**UNITED        STATES**

**SECURITIES        AND EXCHANGE COMMISSION**

**WASHINGTON,        D.C. 20549**

**FORM        10-Q**

**June        30, 2005**

*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                  an                  accelerated filer (as defined in Rule 12b-2 of the Exchange                  Act).* |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *Yes**  X  *                                                                                                                                                                                   | *NO                  ___* |

| *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 accelerated filers (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 at July 29,                  2005** |   |
|--------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------|--------|
|                                                   |   |                                                                                                |   |
| American                  Electric Power Company, Inc. |   | 384,772,013                                                                                         |   |
| AEP                  Generating Company                |   | 1,000                                                                                               |   |
| AEP                  Texas Central Company             |   | 2,211,678                                                                                           |   |
| AEP                  Texas North Company               |   | 5,488,560                                                                                           |   |
| Appalachian                  Power Company             |   | 13,499,500                                                                                          |   |
| Columbus                  Southern Power Company       |   | 16,410,426                                                                                          |   |
| Indiana                  Michigan Power Company        |   | 1,400,000                                                                                           |   |
| Kentucky                  Power Company                |   | 1,009,000                                                                                           |   |
| Ohio                  Power Company                    |   | 27,952,473                                                                                          |   |
| Public                  Service Company of Oklahoma    |   | 9,013,000                                                                                           |   |
| Southwestern                  Electric Power Company   |   | 7,536,640                                                                                           |   |
|                                                   |   |                                                                                                |   |

----

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

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

**June        30, 2005**

|   |                                           |
|--------|------------------------------------------------|
|   | 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 |   |
|   |                                           |   | Condensed                  Notes to Consolidated Financial Statements |   |
|   |                                           |   |   |
|   |                                           | **AEP                  Generating Company:** |
|   |                                           |   | Management’s                  Narrative Financial Discussion and Analysis |   |
|   |                                           |   | Condensed                  Financial Statements |   |
|   |                                           |   |   |
|   |                                           | **AEP                  Texas Central Company and Subsidiary:** |
|   |                                           |   | Management’s                  Financial Discussion and Analysis |   |
|   |                                           |   | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |
|   |                                           |   | Condensed                  Consolidated Financial Statements |   |
|   |                                           |   |   |
|   |                                           | **AEP                  Texas North Company:** |
|   |                                           |   | Management’s                  Narrative Financial Discussion and Analysis |   |
|   |                                           |   | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |
|   |                                           |   | Condensed                  Financial Statements |   |
|   |                                           |   |   |
|   |                                           | **Appalachian                  Power Company and Subsidiaries:** |
|   |                                           |   | Management’s                  Financial Discussion and Analysis |   |
|   |                                           |   | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |
|   |                                           |   | Condensed                  Consolidated Financial Statements |   |
|   |                                           |   |   |
|   |                                           | **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 |   |
|   |                                           |   |   |
|   |                                           | **Indiana                  Michigan Power Company and Subsidiaries:** |
|   |                                           |   | Management’s                  Financial Discussion and Analysis |   |
|   |                                           |   | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |
|   |                                           |   | Condensed                  Consolidated Financial Statements |   |
|   |                                           |   |   |
|   |                                           | **Kentucky                  Power Company:** |
|   |                                           |   | Management’s                  Narrative Financial Discussion and Analysis |   |
|   |                                           |   | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |
|   |                                           |   | Condensed                  Financial Statements |   |
|   |                                           |   |   |
|   |                                           | **Ohio                  Power Company Consolidated:** |
|   |                                           |   | Management’s                  Financial Discussion and Analysis |   |
|   |                                           |   | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |
|   |                                           |   | Condensed                  Consolidated Financial Statements |   |
|   |                                           |   |   |   |

|                                        |      | **Public                  Service Company of Oklahoma:**                                                         |
|---------------------------------------------|-----------|------------------------------------------------------------------------------------------------------------------|
|                                        |      |                                                                                                             | Management’s                  Narrative Financial Discussion and Analysis |   |
|                                        |      |                                                                                                             | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |
|                                        |      |                                                                                                             | Condensed                  Financial Statements |   |
|                                        |      |                                                                                                             |   |
|                                        |      | **Southwestern                  Electric Power Company Consolidated:**                                           |
|                                        |      |                                                                                                             | Management’s                  Financial Discussion and Analysis |   |
|                                        |      |                                                                                                             | Quantitative                  and Qualitative Disclosures About Risk Management                  Activities |   |
|                                        |      |                                                                                                             | Condensed                  Consolidated Financial Statements |   |
|                                        |      |                                                                                                             |   |
|                                        |      | Condensed                  Notes to 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                  2.                    |      | Unregistered                  Sales of Equity Securities and Use of Proceeds                                     |   |
| Item                  4.                    |      | Submission                  of Matters to a Vote of Security Holders                                             |   |
| Item                  5.                    |      | Other                  Information                                                                               |   |
| Item                  6.                    |      | Exhibits                                                                                                         |   |
|                                        |      |                                                                                                             |   |   |   | Exhibits: |   |
|                                        |      |                                                                                                             |   |   |   | Exhibit                  10 (a) |   |
|                                        |      |                                                                                                             |   |   |   | Exhibit                  10 (b) |   |
|                                        |      |                                                                                                             |   |   |   | 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** |
|----------------|--------|-----------------------|

| AEGCo                                                                                 |   |                              AEP Generating Company, an electric utility subsidiary of                  AEP.                                                                                                        |
|---------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| AEP                  or Parent                                                        |   | American                  Electric Power Company, Inc.                                                                                                                                                                                                                     |
| AEP                  Consolidated                                                     |   | AEP                  and its majority owned consolidated subsidiaries and consolidated                  affiliates.                                                                                                                                                        |
| AEP                  Credit                                                           |   | AEP                  Credit, Inc., a subsidiary of AEP which factors accounts receivable                  and                  accrued utility revenues for                    affiliated domestic electric utility companies.                                        |
| AEP                  East companies                                                   |   | APCo,                  CSPCo, I&M, KPCo and OPCo.                                                                                                                                                                                                                      |
| 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.                                                                                                                                                                                                                                 |
| APCo                                                                                  |   | Appalachian                  Power Company, an AEP electric utility subsidiary.                                                                                                                                                                                            |
| ARO                                                                                   |   | Asset                  Retirement Obligations.                                                                                                                                                                                                                             |
| CAA                                                                                   |   | Clean                  Air Act.                                                                                                                                                                                                                                            |
| COLI                                                                                  |   | Corporate                  owned, life insurance program.                                                                                                                                                                                                                  |
| Cook                  Plant                                                           |   | The                  Donald C. Cook Nuclear Plant, a two-unit, 2,110 MW nuclear plant                  owned by                  I&M.                                                                                                                                  |
| 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.). |
| DETM                                                                                  |   |                              Duke Energy Trading and Marketing L.L.C., a risk management                  counterparty.                                                                                             |
| DOE                                                                                   |   |                              United States Department of Energy.                                                                                                                                                    |
| ECAR                                                                                  |   | East                  Central Area Reliability Council.                                                                                                                                                                                                                    |
| EITF                                                                                  |   | Financial                  Accounting Standards Board’s Emerging Issues Task                  Force.                                                                                                                                                                 |
| ERCOT                                                                                 |   | Electric                  Reliability Council of Texas.                                                                                                                                                                                                                    |
| FASB                                                                                  |   | Financial                  Accounting Standards Board.                                                                                                                                                                                                                     |
| Federal                  EPA                                                          |   |                              United States Environmental Protection Agency.                                                                                                                                         |
| FERC                                                                                  |   | Federal                  Energy Regulatory Commission.                                                                                                                                                                                                                     |
| FIN                  46                                                               |   | FASB                  Interpretation No. 46, “Consolidation of Variable Interest                  Entities.”                                                                                                                                                   |
| GAAP                                                                                  |   | Generally                  Accepted Accounting Principles.                                                                                                                                                                                                                 |
| HPL                                                                                   |   | Houston                  Pipeline Company.                                                                                                                                                                                                                                 |
| I&M                                                                               |   | Indiana                  Michigan Power Company, an AEP electric utility                  subsidiary.                                                                                                                                                                      |
| IPP                                                                                   |   | Independent                  Power Producers.                                                                                                                                                                                                                              |
| IURC                                                                                  |   | Indiana                  Utility Regulatory Commission.                                                                                                                                                                                                                    |
| JMG                                                                                   |   | JMG                  Funding LP.                                                                                                                                                                                                                                           |
| KPCo                                                                                  |   | Kentucky                  Power Company, an AEP electric utility subsidiary.                                                                                                                                                                                               |
| KPSC                                                                                  |   | Kentucky                  Public Service Commission.                                                                                                                                                                                                                       |
| KWH                                                                                   |   | Kilowatthour.                                                                                                                                                                                                                                                              |
| LIG                                                                                   |   | Louisiana                  Intrastate Gas, a former AEP subsidiary.                                                                                                                                                                                                        |
| ME                  SWEPCo                                                            |   | Mutual                  Energy SWEPCo L.P., a Texas retail electric provider.                                                                                                                                                                                              |
| MLR                                                                                   |   | Member                  load ratio, the method used to allocate AEP Power Pool transactions                  to its                  members.                                                                                                                              |
| MTM                                                                                   |   | Mark-to-Market.                                                                                                                                                                                                                                                            |
| MW                                                                                    |   | Megawatt.                                                                                                                                                                                                                                                                  |
| MWH                                                                                   |   | Megawatthour.                                                                                                                                                                                                                                                              |
| NOx                                                                                   |   | Nitrogen                  oxide.                                                                                                                                                                                                                                           |
| Nonutility                  Money Pool                                                |   | AEP                  System’s Nonutility Money Pool.                                                                                                                                                                                                                 |
| NYMEX                                                                                 |   | New                  York Mercantile Exchange.                                                                                                                                                                                                                             |
| OATT                                                                                  |   | Open                  Access Transmission Tariff.                                                                                                                                                                                                                          |
| OCC                                                                                   |   | Oklahoma                  Corporation Commission.                                                                                                                                                                                                                          |
| 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.                                                                                                                                                                  |
| PUCO                                                                                  |   | Public                  Utilities Commission of Ohio                                                                                                                                                                                                                       |
| PUCT                                                                                  |   | The                  Public Utility Commission of Texas.                                                                                                                                                                                                                   |
| PUHCA                                                                                 |   | Public                  Utility Holding Company Act.                                                                                                                                                                                                                       |
| 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 by                    AEGCo and I&M.                                                                   |
| RTO                                                                                   |   | Regional                  Transmission Organization.                                                                                                                                                                                                                       |
| S&P                                                                               |   | Standard                  and Poor’s.                                                                                                                                                                                                                                |
| SEC                                                                                   |   | United                  States Securities and Exchange Commission.                                                                                                                                                                                                         |
| SECA                                                                                  |   | Seams                  Elimination Cost Allocation.                                                                                                                                                                                                                        |
| SFAS                                                                                  |   | Statement                  of Financial Accounting Standards issued by the Financial Accounting                  Standards Board.                                                                                                                                          |
| SFAS                  109                                                             |   | Statement                  of Financial Accounting Standards No. 109, Accounting                  for Income Taxes.                                                                                                                                                        |
| SFAS                  133                                                             |   | Statement                  of Financial Accounting Standards No. 133, Accounting                  for Derivative Instruments and Hedging                    Activities.                                                                                               |
| SNF                                                                                   |   | Spent                  Nuclear Fuel.                                                                                                                                                                                                                                       |
| SO2                                                                                   |   | Sulfur                  Dioxide.                                                                                                                                                                                                                                           |
| SPP                                                                                   |   | Southwest                  Power Pool.                                                                                                                                                                                                                                     |
| STP                                                                                   |   | South                  Texas Project Nuclear Generating Plant.                                                                                                                                                                                                             |
| SWEPCo                                                                                |   | Southwestern                  Electric Power Company, an AEP electric utility                  subsidiary.                                                                                                                                                                 |
| TCC                                                                                   |   | AEP                  Texas Central Company, an AEP electric utility subsidiary.                                                                                                                                                                                            |
| Tenor                                                                                 |   | Maturity                  of a contract.                                                                                                                                                                                                                                   |
| 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.                                      |
| TVA                                                                                   |   | Tennessee                  Valley Authority.                                                                                                                                                                                                                               |
| 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.                                                                                                                                                                                          |
| Zimmer                  Plant                                                         |   | William                  H. Zimmer Generating Station, a 1,300 MW coal-fired unit owned                  25.4% by                  CSPCo.                                                                                                                                  |

----

**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.                                                                                                                                                                                 |
| · | The                  ability to recover regulatory assets and stranded costs in connection                  with                  deregulation.                                                                                                                                                     |
| · | The                  ability to recover increases in fuel and other energy costs through                  regulated or competitive electric rates.                                                                                                                                                  |
| · | New                  legislation, litigation and government regulation including requirements                  for reduced emissions of sulfur, nitrogen, mercury, carbon 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.).                                                                                                          |
| · | Our                  ability to constrain operation and maintenance costs.                                                                                                                                                                                                                          |
| · | Our                  ability to sell assets at acceptable prices and other acceptable                  terms,                  including rights to share in earnings derived from the assets subsequent                  to their sale.                                                             |
| · | The                  economic climate and growth in our service territory and changes                  in market                  demand and demographic patterns.                                                                                                                                  |
| · | Inflationary                  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 and number of 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 membership 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**

*Stranded        Cost Recovery*

| · | Sold                  its ownership interest in the South Texas Project (STP) nuclear                  plant for                  approximately $314 million and the assumption of liabilities of                  approximately $22 million;                                                       |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Received                  a good cause exception to the true-up rule to allow TCC to make                  its                  true-up filing prior to the closing of the sale of TCC’s ownership                  interest in Oklaunion, which is still in litigation;                  and |
| · | Submitted                  its true-up filing to the PUCT for a final determination of stranded                  costs                  and other true-up amounts.                                                                                                                                  |

*TCC        Rate Case*

**RESULTS        OF OPERATIONS**

**Segments**

| ·                                     | **Utility                  Operations:**                                                                         |
|--------------------------------------------|------------------------------------------------------------------------------------------------------------------|
|                      · | Domestic                  generation of electricity for sale to retail and wholesale                  customers. |
|                      · | Domestic                  electricity transmission and                  distribution.                            |

| ·                                     | **Investments-Gas                  Operations:**                                                                                                                                                                                                                                                                                                                                 |
|--------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      · | Gas                  pipeline and storage services.                                                                                                                                                                                                                                                                                                                              |
|                      · | Gas                  marketing and risk management activities.                                                                                                                                                                                                                                                                                                                   |
|                                       |                                                                                                                                                                                                                                                                                                                                                                             |
|                                       | LIG Pipeline Company                and its                subsidiaries, including Jefferson Island Storage & Hub LLC, were                classified as discontinued operations during 2003                                   and were sold during 2004. We sold a 98% controlling interest in                  HPL                  during the first quarter of 2005. |

| ·                                     | **Investments-UK                  Operations:**                                                                                                                                              |
|--------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      · | Generation                  of electricity in the U.K. for sale to wholesale                  customers.                                                                                     |
|                      · | Coal                  procurement and transportation to our plants.                                                                                                                          |
|                                       |                                                                                                                                                                                         |
|                                       | UK Operations were classified                as                discontinued operations during 2003 and were sold during the third                quarter                of 2004.             |
|                                       |
| ·                                     | **Investments-Other:**                                                                                                                                                                       |
|                      · | Bulk                  commodity barging operations, wind farms, independent power producers                  and                  other energy supply                    related businesses. |
|                                       |                                                                                                                                                                                         |
|                                       | Four independent power                producers                were sold during the third and fourth quarters of                2004.                                                        |

**AEP        Consolidated Results**

|                                                          |   | **Three                  Months Ended June 30,** |   | **Six                  Months Ended June 30,** |   |
|---------------------------------------------------------------|--------|--------------------------------------------------|--------|------------------------------------------------|--------|
|                                                          |   | **2005**                                         |   | **2004**                                       |   | **2005** |   | **2004** |   |
|                                                          |   |                                             |   |                                           |   |    |   |   |   |   |   |    |   |    |   |   |   |
|                                                          |   | **Earnings**                                     |   | **EPS**                                        |   | **Earnings** |   | **EPS** |   | **Earnings** |   | **EPS** |   | **Earnings** |   | **EPS** |   |
| Utility                  Operations                           |   | $                                                | 247    |                                           | $      | 0.64 |   | $ | 184 |   | $ | 0.46 |   | $ | 600 |   | $ | 1.54 |   | $ | 488 |   | $ | 1.23 |   |
| Investments                  - Gas Operations                 |   |                                             | (2     | )                                              |   | (0.01 | ) |   | (4 | ) |   | (0.01 | ) |   | 8 |   |   | 0.02 |   |   | (14 | ) |   | (0.03 | ) |
| Investments                  - Other                          |   |                                             | (1     | )                                              |   | - |   |   | (4 | ) |   | (0.01 | ) |   | 4 |   |   | 0.01 |   |   | - |   |   | - |   |
| All                  Other** **(a)                       |   |                                             | (26    | )                                              |   | (0.06 | ) |   | (25 | ) |   | (0.06 | ) |   | (40 | ) |   | (0.10 | ) |   | (34 | ) |   | (0.09 | ) |
| **Income                  Before Discontinued Operations**    |   |                                             | 218    |                                           |   | 0.57 |   |   | 151 |   |   | 0.38 |   |   | 572 |   |   | 1.47 |   |   | 440 |   |   | 1.11 |   |
|                                                          |   |                                             |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investments                  - Gas Operations                 |   |                                             | -      |                                           |   | - |   |   | 2 |   |   | - |   |   | - |   |   | - |   |   | 1 |   |   | - |   |
| Investments                  - UK Operations                  |   |                                             | -      |                                           |   | - |   |   | (52 | ) |   | (0.13 | ) |   | (5 | ) |   | (0.01 | ) |   | (64 | ) |   | (0.16 | ) |
| Investments                  - Other                          |   |                                             | 3      |                                           |   | 0.01 |   |   | (1 | ) |   | - |   |   | 9 |   |   | 0.02 |   |   | 5 |   |   | 0.01 |   |
| **Discontinued                  Operations, Net of Tax** |   |                                             | 3      |                                           |   | 0.01 |   |   | (51 | ) |   | (0.13 | ) |   | 4 |   |   | 0.01 |   |   | (58 | ) |   | (0.15 | ) |
|                                                          |   |                                             |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Net                  Income**                               |   | $                                                | 221    |                                           | $      | 0.58 |   | $ | 100 |   | $ | 0.25 |   | $ | 576 |   | $ | 1.48 |   | $ | 382 |   | $ | 0.96 |   |
|                                                          |   |                                             |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Weighted                  Average Shares Outstanding**      |   |                                             |   |                                           |   | 384 |   |   |   |   |   | 396 |   |   |   |   |   | 389 |   |   |   |   |   | 396 |   |

**Utility        Operations**

|                                                                             |   | **Three                  Months Ended June 30,** |   | **Six                  Months Ended****June                  30,** |   |
|----------------------------------------------------------------------------------|--------|--------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                                             |   | **2005**                                         |   | **2004**                                                           |   | **2005** |   | **2004** |   |
|                                                                             |   | **(in                  millions)**               |   |
| Revenues                                                                         |   | $                                                | 2,668  |                                                               | $      | 2,545 |   | $ | 5,282 |   | $ | 5,147 |   |
| Fuel                  and Purchased Power                                        |   |                                             | 956    |                                                               |   | 820 |   |   | 1,861 |   |   | 1,599 |   |
| **Gross                  Margin**                                                |   |                                             | 1,712  |                                                               |   | 1,725 |   |   | 3,421 |   |   | 3,548 |   |
| Depreciation                  and Amortization                                   |   |                                             | 317    |                                                               |   | 308 |   |   | 635 |   |   | 618 |   |
| Other                  Operating Expenses                                        |   |                                             | 943    |                                                               |   | 994 |   |   | 1,814 |   |   | 1,882 |   |
| **Operating                  Income**                                            |   |                                             | 452    |                                                               |   | 423 |   |   | 972 |   |   | 1,048 |   |
| Other                  Income (Expense), Net                                     |   |                                             | 56     |                                                               |   | 16 |   |   | 204 |   |   | 26 |   |
| Interest                  Expense and Preferred Stock Dividend Requirements |   |                                             | 156    |                                                               |   | 161 |   |   | 300 |   |   | 327 |   |
| Income                  Taxes                                                    |   |                                             | 105    |                                                               |   | 94 |   |   | 276 |   |   | 259 |   |
| **Income                  Before Discontinued Operations**                       |   | $                                                | 247    |                                                               | $      | 184 |   | $ | 600 |   | $ | 488 |   |

**Summary        of Selected Sales Data**

**For        Utility Operations**

**For        the Three and Six Months Ended June 30, 2005 and 2004 **

|                                    |   | **Three                  Months Ended**   |   | **Six                  Months Ended** |   |
|-----------------------------------------|--------|-------------------------------------------|--------|---------------------------------------|--------|
|                                    |   | **2005**                                  |   | **2004**                              |   | **2005** |   | **2004** |   |
| **Energy                  Summary**     |   | **(in                  millions of KWH)** |   |
| Retail:                                 |   |                                      |   |                                  |   |   |   |   |   |
| Residential                             |   |                                      | 9,956  |                                  |   | 9,740 |   |   | 23,180 |   |   | 23,167 |   |
| Commercial                              |   |                                      | 9,573  |                                  |   | 9,390 |   |   | 18,305 |   |   | 18,169 |   |
| Industrial                              |   |                                      | 13,480 |                                  |   | 12,902 |   |   | 26,253 |   |   | 25,175 |   |
| Miscellaneous                           |   |                                      | 639    |                                  |   | 806 |   |   | 1,284 |   |   | 1,549 |   |
| Total                  Retail           |   |                                      | 33,648 |                                  |   | 32,838 |   |   | 69,022 |   |   | 68,060 |   |
| Texas                  Retail and Other |   |                                      | 161    |                                  |   | 298 |   |   | 389 |   |   | 522 |   |
| **Total**                               |   |                                      | 33,809 |                                  |   | 33,136 |   |   | 69,411 |   |   | 68,582 |   |
|                                    |   |                                      |   |                                  |   |   |   |   |   |   |   |   |   |
| Wholesale                               |   |                                      | 12,138 |                                  |   | 13,644 |   |   | 24,773 |   |   | 27,495 |   |
|                                    |   |                                      |   |                                  |   |   |   |   |   |   |   |   |   |
| Texas                  Wires Delivery   |   |                                      | 6,736  |                                  |   | 6,250 |   |   | 12,254 |   |   | 11,740 |   |

|                                                     |   | **Three                  Months Ended** |   | **Six                  Months Ended** |   |
|----------------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                                     |   | **2005**                                |   | **2004**                              |   | **2005** |   | **2004** |   |
| **Weather                  Summary**                     |   | **(in                  degree days)**   |   |
| Eastern                  Region                          |   |                                    |   |                                  |   |   |   |   |   |
| Actual                  - Heating                        |   |                                    | 165    |                                  |   | 168 |   |   | 1,939 |   |   | 2,032 |   |
| Normal                  - Heating** **(a)           |   |                                    | 176    |                                  |   | 180 |   |   | 1,988 |   |   | 1,986 |   |
|                                                     |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Actual                  - Cooling                        |   |                                    | 287    |                                  |   | 313 |   |   | 287 |   |   | 316 |   |
| Normal                  - Cooling** **(a)           |   |                                    | 278    |                                  |   | 278 |   |   | 281 |   |   | 281 |   |
|                                                     |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Western                  Region                  (b)     |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Actual                  - Heating                        |   |                                    | 26     |                                  |   | 30 |   |   | 795 |   |   | 913 |   |
| Normal                  - Heating** **(a)           |   |                                    | 33     |                                  |   | 33 |   |   | 1,006 |   |   | 1,012 |   |
|                                                     |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Actual                  - Cooling                        |   |                                    | 681    |                                  |   | 659 |   |   | 701 |   |   | 689 |   |
| Normal                  - Cooling** **(a)** ** |   |                                    | 645    |                                  |   | 642 |   |   | 662 |   |   | 660 |   |

| (a)                  Normal Heating/Cooling represents the 30-year average of degree                  days. |   |
|-------------------------------------------------------------------------------------------------------------|--------|
| (b)                  Western Region statistics represent PSO/SWEPCo customer base                  only.    |

**Reconciliation        of Second Quarter of 2004 to Second Quarter of 2005**

**Income        Before Discontinued Operations **

**(in        millions)**

| **Second                  Quarter of 2004**                   |   |   |   |   | $      | 184    |   |
|---------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                          |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                 |   |   |   |   |   |   |   |
| Retail                  Margins                               |   |   | 5      |   |   |   |   |
| Texas                  Supply                                 |   |   | (36    | )      |   |   |   |
| Transmission                  Revenues                        |   |   | (21    | )      |   |   |   |
| Off-system                  Sales                             |   |   | 38     |   |   |   |   |
| Other                  Revenues                               |   |   | 1      |   |   |   |   |
|                                                          |   |   |   |   |   | (13    | )      |
|                                                          |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses And Other:** |   |   |   |   |   |   |   |
| Maintenance                  and Other Operation              |   |   | 46     |   |   |   |   |
| Depreciation                  and Amortization                |   |   | (9     | )      |   |   |   |
| Taxes                  Other Than Income Taxes                |   |   | 5      |   |   |   |   |
| Other                  Income (Expense), Net                  |   |   | 40     |   |   |   |   |
| Interest                  Expenses                            |   |   | 5      |   |   |   |   |
|                                                          |   |   |   |   |   | 87     |   |
|                                                          |   |   |   |   |   |   |   |
| Income                  Taxes                                 |   |   |   |   |   | (11    | )      |
|                                                          |   |   |   |   |   |   |   |
| **Second                  Quarter of 2005**                   |   |   |   |   | $      | 247    |   |

| · | Retail                  margins in our utility business were $5 million higher than last                  year. The                  primary driver of this increase was a 3% increase in volume attributable                  to load growth in residential and commercial classes as well as                  favorable                  weather in 2005. The margin increase related to load growth was                  partially                  offset by higher fuel costs of approximately $44 million, which                  primarily                  relates to our utilities in the East with inactive fuel clauses. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Our                  Texas Supply business had a $36 million decrease in gross margin                  as a                  result of the sale of a majority of our Texas generation assets                  in the                  third quarter of 2004 and STP in May 2005.                                                                                                                                                                                                                                                                                                                                                    |
| · | Transmission                  Revenues decreased $21 million primarily due to the loss of through                  and                  out rates as mandated by the FERC. Higher transmission revenues                  in the                  ECAR region because of the addition of SECA rates partially offset                  the                  change in FERC tariffs.                                                                                                                                                                                                                                                   |
| · | Margins                  from Off-system Sales for 2005 were $38 million higher than 2004                  primarily                  due to higher volumes and favorable price                  margins.                                                                                                                                                                                                                                                                                                                                                                                                                           |

| · | Maintenance                  and Other Operation expenses decreased $46 million. Approximately                  $11                  million of the decrease is due to timing of maintenance projects                  and                  different spending patterns experienced in the second quarter of                  2005 as                  compared to the same period in 2004. Additionally, in 2004 we incurred                  $20                  million related to major storms. Also, an $18 million reduction                  relates to                  the sale of the Texas generation and STP assets and a $19 million                  reduction relates to lower labor, incentives, fringes and outside                  service                  costs. These favorable variances were partially offset by a $22                  million                  severance accrual in 2005 as a result of our company-wide staffing                  and                  budget review, which will ultimately reduce our staffing levels                  by 466                  positions. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Reconciliation        of Six Months Ended June 30, 2004 to Six Months Ended June 30,        2005**

**Income        Before Discontinued Operations **

**(in        millions)**

| **Six                  Months Ended June 30, 2004**           |   |   |   |   | $      | 488    |   |
|---------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                          |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                 |   |   |   |   |   |   |   |
| Retail                  Margins                               |   |   | (61    | )      |   |   |   |
| Texas                  Supply                                 |   |   | (56    | )      |   |   |   |
| Transmission                  Revenues                        |   |   | (51    | )      |   |   |   |
| Off-system                  Sales                             |   |   | 34     |   |   |   |   |
| Other                  Revenues                               |   |   | 7      |   |   |   |   |
|                                                          |   |   |   |   |   | (127   | )      |
|                                                          |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses And Other:** |   |   |   |   |   |   |   |
| Maintenance                  and Other Operation              |   |   | 67     |   |   |   |   |
| Depreciation                  and Amortization                |   |   | (17    | )      |   |   |   |
| Taxes                  Other Than Income Taxes                |   |   | 1      |   |   |   |   |
| Other                  Income (Expense), Net                  |   |   | 178    |   |   |   |   |
| Interest                  Expenses                            |   |   | 27     |   |   |   |   |
|                                                          |   |   |   |   |   | 256    |   |
|                                                          |   |   |   |   |   |   |   |
| Income                  Taxes                                 |   |   |   |   |   | (17    | )      |
|                                                          |   |   |   |   |   |   |   |
| **Six                  Months Ended June 30, 2005**           |   |   |   |   | $      | 600    |   |

| · | Overall                  Retail Margins in our utility business were $61 million lower than                  last                  year. The primary driver of this decrease was higher delivered                  fuel costs                  of approximately $100 million, of which the majority relates to                  our East                  companies with inactive fuel clauses. The higher fuel costs were                  partially                  offset by continued customer growth and usage in our residential                  and                  commercial classes. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Our                  Texas Supply business had a $56 million decrease in gross margin                  due to                  the sale of a majority of our Texas generation assets in the third                  quarter                  of 2004 and STP in May 2005.                                                                                                                                                                                                                                                                                                                          |
| · | Transmission                  Revenues decreased $51 million primarily due to the loss of through                  and                  out rates as mandated by the FERC. Higher transmission revenues                  in the                  ECAR region because of the addition of SECA rates partially offset                  the                  change in FERC tariffs.                                                                                                                                                                                                                 |
| · | Margins                  from Off-system Sales for 2005 were $34 million higher than 2004                  primarily                  due to a 3% growth in volume and favorable price margins partially                  offset                  by a $41 million decrease in optimization                  activity.                                                                                                                                                                                                                                                                            |

| · | Maintenance                  and Other Operation expenses decreased $67 million. Approximately                  $10                  million of the decrease is due to timing of maintenance projects                  and                  different spending patterns experienced in the first six months                  of 2005 as                  compared to the same period in 2004. Expenses were lower by $60                  million                  primarily due to the cancellation of our COLI policies in 2005                  and lower                  labor, incentives and outside service costs in 2005. Also, a $19                  million                  reduction relates to the sale in 2004 of our Texas generation assets.                  These favorable variances were partially offset by a $22 million                  severance                  accrual in 2005 as a result of our company-wide staffing and budget                  review, which will ultimately reduce our staffing levels by 466                  positions. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Other                  Income (Expense), Net increased $178 million primarily due to the                  following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | $112                  million resulting from the receipt of 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. Agreement was reached                  with                  Centrica in March 2005 resolving disputes on how such amounts are                  to be                  calculated. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | $37                  million related to the recognition of carrying costs on environmental                  and                  RTO expenses by our Ohio companies related to the Rate Stabilization                  Plans. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | $15                  million related to increased AFUDC due to extensive construction                  activities occurring in 2005. |
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | $15                  million related to the recognition of carrying costs by TCC on                  its net                  stranded generation costs and its capacity auction true-up                  asset. |
| · | Interest                  Expenses decreased $27 million due to the refinancing of higher                  coupon                  debt and the retirement of debt in 2004 and in the first six months                  of                  2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

