  | )                                   |   | (881                                   | )      |      | (1,425 | ) |   | (57,380 | ) |
| Noncurrent                Liabilities                                                         |   |                                             | (55,004  | )                                   |   | (9                                     | )      |      | (6,923 | ) |   | (61,936 | ) |
| **Total                MTM Derivative Contract ****Liabilities**                         |   |                                             | (110,078 | )                                   |   | (890                                   | )      |      | (8,348 | ) |   | (119,316 | ) |
|                                                                                          |   |                                             |     |                                |   |                                   |   |      |   |   |   |   |   |
| **Total                MTM Derivative Contract Net Assets                (Liabilities)** |   | $                                                | 38,764   |                                | $      | 5,135                                  |   | $         | (8,348 | ) | $ | 35,551 |   |

| (a) | See                “Natural Gas Contracts with DETM” section of Note 17 in the 2005 Annual                Report. |
|-----|-------------------------------------------------------------------------------------------------------------------------------|

**MTM      Risk Management Contract Net Assets**

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

| **Total                MTM Risk Management Contract Net Assets at December 31,                2005**                                      |   | $      | 40,894 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                Loss from Contracts Realized/Settled During the Period and Entered                in a                Prior Period  |   |   | (2,331 | )      |
| Fair                Value of New Contracts at Inception When Entered During the Period                (a)                                 |   |   | 173    |   |
| Net                Option Premiums Paid/(Received) for Unexercised or Unexpired Option                Contracts Entered During the Period |   |   | (427   | )      |
| Change                in Fair Value Due to Valuation Methodology Changes on Forward                Contracts                              |   |   | 451    |   |
| Changes                in Fair Value Due to Market Fluctuations During the Period                (b)                                      |   |   | 4,664  |   |
| Changes                Due to SIA (c)                                                                                                     |   |   | (4,984 | )      |
| Changes                in Fair Value Allocated to Regulated Jurisdictions (d)                                                             |   |   | 324    |   |
| **Total                MTM Risk Management Contract Net Assets**                                                                          |   |   | 38,764 |   |
| Net                Cash Flow Hedge Contracts                                                                                              |   |   | 5,135  |   |
| DETM                Assignment (e)                                                                                                        |   |   | (8,348 | )      |
| **Total                MTM Risk Management Contract Net Assets at September 30, 2006**                                                    |   | $      | 35,551 |   |

| (a) | Most                of the fair value comes from longer term fixed price contracts with                customers that seek 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) | See                “Allocation Agreement between AEP East companies and AEP West companies                and CSW Operating Agreement” section of Note 3.                                                                                                                                                                                                                                                                                                                                                                                 |
| (d) | “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.                                                                                                             |
| (e) | See                “Natural Gas Contracts with DETM” section of Note 17 of the 2005 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 giving 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 September 30, 2006**

**(in      thousands)**

|                                                                                                                |   | **Remainder****2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                Actively Quoted - Exchange Traded                Contracts                                    |   | $                     | 1,359  |     | $      | 9,761    |   | $        | 3,533  |     | $      | -                 |   | $         | -      |   | $ | - |   | $ | 14,653 |   |
| Prices                Provided by Other External Sources                - OTC Broker Quotes                (a) |   |                  | 1,850  |     |   | 6,345    |   |     | 3,856  |     |   | 5,534             |   |      | -      |   |   | - |   |   | 17,585 |   |
| Prices                Based on Models and Other Valuation                Methods (b)                                |   |                  | (38    | )        |   | (5,390   | )      |     | 119    |     |   | 3,521             |   |      | 6,314  |   |   | 2,000 |   |   | 6,526 |   |
| **Total**                                                                                                           |   | $                     | 3,171  |     | $      | 10,716   |   | $        | 7,508  |     | $      | 9,055             |   | $         | 6,314  |   | $ | 2,000 |   | $ | 38,764 |   |

| (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. |

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

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

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

|                                                                                                           |   | **Power** |   | **Foreign****Currency** |   | **Interest                Rate** |   | **Total** |   |
|----------------------------------------------------------------------------------------------------------------|--------|-----------|--------|-------------------------|--------|----------------------------------|--------|-----------|--------|
| **Beginning                Balance in AOCI December 31, 2005**                                                 |   | $         | (392   | )                       | $      | (344                             | )      | $         | 1,491  |   | $ | 755 |   |
| Changes                in Fair Value                                                                           |   |      | 3,413  |                    |   | -                                |   |      | 2,761  |   |   | 6,174 |   |
| Impact                due to Change in SIA (a)                                                                 |   |      | (337   | )                       |   | -                                |   |      | -      |   |   | (337 | ) |
| Reclassifications                from AOCI to Net Income for Cash Flow Hedges                Settled |   |      | 950    |                    |   | 10                               |   |      | (497   | ) |   | 463 |   |
| **Ending                Balance in AOCI September 30, 2006**                                                   |   | $         | 3,634  |                    | $      | (334                             | )      | $         | 3,755  |   | $ | 7,055 |   |

| (a) | See                “Allocation Agreement between AEP East companies and AEP West companies                and CSW Operating Agreement” section of Note                3. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Credit      Risk**

**VaR      Associated with Risk Management Contracts**

| **Nine                Months Ended****September                30, 2006** |   |     |   |        | **Twelve                Months Ended****December                31, 2005** |
|---------------------------------------------------------------------------|--------|----------|--------|-------------|----------------------------------------------------------------------------|
| **(in                thousands)**                                         |   |     |   |        | **(in                thousands)**                                          |
| **End**                                                                   |   | **High** |   | **Average** |                                                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $496                                                                      |   | $1,451   |   | $519        |                                                                       | $276 |   |   |   |   | $583 |   | $968 |   | $461 |   | $166 |

**VaR      Associated with Debt Outstanding**

----

**OHIO      POWER COMPANY CONSOLIDATED**

**CONDENSED      CONSOLIDATED STATEMENTS OF INCOME**

**For      the Three and Nine Months Ended September 30, 2006 and      2005**

**(in      thousands)**

**(Unaudited)**

|                                                                                                                              |   | **Three                Months Ended** |    | **Nine                Months Ended** |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|--------------------------------------|--------|
|                                                                                                                              |   | **2006**                              |    | **2005**                             |   | **2006** |   | **2005** |   |
| **REVENUES**                                                                                                                      |   |                             |    |                            |   |   |   |   |   |
| Electric                Generation, Transmission and Distribution                                                                 |   | $                                     | 558,490 |                                 | $      | 468,795 |   | $ | 1,556,193 |   | $ | 1,413,796 |   |
| Sales                to AEP Affiliates                                                                                            |   |                                  | 198,640 |                                 |   | 204,063 |   |   | 502,547 |   |   | 544,016 |   |
| Other                - Affiliated                                                                                                 |   |                                  | 4,400   |                                 |   | 5,333 |   |   | 11,975 |   |   | 12,534 |   |
| Other                - Nonaffiliated                                                                                              |   |                                  | 3,378   |                                 |   | 8,949 |   |   | 12,806 |   |   | 22,947 |   |
| **TOTAL**                                                                                                                         |   |                                  | 764,908 |                                 |   | 687,140 |   |   | 2,083,521 |   |   | 1,993,293 |   |
|                                                                                                                              |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                                                                                      |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Fuel                and Other Consumables for Electric Generation                                                                 |   |                                  | 280,593 |                                 |   | 272,468 |   |   | 727,261 |   |   | 721,559 |   |
| Purchased                Electricity for Resale                                                                                   |   |                                  | 28,324  |                                 |   | 12,345 |   |   | 76,351 |   |   | 53,530 |   |
| Purchased                Electricity from AEP Affiliates                                                                          |   |                                  | 35,423  |                                 |   | 36,012 |   |   | 92,086 |   |   | 86,723 |   |
| Other                Operation                                                                                                    |   |                                  | 100,274 |                                 |   | 93,067 |   |   | 286,107 |   |   | 238,916 |   |
| Maintenance                                                                                                                       |   |                                  | 44,503  |                                 |   | 46,481 |   |   | 163,443 |   |   | 145,435 |   |
| Depreciation                and Amortization                                                                                      |   |                                  | 82,746  |                                 |   | 73,799 |   |   | 239,407 |   |   | 227,687 |   |
| Taxes                Other Than Income Taxes                                                                                      |   |                                  | 47,945  |                                 |   | 53,531 |   |   | 143,634 |   |   | 144,671 |   |
| **TOTAL**                                                                                                                         |   |                                  | 619,808 |                                 |   | 587,703 |   |   | 1,728,289 |   |   | 1,618,521 |   |
|                                                                                                                              |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **OPERATING                INCOME**                                                                                               |   |                                  | 145,100 |                                 |   | 99,437 |   |   | 355,232 |   |   | 374,772 |   |
|                                                                                                                              |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **Other                Income (Expense):**                                                                                        |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Interest                Income                                                                                                    |   |                                  | 840     |                                 |   | 930 |   |   | 2,072 |   |   | 2,402 |   |
| Carrying                Costs Income                                                                                              |   |                                  | 3,502   |                                 |   | 8,882 |   |   | 10,336 |   |   | 38,431 |   |
| Allowance                for Equity Funds Used During Construction                                                                |   |                                  | 755     |                                 |   | 1,952 |   |   | 1,891 |   |   | 2,684 |   |
| Interest                Expense                                                                                                   |   |                                  | (24,610 | )                                    |   | (28,416 | ) |   | (72,461 | ) |   | (80,418 | ) |
|                                                                                                                              |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **INCOME                BEFORE INCOME TAXES**                                                                                     |   |                                  | 125,587 |                                 |   | 82,785 |   |   | 297,070 |   |   | 337,871 |   |
|                                                                                                                              |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Income                Tax Expense                                                                                                 |   |                                  | 42,245  |                                 |   | 26,377 |   |   | 95,297 |   |   | 110,499 |   |
|                                                                                                                              |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **NET                INCOME**                                                                                                     |   |                                  | 83,342  |                                 |   | 56,408 |   |   | 201,773 |   |   | 227,372 |   |
|                                                                                                                              |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Preferred                Stock Dividend Requirements including Capital Stock                  Expense and Other Expense |   |                                  | 183     |                                 |   | 183 |   |   | 549 |   |   | 723 |   |
|                                                                                                                              |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **EARNINGS                APPLICABLE TO COMMON STOCK**                                                                            |   | $                                     | 83,159  |                                 | $      | 56,225 |   | $ | 201,224 |   | $ | 226,649 |   |

*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 Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                              |   | **Common                Stock** |    | **Paid-in                Capital** |   | **Retained                Earnings** |   | **Accumulated                Other Comprehensive Income (Loss)** |      | **Total** |   |
|-------------------------------------------------------------------|--------|---------------------------------|---------|------------------------------------|--------|--------------------------------------|--------|------------------------------------------------------------------|-----------|-----------|--------|
| **DECEMBER                31, 2004**                              |   | $                               | 321,201 |                               | $      | 462,485                              |   | $                                                                | 764,416   |      | $      | (74,264 | ) | $ | 1,473,838 |   |
|                                                              |   |                            |    |                               |   |                                 |   |                                                             |      |      |   |   |   |   |   |   |
| Common                Stock Dividends                             |   |                            |    |                               |   |                                 |   |                                                             | (22,499   | )         |   |   |   |   | (22,499 | ) |
| Preferred                Stock Dividends                          |   |                            |    |                               |   |                                 |   |                                                             | (549      | )         |   |   |   |   | (549 | ) |
| Other                                                             |   |                            |    |                               |   | 4,151                                |   |                                                             | (174      | )         |   |   |   |   | 3,977 |   |
| **TOTAL**                                                         |   |                            |    |                               |   |                                 |   |                                                             |      |      |   |   |   |   | 1,454,767 |   |
|                                                              |   |                            |    |                               |   |                                 |   |                                                             |      |      |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                           |   |                            |    |                               |   |                                 |   |                                                             |      |      |   |   |   |   |   |   |
| **Other                Comprehensive Loss, Net of Taxes:**        |   |                            |    |                               |   |                                 |   |                                                             |      |      |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $4,739             |   |                            |    |                               |   |                                 |   |                                                             |      |      |   | (8,802 | ) |   | (8,802 | ) |
| **NET                INCOME**                                     |   |                            |    |                               |   |                                 |   |                                                             | 227,372   |      |   |   |   |   | 227,372 |   |
| **TOTAL                COMPREHENSIVE INCOME**                     |   |                            |    |                               |   |                                 |   |                                                             |      |      |   |   |   |   | 218,570 |   |
|                                                              |   |                            |    |                               |   |                                 |   |                                                             |      |      |   |   |   |   |   |   |
| **SEPTEMBER                30, 2005**                             |   | $                               | 321,201 |                               | $      | 466,636                              |   | $                                                                | 968,566   |      | $      | (83,066 | ) | $ | 1,673,337 |   |
|                                                              |   |                            |    |                               |   |                                 |   |                                                             |      |      |   |   |   |   |   |   |
| **DECEMBER                31, 2005**                              |   | $                               | 321,201 |                               | $      | 466,637                              |   | $                                                                | 979,354   |      | $      | 755 |   | $ | 1,767,947 |   |
|                                                              |   |                            |    |                               |   |                                 |   |                                                             |      |      |   |   |   |   |   |   |
| Capital                Contribution From Parent                   |   |                            |    |                               |   | 70,000                               |   |                                                             |      |      |   |   |   |   | 70,000 |   |
| Preferred                Stock Dividends                          |   |                            |    |                               |   |                                 |   |                                                             | (549      | )         |   |   |   |   | (549 | ) |
| Gain                on Reacquired Preferred Stock                 |   |                            |    |                               |   | 2                                    |   |                                                             |      |      |   |   |   |   | 2 |   |
| **TOTAL**                                                         |   |                            |    |                               |   |                                 |   |                                                             |      |      |   |   |   |   | 1,837,400 |   |
|                                                              |   |                            |    |                               |   |                                 |   |                                                             |      |      |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                           |   |                            |    |                               |   |                                 |   |                                                             |      |      |   |   |   |   |   |   |
| **Other                Comprehensive Income, Net of Taxes:** |   |                            |    |                               |   |                                 |   |                                                             |      |      |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $3,393             |   |                            |    |                               |   |                                 |   |                                                             |      |      |   | 6,300 |   |   | 6,300 |   |
| **NET                INCOME**                                     |   |                            |    |                               |   |                                 |   |                                                             | 201,773   |      |   |   |   |   | 201,773 |   |
| **TOTAL                COMPREHENSIVE INCOME**                     |   |                            |    |                               |   |                                 |   |                                                             |      |      |   |   |   |   | 208,073 |   |
|                                                              |   |                            |    |                               |   |                                 |   |                                                             |      |      |   |   |   |   |   |   |
| **SEPTEMBER                30, 2006**                             |   | $                               | 321,201 |                               | $      | 536,639                              |   | $                                                                | 1,180,578 |      | $      | 7,055 |   | $ | 2,045,473 |   |

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

----

**OHIO      POWER COMPANY CONSOLIDATED**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**September      30, 2006 and December 31, 2005**