**Investments-Gas        Operations**

**Investments        - UK Operations**

**Investments        - Other**

** **

| · | A                  $5 million decreased loss due to reductions in outstanding debt                  at AEP                  Communications that occurred in October 2004.                                                                                          |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | A                  $3 million increased profit at MEMCO due to favorable operating                  conditions                  and strong freight rates in 2005.                                                                                                  |
| · | A                  $3 million increased loss at AEP Resources related to $1 million                  of                  increased losses from the Dow plant in 2005 and increased legal                  and tax                  expenses of $2 million in 2005. |
| · | The                  remaining $2 million increased loss relates to several items at                  various                  subsidiaries, none of which is individually                  significant.                                                           |

** **

| · | A                  $5 million increase at CSW Energy Services related to a current                  year gain                  due to a working capital true-up for our November 2004 Numanco                  sale and a                  release of product liability and litigation reserves related to                  our Total                  Electric Vehicle investment due to the resolution of all open litigation                  as of March 31, 2005.                                                                    |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | An                  $8 million increase due to reductions in outstanding debt at AEP                  Communications that occurred in October 2004.                                                                                                                                                                                                                                                                                                                                                                                       |
| · | A                  $5 million increase at AEP Coal mostly related to Black Lung Trust                  settlements.                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | A                  $3 million increase at AEP Investments due to the investment write-down                  of                  PHPK Technologies, Inc. in 2004 of $1 million, favorable earnings                  from Pac                  Hydro of $1 million in 2005 and $1 million in reduced operations                  and                  maintenance at AEP EmTech.                                                                                                                                                            |
| · | A                  $1 million increase at CSW International related to tax reserve                  adjustments in June 2005.                                                                                                                                                                                                                                                                                                                                                                                                             |
| · | A                  $2 million increase related to several items at various subsidiaries,                  none                  of which is individually significant.                                                                                                                                                                                                                                                                                                                                                                     |
| · | A                  $17 million decrease at AEP Resources primarily related to a $2                  million                  favorable judgment on an Australian tax issue received in 2004,                  a $4                  million favorable entry in 2004 related to capitalized fuel during                  construction of the Dow Plant, $5 million of increased losses related                  to                  the Dow plant in 2005 and an unfavorable tax adjustment of $4 million                  booked in 2005. |
| · | A                  $3 million decrease at our IPPs resulting from an unfavorable tax                  adjustment in June 2005.                                                                                                                                                                                                                                                                                                                                                                                                            |

**All        Other**

**Income        Taxes**

**FINANCIAL        CONDITION**

**Capitalization**
**        ($ in millions)**

|                                                                          |   | **June                  30, 2005** |   | **December                  31, 2004** |   |
|-------------------------------------------------------------------------------|--------|------------------------------------|--------|----------------------------------------|--------|
| Common                  Shareholders’ Equity                            |   | $                                  | 8,382  |                                   |   | 41.1 | % | $ | 8,515 |   |   | 40.6 | % |
| Cumulative                  Preferred Stock                                   |   |                               | 61     |                                   |   | 0.3 |   |   | 61 |   |   | 0.3 |   |
| Cumulative                  Preferred Stock (Subject to Mandatory Redemption) |   |                               | -      |                                   |   | - |   |   | 66 |   |   | 0.3 |   |
| Long-term                  Debt, including amounts due within one year        |   |                               | 11,916 |                                   |   | 58.5 |   |   | 12,287 |   |   | 58.7 |   |
| Short-term                  Debt                                              |   |                               | 14     |                                   |   | 0.1 |   |   | 23 |   |   | 0.1 |   |
|                                                                          |   |                               |   |                                   |   |   |   |   |   |   |   |   |   |
| **Total                  Capitalization**                                     |   | $                                  | 20,373 |                                   |   | 100.0 | % | $ | 20,952 |   |   | 100.0 | % |

**Liquidity**

***Credit        Facilities***

|                                                          |   | **Amount**                         |   |  **Maturity** |   |
|---------------------------------------------------------------|--------|------------------------------------|--------|--------------------|--------|
|                                                          |   | **(in                  millions)** |   |          |   |
| Commercial                  Paper Backup:                     |   |                               |   |          |   |
|   Revolving                Credit Facility          |   | $                                  | 1,000  |               |   | May                  2007 |   |
|   Revolving                Credit Facility          |   |                               | 1,500  |               |   | March                  2010 |   |
| Letter                  of Credit Facility                    |   |                               | 200    |               |   | September                  2006 |   |
| **Total**                                                     |   |                               | 2,700  |               |   |   |   |
| Cash                  and Cash Equivalents                    |   |                               | 607    |               |   |   |   |
| **Total                  Liquidity Sources**                  |   |                               | 3,307  |               |   |   |   |
| Less:                  AEP Commercial Paper Outstanding       |   |                               | -      | (a)                |   |   |   |
|   Letters                of Credit Outstanding      |   |                               | 50     |               |   |   |   |
|                                                          |   |                               |   |               |   |   |   |
| **Net                  Available Liquidity at June 30, 2005** |   | $                                  | 3,257  |               |   |   |   |

| (a) | Amount                  does not include JMG commercial paper outstanding in the amount                  of $14                  million. This commercial paper is specifically associated with                  the Gavin                  scrubber and does not reduce AEP’s available liquidity. The JMG commercial                  paper is supported by a separate letter of credit facility not                  included                  above. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Debt        Covenants and Borrowing Limitations***

***Credit        Ratings***

|                                   |   | **Moody’s** |   | **S&P** |   | **Fitch** |   |
|----------------------------------------|--------|-------------------|--------|-------------|--------|-----------|--------|
|                                   |   |              |   |        |   |      |   |
| Short-term                  Debt       |   |              | P-3    |        |   | A-2       |   |   | F-2 |   |
| Senior                  Unsecured Debt |   |              | Baa3   |        |   | BBB       |   |   | BBB |   |

**Cash        Flow **
** **

|                                                                  |   | **Six                  Months Ended June 30,** |   |
|-----------------------------------------------------------------------|--------|------------------------------------------------|--------|
|                                                                  |   | **2005**                                       |   | **2004** |   |
|                                                                  |   | **(in                  millions)**             |   |
| **Cash                  and Cash Equivalents at Beginning of Period** |   | $                                              | 320    |   | $ | 778 |   |
| Cash                  Flows From (Used For):                          |   |                                           |   |   |   |   |   |
| Operating                  Activities                                 |   |                                           | 894    |   |   | 1,275 |   |
| Investing                  Activities                                 |   |                                           | 484    |   |   | (565 | ) |
| Financing                  Activities                                 |   |                                           | (1,091 | ) |   | (825 | ) |
| Net                  Increase (Decrease) in Cash and Cash Equivalents |   |                                           | 287    |   |   | (115 | ) |
| **Cash                  and Cash Equivalents at End of Period**       |   | $                                              | 607    |   | $ | 663 |   |
| **Other                  Temporary Cash Investments**                 |   | $                                              | 275    |   | $ | 403 |   |

***Operating        Activities***

|                                                              |   | **Six                  Months Ended June 30,** |   |
|-------------------------------------------------------------------|--------|------------------------------------------------|--------|
|                                                              |   | **2005**                                       |   | **2004** |   |
|                                                              |   | **(in                  millions)**             |   |
| **Net                  Income**                                   |   | $                                              | 576    |   | $ | 382 |   |
| Plus:                  (Income) Loss From Discontinued Operations |   |                                           | (4     | ) |   | 58 |   |
| **Income                  from Continuing Operations**            |   |                                           | 572    |   |   | 440 |   |
| Noncash                  Items Included in Earnings               |   |                                           | 594    |   |   | 797 |   |
| Changes                  in Assets and Liabilities                |   |                                           | (272   | ) |   | 38 |   |
| **Net                  Cash Flows From Operating Activities**     |   | $                                              | 894    |   | $ | 1,275 |   |

***Investing        Activities***

|                                                                     |   | **Six                  Months Ended June 30,** |   |
|--------------------------------------------------------------------------|--------|------------------------------------------------|--------|
|                                                                     |   | **2005**                                       |   | **2004** |   |
|                                                                     |   | **(in                  millions)**             |   |
| Construction                  Expenditures                               |   | $                                              | (1,018 | ) | $ | (690 | ) |
| Change                  in Other Temporary Cash Investments, Net         |   |                                           | (103   | ) |   | (1 | ) |
| Purchases                  of Auction Rate Securities                    |   |                                           | (1,338 | ) |   | (201 | ) |
| Proceeds                  from the Sale of Auction Rate Securities       |   |                                           | 1,441  |   |   | 203 |   |
| Proceeds                  from Sale of Assets                            |   |                                           | 1,500  |   |   | 131 |   |
| Other                                                                    |   |                                           | 2      |   |   | (7 | ) |
| **Net                  Cash Flows From (Used For) Investing Activities** |   | $                                              | 484    |   | $ | (565 | ) |

***Financing        Activities***

|                                                              |   | **Six                  Months Ended June 30,** |   |
|-------------------------------------------------------------------|--------|------------------------------------------------|--------|
|                                                              |   | **2005**                                       |   | **2004** |   |
|                                                              |   | **(in                  millions)**             |   |
| Issuance                  of Common Stock                         |   | $                                              | 28     |   | $ | 11 |   |
| Repurchase                  of Common Stock                       |   |                                           | (427   | ) |   | - |   |
| Issuance/Retirement                  of Debt, net                 |   |                                           | (353   | ) |   | (555 | ) |
| Retirement                  of Preferred Stock                    |   |                                           | (66    | ) |   | (4 | ) |
| Dividends                  Paid on Common Stock                   |   |                                           | (273   | ) |   | (277 | ) |
| **Net                  Cash Flows Used For Financing Activities** |   | $                                              | (1,091 | ) | $ | (825 | ) |

**Off-balance        Sheet Arrangements**

**Summary        Obligation Information**

**SIGNIFICANT        MATTERS**

**Texas        Regulatory Activity**

***Texas        Restructuring***

***TCC        Rate Case***

**Ohio        Regulatory Activity**

***Ohio        Restructuring***

***Integrated        Gasification Combined Cycle (IGCC) Power Plant***

**Oklahoma        Regulatory Activity**

***PSO        Rate Review***

***PSO        Fuel and Purchased Power***

**Virginia        and West Virginia Regulatory Activity**

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

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

**FERC        Order on Regional Through and Out Rates **

**Litigation**

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

***Merger        Litigation***

***Texas        Commercial Energy, LLP Lawsuit***

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

**Environmental        Matters **

| · | Legislative                  and regulatory proposals to adopt stringent controls on SO2,                  NOx                  and mercury emissions from coal-fired power plants, |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Clean                  Water Act rules 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.                 |

***Future        Reduction Requirements for SO***
***2***

***,        NO***
***x***

***and Mercury***

*Regulatory        Emissions Reductions*

| · | The                  Federal EPA proposed a Clean Air Interstate Rule (CAIR) to reduce                  SO2                  and NOx                  emissions across the Eastern United States (29 states and the District                  of                  Columbia) and make progress toward attainment of the new fine particulate                  matter and ground-level ozone national ambient air quality standards.                  These reductions could also satisfy these states’ obligations to make                  reasonable progress towards the national visibility goal under                  the                  regional haze program. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | The                  Federal EPA proposed to regulate mercury emissions from coal-fired                  electric generating units.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

***New        Source Review Litigation***

***Emergency        Release Reporting***

**Critical        Accounting Estimates**

----

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

**Market        Risks**

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

**MTM        Risk Management Contract Net Assets**

**Six        Months Ended June 30, 2005**

**(in        millions)**

|                                                                                                                                                                                       |   | **Utility                  Operations** |   | **Investments-Gas                  Operations** |   | **Investments-UK                  Operations** |   | **Total** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------------------|--------|------------------------------------------------|--------|-----------|--------|
| **Total                  MTM Risk Management****Contract                  Net Assets   ****                   (Liabilities) at****December                  31, 2004** |   | $                                       | 277    |                                            | $      | -                                              |   | $         | (12    | ) | $ | 265 |   |
| (Gain)                  Loss from Contracts Realized/Settled                  During the Period (a)                                                                                        |   |                                    | (52    | )                                               |   | (4                                             | )      |      | 12     |   |   | (44 | ) |
| Fair                  Value of New Contracts When Entered                  During the Period (b)                                                                                           |   |                                    | 2      |                                            |   | -                                              |   |      | -      |   |   | 2 |   |
| Net                  Option Premiums Paid/(Received) (c)                                                                                                                                   |   |                                    | (1     | )                                               |   | -                                              |   |      | -      |   |   | (1 | ) |
| Change                  in Fair Value Due to Valuation Methodology                  Changes                                                                                                |   |                                    | -      |                                            |   | -                                              |   |      | -      |   |   | - |   |
| Changes                  in Fair Value of Risk Management                  Contracts (d)                                                                                                   |   |                                    | 30     |                                            |   | (3                                             | )      |      | -      |   |   | 27 |   |
| Changes                  in Fair Value of Risk Management                  Contracts Allocated to  Regulated                  Jurisdictions (e)                                  |   |                                    | (13    | )                                               |   | -                                              |   |      | -      |   |   | (13 | ) |
| **Total                  MTM Risk Management Contract****Net                  Assets****                   (Liabilities) at****June                  30, 2005**                       |   | $                                       | 243    |                                            | $      | (7                                             | )      | $         | -      |   |   | 236 |   |
| Net                  Cash Flow and Fair Value Hedge Contracts (f)                                                                                                                          |   |                                    |   |                                            |   |                                           |   |      |   |   |   | (37 | ) |
| **Ending                  Net Risk Management Assets at****June                  30, 2005**                                                                                                |   |                                    |   |                                            |   |                                           |   |      |   |   | $ | 199 |   |

| (a) | “(Gain)                  Loss from Contracts Realized/Settled During the Period” includes realized                  gains from risk management contracts and related derivatives that                  settled                  during 2005 where we entered into the contract prior to                  2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Fair                  Value of New Contracts When Entered During the Period” represents the fair                  value at inception of long-term contracts entered into with customers                  during 2005. 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. |
| (c) | “Net                  Option Premiums Paid/(Received)” reflects the net option premiums                  paid/(received) as they relate to unexercised and unexpired option                  contracts entered in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (d) | “Changes                  in Fair Value of Risk Management Contracts” represents the fair value                  change in the risk management portfolio due to market fluctuations                  during                  the current period. Market fluctuations are attributable to various                  factors such as supply/demand, weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (e) | “Changes                  in Fair Value of Risk Management Contracts 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 assets/liabilities                  for                  those subsidiaries that operate in regulated                  jurisdictions.                                                                                                                                                                                                                                                                                                          |
| (f) | “Net                  Cash Flow and Fair Value Hedge Contracts” (pretax) are discussed in detail                  within the following pages.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

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

**As        of June 30, 2005**

**(in        millions)**

|                                                                                                        |   | **Utility                  Operations** |   | **Investments-Gas                  Operations** |   | **Total** |   |
|-------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------------------|--------|-----------|--------|
| Current                  Assets                                                                             |   | $                                       | 376    |                                            | $      | 222       |   | $ | 598 |   |
| Noncurrent                  Assets                                                                          |   |                                    | 529    |                                            |   | 164       |   |   | 693 |   |
| **Total                  Assets**                                                                           |   |                                    | 905    |                                            |   | 386       |   |   | 1,291 |   |
|                                                                                                        |   |                                    |   |                                            |   |      |   |   |   |   |
| Current                  Liabilities                                                                        |   |                                    | (325   | )                                               |   | (217      | )      |   | (542 | ) |
| Noncurrent                  Liabilities                                                                     |   |                                    | (337   | )                                               |   | (176      | )      |   | (513 | ) |
| **Total                  Liabilities**                                                                      |   |                                    | (662   | )                                               |   | (393      | )      |   | (1,055 | ) |
|                                                                                                        |   |                                    |   |                                            |   |      |   |   |   |   |
| **Total                  Net Assets (Liabilities),**   **excluding                  Hedges** |   | $                                       | 243    |                                            | $      | (7        | )      | $ | 236 |   |

**Reconciliation        of MTM Risk Management Contracts to**

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

**As        of June 30, 2005**

**(in        millions)**

|                                                           |   | **MTM                  Risk Management Contracts (a)** |   | **PLUS:****Hedges** |   | **Total                  (b)** |   |
|----------------------------------------------------------------|--------|--------------------------------------------------------|--------|---------------------|--------|--------------------------------|--------|
| Current                  Assets                                |   | $                                                      | 598    |                | $      | 1                              |   | $ | 599 |   |
| Noncurrent                  Assets                             |   |                                                   | 693    |                |   | 1                              |   |   | 694 |   |
| **Total                  MTM Derivative Contract Assets**      |   |                                                   | 1,291  |                |   | 2                              |   |   | 1,293 |   |
|                                                           |   |                                                   |   |                |   |                           |   |   |   |   |
| Current                  Liabilities                           |   |                                                   | (542   | )                   |   | (36                            | )      |   | (578 | ) |
| Noncurrent                  Liabilities                        |   |                                                   | (513   | )                   |   | (3                             | )      |   | (516 | ) |
| **Total                  MTM Derivative Contract Liabilities** |   |                                                   | (1,055 | )                   |   | (39                            | )      |   | (1,094 | ) |
|                                                           |   |                                                   |   |                |   |                           |   |   |   |   |
| **Total                  MTM Derivative Contract Net Assets**  |   | $                                                      | 236    |                | $      | (37                            | )      | $ | 199 |   |

| (a) | Does                  not include Cash Flow and Fair Value Hedges.                                                                                                                                                                                                                                                                     |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Represents                  amount of total MTM derivative contracts recorded within Risk Management                  Assets, Long-term Risk Management Assets, Risk Management Liabilities                  and                  Long-term Risk Management Liabilities on our Condensed Consolidated                  Balance Sheets. |

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

| · | The                  source of 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 June 30, 2005**

**(in        millions)**

|                                                                                                |   | **Remainder                  2005** |   | **2006**     |   | **2007**     |   | **2008**     |   | **2009**     |   | **After                  2009 (c)** |   | **Total                  (d)** |   |
|-----------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|--------------|--------|--------------|--------|--------------|--------|--------------|--------|-------------------------------------|--------|--------------------------------|--------|
| **Utility                  Operations:**                                                            |   |                           |   |    |   |    |   |    |   |    |   |                           |   |                      |   |
| Prices                  Actively Quoted - Exchange Traded                  Contracts                |   | $                                   | (32    | )            | $      | 6            |   | $            | 23     |         | $      | -                                   |   | $                              | -      |   | $ | - |   | $ | (3 | ) |
| Prices                  Provided by Other External Sources                  - OTC Broker Quotes (a) |   |                                | 99     |         |   | 107          |   |         | 52     |         |   | 39                                  |   |                           | -      |   |   | - |   |   | 297 |   |
| Prices                  Based on Models and Other Valuation                  Methods (b)            |   |                                | (40    | )            |   | (60          | )      |         | (18    | )            |   | 7                                   |   |                           | 33     |   |   | 27 |   |   | (51 | ) |
| **Total**                                                                                           |   | $                                   | 27     |         | $      | 53           |   | $            | 57     |         | $      | 46                                  |   | $                              | 33     |   | $ | 27 |   | $ | 243 |   |
|                                                                                                |   |                                |   |         |   |         |   |         |   |         |   |                                |   |                           |   |   |   |   |   |   |   |   |
| **Investments                  - Gas Operations:**                                                  |   |                                |   |         |   |         |   |         |   |         |   |                                |   |                           |   |   |   |   |   |   |   |   |
| Prices                  Actively Quoted - Exchange Traded                  Contracts                |   | $                                   | (5     | )            | $      | (7           | )      | $            | 5      |         | $      | -                                   |   | $                              | -      |   | $ | - |   | $ | (7 | ) |
| Prices                  Provided by Other External Sources                  - OTC Broker Quotes (a) |   |                                | 20     |         |   | (3           | )      |         | (3     | )            |   | -                                   |   |                           | -      |   |   | - |   |   | 14 |   |
| Prices                  Based on Models and Other Valuation                  Methods (b)            |   |                                | (3     | )            |   | (3           | )      |         | -      |         |   | (2                                  | )      |                           | (4     | ) |   | (2 | ) |   | (14 | ) |
| **Total**                                                                                           |   | $                                   | 12     |         | $      | (13          | )      | $            | 2      |         | $      | (2                                  | )      | $                              | (4     | ) | $ | (2 | ) | $ | (7 | ) |
|                                                                                                |   |                                |   |         |   |         |   |         |   |         |   |                                |   |                           |   |   |   |   |   |   |   |   |
| **Total:**                                                                                          |   |                                |   |         |   |         |   |         |   |         |   |                                |   |                           |   |   |   |   |   |   |   |   |
| Prices                  Actively Quoted - Exchange Traded                  Contracts                |   | $                                   | (37    | )            | $      | (1           | )      | $            | 28     |         | $      | -                                   |   | $                              | -      |   | $ | - |   | $ | (10 | ) |
| Prices                  Provided by Other External Sources                  - OTC Broker Quotes (a) |   |                                | 119    |         |   | 104          |   |         | 49     |         |   | 39                                  |   |                           | -      |   |   | - |   |   | 311 |   |
| Prices                  Based on Models and Other Valuation                  Methods (b)            |   |                                | (43    | )            |   | (63          | )      |         | (18    | )            |   | 5                                   |   |                           | 29     |   |   | 25 |   |   | (65 | ) |
| **Total**                                                                                           |   | $                                   | 39     |         | $      | 40           |   | $            | 59     |         | $      | 44                                  |   | $                              | 29     |   | $ | 25 |   | $ | 236 |   |

| (a) | Prices                  Provided by Other External Sources- OTC Broker Quotes reflects                  information                  obtained from over-the-counter brokers (OTC), 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. |
| (c) | There                  is mark-to-market value in excess of 10 percent of our total                  mark-to-market value in individual periods beyond 2009. $24 million                  of                  this mark-to-market value is in 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (d) | Amounts                  exclude Cash Flow and Fair Value                  Hedges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

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

**As        of June 30, 2005**

| **Commodity**                |   | **Transaction                  Class**           |   | **Market/Region**                                          |   | **Tenor**                        |
|------------------------------|--------|--------------------------------------------------|--------|------------------------------------------------------------|--------|----------------------------------|
|                         |   |                                             |   |                                                       |   | **(in                  months)** |
| Natural                  Gas |   | Futures                                          |   | NYMEX/Henry                  Hub                           |   | 60                               |
|                         |   | Physical                  Forwards               |   | Gulf                  Coast, Texas                         |   | 36                               |
|                         |   | Swaps                                            |   | Gas                  East - Northeast, Mid-continent,      |   |                             |
|                         |   |                                             |   | Gulf                  Coast, Texas                         |   | 36                               |
|                         |   | Swaps                                            |   | Gas                  West - Rocky Mountains, West Coast    |   | 42                               |
|                         |   | Exchange                  Option Volatility      |   | NYMEX/Henry                  Hub                           |   | 12                               |
|                         |   |                                             |   |                                                       |   |                             |
| Power                        |   | Futures                                          |   | Power                  East - PJM                          |   | 36                               |
|                         |   | Physical                  Forwards               |   | Power                  East - MISO Cin Hub                 |   | 42                               |
|                         |   | Physical                  Forwards               |   | Power                  East - PJM West                     |   | 42                               |
|                         |   | Physical                  Forwards               |   | Power                  East - AEP Dayton (PJM)             |   | 18                               |
|                         |   | Physical                  Forwards               |   | Power                  East - NEPOOL                       |   | 42                               |
|                         |   | Physical                  Forwards               |   | Power                  East - NYPP                         |   | 42                               |
|                         |   | Physical                  Forwards               |   | Power                  East - ERCOT                        |   | 42                               |
|                         |   | Physical                  Forwards               |   | Power                  East - Com Ed                       |   | 18                               |
|                         |   | Physical                  Forwards               |   | Power                  East - Entergy                      |   | 6                                |
|                         |   | Physical                  Forwards               |   | Power                  West - Palo Verde, Mead             |   | 54                               |
|                         |   | Physical                  Forwards               |   | Power                  West - North Path 15, South Path 15 |   | 54                               |
|                         |   | Physical                  Forwards               |   | Power                  West - Mid Columbia                 |   | 54                               |
|                         |   | Peak                  Power Volatility (Options) |   | Cinergy,                  PJM                              |   | 12                               |
|                         |   |                                             |   |                                                       |   |                             |
| Crude                  Oil   |   | Swaps                                            |   | West                  Texas Intermediate                   |   | 36                               |
|                         |   |                                             |   |                                                       |   |                             |
| Emissions                    |   | Credits                                          |   | SO2, NOx                                              |   | 42                               |
|                         |   |                                             |   |                                                       |   |                             |
| Coal                         |   | Physical                  Forwards               |   | PRB,                  NYMEX, CSX                           |   | 30                               |

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

**Cash        FlowHedges included in Accumulated Other Comprehensive Income        (Loss)**

**On        the Condensed Consolidated Balance Sheet as of June 30,        2005**

**(in        millions)**

|                           |   | **Accumulated                  Other Comprehensive Income****(Loss)                  After Tax (a)** |   | **After                  Tax****Portion                  Expected to be Reclassified to Earnings During the Next 12 Months                  (b)** |   |
|--------------------------------|--------|------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Power                  and Gas |   | $                                                                                                    | (19    | )                                                                                                                                                 | $      | (18 | ) |
| Interest                  Rate |   |                                                                                                 | (32    | )                                                                                                                                                 |   | (5 | ) |
|                           |   |                                                                                                 |   |                                                                                                                                              |   |   |   |
| **Total**                      |   | $                                                                                                    | (51    | )                                                                                                                                                 | $      | (23 | ) |

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

**Six        Months Ended June 30, 2005**

**(in        millions)**

|                                                           |   | **Power                  and Gas** |   | **Interest****Rate** |   | **Total** |   |
|----------------------------------------------------------------|--------|------------------------------------|--------|----------------------|--------|-----------|--------|
| **Beginning                  Balance, December 31, 2004**      |   | $                                  | 23     |                 | $      | (23       | )      | $ | - |   |
| Changes                  in Fair Value (c)                     |   |                               | (15    | )                    |   | (12       | )      |   | (27 | ) |
| Reclassifications                  from AOCI to Net Income (d) |   |                               | (27    | )                    |   | 3         |   |   | (24 | ) |
| **Ending                  Balance, June 30, 2005**             |   | $                                  | (19    | )                    | $      | (32       | )      | $ | (51 | ) |

| (a) | “Accumulated                  Other Comprehensive Income (Loss) After Tax” - Gains/losses are net of                  related income taxes that have not yet been included in the determination                  of net income; reported as a separate component of shareholders’ equity on                  the balance sheet.                                                                                                                                                        |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “After                  Tax Portion Expected to be Reclassified to Earnings During the                  Next 12                  Months” - Amount of gains or losses (realized or unrealized) from                  derivatives used as hedging instruments that have been deferred                  and are                  expected to be reclassified into net income during the next 12                  months at                  the time the hedged transaction affects net income. |
| (c) | “Changes                  in Fair Value” - Changes in the fair value of derivatives designated as                  cash flow hedges during the reporting period that are not yet settled                  at                  June 30, 2005. Amounts are reported net of related income                  taxes.                                                                                                                                                                              |
| (d) | “Reclassifications                  from AOCI to Net Income” - Gains or losses from derivatives used as                  hedging instruments in cash flow hedges that were reclassified                  into Net                  Income during the reporting period. Amounts are reported net of                  related                  income taxes.                                                                                                                                   |

**Credit        Risk**

| **Counterparty                  Credit Quality** |   | **Exposure                  Before Credit Collateral** |   | **Credit                  Collateral** |   | **Net                  Exposure** |   | **Number                  of Counterparties >10%** |   | **Net                  Exposure of Counterparties >10%** |   |
|--------------------------------------------------|--------|--------------------------------------------------------|--------|----------------------------------------|--------|-----------------------------------|--------|-------------------------------------------------------|--------|-------------------------------------------------------------|--------|
| Investment                  Grade                |   | $                                                      | 767    |                                   | $      | 140                               |   | $                                                     | 627    |                                                        |   | 2 |   | $ | 178 |   |
| Split                  Rating                    |   |                                                   | 13     |                                   |   | 3                                 |   |                                                  | 10     |                                                        |   | 1 |   |   | 9 |   |
| Noninvestment                  Grade             |   |                                                   | 193    |                                   |   | 116                               |   |                                                  | 77     |                                                        |   | 3 |   |   | 66 |   |
| No                  External Ratings:            |   |                                                   |   |                                   |   |                              |   |                                                  |   |                                                        |   |   |   |   |   |   |
| Internal                  Investment Grade       |   |                                                   | 50     |                                   |   | -                                 |   |                                                  | 50     |                                                        |   | 1 |   |   | 34 |   |
| Internal                  Noninvestment Grade    |   |                                                   | 25     |                                   |   | 6                                 |   |                                                  | 19     |                                                        |   | 2 |   |   | 17 |   |
| **Total**                                        |   | $                                                      | 1,048  |                                   | $      | 265                               |   | $                                                     | 783    |                                                        |   | 9 |   | $ | 304 |   |

**Generation        Plant Hedging Information**

**Generation        Plant Hedging Information**

**Estimated        Next Three Years**

**As        of June 30, 2005**

|                                           |   | **Remainder                  2005** |   | **2006** |   | **2007** |   |
|------------------------------------------------|--------|-------------------------------------|--------|----------|--------|----------|--------|
| Estimated                  Plant Output Hedged |   |                                | 91     | %        |   | 85       | %      |   | 85 | % |

**VaR        Associated with Risk Management Contracts**

**VaR        Model**

| **Six                  Months Ended****June                  30, 2005** |   |     |   |        | **Twelve                  Months Ended****December                  31, 2004** |
|-------------------------------------------------------------------------|--------|----------|--------|-------------|--------------------------------------------------------------------------------|
|                                                                    |   |     |   |
| **(in                  millions)**                                      |   |     |   |        | **(in                  millions)**                                             |
| **End**                                                                 |   | **High** |   | **Average** |                                                                           | **Low** |   |   |   |   | **End** |   | **High** |   | **Average** |   | **Low** |
| $4                                                                      |   | $5       |   | $2          |                                                                           | $1 |   |   |   |   | $3 |   | $19 |   | $5 |   | $1 |

**CCRO        VaR Metrics**

**(in        millions)**

|                                                                           |   | **June                  30, 2005** |   | **Average                  for****Year-to-Date                  2005** |   | **High                  for****Year-to-Date                  2005** |   | **Low                  for Year-to-Date 2005** |   |
|--------------------------------------------------------------------------------|--------|------------------------------------|--------|------------------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|------------------------------------------------|--------|
| 95%                  Confidence Level, Ten-Day Holding                  Period |   | $                                  | 15     |                                                                   | $      | 9                                                                   |   | $                                              | 17     |   | $ | 5 |   |
|                                                                           |   |                               |   |                                                                   |   |                                                                |   |                                           |   |   |   |   |   |
| 99%                  Confidence Level, One-Day Holding                  Period |   | $                                  | 6      |                                                                   | $      | 4                                                                   |   | $                                              | 7      |   | $ | 2 |   |

----

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

**CONDENSED        CONSOLIDATED STATEMENTS OF INCOME**

**For        the Three and Six Months Ended June 30, 2005 and 2004**

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

**(Unaudited)**

|                                                                           |   | **Three                  Months Ended** |   | **Six                  Months Ended** |   |
|--------------------------------------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                                                           |   | **2005**                                |   | **2004**                              |   | **2005** |   | **2004** |   |
| **REVENUES**                                                                   |   |                               |   |                             |   |   |   |   |   |
| Utility                  Operations                                            |   | $                                       | 2,649  |                                  | $      | 2,508 |   | $ | 5,186 |   | $ | 5,089 |   |
| Gas                  Operations                                                |   |                                    | 19     |                                  |   | 779 |   |   | 376 |   |   | 1,431 |   |
| Other                                                                          |   |                                    | 105    |                                  |   | 124 |   |   | 194 |   |   | 255 |   |
| **TOTAL**                                                                      |   |                                    | 2,773  |                                  |   | 3,411 |   |   | 5,756 |   |   | 6,775 |   |
|                                                                           |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **EXPENSES**                                                                   |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Fuel                  for Electric Generation                                  |   |                                    | 772    |                                  |   | 734 |   |   | 1,543 |   |   | 1,428 |   |
| Purchased                  Electricity for Resale                              |   |                                    | 183    |                                  |   | 87 |   |   | 313 |   |   | 170 |   |
| Purchased                  Gas for Resale                                      |   |                                    | 1      |                                  |   | 701 |   |   | 250 |   |   | 1,286 |   |
| Maintenance                  and Other Operation                               |   |                                    | 873    |                                  |   | 978 |   |   | 1,663 |   |   | 1,842 |   |
| Depreciation                  and Amortization                                 |   |                                    | 325    |                                  |   | 320 |   |   | 652 |   |   | 639 |   |
| Taxes                  Other Than Income Taxes                                 |   |                                    | 173    |                                  |   | 181 |   |   | 361 |   |   | 374 |   |
| **TOTAL**                                                                      |   |                                    | 2,327  |                                  |   | 3,001 |   |   | 4,782 |   |   | 5,739 |   |
|                                                                           |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                          |   |                                    | 446    |                                  |   | 410 |   |   | 974 |   |   | 1,036 |   |
|                                                                           |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Other                  Income                                                  |   |                                    | 106    |                                  |   | 59 |   |   | 345 |   |   | 121 |   |
| Other                  Expense                                                 |   |                                    | (40    | )                                     |   | (38 | ) |   | (106 | ) |   | (74 | ) |
| Investment                  Value Losses                                       |   |                                    | -      |                                  |   | (2 | ) |   | - |   |   | (2 | ) |
|                                                                           |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **INTEREST                  AND OTHER CHARGES**                                |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Interest                  Expense                                              |   |                                    | 188    |                                  |   | 199 |   |   | 361 |   |   | 398 |   |
| Preferred                  Stock Dividend Requirements of Subsidiaries         |   |                                    | 3      |                                  |   | 1 |   |   | 5 |   |   | 3 |   |
| **TOTAL**                                                                      |   |                                    | 191    |                                  |   | 200 |   |   | 366 |   |   | 401 |   |
|                                                                           |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE INCOME TAXES**                                |   |                                    | 321    |                                  |   | 229 |   |   | 847 |   |   | 680 |   |
| Income                  Taxes                                                  |   |                                    | 103    |                                  |   | 78 |   |   | 275 |   |   | 240 |   |
|                                                                           |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **INCOME                  BEFORE DISCONTINUED OPERATIONS**                     |   |                                    | 218    |                                  |   | 151 |   |   | 572 |   |   | 440 |   |
|                                                                           |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **DISCONTINUED                  OPERATIONS, Net of Tax**                       |   |                                    | 3      |                                  |   | (51 | ) |   | 4 |   |   | (58 | ) |
|                                                                           |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                                                |   | $                                       | 221    |                                  | $      | 100 |   | $ | 576 |   | $ | 382 |   |
|                                                                           |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **WEIGHTED                  AVERAGE NUMBER OF SHARES   OUTSTANDING** |   |                                    | 384    |                                  |   | 396 |   |   | 389 |   |   | 396 |   |
|                                                                           |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **EARNINGS                  PER SHARE**                                        |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Income                  Before Discontinued Operations                         |   | $                                       | 0.57   |                                  | $      | 0.38 |   | $ | 1.47 |   | $ | 1.11 |   |
| Discontinued                  Operations                                       |   |                                    | 0.01   |                                  |   | (0.13 | ) |   | 0.01 |   |   | (0.15 | ) |
| **TOTAL                  EARNINGS PER SHARE (BASIC AND DILUTIVE)**             |   | $                                       | 0.58   |                                  | $      | 0.25 |   | $ | 1.48 |   | $ | 0.96 |   |
|                                                                           |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **CASH                  DIVIDENDS PAID PER SHARE**                             |   | $                                       | 0.35   |                                  | $      | 0.35 |   | $ | 0.70 |   | $ | 0.70 |   |

*See        Condensed Notes to Consolidated Financial Statements.*

----

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

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**June        30, 2005 and December 31, 2004**

**(in        millions)**

**(Unaudited)**

|                                                                 |   | **2005**     |   | **2004**     |   |
|----------------------------------------------------------------------|--------|--------------|--------|--------------|--------|
| **CURRENT                  ASSETS**                                  |   |    |   |    |   |
| Cash                  and Cash Equivalents                           |   | $            | 607    |         | $      | 320 |   |
| Other                  Temporary Cash Investments                    |   |         | 275    |         |   | 275 |   |
| Accounts                  Receivable:                                |   |         |   |         |   |   |   |
| Customers                                                            |   |         | 717    |         |   | 930 |   |
| Accrued                  Unbilled Revenues                           |   |         | 354    |         |   | 592 |   |
| Miscellaneous                                                        |   |         | 33     |         |   | 79 |   |
| Allowance                  for Uncollectible Accounts                |   |         | (46    | )            |   | (77 | ) |
| Total                  Accounts Receivable                           |   |         | 1,058  |         |   | 1,524 |   |
| Fuel,                  Materials and Supplies                        |   |         | 729    |         |   | 852 |   |
| Risk                  Management Assets                              |   |         | 599    |         |   | 737 |   |
| Margin                  Deposits                                     |   |         | 112    |         |   | 113 |   |
| Other                                                                |   |         | 150    |         |   | 200 |   |
| **TOTAL**                                                            |   |         | 3,530  |         |   | 4,021 |   |
|                                                                 |   |         |   |         |   |   |   |
| **PROPERTY,                  PLANT AND EQUIPMENT**                   |   |         |   |         |   |   |   |
| Electric:                                                            |   |         |   |         |   |   |   |
| Production                                                           |   |         | 16,346 |         |   | 15,969 |   |
| Transmission                                                         |   |         | 6,369  |         |   | 6,293 |   |
| Distribution                                                         |   |         | 10,471 |         |   | 10,280 |   |
| Other                  (including gas, coal mining and nuclear fuel) |   |         | 3,093  |         |   | 3,585 |   |
| Construction                  Work in Progress                       |   |         | 1,296  |         |   | 1,159 |   |
| **Total**                                                            |   |         | 37,575 |         |   | 37,286 |   |
| Accumulated                  Depreciation and Amortization           |   |         | 14,682 |         |   | 14,485 |   |
| **TOTAL                  - NET**                                     |   |         | 22,893 |         |   | 22,801 |   |
|                                                                 |   |         |   |         |   |   |   |
| **OTHER                  NONCURRENT ASSETS**                         |   |         |   |         |   |   |   |
| Regulatory                  Assets                                   |   |         | 3,707  |         |   | 3,601 |   |
| Securitized                  Transition Assets                       |   |         | 622    |         |   | 642 |   |
| Spent                  Nuclear Fuel and Decommissioning Trusts       |   |         | 1,095  |         |   | 1,053 |   |
| Investments                  in Power and Distribution Projects      |   |         | 138    |         |   | 154 |   |
| Goodwill                                                             |   |         | 76     |         |   | 76 |   |
| Long-term                  Risk Management Assets                    |   |         | 694    |         |   | 470 |   |
| Prepaid                  Pension Obligations                         |   |         | 384    |         |   | 386 |   |
| Other                                                                |   |         | 754    |         |   | 831 |   |
| **TOTAL**                                                            |   |         | 7,470  |         |   | 7,213 |   |
|                                                                 |   |         |   |         |   |   |   |
| **Assets                  Held for Sale**                            |   |         | 46     |         |   | 628 |   |
|                                                                 |   |         |   |         |   |   |   |
| **TOTAL                  ASSETS**                                    |   | $            | 33,939 |         | $      | 34,663 |   |

*See        Condensed Notes to Consolidated Financial Statements.*

----

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

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**LIABILITIES        AND SHAREHOLDERS’ EQUITY**

**June        30, 2005 and December 31, 2004**

**(Unaudited)**

|                                                                                                                                                      |   | **2005**                           |        | **2004** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|-------------|----------|--------|
| **CURRENT                  LIABILITIES**                                                                                                                  |   | **(in                  millions)** |        |
| Accounts                  Payable                                                                                                                         | $      | 925                                |        | $        | 1,051  |   |
| Short-term                  Debt                                                                                                                          |   | 14                                 |        |     | 23     |   |
| Long-term                  Debt Due Within One Year (a)                                                                                                   |   | 1,064                              |        |     | 1,279  |   |
| Cumulative                  Preferred Stocks of Subsidiaries Subject to Mandatory Redemption                                                              |   | -                                  |        |     | 66     |   |
| Risk                  Management Liabilities                                                                                                              |   | 578                                |        |     | 608    |   |
| Accrued                  Taxes                                                                                                                            |   | 788                                |        |     | 611    |   |
| Accrued                  Interest                                                                                                                         |   | 180                                |        |     | 180    |   |
| Customer                  Deposits                                                                                                                        |   | 380                                |        |     | 414    |   |
| Other                                                                                                                                                     |   | 602                                |        |     | 775    |   |
| **TOTAL**                                                                                                                                                 |   | 4,531                              |        |     | 5,007  |   |
|                                                                                                                                                      |   |                               |        |     |   |   |
| **NONCURRENT                  LIABILITIES**                                                                                                               |   |                               |        |     |   |   |
| Long-term                  Debt (a)                                                                                                                       |   | 10,852                             |        |     | 11,008 |   |
| Long-term                  Risk Management Liabilities                                                                                                    |   | 516                                |        |     | 329    |   |
| Deferred                  Income Taxes                                                                                                                    |   | 4,663                              |        |     | 4,819  |   |
| Regulatory                  Liabilities and Deferred Investment Tax Credits                                                                               |   | 2,618                              |        |     | 2,540  |   |
| Asset                  Retirement Obligations                                                                                                             |   | 860                                |        |     | 827    |   |
| Employee                  Benefits and Pension Obligations                                                                                                |   | 546                                |        |     | 730    |   |
| Deferred                  Gain on Sale and Leaseback - Rockport Plant Unit 2                                                                              |   | 162                                |        |     | 166    |   |
| Deferred                  Credits and Other                                                                                                               |   | 747                                |        |     | 411    |   |
| **TOTAL**                                                                                                                                                 |   | 20,964                             |        |     | 20,830 |   |
|                                                                                                                                                      |   |                               |        |     |   |   |
| **Liabilities                  Held for Sale**                                                                                                            |   | 1                                  |        |     | 250    |   |
|                                                                                                                                                      |   |                               |        |     |   |   |
| **TOTAL                  LIABILITIES**                                                                                                                    |   | 25,496                             |        |     | 26,087 |   |
|                                                                                                                                                      |   |                               |        |     |   |   |
| **Cumulative                  Preferred Stock Not Subject to Mandatory                  Redemption**                                                      |   | 61                                 |        |     | 61     |   |
|                                                                                                                                                      |   |                               |        |     |   |   |
| Commitments                  and Contingencies (Note 5)                                                                                                   |   |                               |        |     |   |   |
|                                                                                                                                                      |   |                               |        |     |   |   |
| **COMMON                  SHAREHOLDERS’ EQUITY**                                                                                                    |   |                               |        |     |   |   |
| Common                  Stock Par Value $6.50:                                                                                                            |   |                               |        |     |   |   |
|                                                                                                                                                      |   |                               | 2005        |     |   | 2004 |   |   |   |   |   |   |   |
| Shares                  Authorized                                                                                                                        |   |                               | 600,000,000 |     |   | 600,000,000 |   |   |   |   |   |   |   |
| Shares                  Issued                                                                                                                            |   |                               | 405,896,571 |     |   | 404,858,145 |   |   |   |   |   |   |   |
| (21,499,992                  and 8,999,992 shares were held in treasury at June 30, 2005                  and  December 31, 2004, respectively) |   | 2,638                              |        |     | 2,632  |   |
| Paid-in                  Capital                                                                                                                          |   | 3,813                              |        |     | 4,203  |   |
| Retained                  Earnings                                                                                                                        |   | 2,327                              |        |     | 2,024  |   |
| Accumulated                  Other Comprehensive Income (Loss)                                                                                            |   | (396                               | )           |     | (344   | ) |
| **TOTAL**                                                                                                                                                 |   | 8,382                              |        |     | 8,515  |   |
|                                                                                                                                                      |   |                               |        |     |   |   |
| **TOTAL                  LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                     | $      | 33,939                             |        | $        | 34,663 |   |

*See        Condensed Notes to Consolidated Financial Statements.*

----

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

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For        the Six Months Ended June 30, 2005 and 2004**

**(in        millions)**

**(Unaudited)**

|                                                                                                               |   | **2005**     |   | **2004**     |   |
|--------------------------------------------------------------------------------------------------------------------|--------|--------------|--------|--------------|--------|
| **OPERATING                  ACTIVITIES**                                                                          |   |    |   |    |   |
| **Net                  Income**                                                                                    |   | $            | 576    |         | $      | 382 |   |
| Plus:                  (Income) Loss from Discontinued Operations                                                  |   |         | (4     | )            |   | 58 |   |
| **Income                  from Continuing Operations**                                                             |   |         | 572    |         |   | 440 |   |
| **Adjustments                  for Noncash Items:**                                                                |   |         |   |         |   |   |   |
| Depreciation                  and Amortization                                                                     |   |         | 652    |         |   | 639 |   |
| Accretion                  of Asset Retirement Obligations                                                         |   |         | 35     |         |   | 31 |   |
| Deferred                  Income Taxes                                                                             |   |         | (75    | )            |   | 92 |   |
| Deferred                  Investment Tax Credits                                                                   |   |         | (15    | )            |   | (13 | ) |
| Asset                  Impairments, Investment Value Losses and Other Related                  Charges             |   |         | -      |         |   | 2 |   |
| Carrying                  Costs                                                                                    |   |         | (56    | )            |   | - |   |
| Amortization                  of Deferred Property Taxes                                                           |   |         | 10     |         |   | (4 | ) |
| Mark-to-Market                  of Risk Management Contracts                                                       |   |         | 43     |         |   | 50 |   |
| Pension                  Contributions                                                                             |   |         | (204   | )            |   | (8 | ) |
| Over/Under                  Fuel Recovery                                                                          |   |         | (45    | )            |   | 70 |   |
| Gain                  on Sales of Assets                                                                           |   |         | (115   | )            |   | (3 | ) |
| Change                  in Other Noncurrent Assets                                                                 |   |         | (80    | )            |   | 10 |   |
| Change                  in Other Noncurrent Liabilities                                                            |   |         | (121   | )            |   | (34 | ) |
| **Changes                  in Certain Components of Working Capital:**                                             |   |         |   |         |   |   |   |
| Accounts                  Receivable, Net                                                                          |   |         | 155    |         |   | 157 |   |
| Fuel,                  Materials and Supplies                                                                      |   |         | (29    | )            |   | (144 | ) |
| Accounts                  Payable                                                                                  |   |         | 84     |         |   | (158 | ) |
| Taxes                  Accrued                                                                                     |   |         | 172    |         |   | 140 |   |
| Customer                  Deposits                                                                                 |   |         | (34    | )            |   | 83 |   |
| Interest                  Accrued                                                                                  |   |         | (5     | )            |   | (8 | ) |
| Other                  Current Assets                                                                              |   |         | 63     |         |   | 7 |   |
| Other                  Current Liabilities                                                                         |   |         | (113   | )            |   | (74 | ) |
| **Net                  Cash Flows From Operating Activities**                                                      |   |         | 894    |         |   | 1,275 |   |
|                                                                                                               |   |         |   |         |   |   |   |
| **INVESTING                  ACTIVITIES**                                                                          |   |         |   |         |   |   |   |
| Construction                  Expenditures                                                                         |   |         | (1,018 | )            |   | (690 | ) |
| Change                  in Other Temporary Cash Investments, Net                                                   |   |         | (103   | )            |   | (1 | ) |
| Purchases                  of Auction Rate Securities                                                              |   |         | (1,338 | )            |   | (201 | ) |
| Proceeds                  from the Sale of Auction Rate Securities                                                 |   |         | 1,441  |         |   | 203 |   |
| Proceeds                  from Sale of Assets                                                                      |   |         | 1,500  |         |   | 131 |   |
| Other                                                                                                              |   |         | 2      |         |   | (7 | ) |
| **Net                  Cash Flows From (Used For) Investing Activities**                                           |   |         | 484    |         |   | (565 | ) |
|                                                                                                               |   |         |   |         |   |   |   |
| **FINANCING                  ACTIVITIES**                                                                          |   |         |   |         |   |   |   |
| Issuance                  of Common Stock                                                                          |   |         | 28     |         |   | 11 |   |
| Repurchase                  of Common Stock                                                                        |   |         | (427   | )            |   | - |   |
| Issuance                  of Long-term Debt                                                                        |   |         | 1,660  |         |   | 243 |   |
| Change                  in Short-term Debt, Net                                                                    |   |         | 27     |         |   | 188 |   |
| Retirement                  of Long-term Debt                                                                      |   |         | (2,040 | )            |   | (986 | ) |
| Retirement                  of Preferred Stock                                                                     |   |         | (66    | )            |   | (4 | ) |
| Dividends                  Paid on Common Stock                                                                    |   |         | (273   | )            |   | (277 | ) |
| **Net                  Cash Flows Used For Financing Activities**                                                  |   |         | (1,091 | )            |   | (825 | ) |
|                                                                                                               |   |         |   |         |   |   |   |
| **Net                  Increase (Decrease) in Cash and Cash Equivalents**                                          |   |         | 287    |         |   | (115 | ) |
| **Cash                  and Cash Equivalents at Beginning of Period**                                              |   |         | 320    |         |   | 778 |   |
| **Cash                  and Cash Equivalents at End of Period**                                                    |   | $            | 607    |         | $      | 663 |   |
|                                                                                                               |   |         |   |         |   |   |   |
| **Net                  Increase in Cash and Cash Equivalents from Discontinued                  Operations**       |   | $            | -      |         | $      | 2 |   |
| **Cash                  and Cash Equivalents from Discontinued Operations - Beginning of                  Period** |   |         | -      |         |   | 13 |   |
| **Cash                  and Cash Equivalents from Discontinued Operations - End of                  Period**       |   | $            | -      |         | $      | 15 |   |
|   *See                  Condensed Notes to 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 Six Months Ended June 30, 2005 and 2004**

**(in        millions)**

**(Unaudited)**

|                                                                |                                                                                                                | **Common                  Stock** |   |       |   |                                 |   | **Accumulated                  Other Comprehensive Income (Loss)** |   |   |      |
|---------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|-----------------------------------|--------|------------|--------|--------------------------------------|--------|--------------------------------------------------------------------|--------|--------|-----------|
|                                                                |                                                                                                                | **Shares**                        |   | **Amount** |   | **Paid-in                  Capital** |   | **Retained                  Earnings**                             |   |   | **Total** |   |
| **DECEMBER                  31, 2003**                              |                                                                                                                |                              | 404    |       | **$**  | 2,626                                |   | $                                                                  | 4,184  |   | $         | 1,490 |   | $ | (426 | ) | $ | 7,874 |   |
| Issuance                  of Common Stock                           |                                                                                                                |                              | 1      |       |   | 4                                    |   |                                                               | 7      |   |      |   |   |   |   |   |   | 11 |   |
| Common                  Stock Dividends                             |                                                                                                                |                              |   |       |   |                                 |   |                                                               |   |   |      | (277 | ) |   |   |   |   | (277 | ) |
| Other                                                               |                                                                                                                |                              |   |       |   |                                 |   |                                                               | 2      |   |      |   |   |   |   |   |   | 2 |   |
| **TOTAL**                                                           |                                                                                                                |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   | 7,610 |   |
|                                                                |                                                                                                                |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                           |                                                                                                                |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
| **Other                  Comprehensive Income (Loss), Net of Tax:** |                                                                                                                |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
|                                                                | Foreign                  Currency Translation Adjustments,  Net                  of Tax of $0             |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | (1 | ) |   | (1 | ) |
|                                                                | Cash                  Flow Hedges, Net of Tax of $41                                                                |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | 75 |   |   | 75 |   |
|                                                                | Minimum                  Pension Liability, Net of Tax of $10                                                       |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | 17 |   |   | 17 |   |
| **NET                  INCOME**                                     |                                                                                                                |                              |   |       |   |                                 |   |                                                               |   |   |      | 382 |   |   |   |   |   | 382 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                     |                                                                                                                |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   | 473 |   |
| **JUNE                  30, 2004**                                  |                                                                                                                |                              | 405    |       | $      | 2,630                                |   | $                                                                  | 4,193  |   | $         | 1,595 |   | $ | (335 | ) | $ | 8,083 |   |
|                                                                |                                                                                                                |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
| **DECEMBER                  31, 2004**                              |                                                                                                                |                              | 405    |       | $      | 2,632                                |   | $                                                                  | 4,203  |   | $         | 2,024 |   | $ | (344 | ) | $ | 8,515 |   |
| Issuance                  of Common Stock                           |                                                                                                                |                              | 1      |       |   | 6                                    |   |                                                               | 22     |   |      |   |   |   |   |   |   | 28 |   |
| Common                  Stock Dividends                             |                                                                                                                |                              |   |       |   |                                 |   |                                                               |   |   |      | (273 | ) |   |   |   |   | (273 | ) |
| Repurchase                  of Common Stock                         |                                                                                                                |                              |   |       |   |                                 |   |                                                               | (427   | )      |      |   |   |   |   |   |   | (427 | ) |
| Other                                                               |                                                                                                                |                              |   |       |   |                                 |   |                                                               | 15     |   |      |   |   |   |   |   |   | 15 |   |
| **TOTAL**                                                           |                                                                                                                |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   | 7,858 |   |
|                                                                |                                                                                                                |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                           |                                                                                                                |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
| **Other                  Comprehensive Income (Loss), Net of Tax:** |                                                                                                                |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   |   |   |
|                                                                | Foreign                  Currency Translation Adjustments,  Net                  of Tax of                  $0 |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | (1 | ) |   | (1 | ) |
|                                                                | Cash                  Flow Hedges, Net of Tax of $28                                                                |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   | (51 | ) |   | (51 | ) |
| **NET                  INCOME**                                     |                                                                                                                |                              |   |       |   |                                 |   |                                                               |   |   |      | 576 |   |   |   |   |   | 576 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                     |                                                                                                                |                              |   |       |   |                                 |   |                                                               |   |   |      |   |   |   |   |   |   | 524 |   |
| **JUNE                  30, 2005**                                  |                                                                                                                |                              | 406    |       | $      | 2,638                                |   | $                                                                  | 3,813  |   | $         | 2,327 |   | $ | (396 | ) | $ | 8,382 |   |

*See        Condensed Notes to Consolidated Financial Statements.*

----

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

**CONDENSED        SCHEDULE OF CONSOLIDATED LONG-TERM DEBT**

**June        30, 2005 and December 31, 2004**

**(Unaudited)**

**(in        millions)**

|                                                      |   | **2005**     |   | **2004**     |   |
|-----------------------------------------------------------|--------|--------------|--------|--------------|--------|
|                                                      |   |    |   |    |   |
| First                  Mortgage Bonds                     |   | $            | 242    |         | $      | 417 |   |
| Defeased                  TCC First Mortgage Bonds (a)    |   |         | 84     |         |   | 84 |   |
| Installment                  Purchase Contracts           |   |         | 2,055  |         |   | 1,773 |   |
| Notes                  Payable                            |   |         | 928    |         |   | 939 |   |
| Senior                  Unsecured Notes                   |   |         | 7,292  |         |   | 7,717 |   |
| Securitization                  Bonds                     |   |         | 669    |         |   | 698 |   |
| Notes                  Payable to Trust                   |   |         | 113    |         |   | 113 |   |
| Equity                  Unit Senior Notes (b)             |   |         | 345    |         |   | 345 |   |
| Long-term                  DOE Obligation (c)             |   |         | 232    |         |   | 229 |   |
| Other                  Long-term Debt                     |   |         | 3      |         |   | 14 |   |
| Equity                  Unit Contract Adjustment Payments |   |         | 4      |         |   | 9 |   |
| Unamortized                  Discount, Net                |   |         | (51    | )            |   | (51 | ) |
|                                                      |   |         |   |         |   |   |   |
| **TOTAL                  LONG-TERM DEBT OUTSTANDING**     |   |         | 11,916 |         |   | 12,287 |   |
| Less                  Portion Due Within One Year         |   |         | 1,064  |         |   | 1,279 |   |
|                                                      |   |         |   |         |   |   |   |
| **TOTAL                  LONG-TERM PORTION**              |   | $            | 10,852 |         | $      | 11,008 |   |

| (a) | On                  May 7, 2004, we deposited cash and treasury securities of $125                  million                  with a trustee to defease all of TCC’s outstanding First Mortgage Bonds.                  Trust fund assets related to this obligation of $70 and $72 million                  are                  included in Other Temporary Cash Investments at June 30, 2005 and                  December                  31, 2004, respectively, and $22 million are included in Other Noncurrent                  Assets in the Condensed Consolidated Balance Sheets at both June                  30, 2005                  and December 31, 2004. Trust fund assets are restricted for exclusive                  use                  in funding the interest and principal due on the First Mortgage                  Bonds. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | In                  June 2005, we remarketed $345 million of 5.75% Equity Unit Senior                  Notes                  originally issued in June 2002 with new notes bearing a 4.709%                  interest                  rate. See “Remarketing of Senior Notes” section of Note                  11.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (c) | 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. I&M is the only AEP subsidiary                  that generated electric power with nuclear fuel prior to that date.                  Trust                  fund assets of $264 million and $262 million related to this obligation                  are included in Spent Nuclear Fuel and Decommissioning Trusts in                  the                  Condensed Consolidated Balance Sheets at June 30, 2005 and December                  31,                  2004, respectively.     |

----

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

**INDEX        OF 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. | Acquisitions,                  Dispositions, Discontinued Operations and Assets Held for Sale |
|  8. | Benefit                  Plans                                                                |
|  9. | Business                  Segments                                                            |
| 10.      | Income                  Taxes                                                                 |
| 11.      | Financing                  Activities                                                         |
| 12.      | Company-wide                  Staffing and Budget Review                                      |

----

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

**CONDENSED        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

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

***General***

***Other        Income and Other Expense***

|                                          |   | **Three                  Months Ended June 30,** |   | **Six                  Months Ended June 30,** |   |
|-----------------------------------------------|--------|--------------------------------------------------|--------|------------------------------------------------|--------|
|                                          |   | **2005**                                         |   | **2004**                                       |   | **2005** |   | **2004** |   |
|                                          |   | **(in                  millions)**               |   | **(in                  millions)**             |   |
| **Other                  Income:**            |   |                                        |   |                                      |   |    |   |    |   |
| Interest                  and Dividend Income |   | $                                                | 14     |                                           | $      | 5 |   | $ | 25 |   | $ | 11 |   |
| Equity                  Earnings              |   |                                             | 2      |                                           |   | 3 |   |   | 7 |   |   | 10 |   |
| Nonutility                  Revenue           |   |                                             | 29     |                                           |   | 29 |   |   | 92 |   |   | 58 |   |
| Gain                  on Sale of Texas REPs   |   |                                             | -      |                                           |   | - |   |   | 112 |   |   | - |   |
| Carrying                  Charges             |   |                                             | 36     |                                           |   | (1 | ) |   | 56 |   |   | 1 |   |
| Other                                         |   |                                             | 25     |                                           |   | 23 |   |   | 53 |   |   | 41 |   |
| **Total                  Other Income**       |   | $                                                | 106    |                                           | $      | 59 |   | $ | 345 |   | $ | 121 |   |
|                                          |   |                                             |   |                                           |   |   |   |   |   |   |   |   |   |
| **Other                  Expense:**           |   |                                             |   |                                           |   |   |   |   |   |   |   |   |   |
| Nonutility                  Expense           |   | $                                                | 21     |                                           | $      | 23 |   | $ | 78 |   | $ | 51 |   |
| Other                                         |   |                                             | 19     |                                           |   | 15 |   |   | 28 |   |   | 23 |   |
| **Total                  Other Expense**      |   | $                                                | 40     |                                           | $      | 38 |   | $ | 106 |   | $ | 74 |   |

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

|                                                                  |   | **June                  30,**      |   | **December                  31,** |   |
|-----------------------------------------------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
|                                                                  |   | **2005**                           |   | **2004**                          |   |
| **Components**                                                        |   | **(in                  millions)** |   |
| Foreign                  Currency Translation Adjustments, net of tax |   | $                                  | 5      |                              | $      | 6 |   |
| Securities                  Available for Sale, net of tax            |   |                               | (1     | )                                 |   | (1 | ) |
| Cash                  Flow Hedges, net of tax                         |   |                               | (51    | )                                 |   | - |   |
| Minimum                  Pension Liability, net of tax                |   |                               | (349   | )                                 |   | (349 | ) |
| **Total**                                                             |   | $                                  | (396   | )                                 | $      | (344 | ) |

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

|                                                       |   | **Nuclear                  Decommissioning** |   | **Ash****Ponds** |   | **Wind                  Mills****and                  Mining Operations** |   | **Total** |   |
|------------------------------------------------------------|--------|----------------------------------------------|--------|------------------|--------|---------------------------------------------------------------------------|--------|-----------|--------|
|                                                       |   | **(in                  millions)**           |   |
| **ARO                  at January 1, 2005, Including STP** |   | $                                            | 960    |             | $      | 84                                                                        |   | $         | 32     |   | $ | 1,076 |   |
| Accretion                  Expense                         |   |                                         | 31     |             |   | 3                                                                         |   |      | 1      |   |   | 35 |   |
| Liabilities                  Incurred                      |   |                                         | -      |             |   | -                                                                         |   |      | 8      |   |   | 8 |   |
| ARO                  at June 30, 2005, Including STP       |   |                                         | 991    |             |   | 87                                                                        |   |      | 41     |   |   | 1,119 |   |
| Less                  ARO Liability for STP (a)            |   |                                         | (256   | )                |   | -                                                                         |   |      | -      |   |   | (256 | ) |
| **ARO                  at June 30, 2005**                  |   | $                                            | 735    |             | $      | 87                                                                        |   | $         | 41     |   | $ | 863 | (b) |

| (a) | The                  ARO for TCC’s share of STP was included in Liabilities Held for Sale at                  December 31, 2004 and was subsequently transferred to the buyer                  with the                  sale in the second quarter of 2005 (see “Texas Plants-South Texas Project”                  section of Note 7). |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | The                  current portion of our ARO, totaling $3 million, is included in                  Other in                  the Current Liabilities section in our Condensed Consolidated Balance                  Sheets.                                                                                                                             |

***Supplementary        Information***

|                                                                                                                                            |   | **Three                  Months Ended****June                  30,** |   | **Six                  Months Ended****June                  30,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|
|                                                                                                                                            |   | **2005**                                                             |   | **2004**                                                           |   | **2005** |   | **2004** |   |
| **Related                  Party Transactions**                                                                                                 |   | **(in                  millions)**                                   |   |
| AEP                  Consolidated Purchased Power - Ohio Valley  Electric                    Corporation (44.2% owned by AEP System ) |   | $                                                                    | 48     |                                                               | $      | 36 |   | $ | 91 |   | $ | 70 |   |

|                                                                                                                                                            |   | **Six                  Months Ended June 30,** |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|---------|
|                                                                                                                                                            |   | **2005**                                       |    | **2004** |   |
| **Cash                  Flow Information**                                                                                                                      |   | **(in                  millions)**             |    |
| Cash                  was paid (received) for:                                                                                                                  |   |                                      |    |    |   |
| Interest                  (net of capitalized amounts)                                                                                                          |   | $                                              | 322     |   | $ | 378 |   |
| Income                  Taxes                                                                                                                                   |   |                                           | 86      |   |   | (43 | ) |
| Change                  in construction-related Accounts Payable included in Investing                  Activities                  - Construction Expenditures |   |                                           |  9 |   |   |  (22 | )  |
| Noncash                  Investing and Financing Activities:                                                                                                    |   |                                           |    |   |   |   |   |
| Acquisitions                  Under Capital Leases                                                                                                              |   |                                           | 22      |   |   | 27 |   |
| (Disposition)                  of Liabilities Related to Divestitures                                                                                           |   |                                           | (22     | ) |   | (11 | ) |