**(in      thousands)**

**(Unaudited)**

|                                                     |   | **2006**     |      | **2005**     |   |
|----------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                ASSETS**                        |   |    |      |    |   |
| Cash                and Cash Equivalents                 |   | $            | 1,325     |         | $      | 1,240 |   |
| Accounts                Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                |   |         | 107,329   |         |   | 125,404 |   |
| Affiliated                Companies                      |   |         | 122,993   |         |   | 167,579 |   |
| Accrued                Unbilled Revenues                 |   |         | 13,771    |         |   | 14,817 |   |
| Miscellaneous                                            |   |         | 2,313     |         |   | 15,644 |   |
| Allowance                for Uncollectible Accounts      |   |         | (2,786    | )            |   | (1,517 | ) |
|                  Total Accounts Receivable          |   |         | 243,620   |         |   | 321,927 |   |
| Fuel                                                     |   |         | 115,992   |         |   | 97,600 |   |
| Materials                and Supplies                    |   |         | 67,920    |         |   | 60,937 |   |
| Emission                Allowances                       |   |         | 12,738    |         |   | 39,251 |   |
| Risk                Management Assets                    |   |         | 72,447    |         |   | 115,020 |   |
| Accrued                Tax Benefits                      |   |         | 1,463     |         |   | 39,965 |   |
| Prepayments                and Other                     |   |         | 19,271    |         |   | 27,439 |   |
| **TOTAL**                                                |   |         | 534,776   |         |   | 703,379 |   |
|                                                     |   |         |      |         |   |   |   |
| **PROPERTY,                PLANT AND EQUIPMENT**         |   |         |      |         |   |   |   |
| Electric:                                                |   |         |      |         |   |   |   |
| Production                                               |   |         | 4,388,325 |         |   | 4,278,553 |   |
| Transmission                                             |   |         | 1,016,000 |         |   | 1,002,255 |   |
| Distribution                                             |   |         | 1,308,532 |         |   | 1,258,518 |   |
| Other                                                    |   |         | 296,005   |         |   | 293,794 |   |
| Construction                Work in Progress             |   |         | 1,121,259 |         |   | 690,168 |   |
| **Total**                                                |   |         | 8,130,121 |         |   | 7,523,288 |   |
| Accumulated                Depreciation and Amortization |   |         | 2,805,417 |         |   | 2,738,899 |   |
| **TOTAL                - NET**                           |   |         | 5,324,704 |         |   | 4,784,389 |   |
|                                                     |   |         |      |         |   |   |   |
| **OTHER                NONCURRENT ASSETS**               |   |         |      |         |   |   |   |
| Regulatory                Assets                         |   |         | 347,457   |         |   | 398,007 |   |
| Long-term                Risk Management Assets          |   |         | 82,420    |         |   | 144,015 |   |
| Deferred                Charges and Other                |   |         | 276,752   |         |   | 300,880 |   |
| **TOTAL**                                                |   |         | 706,629   |         |   | 842,902 |   |
|                                                     |   |         |      |         |   |   |   |
| **TOTAL                ASSETS**                          |   | $            | 6,566,109 |         | $      | 6,330,670 |   |

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

----

**OHIO      POWER COMPANY CONSOLIDATED**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**LIABILITIES      AND SHAREHOLDERS’ EQUITY**

**September      30, 2006 and December 31, 2005**

**(Unaudited)**

|                                                                          |   | **2006**                          |      | **2005** |   |
|-------------------------------------------------------------------------------|--------|-----------------------------------|-----------|----------|--------|
| **CURRENT                LIABILITIES**                                        |   | **(in                thousands)** |      |
| Advances                from Affiliates                                       |   | $                                 | 48,163    |     | $      | 70,071 |   |
| Accounts                Payable:                                              |   |                              |      |     |   |   |   |
| General                                                                       |   |                              | 250,280   |     |   | 210,752 |   |
| Affiliated                Companies                                           |   |                              | 105,916   |     |   | 147,470 |   |
| Short-term                Debt - Nonaffiliated                                |   |                              | 7,103     |     |   | 10,366 |   |
| Long-term                Debt Due Within One Year - Nonaffiliated             |   |                              | 12,354    |     |   | 12,354 |   |
| Long-term                Debt Due Within One Year - Affiliated                |   |                              | -         |     |   | 200,000 |   |
| Risk                Management Liabilities                                    |   |                              | 57,380    |     |   | 108,797 |   |
| Customer                Deposits                                              |   |                              | 28,811    |     |   | 51,209 |   |
| Accrued                Taxes                                                  |   |                              | 92,539    |     |   | 158,774 |   |
| Other                                                                         |   |                              | 138,777   |     |   | 147,778 |   |
| **TOTAL**                                                                     |   |                              | 741,323   |     |   | 1,117,571 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **NONCURRENT                LIABILITIES**                                     |   |                              |      |     |   |   |   |
| Long-term                Debt - Nonaffiliated                                 |   |                              | 2,186,023 |     |   | 1,787,316 |   |
| Long-term                Debt - Affiliated                                    |   |                              | 200,000   |     |   | 200,000 |   |
| Long-term                Risk Management Liabilities                          |   |                              | 61,936    |     |   | 119,247 |   |
| Deferred                Income Taxes                                          |   |                              | 972,867   |     |   | 987,386 |   |
| Regulatory                Liabilities and Deferred Investment Tax Credits     |   |                              | 182,647   |     |   | 168,492 |   |
| Deferred                Credits and Other                                     |   |                              | 142,616   |     |   | 154,770 |   |
| **TOTAL**                                                                     |   |                              | 3,746,089 |     |   | 3,417,211 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **TOTAL                LIABILITIES**                                          |   |                              | 4,487,412 |     |   | 4,534,782 |   |
|                                                                          |   |                              |      |     |   |   |   |
| Minority                Interest                                              |   |                              | 16,593    |     |   | 11,302 |   |
|                                                                          |   |                              |      |     |   |   |   |
| Cumulative                Preferred Stock Not Subject to Mandatory Redemption |   |                              | 16,631    |     |   | 16,639 |   |
|                                                                          |   |                              |      |     |   |   |   |
| Commitments                and Contingencies (Note 5)                         |   |                              |      |     |   |   |   |
|                                                                          |   |                              |      |     |   |   |   |
| **COMMON                SHAREHOLDER’S EQUITY**                          |   |                              |      |     |   |   |   |
| Common                Stock - No Par Value Per Share:                         |   |                              |      |     |   |   |   |
| Authorized                - 40,000,000 Shares                                 |   |                              |      |     |   |   |   |
| Outstanding                - 27,952,473 Shares                                |   |                              | 321,201   |     |   | 321,201 |   |
| Paid-in                Capital                                                |   |                              | 536,639   |     |   | 466,637 |   |
| Retained                Earnings                                              |   |                              | 1,180,578 |     |   | 979,354 |   |
| Accumulated                Other Comprehensive Income                         |   |                              | 7,055     |     |   | 755 |   |
| **TOTAL**                                                                     |   |                              | 2,045,473 |     |   | 1,767,947 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **TOTAL                LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                 | 6,566,109 |     | $      | 6,330,670 |   |

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

----

**OHIO      POWER COMPANY CONSOLIDATED**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For      the Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                                                   |   | **2006**     |     | **2005**     |   |
|----------------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                ACTIVITIES**                                                |   |    |     |    |   |
| **Net                Income**                                                          |   | $            | 201,773  |         | $      | 227,372 |   |
| **Adjustments                for Noncash Items:**                                      |   |         |     |         |   |   |   |
| Depreciation                and Amortization                                           |   |         | 239,407  |         |   | 227,687 |   |
| Deferred                Income Taxes                                                   |   |         | (18,399  | )            |   | 11,492 |   |
| Carrying                Costs Income                                                   |   |         | (10,336  | )            |   | (38,431 | ) |
| Mark-to-Market                of Risk Management Contracts                             |   |         | 668      |         |   | (10,841 | ) |
| Pension                Contributions to Qualified Plan Trusts                          |   |         | -        |         |   | (60,020 | ) |
| Deferred                Property Taxes                                                 |   |         | 54,073   |         |   | 47,803 |   |
| Change                in Other Noncurrent Assets                                       |   |         | 7,958    |         |   | (12,979 | ) |
| Change                in Other Noncurrent Liabilities                                  |   |         | 15,923   |         |   | 6,746 |   |
| **Changes                in Components of Working Capital:**                           |   |         |     |         |   |   |   |
| Accounts                Receivable, Net                                                |   |         | 78,307   |         |   | (54,418 | ) |
| Fuel,                Materials and Supplies                                            |   |         | (25,375  | )            |   | (25,840 | ) |
| Accounts                Payable                                                        |   |         | (44,817  | )            |   | 57,644 |   |
| Accrued                Taxes, Net                                                      |   |         | (27,733  | )            |   | (114,998 | ) |
| Other                Current Assets                                                    |   |         | 36,333   |         |   | 28,559 |   |
| Other                Current Liabilities                                               |   |         | (31,400  | )            |   | 29,803 |   |
| **Net                Cash Flows From Operating Activities**                            |   |         | 476,382  |         |   | 319,579 |   |
|                                                                                   |   |         |     |         |   |   |   |
| **INVESTING                ACTIVITIES**                                                |   |         |     |         |   |   |   |
| Construction                Expenditures                                               |   |         | (715,200 | )            |   | (460,282 | ) |
| Change                in Advances to Affiliates, Net                                   |   |         | -        |         |   | 125,971 |   |
| Other                                                                                  |   |         | 5,448    |         |   | 8,896 |   |
| **Net                Cash Flows Used For Investing Activities**                        |   |         | (709,752 | )            |   | (325,415 | ) |
|                                                                                   |   |         |     |         |   |   |   |
| **FINANCING                ACTIVITIES**                                                |   |         |     |         |   |   |   |
| Capital                Contributions from Parent Company                               |   |         | 70,000   |         |   | - |   |
| Issuance                of Long-term Debt - Nonaffiliated                              |   |         | 405,841  |         |   | 348,237 |   |
| Change                in Short-term Debt, Net - Nonaffiliated                          |   |         | (3,264   | )            |   | (8,133 | ) |
| Change                in Advances from Affiliates, Net                                 |   |         | (21,908  | )            |   | 55,508 |   |
| Retirement                of Long-term Debt - Nonaffiliated                            |   |         | (10,890  | )            |   | (363,890 | ) |
| Retirement                of Long-term Debt - Affiliated                               |   |         | (200,000 | )            |   | - |   |
| Retirement                of Preferred Stock                                           |   |         | (7       | )            |   | (5,000 | ) |
| Principal                Payments for Capital Lease Obligations                        |   |         | (5,768   | )            |   | (5,795 | ) |
| Dividends                Paid on Common Stock                                          |   |         | -        |         |   | (22,499 | ) |
| Dividends                Paid on Cumulative Preferred Stock                            |   |         | (549     | )            |   | (549 | ) |
| **Net                Cash Flows From (Used For) Financing Activities**                 |   |         | 233,455  |         |   | (2,121 | ) |
|                                                                                   |   |         |     |         |   |   |   |
| **Net                Increase (Decrease) in Cash and Cash Equivalents**                |   |         | 85       |         |   | (7,957 | ) |
| **Cash                and Cash Equivalents at Beginning of Period**                    |   |         | 1,240    |         |   | 9,337 |   |
| **Cash                and Cash Equivalents at End of Period**                          |   | $            | 1,325    |         | $      | 1,380 |   |
|                                                                                   |   |         |     |         |   |   |   |
| **SUPPLEMENTARY                INFORMATION**                                           |   |         |     |         |   |   |   |
| Cash                Paid for Interest, Net of Capitalized Amounts                      |   | $            | 71,666   |         | $      | 92,073 |   |
| Net                Cash Paid for Income Taxes                                          |   |         | 72,175   |         |   | 158,627 |   |
| Noncash                Acquisitions Under Capital Leases                               |   |         | 2,529    |         |   | 7,591 |   |
| Construction                Expenditures Included in Accounts Payable at September 30, |   |         | 117,638  |         |   | 73,895 |   |

| *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     |
| Customer                Choice and Industry Restructuring | Note                4     |
| Commitments                and Contingencies              | Note                5     |
| Guarantees                                                | Note                6     |
| Company-wide                Staffing and Budget Review    | Note                7     |
| Benefit                Plans                              | Note                9     |
| Business                Segments                          | Note                11    |
| Financing                Activities                       | Note                12    |

----

**PUBLIC      SERVICE COMPANY OF OKLAHOMA**

----

**PUBLIC      SERVICE COMPANY OF OKLAHOMA**

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

**Allocation      Agreement between AEP East companies and AEP West      companies**

**Results      of Operations**

**Reconciliation      of Third Quarter of 2005 to Third Quarter of 2006 Net      Income**

**(in      millions)**

| **Third                Quarter of 2005**                        |   |   |   |   | $      | 49     |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                and Off-system Sales Margins              |   |   | (2     | )      |   |   |   |
| Transmission                Revenues                            |   |   | (3     | )      |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | (5     | )      |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | (8     | )      |   |   |   |
| Depreciation                and Amortization                    |   |   | (1     | )      |   |   |   |
| Taxes                Other Than Income Taxes                    |   |   | 6      |   |   |   |   |
| Interest                Expense                                 |   |   | (2     | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (5     | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | 3      |   |
|                                                            |   |   |   |   |   |   |   |
| **Third                Quarter of 2006**                        |   |   |   |   | $      | 42     |   |

| · | Retail                and Off-system Sales Margins decreased $2 million primarily due to                a $4                million decrease in retail margins resulting from lower sales to                industrial customers due to the price mix and an increase in                non-recoverable fuel items including an accrual for an unfavorable                FERC                ruling on an SPP Reactive Power dispute with Calpine, partially offset                by                an increase in Distribution Vegetation Management (DVM) recovery.                The                decrease in retail margins was partially offset by a $2 million increase                in off-system sales margins, comprised of a $16 million increase                in                margins from optimization activities partially offset by a $14 million                decrease primarily related to lower sharing of off-system sales margins                under the SIA. See the “Allocation Agreement between AEP East companies                and AEP West companies and CSW Operating Agreement” section of Note                3. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Transmission                Revenues decreased $3 million due to lower point-to-point transmission                services within SPP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

| · | Other                Operation and Maintenance expenses increased $8 million due to a                $6                million increase in distribution maintenance primarily related to                increased DVM expenses. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Taxes                Other Than Income Taxes decreased $6 million due to an adjustment                to the                provision for state sales and use                tax.                                               |

*Income      Taxes*

**Reconciliation      of Nine Months Ended September 30, 2005 to **

**Nine      Months Ended September 30, 2006 Net Income**

**(in      millions)**

| **Nine                Months Ended September 30, 2005**         |   |   |   |   | $      | 68     |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                and Off-system Sales Margins              |   |   | 12     |   |   |   |   |
| Transmission                Revenues                            |   |   | (1     | )      |   |   |   |
| Other                                                           |   |   | 3      |   |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | 14     |   |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | (35    | )      |   |   |   |
| Depreciation                and Amortization                    |   |   | 1      |   |   |   |   |
| Taxes                Other Than Income Taxes                    |   |   | 2      |   |   |   |   |
| Interest                Expense                                 |   |   | (5     | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (37    | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | 6      |   |
|                                                            |   |   |   |   |   |   |   |
| **Nine                Months Ended September 30, 2006**         |   |   |   |   | $      | 51     |   |

| · | Retail                and Off-system Sales Margins increased $12 million primarily due                to a $20                million increase in retail margins resulting from a 29% increase                in                cooling degree days and an increase in DVM recovery, partially offset                by                an increase in non-recoverable fuel items including an accrual for                an                unfavorable FERC ruling on an SPP Reactive Power dispute with Calpine.                The                increase in retail margins was partially offset by an $8 million                decrease                in off-system sales margins comprised of a $17 million decrease primarily                related to lower sharing of off-system sales margins under the SIA,                partially offset by a $9 million increase in margins from optimization                activities. See the “Allocation Agreement between AEP East companies and                AEP West companies and CSW Operating Agreement” section of Note                3. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Other                revenue increased $3 million partially due to a 2006 settlement received                from an electric cooperative.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

| · | Other                Operation and Maintenance expenses increased $35 million due to a                $15                million increase in distribution maintenance primarily related to                increased DVM expenses, a $7 million increase in forced and scheduled                power plant maintenance, a $6 million increase in administration                and                general expenses, mostly related to increased pension and other                postemployment benefits expense, a $5 million increase in expenses                related                to the factoring of accounts receivable and a $4 million increase                in                expenses related to power plant operations. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Interest                Expense increased $5 million primarily due to increased affiliated                short-term borrowings during the period and the issuance of long-term                debt                in 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

*Income      Taxes*

** **

**Financial      Condition**

**Credit      Ratings**

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

**Financing      Activity**

|                                  |   | **Principal****Amount** |                              | **Interest** |     | **Due** |
|---------------------------------------|--------|-------------------------|-----------------------------------|--------------|----------|---------|
| **Type                of Debt**       |   |                    | **Rate**                          |         | **Date** |
|                                  |   |                    | **(in                thousands)** |         | **(%)**  |    |   |
|                                  |   |                    |                              |         |     |    |   |
| Senior                Unsecured Notes |   | $                       | 150,000                           |         | 6.15     |    | 2016 |

|                                      |   | **Principal****Amount** |                              | **Interest** |     | **Due** |
|-------------------------------------------|--------|-------------------------|-----------------------------------|--------------|----------|---------|
| **Type                of Debt**           |   |                    | **Rate**                          |         | **Date** |
|                                      |   |                    | **(in                thousands)** |         | **(%)**  |    |   |
|                                      |   |                    |                              |         |     |    |   |
| Notes                Payable - Affiliated |   | $                       | 50,000                            |         | 3.35     |    | 2006 |