***Reclassifications***

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

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

***SFAS        154 “Accounting Changes and Error Corrections” (SFAS        154)***

***FASB        Interpretation No. 47 “Accounting for Conditional Asset Retirement Obligations”        (FIN 47)***

***EITF        Issue 03-13 “Applying the Conditions in Paragraph 42 of FASB Statement No. 144,        Accounting for the Impairment or Disposal of Long-Lived Assets, in Determining        Whether to Report Discontinued Operations”***

***Future        Accounting Changes***

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

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

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

***I&M        Indiana Settlement Agreement***

***I&M        Michigan Fuel Recovery Plan***

***PSO        Fuel and Purchased Power***

***PSO        Lawton Power Supply Agreement***

***PSO        Rate Review***

***TCC        Rate Case***

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

***Unbundled        Cost of Service (UCOS) Appeal***

***Hold        Harmless Proceeding***

***FERC        Order on Regional Through and Out Rates***

***RTO        Formation/Integration Costs***

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

**OHIO        RESTRUCTURING **

**TEXAS        RESTRUCTURING**

***The        Components of TCC’s Recorded Net True-up Regulatory Asset (inclusive of        provisions) recorded as of June 30, 2005 and December 31, 2004 are:***

|                                                                                              |   | **TCC**                            |   |
|---------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                              |   | **June                  30, 2005** |   | **December                  31, 2004** |   |
|                                                                                              |   | **(in                  millions)** |   |
| Stranded                  Generation Plant Costs                                                  |   | $                                  | 887    |   | $ | 897 |   |
| Net                  Generation-related Regulatory Asset                                          |   |                               | 249    |   |   | 249 |   |
| Unrefunded                  Excess Earnings                                                       |   |                               | (3     | ) |   | (10 | ) |
| **Net                  Stranded Generation Costs**                                                |   |                               | 1,133  |   |   | 1,136 |   |
| Carrying                  Costs on Stranded Generation Plant Costs                                |   |                               | 215    |   |   | 225 |   |
| **Net                  Stranded Generation Costs Designated for                  Securitization** |   |                               | 1,348  |   |   | 1,361 |   |
|                                                                                              |   |                               |   |   |   |   |   |
| Wholesale                  Capacity Auction True-up                                               |   |                               | 483    |   |   | 483 |   |
| Carrying                  Costs on Wholesale Capacity Auction True-up                             |   |                               | 102    |   |   | 77 |   |
| Retail                  Clawback                                                                  |   |                               | (61    | ) |   | (61 | ) |
| Deferred                  Over-recovered Fuel Balance                                             |   |                               | (209   | ) |   | (212 | ) |
| **Net                  Other Recoverable True-up Amounts**                                        |   |                               | 315    |   |   | 287 |   |
| **Total                  Recorded Net True-up Regulatory Asset**                                  |   | $                                  | 1,663  |   | $ | 1,648 |   |

***The        Components of TNC’s Net True-up Regulatory Liability as of June 30, 2005 and        December 31, 2004 are:***

|                                                                 |   | **TNC**                            |   |
|----------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                 |   | **June                  30, 2005** |   | **December                  31, 2004** |   |
|                                                                 |   | **(in                  millions)** |   |
| Retail                  Clawback                                     |   | $                                  | (14    | ) | $ | (14 | ) |
| Deferred                  Over-recovered Fuel Balance                |   |                               | (5     | ) |   | (4 | ) |
| **Total                  Recorded Net True-up Regulatory Liability** |   | $                                  | (19    | ) | $ | (18 | ) |

***Deferred        Investment Tax Credits Included in Stranded Generation Plant        Costs***

***TCC        Fuel Reconciliation***

***TCC        Carrying Costs on Net True-up Regulatory Assets***

***TCC        Unrefunded Excess Earnings***

***TCC        True-up Proceeding***

***TNC        True-Up Proceeding***

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

**Environmental**

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

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

**Operational**

***TEM        Litigation***

***Merger        Litigation***

***Enron        Bankruptcy***
* *

***Enron        Bankruptcy - Right to use of cushion gas agreements***

***Enron        Bankruptcy -***
***Commodity        trading settlement disputes***

***Enron        Bankruptcy - Summary***

***Natural        Gas Markets Lawsuits***

***Cornerstone        Lawsuit***

***Texas        Commercial Energy, LLP Lawsuit***

***Bank        of Montreal Claim***

**6.**
**GUARANTEES**

**LETTERS        OF CREDIT**

**GUARANTEES        OF THIRD-PARTY OBLIGATIONS **

***SWEPCo***

**INDEMNIFICATIONS        AND OTHER GUARANTEES **

***Contracts***

***Master        Operating Lease***

***Railcar        Lease***

**7.**
**ACQUISITIONS,        DISPOSITIONS, DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE**

**ACQUISITIONS**

***Public        Service Enterprise Group (PSEG) Waterford Energy LLC (Utility Operations        segment)***

***Monongahela        Power Company (Utility Operations Segment)***

**DISPOSITIONS        COMPLETED AND ANTICIPATED BEING COMPLETED DURING 2005**

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

***Pacific        Hydro Limited (Investments - Other segment)***

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

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

***Texas        Plants - South Texas Project (Utility Operations        segment)***

**DISCONTINUED        OPERATIONS **

|                                          |   | **SEEBOARD                  (a)**  |   | **U.K.                  Operations (b)** |   | **Total** |   |
|-----------------------------------------------|--------|------------------------------------|--------|------------------------------------------|--------|-----------|--------|
|                                          |   | **(in                  millions)** |   |
| 2005                  Revenue                 |   | $                                  | -      |                                     | $      | -         |   | $ | - |   |
| 2005                  Pretax Income (Loss)    |   |                               | -      |                                     |   | -         |   |   | - |   |
| 2005                  Income (Loss) After tax |   |                               | 3      |                                     |   | -         |   |   | 3 |   |

|                                          |   | **Pushan                  Power Plant** |   | **LIG                  (c)** |   | **U.K.                  Operations** |   | **Total** |   |
|-----------------------------------------------|--------|-----------------------------------------|--------|------------------------------|--------|--------------------------------------|--------|-----------|--------|
|                                          |   | **(in                  millions)**      |   |
| 2004                  Revenue                 |   | $                                       | -      |                         | $      | 4                                    |   | $         | 34     |   | $ | 38 |   |
| 2004                  Pretax Income (Loss)    |   |                                    | -      |                         |   | 2                                    |   |      | (80    | ) |   | (78 | ) |
| 2004                  Income (Loss) After tax |   |                                    | (1     | )                            |   | 2                                    |   |      | (52    | ) |   | (51 | ) |

|                                          |   | **SEEBOARD                  (a)**  |   | **U.K.                  Operations (b)** |   | **Total** |   |
|-----------------------------------------------|--------|------------------------------------|--------|------------------------------------------|--------|-----------|--------|
|                                          |   | **(in                  millions)** |   |
| 2005                  Revenue                 |   | $                                  | -      |                                     | $      | -         |   | $ | - |   |
| 2005                  Pretax Income (Loss)    |   |                               | -      |                                     |   | (8        | )      |   | (8 | ) |
| 2005                  Income (Loss) After tax |   |                               | 9      |                                     |   | (5        | )      |   | 4 |   |

|                                          |   | **Pushan                  Power Plant** |   | **LIG                  (c)** |   | **U.K.                  Operations** |   | **Total** |   |
|-----------------------------------------------|--------|-----------------------------------------|--------|------------------------------|--------|--------------------------------------|--------|-----------|--------|
|                                          |   | **(in                  millions)**      |   |
| 2004                  Revenue                 |   | $                                       | 10     |                         | $      | 164                                  |   | $         | 75     |   | $ | 249 |   |
| 2004                  Pretax Income (Loss)    |   |                                    | 9      |                         |   | 1                                    |   |      | (99    | ) |   | (89 | ) |
| 2004                  Income (Loss) After tax |   |                                    | 5      |                         |   | 1                                    |   |      | (64    | ) |   | (58 | ) |

**ASSETS        HELD FOR SALE**

|                                                 |   | **Texas                  Plants**  |   |
|------------------------------------------------------|--------|------------------------------------|--------|
|                                                 |   | **June                  30, 2005** |   | **December                  31, 2004** |   |
| **Assets:**                                          |   | **(in                  millions)** |   |
| Other                  Current Assets                |   | $                                  | 2      |   | $ | 24 |   |
| Property,                  Plant and Equipment, Net  |   |                               | 44     |   |   | 413 |   |
| Regulatory                  Assets                   |   |                               | -      |   |   | 48 |   |
| Nuclear                  Decommissioning Trust Fund  |   |                               | -      |   |   | 143 |   |
| **Total                  Assets Held for Sale**      |   | $                                  | 46     |   | $ | 628 |   |
|                                                 |   |                               |   |   |   |   |   |
| **Liabilities:**                                     |   |                               |   |   |   |   |   |
| Regulatory                  Liabilities              |   | $                                  | 1      |   | $ | 1 |   |
| Asset                  Retirement Obligations        |   |                               | -      |   |   | 249 |   |
| **Total                  Liabilities Held for Sale** |   | $                                  | 1      |   | $ | 250 |   |

**8.        **
**BENEFIT        PLANS**
** **

***Components        of Net Periodic Benefit Costs***

| **Three                  Months Ended June 30, 2005 and 2004:** |   | **Pension                  Plans** |   | **Other                  Postretirement Benefit Plans** |   |
|-----------------------------------------------------------------|--------|------------------------------------|--------|---------------------------------------------------------|--------|
|                                                            |   | **2005**                           |   | **2004**                                                |   | **2005** |   | **2004** |   |
|                                                            |   | **(in                  millions)** |   |
| Service                  Cost                                   |   | $                                  | 23     |                                                    | $      | 21 |   | $ | 10 |   | $ | 10 |   |
| Interest                  Cost                                  |   |                               | 56     |                                                    |   | 56 |   |   | 26 |   |   | 29 |   |
| Expected                  (Return) on Plan Assets               |   |                               | (78    | )                                                       |   | (72 | ) |   | (22 | ) |   | (20 | ) |
| Amortization                  of Transition Obligation          |   |                               | -      |                                                    |   | 1 |   |   | 7 |   |   | 7 |   |
| Amortization                  of Net Actuarial Loss             |   |                               | 14     |                                                    |   | 4 |   |   | 7 |   |   | 9 |   |
| **Net                  Periodic Benefit Cost**                  |   | $                                  | 15     |                                                    | $      | 10 |   | $ | 28 |   | $ | 35 |   |

| **Six                  Months Ended June 30, 2005 and 2004:** |   | **Pension                  Plans** |   | **Other                  Postretirement Benefit Plans** |   |
|---------------------------------------------------------------|--------|------------------------------------|--------|---------------------------------------------------------|--------|
|                                                          |   | **2005**                           |   | **2004**                                                |   | **2005** |   | **2004** |   |
|                                                          |   | **(in                  millions)** |   |
| Service                  Cost                                 |   | $                                  | 46     |                                                    | $      | 43 |   | $ | 21 |   | $ | 20 |   |
| Interest                  Cost                                |   |                               | 112    |                                                    |   | 112 |   |   | 53 |   |   | 58 |   |
| Expected                  (Return) on Plan Assets             |   |                               | (155   | )                                                       |   | (144 | ) |   | (45 | ) |   | (40 | ) |
| Amortization                  of Transition Obligation        |   |                               | -      |                                                    |   | 1 |   |   | 14 |   |   | 14 |   |
| Amortization                  of Net Actuarial Loss           |   |                               | 27     |                                                    |   | 8 |   |   | 14 |   |   | 18 |   |
| **Net                  Periodic Benefit Cost**                |   | $                                  | 30     |                                                    | $      | 20 |   | $ | 57 |   | $ | 70 |   |

**9.**
**BUSINESS        SEGMENTS**

**Utility        Operations**

| · | Domestic                  generation of electricity for sale to retail and wholesale                  customers. |
|--------|------------------------------------------------------------------------------------------------------------------|
| · | Domestic                  electricity transmission and                  distribution.                            |

**Investments        - Gas Operations**

| · | Gas                  pipeline and storage services.                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Gas                  marketing and risk management activities.                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | Operations                  of Louisiana Intrastate Gas, including Jefferson Island Storage,                  were                  classified as Discontinued Operations during 2003 and were sold                  during                                     the third and fourth quarters of 2004, respectively. We sold our                  98%                  interest in HPL during the first quarter of                  2005. |

**Investments        - UK Operations**

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

**Investments        - Other**

| · | Bulk                  commodity barging operations, wind farms, independent power producers                  and                  other energy supply related businesses. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                      |
|   | Four                  independent power producers were sold during the third and fourth                  quarters                  of 2004.                               |

|                                                               |   |                               |   | **Investments**                     |   |                          |   |    |   |                          |   |
|--------------------------------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------|--------|------------------------------------|--------|--------------|--------|------------------------------------|--------|
| **Three                  Months Ended**                            |   | **Utility                  Operations** |   | **Gas                  Operations** |   | **UK                  Operations** |   | **Other**    |   | **All                  Other (a)** |   | **Reconciling                  Adjustments (b)** |   | **Consolidated** |   |
| **June                  30, 2005**                                 |   | **(in                  millions)**      |   |
| Revenues                  from:                                    |   |                               |   |                           |   |                          |   |    |   |                          |   |    |   |    |   |
| External                  Customers                                |   | $                                       | 2,649  |                                | $      | 19                                 |   | $            | -      |                               | $      | 105 |   | $ | - |   | $ | - |   | $ | 2,773 |   |
| Other                  Operating Segments                          |   |                                    | 19     |                                |   | (17                                | )      |         | -      |                               |   | 3 |   |   | - |   |   | (5 | ) |   | - |   |
| Total                  Revenues                                    |   | $                                       | 2,668  |                                | $      | 2                                  |   | $            | -      |                               | $      | 108 |   | $ | - |   | $ | (5 | ) | $ | 2,773 |   |
|                                                               |   |                                    |   |                                |   |                               |   |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  (Loss) Before Discontinued Operations |   | $                                       | 247    |                                | $      | (2                                 | )      | $            | -      |                               | $      | (1 | ) | $ | (26 | ) | $ | - |   | $ | 218 |   |
| Discontinued                  Operations, Net of Tax               |   |                                    | -      |                                |   | -                                  |   |         | -      |                               |   | 3 |   |   | - |   |   | - |   |   | 3 |   |
| Net                  Income (Loss)                                 |   | $                                       | 247    |                                | $      | (2                                 | )      | $            | -      |                               | $      | 2 |   | $ | (26 | ) | $ | - |   | $ | 221 |   |
|                                                               |   |                                    |   |                                |   |                               |   |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| **As                  of June 30, 2005**                           |   |                                    |   |                                |   |                               |   |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  Property, Plant and Equipment               |   | $                                       | 36,736 |                                | $      | 2                                  |   | $            | -      |                               | $      | 834 |   | $ | 3 |   | $ | - |   | $ | 37,575 |   |
| Accumulated                  Depreciation and Amortization    |   |                                    | 14,580 |                                |   | 1                                  |   |         | -      |                               |   | 100 |   |   | 1 |   |   | - |   |   | 14,682 |   |
| Total                  Property, Plant and Equipment - Net    |   | $                                       | 22,156 |                                | $      | 1                                  |   | $            | -      |                               | $      | 734 |   | $ | 2 |   | $ | - |   | $ | 22,893 |   |
|                                                               |   |                                    |   |                                |   |                               |   |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  Assets                                      |   | $                                       | 31,965 |                                | $      | 1,028                              |   | $            | 574    | (c)                           | $      | 421 |   | $ | 9,269 |   | $ | (9,318 | ) | $ | 33,939 |   |
| Assets                  Held for Sale                              |   |                                    | 46     |                                |   | -                                  |   |         | -      |                               |   | - |   |   | - |   |   | - |   |   | 46 |   |

| (a) | All                  Other includes interest, litigation and other miscellaneous parent                  company                  expenses.                                                                                                                                                                                                                                                                                                                         |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Reconciling                  Adjustments for Total Assets primarily include the elimination                  of                  intercompany advances to affiliates and intercompany accounts receivable                  along with the elimination of AEP’s investments in subsidiary                  companies.                                                                                                                                          |
| (c) | Total                  Assets of $574 million for the Investments-UK Operations segment                  include                  $553 million in affiliated accounts receivable related to federal                  income                  taxes that are eliminated in consolidation. The majority of the                  remaining                  $21 million in assets represents cash equivalents along with value-added                  tax receivables. |

|                                                                     |   |                               |   | **Investments**                     |   |                          |   |    |   |                          |   |
|--------------------------------------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------|--------|------------------------------------|--------|--------------|--------|------------------------------------|--------|
| **Three                  Months Ended**                                  |   | **Utility                  Operations** |   | **Gas                  Operations** |   | **UK                  Operations** |   | **Other**    |   | **All                  Other (a)** |   | **Reconciling                  Adjustments (b)** |   | **Consolidated** |   |
| **June                  30, 2004**                                       |   | **(in                  millions)**      |   |
| Revenues                  from:                                          |   |                               |   |                           |   |                          |   |    |   |                          |   |    |   |    |   |
| External                  Customers                                      |   | $                                       | 2,508  |                                | $      | 779                                |   | $            | -      |                               | $      | 124 |   | $ | - |   | $ | - |   | $ | 3,411 |   |
| Other                  Operating Segments                                |   |                                    | 37     |                                |   | 15                                 |   |         | -      |                               |   | 7 |   |   | (2 | ) |   | (57 | ) |   | - |   |
| Total                  Revenues                                          |   | $                                       | 2,545  |                                | $      | 794                                |   | $            | -      |                               | $      | 131 |   | $ | (2 | ) | $ | (57 | ) | $ | 3,411 |   |
|                                                                     |   |                                    |   |                                |   |                               |   |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  (Loss) Before Discontinued  Operations |   | $                                       | 184    |                                | $      | (4                                 | )      | $            | -      |                               | $      | (4 | ) | $ | (25 | ) | $ | - |   | $ | 151 |   |
| Discontinued                  Operations, Net of Tax                     |   |                                    | -      |                                |   | 2                                  |   |         | (52    | )                                  |   | (1 | ) |   | - |   |   | - |   |   | (51 | ) |
| Net                  Income (Loss)                                       |   | $                                       | 184    |                                | $      | (2                                 | )      | $            | (52    | )                                  | $      | (5 | ) | $ | (25 | ) | $ | - |   | $ | 100 |   |
|                                                                     |   |                                    |   |                                |   |                               |   |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| **As                  of December 31, 2004**                             |   |                                    |   |                                |   |                               |   |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  Property, Plant and Equipment                     |   | $                                       | 36,006 |                                | $      | 445                                |   | $            | -      |                               | $      | 832 |   | $ | 3 |   | $ | - |   | $ | 37,286 |   |
| Accumulated                  Depreciation and   Amortization   |   |                                    | 14,355 |                                |   | 43                                 |   |         | -      |                               |   | 86 |   |   | 1 |   |   | - |   |   | 14,485 |   |
| Total                  Property, Plant and Equipment -   Net   |   | $                                       | 21,651 |                                | $      | 402                                |   | $            | -      |                               | $      | 746 |   | $ | 2 |   | $ | - |   | $ | 22,801 |   |
|                                                                     |   |                                    |   |                                |   |                               |   |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  Assets                                            |   | $                                       | 32,175 |                                | $      | 1,789                              |   | $            | 221    | (c)                           | $      | 2,071 |   | $ | 8,093 |   | $ | (9,686 | ) | $ | 34,663 |   |
| Assets                  Held for Sale                                    |   |                                    | 628    |                                |   | -                                  |   |         | -      |                               |   | - |   |   | - |   |   | - |   |   | 628 |   |

| (a) | All                  Other includes interest, litigation and other miscellaneous parent                  company                  expenses.                                                                                                                                                                                                                                                             |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Reconciling                  Adjustments for Total Assets primarily include the elimination                  of                  intercompany advances to affiliates and intercompany accounts receivable                  along with the elimination of AEP’s investments in subsidiary                  companies.                                                                              |
| (c) | Total                  Assets of $221 million for the Investments-UK Operations segment                  include                  $124 million in affiliated accounts receivable that are eliminated                  in                  consolidation. The majority of the remaining $97 million in assets                  represents cash equivalents and third party                  receivables. |

|                                                                      |   |                               |   | **Investments**                     |   |                          |   |    |   |                          |   |
|---------------------------------------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------|--------|------------------------------------|--------|--------------|--------|------------------------------------|--------|
| **Six                  Months Ended**                                     |   | **Utility                  Operations** |   | **Gas                  Operations** |   | **UK                  Operations** |   | **Other**    |   | **All                  Other (a)** |   | **Reconciling                  Adjustments (b)** |   | **Consolidated** |   |
| **June                  30, 2005**                                        |   | **(in                  millions)**      |   |
| Revenues                  from:                                           |   |                               |   |                           |   |                          |   |    |   |                          |   |    |   |    |   |
| External                  Customers                                       |   | $                                       | 5,186  |                                | $      | 376                                |   | $            | -      |                               | $      | 194 |   | $ | - |   | $ | - |   | $ | 5,756 |   |
| Other                  Operating Segments                                 |   |                                    | 96     |                                |   | (90                                | )      |         | -      |                               |   | 6 |   |   | 1 |   |   | (13 | ) |   | - |   |
| Total                  Revenues                                           |   | $                                       | 5,282  |                                | $      | 286                                |   | $            | -      |                               | $      | 200 |   | $ | 1 |   | $ | (13 | ) | $ | 5,756 |   |
|                                                                      |   |                                    |   |                                |   |                               |   |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  (Loss) Before Discontinued   Operations |   | $                                       | 600    |                                | $      | 8                                  |   | $            | -      |                               | $      | 4 |   | $ | (40 | ) | $ | - |   | $ | 572 |   |
| Discontinued                  Operations, Net of Tax                      |   |                                    | -      |                                |   | -                                  |   |         | (5     | )                                  |   | 9 |   |   | - |   |   | - |   |   | 4 |   |
| Net                  Income (Loss)                                        |   | $                                       | 600    |                                | $      | 8                                  |   | $            | (5     | )                                  | $      | 13 |   | $ | (40 | ) | $ | - |   | $ | 576 |   |
|                                                                      |   |                                    |   |                                |   |                               |   |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| **As                  of June 30, 2005**                                  |   |                                    |   |                                |   |                               |   |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  Property, Plant and Equipment                      |   | $                                       | 36,736 |                                | $      | 2                                  |   | $            | -      |                               | $      | 834 |   | $ | 3 |   | $ | - |   | $ | 37,575 |   |
| Accumulated                  Depreciation and   Amortization    |   |                                    | 14,580 |                                |   | 1                                  |   |         | -      |                               |   | 100 |   |   | 1 |   |   | - |   |   | 14,682 |   |
| Total                  Property, Plant and Equipment -   Net    |   | $                                       | 22,156 |                                | $      | 1                                  |   | $            | -      |                               | $      | 734 |   | $ | 2 |   | $ | - |   | $ | 22,893 |   |
|                                                                      |   |                                    |   |                                |   |                               |   |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  Assets                                             |   | $                                       | 31,965 |                                | $      | 1,028                              |   | $            | 574    | (c)                                | $      | 421 |   | $ | 9,269 |   | $ | (9,318 | ) | $ | 33,939 |   |
| Assets                  Held for Sale                                     |   |                                    | 46     |                                |   | -                                  |   |         | -      |                               |   | - |   |   | - |   |   | - |   |   | 46 |   |

| (a) | All                  Other includes interest, litigation and other miscellaneous parent                  company                  expenses.                                                                                                                                                                                                                                                                                                              |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Reconciling                  Adjustments for Total Assets primarily include the elimination                  of                  intercompany advances to affiliates and intercompany accounts receivable                  along with the elimination of AEP’s investments in subsidiary                  companies.                                                                                                                               |
| (c) | Total                  Assets of $574 million for the Investments-UK Operations segment                  include                  $553 million in affiliated accounts receivable related to federal                  income                  taxes that are eliminated in consolidation. The majority of the                  remaining                  $21 million in assets represents cash equivalents and third party                  receivables. |

|                                                            |   |                               |   | **Investments**                     |   |                          |   |    |   |                          |   |
|-----------------------------------------------------------------|--------|-----------------------------------------|--------|-------------------------------------|--------|------------------------------------|--------|--------------|--------|------------------------------------|--------|
| **Six                  Months Ended**                           |   | **Utility                  Operations** |   | **Gas                  Operations** |   | **UK                  Operations** |   | **Other**    |   | **All                  Other (a)** |   | **Reconciling                  Adjustments (b)** |   | **Consolidated** |   |
| **June                  30, 2004**                              |   | **(in                  millions)**      |   |
| Revenues                  from:                                 |   |                               |   |                           |   |                          |   |    |   |                          |   |    |   |    |   |
| External                  Customers                             |   | $                                       | 5,089  |                                | $      | 1,431                              |   | $            | -      |                               | $      | 255 |   | $ | - |   | $ | - |   | $ | 6,775 |   |
| Other                  Operating Segments                       |   |                                    | 58     |                                |   | 39                                 |   |         | -      |                               |   | 27 |   |   | 4 |   |   | (128 | ) |   | - |   |
| Total                  Revenues                                 |   | $                                       | 5,147  |                                | $      | 1,470                              |   | $            | -      |                               | $      | 282 |   | $ | 4 |   | $ | (128 | ) | $ | 6,775 |   |
|                                                            |   |                                    |   |                                |   |                               |   |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                  (Loss) Before Discontinued Operations   |   | $                                       | 488    |                                | $      | (14                                | )      | $            | -      |                               | $      | - |   | $ | (34 | ) | $ | - |   | $ | 440 |   |
| Discontinued                  Operations, Net of Tax            |   |                                    | -      |                                |   | 1                                  |   |         | (64    | )                                  |   | 5 |   |   | - |   |   | - |   |   | (58 | ) |
| Net                  Income (Loss)                              |   | $                                       | 488    |                                | $      | (13                                | )      | $            | (64    | )                                  | $      | 5 |   | $ | (34 | ) | $ | - |   | $ | 382 |   |
|                                                            |   |                                    |   |                                |   |                               |   |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| **As                  of December 31, 2004**                    |   |                                    |   |                                |   |                               |   |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  Property, Plant and Equipment            |   | $                                       | 36,006 |                                | $      | 445                                |   | $            | -      |                               | $      | 832 |   | $ | 3 |   | $ | - |   | $ | 37,286 |   |
| Accumulated                  Depreciation and Amortization |   |                                    | 14,355 |                                |   | 43                                 |   |         | -      |                               |   | 86 |   |   | 1 |   |   | - |   |   | 14,485 |   |
| Total                  Property, Plant and Equipment - Net |   | $                                       | 21,651 |                                | $      | 402                                |   | $            | -      |                               | $      | 746 |   | $ | 2 |   | $ | - |   | $ | 22,801 |   |
|                                                            |   |                                    |   |                                |   |                               |   |         |   |                               |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  Assets                                   |   | $                                       | 32,175 |                                | $      | 1,789                              |   | $            | 221    | (c)                           | $      | 2,071 |   | $ | 8,093 |   | $ | (9,686 | ) | $ | 34,663 |   |
| Assets                  Held for Sale                           |   |                                    | 628    |                                |   | -                                  |   |         | -      |                               |   | - |   |   | - |   |   | - |   |   | 628 |   |

| (a) | All                  Other includes interest, litigation and other miscellaneous parent                  company                  expenses.                                                                                                                                                                                                                                                             |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Reconciling                  Adjustments for Total Assets primarily include the elimination                  of                  intercompany advances to affiliates and intercompany accounts receivable                  along with the elimination of AEP’s investments in subsidiary                  companies.                                                                              |
| (c) | Total                  Assets of $221 million for the Investments-UK Operations segment                  include                  $124 million in affiliated accounts receivable that are eliminated                  in                  consolidation. The majority of the remaining $97 million in assets                  represents cash equivalents and third party                  receivables. |

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

**11.**
**FINANCING        ACTIVITIES**

| **Company**                          |   | **Type                  of Debt**               |   | **Principal                  Amount** |   | **Interest                  Rate** |     | **Due                  Date** |   |
|--------------------------------------|--------|-------------------------------------------------|--------|---------------------------------------|--------|------------------------------------|----------|-------------------------------|--------|
|                                 |   |                                            |   | **(in                  millions)**    |   |                               |     |                          |   |
| **Issuances:**                       |   |                                            |   |                                  |   |                               |     |                          |   |
| AEP                                  |   | Senior                  Unsecured Notes         |   | $                                     | 345    |                               | 4.709%   |                          | 2007   |   |
| APCo                                 |   | Senior                  Unsecured Notes         |   |                                  | 200    |                               | 4.95%    |                          | 2015   |   |
| APCo                                 |   | Senior                  Unsecured Notes         |   |                                  | 150    |                               | 4.40%    |                          | 2010   |   |
| APCo                                 |   | Senior                  Unsecured Notes         |   |                                  | 250    |                               | 5.00%    |                          | 2017   |   |
| OPCo                                 |   | Installment                  Purchase Contracts |   |                                  | 54     |                               | Variable |                          | 2029   |   |
| OPCo                                 |   | Installment                  Purchase Contracts |   |                                  | 164    |                               | Variable |                          | 2028   |   |
| PSO                                  |   | Senior                  Unsecured Notes         |   |                                  | 75     |                               | 4.70%    |                          | 2011   |   |
| SWEPCo                               |   | Senior                  Unsecured Notes         |   |                                  | 150    |                               | 4.90%    |                          | 2015   |   |
| TCC                                  |   | Installment                  Purchase Contracts |   |                                  | 162    |                               | Variable |                          | 2030   |   |
| TCC                                  |   | Installment                  Purchase Contracts |   |                                  | 120    |                               | Variable |                          | 2028   |   |
| **Non-Registrant:**                  |   |                                            |   |                                  |   |                               |     |                          |   |   |
| AEP                  Subsidiary      |   | Notes                  Payable                  |   |                                  | 6      |                               | Variable |                          | 2009   |   |
| **Total                  Issuances** |   |                                            |   | $                                     | 1,676  | (a)                                |     |                          |   |   |

| (a) | Amount                  indicated on statement of cash flows of $1,660 million is net of                  issuance                  costs and unamortized premium or                    discount. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **Company**                                                    |   | **Type                  of Debt**               |   | **Principal                  Amount** |   | **Interest                  Rate** |     | **Due                  Date** |    |
|----------------------------------------------------------------|--------|-------------------------------------------------|--------|---------------------------------------|--------|------------------------------------|----------|-------------------------------|---------|
|                                                           |   |                                            |   | **(in                  millions)**    |   |                               |     |                          |    |
| **Retirements                  and  Principal Payments:** |   |                                            |   |                                  |   |                               |     |                          |    |
| AEP                                                            |   | Senior                  Unsecured Notes         |   | $                                     | 550    |                               | 6.125%   |                          | 2006    |   |
| AEP                                                            |   | Senior                  Unsecured Notes         |   |                                  | 345    |                               | 5.75%    |                          | 2007    |   |
| AEP                                                            |   | Other                  Debt                     |   |                                  | 6      |                               | Variable |                          | 2007    |   |
| AEP                  and Subsidiaries                          |   | Other                                           |   |                                  | 12     | (b)                                | Variable |                          | Various |   |
| APCo                                                           |   | First                  Mortgage Bonds           |   |                                  | 50     |                               | 8.00%    |                          | 2005    |   |
| APCo                                                           |   | First                  Mortgage Bonds           |   |                                  | 30     |                               | 6.89%    |                          | 2005    |   |
| APCo                                                           |   | First                  Mortgage Bonds           |   |                                  | 45     |                               | 8.00%    |                          | 2025    |   |
| APCo                                                           |   | Senior                  Unsecured Notes         |   |                                  | 450    |                               | 4.80%    |                          | 2005    |   |
| OPCo                                                           |   | Installment                  Purchase Contracts |   |                                  | 102    |                               | 6.375%   |                          | 2029    |   |
| OPCo                                                           |   | Installment                  Purchase Contracts |   |                                  | 80     |                               | Variable |                          | 2028    |   |
| OPCo                                                           |   | Installment                  Purchase Contracts |   |                                  | 36     |                               | Variable |                          | 2029    |   |
| OPCo                                                           |   | Notes                  Payable                  |   |                                  | 3      |                               | 6.81%    |                          | 2008    |   |
| OPCo                                                           |   | Notes                  Payable                  |   |                                  | 3      |                               | 6.27%    |                          | 2009    |   |
| PSO                                                            |   | First                  Mortgage Bonds           |   |                                  | 50     |                               | 6.50%    |                          | 2005    |   |
| SWEPCo                                                         |   | Notes                  Payable                  |   |                                  | 3      |                               | 4.47%    |                          | 2011    |   |
| SWEPCo                                                         |   | Notes                  Payable                  |   |                                  | 2      |                               | Variable |                          | 2008    |   |
| TCC                                                            |   | Senior                  Unsecured Notes         |   |                                  | 150    |                               | 3.00%    |                          | 2005    |   |
| TCC                                                            |   | Senior                  Unsecured Notes         |   |                                  | 100    |                               | Variable |                          | 2005    |   |
| TCC                                                            |   | Securitization                  Bonds           |   |                                  | 29     |                               | 3.54%    |                          | 2005    |   |
| **Non-Registrant:**                                            |   |                                            |   |                                  |   |                               |     |                          |    |   |
| AEP                  Subsidiaries                              |   | Notes                  Payable                  |   |                                  | 6      |                               | Variable |                          | Various |   |
| **Total                  Retirements**                         |   |                                            |   | $                                     | 2,052  | (c)                                |     |                          |    |   |

| (b) | Amount                  reflects mark-to-market of risk management contracts related to                  long-term                  debt.                                                                                                                                                            |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (c) | The                  cash used for retirement of long-term debt indicated on statement                  of cash                  flows of $2,040 million does not include $12 million related to                  the                  mark-to-market of risk management                  contracts. |

***Preferred        Stock Redemption***

| **Company** |   | **Series** |   | **Number                  of Shares Redeemed** |   | **Amount**                         |   |
|-------------|--------|------------|--------|------------------------------------------------|--------|------------------------------------|--------|
|        |   |       |   |                                           |   | **(in                  millions)** |   |
| I&M     |   | 5.900%     |   | 132,000                                        |   | $                                  | 13     |   |
| I&M     |   | 6.250%     |   | 192,500                                        |   |                               | 19     |   |
| I&M     |   | 6.875%     |   | 157,500                                        |   |                               | 16     |   |
| I&M     |   | 6.300%     |   | 132,450                                        |   |                               | 13     |   |
| OPCo        |   | 5.900%     |   | 50,000                                         |   |                               | 5      |   |
|        |   |       |   |                                           |   | $                                  | 66     |   |

***Common        Stock Repurchase***

***Remarketing        of Senior Notes***

**12.**
**COMPANY-WIDE        STAFFING AND BUDGET REVIEW**

|                                                |   | **Amount****(in                  millions)** |   |
|-----------------------------------------------------|--------|----------------------------------------------|--------|
| Total                  Expense                      |   | $                                            | 24     |   |
| Less:                  Total Payments               |   |                                         | 3      |   |
| Remaining                  Accrual at June 30, 2005 |   | $                                            | 21     |   |

----

**AEP        GENERATING COMPANY**

----

**AEP        GENERATING COMPANY**

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

**Results        of Operations**

**Reconciliation        of Second Quarter of 2004 to Second Quarter of 2005 Net        Income**

**(in        millions)**

| **Second                  Quarter of 2004 Net Income**            |   |   |   |   | $      | 1.5    |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Change                  in Gross Margin:**                      |   |   |   |   |   |   |   |
| Wholesale                  Sales                                  |   |   |   |   |   | 0.5    |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | 0.1    |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | (0.2   | )      |   |   |   |
| Interest                  Charges                                 |   |   | 0.2    |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | 0.1    |   |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | -      |   |
|                                                              |   |   |   |   |   |   |   |
| **Second                  Quarter of 2005 Net Income**            |   |   |   |   | $      | 2.1    |   |

*Income        Taxes*

**Reconciliation        of Six Months Ended June 30, 2004 to Six Months Ended June 30, 2005 Net        Income**

**(in        millions)**

| **Six                  Months Ended June 30, 2004 Net Income**    |   |   |   |   | $      | 3.3    |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Change                  in Gross Margin:**                      |   |   |   |   |   |   |   |
| Wholesale                  Sales                                  |   |   |   |   |   | (1.9   | )      |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | 3.9    |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | (0.4   | )      |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | (0.2   | )      |   |   |   |
| Nonoperating                  Income and Expenses, Net            |   |   | 0.1    |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | 3.4    |   |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | (0.2   | )      |
|                                                              |   |   |   |   |   |   |   |
| **Six                  Months Ended June 30, 2005 Net Income**    |   |   |   |   | $      | 4.6    |   |

*Income        Taxes*

**Off-Balance        Sheet Arrangement**

**Summary        Obligation Information**

**Significant        Factors**

**Critical        Accounting Estimates**

----

**AEP        GENERATING COMPANY**

**CONDENSED        STATEMENTS OF INCOME**

**For        the Three and Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in        thousands)**

|                                            |   | **Three                  Months Ended** |   | **Six                  Months Ended** |   |
|-------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                            |   | **2005**                                |   | **2004**                              |   | **2005** |   | **2004** |   |
|                                            |   |                               |   |                             |   |   |   |   |   |
| **OPERATING                  REVENUES**         |   | $                                       | 65,082 |                                  | $      | 56,348 |   | $ | 131,628 |   | $ | 111,630 |   |
|                                            |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **OPERATING                  EXPENSES**         |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Fuel                  for Electric Generation   |   |                                    | 33,233 |                                  |   | 25,036 |   |   | 68,368 |   |   | 46,434 |   |
| Rent                  - Rockport Plant Unit 2   |   |                                    | 17,071 |                                  |   | 17,071 |   |   | 34,142 |   |   | 34,142 |   |
| Other                  Operation                |   |                                    | 3,075  |                                  |   | 2,665 |   |   | 5,460 |   |   | 5,155 |   |
| Maintenance                                     |   |                                    | 2,272  |                                  |   | 2,790 |   |   | 3,990 |   |   | 8,190 |   |
| Depreciation                  and Amortization  |   |                                    | 5,989  |                                  |   | 5,772 |   |   | 11,945 |   |   | 11,506 |   |
| Taxes                  Other Than Income Taxes  |   |                                    | 1,051  |                                  |   | 942 |   |   | 2,075 |   |   | 1,886 |   |
| Income                  Taxes                   |   |                                    | 666    |                                  |   | 699 |   |   | 1,602 |   |   | 1,397 |   |
| **TOTAL**                                       |   |                                    | 63,357 |                                  |   | 54,975 |   |   | 127,582 |   |   | 108,710 |   |
|                                            |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**           |   |                                    | 1,725  |                                  |   | 1,373 |   |   | 4,046 |   |   | 2,920 |   |
|                                            |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Nonoperating                  Income            |   |                                    | 84     |                                  |   | 5 |   |   | 84 |   |   | 29 |   |
| Nonoperating                  Expenses          |   |                                    | 49     |                                  |   | 80 |   |   | 113 |   |   | 149 |   |
| Nonoperating                  Income Tax Credit |   |                                    | 877    |                                  |   | 947 |   |   | 1,768 |   |   | 1,804 |   |
| Interest                  Charges               |   |                                    | 564    |                                  |   | 739 |   |   | 1,196 |   |   | 1,271 |   |
|                                            |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME**                 |   | $                                       | 2,073  |                                  | $      | 1,506 |   | $ | 4,589 |   | $ | 3,333 |   |
|                                            |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |

**CONDENSED        STATEMENTS OF RETAINED EARNINGS**

**For        the Three and Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in        thousands)**

|                                                |   | **Three                  Months Ended** |   | **Six                  Months Ended** |   |
|-----------------------------------------------------|--------|-----------------------------------------|--------|---------------------------------------|--------|
|                                                |   | **2005**                                |   | **2004**                              |   | **2005** |   | **2004** |   |
|                                                |   |                               |   |                             |   |   |   |   |   |
| **BALANCE                  AT BEGINNING OF PERIOD** |   | $                                       | 25,813 |                                  | $      | 22,006 |   | $ | 24,237 |   | $ | 21,441 |   |
|                                                |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Net                  Income                         |   |                                    | 2,073  |                                  |   | 1,506 |   |   | 4,589 |   |   | 3,333 |   |
|                                                |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| Cash                  Dividends Declared            |   |                                    | 939    |                                  |   | 1,261 |   |   | 1,879 |   |   | 2,523 |   |
|                                                |   |                                    |   |                                  |   |   |   |   |   |   |   |   |   |
| **BALANCE                  AT END OF PERIOD**       |   | $                                       | 26,947 |                                  | $      | 22,251 |   | $ | 26,947 |   | $ | 22,251 |   |

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

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

----

**AEP        GENERATING COMPANY**

**CONDENSED        BALANCE SHEETS**

**ASSETS**

**June        30, 2005 and December 31, 2004**

**(Unaudited)**

**(in        thousands)**

|                                                        |   | **2005**     |    | **2004**     |   |
|-------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **ELECTRIC                  UTILITY PLANT**                 |   |    |    |    |   |
| Production                                                  |   | $            | 681,917 |         | $      | 681,254 |   |
| General                                                     |   |         | 3,937   |         |   | 3,739 |   |
| Construction                  Work in Progress              |   |         | 6,760   |         |   | 7,729 |   |
| **Total**                                                   |   |         | 692,614 |         |   | 692,722 |   |
| Accumulated                  Depreciation and Amortization  |   |         | 376,111 |         |   | 368,484 |   |
| **TOTAL                  - NET**                            |   |         | 316,503 |         |   | 324,238 |   |
|                                                        |   |         |    |         |   |   |   |
| **OTHER                  PROPERTY AND INVESTMENTS**         |   |         |    |         |   |   |   |
| Nonutility                  Property, Net                   |   |         | 119     |         |   | 119 |   |
|                                                        |   |         |    |         |   |   |   |
| **CURRENT                  ASSETS**                         |   |         |    |         |   |   |   |
| Accounts                  Receivable - Affiliated Companies |   |         | 24,159  |         |   | 23,078 |   |
| Fuel                                                        |   |         | 11,426  |         |   | 16,404 |   |
| Materials                  and Supplies                     |   |         | 6,675   |         |   | 5,962 |   |
| Prepayments                                                 |   |         | 26      |         |   | - |   |
| **TOTAL**                                                   |   |         | 42,286  |         |   | 45,444 |   |
|                                                        |   |         |    |         |   |   |   |
| **DEFERRED                  DEBITS AND OTHER ASSETS**       |   |         |    |         |   |   |   |
| Regulatory                  Assets:                         |   |         |    |         |   |   |   |
| Unamortized                  Loss on Reacquired Debt        |   |         | 4,377   |         |   | 4,496 |   |
| Asset                  Retirement Obligations               |   |         | 1,214   |         |   | 1,117 |   |
| Deferred                  Property Taxes                    |   |         | 2,507   |         |   | 557 |   |
| Other                  Deferred Charges                     |   |         | 412     |         |   | 422 |   |
| **TOTAL**                                                   |   |         | 8,510   |         |   | 6,592 |   |
|                                                        |   |         |    |         |   |   |   |
| **TOTAL                  ASSETS**                           |   | $            | 367,418 |         | $      | 376,393 |   |

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

----

**AEP        GENERATING COMPANY**

**CONDENSED        BALANCE SHEETS**

**CAPITALIZATION**
**        AND LIABILITIES**

**June        30, 2005 and December 31, 2004**

**(Unaudited)**

|                                                                         |   | **2005**                            |    | **2004**     |   |
|------------------------------------------------------------------------------|--------|-------------------------------------|---------|--------------|--------|
| **CAPITALIZATION**                                                           |   | **(in                  thousands)** |    |
| 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                                           |   |                                | 26,947  |         |   | 24,237 |   |
| **Total                  Common Shareholder’s Equity**                 |   |                                | 51,381  |         |   | 48,671 |   |
| Long-term                  Debt                                              |   |                                | 44,824  |         |   | 44,820 |   |
| **TOTAL**                                                                    |   |                                | 96,205  |         |   | 93,491 |   |
|                                                                         |   |                                |    |         |   |   |   |
| **CURRENT                  LIABILITIES**                                     |   |                                |    |         |   |   |   |
| Advances                  from Affiliates                                    |   |                                | 24,621  |         |   | 26,915 |   |
| Accounts                  Payable:                                           |   |                                |    |         |   |   |   |
| General                                                                      |   |                                | 708     |         |   | 443 |   |
| Affiliated                  Companies                                        |   |                                | 15,235  |         |   | 17,905 |   |
| Taxes                  Accrued                                               |   |                                | 6,764   |         |   | 8,806 |   |
| Interest                  Accrued                                            |   |                                | 911     |         |   | 911 |   |
| Obligations                  Under Capital Leases                            |   |                                | 289     |         |   | 210 |   |
| Rent                  Accrued - Rockport Plant Unit 2                        |   |                                | 4,963   |         |   | 4,963 |   |
| Other                                                                        |   |                                | 348     |         |   | 73 |   |
| **TOTAL**                                                                    |   |                                | 53,839  |         |   | 60,226 |   |
|                                                                         |   |                                |    |         |   |   |   |
| **DEFERRED                  CREDITS AND OTHER LIABILITIES**                  |   |                                |    |         |   |   |   |
| Deferred                  Income Taxes                                       |   |                                | 22,990  |         |   | 24,762 |   |
| Regulatory                  Liabilities:                                     |   |                                |    |         |   |   |   |
| Asset                  Removal Costs                                         |   |                                | 27,104  |         |   | 25,428 |   |
| Deferred                  Investment Tax Credits                             |   |                                | 44,582  |         |   | 46,250 |   |
| SFAS                  109 Regulatory Liability, Net                          |   |                                | 12,245  |         |   | 12,852 |   |
| Deferred                  Gain on Sale and Leaseback - Rockport Plant Unit 2 |   |                                | 97,119  |         |   | 99,904 |   |
| Obligations                  Under Capital Leases                            |   |                                | 12,070  |         |   | 12,264 |   |
| Asset                  Retirement Obligations                                |   |                                | 1,264   |         |   | 1,216 |   |
| **TOTAL**                                                                    |   |                                | 217,374 |         |   | 222,676 |   |
|                                                                         |   |                                |    |         |   |   |   |
| Commitments                  and Contingencies (Note 5)                      |   |                                |    |         |   |   |   |
|                                                                         |   |                                |    |         |   |   |   |
| **TOTAL                  CAPITALIZATION AND LIABILITIES**                    |   | $                                   | 367,418 |         | $      | 376,393 |   |

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

----

**AEP        GENERATING COMPANY**

**CONDENSED        STATEMENTS OF CASH FLOWS**

**For        the Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in        thousands)**

|                                                                                                                                |   | **2005**     |   | **2004**     |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|--------|--------------|--------|
| **OPERATING                  ACTIVITIES**                                                                                           |   |    |   |    |   |
| **Net                  Income**                                                                                                     |   | $            | 4,589  |         | $      | 3,333 |   |
| **Adjustments                  to Reconcile Net Income to Net Cash Flows  From Operating                  Activities:**        |   |         |   |         |   |   |   |
| Depreciation                  and Amortization                                                                                      |   |         | 11,945 |         |   | 11,506 |   |
| Deferred                  Income Taxes                                                                                              |   |         | (2,379 | )            |   | (1,319 | ) |
| Deferred                  Investment Tax Credits                                                                                    |   |         | (1,668 | )            |   | (1,668 | ) |
| Deferred                  Property Taxes                                                                                            |   |         | (1,950 | )            |   | (1,632 | ) |
| Amortization                  of Deferred Gain on Sale and Leaseback - Rockport Plant                  Unit                  2 |   |         | (2,785 | )            |   | (2,785 | ) |
| Change                  in Other Noncurrent Assets                                                                                  |   |         | (1,296 | )            |   | (67 | ) |
| Change                  in Other Noncurrent Liabilities                                                                             |   |         | 1,534  |         |   | 73 |   |
| **Changes                  in Components of Working Capital:**                                                                      |   |         |   |         |   |   |   |
| Accounts                  Receivable                                                                                                |   |         | (1,081 | )            |   | 752 |   |
| Fuel,                  Materials and Supplies                                                                                       |   |         | 4,265  |         |   | (4,011 | ) |
| Accounts                  Payable                                                                                                   |   |         | (2,405 | )            |   | (2,226 | ) |
| Taxes                  Accrued                                                                                                      |   |         | (2,042 | )            |   | 4,457 |   |
| Other                  Current Assets                                                                                               |   |         | (26    | )            |   | (21 | ) |
| Other                  Current Liabilities                                                                                          |   |         | 354    |         |   | 80 |   |
| **Net                  Cash Flows From Operating Activities**                                                                       |   |         | 7,055  |         |   | 6,472 |   |
|                                                                                                                                |   |         |   |         |   |   |   |
| **INVESTING                  ACTIVITIES**                                                                                           |   |         |   |         |   |   |   |
| Construction                  Expenditures                                                                                          |   |         | (2,882 | )            |   | (9,815 | ) |
| **Net                  Cash Flows Used For Investing Activities**                                                                   |   |         | (2,882 | )            |   | (9,815 | ) |
|                                                                                                                                |   |         |   |         |   |   |   |
| **FINANCING                  ACTIVITIES**                                                                                           |   |         |   |         |   |   |   |
| Changes                  in Advances from Affiliates, Net                                                                           |   |         | (2,294 | )            |   | 5,866 |   |
| Dividends                  Paid                                                                                                     |   |         | (1,879 | )            |   | (2,523 | ) |
| **Net                  Cash Flows From (Used For) Financing Activities**                                                            |   |         | (4,173 | )            |   | 3,343 |   |
|                                                                                                                                |   |         |   |         |   |   |   |
| **Net                  Increase in Cash and Cash Equivalents**                                                                      |   |         | -      |         |   | - |   |
| **Cash                  and Cash Equivalents at Beginning of Period**                                                               |   |         | -      |         |   | - |   |
| **Cash                  and Cash Equivalents at End of Period**                                                                     |   | $            | -      |         | $      | - |   |

| **SUPPLEMENTAL                  DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                              |   |   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Cash                  paid for interest net of capitalized amounts was $1,063,000 and                  $1,138,000                  and for income taxes was $8,080,000 and $570,000 in 2005 and 2004,                  respectively. Noncash acquisitions under capital leases were $26,000                  and                  $14,000 in 2005 and 2004,                  respectively. |

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

----

**AEP        GENERATING COMPANY**

**INDEX        TO CONDENSED NOTES TO 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   |
| Business                  Segments                       | Note                  9   |
| Financing                  Activities                    | Note                  11  |
| Company-wide                  Staffing and Budget Review | Note                  12  |

----

**AEP        TEXAS CENTRAL COMPANY AND SUBSIDIARY**

 

 

 

 

 

 

 

----

**AEP        TEXAS CENTRAL COMPANY AND SUBSIDIARY**

**MANAGEMENT’S        FINANCIAL DISCUSSION AND ANALYSIS**

**Results        of Operations**

**Reconciliation        of Second Quarter of 2004 to Second Quarter of 2005 Net        Income**

**(in        millions)**

| **Second                  Quarter of 2004 Net Income**            |   |   |   |   | $      | -      |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Texas                  Supply                                     |   |   | 2      |   |   |   |   |
| Texas                  Wires                                      |   |   | 8      |   |   |   |   |
| Off-system                  Sales                                 |   |   | (4     | )      |   |   |   |
| Transmission                  Revenues                            |   |   | (1     | )      |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | 5      |   |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | 22     |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | (7     | )      |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | 2      |   |   |   |   |
| Carrying                  Costs on Stranded Cost Recovery         |   |   | 20     |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | 37     |   |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | (14    | )      |
|                                                              |   |   |   |   |   |   |   |
| **Second                  Quarter of 2005 Net Income**            |   |   |   |   | $      | 28     |   |

| · | Texas                  Supply margins were $2 million higher primarily due to a provision                  for                  refund decrease in 2004 of $52 million as a result of the 2004                  final fuel                  reconciliation true-up, lower fuel expense of $77 million, and                  an increase                  in realized dedicated gas revenue of $6 million. The increase in                  Texas                  Supply margins was offset by the loss of revenue from Centrica,                  our                  largest REP customer, of $96 million, loss of ERCOT Reliability                  Must Run                  (RMR) margins of $9 million and decreased ERCOT Energy sales of                  $11                  million. Also contributing to the offset of higher Texas Supply                  margins                  were the loss of capacity sales of $9 million due to the sale of                  certain                  generation plants and a decrease of $6 million of affiliated REP                  sales due                  to loss of customers for AEP Texas C&I. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Wires                  revenues increased $8 million primarily due to an increase in sales                  volumes of 7% resulting partly from a 12% increase in cooling degree                  days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| · | Margins                  from Off-system Sales decreased $4 million primarily due to lower                  optimization activity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

| · | Other                  Operation and Maintenance expenses decreased $22 million primarily                  due to                  a $9 million decrease in power plant operations and an $11 million                  decrease in power plant maintenance both due to the sale of certain                  generation plants along with a $2 million decrease in employee-related                  expenses. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                  and Amortization expense increased $7 million primarily due to                  the                  recovery and amortization of securitized assets.                                                                                                                                                                                                                           |
| · | Taxes                  Other Than Income Taxes decreased $2 million primarily due to lower                  property-related taxes as a result of the sale of certain generation                  plants.                                                                                                                                                                                                     |
| · | Carrying                  Costs on Stranded Cost Recovery of $20 million were recorded in                  the second                  quarter of 2005.                                                                                                                                                                                                                                                       |

*Income        Taxes*

**Reconciliation        of Six Months Ended June 30, 2004 to Six Months Ended June 30, 2005 Net        Income**

**(in        millions)**

| **Six                  Months Ended June 30, 2004 Net Income**    |   |   |   |   | $      | 29     |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Gross Margin:**                     |   |   |   |   |   |   |   |
| Texas                  Supply                                     |   |   | (33    | )      |   |   |   |
| Texas                  Wires                                      |   |   | 9      |   |   |   |   |
| Off-system                  Sales                                 |   |   | (5     | )      |   |   |   |
| Other                  Revenues                                   |   |   | (9     | )      |   |   |   |
| **Total                  Change in Gross Margin**                 |   |   |   |   |   | (38    | )      |
|                                                              |   |   |   |   |   |   |   |
| **Changes                  in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                  Operation and Maintenance                  |   |   | 30     |   |   |   |   |
| Depreciation                  and Amortization                    |   |   | (7     | )      |   |   |   |
| Taxes                  Other Than Income Taxes                    |   |   | 2      |   |   |   |   |
| Carrying                  Costs on Stranded Cost Recovery         |   |   | 15     |   |   |   |   |
| Nonoperating                  Income and Expense, Net             |   |   | (6     | )      |   |   |   |
| Interest                  Charges                                 |   |   | 6      |   |   |   |   |
| **Total                  Change in Operating Expenses and Other** |   |   |   |   |   | 40     |   |
|                                                              |   |   |   |   |   |   |   |
| Income                  Tax Expense                               |   |   |   |   |   | (1     | )      |
|                                                              |   |   |   |   |   |   |   |
| **Six                  Months ended June 30, 2005 Net Income**    |   |   |   |   | $      | 30     |   |

| · | Texas                  Supply margins were $33 million lower primarily due to the loss                  of revenue                  from Centrica, our largest REP customer, of $172 million, loss                  of ERCOT                  RMR margins of $16 million and decreased ERCOT Energy sales of                  $14                  million. Also contributing to the lower Texas Supply margins were                  the loss                  of capacity sales of $17 million due to the sale of certain generation                  plants and a decrease of $7 million of affiliated REP sales due                  to loss of                  customers for AEP Texas C&I. These decreases were partially offset by                  a decrease in 2004 for provision for refund of $62 million due                  to the 2004                  final fuel reconciliation true-up and lower fuel expense of $134                  million. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Texas                  Wires revenue increased $9 million primarily due to an increase                  in sales                  volumes of 4% due in large part to increased degree days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| · | Margins                  from Off-system Sales decreased $5 million primarily due to lower                  optimization activity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| · | Other                  Revenues for 2005 decreased $9 million primarily due to a prior                  year                  adjustment in 2004 for affiliated OATT and ancillary services resulting                  from revised ERCOT data received for the years 2001 through                  2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

| · | Other                  Operation and Maintenance expenses decreased $30 million primarily                  due to                  a $14 million decrease in power plant operations and a $10 million                  decrease in power plant maintenance both due to the sale of certain                  generation plants, and a $9 million decrease in administrative,                  general                  and employee- related expenses offset in part by slightly higher                  transmission and distribution-related expenses.                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                  and Amortization expense increased $7 million primarily related                  to the                  recovery and amortization of securitized assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| · | Taxes                  Other Than Income Taxes decreased $2 million primarily due to lower                  property-related taxes as a result of the sale of certain generation                  plants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| · | Carrying                  Costs on Stranded Cost Recovery increased $15 million. Carrying                  Costs on                  Stranded Cost Recovery of $42 million were recorded in the first                  six                  months of 2005 offset by an adjustment of $27 million for prior                  years. The                  adjustment related to a nonaffiliated utility’s securitization proceeding                  in which the PUCT issued an order in March 2005 that resulted in                  a                  reduction in the nonaffiliated utility’s carrying costs based on a                  methodology detailed in the order for calculating a cost-of-money                  benefit                  related to accumulated deferred federal income taxes on net stranded                  cost                  and other true-up items retroactively applied to January 1, 2004. |
| · | Nonoperating                  Income and Expense, Net decreased $6 million primarily due to $14                  million                  of income in 2004 relating to risk management contracts which expired                  in                  December 2004 offset by higher net revenue from third party nonutility                  construction projects and a decrease in donation                  expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| · | Interest                  Charges decreased $6 million primarily due to the defeasance of                  First                  Mortgage Bonds in 2004 and the resultant deferral of the interest                  cost as                  a regulatory asset related to the cost of the sale of generation                  assets,                  the redemption of the 8% Notes Payable to Trust, long-term debt                  maturities                  and other financing activities.                                                                                                                                                                                                                                                                                                                                                                                                                                              |

*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**

|                                                                  |   | **2005**                            |     | **2004** |   |
|-----------------------------------------------------------------------|--------|-------------------------------------|----------|----------|--------|
|                                                                  |   | **(in                  thousands)** |     |
| **Cash                  and Cash Equivalents at Beginning of Period** |   | $                                   | -        |     | $      | 760 |   |
| Cash                  Flows From (Used For):                          |   |                                |     |     |   |   |   |
| Operating                  Activities                                 |   |                                | (109,779 | )        |   | 118,275 |   |
| Investing                  Activities                                 |   |                                | 144,833  |     |   | (163,139 | ) |
| Financing                  Activities                                 |   |                                | (32,960  | )        |   | 49,914 |   |
| Net                  Increase in Cash and Cash Equivalents            |   |                                | 2,094    |     |   | 5,050 |   |
| **Cash                  and Cash Equivalents at End of Period**       |   | $                                   | 2,094    |     | $      | 5,810 |   |

*Operating        Activities*

*Investing        Activities*

*Financing        Activities*

**Financing        Activity**

|                                                                                                                                                                          |   |  **Principal**                       |    | **Interest** |   | **Due**  |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|---------|--------------|--------|----------|--------|
| **Type                  of Debt**                                                                                                                                             |   |  **Amount**                          |    | **Rate**     |   | **Date** |   |
|                                                                                                                                                                          |   |  **(in                  thousands)** |    | **(%)**      |   |     |   |
| Installment                  Purchase Contract                                                                                                                                |   | $                                         | 111,700 |         |   | Variable |   |   | 2030 |   |
| Installment                  Purchase Contract                                                                                                                                |   |                                      | 50,000  |         |   | Variable |   |   | 2030 |   |
| Installment                  Purchase Contract                                                                                                                                |   |                                      | 60,000  |  (a)    |   | Variable |   |   | 2028 |   |
| Installment                  Purchase Contract                                                                                                                                |   |                                      | 60,265  |  (a)    |   | Variable |   |   | 2028 |   |
|                                                                                                                                                                          |
| (a) -                  represents issuance in advance of retirement $120 million, 6.0%                  Installment Purchase Contracts                  on July 1, 2005. |

|                                            |   |  **Principal**                       |    | **Interest** |   | **Due**  |   |
|-------------------------------------------------|--------|-------------------------------------------|---------|--------------|--------|----------|--------|
| **Type                  of Debt**               |   |  **Amount**                          |    | **Rate**     |   | **Date** |   |
|                                            |   |  **(in                  thousands)** |    | **(%)**      |   |     |   |
| Senior                  Unsecured Notes Payable |   | $                                         | 150,000 |         |   | 3.00     |   |   | 2005 |   |
| Senior                  Unsecured Notes Payable |   |                                      | 100,000 |         |   | Variable |   |   | 2005 |   |
| Securitization                  Bonds           |   |                                      | 29,386  |         |   | 3.54     |   |   | 2005 |   |

**Liquidity**

**Summary        Obligation Information**

**Significant        Factors**

***Texas        Restructuring***

***Rate        Case***

**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**

**Six        Months Ended June 30, 2005**

**(in        thousands)**

| **Total                  MTM Risk Management Contract Net Assets at December 31,                  2004**                      |   | $      | 9,701  |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                  Loss from Contracts Realized/Settled During the Period (a)                                            |   |   | (3,721 | )      |
| Fair                  Value of New Contracts When Entered During the Period (b)                                               |   |   | 74     |   |
| Net                  Option Premiums Paid/(Received) (c)                                                                      |   |   | (11    | )      |
| Change                  in Fair Value Due to Valuation Methodology Changes                                                    |   |   | -      |   |
| Changes                  in Fair Value of Risk Management Contracts (d)                                                       |   |   | (3,427 | )      |
| Changes                  in Fair Value of Risk Management Contracts Allocated to Regulated                  Jurisdictions (e) |   |   | -      |   |
| **Total                  MTM Risk Management Contract Net Assets**                                                            |   |   | 2,616  |   |
| Net                  Cash Flow Hedge Contracts (f)                                                                            |   |   | (558   | )      |
| **Total                  MTM Risk Management Contract Net Assets at June 30,                  2005**                          |   | $      | 2,058  |   |

| (a) | “(Gain)                  Loss from Contracts Realized/Settled During the Period” includes realized                  risk management contracts and related derivatives that settled                  during 2005                  where we entered into the contract prior to 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Fair                  Value of New Contracts When Entered During the Period” represents the fair                  value at inception of long-term contracts entered into with customers                  during 2005. 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. |
| (c) | “Net                  Option Premiums Paid/(Received)” reflects the net option premiums                  paid/(received) as they relate to unexercised and unexpired option                  contracts that were entered in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (d) | “Changes                  in Fair Value of Risk Management Contracts” represents the fair value                  change in the risk management portfolio due to market fluctuations                  during                  the current period. Market fluctuations are attributable to various                  factors such as supply/demand, weather, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (e) | “Changes                  in Fair Value of Risk Management Contracts 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.                                                                                                                                                                                                                                                                                                      |
| (f) | “Net                  Cash Flow Hedge Contracts” (pretax) are discussed below in Accumulated                  Other Comprehensive Income (Loss).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