**Liquidity**

**Summary      Obligation Information**

**Significant      Factors**

***Litigation      and Regulatory Activity***

***New      Generation***

**Critical      Accounting Estimates**

----

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

**Market      Risks**

**MTM      Risk Management Contract Net Assets**

**Reconciliation      of MTM Risk Management Contracts to**

**Condensed      Balance Sheet**

**As      of September 30, 2006**

**(in      thousands)**

|                                                         |   |                                        |    |                           |   |                                 |   |    |   |
|--------------------------------------------------------------|--------|--------------------------------------------------|---------|-------------------------------------|--------|-------------------------------------------|--------|--------------|--------|
|                                                         |   |                                        |    |                           |   |                                 |   |    |   |
|                                                         |   | **MTM                Risk Management Contracts** |    | **Cash                Flow Hedges** |   | **DETM****Assignment                (a)** |   | **Total**    |   |
| Current                Assets                                |   | $                                                | 71,635  |                                | $      | -                                         |   | $            | -      |   | $ | 71,635 |   |
| Noncurrent                Assets                             |   |                                             | 32,354  |                                |   | -                                         |   |         | -      |   |   | 32,354 |   |
| **Total                MTM Derivative Contract Assets**      |   |                                             | 103,989 |                                |   | -                                         |   |         | -      |   |   | 103,989 |   |
|                                                         |   |                                             |    |                                |   |                                      |   |         |   |   |   |   |   |
| Current                Liabilities                           |   |                                             | (75,244 | )                                   |   | -                                         |   |         | (96    | ) |   | (75,340 | ) |
| Noncurrent                Liabilities                        |   |                                             | (22,869 | )                                   |   | -                                         |   |         | (467   | ) |   | (23,336 | ) |
| **Total                MTM Derivative Contract Liabilities** |   |                                             | (98,113 | )                                   |   | -                                         |   |         | (563   | ) |   | (98,676 | ) |
|                                                         |   |                                             |    |                                |   |                                      |   |         |   |   |   |   |   |
| **Total                MTM Derivative Contract Net Assets**  |   | $                                                | 5,876   |                                | $      | -                                         |   | $            | (563   | ) | $ | 5,313 |   |

| (a) | Starting                in the third quarter of 2006, we were allocated a portion of the                DETM                assignment based on the FERC- approved methodology of AEP recording                trading and marketing margins shared between the AEP East and AEP                West                companies. See “Natural Gas Contracts with DETM” section of Note 17 of the                2005 Annual Report. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**MTM      Risk Management Contract Net Assets**

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

| **Total                MTM Risk Management Contract Net Assets at December 31,                2005**                                           |   | $      | 14,214  |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| (Gain)                Loss from Contracts Realized/Settled During the Period and Entered                in a                Prior Period       |   |   | 817     |   |
| 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 |   |   | (386    | )      |
| Change                in Fair Value Due to Valuation Methodology Changes on Forward                Contracts                                   |   |   | -       |   |
| Changes                in Fair Value Due to Market Fluctuations During the Period                (b)                                           |   |   | 148     |   |
| Changes                Due to SIA and CSW Operating Agreement (c)                                                                              |   |   | 10,185  |   |
| Changes                in Fair Value Allocated to Regulated Jurisdictions (d)                                                                  |   |   | (19,102 | )      |
| **Total                MTM Risk Management Contract Net Assets**                                                                               |   |   | 5,876   |   |
| Net                Cash Flow Hedge Contracts                                                                                                   |   |   | -       |   |
| DETM                Assignment (e)                                                                                                             |   |   | (563    | )      |
| **Total                MTM Risk Management Contract Net Assets at September 30,                2006**                                          |   | $      | 5,313   |   |

| (a) | Most                of the fair value comes from longer term fixed price contracts with                customers that seek 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) | See                “Allocation Agreement between AEP East companies and AEP West companies                and CSW Operating Agreement” section of Note 3.                                                                                                                                                                                                                                                                                                                                                                                 |
| (d) | “Changes                in Fair Value Allocated to Regulated Jurisdictions” relates to the net                gains (losses) of those contracts that are not reflected in the Condensed                Statements of Operations. These net gains (losses) are recorded as                regulatory liabilities/assets for those subsidiaries that operate                in                regulated jurisdictions.                                                                                                                      |
| (e) | Starting                in the third quarter of 2006, we were allocated a portion of the                DETM                assignment based on the FERC- approved methodology of AEP recording                trading margins shared between the AEP East and AEP West companies.                See                “Natural Gas Contracts with DETM” section of Note 17 of the 2005 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 giving 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 September 30, 2006**

**(in      thousands)**

|                                                                                                                  |   | **Remainder****2006** |   | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                Actively Quoted - Exchange Traded                Contracts                                      |   | $                     | (3,194 | )        | $      | (21,390  | )      | $        | 3,101  |     | $      | (383              | )      | $         | -      |   | $ | - |   | $ | (21,866 | ) |
| Prices                Provided by Other External Sources                - OTC Broker                  Quotes (a) |   |                  | (6,056 | )        |   | 27,924   |   |     | 5,533  |     |   | (490              | )      |      | -      |   |   | - |   |   | 26,911 |   |
| Prices                Based on Models and Other Valuation                Methods (b)                                  |   |                  | (143   | )        |   | (216     | )      |     | (131   | )        |   | 1,313             |   |      | 42     |   |   | (34 | ) |   | 831 |   |
| **Total**                                                                                                             |   | $                     | (9,393 | )        | $      | 6,318    |   | $        | 8,503  |     | $      | 440               |   | $         | 42     |   | $ | (34 | ) | $ | 5,876 |   |

| (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. |

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

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

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

|                                                                                                 |   | **Power** |   | **Interest                Rate** |   | **Total** |   |
|------------------------------------------------------------------------------------------------------|--------|-----------|--------|----------------------------------|--------|-----------|--------|
| **Beginning                Balance in AOCI December 31, 2005**                                       |   | $         | (629   | )                                | $      | (483      | )      | $ | (1,112 | ) |
| Changes                in Fair Value                                                                 |   |      | -      |                             |   | -         |   |   | - |   |
| Impact                Due to Change in SIA (a)                                                       |   |      | 506    |                             |   | -         |   |   | 506 |   |
| Reclassifications                from AOCI to Net Income for Cash                Flow Hedges Settled |   |      | 123    |                             |   | (633      | )      |   | (510 | ) |
| **Ending                Balance in AOCI September 30, 2006**                                         |   | $         | -      |                             | $      | (1,116    | )      | $ | (1,116 | ) |

| (a) | See                “Allocation Agreement between AEP East companies and AEP West companies                and CSW Operating Agreement” section of Note                3. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Credit      Risk**

**VaR      Associated with Risk Management Contracts**

| **Nine                Months Ended****September                30, 2006** |   |     |   |        | **Twelve                Months Ended****December                31, 2005** |
|---------------------------------------------------------------------------|--------|----------|--------|-------------|----------------------------------------------------------------------------|
| **(in                thousands)**                                         |   |     |   |        | **(in                thousands)**                                          |
| **End**                                                                   |   | **High** |   | **Average** |                                                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $1,175                                                                    |   | $1,786   |   | $647        |                                                                       | $58 |   |   |   |   | $311 |   | $517 |   | $246 |   | $89 |

**VaR      Associated with Debt Outstanding**

----

**PUBLIC      SERVICE COMPANY OF OKLAHOMA**

**CONDENSED      STATEMENTS OF INCOME**

**For      the Three and Nine Months Ended September 30, 2006 and      2005**

**(in      thousands)**

**(Unaudited)**

|                                                               |   | **Three                Months Ended** |    | **Nine                Months Ended** |   |
|--------------------------------------------------------------------|--------|---------------------------------------|---------|--------------------------------------|--------|
|                                                               |   | **2006**                              |    | **2005**                             |   | **2006** |   | **2005** |   |
| **REVENUES**                                                       |   |                             |    |                            |   |   |   |   |   |
| Electric                Generation, Transmission and Distribution  |   | $                                     | 443,593 |                                 | $      | 415,558 |   | $ | 1,116,507 |   | $ | 937,985 |   |
| Sales                to AEP Affiliates                             |   |                                  | 14,034  |                                 |   | 16,032 |   |   | 40,647 |   |   | 32,314 |   |
| Other                                                              |   |                                  | 814     |                                 |   | 1,043 |   |   | 3,062 |   |   | 2,018 |   |
| **TOTAL**                                                          |   |                                  | 458,441 |                                 |   | 432,633 |   |   | 1,160,216 |   |   | 972,317 |   |
|                                                               |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                       |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Fuel                and Other Consumables for Electric Generation  |   |                                  | 202,836 |                                 |   | 192,968 |   |   | 566,985 |   |   | 456,690 |   |
| Purchased                Electricity for Resale                    |   |                                  | 68,547  |                                 |   | 39,186 |   |   | 158,122 |   |   | 84,111 |   |
| Purchased                Electricity from AEP Affiliates           |   |                                  | 17,706  |                                 |   | 26,643 |   |   | 54,817 |   |   | 64,877 |   |
| Other                Operation                                     |   |                                  | 40,756  |                                 |   | 40,029 |   |   | 117,721 |   |   | 107,168 |   |
| Maintenance                                                        |   |                                  | 25,072  |                                 |   | 17,809 |   |   | 67,412 |   |   | 43,321 |   |
| Depreciation                and Amortization                       |   |                                  | 22,103  |                                 |   | 20,842 |   |   | 64,724 |   |   | 65,708 |   |
| Taxes                Other Than Income Taxes                       |   |                                  | 3,844   |                                 |   | 9,769 |   |   | 23,997 |   |   | 25,507 |   |
| **TOTAL**                                                          |   |                                  | 380,864 |                                 |   | 347,246 |   |   | 1,053,778 |   |   | 847,382 |   |
|                                                               |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **OPERATING                INCOME**                                |   |                                  | 77,577  |                                 |   | 85,387 |   |   | 106,438 |   |   | 124,935 |   |
|                                                               |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **Other                Income (Expense):**                         |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Interest                Income                                     |   |                                  | 828     |                                 |   | 658 |   |   | 1,734 |   |   | 729 |   |
| Allowance                for Equity Funds Used During Construction |   |                                  | 222     |                                 |   | 206 |   |   | 96 |   |   | 542 |   |
| Interest                Expense                                    |   |                                  | (10,954 | )                                    |   | (8,677 | ) |   | (29,723 | ) |   | (25,173 | ) |
|                                                               |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **INCOME                BEFORE INCOME TAXES**                      |   |                                  | 67,673  |                                 |   | 77,574 |   |   | 78,545 |   |   | 101,033 |   |
|                                                               |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Income                Tax Expense                                  |   |                                  | 25,650  |                                 |   | 28,920 |   |   | 27,241 |   |   | 33,304 |   |
|                                                               |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **NET                INCOME**                                      |   |                                  | 42,023  |                                 |   | 48,654 |   |   | 51,304 |   |   | 67,729 |   |
|                                                               |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Preferred                Stock Dividend Requirements               |   |                                  | 53      |                                 |   | 53 |   |   | 159 |   |   | 159 |   |
|                                                               |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **EARNINGS                APPLICABLE TO COMMON STOCK**        |   | $                                     | 41,970  |                                 | $      | 48,601 |   | $ | 51,145 |   | $ | 67,570 |   |

*       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 Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                                               |   | **Common                Stock** |    | **Paid-in                Capital** |   | **Retained                Earnings** |   | **Accumulated                Other Comprehensive Income (Loss)** |    | **Total** |   |
|------------------------------------------------------------------------------------|--------|---------------------------------|---------|------------------------------------|--------|--------------------------------------|--------|------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                31, 2004**                                               |   | $                               | 157,230 |                               | $      | 230,016                              |   | $                                                                | 141,935 |      | $      | 75 |   | $ | 529,256 |   |
|                                                                               |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Common                Stock Dividends                                              |   |                            |    |                               |   |                                 |   |                                                             | (27,000 | )         |   |   |   |   | (27,000 | ) |
| Preferred                Stock Dividends                                           |   |                            |    |                               |   |                                 |   |                                                             | (159    | )         |   |   |   |   | (159 | ) |
| **TOTAL**                                                                          |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 502,097 |   |
|                                                                               |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                                            |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **Other                Comprehensive Loss, Net of Taxes:**                         |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $2,581                              |   |                            |    |                               |   |                                 |   |                                                             |    |      |   | (4,794 | ) |   | (4,794 | ) |
| **NET                INCOME**                                                      |   |                            |    |                               |   |                                 |   |                                                             | 67,729  |      |   |   |   |   | 67,729 |   |
| **TOTAL                COMPREHENSIVE INCOME**                                      |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 62,935 |   |
|                                                                               |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **SEPTEMBER                30, 2005**                                              |   | $                               | 157,230 |                               | $      | 230,016                              |   | $                                                                | 182,505 |      | $      | (4,719 | ) | $ | 565,032 |   |
|                                                                               |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **DECEMBER                31, 2005**                                               |   | $                               | 157,230 |                               | $      | 230,016                              |   | $                                                                | 162,615 |      | $      | (1,264 | ) | $ | 548,597 |   |
|                                                                               |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Preferred                Stock Dividends                                           |   |                            |    |                               |   |                                 |   |                                                             | (159    | )         |   |   |   |   | (159 | ) |
| **TOTAL**                                                                          |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 548,438 |   |
|                                                                               |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                                            |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **Other                Comprehensive Loss,** **Net                of Taxes:** |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $2                                  |   |                            |    |                               |   |                                 |   |                                                             |    |      |   | (4 | ) |   | (4 | ) |
| **NET                INCOME**                                                      |   |                            |    |                               |   |                                 |   |                                                             | 51,304  |      |   |   |   |   | 51,304 |   |
| **TOTAL                COMPREHENSIVE INCOME**                                      |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 51,300 |   |
|                                                                               |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **SEPTEMBER                30, 2006**                                              |   | $                               | 157,230 |                               | $      | 230,016                              |   | $                                                                | 213,760 |      | $      | (1,268 | ) | $ | 599,738 |   |

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

----

**PUBLIC      SERVICE COMPANY OF OKLAHOMA**

**CONDENSED      BALANCE SHEETS**

**ASSETS**

**September      30, 2006 and December 31, 2005**

**(in      thousands)**

**(Unaudited)**

|                                                           |   | **2006**     |      | **2005** |   |
|----------------------------------------------------------------|--------|--------------|-----------|----------|--------|
| **CURRENT                ASSETS**                              |   |    |      |
| Cash                and Cash Equivalents                       |   | $            | 2,277     |     | $      | 1,520 |   |
| Advances                to Affiliates                          |   |         | 43,538    |     |   | - |   |
| Accounts                Receivable:                            |   |         |      |     |   |   |   |
| Customers                                                      |   |         | 59,153    |     |   | 37,740 |   |
| Affiliated                Companies                            |   |         | 54,535    |     |   | 73,321 |   |
| Miscellaneous                                                  |   |         | 10,105    |     |   | 10,501 |   |
| Allowance                for Uncollectible Accounts            |   |         | (82       | )        |   | (240 | ) |
|                  Total Accounts Receivable                |   |         | 123,711   |     |   | 121,322 |   |
| Fuel                                                           |   |         | 15,301    |     |   | 16,431 |   |
| Materials                and Supplies                          |   |         | 46,665    |     |   | 38,545 |   |
| Risk                Management Assets                          |   |         | 71,635    |     |   | 40,383 |   |
| Accrued                Tax Benefits                            |   |         | 61        |     |   | 11,972 |   |
| Regulatory                Asset for Under-Recovered Fuel Costs |   |         | 31,794    |     |   | 108,732 |   |
| Margin                Deposits                                 |   |         | 35,862    |     |   | 10,051 |   |
| Prepayments                and Other                           |   |         | 8,058     |     |   | 4,236 |   |
| **TOTAL**                                                      |   |         | 378,902   |     |   | 353,192 |   |
|                                                           |   |         |      |     |   |   |   |
| **PROPERTY,                PLANT AND EQUIPMENT**               |   |         |      |     |   |   |   |
| Electric:                                                      |   |         |      |     |   |   |   |
| Production                                                     |   |         | 1,083,390 |     |   | 1,072,928 |   |
| Transmission                                                   |   |         | 499,175   |     |   | 479,272 |   |
| Distribution                                                   |   |         | 1,196,071 |     |   | 1,140,535 |   |
| Other                                                          |   |         | 239,625   |     |   | 211,805 |   |
| Construction                Work in Progress                   |   |         | 82,724    |     |   | 90,455 |   |
| **Total**                                                      |   |         | 3,100,985 |     |   | 2,994,995 |   |
| Accumulated                Depreciation and Amortization       |   |         | 1,192,825 |     |   | 1,175,858 |   |
| **TOTAL                - NET**                                 |   |         | 1,908,160 |     |   | 1,819,137 |   |
|                                                           |   |         |      |     |   |   |   |
| **OTHER                NONCURRENT ASSETS**                     |   |         |      |     |   |   |   |
| Regulatory                Assets                               |   |         | 76,543    |     |   | 50,723 |   |
| Long-term                Risk Management Assets                |   |         | 32,354    |     |   | 33,566 |   |
| Employee                Benefits and Pension Assets            |   |         | 79,701    |     |   | 82,559 |   |
| Deferred                Charges and Other                      |   |         | 22,372    |     |   | 16,287 |   |
| **TOTAL**                                                      |   |         | 210,970   |     |   | 183,135 |   |
|                                                           |   |         |      |     |   |   |   |
| **TOTAL                ASSETS**                                |   | $            | 2,498,032 |     | $      | 2,355,464 |   |