**Reconciliation        of MTM Risk Management Contracts to**

**Condensed        Consolidated Balance Sheets**

**As        of June 30, 2005**

**(in        thousands)**

|                                                                        |   | **MTM                  Risk Management Contracts (a)** |   | **Cash                  Flow Hedges** |   | **Total                  (b)** |   |
|-----------------------------------------------------------------------------|--------|--------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------|--------|
| Current                  Assets                                             |   | $                                                      | 3,995  |                                  | $      | 22                             |   | $ | 4,017 |   |
| Noncurrent                  Assets                                          |   |                                                   | 4,977  |                                  |   | 6                              |   |   | 4,983 |   |
| **Total                  MTM Derivative Contract Assets**                   |   |                                                   | 8,972  |                                  |   | 28                             |   |   | 9,000 |   |
|                                                                        |   |                                                   |   |                                  |   |                           |   |   |   |   |
| Current                  Liabilities                                        |   |                                                   | (3,737 | )                                     |   | (535                           | )      |   | (4,272 | ) |
| Noncurrent                  Liabilities                                     |   |                                                   | (2,619 | )                                     |   | (51                            | )      |   | (2,670 | ) |
| **Total                  MTM Derivative Contract Liabilities**              |   |                                                   | (6,356 | )                                     |   | (586                           | )      |   | (6,942 | ) |
|                                                                        |   |                                                   |   |                                  |   |                           |   |   |   |   |
| **Total                  MTM Derivative Contract Net Assets (Liabilities)** |   | $                                                      | 2,616  |                                  | $      | (558                           | )      | $ | 2,058 |   |

| (a) | Does                  not include Cash Flow Hedges.                                                                                                                                                                                                                                                                                    |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Represents                  amount of total MTM derivative contracts recorded within Risk Management                  Assets, Long-term Risk Management Assets, Risk Management Liabilities                  and                  Long-term Risk Management Liabilities on our Condensed Consolidated                  Balance Sheets. |

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

| · | The                  source of 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 June 30, 2005**

**(in        thousands)**

|                                                                                                |   | **Remainder                  of 2005** |   | **2006** |   | **2007** |   | **2008** |   | **2009** |   | **After****2009                  (c)** |   | **Total                  (d)** |   |
|-----------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------------------------------------|--------|--------------------------------|--------|
| Prices                  Actively Quoted - Exchange Traded                  Contracts                |   | $                                      | (667   | )        | $      | (5       | )      | $        | 529    |     | $      | -                                      |   | $                              | -      |   | $ | - |   | $ | (143 | ) |
| Prices                  Provided by Other External Sources                  - OTC Broker Quotes (a) |   |                                   | 1,427  |     |   | 1,809    |   |     | 598    |     |   | 648                                    |   |                           | -      |   |   | - |   |   | 4,482 |   |
| Prices                  Based on Models and Other Valuation                  Methods (b)            |   |                                   | (728   | )        |   | (1,291   | )      |     | (537   | )        |   | (57                                    | )      |                           | 407    |   |   | 483 |   |   | (1,723 | ) |
| **Total**                                                                                           |   | $                                      | 32     |     | $      | 513      |   | $        | 590    |     | $      | 591                                    |   | $                              | 407    |   | $ | 483 |   | $ | 2,616 |   |

| (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 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. |
| (c) | There                  is a mark-to-market value in excess of 10 percent of our total                  mark-to-market value in individual periods beyond 2009. $290 thousand                  of                  this mark-to-market value is in 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| (d) | Amounts                  exclude Cash Flow Hedges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

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

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

**Six        Months Ended June 30, 2005**

**(in        thousands)**

|                                                           |   | **Power** |   |
|----------------------------------------------------------------|--------|-----------|--------|
| **Beginning                  Balance December 31, 2004**       |   | $         | 657    |   |
| Changes                  in Fair Value (a)                     |   |      | (737   | ) |
| Reclassifications                  from AOCI to Net Income (b) |   |      | (277   | ) |
| **Ending                  Balance June 30, 2005**              |   | $         | (357   | ) |

| (a) | “Changes                  in Fair Value” shows changes in the fair value of derivatives designated                  as cash flow hedges during the reporting period that are not yet                  settled                  at June 30, 2005. Amounts are reported net of related income                  taxes.                                                 |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Reclassifications                  from AOCI to Net Income” represents gains or losses from derivatives used                  as hedging instruments in cash flow hedges that were reclassified                  into net                  income during the reporting period. Amounts are reported net of                  related                  income taxes. |

**Credit        Risk**

**VaR        Associated with Management Contracts**

|   | **Six                  Months Ended** |   | **Twelve                  Months Ended** |   |
|--------|---------------------------------------|--------|------------------------------------------|--------|
|   | **June                  30, 2005**    |   | **December                  31, 2004**   |   |
|   | **(in                  thousands)**   |   | **(in                  thousands)**      |   |
|   | **End**                               |   | **High**                                 |   | **Average** |   | **Low** |   | **End** |   | **High** |   | **Average** |   | **Low** |   |
|   | $74                                   |   | $88                                      |   | $43 |   | $25 |   | $157 |   | $511 |   | $220 |   | $75 |   |

**VaR        Associated with Debt Outstanding**

----

**AEP        TEXAS CENTRAL COMPANY AND SUBSIDIARY**

**CONDENSED        CONSOLIDATED STATEMENTS OF OPERATIONS**

**For        the Three and Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in        thousands)**

|                                                                        |   | **Three                  Months Ended** |    | **Six                  Months Ended** |   |
|-----------------------------------------------------------------------------|--------|-----------------------------------------|---------|---------------------------------------|--------|
|                                                                        |   | **2005**                                |    | **2004**                              |   | **2005** |   | **2004** |   |
| **OPERATING                  REVENUES**                                     |   |                               |    |                             |   |   |   |   |   |
| Electric                  Generation, Transmission and Distribution         |   | $                                       | 184,793 |                                  | $      | 257,053 |   | $ | 366,987 |   | $ | 525,911 |   |
| Sales                  to AEP Affiliates                                    |   |                                    | 5,302   |                                  |   | 12,896 |   |   | 10,266 |   |   | 31,026 |   |
| **TOTAL**                                                                   |   |                                    | 190,095 |                                  |   | 269,949 |   |   | 377,253 |   |   | 556,937 |   |
|                                                                        |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **OPERATING                  EXPENSES**                                     |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Fuel                  for Electric Generation                               |   |                                    | 4,012   |                                  |   | 20,806 |   |   | 10,087 |   |   | 43,912 |   |
| Fuel                  from Affiliates for Electric Generation               |   |                                    | 21      |                                  |   | 59,977 |   |   | 44 |   |   | 100,176 |   |
| Purchased                  Electricity for Resale                           |   |                                    | 9,996   |                                  |   | 16,468 |   |   | 25,366 |   |   | 26,554 |   |
| Purchased                  Electricity from AEP Affiliates                  |   |                                    | -       |                                  |   | 1,938 |   |   | - |   |   | 6,011 |   |
| Other                  Operation                                            |   |                                    | 67,549  |                                  |   | 78,066 |   |   | 133,209 |   |   | 153,507 |   |
| Maintenance                                                                 |   |                                    | 12,433  |                                  |   | 23,709 |   |   | 29,472 |   |   | 39,113 |   |
| Depreciation                  and Amortization                              |   |                                    | 35,434  |                                  |   | 28,879 |   |   | 64,720 |   |   | 57,976 |   |
| Taxes                  Other Than Income Taxes                              |   |                                    | 20,923  |                                  |   | 23,157 |   |   | 43,454 |   |   | 45,214 |   |
| Income                  Taxes (Credits)                                     |   |                                    | (1,312  | )                                     |   | (6,388 | ) |   | 149 |   |   | 5,618 |   |
| **TOTAL**                                                                   |   |                                    | 149,056 |                                  |   | 246,612 |   |   | 306,501 |   |   | 478,081 |   |
|                                                                        |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **OPERATING                  INCOME**                                       |   |                                    | 41,039  |                                  |   | 23,337 |   |   | 70,752 |   |   | 78,856 |   |
|                                                                        |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Carrying                  Costs on Stranded Cost Recovery                   |   |                                    | 19,938  |                                  |   | - |   |   | 14,797 |   |   | - |   |
| Nonoperating                  Income                                        |   |                                    | 18,260  |                                  |   | 12,061 |   |   | 34,556 |   |   | 24,163 |   |
| Nonoperating                  Expenses                                      |   |                                    | 8,987   |                                  |   | 2,648 |   |   | 24,124 |   |   | 7,756 |   |
| Nonoperating                  Income Tax Expense                            |   |                                    | 9,240   |                                  |   | 880 |   |   | 6,755 |   |   | 860 |   |
| Interest                  Charges                                           |   |                                    | 32,642  |                                  |   | 32,211 |   |   | 59,721 |   |   | 65,340 |   |
|                                                                        |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **NET                  INCOME (LOSS)**                                      |   |                                    | 28,368  |                                  |   | (341 | ) |   | 29,505 |   |   | 29,063 |   |
|                                                                        |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| Preferred                  Stock Dividend Requirements                      |   |                                    | 61      |                                  |   | 61 |   |   | 121 |   |   | 121 |   |
|                                                                        |   |                                    |    |                                  |   |   |   |   |   |   |   |   |   |
| **EARNINGS                  (LOSS) APPLICABLE TO COMMON   STOCK** |   | $                                       | 28,307  |                                  | $      | (402 | ) | $ | 29,384 |   | $ | 28,942 |   |

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

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

----

**AEP        TEXAS CENTRAL COMPANY AND SUBSIDIARY**

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

**EQUITY        AND COMPREHENSIVE INCOME (LOSS)**

**For        the Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in        thousands)**

|                                                                             |   | **Common                  Stock** |   | **Paid-in                  Capital** |   | **Retained                  Earnings** |   | **Accumulated                  Other Comprehensive Income (Loss)** |      | **Total** |   |
|----------------------------------------------------------------------------------|--------|-----------------------------------|--------|--------------------------------------|--------|----------------------------------------|--------|--------------------------------------------------------------------|-----------|-----------|--------|
| **DECEMBER                  31, 2003**                                           |   | $                                 | 55,292 |                                 | $      | 132,606                                |   | $                                                                  | 1,083,023 |      | $      | (61,872 | ) | $ | 1,209,049 |   |
|                                                                             |   |                              |   |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| Common                  Stock Dividends                                          |   |                              |   |                                 |   |                                   |   |                                                               | (48,000   | )         |   |   |   |   | (48,000 | ) |
| Preferred                  Stock Dividends                                       |   |                              |   |                                 |   |                                   |   |                                                               | (121      | )         |   |   |   |   | (121 | ) |
| **TOTAL**                                                                        |   |                              |   |                                 |   |                                   |   |                                                               |      |      |   |   |   |   | 1,160,928 |   |
|                                                                             |   |                              |   |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                        |   |                              |   |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **Other                  Comprehensive Loss,****Net                  of Taxes:** |   |                              |   |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $5,069                          |   |                              |   |                                 |   |                                   |   |                                                               |      |      |   | (9,414 | ) |   | (9,414 | ) |
| Minimum                  Pension Liability, Net of Tax of $0                     |   |                              |   |                                 |   |                                   |   |                                                               |      |      |   | (2,466 | ) |   | (2,466 | ) |
| **NET                  INCOME**                                                  |   |                              |   |                                 |   |                                   |   |                                                               | 29,063    |      |   |   |   |   | 29,063 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                  |   |                              |   |                                 |   |                                   |   |                                                               |      |      |   |   |   |   | 17,183 |   |
|                                                                             |   |                              |   |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **JUNE                  30, 2004**                                               |   | $                                 | 55,292 |                                 | $      | 132,606                                |   | $                                                                  | 1,063,965 |      | $      | (73,752 | ) | $ | 1,178,111 |   |
|                                                                             |   |                              |   |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **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                                       |   |                              |   |                                 |   |                                   |   |                                                               | (121      | )         |   |   |   |   | (121 | ) |
| **TOTAL**                                                                        |   |                              |   |                                 |   |                                   |   |                                                               |      |      |   |   |   |   | 1,118,522 |   |
|                                                                             |   |                              |   |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **COMPREHENSIVE                  INCOME**                                        |   |                              |   |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **Other                  Comprehensive Loss,****Net                  of Taxes:** |   |                              |   |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| Cash                  Flow Hedges, Net of Tax of $546                            |   |                              |   |                                 |   |                                   |   |                                                               |      |      |   | (1,014 | ) |   | (1,014 | ) |
| **NET                  INCOME**                                                  |   |                              |   |                                 |   |                                   |   |                                                               | 29,505    |      |   |   |   |   | 29,505 |   |
| **TOTAL                  COMPREHENSIVE INCOME**                                  |   |                              |   |                                 |   |                                   |   |                                                               |      |      |   |   |   |   | 28,491 |   |
|                                                                             |   |                              |   |                                 |   |                                   |   |                                                               |      |      |   |   |   |   |   |   |
| **JUNE                  30, 2005**                                               |   | $                                 | 55,292 |                                 | $      | 132,606                                |   | $                                                                  | 964,288   |      | $      | (5,173 | ) | $ | 1,147,013 |   |

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

----

**AEP        TEXAS CENTRAL COMPANY AND SUBSIDIARY**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**June        30, 2005 and December 31, 2004**

**(Unaudited)**

**(in        thousands)**

|                                                            |   | **2005**     |      | **2004**     |   |
|-----------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **ELECTRIC                  UTILITY PLANT**                     |   |    |      |    |   |
| Transmission                                                    |   | $            | 809,467   |         | $      | 788,371 |   |
| Distribution                                                    |   |         | 1,452,625 |         |   | 1,433,380 |   |
| General                                                         |   |         | 230,953   |         |   | 220,435 |   |
| Construction                  Work in Progress                  |   |         | 55,690    |         |   | 50,612 |   |
| **Total**                                                       |   |         | 2,548,735 |         |   | 2,492,798 |   |
| Accumulated                  Depreciation and Amortization      |   |         | 744,189   |         |   | 725,225 |   |
| **TOTAL                  - NET**                                |   |         | 1,804,546 |         |   | 1,767,573 |   |
|                                                            |   |         |      |         |   |   |   |
| **OTHER                  PROPERTY AND INVESTMENTS**             |   |         |      |         |   |   |   |
| Nonutility                  Property, Net                       |   |         | 2,273     |         |   | 1,577 |   |
| Bond                  Defeasance Funds                          |   |         | 21,811    |         |   | 22,110 |   |
| **TOTAL**                                                       |   |         | 24,084    |         |   | 23,687 |   |
|                                                            |   |         |      |         |   |   |   |
| **CURRENT                  ASSETS**                             |   |         |      |         |   |   |   |
| Cash                  and Cash Equivalents                      |   |         | 2,094     |         |   | - |   |
| Other                  Cash Deposits                            |   |         | 242,600   |         |   | 135,132 |   |
| Accounts                  Receivable:                           |   |         |      |         |   |   |   |
| Customers                                                       |   |         | 153,737   |         |   | 157,431 |   |
| Affiliated                  Companies                           |   |         | 21,356    |         |   | 67,860 |   |
| Accrued                  Unbilled Revenues                      |   |         | 26,979    |         |   | 21,589 |   |
| Allowance                  for Uncollectible Accounts           |   |         | (994      | )            |   | (3,493 | ) |
| Materials                  and Supplies                         |   |         | 12,861    |         |   | 12,288 |   |
| Risk                  Management Assets                         |   |         | 4,017     |         |   | 14,048 |   |
| Margin                  Deposits                                |   |         | 2,609     |         |   | 1,891 |   |
| Prepayments                  and Other Current Assets           |   |         | 16,042    |         |   | 9,151 |   |
| **TOTAL**                                                       |   |         | 481,301   |         |   | 415,897 |   |
|                                                            |   |         |      |         |   |   |   |
| **DEFERRED                  DEBITS AND OTHER ASSETS**           |   |         |      |         |   |   |   |
| Regulatory                  Assets:                             |   |         |      |         |   |   |   |
| SFAS                  109 Regulatory Asset, Net                 |   |         | 18,936    |         |   | 15,236 |   |
| Wholesale                  Capacity Auction True-Up             |   |         | 585,336   |         |   | 559,973 |   |
| Unamortized                  Loss on Reacquired Debt            |   |         | 11,311    |         |   | 11,842 |   |
| Designated                  for Securitization                  |   |         | 1,347,502 |         |   | 1,361,299 |   |
| Deferred                  Debt - Restructuring                  |   |         | 11,139    |         |   | 11,596 |   |
| Other                                                           |   |         | 90,302    |         |   | 102,032 |   |
| Securitized                  Transition Assets                  |   |         | 622,137   |         |   | 642,384 |   |
| Long-term                  Risk Management Assets               |   |         | 4,983     |         |   | 9,508 |   |
| Prepaid                  Pension Obligations                    |   |         | 110,210   |         |   | 109,628 |   |
| Deferred                  Property Taxes                        |   |         | 15,450    |         |   | - |   |
| Deferred                  Charges                               |   |         | 34,660    |         |   | 36,986 |   |
| **TOTAL**                                                       |   |         | 2,851,966 |         |   | 2,860,484 |   |
|                                                            |   |         |      |         |   |   |   |
| Assets                  Held for Sale - Texas Generation Plants |   |         | 45,611    |         |   | 628,149 |   |
|                                                            |   |         |      |         |   |   |   |
| **TOTAL                  ASSETS**                               |   | $            | 5,207,508 |         | $      | 5,695,790 |   |

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

----

**AEP        TEXAS CENTRAL COMPANY AND SUBSIDIARY**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**CAPITALIZATION**
**        AND LIABILITIES**

**June        30, 2005 and December 31, 2004**

**(Unaudited)**

|                                                                            |   | **2005**                            |      | **2004**     |   |
|---------------------------------------------------------------------------------|--------|-------------------------------------|-----------|--------------|--------|
| **CAPITALIZATION**                                                              |   | **(in                  thousands)** |      |
| 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                                              |   |                                | 964,288   |         |   | 1,084,904 |   |
| Accumulated                  Other Comprehensive Income (Loss)                  |   |                                | (5,173    | )            |   | (4,159 | ) |
| **Total                  Common Shareholder’s Equity**                    |   |                                | 1,147,013 |         |   | 1,268,643 |   |
| Cumulative                  Preferred Stock Not Subject to Mandatory Redemption |   |                                | 5,940     |         |   | 5,940 |   |
| **Total                  Shareholders’ Equity**                           |   |                                | 1,152,953 |         |   | 1,274,583 |   |
| Long-term                  Debt - Nonaffiliated                                 |   |                                | 1,672,748 |         |   | 1,541,552 |   |
| **TOTAL**                                                                       |   |                                | 2,825,701 |         |   | 2,816,135 |   |
| **CURRENT                  LIABILITIES**                                        |   |                                |      |         |   |   |   |
| Long-term                  Debt Due Within One Year - Nonaffiliated             |   |                                | 237,262   |         |   | 365,742 |   |
| Advances                  from Affiliates                                       |   |                                | 120,064   |         |   | 207 |   |
| Accounts                  Payable:                                              |   |                                |      |         |   |   |   |
| General                                                                         |   |                                | 51,779    |         |   | 109,688 |   |
| Affiliated                  Companies                                           |   |                                | 37,004    |         |   | 64,045 |   |
| Customer                  Deposits                                              |   |                                | 5,414     |         |   | 6,147 |   |
| Taxes                  Accrued                                                  |   |                                | 113,542   |         |   | 184,014 |   |
| Interest                  Accrued                                               |   |                                | 38,672    |         |   | 41,227 |   |
| Risk                  Management Liabilities                                    |   |                                | 4,272     |         |   | 8,394 |   |
| Obligations                  Under Capital Leases                               |   |                                | 423       |         |   | 412 |   |
| Other                                                                           |   |                                | 22,514    |         |   | 20,115 |   |
| **TOTAL**                                                                       |   |                                | 630,946   |         |   | 799,991 |   |
|                                                                            |   |                                |      |         |   |   |   |
| **DEFERRED                  CREDITS AND OTHER LIABILITIES**                     |   |                                |      |         |   |   |   |
| Deferred                  Income Taxes                                          |   |                                | 1,177,334 |         |   | 1,247,111 |   |
| Long-term                  Risk Management Liabilities                          |   |                                | 2,670     |         |   | 4,896 |   |
| Regulatory                  Liabilities:                                        |   |                                |      |         |   |   |   |
| Asset                  Removal Costs                                            |   |                                | 104,214   |         |   | 102,624 |   |
| Deferred                  Investment Tax Credits                                |   |                                | 105,871   |         |   | 107,743 |   |
| Over-recovery                  of Fuel Costs                                    |   |                                | 209,126   |         |   | 211,526 |   |
| Retail                  Clawback                                                |   |                                | 61,384    |         |   | 61,384 |   |
| Other                                                                           |   |                                | 77,166    |         |   | 76,653 |   |
| Obligations                  Under Capital Leases                               |   |                                | 496       |         |   | 468 |   |
| Deferred                  Credits and Other                                     |   |                                | 11,651    |         |   | 17,276 |   |
| **TOTAL**                                                                       |   |                                | 1,749,912 |         |   | 1,829,681 |   |
|                                                                            |   |                                |      |         |   |   |   |
| Liabilities                  Held for Sale - Texas Generation Plants            |   |                                | 949       |         |   | 249,983 |   |
|                                                                            |   |                                |      |         |   |   |   |
| Commitments                  and Contingencies (Note 5)                         |   |                                |      |         |   |   |   |
|                                                                            |   |                                |      |         |   |   |   |
| **TOTAL                  CAPITALIZATION AND LIABILITIES**                       |   | $                                   | 5,207,508 |         | $      | 5,695,790 |   |

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

----

**AEP        TEXAS CENTRAL COMPANY AND SUBSIDIARY**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For        the Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in        thousands)**

|                                                                                                                      |   | **2005**     |     | **2004**     |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                  ACTIVITIES**                                                                                 |   |    |     |    |   |
| **Net                  Income**                                                                                           |   | $            | 29,505   |         | $      | 29,063 |   |
| **Adjustments                  to Reconcile Net Income to Net Cash Flows****From                  Operating Activities:** |   |         |     |         |   |   |   |
| Depreciation                  and Amortization                                                                            |   |         | 64,720   |         |   | 57,976 |   |
| Accretion                  Expense                                                                                        |   |         | 7,549    |         |   | 8,209 |   |
| Deferred                  Income Taxes                                                                                    |   |         | (83,369  | )            |   | (11,682 | ) |
| Deferred                  Investment Tax Credits                                                                          |   |         | (1,872   | )            |   | (2,603 | ) |
| Deferred                  Property Taxes                                                                                  |   |         | (15,450  | )            |   | (22,440 | ) |
| Pension                  and Postemployment Benefit Reserves                                                              |   |         | (1,516   | )            |   | 481 |   |
| Mark-to-Market                  of Risk Management Contracts                                                              |   |         | 7,085    |         |   | 4,593 |   |
| Pension                  Contributions                                                                                    |   |         | (113     | )            |   | (675 | ) |
| Carrying                  Costs                                                                                           |   |         | (14,797  | )            |   | - |   |
| Wholesale                  Capacity Auction True-up                                                                       |   |         | 769      |         |   | - |   |
| Over/Under                  Fuel Recovery                                                                                 |   |         | (2,400   | )            |   | 60,000 |   |
| (Gain)/Loss                  on Sale of Assets                                                                            |   |         | 16       |         |   | (312 | ) |
| Change                  in Other Noncurrent Assets                                                                        |   |         | (6,169   | )            |   | 2,905 |   |
| Change                  in Other Noncurrent Liabilities                                                                   |   |         | 3,176    |         |   | (27,166 | ) |
| **Changes                  in Components of Working Capital:**                                                            |   |         |     |         |   |   |   |
| Accounts                  Receivable, Net                                                                                 |   |         | 46,481   |         |   | (26,582 | ) |
| Fuel,                  Materials and Supplies                                                                             |   |         | (969     | )            |   | (3,735 | ) |
| Accounts                  Payable                                                                                         |   |         | (62,628  | )            |   | 18,804 |   |
| Taxes                  Accrued                                                                                            |   |         | (69,046  | )            |   | 31,378 |   |
| Customer                  Deposits                                                                                        |   |         | (733     | )            |   | 4,361 |   |
| Interest                  Accrued                                                                                         |   |         | (2,555   | )            |   | (756 | ) |
| Other                  Current Assets                                                                                     |   |         | (9,285   | )            |   | (371 | ) |
| Other                  Current Liabilities                                                                                |   |         | 1,822    |         |   | (3,173 | ) |
| **Net                  Cash Flows From (Used For) Operating Activities**                                                  |   |         | (109,779 | )            |   | 118,275 |   |
|                                                                                                                      |   |         |     |         |   |   |   |
| **INVESTING                  ACTIVITIES**                                                                                 |   |         |     |         |   |   |   |
| Construction                  Expenditures                                                                                |   |         | (61,408  | )            |   | (49,339 | ) |
| Proceeds                  From Sale of Assets                                                                             |   |         | 313,709  |         |   | 1,477 |   |
| Change                  in Other Cash Deposits, Net                                                                       |   |         | (107,468 | )            |   | (93,607 | ) |
| Change                  in Bond Defeasance Funds and Other                                                                |   |         | -        |         |   | (21,670 | ) |
| **Net                  Cash Flows From (Used For) Investing Activities**                                                  |   |         | 144,833  |         |   | (163,139 | ) |
|                                                                                                                      |   |         |     |         |   |   |   |
| **FINANCING                  ACTIVITIES**                                                                                 |   |         |     |         |   |   |   |
| Issuance                  of Long-term Debt                                                                               |   |         | 276,690  |         |   | - |   |
| Retirement                  of Long-term Debt                                                                             |   |         | (279,386 | )            |   | (35,004 | ) |
| Changes                  in Advances to/from Affiliates, Net                                                              |   |         | 119,857  |         |   | 133,039 |   |
| Dividends                  Paid on Common Stock                                                                           |   |         | (150,000 | )            |   | (48,000 | ) |
| Dividends                  Paid on Cumulative Preferred Stock                                                             |   |         | (121     | )            |   | (121 | ) |
| **Net                  Cash Flows From (Used For) Financing Activities**                                                  |   |         | (32,960  | )            |   | 49,914 |   |
|                                                                                                                      |   |         |     |         |   |   |   |
| **Net                  Increase in Cash and Cash Equivalents**                                                            |   |         | 2,094    |         |   | 5,050 |   |
| **Cash                  and Cash Equivalents at Beginning of Period**                                                     |   |         | -        |         |   | 760 |   |
| **Cash                  and Cash Equivalents at End of Period**                                                           |   | $            | 2,094    |         | $      | 5,810 |   |

| **SUPPLEMENTAL                  DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cash                  paid (received) for interest net of capitalized amounts was $52,441,000                  and $61,529,000 and for income taxes was $161,372,000 and $(7,067,000)                  in                  2005 and 2004, respectively. Noncash capital lease acquisitions                  were                  $261,000 and $218,000 in 2005 and 2004, respectively. Construction                  Expenditures include the change in construction-related Accounts                  Payable                  of $1,697,000 and $(423,000) in 2005 and 2004,                  respectively. |

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

----

**AEP        TEXAS CENTRAL COMPANY AND SUBSIDIARY**

**INDEX        TO CONDENSED NOTES TO 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   |
| Acquisitions,                  Dispositions and Assets Held for Sale | Note                  7   |
| Benefit                  Plans                                       | Note                  8   |
| Business                  Segments                                   | Note                  9   |
| Income                  Taxes                                        | Note                  10  |
| Financing                  Activities                                | Note                  11  |
| Company-wide                  Staffing and Budget Review             | Note                  12  |

----

**AEP          TEXAS NORTH COMPANY**

----

**AEP          TEXAS NORTH COMPANY**

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

**Results          of Operations**

**Reconciliation          of Second Quarter of 2004 to Second Quarter of 2005 Net          Income**

**(in          millions)**

| **Second                    Quarter of 2004 Net Income**             |   |   |   |   | $      | 8      |   |
|----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                 |   |   |   |   |   |   |   |
| **Changes                    in Gross Margin:**                      |   |   |   |   |   |   |   |
| Texas                    Supply                                      |   |   | 4      |   |   |   |   |
| Wires                    Revenue                                     |   |   | 3      |   |   |   |   |
| Off-system                    Sales                                  |   |   | (2     | )      |   |   |   |
| Transmission                    Revenue                              |   |   | 1      |   |   |   |   |
| **Total                    Change in Gross Margin**                  |   |   |   |   |   | 6      |   |
|                                                                 |   |   |   |   |   |   |   |
| **Changes                    in Operating Expenses and Other:**      |   |   |   |   |   |   |   |
| Other                    Operation and Maintenance                   |   |   | (1     | )      |   |   |   |
| **Total                    Change in Operating Expenses and Other:** |   |   |   |   |   | (1     | )      |
|                                                                 |   |   |   |   |   |   |   |
| Income                    Tax** **Expense                       |   |   |   |   |   | (1     | )      |
|                                                                 |   |   |   |   |   |   |   |
| **Second                    Quarter of 2005 Net Income**             |   |   |   |   | $      | 12     |   |

| · | Texas                    Supply margins increased by $4 million primarily                    due to a $3 million increase in capacity sales, offset by lower                    sales                    volumes of 18% due to the loss of Centrica, our largest REP customer.                    Also, provision for rate refunds decreased $13 million due to                    the 2004                    final fuel reconciliation true-up, offset by a decrease of $13                    million in                    the net fuel revenue/fuel expense. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Wires                    Revenue increased by $3 million primarily due to an increase                    in delivery                    volumes of 10%.                                                                                                                                                                                                                                                                                                                                                                                                           |
| · | Margins                    from Off-system Sales decreased by $2 million primarily due to                    lower                    optimization activity.                                                                                                                                                                                                                                                                                                                                                                                                      |
| · | Transmission                    Revenue increased $1 million primarily due to Texas transmission                    rate                    increases.                                                                                                                                                                                                                                                                                                                                                                                                            |

| · | Other                    Operation and Maintenance expenses increased $1 million primarily                    related                    to field data collection for tracking system upgrades, 2005 staffing                    and                    budget review severance and disposal of fuel oil inventory, reduced                    in                    part by lower power plant maintenance on Reliability Must Run                    (RMR) plants                    no longer in service. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Income          Taxes***

**Reconciliation          of Six Months Ended June 30, 2004 to Six Months Ended June 30, 2005 Net          Income**

**(in          millions)**

| **Six                    Months Ended June 30, 2004 Net Income**     |   |   |   |   | $      | 21     |   |
|----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                 |   |   |   |   |   |   |   |
| **Changes                    in Gross Margin:**                      |   |   |   |   |   |   |   |
| Wires                    Revenue                                     |   |   | 2      |   |   |   |   |
| Off-system                    Sales                                  |   |   | (3     | )      |   |   |   |
| Transmission                    Revenue                              |   |   | 2      |   |   |   |   |
| Other                    Revenue                                     |   |   | (4     | )      |   |   |   |
| **Total                    Change in Gross Margin**                  |   |   |   |   |   | (3     | )      |
|                                                                 |   |   |   |   |   |   |   |
| **Changes                    in Operating Expenses and Other:**      |   |   |   |   |   |   |   |
| Other                    Operation and Maintenance                   |   |   | 1      |   |   |   |   |
| Depreciation                    and Amortization                     |   |   | (1     | )      |   |   |   |
| Taxes                    Other Than Income Taxes                     |   |   | (1     | )      |   |   |   |
| Nonoperating                    Income and Expenses, Net             |   |   | (3     | )      |   |   |   |
| Interest                    Charges                                  |   |   | 2      |   |   |   |   |
| **Total                    Change in Operating Expenses and Other:** |   |   |   |   |   | (2     | )      |
|                                                                 |   |   |   |   |   |   |   |
| Income                    Tax** **Expense                       |   |   |   |   |   | 3      |   |
|                                                                 |   |   |   |   |   |   |   |
| **Six                    Months ended June 30, 2005 Net Income**     |   |   |   |   | $      | 19     |   |

| · | Wires                    Revenue increased by $2 million primarily                    due to higher delivery volumes of 5%.                                                                                                                                                                                 |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Margins                    from Off-system Sales for 2005 decreased by $3 million primarily                    due to                    lower optimization activity.                                                                                                                                       |
| · | Transmission                    Revenue increased $2 million due primarily to Texas transmission                    rate                    increases.                                                                                                                                                      |
| · | Other                    Revenue decreased $4 million primarily due to a prior year favorable                    adjustment for affiliated OATT and ancillary services resulting                    from                    revised ERCOT data received for the years 2001 through                    2003. |

| · | Other                    Operation and Maintenance expenses decreased $1 million primarily                    due to                    decreased maintenance for RMR plants no longer in                    service.                                                                                                                                                                                               |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Nonoperating                    Income and Expenses, Net increased $3 million primarily due to                    $5 million                    of income in 2004 relating to risk management contracts which                    expired in                    December 2004 offset by increased net revenue of $2 million from                    third                    party nonutility construction projects. |
| · | Interest                    Charges decreased $2 million primarily due to long-term debt                    maturities in                    2004 and interest in 2004 related to the FERC settlement with                    wholesale                    customers.                                                                                                                                               |

***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**

**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**

**Six          Months Ended June 30, 2005**

**(in          thousands)**

| **Total                    MTM Risk Management Contract Net Assets at December 31,                    2004**                      |   | $      | 4,192  |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                    Loss from Contracts Realized/Settled During the Period (a)                                              |   |   | (1,608 | )      |
| Fair                    Value of New Contracts When Entered During the Period (b)                                                 |   |   | 32     |   |
| Net                    Option Premiums Paid/(Received) (c)                                                                        |   |   | (5     | )      |
| Change                    in Fair Value Due to Valuation Methodology Changes                                                      |   |   | -      |   |
| Changes                    in Fair Value of Risk Management Contracts (d)                                                         |   |   | (1,481 | )      |
| Changes                    in Fair Value of Risk Management Contracts Allocated to Regulated                    Jurisdictions (e) |   |   | -      |   |
| **Total                    MTM Risk Management Contract Net Assets**                                                              |   |   | 1,130  |   |
| Net                    Cash Flow Hedge Contracts (f)                                                                              |   |   | (241   | )      |
| **Total                    MTM Risk Management Contract Net Assets at June 30, 2005**                                             |   | $      | 889    |   |

| (a) | “(Gain)                    Loss from Contracts Realized/Settled During the Period” includes realized                    risk management contracts and related derivatives that settled                    during 2005                    where we entered into the contract prior to 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Fair                    Value of New Contracts When Entered During the Period” represents the fair                    value at inception of long-term contracts entered into with customers                    during 2005. 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. |
| (c) | “Net                    Option Premiums Paid/(Received)” reflects the net option premiums                    paid/(received) as they relate to unexercised and unexpired option                    contracts that were entered in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (d) | “Changes                    in Fair Value of Risk Management Contracts” represents the fair value                    change in the risk management portfolio due to market fluctuations                    during                    the current period. Market fluctuations are attributable to various                    factors such as supply/demand, weather, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (e) | “Changes                    in Fair Value of Risk Management Contracts 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 assets/liabilities for those                    subsidiaries that operate in regulated jurisdictions.                                                                                                                                                                                                                                                                                                                                                      |
| (f) | “Net                    Cash Flow Hedge Contracts” (pretax) are discussed below in Accumulated                    Other Comprehensive Income (Loss).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

**Reconciliation          of MTM Risk Management Contracts to**

**Condensed          Balance Sheets**

**As          of June 30, 2005**

**(in          thousands)**

|                                                                          |   | **MTM                    Risk Management Contracts (a)** |   | **Cash                    Flow Hedges** |   | **Total                    (b)** |   |
|-------------------------------------------------------------------------------|--------|----------------------------------------------------------|--------|-----------------------------------------|--------|----------------------------------|--------|
| Current                    Assets                                             |   | $                                                        | 1,727  |                                    | $      | 9                                |   | $ | 1,736 |   |
| Noncurrent                    Assets                                          |   |                                                     | 2,151  |                                    |   | 3                                |   |   | 2,154 |   |
| **Total                    MTM Derivative Contract Assets**                   |   |                                                     | 3,878  |                                    |   | 12                               |   |   | 3,890 |   |
|                                                                          |   |                                                     |   |                                    |   |                             |   |   |   |   |
| Current                    Liabilities                                        |   |                                                     | (1,616 | )                                       |   | (231                             | )      |   | (1,847 | ) |
| Noncurrent                    Liabilities                                     |   |                                                     | (1,132 | )                                       |   | (22                              | )      |   | (1,154 | ) |
| **Total                    MTM Derivative Contract Liabilities**              |   |                                                     | (2,748 | )                                       |   | (253                             | )      |   | (3,001 | ) |
|                                                                          |   |                                                     |   |                                    |   |                             |   |   |   |   |
| **Total                    MTM Derivative Contract Net Assets (Liabilities)** |   | $                                                        | 1,130  |                                    | $      | (241                             | )      | $ | 889 |   |

| (a) | Does                    not include Cash Flow Hedges.                                                                                                                                                                                                                                                                                                  |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Represents                    amount of total MTM derivative contracts recorded within Risk                    Management                    Assets, Long-term Risk Management Assets, Risk Management Liabilities                    and                    Long-term Risk Management Liabilities on our Condensed Balance                    Sheets. |

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

| · | The                    source of 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 June 30, 2005**

**(in          thousands)**

|                                                                                                    |   | **Remainder                    of 2005** |   | **2006** |   | **2007** |   | **2008** |   | **2009** |   | **After****2009                    (c)** |   | **Total                    (d)** |   |
|---------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|------------------------------------------|--------|----------------------------------|--------|
| Prices                    Actively Quoted - Exchange Traded                    Contracts                |   | $                                        | (288   | )        | $      | (2       | )      | $        | 229    |     | $      | -                                        |   | $                                | -      |   | $ | - |   | $ | (61 | ) |
| Prices                    Provided by Other External Sources                    - OTC Broker Quotes (a) |   |                                     | 617    |     |   | 782      |   |     | 258    |     |   | 280                                      |   |                             | -      |   |   | - |   |   | 1,937 |   |
| Prices                    Based on Models and Other Valuation                    Methods (b)            |   |                                     | (316   | )        |   | (558     | )      |     | (232   | )        |   | (25                                      | )      |                             | 176    |   |   | 209 |   |   | (746 | ) |
| **Total**                                                                                               |   | $                                        | 13     |     | $      | 222      |   | $        | 255    |     | $      | 255                                      |   | $                                | 176    |   | $ | 209 |   | $ | 1,130 |   |

| (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 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. |
| (c) | There                    is mark-to-market value in excess of 10 percent of our total                    mark-to-market value in individual periods beyond 2009. $125                    thousand of                    this mark-to-market value is in 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (d) | Amounts                    exclude Cash Flow Hedges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

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

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

**Six          Months Ended June 30, 2005**

**(in          thousands)**

|                                                             |   | **Power** |   |
|------------------------------------------------------------------|--------|-----------|--------|
| **Beginning                    Balance December 31, 2004**       |   | $         | 285    |   |
| Changes                    in Fair Value (a)                     |   |      | (319   | ) |
| Reclassifications                    from AOCI to Net Income (b) |   |      | (120   | ) |
| **Ending                    Balance June 30, 2005**              |   | $         | (154   | ) |

| (a) | “Changes                    in Fair Value” shows changes in the fair value of derivatives designated                    as cash flow hedges during the reporting period that are not                    yet settled                    at June 30, 2005. Amounts are reported net of related income                    taxes.                                                   |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Reclassifications                    from AOCI to Net Income” represents gains or losses from derivatives used                    as hedging instruments in cash flow hedges that were reclassified                    into net                    income during the reporting period. Amounts are reported net                    of related                    income taxes. |

**Credit          Risk**

**VaR          Associated with Risk Management Contracts**

|   | **Six                    Months Ended** |   | **Twelve                    Months Ended** |   |
|--------|-----------------------------------------|--------|--------------------------------------------|--------|
|   | **June                    30, 2005**    |   | **December                    31, 2004**   |   |
|   | **(in                    thousands)**   |   | **(in                    thousands)**      |   |
|   | **End**                                 |   | **High**                                   |   | **Average** |   | **Low** |   | **End** |   | **High** |   | **Average** |   | **Low** |   |
|   | $32                                     |   | $38                                        |   | $19 |   | $11 |   | $68 |   | $221 |   | $95 |   | $33 |   |

**VaR          Associated with Debt Outstanding**

----

**AEP          TEXAS NORTH COMPANY**

**CONDENSED          STATEMENTS OF INCOME**

**For          the Three and Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in          thousands)**

|                                                                  |   | **Three                    Months Ended** |    | **Six                    Months Ended** |   |
|-----------------------------------------------------------------------|--------|-------------------------------------------|---------|-----------------------------------------|--------|
|                                                                  |   | **2005**                                  |    | **2004**                                |   | **2005** |   | **2004** |   |
| **OPERATING                    REVENUES**                             |   |                                 |    |                               |   |   |   |   |   |
| Electric                    Generation, Transmission and Distribution |   | $                                         | 97,330  |                                    | $      | 90,330 |   | $ | 169,273 |   | $ | 179,042 |   |
| Sales                    to AEP Affiliates                            |   |                                      | 12,880  |                                    |   | 12,027 |   |   | 24,170 |   |   | 26,745 |   |
| **TOTAL**                                                             |   |                                      | 110,210 |                                    |   | 102,357 |   |   | 193,443 |   |   | 205,787 |   |
|                                                                  |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| **OPERATING                    EXPENSES**                             |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| Fuel                    for Electric Generation                       |   |                                      | 11,355  |                                    |   | 10,661 |   |   | 23,966 |   |   | 18,161 |   |
| Fuel                    from Affiliates for Electric Generation       |   |                                      | -       |                                    |   | 12,542 |   |   | 372 |   |   | 23,766 |   |
| Purchased                    Electricity for Resale                   |   |                                      | 37,604  |                                    |   | 23,282 |   |   | 53,942 |   |   | 41,305 |   |
| Purchased                    Electricity from AEP Affiliates          |   |                                      | -       |                                    |   | 544 |   |   | 22 |   |   | 4,076 |   |
| Other                    Operation                                    |   |                                      | 22,404  |                                    |   | 20,918 |   |   | 40,965 |   |   | 41,299 |   |
| Maintenance                                                           |   |                                      | 4,920   |                                    |   | 5,950 |   |   | 9,139 |   |   | 10,633 |   |
| Depreciation                    and Amortization                      |   |                                      | 10,362  |                                    |   | 9,854 |   |   | 20,517 |   |   | 19,546 |   |
| Taxes                    Other Than Income Taxes                      |   |                                      | 5,713   |                                    |   | 5,293 |   |   | 11,418 |   |   | 10,397 |   |
| Income                    Taxes                                       |   |                                      | 3,093   |                                    |   | 2,541 |   |   | 6,679 |   |   | 8,482 |   |
| **TOTAL**                                                             |   |                                      | 95,451  |                                    |   | 91,585 |   |   | 167,020 |   |   | 177,665 |   |
|                                                                  |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| **OPERATING                    INCOME**                               |   |                                      | 14,759  |                                    |   | 10,772 |   |   | 26,423 |   |   | 28,122 |   |
|                                                                  |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| Nonoperating                    Income                                |   |                                      | 5,213   |                                    |   | 15,632 |   |   | 41,215 |   |   | 29,388 |   |
| Nonoperating                    Expenses                              |   |                                      | 2,205   |                                    |   | 11,962 |   |   | 37,313 |   |   | 22,898 |   |
| Nonoperating                    Income Tax Expense                    |   |                                      | 894     |                                    |   | 1,209 |   |   | 1,074 |   |   | 2,103 |   |
| Interest                    Charges                                   |   |                                      | 4,869   |                                    |   | 5,482 |   |   | 9,853 |   |   | 11,662 |   |
|                                                                  |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| **NET                    INCOME**                                     |   |                                      | 12,004  |                                    |   | 7,751 |   |   | 19,398 |   |   | 20,847 |   |
|                                                                  |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| Preferred                    Stock Dividend Requirements              |   |                                      | 26      |                                    |   | 26 |   |   | 52 |   |   | 52 |   |
|                                                                  |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| **EARNINGS                    APPLICABLE TO COMMON STOCK**            |   | $                                         | 11,978  |                                    | $      | 7,725 |   | $ | 19,346 |   | $ | 20,795 |   |

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

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

----

**AEP          TEXAS NORTH COMPANY**

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

**EQUITY          AND COMPREHENSIVE INCOME (LOSS)**

**For          the Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in          thousands)**

|                                                           |   | **Common                    Stock** |    | **Paid-in                    Capital** |   | **Retained                    Earnings** |   | **Accumulated                    Other Comprehensive Income (Loss)** |    | **Total** |   |
|----------------------------------------------------------------|--------|-------------------------------------|---------|----------------------------------------|--------|------------------------------------------|--------|----------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                    31, 2003**                       |   | $                                   | 137,214 |                                   | $      | 2,351                                    |   | $                                                                    | 125,428 |      | $      | (26,718 | ) | $ | 238,275 |   |
|                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| Common                    Stock Dividends                      |   |                                |    |                                   |   |                                     |   |                                                                 | (2,000  | )         |   |   |   |   | (2,000 | ) |
| Preferred                    Stock Dividends                   |   |                                |    |                                   |   |                                     |   |                                                                 | (52     | )         |   |   |   |   | (52 | ) |
| **TOTAL**                                                      |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 236,223 |   |
|                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                    |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **Other                    Comprehensive Loss, Net of Taxes:** |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $1,704      |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   | (3,164 | ) |   | (3,164 | ) |
| **NET                    INCOME**                              |   |                                |    |                                   |   |                                     |   |                                                                 | 20,847  |      |   |   |   |   | 20,847 |   |
| **TOTAL                    COMPREHENSIVE INCOME**              |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 17,683 |   |
|                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **JUNE                    30, 2004**                           |   | $                                   | 137,214 |                                   | $      | 2,351                                    |   | $                                                                    | 144,223 |      | $      | (29,882 | ) | $ | 253,906 |   |
|                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **DECEMBER                    31, 2004**                       |   | $                                   | 137,214 |                                   | $      | 2,351                                    |   | $                                                                    | 170,984 |      | $      | (128 | ) | $ | 310,421 |   |
|                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| Common                    Stock Dividends                      |   |                                |    |                                   |   |                                     |   |                                                                 | (12,626 | )         |   |   |   |   | (12,626 | ) |
| Preferred                    Stock Dividends                   |   |                                |    |                                   |   |                                     |   |                                                                 | (52     | )         |   |   |   |   | (52 | ) |
| **TOTAL**                                                      |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 297,743 |   |
|                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                    |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **Other                    Comprehensive Loss, Net of Taxes:** |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $236        |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   | (439 | ) |   | (439 | ) |
| **NET                    INCOME**                              |   |                                |    |                                   |   |                                     |   |                                                                 | 19,398  |      |   |   |   |   | 19,398 |   |
| **TOTAL                    COMPREHENSIVE INCOME**              |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 18,959 |   |
|                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **JUNE                    30, 2005**                           |   | $                                   | 137,214 |                                   | $      | 2,351                                    |   | $                                                                    | 177,704 |      | $      | (567 | ) | $ | 316,702 |   |

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

----

**AEP          TEXAS NORTH COMPANY**

**CONDENSED          BALANCE SHEETS**

**ASSETS**

**June          30, 2005 and December 31, 2004**

**(Unaudited)**

**(in          thousands)**

|                                                         |   | **2005**     |      | **2004**     |   |
|--------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **ELECTRIC                    UTILITY PLANT**                |   |    |      |    |   |
| Production                                                   |   | $            | 288,325   |         | $      | 287,212 |   |
| Transmission                                                 |   |         | 283,435   |         |   | 281,359 |   |
| Distribution                                                 |   |         | 483,763   |         |   | 474,961 |   |
| General                                                      |   |         | 115,911   |         |   | 115,174 |   |
| Construction                    Work in Progress             |   |         | 26,581    |         |   | 23,621 |   |
| **Total**                                                    |   |         | 1,198,015 |         |   | 1,182,327 |   |
| Accumulated                    Depreciation and Amortization |   |         | 414,781   |         |   | 405,933 |   |
| **TOTAL                    - NET**                           |   |         | 783,234   |         |   | 776,394 |   |
|                                                         |   |         |      |         |   |   |   |
| **OTHER                    PROPERTY AND INVESTMENTS**        |   |         |      |         |   |   |   |
| Nonutility                    Property, Net                  |   |         | 1,181     |         |   | 1,407 |   |
|                                                         |   |         |      |         |   |   |   |
| **CURRENT                    ASSETS**                        |   |         |      |         |   |   |   |
| Cash                    and Cash Equivalents                 |   |         | 938       |         |   | - |   |
| Other                    Cash Deposits                       |   |         | 2,308     |         |   | 2,308 |   |
| Advances                    to Affiliates                    |   |         | 63,665    |         |   | 51,504 |   |
| Accounts                    Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                    |   |         | 82,753    |         |   | 90,109 |   |
| Affiliated                    Companies                      |   |         | 14,591    |         |   | 21,474 |   |
| Accrued                    Unbilled Revenues                 |   |         | 4,816     |         |   | 3,789 |   |
| Allowance                    for Uncollectible Accounts      |   |         | (609      | )            |   | (787 | ) |
| Unbilled                    Construction Costs               |   |         | 6,320     |         |   | 22,065 |   |
| Fuel                    Inventory                            |   |         | 5,572     |         |   | 3,148 |   |
| Materials                    and Supplies                    |   |         | 8,344     |         |   | 8,273 |   |
| Risk                    Management Assets                    |   |         | 1,736     |         |   | 6,071 |   |
| Margin                    Deposits                           |   |         | 2,603     |         |   | 818 |   |
| Prepayments                    and Other                     |   |         | 917       |         |   | 1,053 |   |
| **TOTAL**                                                    |   |         | 193,954   |         |   | 209,825 |   |
|                                                         |   |         |      |         |   |   |   |
| **DEFERRED                    DEBITS AND OTHER ASSETS**      |   |         |      |         |   |   |   |
| Regulatory                    Assets:                        |   |         |      |         |   |   |   |
| Deferred                    Debt - Restructuring             |   |         | 5,849     |         |   | 6,093 |   |
| Unamortized                    Loss on Reacquired Debt       |   |         | 1,464     |         |   | 2,147 |   |
| Other                                                        |   |         | 3,484     |         |   | 3,783 |   |
| Long-term                    Risk Management Assets          |   |         | 2,154     |         |   | 4,110 |   |
| Prepaid                    Pension Obligations               |   |         | 44,909    |         |   | 44,911 |   |
| Deferred                    Property Taxes                   |   |         | 8,145     |         |   | - |   |
| Other                    Deferred Charges                    |   |         | 2,411     |         |   | 2,859 |   |
| **TOTAL**                                                    |   |         | 68,416    |         |   | 63,903 |   |
|                                                         |   |         |      |         |   |   |   |
| **TOTAL                    ASSETS**                          |   | $            | 1,046,785 |         | $      | 1,051,529 |   |

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

----

**AEP          TEXAS NORTH COMPANY**

**CONDENSED          BALANCE SHEETS**

**CAPITALIZATION          AND LIABILITIES**

**June          30, 2005 and December 31, 2004**

**(Unaudited)**

|                                                                              |   | **2005**                              |      | **2004**     |   |
|-----------------------------------------------------------------------------------|--------|---------------------------------------|-----------|--------------|--------|
| **CAPITALIZATION**                                                                |   | **(in                    thousands)** |      |
| 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                                              |   |                                  | 177,704   |         |   | 170,984 |   |
| Accumulated                    Other Comprehensive Income (Loss)                  |   |                                  | (567      | )            |   | (128 | ) |
| **Total                    Common Shareholder’s Equity**                    |   |                                  | 316,702   |         |   | 310,421 |   |
| Cumulative                    Preferred Stock Not Subject to Mandatory Redemption |   |                                  | 2,357     |         |   | 2,357 |   |
| **Total                    Shareholders’ Equity**                           |   |                                  | 319,059   |         |   | 312,778 |   |
| Long-term                    Debt - Nonaffiliated                                 |   |                                  | 276,797   |         |   | 276,748 |   |
| **TOTAL**                                                                         |   |                                  | 595,856   |         |   | 589,526 |   |
| **CURRENT                    LIABILITIES**                                        |   |                                  |      |         |   |   |   |
| Long-term                    Debt Due Within One Year - Nonaffiliated             |   |                                  | 37,609    |         |   | 37,609 |   |
| Accounts                    Payable:                                              |   |                                  |      |         |   |   |   |
| General                                                                           |   |                                  | 42,876    |         |   | 22,444 |   |
| Affiliated                    Companies                                           |   |                                  | 36,587    |         |   | 52,801 |   |
| Customer                    Deposits                                              |   |                                  | 632       |         |   | 1,020 |   |
| Taxes                    Accrued                                                  |   |                                  | 25,422    |         |   | 37,269 |   |
| Interest                    Accrued                                               |   |                                  | 5,045     |         |   | 5,044 |   |
| Risk                    Management Liabilities                                    |   |                                  | 1,847     |         |   | 3,628 |   |
| Obligations                    Under Capital Leases                               |   |                                  | 212       |         |   | 220 |   |
| Other                                                                             |   |                                  | 8,925     |         |   | 9,628 |   |
| **TOTAL**                                                                         |   |                                  | 159,155   |         |   | 169,663 |   |
|                                                                              |   |                                  |      |         |   |   |   |
| **DEFERRED                    CREDITS AND OTHER LIABILITIES**                     |   |                                  |      |         |   |   |   |
| Deferred                    Income Taxes                                          |   |                                  | 140,138   |         |   | 138,465 |   |
| Long-term                    Risk Management Liabilities                          |   |                                  | 1,154     |         |   | 2,116 |   |
| Regulatory                    Liabilities:                                        |   |                                  |      |         |   |   |   |
| Asset                    Removal Costs                                            |   |                                  | 82,838    |         |   | 81,143 |   |
| Deferred                    Investment Tax Credits                                |   |                                  | 18,062    |         |   | 18,698 |   |
| Over-recovery                    of Fuel Costs                                    |   |                                  | 4,716     |         |   | 3,920 |   |
| Retail                    Clawback                                                |   |                                  | 13,924    |         |   | 13,924 |   |
| Excess                    Earnings                                                |   |                                  | 13,022    |         |   | 13,270 |   |
| SFAS                    109 Regulatory Liability, Net                             |   |                                  | 7,243     |         |   | 8,500 |   |
| Other                                                                             |   |                                  | 1,059     |         |   | 1,319 |   |
| Obligations                    Under Capital Leases                               |   |                                  | 372       |         |   | 314 |   |
| Deferred                    Credits and Other                                     |   |                                  | 9,246     |         |   | 10,671 |   |
| **TOTAL**                                                                         |   |                                  | 291,774   |         |   | 292,340 |   |
|                                                                              |   |                                  |      |         |   |   |   |
| Commitments                    and Contingencies (Note 5)                         |   |                                  |      |         |   |   |   |
|                                                                              |   |                                  |      |         |   |   |   |
| **TOTAL                    CAPITALIZATION AND LIABILITIES**                       |   | $                                     | 1,046,785 |         | $      | 1,051,529 |   |

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

----

**AEP          TEXAS NORTH COMPANY**

**CONDENSED          STATEMENTS OF CASH FLOWS**

**For          the Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in          thousands)**

|                                                                                                                          |   | **2005**     |    | **2004**     |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **OPERATING                    ACTIVITIES**                                                                                   |   |    |    |    |   |
| **Net                    Income**                                                                                             |   | $            | 19,398  |         | $      | 20,847 |   |
| **Adjustments                    to Reconcile Net Income to Net Cash Flows****From                    Operating Activities:** |   |         |    |         |   |   |   |
| Depreciation                    and Amortization                                                                              |   |         | 20,517  |         |   | 19,546 |   |
| Deferred                    Income Taxes                                                                                      |   |         | (1,742  | )            |   | (2,767 | ) |
| Deferred                    Investment Tax Credits                                                                            |   |         | (636    | )            |   | (656 | ) |
| Deferred                    Property Taxes                                                                                    |   |         | (8,145  | )            |   | (7,400 | ) |
| Mark-to-Market                    of Risk Management Contracts                                                                |   |         | 3,062   |         |   | 1,955 |   |
| Over/Under                    Fuel Recovery                                                                                   |   |         | 796     |         |   | 13,500 |   |
| Change                    in Other Noncurrent Assets                                                                          |   |         | (2,432  | )            |   | (6,449 | ) |
| Change                    in Other Noncurrent Liabilities                                                                     |   |         | 1,924   |         |   | 3,289 |   |
| **Changes                    in Components of Working Capital:**                                                              |   |         |    |         |   |   |   |
| Accounts                    Receivable, Net                                                                                   |   |         | 13,034  |         |   | 281 |   |
| Fuel,                    Materials and Supplies                                                                               |   |         | (2,495  | )            |   | 2,326 |   |
| Accounts                    Payable                                                                                           |   |         | 3,672   |         |   | (2,590 | ) |
| Taxes                    Accrued                                                                                              |   |         | (11,847 | )            |   | 14,527 |   |
| Customer                    Deposits                                                                                          |   |         | (388    | )            |   | 837 |   |
| Other                    Current Assets                                                                                       |   |         | 15,059  |         |   | (3,047 | ) |
| Other                    Current Liabilities                                                                                  |   |         | (710    | )            |   | (2,783 | ) |
| **Net                    Cash Flows From Operating Activities**                                                               |   |         | 49,067  |         |   | 51,416 |   |
|                                                                                                                          |   |         |    |         |   |   |   |
| **INVESTING                    ACTIVITIES**                                                                                   |   |         |    |         |   |   |   |
| Construction                    Expenditures                                                                                  |   |         | (24,323 | )            |   | (18,117 | ) |
| Change                    in Other Cash Deposits, Net                                                                         |   |         | -       |         |   | 564 |   |
| Proceeds                    from Sale of Assets                                                                               |   |         | 1,033   |         |   | - |   |
| **Net                    Cash Flows Used For Investing Activities**                                                           |   |         | (23,290 | )            |   | (17,553 | ) |
|                                                                                                                          |   |         |    |         |   |   |   |
| **FINANCING                    ACTIVITIES**                                                                                   |   |         |    |         |   |   |   |
| Retirement                    of Long-term Debt                                                                               |   |         | -       |         |   | (24,036 | ) |
| Changes                    in Advances to/from Affiliates, Net                                                                |   |         | (12,161 | )            |   | (6,391 | ) |
| Dividends                    Paid on Common Stock                                                                             |   |         | (12,626 | )            |   | (2,000 | ) |
| Dividends                    Paid on Cumulative Preferred Stock                                                               |   |         | (52     | )            |   | (52 | ) |
| **Net                    Cash Flows Used For Financing Activities**                                                           |   |         | (24,839 | )            |   | (32,479 | ) |
|                                                                                                                          |   |         |    |         |   |   |   |
| **Net                    Increase in Cash and Cash Equivalents**                                                              |   |         | 938     |         |   | 1,384 |   |
| **Cash                    and Cash Equivalents at Beginning of Period**                                                       |   |         | -       |         |   | 2 |   |
| **Cash                    and Cash Equivalents at End of Period**                                                             |   | $            | 938     |         | $      | 1,386 |   |

| **SUPPLEMENTAL                    DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Cash                    paid (received) for interest net of capitalized amounts was $9,014,000                    and                    $11,139,000 and for income taxes was $21,865,000 and $(412,000)                    in 2005                    and 2004, respectively. Noncash capital lease acquisitions in                    2005 and                    2004 were $171,000 and $122,000, respectively. Construction Expenditures                    include the change in construction-related Accounts Payable of                    $546,000                    and $(285,000) in 2005 and 2004,                    respectively. |

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

----

**AEP          TEXAS NORTH COMPANY**

**INDEX          TO CONDENSED NOTES TO 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  |
| Benefit                    Plans                              | Note                    8  |
| Business                    Segments                          | Note                    9  |
| Financing                    Activities                       | Note                    11 |
| Company-wide                    Staffing and Budget Review    | Note                    12 |

----

**APPALACHIAN          POWER COMPANY**

**AND          SUBSIDIARIES**

----

****APPALACHIAN          POWER COMPANY AND SUBSIDIARIES****

**MANAGEMENT’S          FINANCIAL DISCUSSION AND ANALYSIS**

**Results          of Operations**

**Reconciliation          of Second Quarter of 2004 to Second Quarter of 2005 Net          Income**

**(in          millions)**

| **Second                    Quarter of 2004 Net Income**            |   |   |   |   | $      | 22     |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                    Margins                                   |   |   | (32    | )      |   |   |   |
| Off-system                    Sales                                 |   |   | 12     |   |   |   |   |
| Transmission                    Revenues                            |   |   | (5     | )      |   |   |   |
| Other                    Revenues                                   |   |   | 2      |   |   |   |   |
| **Total                    Change in Gross Margin**                 |   |   |   |   |   | (23    | )      |
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                    Operation and Maintenance                  |   |   | 10     |   |   |   |   |
| Depreciation                    and Amortization                    |   |   | 1      |   |   |   |   |
| Nonoperating                    Income and Expenses, Net            |   |   | 6      |   |   |   |   |
| Interest                    Charges                                 |   |   | (1     | )      |   |   |   |
| **Total                    Change in Operating Expenses and Other** |   |   |   |   |   | 16     |   |
|                                                                |   |   |   |   |   |   |   |
| Income                    Tax Expense                               |   |   |   |   |   | 9      |   |
|                                                                |   |   |   |   |   |   |   |
| **Second                    Quarter of 2005 Net Income**            |   |   |   |   | $      | 24     |   |

| · | Retail                    Margins decreased by $32 million in comparison to 2004 primarily                    due to our higher MLR share caused by the increase in our peak                    demand that                    was established in December 2004 resulting in a $19 million increase                    in                    capacity settlement payments under the Interconnection Agreement.                    In                    addition, there was a $9 million decrease in fuel margins resulting                    from                    higher fuel costs. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Margins                    from Off-system Sales for 2005 increased by $12 million in comparison                    to                    2004 primarily due to higher physical sales caused by our new                    peak demand                    as well as higher optimization activity.                                                                                                                                                                                                                                                                                        |
| · | Transmission                    Revenues decreased $5 million primarily due to the elimination                    of $11                    million of revenues related to through and out rates partially                    offset by                    an increase of $6 million in revenues due to replacement SECA                    rates. See                    “FERC Order on Regional Through and Out Rates” for additional discussion                    of these FERC rate changes.                                                                             |

| · | Other                    Operation and Maintenance expenses decreased $10 million primarily                    due to                    a decrease in storm restoration and a reduction in planned maintenance                    in                    comparison to 2004 at Amos, Clinch River and Glen Lyn plants                    partially                    offset by an increase in PJM scheduling fees and an increase                    in                    transmission expenses related to the AEP Transmission Equalization                    Agreement. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Nonoperating                    Income and Expenses, Net increased $6 million primarily due to                    the accrual                    of carrying costs on deferred Virginia environmental and reliability                    charges.                                                                                                                                                                                                                                                                                                                            |