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

----

**PUBLIC      SERVICE COMPANY OF OKLAHOMA **

**CONDENSED      BALANCE SHEETS**

**LIABILITIES      AND SHAREHOLDERS’ EQUITY**

**September      30, 2006 and December 31, 2005**

**(Unaudited)**

|                                                                          |   | **2006**                          |      | **2005** |   |
|-------------------------------------------------------------------------------|--------|-----------------------------------|-----------|----------|--------|
| **CURRENT                LIABILITIES**                                        |   | **(in                thousands)** |      |
| Advances                from Affiliates                                       |   | $                                 | -         |     | $      | 75,883 |   |
| Accounts                Payable:                                              |   |                              |      |     |   |   |   |
| General                                                                       |   |                              | 130,260   |     |   | 130,627 |   |
| Affiliated                Companies                                           |   |                              | 89,834    |     |   | 89,786 |   |
| Long-term                Debt Due Within One Year - Affiliated                |   |                              | -         |     |   | 50,000 |   |
| Risk                Management Liabilities                                    |   |                              | 75,340    |     |   | 38,243 |   |
| Customer                Deposits                                              |   |                              | 51,107    |     |   | 53,844 |   |
| Accrued                Taxes                                                  |   |                              | 59,354    |     |   | 22,420 |   |
| Other                                                                         |   |                              | 37,793    |     |   | 51,548 |   |
| **TOTAL**                                                                     |   |                              | 443,688   |     |   | 512,351 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **NONCURRENT                LIABILITIES**                                     |   |                              |      |     |   |   |   |
| Long-term                Debt - Nonaffiliated                                 |   |                              | 669,953   |     |   | 521,071 |   |
| Long-term                Risk Management Liabilities                          |   |                              | 23,336    |     |   | 22,582 |   |
| Deferred                Income Taxes                                          |   |                              | 418,846   |     |   | 436,382 |   |
| Regulatory                Liabilities and Deferred Investment Tax Credits     |   |                              | 309,818   |     |   | 284,640 |   |
| Deferred                Credits and Other                                     |   |                              | 27,391    |     |   | 24,579 |   |
| **TOTAL**                                                                     |   |                              | 1,449,344 |     |   | 1,289,254 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **TOTAL                LIABILITIES**                                          |   |                              | 1,893,032 |     |   | 1,801,605 |   |
|                                                                          |   |                              |      |     |   |   |   |
| Cumulative                Preferred Stock Not Subject to Mandatory Redemption |   |                              | 5,262     |     |   | 5,262 |   |
|                                                                          |   |                              |      |     |   |   |   |
| Commitments                and Contingencies (Note 5)                         |   |                              |      |     |   |   |   |
|                                                                          |   |                              |      |     |   |   |   |
| **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                                                |   |                              | 230,016   |     |   | 230,016 |   |
| Retained                Earnings                                              |   |                              | 213,760   |     |   | 162,615 |   |
| Accumulated                Other Comprehensive Income (Loss)                  |   |                              | (1,268    | )        |   | (1,264 | ) |
| **TOTAL**                                                                     |   |                              | 599,738   |     |   | 548,597 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **TOTAL                LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                 | 2,498,032 |     | $      | 2,355,464 |   |

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

----

**PUBLIC      SERVICE COMPANY OF OKLAHOMA**

**CONDENSED      STATEMENTS OF CASH FLOWS**

**For      the Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                                                   |   | **2006**     |     | **2005**     |   |
|----------------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                ACTIVITIES**                                                |   |    |     |    |   |
| **Net                Income**                                                          |   | $            | 51,304   |         | $      | 67,729 |   |
| **Adjustments                for Noncash Items:**                                      |   |         |     |         |   |   |   |
| Depreciation                and Amortization                                           |   |         | 64,724   |         |   | 65,708 |   |
| Deferred                Income Taxes                                                   |   |         | (18,661  | )            |   | 32,661 |   |
| Mark-to-Market                of Risk Management Contracts                             |   |         | 8,901    |         |   | (2,954 | ) |
| Deferred                Property Taxes                                                 |   |         | (8,098   | )            |   | (8,123 | ) |
| Change                in Other Noncurrent Assets                                       |   |         | 18,186   |         |   | (34,576 | ) |
| Change                in Other Noncurrent Liabilities                                  |   |         | (24,838  | )            |   | 26,798 |   |
| **Changes                in Components of Working Capital:**                           |   |         |     |         |   |   |   |
| Accounts                Receivable, Net                                                |   |         | (2,389   | )            |   | (1,687 | ) |
| Fuel,                Materials and Supplies                                            |   |         | (6,990   | )            |   | (3,873 | ) |
| Margin                Deposits                                                         |   |         | (25,811  | )            |   | (16,121 | ) |
| Accounts                Payable                                                        |   |         | 1,585    |         |   | 69,794 |   |
| Customer                Deposits                                                       |   |         | (2,737   | )            |   | 24,404 |   |
| Accrued                Taxes, Net                                                      |   |         | 48,845   |         |   | 480 |   |
| Over/Under                Fuel Recovery                                                |   |         | 76,938   |         |   | (81,808 | ) |
| Other                Current Assets                                                    |   |         | (3,828   | )            |   | (7,253 | ) |
| Other                Current Liabilities                                               |   |         | (13,755  | )            |   | (6,099 | ) |
| **Net                Cash Flows From Operating Activities**                            |   |         | 163,376  |         |   | 125,080 |   |
|                                                                                   |   |         |     |         |   |   |   |
| **INVESTING                ACTIVITIES**                                                |   |         |     |         |   |   |   |
| Construction                Expenditures                                               |   |         | (140,998 | )            |   | (87,804 | ) |
| Change                in Other Cash Deposits, Net                                      |   |         | 6        |         |   | (6 | ) |
| Change                in Advances to Affiliates, Net                                   |   |         | (43,538  | )            |   | - |   |
| **Net                Cash Flows Used For Investing Activities**                        |   |         | (184,530 | )            |   | (87,810 | ) |
|                                                                                   |   |         |     |         |   |   |   |
| **FINANCING                ACTIVITIES**                                                |   |         |     |         |   |   |   |
| Issuance                of Long-term Debt - Nonaffiliated                              |   |         | 148,747  |         |   | 74,405 |   |
| Change                in Advances from Affiliates, Net                                 |   |         | (75,883  | )            |   | (32,401 | ) |
| Retirement                of Long-term Debt - Nonaffiliated                            |   |         | -        |         |   | (50,000 | ) |
| Retirement                of Long-term Debt - Affiliated                               |   |         | (50,000  | )            |   | - |   |
| Principal                Payments for Capital Lease Obligations                        |   |         | (794     | )            |   | (483 | ) |
| Dividends                Paid on Common Stock                                          |   |         | -        |         |   | (27,000 | ) |
| Dividends                Paid on Cumulative Preferred Stock                            |   |         | (159     | )            |   | (159 | ) |
| **Net                Cash Flows From (Used For) Financing Activities**                 |   |         | 21,911   |         |   | (35,638 | ) |
|                                                                                   |   |         |     |         |   |   |   |
| **Net                Increase in Cash and Cash Equivalents**                           |   |         | 757      |         |   | 1,632 |   |
| **Cash                and Cash Equivalents at Beginning of Period**                    |   |         | 1,520    |         |   | 279 |   |
| **Cash                and Cash Equivalents at End of Period**                          |   | $            | 2,277    |         | $      | 1,911 |   |
|                                                                                   |   |         |     |         |   |   |   |
| **SUPPLEMENTARY                INFORMATION**                                           |   |         |     |         |   |   |   |
| Cash                Paid for Interest, Net of Capitalized Amounts                      |   | $            | 25,491   |         | $      | 21,954 |   |
| Net                Cash Paid for Income Taxes                                          |   |         | 7,471    |         |   | 14,241 |   |
| Noncash                Acquisitions Under Capital Leases                               |   |         | 2,639    |         |   | 798 |   |
| Construction                Expenditures Included in Accounts Payable at September 30, |   |         | 6,591    |         |   | 3,482 |   |

| *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                and Contingencies           | Note                5                 |
| Guarantees                                             | Note                6                 |
| Company-wide                Staffing and Budget Review | Note                7                 |
| Benefit                Plans                           | Note                9                 |
| Income                Taxes                            | Note                10                |
| Business                Segments                       | Note                11                |
| Financing                Activities                    | Note                12                |

----

**SOUTHWESTERN      ELECTRIC POWER COMPANY CONSOLIDATED**

----

**SOUTHWESTERN      ELECTRIC POWER COMPANY CONSOLIDATED**

**MANAGEMENT’S      FINANCIAL DISCUSSION AND ANALYSIS**

**Allocation      Agreement between AEP East companies and AEP West      companies**

**Results      of Operations**

**Reconciliation      of Third Quarter of 2005 to Third Quarter of 2006 Net      Income**

**(in      millions)**

| **Third                Quarter of 2005**                        |   |   |   |   | $      | 50     |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                and Off-system Sales Margins (a)          |   |   | (9     | )      |   |   |   |
| Transmission                Revenues                            |   |   | (1     | )      |   |   |   |
| Other                                                           |   |   | 6      |   |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | (4     | )      |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | 6      |   |   |   |   |
| Taxes                Other Than Income Taxes                    |   |   | 1      |   |   |   |   |
| Interest                Expense                                 |   |   | (1     | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | 6      |   |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | (2     | )      |
|                                                            |   |   |   |   |   |   |   |
| **Third                Quarter of 2006**                        |   |   |   |   | $      | 50     |   |

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

| · | Retail                and Off-system Sales Margins decreased $9 million primarily due to                a $4                million non-recoverable accrual for an unfavorable FERC ruling on                an SPP                Reactive Power Contract with Calpine as well as an $8 million decrease                in                off-system sales margins primarily due to lower sharing of off-system                sales margins under the SIA. Partially offsetting these decreases                was a $3                million increase in wholesale revenues due to higher usage and favorable                prices. See the “Allocation Agreement between AEP East companies and AEP                West companies and CSW Operating Agreement” section of Note                3. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Other                revenues increased $6 million primarily due to gains on sales of                emission                allowances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

| · | Other                Operation and Maintenance decreased $6 million primarily due to a                $3                million decrease in transmission operation expense resulting from                favorable changes to the SPP fee structure as well as a $3 million                decrease in overhead line maintenance expense primarily related to                the                absence of 2005 hurricane-related                expenses. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Income      Taxes*

**Reconciliation      of Nine Months Ended September 30, 2005 to **

**Nine      Months Ended September 30, 2006 Net Income**

**(in      millions)**

| **Nine                Months Ended September 30, 2005**         |   |   |   |   | $      | 81     |   |
|-----------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                and Off-system Sales Margins (a)          |   |   | 15     |   |   |   |   |
| Transmission                Revenues                            |   |   | 1      |   |   |   |   |
| Other                                                           |   |   | 22     |   |   |   |   |
| **Total                Change in Gross Margin**                 |   |   |   |   |   | 38     |   |
|                                                            |   |   |   |   |   |   |   |
| **Changes                in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                Operation and Maintenance                  |   |   | (8     | )      |   |   |   |
| Interest                Expense                                 |   |   | (2     | )      |   |   |   |
| **Total                Change in Operating Expenses and Other** |   |   |   |   |   | (10    | )      |
|                                                            |   |   |   |   |   |   |   |
| Income                Tax Expense                               |   |   |   |   |   | (13    | )      |
|                                                            |   |   |   |   |   |   |   |
| **Nine                Months Ended September 30, 2006**         |   |   |   |   | $      | 96     |   |

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

| · | Retail                and Off-system Sales Margins increased $15 million primarily due                to a $17                million increase in wholesale margins resulting from higher prices,                increased usage and new wholesale contracts, as well as a $15 million                increase primarily due to increased wholesale fuel recovery. These                increases were partially offset by a $17 million decrease in off-system                sales margins primarily due to lower sharing of off-system sales                margins                under the SIA. See the “Allocation Agreement between AEP East companies                and AEP West companies and CSW Operating Agreement” section of Note                3. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Other                revenues increased $22 million primarily due to gains on sales of                emission                allowances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

| · | Other                Operation and Maintenance expenses increased $8 million primarily                due to a                $5 million increase in employee-related expenses, a $3 million increase                in                mining operations expense resulting from increased production and                a $2                million increase in expenses related to the factoring of customer                accounts                receivable, offset by the absence of $4 million of 2005 hurricane-related                expenses. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*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**

|                                                                |   | **2006**                          |     | **2005** |   |
|---------------------------------------------------------------------|--------|-----------------------------------|----------|----------|--------|
|                                                                |   | **(in                thousands)** |     |
| **Cash                and Cash Equivalents at Beginning of Period** |   | $                                 | 3,049    |     | $      | 3,715 |   |
| Net                Cash Flows From (Used For):                      |   |                              |     |     |   |   |   |
| Operating                Activities                                 |   |                              | 242,721  |     |   | 163,705 |   |
| Investing                Activities                                 |   |                              | (186,631 | )        |   | (67,857 | ) |
| Financing                Activities                                 |   |                              | (56,343  | )        |   | (95,759 | ) |
| Net                Increase (Decrease) in Cash and Cash Equivalents |   |                              | (253     | )        |   | 89 |   |
| **Cash                and Cash Equivalents at End of Period**       |   | $                                 | 2,796    |     | $      | 3,804 |   |

*Operating      Activities*

*Investing      Activities*

*Financing      Activities*

**Financing      Activity**

|                                   |   | **Principal****Amount** |                              | **Interest** |     | **Due** |
|----------------------------------------|--------|-------------------------|-----------------------------------|--------------|----------|---------|
| **Type                of Debt**        |   |                    | **Rate**                          |         | **Date** |
|                                   |   |                    | **(in                thousands)** |         | **(%)**  |    |   |
|                                   |   |                    |                              |         |     |    |   |
| Pollution                Control Bonds |   | $                       | 81,700                            |         | Variable |    | 2018 |

|                                   |   | **Principal****Amount** |                              | **Interest** |     | **Due** |
|----------------------------------------|--------|-------------------------|-----------------------------------|--------------|----------|---------|
| **Type                of Debt**        |   |                    | **Rate**                          |         | **Date** |
|                                   |   |                    | **(in                thousands)** |         | **(%)**  |    |   |
|                                   |   |                    |                              |         |     |    |   |
| Notes                Payable           |   | $                       | 5,039                             |         | 4.47     |    | 2011 |
| Notes                Payable           |   |                    | 2,250                             |         | Variable |    | 2008 |
| Pollution                Control Bonds |   |                    | 81,700                            |         | 6.10     |    | 2018 |

**Liquidity**

**Summary      Obligation Information**

**Significant      Factors**

***Litigation      and Regulatory Activity***

***New      Generation***

**Critical      Accounting Estimates**

----

**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 September 30, 2006**

**(in      thousands)**

|                                                                         |   | **MTM                Risk Management Contracts** |     | **Cash                Flow Hedges** |   | **DETM****Assignment                (a)** |   | **Total** |   |
|------------------------------------------------------------------------------|--------|--------------------------------------------------|----------|-------------------------------------|--------|-------------------------------------------|--------|-----------|--------|
| Current                Assets                                                |   | $                                                | 84,685   |                                | $      | -                                         |   | $         | -      |   | $ | 84,685 |   |
| Noncurrent                Assets                                             |   |                                             | 38,252   |                                |   | -                                         |   |      | -      |   |   | 38,252 |   |
| **Total                MTM Derivative Contract Assets**                      |   |                                             | 122,937  |                                |   | -                                         |   |      | -      |   |   | 122,937 |   |
|                                                                         |   |                                             |     |                                |   |                                      |   |      |   |   |   |   |   |
| Current                Liabilities                                           |   |                                             | (89,430  | )                                   |   | (4,097                                    | )      |      | (114   | ) |   | (93,641 | ) |
| Noncurrent                Liabilities                                        |   |                                             | (27,326  | )                                   |   | (28                                       | )      |      | (550   | ) |   | (27,904 | ) |
| **Total                MTM Derivative Contract Liabilities**                 |   |                                             | (116,756 | )                                   |   | (4,125                                    | )      |      | (664   | ) |   | (121,545 | ) |
|                                                                         |   |                                             |     |                                |   |                                      |   |      |   |   |   |   |   |
| **Total                MTM Derivative Contract Net Assets****(Liabilities)** |   | $                                                | 6,181    |                                | $      | (4,125                                    | )      | $         | (664   | ) | $ | 1,392 |   |

| (a) | Starting                in the third quarter of 2006, we were allocated a portion of the                DETM                assignment based on the FERC- approved methodology of AEP recording                trading and marketing margins shared between the AEP East and AEP                West                companies. See “Natural Gas Contracts with DETM” section of Note 17 of the                2005 Annual Report. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**MTM      Risk Management Contract Net Assets**

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

| **Total                MTM Risk Management Contract Net Assets at December 31,                2005**                                           |   | $      | 16,387  |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| (Gain)                Loss from Contracts Realized/Settled During the Period and Entered                in a                Prior Period       |   |   | 655     |   |
| Fair                Value of New Contracts at Inception When Entered During the Period                (a)                                      |   |   | 52      |   |
| Net                Option Premiums Paid/(Received) for Unexercised or Unexpired Option                Contracts Entered During the Period |   |   | (452    | )      |
| Change                in Fair Value Due to Valuation Methodology Changes on Forward                Contracts                                   |   |   | 139     |   |
| Changes                in Fair Value Due to Market Fluctuations During the Period                (b)                                           |   |   | (7,302  | )      |
| Changes                Due to SIA and CSW Operating Agreement (c)                                                                              |   |   | 11,900  |   |
| Changes                in Fair Value Allocated to Regulated Jurisdictions (d)                                                                  |   |   | (15,198 | )      |
| **Total                MTM Risk Management Contract Net Assets**                                                                               |   |   | 6,181   |   |
| Net                Cash Flow Hedge Contracts                                                                                                   |   |   | (4,125  | )      |
| DETM                Assignment (e)                                                                                                             |   |   | (664    | )      |
| **Total                MTM Risk Management Contract Net Assets at September 30,                2006**                                          |   | $      | 1,392   |   |

| (a) | Most                of the fair value comes from longer term fixed price contracts with                customers that seek 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) | See                “Allocation Agreement between AEP East companies and AEP West companies                and CSW Operating Agreement” section of Note 3.                                                                                                                                                                                                                                                                                                                                                                                 |
| (d) | “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.                                                                                                             |
| (e) | Starting                in the third quarter of 2006, we were allocated a portion of the                DETM                assignment based on the FERC- approved methodology of AEP recording                trading and marketing margins shared between the AEP East and AEP                West                companies. See “Natural Gas Contracts with DETM” section of Note 17 of the                2005 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 giving 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 September 30, 2006**

**(in      thousands)**

|                                                                                                                |   | **Remainder                2006** |    | **2007** |   | **2008** |   | **2009** |   | **2010** |   | **After****2010** |   | **Total** |   |
|---------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|---------|----------|--------|----------|--------|----------|--------|----------|--------|-------------------|--------|-----------|--------|
| Prices                Actively Quoted - Exchange Traded                Contracts                                    |   | $                                 | (3,762  | )        | $      | (25,203  | )      | $        | 3,654  |     | $      | (451              | )      | $         | -      |   | $ | - |   | $ | (25,762 | ) |
| Prices                Provided by Other External Sources                - OTC Broker Quotes                (a) |   |                              | (7,187  | )        |   | 32,724   |   |     | 6,546  |     |   | (577              | )      |      | -      |   |   | - |   |   | 31,506 |   |
| Prices                Based on Models and Other Valuation                Methods (b)                                |   |                              | (173    | )        |   | (636     | )      |     | (310   | )        |   | 1,546             |   |      | 50     |   |   | (40 | ) |   | 437 |   |
| **Total**                                                                                                           |   | $                                 | (11,122 | )        | $      | 6,885    |   | $        | 9,890  |     | $      | 518               |   | $         | 50     |   | $ | (40 | ) | $ | 6,181 |   |

| (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. |

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

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

**Nine      Months Ended September 30, 2006**

**(in      thousands)**

|                                                                                                 |   | **Power** |   | **Interest                Rate** |   | **Total** |   |
|------------------------------------------------------------------------------------------------------|--------|-----------|--------|----------------------------------|--------|-----------|--------|
| **Beginning                Balance in AOCI December 31, 2005**                                       |   | $         | (736   | )                                | $      | (5,116    | )      | $ | (5,852 | ) |
| Changes                in Fair Value                                                                 |   |      | -      |                             |   | (2,655    | )      |   | (2,655 | ) |
| Impact                due to Change in SIA (a)                                                       |   |      | 591    |                             |   | -         |   |   | 591 |   |
| Reclassifications                from AOCI to Net Income for Cash                Flow Hedges Settled |   |      | 145    |                             |   | 403       |   |   | 548 |   |
| **Ending                Balance in AOCI September 30, 2006**                                         |   | $         | -      |                             | $      | (7,368    | )      | $ | (7,368 | ) |

| (a) | See                “Allocation Agreement between AEP East companies and AEP West companies                and CSW Operating Agreement” section of Note                3. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Credit      Risk**

**VaR      Associated with Risk Management Contracts**

| **Nine                Months Ended****September                30, 2006** |   |     |   |        | **Twelve                Months Ended****December                31, 2005** |
|---------------------------------------------------------------------------|--------|----------|--------|-------------|----------------------------------------------------------------------------|
| **(in                thousands)**                                         |   |     |   |        | **(in                thousands)**                                          |
| **End**                                                                   |   | **High** |   | **Average** |                                                                       | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $1,385                                                                    |   | $2,104   |   | $758        |                                                                       | $68 |   |   |   |   | $363 |   | $604 |   | $287 |   | $104 |

**VaR      Associated with Debt Outstanding**

----

**SOUTHWESTERN      ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED      CONSOLIDATED STATEMENTS OF INCOME**

**For      the Three and Nine Months Ended September 30, 2006 and      2005**

**(in      thousands)**

**(Unaudited)**

|                                                                                                           |   | **Three                Months Ended** |    | **Nine                Months Ended** |   |
|----------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|--------------------------------------|--------|
|                                                                                                           |   | **2006**                              |    | **2005**                             |   | **2006** |   | **2005** |   |
| **REVENUES**                                                                                                   |   |                             |    |                            |   |   |   |   |   |
| Electric                Generation, Transmission and Distribution                                              |   | $                                     | 440,542 |                                 | $      | 459,220 |   | $ | 1,084,185 |   | $ | 1,015,074 |   |
| Sales                to AEP Affiliates                                                                         |   |                                  | 14,692  |                                 |   | 14,614 |   |   | 34,871 |   |   | 38,573 |   |
| Other                                                                                                          |   |                                  | 1,466   |                                 |   | 449 |   |   | 2,260 |   |   | 698 |   |
| **TOTAL**                                                                                                      |   |                                  | 456,700 |                                 |   | 474,283 |   |   | 1,121,316 |   |   | 1,054,345 |   |
|                                                                                                           |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                                                                   |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Fuel                and Other Consumables for Electric Generation                                              |   |                                  | 158,992 |                                 |   | 179,904 |   |   | 367,924 |   |   | 386,719 |   |
| Purchased                Electricity for Resale                                                                |   |                                  | 61,816  |                                 |   | 45,194 |   |   | 135,918 |   |   | 91,377 |   |
| Purchased                Electricity from AEP Affiliates                                                       |   |                                  | 18,140  |                                 |   | 27,363 |   |   | 58,303 |   |   | 55,230 |   |
| Other                Operation                                                                                 |   |                                  | 55,256  |                                 |   | 60,229 |   |   | 158,338 |   |   | 152,340 |   |
| Maintenance                                                                                                    |   |                                  | 21,120  |                                 |   | 22,353 |   |   | 68,008 |   |   | 65,713 |   |
| Depreciation                and Amortization                                                                   |   |                                  | 32,996  |                                 |   | 32,930 |   |   | 98,406 |   |   | 98,580 |   |
| Taxes                Other Than Income Taxes                                                                   |   |                                  | 17,107  |                                 |   | 18,175 |   |   | 49,254 |   |   | 49,725 |   |
| **TOTAL**                                                                                                      |   |                                  | 365,427 |                                 |   | 386,148 |   |   | 936,151 |   |   | 899,684 |   |
|                                                                                                           |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **OPERATING                INCOME**                                                                            |   |                                  | 91,273  |                                 |   | 88,135 |   |   | 185,165 |   |   | 154,661 |   |
|                                                                                                           |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **Other                Income (Expense):**                                                                     |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Interest                Income                                                                                 |   |                                  | 822     |                                 |   | 250 |   |   | 2,277 |   |   | 1,167 |   |
| Allowance                for Equity Funds Used During Construction                                             |   |                                  | 287     |                                 |   | 516 |   |   | 400 |   |   | 1,849 |   |
| Interest                Expense                                                                                |   |                                  | (13,844 | )                                    |   | (12,346 | ) |   | (40,688 | ) |   | (38,027 | ) |
|                                                                                                           |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **INCOME                BEFORE INCOME TAXES AND MINORITY****  INTEREST                EXPENSE** |   |                                  | 78,538  |                                 |   | 76,555 |   |   | 147,154 |   |   | 119,650 |   |
|                                                                                                           |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Income                Tax Expense                                                                              |   |                                  | 27,873  |                                 |   | 25,789 |   |   | 49,187 |   |   | 35,675 |   |
| Minority                Interest Expense                                                                       |   |                                  | 959     |                                 |   | 1,035 |   |   | 2,077 |   |   | 2,735 |   |
|                                                                                                           |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **NET                INCOME**                                                                                  |   |                                  | 49,706  |                                 |   | 49,731 |   |   | 95,890 |   |   | 81,240 |   |
|                                                                                                           |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| Preferred                Stock Dividend Requirements                                                           |   |                                  | 57      |                                 |   | 57 |   |   | 172 |   |   | 172 |   |
|                                                                                                           |   |                                  |    |                                 |   |   |   |   |   |   |   |   |   |
| **EARNINGS                APPLICABLE TO COMMON STOCK**                                                         |   | $                                     | 49,649  |                                 | $      | 49,674 |   | $ | 95,718 |   | $ | 81,068 |   |

| *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 Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                                               |   | **Common                Stock** |    | **Paid-in                Capital** |   | **Retained                Earnings** |   | **Accumulated                Other Comprehensive Income (Loss)** |    | **Total** |   |
|------------------------------------------------------------------------------------|--------|---------------------------------|---------|------------------------------------|--------|--------------------------------------|--------|------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                31, 2004**                                               |   | $                               | 135,660 |                               | $      | 245,003                              |   | $                                                                | 389,135 |      | $      | (1,180 | ) | $ | 768,618 |   |
|                                                                               |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Common                Stock Dividends                                              |   |                            |    |                               |   |                                 |   |                                                             | (40,000 | )         |   |   |   |   | (40,000 | ) |
| Preferred                Stock Dividends                                           |   |                            |    |                               |   |                                 |   |                                                             | (172    | )         |   |   |   |   | (172 | ) |
| **TOTAL**                                                                          |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 728,446 |   |
|                                                                               |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                                            |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **Other                Comprehensive Loss, Net of Taxes:**                         |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $4,827                              |   |                            |    |                               |   |                                 |   |                                                             |    |      |   | (8,965 | ) |   | (8,965 | ) |
| **NET                INCOME**                                                      |   |                            |    |                               |   |                                 |   |                                                             | 81,240  |      |   |   |   |   | 81,240 |   |
| **TOTAL                COMPREHENSIVE INCOME**                                      |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 72,275 |   |
|                                                                               |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **SEPTEMBER                30, 2005**                                              |   | $                               | 135,660 |                               | $      | 245,003                              |   | $                                                                | 430,203 |      | $      | (10,145 | ) | $ | 800,721 |   |
|                                                                               |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **DECEMBER                31, 2005**                                               |   | $                               | 135,660 |                               | $      | 245,003                              |   | $                                                                | 407,844 |      | $      | (6,129 | ) | $ | 782,378 |   |
|                                                                               |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Common                Stock Dividends                                              |   |                            |    |                               |   |                                 |   |                                                             | (30,000 | )         |   |   |   |   | (30,000 | ) |
| Preferred                Stock Dividends                                           |   |                            |    |                               |   |                                 |   |                                                             | (172    | )         |   |   |   |   | (172 | ) |
| **TOTAL**                                                                          |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 752,206 |   |
|                                                                               |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                INCOME**                                            |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **Other                Comprehensive Loss,** **Net                of Taxes:** |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| Cash                Flow Hedges, Net of Tax of $817                                |   |                            |    |                               |   |                                 |   |                                                             |    |      |   | (1,516 | ) |   | (1,516 | ) |
| **NET                INCOME**                                                      |   |                            |    |                               |   |                                 |   |                                                             | 95,890  |      |   |   |   |   | 95,890 |   |
| **TOTAL                COMPREHENSIVE INCOME**                                      |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   | 94,374 |   |
|                                                                               |   |                            |    |                               |   |                                 |   |                                                             |    |      |   |   |   |   |   |   |
| **SEPTEMBER                30, 2006**                                              |   | $                               | 135,660 |                               | $      | 245,003                              |   | $                                                                | 473,562 |      | $      | (7,645 | ) | $ | 846,580 |   |

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

----

**SOUTHWESTERN      ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**September      30, 2006 and December 31, 2005**

**(in      thousands)**

**(Unaudited)**

|                                                           |   | **2006**     |      | **2005**     |   |
|----------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **CURRENT                ASSETS**                              |   |    |      |    |   |
| Cash                and Cash Equivalents                       |   | $            | 2,796     |         | $      | 3,049 |   |
| Advances                to Affiliates                          |   |         | 7,018     |         |   | - |   |
| Accounts                Receivable:                            |   |         |      |         |   |   |   |
| Customers                                                      |   |         | 65,274    |         |   | 47,515 |   |
| Affiliated                Companies                            |   |         | 40,779    |         |   | 49,226 |   |
| Miscellaneous                                                  |   |         | 8,260     |         |   | 7,984 |   |
| Allowance                for Uncollectible Accounts            |   |         | (264      | )            |   | (548 | ) |
|                  Total Accounts Receivable                |   |         | 114,049   |         |   | 104,177 |   |
| Fuel                                                           |   |         | 58,785    |         |   | 40,333 |   |
| Materials                and Supplies                          |   |         | 43,108    |         |   | 34,821 |   |
| Risk                Management Assets                          |   |         | 84,685    |         |   | 47,319 |   |
| Regulatory                Asset for Under-Recovered Fuel Costs |   |         | -         |         |   | 51,387 |   |
| Margin                Deposits                                 |   |         | 42,232    |         |   | 13,740 |   |
| Prepayments                and Other                           |   |         | 19,129    |         |   | 20,270 |   |
| **TOTAL**                                                      |   |         | 371,802   |         |   | 315,096 |   |
|                                                           |   |         |      |         |   |   |   |
| **PROPERTY,                PLANT AND EQUIPMENT**               |   |         |      |         |   |   |   |
| Electric:                                                      |   |         |      |         |   |   |   |
| Production                                                     |   |         | 1,697,764 |         |   | 1,660,392 |   |
| Transmission                                                   |   |         | 662,009   |         |   | 645,297 |   |
| Distribution                                                   |   |         | 1,200,577 |         |   | 1,153,026 |   |
| Other                                                          |   |         | 458,905   |         |   | 443,749 |   |
| Construction                Work in Progress                   |   |         | 137,128   |         |   | 104,175 |   |
| **Total**                                                      |   |         | 4,156,383 |         |   | 4,006,639 |   |
| Accumulated                Depreciation and Amortization       |   |         | 1,825,110 |         |   | 1,776,216 |   |
| **TOTAL                - NET**                                 |   |         | 2,331,273 |         |   | 2,230,423 |   |
|                                                           |   |         |      |         |   |   |   |
| **OTHER                NONCURRENT ASSETS**                     |   |         |      |         |   |   |   |
| Regulatory                Assets                               |   |         | 101,273   |         |   | 81,776 |   |
| Long-term                Risk Management Assets                |   |         | 38,252    |         |   | 39,796 |   |
| Employee                Benefits and Pension Assets            |   |         | 79,770    |         |   | 83,330 |   |
| Deferred                Charges and Other                      |   |         | 54,333    |         |   | 46,926 |   |
| **TOTAL**                                                      |   |         | 273,628   |         |   | 251,828 |   |
|                                                           |   |         |      |         |   |   |   |
| **TOTAL                ASSETS**                                |   | $            | 2,976,703 |         | $      | 2,797,347 |   |

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

----

**SOUTHWESTERN      ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**LIABILITIES      AND SHAREHOLDERS’ EQUITY**

**September      30, 2006 and December 31, 2005**

**(Unaudited)**

|                                                                          |   |  **2006**                    |      | **2005** |   |
|-------------------------------------------------------------------------------|--------|-----------------------------------|-----------|----------|--------|
| **CURRENT                LIABILITIES**                                        |   | **(in                thousands)** |      |
| Advances                from Affiliates                                       |   | $                                 | -         |     | $      | 28,210 |   |
| Accounts                Payable:                                              |   |                              |      |     |   |   |   |
| General                                                                       |   |                              | 94,188    |     |   | 71,138 |   |
| Affiliated                Companies                                           |   |                              | 82,937    |     |   | 53,019 |   |
| Short-term                Debt - Nonaffiliated                                |   |                              | 15,676    |     |   | 1,394 |   |
| Long-term                Debt Due Within One Year - Nonaffiliated             |   |                              | 108,926   |     |   | 15,755 |   |
| Risk                Management Liabilities                                    |   |                              | 93,641    |     |   | 45,098 |   |
| Customer                Deposits                                              |   |                              | 48,931    |     |   | 50,848 |   |
| Accrued                Taxes                                                  |   |                              | 89,311    |     |   | 42,799 |   |
| Other                                                                         |   |                              | 79,223    |     |   | 82,699 |   |
| **TOTAL**                                                                     |   |                              | 612,833   |     |   | 390,960 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **NONCURRENT                LIABILITIES**                                     |   |                              |      |     |   |   |   |
| Long-term                Debt - Nonaffiliated                                 |   |                              | 578,575   |     |   | 678,886 |   |
| Long-term                Debt - Affiliated                                    |   |                              | 50,000    |     |   | 50,000 |   |
| Long-term                Risk Management Liabilities                          |   |                              | 27,904    |     |   | 27,083 |   |
| Deferred                Income Taxes                                          |   |                              | 379,470   |     |   | 409,513 |   |
| Regulatory                Liabilities and Deferred Investment Tax Credits     |   |                              | 343,954   |     |   | 320,066 |   |
| Deferred                Credits and Other                                     |   |                              | 131,017   |     |   | 131,477 |   |
| **TOTAL**                                                                     |   |                              | 1,510,920 |     |   | 1,617,025 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **TOTAL                LIABILITIES**                                          |   |                              | 2,123,753 |     |   | 2,007,985 |   |
|                                                                          |   |                              |      |     |   |   |   |
| Minority                Interest                                              |   |                              | 1,672     |     |   | 2,284 |   |
|                                                                          |   |                              |      |     |   |   |   |
| Cumulative                Preferred Stock Not Subject to Mandatory Redemption |   |                              | 4,698     |     |   | 4,700 |   |
|                                                                          |   |                              |      |     |   |   |   |
| Commitments                and Contingencies (Note 5)                         |   |                              |      |     |   |   |   |
|                                                                          |   |                              |      |     |   |   |   |
| **COMMON                SHAREHOLDER’S EQUITY**                          |   |                              |      |     |   |   |   |
| Common                Stock - $18 Par Value 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                                              |   |                              | 473,562   |     |   | 407,844 |   |
| Accumulated                Other Comprehensive Income (Loss)                  |   |                              | (7,645    | )        |   | (6,129 | ) |
| **TOTAL**                                                                     |   |                              | 846,580   |     |   | 782,378 |   |
|                                                                          |   |                              |      |     |   |   |   |
| **TOTAL                LIABILITIES AND SHAREHOLDERS’ EQUITY**           |   | $                                 | 2,976,703 |     | $      | 2,797,347 |   |

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

----

**SOUTHWESTERN      ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For      the Nine Months Ended September 30, 2006 and 2005**

**(in      thousands)**

**(Unaudited)**

|                                                                                   |   | **2006**     |     | **2005**     |   |
|----------------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                ACTIVITIES**                                                |   |    |     |    |   |
| **Net                Income**                                                          |   | $            | 95,890   |         | $      | 81,240 |   |
| **Adjustments                for Noncash Items:**                                      |   |         |     |         |   |   |   |
| Depreciation                and Amortization                                           |   |         | 98,406   |         |   | 98,580 |   |
| Deferred                Income Taxes                                                   |   |         | (24,642  | )            |   | 11,552 |   |
| Mark-to-Market                of Risk Management Contracts                             |   |         | 10,870   |         |   | (3,141 | ) |
| Deferred                Property Taxes                                                 |   |         | (9,438   | )            |   | (9,579 | ) |
| Change                in Other Noncurrent Assets                                       |   |         | 20,982   |         |   | (16,262 | ) |
| Change                in Other Noncurrent Liabilities                                  |   |         | (33,256  | )            |   | 10,149 |   |
| **Changes                in Components of Working Capital:**                           |   |         |     |         |   |   |   |
| Accounts                Receivable, Net                                                |   |         | (9,872   | )            |   | (3,337 | ) |
| Fuel,                Materials and Supplies                                            |   |         | (26,739  | )            |   | 6,254 |   |
| Margin                Deposits                                                         |   |         | (28,492  | )            |   | (18,766 | ) |
| Accounts                Payable                                                        |   |         | 54,264   |         |   | 41,775 |   |
|    Customer Deposits                                                         |   |         | (1,917   | )       |   | 26,571 |   |
| Accrued                Taxes, Net                                                      |   |         | 45,514   |         |   | 4,655 |   |
|    Over/Under Fuel              Recovery, Net                                |   |         | 63,862   |         |   |  (66,173 | )  |
| Other                Current Assets                                                    |   |         | 2,635    |         |   | (3,859 | ) |
| Other                Current Liabilities                                               |   |         | (15,346  | )            |   | 4,046 |   |
| **Net                Cash Flows From Operating Activities**                            |   |         | 242,721  |         |   | 163,705 |   |
|                                                                                   |   |         |     |         |   |   |   |
| **INVESTING                ACTIVITIES**                                                |   |         |     |         |   |   |   |
| Construction                Expenditures                                               |   |         | (179,117 | )            |   | (110,209 | ) |
| Change                in Advances to Affiliates, Net                                   |   |         | (7,018   | )            |   | 39,106 |   |
| Other                                                                                  |   |         | (496     | )            |   | 3,246 |   |
| **Net                Cash Flows Used For Investing Activities**                        |   |         | (186,631 | )            |   | (67,857 | ) |
|                                                                                   |   |         |     |         |   |   |   |
| **FINANCING                ACTIVITIES**                                                |   |         |     |         |   |   |   |
| Issuance                of Long-term Debt - Nonaffiliated                              |   |         | 80,593   |         |   | 154,642 |   |
| Change                in Short-term Debt, Net - Nonaffiliated                          |   |         | 14,282   |         |   | - |   |
| Change                in Advances from Affiliates, Net                                 |   |         | (28,210  | )            |   | 605 |   |
| Retirement                of Long-term Debt - Nonaffiliated                            |   |         | (88,989  | )            |   | (208,122 | ) |
| Retirement                of Preferred Stock                                           |   |         | (2       | )            |   | - |   |
| Principal                Payments for Capital Lease Obligations                        |   |         | (3,845   | )            |   | (2,712 | ) |
| Dividends                Paid on Common Stock                                          |   |         | (30,000  | )            |   | (40,000 | ) |
| Dividends                Paid on Cumulative Preferred Stock                            |   |         | (172     | )            |   | (172 | ) |
| **Net                Cash Flows Used For Financing Activities**                        |   |         | (56,343  | )            |   | (95,759 | ) |
|                                                                                   |   |         |     |         |   |   |   |
| **Net                Increase (Decrease) in Cash and Cash Equivalents**                |   |         | (253     | )            |   | 89 |   |
| **Cash                and Cash Equivalents at Beginning of Period**                    |   |         | 3,049    |         |   | 3,715 |   |
| **Cash                and Cash Equivalents at End of Period**                          |   | $            | 2,796    |         | $      | 3,804 |   |
|                                                                                   |   |         |     |         |   |   |   |
| **SUPPLEMENTARY                INFORMATION**                                           |   |         |     |         |   |   |   |
| Cash                Paid for Interest, Net of Capitalized Amounts                      |   | $            | 37,372   |         | $      | 33,748 |   |
| Net                Cash Paid for Income Taxes                                          |   |         | 53,509   |         |   | 49,176 |   |
| Noncash                Acquisitions Under Capital Leases                               |   |         | 17,110   |         |   | 4,414 |   |
| Construction                Expenditures Included in Accounts Payable at September 30, |   |         | 8,924    |         |   | 5,075 |   |

| *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                 |
| Customer                Choice and Industry Restructuring | Note                4                 |
| Commitments                and Contingencies              | Note                5                 |
| Guarantees                                                | Note                6                 |
| Company-wide                Staffing and Budget Review    | Note                7                 |
| Benefit                Plans                              | Note                9                 |
| Income                Taxes                               | Note                10                |
| Business                Segments                          | Note                11                |
| Financing                Activities                       | Note                12                |

**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.                                                                                                                                                                                                                                                                                   | Customer                Choice and Industry                Restructuring | CSPCo,                OPCo, SWEPCo, TCC, TNC |
| 5.                                                                                                                                                                                                                                                                                   | Commitments                and Contingencies | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 6.                                                                                                                                                                                                                                                                                   | Guarantees | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 7.                                                                                                                                                                                                                                                                                   | Company-wide                Staffing and Budget Review | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 8.                                                                                                                                                                                                                                                                                   | Acquisitions,                Assets Held for Sale and Asset Impairments | CSPCo,                TCC |
| 9.                                                                                                                                                                                                                                                                                   | Benefit                Plans | APCo,                CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 10.                                                                                                                                                                                                                                                                                  | Income                Taxes | PSO,                SWEPCo, TCC, TNC |
| 11.                                                                                                                                                                                                                                                                                  | Business                Segments | AEGCo,                APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 12.                                                                                                                                                                                                                                                                                  | 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)***

|                                          |   | **September                30,**  |   | **December                31,** |   |
|-----------------------------------------------|--------|-----------------------------------|--------|---------------------------------|--------|
|                                          |   | **2006**                          |   | **2005**                        |   |
|                                          |   | **(in                thousands)** |   |
| **Components**                                |   |                         |   |                       |   |
| **Cash                Flow Hedges:**          |   |                              |   |                            |   |   |   |
| APCo                                          |   | $                                 | (3,407 | )                               | $      | (16,421 | ) |
| CSPCo                                         |   |                              | 3,081  |                            |   | (859 | ) |
| I&M                                       |   |                              | (8,503 | )                               |   | (3,467 | ) |
| KPCo                                          |   |                              | 1,249  |                            |   | (194 | ) |
| OPCo                                          |   |                              | 7,055  |                            |   | 755 |   |
| PSO                                           |   |                              | (1,116 | )                               |   | (1,112 | ) |
| SWEPCo                                        |   |                              | (7,368 | )                               |   | (5,852 | ) |
| TCC                                           |   |                              | -      |                            |   | (224 | ) |
| TNC                                           |   |                              | (1,337 | )                               |   | (111 | ) |
|                                          |   |                              |   |                            |   |   |   |
| **Minimum                Pension Liability:** |   |                              |   |                            |   |   |   |
| APCo                                          |   | $                                 | (189   | )                               | $      | (189 | ) |
| CSPCo                                         |   |                              | (21    | )                               |   | (21 | ) |
| I&M                                       |   |                              | (102   | )                               |   | (102 | ) |
| KPCo                                          |   |                              | (29    | )                               |   | (29 | ) |
| PSO                                           |   |                              | (152   | )                               |   | (152 | ) |
| SWEPCo                                        |   |                              | (277   | )                               |   | (277 | ) |
| TCC                                           |   |                              | (928   | )                               |   | (928 | ) |
| TNC                                           |   |                              | (393   | )                               |   | (393 | ) |

***Accounting      for Asset Retirement Obligations (ARO)***

|   |   | **ARO                at****December                31,****2005** |   | **Accretion                Expense** |   | **Liabilities                Incurred** |   | **Liabilities****Settled** |   | **Revisions                in Cash Flow****Estimates** |   | **ARO                at September 30, 2006** |   |
|--------|--------|------------------------------------------------------------------|--------|--------------------------------------|--------|-----------------------------------------|--------|----------------------------|--------|--------------------------------------------------------|--------|----------------------------------------------|--------|
|   |   | **(in                thousands)**                                |   |
| SWEPCo |   | $                                                                | 43,077 |                                 | $      | 1,781                                   |   | $                          | 4,200  |                                                   | $      | (4,967                                       | )      | $ | (763 | ) | $ | 43,328 |   |

***Related      Party Transactions***

|        |   | **Three                Months Ended****September                30,** |   | **Nine                Months Ended****September                30,** |   |
|-------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
| **Company** |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
|        |   | **(in                thousands)**                                     |   |
| APCo        |   | $                                                                     | 19,555 |                                                                 | $      | 19,501 |   | $ | 62,209 |   | $ | 54,763 |   |
| CSPCo       |   |                                                                  | 5,536  |                                                                 |   | 5,103 |   |   | 17,100 |   |   | 14,752 |   |
| I&M     |   |                                                                  | 9,784  |                                                                 |   | 7,920 |   |   | 28,848 |   |   | 22,704 |   |
| OPCo        |   |                                                                  | 19,303 |                                                                 |   | 16,703 |   |   | 58,626 |   |   | 47,757 |   |

|        |   | **Three                Months Ended****September                30,** |   | **Nine                Months Ended****September                30,** |   |
|-------------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
| **Company** |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
|        |   | **(in                thousands)**                                     |   |
| PSO         |   | $                                                                     | 13,750 |                                                                 | $      | 11,051 |   | $ | 39,886 |   | $ | 31,160 |   |
| SWEPCo      |   |                                                                  | 16,170 |                                                                 |   | 13,189 |   |   | 46,925 |   |   | 27,570 |   |
| TCC         |   |                                                                  | -      |                                                                 |   | 5,548 |   |   | 703 |   |   | 20,120 |   |
| TNC         |   |                                                                  | -      |                                                                 |   | 8,559 |   |   | 4,229 |   |   | 19,638 |   |

***Reclassifications***

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

***SFAS      123 (revised 2004) “Share-Based Payment” (SFAS 123R)***

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

***SFAS      158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement      Plans”***

***EITF      Issue 06-3 “How Taxes Collected from Customers and Remitted to Governmental      Authorities Should Be Presented in the Income Statement (That Is, Gross versus      Net Presentation)” (EITF 06-3)***

***FASB      Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN      48)***

***SAB      No. 108 “Considering the Effects of Prior Year Misstatements When Quantifying      Misstatements in the Current Year Financial Statements” (SAB      108)***

***Future      Accounting Changes***

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

***APCo      Virginia Environmental and Reliability Costs - Affecting APCo***

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

***APCo      West Virginia Rate Case - Affecting APCo***

| · | A                $50 million increase in Expanded Net Energy Cost (ENEC) for fuel,                purchased power expenses, off-system sales credits and other                energy-related costs;                                                                                                             |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | A                $21 million special construction surcharge providing recovery of                the costs                of scrubbers and the Wyoming-Jacksons Ferry 765 kV line to                date;                                                                                                       |
| · | A                $16 million general base rate reduction resulting predominantly from                a                reduction in the return on equity to 10.5% and a $9 million reduction                in                depreciation expense which affects cash flows but not earnings;                and |
| · | A                $15 million credit to refund a portion of deferred prior over-recoveries                of ENEC recorded in regulatory liabilities on APCo’s Condensed                Consolidated Balance Sheets, which will impact cash flows but not                earnings.                         |

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

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

***KPCo      Rate Filing - Affecting KPCo***

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

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

***SWEPCo      Louisiana Fuel Inquiry - Affecting SWEPCo***

***SWEPCo      PUCT Staff Review of Earnings - Affecting SWEPCo***

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

***TCC      and TNC Rate Filings - Affecting TCC and TNC***

***ERCOT      Price-to-Beat (PTB) Fuel Factor Appeal - Affecting TCC and      TNC***

***RTO      Formation/Integration - Affecting APCo, CSPCo, I&M, KPCo and      OPCo***

|    |   | **September                30, 2006**           |   | **December                31, 2005**                           |   |
|---------|--------|-------------------------------------------------|--------|----------------------------------------------------------------|--------|
|    |   | **PJM-Billed                Integration Costs** |   | **Non-PJM                Billed Formation/ Integration Costs** |   | **PJM-Billed                Integration Costs** |   | **Non-PJM                Billed Formation/ Integration Costs** |   |
|    |   |  **(in                millions)**          |   |
| APCo    |   | $                                               | 3.7    |                                                           | $      | 4.8 |   | $ | 4.1 |   | $ | 4.9 |   |
| CSPCo   |   |                                            | 1.5    |                                                           |   | 1.9 |   |   | 1.7 |   |   | 1.9 |   |
| I&M |   |                                            | 3.0    |                                                           |   | 3.4 |   |   | 3.2 |   |   | 3.7 |   |
| KPCo    |   |                                            | 0.9    |                                                           |   | 1.1 |   |   | 1.0 |   |   | 1.1 |   |
| OPCo    |   |                                            | 4.3    |                                                           |   | 5.0 |   |   | 4.7 |   |   | 5.1 |   |

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

*SECA      Revenue Subject to Refund *

|    |   | **Three                Months Ended****September                30,** |   | **Nine                Months Ended****September                30,** |   |
|---------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|    |   | **2006**                                                              |   | **2005**                                                             |   | **2006                (a)** |   | **2005** |   |
|    |   | **(in                millions)**                                      |   |
| APCo    |   | $                                                                     | -      |                                                                 | $      | 13.6 |   | $ | 13.4 |   | $ | 39.1 |   |
| CSPCo   |   |                                                                  | -      |                                                                 |   | 7.7 |   |   | 7.9 |   |   | 20.8 |   |
| I&M |   |                                                                  | -      |                                                                 |   | 8.0 |   |   | 8.1 |   |   | 22.5 |   |
| KPCo    |   |                                                                  | -      |                                                                 |   | 3.2 |   |   | 3.2 |   |   | 9.3 |   |
| OPCo    |   |                                                                  | -      |                                                                 |   | 10.6 |   |   | 10.4 |   |   | 28.8 |   |

| (a) | Represents                revenues through March 31, 2006, when SECA rates expired, and excludes                the                provision for refund recorded in the second quarter of 2006 discussed                below**.** |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|    |   | **Three                Months Ended****September                30,** |   | **Nine                Months Ended****September                30,** |   |
|---------|--------|-----------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|
|    |   | **2006**                                                              |   | **2005**                                                             |   | **2006** |   | **2005** |   |
|    |   | **(in                thousands)**                                     |   |
| APCo    |   | $                                                                     | -      |                                                                 | $      | 0.3 |   | $ | 6.1 |   | $ | 0.7 |   |
| CSPCo   |   |                                                                  | -      |                                                                 |   | 0.2 |   |   | 3.4 |   |   | 0.4 |   |
| I&M |   |                                                                  | -      |                                                                 |   | 0.2 |   |   | 3.6 |   |   | 0.4 |   |
| KPCo    |   |                                                                  | -      |                                                                 |   | 0.1 |   |   | 1.4 |   |   | 0.2 |   |
| OPCo    |   |                                                                  | -      |                                                                 |   | 0.3 |   |   | 4.6 |   |   | 0.5 |   |

*AEP      East Transmission Revenue Requirement and Rates *

*The      Elimination of T&O and SECA Rates and 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 than the AEP/AP proposal.                                                                                                           |
| ·                                                                             | In                a 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 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 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 the FERC-approved OATT which 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 yet filed to seek recovery of the lost                transmission revenues.                                                                                                                                            |

***Calpine      Oneta Power, L.P.’s Request at the FERC for Reactive Power Compensation From SPP      - Affecting PSO and SWEPCo***

***Allocation      Agreement between AEP East companies and AEP West companies and CSW Operating      Agreement - Affecting the AEP East companies and AEP West companies***

**             4.**
**CUSTOMER      CHOICE AND INDUSTRY RESTRUCTURING**

**TEXAS      RESTRUCTURING - Affecting TCC, TNC and SWEPCo**

***TCC      Securitization Proceeding***

|                                                                               |   | **(in                millions)** |   |
|------------------------------------------------------------------------------------|--------|----------------------------------|--------|
| Stranded                Generation Plant Costs                                     |   | $                                | 974    |   |
| Net                Generation-related Regulatory Asset                             |   |                             | 249    |   |
| Excess                Earnings                                                     |   |                             | (49    | ) |
| **Recorded                Net Stranded Generation Plant Costs**                    |   |                             | 1,174  |   |
| Recorded                Debt Carrying Costs on Net Stranded Generation Plant Costs |   |                             | 400    |   |
| **Recorded                Securitizable True-up Regulatory Asset**                 |   |                             | 1,574  |   |
| Unrecorded                But Recoverable Equity Carrying Costs                    |   |                             | 224    |   |
| Unrecorded                Estimated October 2006 Debt Carrying Costs               |   |                             | 3      |   |
| Unrecorded                Excess Earnings, Related Carrying Costs and Other        |   |                             | 53     |   |
| Unrecorded                Settlement Reduction                                     |   |                             | (77    | ) |
| Reduction                for the Present Value of ADITC and EDFIT Benefits         |   |                             | (61    | ) |
| **Approved                Securitizable Amount as of October 11, 2006**            |   |                             | 1,716  |   |
| Unrecorded                Securitization Bond Issuance Costs                       |   |                             | 24     |   |
| **Amount                Securitized on October 11, 2006**                          |   | $                                | 1,740  |   |

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

***CTC      Proceeding for Other True-up Items***

|                                                                         |   | **(in                millions)** |   |
|------------------------------------------------------------------------------|--------|----------------------------------|--------|
| Wholesale                Capacity Auction True-up                            |   | $                                | 61     |   |
| Carrying                Costs on Wholesale Capacity Auction True-up          |   |                             | 31     |   |
| Retail                Clawback including Carrying Costs                      |   |                             | (65    | ) |
| Deferred                Over-recovered Fuel Balance                          |   |                             | (184   | ) |
| Retrospective                ADFIT Benefit                                   |   |                             | (77    | ) |
| Other                                                                        |   |                             | (4     | ) |
| **Recorded                Net Regulatory Liabilities - Other True-up Items** |   |                             | (238   | ) |
| Unrecorded                Prospective ADFIT Benefit                          |   |                             | (240   | ) |
| **Gross                CTC Refund Proposed**                                 |   |                             | (478   | ) |
| FERC                Jurisdictional Fuel Refund Deferral                      |   |                             | 16     |   |
| ADITC                and EDFIT Benefit Refund Deferral                       |   |                             | 98     |   |
| **Net                CTC Refund Proposed, After Deferrals**                  |   |                             | (364   | ) |
| True-up                Proceeding Expense Surcharge                          |   |                             | 7      |   |
| **Net                CTC Refund Proposed, After Deferrals and Expenses**     |   | $                                | (357   | ) |

***Fuel      Balance Recoveries***

***Carrying      Costs on Net True-up Regulatory Assets Impacting Securitization and CTC      Proceedings***

***TNC      True-up Proceeding***

***Excess      Earnings***

***Summary***

***Texas      Restructuring - SPP***

**OHIO      RESTRUCTURING - Affecting CSPCo and OPCo**

***Rate      Stabilization Plans***

***IGCC      Plant***

***Transmission      Rate Filing***

***Distribution      Service Reliability and Restoration Costs ***

***Ormet***

***Customer      Choice Deferrals***

**             5.**
**COMMITMENTS      AND CONTINGENCIES**

**ENVIRONMENTAL**

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

***Ontario      Litigation - Affecting CSPCo and OPCo***

**OPERATIONAL**

***Power      Generation Facility and TEM Litigation - Affecting      OPCo***

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

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

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

**COMMITMENTS**

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

|    |   | **(in                millions)** |   |
|---------|--------|----------------------------------|--------|
| AEGCo   |   | $                                | 12     |   |
| APCo    |   |                             | 928    |   |
| CSPCo   |   |                             | 319    |   |
| I&M |   |                             | 330    |   |
| KPCo    |   |                             | 54     |   |
| OPCo    |   |                             | 1,065  |   |
| PSO     |   |                             | 262    |   |
| SWEPCo  |   |                             | 315    |   |
| TCC     |   |                             | 286    |   |
| TNC     |   |                             | 72     |   |

**             6.**
**GUARANTEES**

***Letters      of Credit***

***SWEPCo***

***Indemnifications      and Other Guarantees***

**Contracts**

**Master      Operating Lease**

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

**     7.**
**COMPANY-WIDE      STAFFING AND BUDGET REVIEW**

|        |   | **Three                Months Ended Sept. 30, 2005** |   | **Nine                Months Ended Sept. 30, 2005** |   |
|-------------|--------|------------------------------------------------------|--------|-----------------------------------------------------|--------|
| **Company** |   | **(in                millions)**                     |   |
| AEGCo       |   | $                                                    | 0.1    |                                                | $      | 0.3 |   |
| APCo        |   |                                                 | 0.6    |                                                |   | 4.5 |   |
| CSPCo       |   |                                                 | 0.3    |                                                |   | 2.6 |   |
| I&M     |   |                                                 | 0.7    |                                                |   | 4.7 |   |
| KPCo        |   |                                                 | 0.4    |                                                |   | 1.1 |   |
| OPCo        |   |                                                 | 0.5    |                                                |   | 3.9 |   |
| PSO         |   |                                                 | 0.2    |                                                |   | 1.4 |   |
| SWEPCo      |   |                                                 | 0.2    |                                                |   | 1.8 |   |
| TCC         |   |                                                 | 0.5    |                                                |   | 4.3 |   |
| TNC         |   |                                                 | 0.2    |                                                |   | 1.3 |   |

**          8.**
**ACQUISITIONS,      ASSETS HELD FOR SALE AND ASSET IMPAIRMENTS**

**ACQUISITIONS**

***Waterford      Plant - Affecting CSPCo***

**ASSETS      HELD FOR SALE**

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

**Assets      Held for Sale at September 30, 2006 and December 31, 2005 are as      follows:**

| **Texas                Plants (TCC)**                                   |   | **September                30, 2006** |   | **December                31, 2005** |   |
|-------------------------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
| **Assets:**                                                             |   | **(in                millions)**      |
| Other                Current Assets                                     |   | $                                     | 2      |                                 | $      | 1 |   |
| Property,                Plant and Equipment, Net                       |   |                                  | 44     |                                 |   | 43 |   |
| **Total                Assets Held for Sale - Texas Generation Plants** |   | $                                     | 46     |                                 | $      | 44 |   |

**ASSET      IMPAIRMENTS**

***Conesville      Units 1 and 2 - Affecting CSPCo***

**             9.**
**BENEFIT      PLANS**

| **Three                Months Ended September 30, 2006 and 2005:** |   | **Pension                Plans** |   | **Other                Postretirement****Benefit                Plans** |   |
|--------------------------------------------------------------------|--------|----------------------------------|--------|-------------------------------------------------------------------------|--------|
|                                                               |   | **2006**                         |   | **2005**                                                                |   | **2006** |   | **2005** |   |
|                                                               |   | **(in                millions)** |   |
| Service                Cost                                        |   | $                                | 23     |                                                                    | $      | 23 |   | $ | 10 |   | $ | 10 |   |
| Interest                Cost                                       |   |                             | 57     |                                                                    |   | 57 |   |   | 26 |   |   | 26 |   |
| Expected                Return on Plan Assets                      |   |                             | (82    | )                                                                       |   | (77 | ) |   | (24 | ) |   | (23 | ) |
| Amortization                of Transition (Asset) Obligation       |   |                             | -      |                                                                    |   | (1 | ) |   | 7 |   |   | 6 |   |
| Amortization                of Net Actuarial Loss                  |   |                             | 20     |                                                                    |   | 13 |   |   | 5 |   |   | 5 |   |
| **Net                Periodic Benefit Cost**                       |   | $                                | 18     |                                                                    | $      | 15 |   | $ | 24 |   | $ | 24 |   |

| **Nine                Months Ended September 30, 2006 and 2005:** |   | **Pension                Plans** |   | **Other                Postretirement****Benefit                Plans** |   |
|-------------------------------------------------------------------|--------|----------------------------------|--------|-------------------------------------------------------------------------|--------|
|                                                              |   | **2006**                         |   | **2005**                                                                |   | **2006** |   | **2005** |   |
|                                                              |   | **(in                millions)** |   |
| Service                Cost                                       |   | $                                | 71     |                                                                    | $      | 69 |   | $ | 30 |   | $ | 31 |   |
| Interest                Cost                                      |   |                             | 171    |                                                                    |   | 169 |   |   | 76 |   |   | 79 |   |
| Expected                Return on Plan Assets                     |   |                             | (248   | )                                                                       |   | (232 | ) |   | (70 | ) |   | (68 | ) |
| Amortization                of Transition (Asset) Obligation      |   |                             | -      |                                                                    |   | (1 | ) |   | 21 |   |   | 20 |   |
| Amortization                of Net Actuarial Loss                 |   |                             | 59     |                                                                    |   | 40 |   |   | 15 |   |   | 19 |   |
| **Net                Periodic Benefit Cost**                      |   | $                                | 53     |                                                                    | $      | 45 |   | $ | 72 |   | $ | 81 |   |

| **Three                Months Ended September 30, 2006 and 2005:** |   | **Pension                Plans**  |   | **Other                Postretirement****Benefit                Plans** |   |
|--------------------------------------------------------------------|--------|-----------------------------------|--------|-------------------------------------------------------------------------|--------|
|                                                               |   | **2006**                          |   | **2005**                                                                |   | **2006** |   | **2005** |   |
|                                                               |   | **(in                thousands)** |   |
| APCo                                                               |   | $                                 | 1,469  |                                                                    | $      | 1,848 |   | $ | 4,487 |   | $ | 4,756 |   |
| CSPCo                                                              |   |                              | 205    |                                                                    |   | 534 |   |   | 1,807 |   |   | 1,928 |   |
| I&M                                                            |   |                              | 2,331  |                                                                    |   | 2,365 |   |   | 2,949 |   |   | 3,134 |   |
| KPCo                                                               |   |                              | 360    |                                                                    |   | 376 |   |   | 512 |   |   | 515 |   |
| OPCo                                                               |   |                              | 823    |                                                                    |   | 1,206 |   |   | 3,395 |   |   | 3,353 |   |
| PSO                                                                |   |                              | 979    |                                                                    |   | 72 |   |   | 1,588 |   |   | 1,661 |   |
| SWEPCo                                                             |   |                              | 1,222  |                                                                    |   | 364 |   |   | 1,578 |   |   | 1,642 |   |
| TCC                                                                |   |                              | 772    |                                                                    |   | (219 | ) |   | 1,699 |   |   | 1,789 |   |
| TNC                                                                |   |                              | 326    |                                                                    |   | 41 |   |   | 715 |   |   | 784 |   |

| **Nine                Months Ended September 30, 2006 and 2005:** |   | **Pension                Plans**  |   | **Other                Postretirement****Benefit                Plans** |   |
|-------------------------------------------------------------------|--------|-----------------------------------|--------|-------------------------------------------------------------------------|--------|
|                                                              |   | **2006**                          |   | **2005**                                                                |   | **2006** |   | **2005** |   |
|                                                              |   | **(in                thousands)** |   |
| APCo                                                              |   | $                                 | 4,406  |                                                                    | $      | 5,544 |   | $ | 13,465 |   | $ | 15,248 |   |
| CSPCo                                                             |   |                              | 615    |                                                                    |   | 1,602 |   |   | 5,417 |   |   | 6,273 |   |
| I&M                                                           |   |                              | 6,992  |                                                                    |   | 7,095 |   |   | 8,855 |   |   | 10,229 |   |
| KPCo                                                              |   |                              | 1,076  |                                                                    |   | 1,128 |   |   | 1,538 |   |   | 1,689 |   |
| OPCo                                                              |   |                              | 2,478  |                                                                    |   | 3,618 |   |   | 10,187 |   |   | 10,812 |   |
| PSO                                                               |   |                              | 2,935  |                                                                    |   | 216 |   |   | 4,764 |   |   | 5,329 |   |
| SWEPCo                                                            |   |                              | 3,672  |                                                                    |   | 1,092 |   |   | 4,734 |   |   | 5,244 |   |
| TCC                                                               |   |                              | 2,317  |                                                                    |   | (657 | ) |   | 5,091 |   |   | 5,732 |   |
| TNC                                                               |   |                              | 978    |                                                                    |   | 123 |   |   | 2,145 |   |   | 2,507 |   |

**             10.**
**INCOME      TAXES**

| **Company** |   |  **Decrease                in SFAS 109 Regulatory Asset, Net** |   |  **Decrease                in State Income Tax Expense** |   |  **Decrease                in Deferred State Income Tax Liabilities** |   |
|-------------|--------|---------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|----------------------------------------------------------------------------|--------|
| TCC         |   | $                                                                   | 36,315 |                                                          | $      | -                                                                          |   | $ | 36,315 |   |
| TNC         |   |                                                                | 4,801  |                                                          |   | 1,265                                                                      |   |   | 6,066 |   |
| PSO         |   |                                                                | -      |                                                          |   | 3,273                                                                      |   |   | 3,273 |   |
| SWEPCo      |   |                                                                | 4,438  |                                                          |   | 501                                                                        |   |   | 4,939 |   |

**             11.**
**BUSINESS      SEGMENTS**

**             12.**
**FINANCING      ACTIVITIES**
** **

***Long-term      Debt***

| **Company**    |   | **Type                of Debt**        |   | **Principal                Amount** |    | **Interest                Rate** |     | **Due                Date** |
|----------------|--------|----------------------------------------|--------|-------------------------------------|---------|----------------------------------|----------|-----------------------------|
|           |   |                                   |   | **(in                thousands)**   |    | **(%)**                          |     |                        |
| **Issuances:** |   |                                   |   |                                |    |                             |     |                        |   |
| APCo           |   | Pollution                Control Bonds |   | $                                   | 50,275  |                             | Variable |                        | 2036 |
| APCo           |   | Senior                Unsecured Notes  |   |                                | 250,000 |                             | 5.55     |                        | 2011 |
| APCo           |   | Senior                Unsecured Notes  |   |                                | 250,000 |                             | 6.375    |                        | 2036 |
| I&M        |   | Pollution                Control Bonds |   |                                | 50,000  |                             | Variable |                        | 2025 |
| OPCo           |   | Pollution                Control Bonds |   |                                | 65,000  |                             | Variable |                        | 2036 |
| OPCo           |   | Senior                Unsecured Notes  |   |                                | 350,000 |                             | 6.00     |                        | 2016 |
| PSO            |   | Senior                Unsecured Notes  |   |                                | 150,000 |                             | 6.15     |                        | 2016 |
| SWEPCo         |   | Pollution                Control Bonds |   |                                | 81,700  |                             | Variable |                        | 2018 |

| **Company**                                                 |   | **Type                of Debt**        |   | **Principal                Amount** |    | **Interest                Rate** |     | **Due                Date** |
|-------------------------------------------------------------|--------|----------------------------------------|--------|-------------------------------------|---------|----------------------------------|----------|-----------------------------|
|                                                        |   |                                   |   | **(in                thousands)**   |    | **(%)**                          |     |                        |
| **Retirements                and Principal Payments:** |   |                                   |   |                                |    |                             |     |                        |   |
| APCo                                                        |   | First                Mortgage Bonds    |   | $                                   | 100,000 |                             | 6.80     |                        | 2006 |
| APCo                                                        |   | Other                                  |   |                                | 8       |                             | 13.718   |                        | 2026 |
| I&M                                                     |   | Pollution                Control Bonds |   |                                | 50,000  |                             | 6.55     |                        | 2025 |
| OPCo                                                        |   | Notes                Payable           |   |                                | 4,390   |                             | 6.81     |                        | 2008 |
| OPCo                                                        |   | Notes                Payable           |   |                                | 6,500   |                             | 6.27     |                        | 2009 |
| SWEPCo                                                      |   | Notes                Payable           |   |                                | 5,039   |                             | 4.47     |                        | 2011 |
| SWEPCo                                                      |   | Notes                Payable           |   |                                | 2,250   |                             | Variable |                        | 2008 |
| SWEPCo                                                      |   | Pollution                Control Bonds |   |                                | 81,700  |                             | 6.10     |                        | 2018 |
| TCC                                                         |   | Securitization                Bonds    |   |                                | 52,265  |                             | 5.01     |                        | 2010 |

| **Company**      |   | **Type                of Debt** |   | **Principal                Amount** |    | **Interest                Rate** |   | **Due                Date** |
|------------------|--------|---------------------------------|--------|-------------------------------------|---------|----------------------------------|--------|-----------------------------|
|             |   |                            |   | **(in                thousands)**   |    | **(%)**                          |   |                        |
| **Issuances:**   |   |                            |   |                                |    |                             |   |                        |   |
| TCC              |   | Notes                Payable    |   | $                                   | 125,000 |                             | 5.14   |                        | 2007 |
| TCC              |   | Notes                Payable    |   |                                | 70,000  |                             | 5.86   |                        | 2007 |
|             |   |                            |   |                                |    |                             |   |                        |   |
| **Retirements:** |   |                            |   |                                |    |                             |   |                        |   |
| KPCo             |   | Notes                Payable    |   |                                | 40,000  |                             | 6.501  |                        | 2006 |
| OPCo             |   | Notes                Payable    |   |                                | 200,000 |                             | 3.32   |                        | 2006 |
| PSO              |   | Notes                Payable    |   |                                | 50,000  |                             | 3.35   |                        | 2006 |

| **Principal****Amount** |                              | **Interest** |     | **Scheduled                Final Payment** |
|-------------------------|-----------------------------------|--------------|----------|--------------------------------------------|
|                    | **Rate**                          |         | **Date** |
|                    | **(in                thousands)** |         | **(%)**  |                                       |   |
|                    |                              |         |     |                                       |   |
| $                       | 217,000                           |         | 4.98     |                                       | 2010 |
|                    | 341,000                           |         | 4.98     |                                       | 2013 |
|                    | 250,000                           |         | 5.09     |                                       | 2015 |
|                    | 437,000                           |         | 5.17     |                                       | 2018 |
|                    | 494,700                           |         | 5.3063   |                                       | 2020 |

| **Principal****Amount** |                              | **Interest** |     | **Due** |
|-------------------------|-----------------------------------|--------------|----------|---------|
|                    | **Rate**                          |         | **Date** |
|                    | **(in                thousands)** |         | **(%)**  |    |   |
|                    |                              |         |     |    |   |
| $                       | 150,000                           |         | 4.58     |    | 2007 |
|                    | 125,000                           |         | 5.14     |    | 2007 |
|                    | 70,000                            |         | 5.86     |    | 2007 |

***Lines      of Credit - AEP System***

| **Company**            |   | **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 September 30,                2006** |   | **Authorized                Short-Term Borrowing Limit** |   |
|------------------------|--------|---------------------------------------------------------------|---------|--------------------------------------------------------|--------|---------------------------------------------------------------|--------|--------------------------------------------------------|---------|----------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|--------|
|                   |   | **(in                thousands)**                             |    |
| AEGCo                  |   | $                                                             | 58,209  |                                                   | $      | 2,247                                                         |   | $                                                      | 21,005  |                                                                                                     | $      | 2,247                                                    |   | $ | (14,938 | ) | $ | 125,000 |   |
| APCo                   |   |                                                          | 283,872 |                                                   |   | 314,064                                                       |   |                                                   | 200,248 |                                                                                                     |   | 194,781                                                  |   |   | 93,764 |   |   | 600,000 |   |
| CSPCo                  |   |                                                          | 48,337  |                                                   |   | 95,977                                                        |   |                                                   | 15,133  |                                                                                                     |   | 35,929                                                   |   |   | 60,417 |   |   | 350,000 |   |
| I&M                |   |                                                          | 128,071 |                                                   |   | -                                                             |   |                                                   | 64,123  |                                                                                                     |   | -                                                        |   |   | (27,616 | ) |   | 500,000 |   |
| KPCo                   |   |                                                          | 46,156  |                                                   |   | 11,993                                                        |   |                                                   | 24,285  |                                                                                                     |   | 4,384                                                    |   |   | (24,507 | ) |   | 200,000 |   |
| OPCo                   |   |                                                          | 351,302 |                                                   |   | 40,382                                                        |   |                                                   | 100,212 |                                                                                                     |   | 15,845                                                   |   |   | (48,163 | ) |   | 600,000 |   |
| PSO                    |   |                                                          | 167,456 |                                                   |   | 146,657                                                       |   |                                                   | 97,332  |                                                                                                     |   | 94,937                                                   |   |   | 43,538 |   |   | 300,000 |   |
| SWEPCo                 |   |                                                          | 127,291 |                                                   |   | 24,209                                                        |   |                                                   | 56,984  |                                                                                                     |   | 10,722                                                   |   |   | 7,018 |   |   | 350,000 |   |
| TCC                    |   |                                                          | 117,429 |                                                   |   | 49,193                                                        |   |                                                   | 44,416  |                                                                                                     |   | 23,779                                                   |   |   | 25,304 |   |   | 600,000 |   |
| TNC                    |   |                                                          | 22,218  |                                                   |   | 34,574                                                        |   |                                                   | 6,269   |                                                                                                     |   | 8,381                                                    |   |   | (9,492 | ) |   | 250,000 |   |
| TNC                (a) |   |                                                          | 10      |                                                   |   | 13,947                                                        |   |                                                   | 8       |                                                                                                     |   | 13,834                                                   |   |   | 13,875 |   |   | - |   |

| **Company**            |   | **Average                Interest****Rate                for Funds Borrowed from the Utility Money Pool for Nine Months****Ended****September                30, 2006** |   | **Average                Interest****Rate                for Funds****Borrowed                from the****Utility                Money Pool****for                Nine Months****Ended****September                30,****2005** |   | **Average                Interest****Rate                for Funds Loaned to the****Utility                Money****Pool                for Nine Months Ended****September                30,****2006** |   | **Average                Interest****Rate                for Funds Loaned to the****Utility                Money Pool****for                Nine Months Ended September 30, 2005** |   |
|------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                   |   | **(in                percentage)**                                                                                                                                      |   |
| AEGCo                  |   |                                                                                                                                                                    | 4.85   |                                                                                                                                                                                                                             |   | 2.91                                                                                                                                                                                                    |   |                                                                                                                                                                               | 5.11   |   |   | 3.14 |   |
| APCo                   |   |                                                                                                                                                                    | 4.62   |                                                                                                                                                                                                                             |   | 3.30                                                                                                                                                                                                    |   |                                                                                                                                                                               | 4.98   |   |   | 2.72 |   |
| CSPCo                  |   |                                                                                                                                                                    | 4.73   |                                                                                                                                                                                                                             |   | 3.92                                                                                                                                                                                                    |   |                                                                                                                                                                               | 4.63   |   |   | 2.76 |   |
| I&M                |   |                                                                                                                                                                    | 4.81   |                                                                                                                                                                                                                             |   | 3.25                                                                                                                                                                                                    |   |                                                                                                                                                                               | -      |   |   | 2.12 |   |
| KPCo                   |   |                                                                                                                                                                    | 4.92   |                                                                                                                                                                                                                             |   | 3.52                                                                                                                                                                                                    |   |                                                                                                                                                                               | 4.97   |   |   | 2.54 |   |
| OPCo                   |   |                                                                                                                                                                    | 4.83   |                                                                                                                                                                                                                             |   | 3.67                                                                                                                                                                                                    |   |                                                                                                                                                                               | 5.12   |   |   | 2.40 |   |
| PSO                    |   |                                                                                                                                                                    | 5.02   |                                                                                                                                                                                                                             |   | 2.62                                                                                                                                                                                                    |   |                                                                                                                                                                               | 4.36   |   |   | 3.52 |   |
| SWEPCo                 |   |                                                                                                                                                                    | 5.01   |                                                                                                                                                                                                                             |   | 3.64                                                                                                                                                                                                    |   |                                                                                                                                                                               | 4.36   |   |   | 2.60 |   |
| TCC                    |   |                                                                                                                                                                    | 4.79   |                                                                                                                                                                                                                             |   | 3.07                                                                                                                                                                                                    |   |                                                                                                                                                                               | 4.71   |   |   | 2.43 |   |
| TNC                    |   |                                                                                                                                                                    | 4.81   |                                                                                                                                                                                                                             |   | -                                                                                                                                                                                                       |   |                                                                                                                                                                               | 4.56   |   |   | 3.13 |   |
| TNC                (a) |   |                                                                                                                                                                    | 5.36   |                                                                                                                                                                                                                             |   | -                                                                                                                                                                                                       |   |                                                                                                                                                                               | 5.33   |   |   | - |   |

| (a) | In                the third quarter of 2006, TNC created a new wholly-owned subsidiary,                AEP                Texas North Generation Company, LLC. Following the creation of this                subsidiary, TNC transferred all of its mothballed generation assets                and                related liabilities to this new subsidiary, effectively completing                the                business separation requirement of the Texas Restructuring Legislation.                Subsequently, AEP Texas North Generation Company, LLC became a participant                in the Nonutility Money Pool. For the nine months ended September                30,                2006, the maximum and minimum interest rates for funds either borrowed                from or loaned to the Nonutility Money Pool were 5.39% and 5.28%                respectively. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

**Construction      Expenditures**

|    |   | **(in                millions)** |   |
|---------|--------|----------------------------------|--------|
| AEGCo   |   | $                                | 12     |   |
| APCo    |   |                             | 928    |   |
| CSPCo   |   |                             | 319    |   |
| I&M |   |                             | 330    |   |
| KPCo    |   |                             | 54     |   |
| OPCo    |   |                             | 1,065  |   |
| PSO     |   |                             | 262    |   |
| SWEPCo  |   |                             | 315    |   |
| TCC     |   |                             | 286    |   |
| TNC     |   |                             | 72     |   |

**Environmental      Matters**

| · | Requirements                under the CAA to reduce emissions of SO2,                NOx,                particulate matter, and mercury from fossil fuel-fired power                plants; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Requirements                under the Clean Water Act to reduce the impacts of water intake structures                on aquatic species at certain power plants; and                        |
| · | Possible                future requirements to reduce carbon dioxide emissions to address                concerns                about global climate change.                                |

***Environmental      Litigation***

**Adoption      of New Accounting Pronouncements**

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**CONTROLS      AND PROCEDURES**

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**PART      II. OTHER INFORMATION**

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

*Commitments      and Contingencies, *

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

**General      Risks of Our Regulated Operations**

**Our      requests 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 West      Virginia.**
*(Applies      to AEP and APCo.)*

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

**The      rates that SWEPCo may charge its customers may be reduced. **

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

**The      amount we charge third parties for using our transmission facilities may be      reduced and not recovered.**
* *
*(Applies      to AEP and *
*AEP’s      East zone public utility subsidiaries*
*.)*

**Risks      Relating to State Restructuring**

**Our      Rate Stabilization Plans in Ohio may be modified by the PUCO such that our      deferred costs may not be recovered and rates may be reduced.**

**We      are contractually required to operate a power generation facility that may      indirectly force us to sell the facility’s excess energy at a      loss.**
*      (Applies to AEP.)*

**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** |   |
|------------------------------------|--------|--------------------------------------------------------------------------|--------|--------|--------|-------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 07/01/06                - 07/31/06 |   |                                                                     | -      |   |   |                                                              |   | $                                                                                                                  | -      |                                                                                                                                           |   | - |   | $ | - |   |
| 08/01/06                - 08/31/06 |   |                                                                     | 12     |   |   | (a                                                                | )      |                                                                                                               | 73.00  |                                                                                                                                           |   | - |   |   | - |   |
| 09/01/06                - 09/30/06 |   |                                                                     | 30     |   |   | (b                                                                | )      |                                                                                                               | 79.75  |                                                                                                                                           |   | - |   |   | - |   |

| (a) | I&M                repurchased 12 shares of its 4-1/8% cumulative preferred stock, in                a                privately-negotiated transaction outside of an announced                program. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | APCo                repurchased 30 shares of its 4-1/2% 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*

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**SIGNATURE**

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