*Income          Taxes*

**Reconciliation          of Six Months Ended June 30, 2004 to Six Months Ended June 30, 2005 Net          Income**

**(in          millions)**

| **Six                    Months Ended June 30, 2004 Net Income**    |   |   |   |   | $      | 87     |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                    Margins                                   |   |   | (65    | )      |   |   |   |
| Off-system                    Sales                                 |   |   | 31     |   |   |   |   |
| Transmission                    Revenues                            |   |   | (13    | )      |   |   |   |
| Other                    Revenues                                   |   |   | 3      |   |   |   |   |
| **Total                    Change in Gross Margin**                 |   |   |   |   |   | (44    | )      |
|                                                                |   |   |   |   |   |   |   |
| **Changes                    in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                    Operation and Maintenance                  |   |   | 2      |   |   |   |   |
| Depreciation                    and Amortization                    |   |   | (1     | )      |   |   |   |
| Nonoperating                    Income and Expenses, Net            |   |   | 2      |   |   |   |   |
| **Total                    Change in Operating Expenses and Other** |   |   |   |   |   | 3      |   |
|                                                                |   |   |   |   |   |   |   |
| Income                    Tax Expense                               |   |   |   |   |   | 25     |   |
|                                                                |   |   |   |   |   |   |   |
| **Six                    Months Ended June 30, 2005 Net Income**    |   |   |   |   | $      | 71     |   |

| · | Retail                    Margins decreased by $65 million in comparison to 2004 primarily                    due to our higher MLR share caused by the increase in our peak                    demand that                    was established in December 2004 resulting in a $34 million increase                    in                    capacity settlement payments under the Interconnection Agreement.                    In                    addition, there was a $26 million decrease in fuel margins resulting                    from                    higher fuel costs. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Margins                    from Off-system Sales for 2005 increased by $31 million in comparison                    to                    2004 primarily due to higher physical sales caused by our new                    peak demand                    as well as higher optimization activity.                                                                                                                                                                                                                                                                                         |
| · | Transmission                    Revenues decreased $13 million primarily due to the elimination                    of $23                    million of revenues related to through and out rates partially                    offset by                    an increase of $10 million due to replacement SECA rates.                                                                                                                                                                                                                                                                      |

*Income          Taxes*

**Financial          Condition**

**Credit          Ratings**

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

**Cash          Flow**

|                                                                    |   | **2005**                              |     | **2004** |   |
|-------------------------------------------------------------------------|--------|---------------------------------------|----------|----------|--------|
|                                                                    |   | **(in                    thousands)** |     |
| **Cash                    and Cash Equivalents at Beginning of Period** |   | $                                     | 536      |     | $      | 4,561 |   |
| Cash                    Flows From (Used For):                          |   |                                  |     |     |   |   |   |
| Operating                    Activities                                 |   |                                  | 75,113   |     |   | 229,420 |   |
| Investing                    Activities                                 |   |                                  | (259,312 | )        |   | (163,509 | ) |
| Financing                    Activities                                 |   |                                  | 184,944  |     |   | (66,841 | ) |
| Net                    Increase (Decrease) in Cash and Cash Equivalents |   |                                  | 745      |     |   | (930 | ) |
| **Cash                    and Cash Equivalents at End of Period**       |   | $                                     | 1,281    |     | $      | 3,631 |   |

*Operating          Activities*

*Investing          Activities*

** **

*Financing          Activities*

**Financing          Activity**

|                                          |   |  **Principal**                         |    | **Interest** |   | **Due**                         |   |
|-----------------------------------------------|--------|---------------------------------------------|---------|--------------|--------|---------------------------------|--------|
| **Type                    of Debt**           |   |  **Amount**                            |    | **Rate**     |   | **Date**                        |   |
|                                          |   |  **(in                    thousands)** |    | **(%)**      |   |                            |   |
|                                          |   |                                   |    |         |   |                            |   |
| Senior                    Unsecured Notes     |   | $                                           | 250,000 |         |   | 5.00                            |   |   | 2017 |   |
| Senior                    Unsecured Notes     |   |                                        | 200,000 |         |   | 4.95                            |   |   | 2015 |   |
| Senior                    Unsecured Notes     |   |                                        | 150,000 |         |   | 4.40                            |   |   | 2010 |   |
| Notes                    Payable - Affiliated |   |                                        | 100,000 |         |   |                      4.708 |   |   | 2010 |   |

|                                      |   |  **Principal**                         |    | **Interest** |   | **Due**  |   |
|-------------------------------------------|--------|---------------------------------------------|---------|--------------|--------|----------|--------|
| **Type                    of Debt**       |   |  **Amount**                            |    | **Rate**     |   | **Date** |   |
|                                      |   |  **(in                    thousands)** |    | **(%)**      |   |     |   |
|                                      |   |                                   |    |         |   |     |   |
| Senior                    Unsecured Notes |   | $                                           | 450,000 |         |   | 4.80     |   |   | 2005 |   |
| First                    Mortgage Bonds   |   |                                        | 50,000  |         |   | 8.00     |   |   | 2005 |   |
| First                    Mortgage Bonds   |   |                                        | 45,000  |         |   | 8.00     |   |   | 2025 |   |
| First                    Mortgage Bonds   |   |                                        | 30,000  |         |   | 6.89     |   |   | 2005 |   |

**Liquidity**

**Summary          Obligation Information**

**Significant          Factors**

***Virginia          Environmental and Reliability Costs***

***West          Virginia Rate Case***

**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**

**Six          Months Ended June 30, 2005**

**(in          thousands)**

| **Total                    MTM Risk Management Contract Net Assets at December 31,                    2004**                      |   | $      | 54,124  |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| (Gain)                    Loss from Contracts Realized/Settled During the Period (a)                                              |   |   | (10,478 | )      |
| Fair                    Value of New Contracts When Entered During the Period (b)                                                 |   |   | 682     |   |
| Net                    Option Premiums Paid/(Received) (c)                                                                        |   |   | (294    | )      |
| Change                    in Fair Value Due to Valuation Methodology Changes                                                      |   |   | -       |   |
| Changes                    in Fair Value of Risk Management Contracts (d)                                                         |   |   | 15,177  |   |
| Changes                    in Fair Value of Risk Management Contracts Allocated to Regulated                    Jurisdictions (e) |   |   | 3,593   |   |
| **Total                    MTM Risk Management Contract Net Assets**                                                              |   |   | 62,804  |   |
| Net                    Cash Flow and                    Fair Value Hedge                    Contracts (f)                         |   |   | (9,301  | )      |
| DETM                    Assignment (g)                                                                                            |   |   | (18,943 | )      |
| **Total                    MTM Risk Management Contract Net Assets at June 30, 2005**                                             |   | $      | 34,560  |   |

| (a) | “(Gain)                    Loss from Contracts Realized/Settled During the Period” includes realized                    risk management contracts and related derivatives that settled                    during 2005                    where we entered into the contract prior to 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Fair                    Value of New Contracts When Entered During the Period” represents the fair                    value at inception of long-term contracts entered into with customers                    during 2005. 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. |
| (c) | “Net                    Option Premiums Paid/(Received)” reflects the net option premiums                    paid/(received) as they relate to unexercised and unexpired option                    contracts that were entered in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| (d) | “Changes                    in Fair Value of Risk Management Contracts” represents the fair value                    change in the risk management portfolio due to market fluctuations                    during                    the current period. Market fluctuations are attributable to various                    factors such as supply/demand, weather, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (e) | “Changes                    in Fair Value of Risk Management Contracts 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 assets/liabilities                    for                    those subsidiaries that operate in regulated                    jurisdictions.                                                                                                                                                                                                                                                                                                   |
| (f) | “Net                    Cash Flow and Fair Value Hedge Contracts” (pretax) are discussed below in                    Accumulated Other Comprehensive Income (Loss).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (g) | See                    “Natural Gas Contracts with DETM” section in Note 17 of the 2004 Annual                    Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

**Reconciliation          of MTM Risk Management Contracts to**

**Condensed          Consolidated Balance Sheets**

**As          of June 30, 2005**

**(in          thousands)**

|                                                                          |   | **MTM                    Risk Management Contracts (a)** |     | **Hedges** |   | **DETM                    Assignment (b)** |   | **Total                    (c)** |    |
|-------------------------------------------------------------------------------|--------|----------------------------------------------------------|----------|------------|--------|--------------------------------------------|--------|----------------------------------|---------|
| Current                    Assets                                             |   | $                                                        | 91,499   |       | $      | 486                                        |   | $                                | -       |   | $ | 91,985 |   |
| Noncurrent                    Assets                                          |   |                                                     | 164,321  |       |   | 100                                        |   |                             | -       |   |   | 164,421 |   |
| **Total                    MTM Derivative Contract Assets**                   |   |                                                     | 255,820  |       |   | 586                                        |   |                             | -       |   |   | 256,406 |   |
|                                                                          |   |                                                     |     |       |   |                                       |   |                             |    |   |   |   |   |
| Current                    Liabilities                                        |   |                                                     | (84,208  | )          |   | (8,578                                     | )      |                             | (6,373  | ) |   | (99,159 | ) |
| Noncurrent                    Liabilities                                     |   |                                                     | (108,808 | )          |   | (1,309                                     | )      |                             | (12,570 | ) |   | (122,687 | ) |
| **Total                    MTM Derivative Contract  Liabilities**        |   |                                                     | (193,016 | )          |   | (9,887                                     | )      |                             | (18,943 | ) |   | (221,846 | ) |
|                                                                          |   |                                                     |     |       |   |                                       |   |                             |    |   |   |   |   |
| **Total                    MTM Derivative Contract Net Assets (Liabilities)** |   | $                                                        | 62,804   |       | $      | (9,301                                     | )      | $                                | (18,943 | ) | $ | 34,560 |   |

| (a) | Does                    not include Cash Flow and                    Fair Value Hedges.                                                                                                                                                                                                                                                                             |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | See                    “Natural Gas Contracts with DETM” section in Note 17 of the 2004 Annual                    Report.                                                                                                                                                                                                                               |
| (c) | Represents                    amount of total MTM derivative contracts recorded within Risk                    Management                    Assets, Long-term Risk Management Assets, Risk Management Liabilities                    and                    Long-term Risk Management Liabilities on our Condensed Consolidated                    Balance Sheets. |

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

| · | The                    source of 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 June 30, 2005**

**(in          thousands)**

|                                                                                                    |   | **Remainder                    of 2005** |    | **2006** |   | **2007** |   | **2008** |   | **2009** |   | **After****2009                    (c)** |   | **Total                    (d)** |   |
|---------------------------------------------------------------------------------------------------------|--------|------------------------------------------|---------|----------|--------|----------|--------|----------|--------|----------|--------|------------------------------------------|--------|----------------------------------|--------|
| Prices                    Actively Quoted - Exchange Traded                    Contracts                |   | $                                        | (10,546 | )        | $      | (85      | )      | $        | 8,362  |     | $      | -                                        |   | $                                | -      |   | $ | - |   | $ | (2,269 | ) |
| Prices                    Provided by Other External Sources                    - OTC Broker Quotes (a) |   |                                     | 22,863  |     |   | 32,936   |   |     | 11,448 |     |   | 11,743                                   |   |                             | -      |   |   | - |   |   | 78,990 |   |
| Prices                    Based on Models and Other Valuation                    Methods (b)            |   |                                     | (11,715 | )        |   | (17,016  | )      |     | (4,753 | )        |   | 1,575                                    |   |                             | 9,970  |   |   | 8,022 |   |   | (13,917 | ) |
| **Total**                                                                                               |   | $                                        | 602     |     | $      | 15,835   |   | $        | 15,057 |     | $      | 13,318                                   |   | $                                | 9,970  |   | $ | 8,022 |   | $ | 62,804 |   |

| (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 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. |
| (c) | There                    is mark-to-market value in excess of 10 percent of our total                    mark-to-market value in individual periods beyond 2009. $8.5                    million of                    this mark-to-market value is in 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (d) | Amounts                    exclude Cash Flow and Fair Value                    Hedges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

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

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

**Six          Months Ended June 30, 2005**

**(in          thousands)**

|                                                                                |   | **Power** |   | **Foreign****Currency** |   | **Interest                    Rate** |   | **Total** |    |
|-------------------------------------------------------------------------------------|--------|-----------|--------|-------------------------|--------|--------------------------------------|--------|-----------|---------|
| **Beginning                    Balance December 31, 2004**                          |   | $         | 2,422  |                    | $      | (176                                 | )      | $         | (11,570 | ) | $ | (9,324 | ) |
| Changes                    in Fair Value (a)                                        |   |      | (3,692 | )                       |   | -                                    |   |      | (6,327  | ) |   | (10,019 | ) |
| Reclassifications                    from AOCI to Net Income                    (b) |   |      | (4,380 | )                       |   | 2                                    |   |      | 515     |   |   | (3,863 | ) |
| **Ending                    Balance June 30, 2005**                                 |   | $         | (5,650 | )                       | $      | (174                                 | )      | $         | (17,382 | ) | $ | (23,206 | ) |

| (a) | “Changes                    in Fair Value” shows changes in the fair value of derivatives designated                    as cash flow hedges during the reporting period that are not                    yet settled                    at June 30, 2005. Amounts are reported net of related income                    taxes.                                                         |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Reclassifications                    from AOCI to Net Income” represents gains or losses from derivatives used                    as hedging instruments in cash flow hedges that were reclassified                    into net                    income during the reporting period. Amounts are reported net                    of related                    income taxes above. |

**Credit          Risk**

**VaR          Associated with Risk Management Contracts**

|   | **Six                    Months Ended** |   | **Twelve                    Months Ended** |   |
|--------|-----------------------------------------|--------|--------------------------------------------|--------|
|   | **June                    30, 2005**    |   | **December                    31, 2004**   |   |
|   | **(in                    thousands)**   |   | **(in                    thousands)**      |   |
|   | **End**                                 |   | **High**                                   |   | **Average** |   | **Low** |   | **End** |   | **High** |   | **Average** |   | **Low** |   |
|   | $1,162                                  |   | $1,391                                     |   | $679 |   | $399 |   | $577 |   | $1,883 |   | $812 |   | $277 |   |

**VaR          Associated with Debt Outstanding**

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED STATEMENTS OF INCOME**

**For          the Three and Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in          thousands)**

|                                                                                                                                       |   | **Three                    Months Ended** |    | **Six                    Months Ended** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|---------|-----------------------------------------|--------|
|                                                                                                                                       |   | **2005**                                  |    | **2004**                                |   | **2005** |   | **2004** |   |
| **OPERATING                    REVENUES**                                                                                                  |   |                                 |    |                               |   |   |   |   |   |
| Electric                    Generation, Transmission and Distribution                                                                      |   | $                                         | 439,548 |                                    | $      | 414,865 |   | $ | 943,689 |   | $ | 888,090 |   |
| Sales                    to AEP Affiliates                                                                                                 |   |                                      | 55,979  |                                    |   | 51,047 |   |   | 108,917 |   |   | 104,929 |   |
| **TOTAL**                                                                                                                                  |   |                                      | 495,527 |                                    |   | 465,912 |   |   | 1,052,606 |   |   | 993,019 |   |
|                                                                                                                                       |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| **OPERATING                    EXPENSES**                                                                                                  |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| Fuel                    for Electric Generation                                                                                            |   |                                      | 123,017 |                                    |   | 98,694 |   |   | 236,398 |   |   | 209,405 |   |
| Purchased                    Electricity for Resale                                                                                        |   |                                      | 26,732  |                                    |   | 17,786 |   |   | 54,965 |   |   | 34,430 |   |
| Purchased                    Electricity from AEP Affiliates                                                                               |   |                                      | 107,023 |                                    |   | 87,793 |   |   | 233,986 |   |   | 178,280 |   |
| Other                    Operation                                                                                                         |   |                                      | 77,284  |                                    |   | 72,058 |   |   | 148,292 |   |   | 140,800 |   |
| Maintenance                                                                                                                                |   |                                      | 37,266  |                                    |   | 52,933 |   |   | 84,456 |   |   | 94,253 |   |
| Depreciation                    and Amortization                                                                                           |   |                                      | 46,491  |                                    |   | 47,231 |   |   | 96,450 |   |   | 95,144 |   |
| Taxes                    Other Than Income Taxes                                                                                           |   |                                      | 23,322  |                                    |   | 23,499 |   |   | 47,361 |   |   | 46,952 |   |
| Income                    Taxes                                                                                                            |   |                                      | 8,756   |                                    |   | 19,836 |   |   | 34,998 |   |   | 60,276 |   |
| **TOTAL**                                                                                                                                  |   |                                      | 449,891 |                                    |   | 419,830 |   |   | 936,906 |   |   | 859,540 |   |
|                                                                                                                                       |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| **OPERATING                    INCOME**                                                                                                    |   |                                      | 45,636  |                                    |   | 46,082 |   |   | 115,700 |   |   | 133,479 |   |
|                                                                                                                                       |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| Nonoperating                    Income                                                                                                     |   |                                      | 8,768   |                                    |   | 3,152 |   |   | 12,255 |   |   | 8,699 |   |
| Nonoperating                    Expenses                                                                                                   |   |                                      | 2,441   |                                    |   | 3,208 |   |   | 7,004 |   |   | 5,741 |   |
| Nonoperating                    Income Tax Expense (Credit)                                                                                |   |                                      | 605     |                                    |   | (1,263 | ) |   | (1,278 | ) |   | (1,625 | ) |
| Interest                    Charges                                                                                                        |   |                                      | 27,145  |                                    |   | 25,463 |   |   | 51,344 |   |   | 50,900 |   |
|                                                                                                                                       |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| **NET                    INCOME**                                                                                                          |   |                                      | 24,213  |                                    |   | 21,826 |   |   | 70,885 |   |   | 87,162 |   |
|                                                                                                                                       |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| Preferred                    Stock Dividend Requirements, Including Capital Stock                      Expense and Other Expense |   |                                      | 905     |                                    |   | 798 |   |   | 1,702 |   |   | 1,621 |   |
|                                                                                                                                       |   |                                      |    |                                    |   |   |   |   |   |   |   |   |   |
| **EARNINGS                    APPLICABLE TO COMMON STOCK**                                                                                 |   | $                                         | 23,308  |                                    | $      | 21,028 |   | $ | 69,183 |   | $ | 85,541 |   |

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

*See          Condensed Notes to 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 Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in          thousands)**

|                                                           |   | **Common                    Stock** |    | **Paid-in                    Capital** |   | **Retained                    Earnings** |   | **Accumulated                    Other Comprehensive Income (Loss)** |    | **Total** |   |
|----------------------------------------------------------------|--------|-------------------------------------|---------|----------------------------------------|--------|------------------------------------------|--------|----------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                    31, 2003**                       |   | $                                   | 260,458 |                                   | $      | 719,899                                  |   | $                                                                    | 408,718 |      | $      | (52,088 | ) | $ | 1,336,987 |   |
|                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| Common                    Stock Dividends                      |   |                                |    |                                   |   |                                     |   |                                                                 | (50,000 | )         |   |   |   |   | (50,000 | ) |
| Preferred                    Stock Dividends                   |   |                                |    |                                   |   |                                     |   |                                                                 | (400    | )         |   |   |   |   | (400 | ) |
| Capital                    Stock Expense                       |   |                                |    |                                   |   | 1,221                                    |   |                                                                 | (1,221  | )         |   |   |   |   | - |   |
| **TOTAL**                                                      |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 1,286,587 |   |
|                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                    |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **Other                    Comprehensive Loss, Net of Taxes:** |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $2,402      |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   | (4,462 | ) |   | (4,462 | ) |
| **NET                    INCOME**                              |   |                                |    |                                   |   |                                     |   |                                                                 | 87,162  |      |   |   |   |   | 87,162 |   |
| **TOTAL                    COMPREHENSIVE INCOME**              |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 82,700 |   |
|                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **JUNE                    30, 2004**                           |   | $                                   | 260,458 |                                   | $      | 721,120                                  |   | $                                                                    | 444,259 |      | $      | (56,550 | ) | $ | 1,369,287 |   |
|                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **DECEMBER                    31, 2004**                       |   | $                                   | 260,458 |                                   | $      | 722,314                                  |   | $                                                                    | 508,618 |      | $      | (81,672 | ) | $ | 1,409,718 |   |
|                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| Capital                    Contribution from Parent            |   |                                |    |                                   |   | 100,000                                  |   |                                                                 |    |      |   |   |   |   | 100,000 |   |
| Preferred                    Stock Dividends                   |   |                                |    |                                   |   |                                     |   |                                                                 | (400    | )         |   |   |   |   | (400 | ) |
| Capital                    Stock Expense and Other             |   |                                |    |                                   |   | 2,447                                    |   |                                                                 | (1,302  | )         |   |   |   |   | 1,145 |   |
| **TOTAL**                                                      |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 1,510,463 |   |
|                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                    INCOME**                    |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **Other                    Comprehensive Loss, Net of Taxes:** |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| Cash                    Flow Hedges, Net of Tax of $7,474      |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   | (13,882 | ) |   | (13,882 | ) |
| **NET                    INCOME**                              |   |                                |    |                                   |   |                                     |   |                                                                 | 70,885  |      |   |   |   |   | 70,885 |   |
| **TOTAL                    COMPREHENSIVE INCOME**              |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   | 57,003 |   |
|                                                           |   |                                |    |                                   |   |                                     |   |                                                                 |    |      |   |   |   |   |   |   |
| **JUNE                    30, 2005**                           |   | $                                   | 260,458 |                                   | $      | 824,761                                  |   | $                                                                    | 577,801 |      | $      | (95,554 | ) | $ | 1,567,466 |   |

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

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**June          30, 2005 and December 31, 2004 **

**(Unaudited)**

**(in          thousands)**

|                                                         |   | **2005**     |      | **2004**     |   |
|--------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **ELECTRIC                    UTILITY PLANT**                |   |    |      |    |   |
| Production                                                   |   | $            | 2,689,055 |         | $      | 2,502,273 |   |
| Transmission                                                 |   |         | 1,262,915 |         |   | 1,255,390 |   |
| Distribution                                                 |   |         | 2,104,939 |         |   | 2,070,377 |   |
| General                                                      |   |         | 294,275   |         |   | 302,474 |   |
| Construction                    Work in Progress             |   |         | 390,272   |         |   | 399,116 |   |
| **Total**                                                    |   |         | 6,741,456 |         |   | 6,529,630 |   |
| Accumulated                    Depreciation and Amortization |   |         | 2,475,900 |         |   | 2,443,218 |   |
| **TOTAL                    - NET**                           |   |         | 4,265,556 |         |   | 4,086,412 |   |
|                                                         |   |         |      |         |   |   |   |
| **OTHER                    PROPERTY AND INVESTMENTS**        |   |         |      |         |   |   |   |
| Nonutility                    Property, Net                  |   |         | 20,743    |         |   | 20,378 |   |
| Other                    Investments                         |   |         | 12,951    |         |   | 18,775 |   |
| **TOTAL**                                                    |   |         | 33,694    |         |   | 39,153 |   |
|                                                         |   |         |      |         |   |   |   |
| **CURRENT                    ASSETS**                        |   |         |      |         |   |   |   |
| Cash                    and Cash Equivalents                 |   |         | 1,281     |         |   | 536 |   |
| Other                    Cash Deposits                       |   |         | 167       |         |   | 1,133 |   |
| Accounts                    Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                    |   |         | 149,541   |         |   | 126,422 |   |
| Affiliated                    Companies                      |   |         | 114,762   |         |   | 140,950 |   |
| Accrued                    Unbilled Revenues                 |   |         | 34,017    |         |   | 51,427 |   |
| Miscellaneous                                                |   |         | 1,653     |         |   | 1,264 |   |
| Allowance                    for Uncollectible Accounts      |   |         | (2,181    | )            |   | (5,561 | ) |
| Risk                    Management Assets                    |   |         | 91,985    |         |   | 81,811 |   |
| Fuel                                                         |   |         | 73,426    |         |   | 45,756 |   |
| Materials                    and Supplies                    |   |         | 43,849    |         |   | 45,644 |   |
| Margin                    Deposits                           |   |         | 13,227    |         |   | 8,329 |   |
| Prepayments                    and Other                     |   |         | 21,228    |         |   | 12,192 |   |
| **TOTAL**                                                    |   |         | 542,955   |         |   | 509,903 |   |
|                                                         |   |         |      |         |   |   |   |
| **DEFERRED                    DEBITS AND OTHER ASSETS**      |   |         |      |         |   |   |   |
| Regulatory                    Assets:                        |   |         |      |         |   |   |   |
| SFAS                    109 Regulatory Asset, Net            |   |         | 342,714   |         |   | 343,415 |   |
| Transition                    Regulatory Assets              |   |         | 23,345    |         |   | 25,467 |   |
| Unamortized                    Loss on Reacquired Debt       |   |         | 18,697    |         |   | 18,157 |   |
| Other                                                        |   |         | 62,316    |         |   | 36,368 |   |
| Long-term                    Risk Management Assets          |   |         | 164,421   |         |   | 81,245 |   |
| Emission                    Allowances                       |   |         | 49,257    |         |   | 38,931 |   |
| Deferred                    Property Taxes                   |   |         | 31,746    |         |   | 37,071 |   |
| Deferred                    Charges and Other                |   |         | 9,480     |         |   | 23,796 |   |
| **TOTAL**                                                    |   |         | 701,976   |         |   | 604,450 |   |
|                                                         |   |         |      |         |   |   |   |
| **TOTAL                    ASSETS**                          |   | $            | 5,544,181 |         | $      | 5,239,918 |   |

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

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED BALANCE SHEETS**

**CAPITALIZATION          AND LIABILITIES**

**June          30, 2005 and December 31, 2004**

**(Unaudited)**

|                                                                              |   | **2005**                              |      | **2004**     |   |
|-----------------------------------------------------------------------------------|--------|---------------------------------------|-----------|--------------|--------|
| **CAPITALIZATION**                                                                |   | **(in                    thousands)** |      |
| 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                                                |   |                                  | 824,761   |         |   | 722,314 |   |
| Retained                    Earnings                                              |   |                                  | 577,801   |         |   | 508,618 |   |
| Accumulated                    Other Comprehensive Income (Loss)                  |   |                                  | (95,554   | )            |   | (81,672 | ) |
| **Total                    Common Shareholder’s Equity**                    |   |                                  | 1,567,466 |         |   | 1,409,718 |   |
| Cumulative                    Preferred Stock Not Subject to Mandatory Redemption |   |                                  | 17,784    |         |   | 17,784 |   |
| **Total                    Shareholders’ Equity**                           |   |                                  | 1,585,250 |         |   | 1,427,502 |   |
| Long-term                    Debt:                                                |   |                                  |      |         |   |   |   |
| Nonaffiliated                                                                     |   |                                  | 1,705,480 |         |   | 1,254,588 |   |
| Affiliated                                                                        |   |                                  | 100,000   |         |   | - |   |
| **Total                    Long-term Debt**                                       |   |                                  | 1,805,480 |         |   | 1,254,588 |   |
| **TOTAL**                                                                         |   |                                  | 3,390,730 |         |   | 2,682,090 |   |
|                                                                              |   |                                  |      |         |   |   |   |
| **CURRENT                    LIABILITIES**                                        |   |                                  |      |         |   |   |   |
| Long-term                    Debt Due Within One Year - Nonaffiliated             |   |                                  | 100,010   |         |   | 530,010 |   |
| Advances                    from Affiliates                                       |   |                                  | 176,692   |         |   | 211,060 |   |
| Accounts                    Payable:                                              |   |                                  |      |         |   |   |   |
| General                                                                           |   |                                  | 167,684   |         |   | 130,710 |   |
| Affiliated                    Companies                                           |   |                                  | 74,517    |         |   | 76,314 |   |
| Risk                    Management Liabilities                                    |   |                                  | 99,159    |         |   | 89,136 |   |
| Taxes                    Accrued                                                  |   |                                  | 60,557    |         |   | 90,404 |   |
| Interest                    Accrued                                               |   |                                  | 23,817    |         |   | 21,076 |   |
| Customer                    Deposits                                              |   |                                  | 58,269    |         |   | 42,822 |   |
| Obligations                    Under Capital Leases                               |   |                                  | 6,016     |         |   | 6,742 |   |
| Other                                                                             |   |                                  | 51,015    |         |   | 56,645 |   |
| **TOTAL**                                                                         |   |                                  | 817,736   |         |   | 1,254,919 |   |
|                                                                              |   |                                  |      |         |   |   |   |
| **DEFERRED                    CREDITS AND OTHER LIABILITIES**                     |   |                                  |      |         |   |   |   |
| Deferred                    Income Taxes                                          |   |                                  | 862,567   |         |   | 852,536 |   |
| Regulatory                    Liabilities:                                        |   |                                  |      |         |   |   |   |
| Asset                    Removal Costs                                            |   |                                  | 88,912    |         |   | 95,763 |   |
| Over-recovery                    of Fuel Cost                                     |   |                                  | 52,041    |         |   | 57,843 |   |
| Deferred                    Investment Tax Credits                                |   |                                  | 28,114    |         |   | 30,382 |   |
| Unrealized                    Gain on Forward Commitments                         |   |                                  | 33,236    |         |   | 23,270 |   |
| Employee                    Benefits and Pension Obligations                      |   |                                  | 92,406    |         |   | 130,530 |   |
| Long-term                    Risk Management Liabilities                          |   |                                  | 122,687   |         |   | 57,349 |   |
| Asset                    Retirement Obligations                                   |   |                                  | 25,576    |         |   | 24,626 |   |
| Obligations                    Under Capital Leases                               |   |                                  | 11,101    |         |   | 13,136 |   |
| Deferred                    Credits                                               |   |                                  | 19,075    |         |   | 17,474 |   |
| **TOTAL**                                                                         |   |                                  | 1,335,715 |         |   | 1,302,909 |   |
|                                                                              |   |                                  |      |         |   |   |   |
| Commitments                    and Contingencies (Note 5)                         |   |                                  |      |         |   |   |   |
|                                                                              |   |                                  |      |         |   |   |   |
| **TOTAL****CAPITALIZATION                    AND LIABILITIES**                    |   | $                                     | 5,544,181 |         | $      | 5,239,918 |   |

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

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**CONDENSED          CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For          the Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in          thousands)**

|                                                                                                                          |   | **2005**     |     | **2004**     |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                    ACTIVITIES**                                                                                   |   |    |     |    |   |
| **Net                    Income**                                                                                             |   | $            | 70,885   |         | $      | 87,162 |   |
| **Adjustments                    to Reconcile Net Income to Net Cash Flows****From                    Operating Activities:** |   |         |     |         |   |   |   |
| Depreciation                    and Amortization                                                                              |   |         | 96,450   |         |   | 95,144 |   |
| Accretion                    Expense                                                                                          |   |         | 950      |         |   | 859 |   |
| Deferred                    Income Taxes                                                                                      |   |         | 18,206   |         |   | 24,377 |   |
| Deferred                    Investment Tax Credits                                                                            |   |         | (2,268   | )            |   | 2,090 |   |
| Deferred                    Property Taxes                                                                                    |   |         | 5,325    |         |   | 5,703 |   |
| Pension                    Contributions                                                                                      |   |         | (39,875  | )            |   | (348 | ) |
| Pension                    and Postemployment Benefit Reserves                                                                |   |         | 1,714    |         |   | (3,041 | ) |
| Mark-to-Market                    of Risk Management Contracts                                                                |   |         | (13,473  | )            |   | 5,615 |   |
| Over/Under                    Fuel Recovery                                                                                   |   |         | (8,759   | )            |   | 607 |   |
| Carrying                    Costs on Stranded Net Assets                                                                      |   |         | (4,065   | )            |   | - |   |
| Change                    in Other Noncurrent Assets                                                                          |   |         | (11,945  | )            |   | (11,419 | ) |
| Change                    in Other Noncurrent Liabilities                                                                     |   |         | (23,979  | )            |   | 9,559 |   |
| **Changes                    in Components of Working Capital:**                                                              |   |         |     |         |   |   |   |
| Accounts                    Receivable, Net                                                                                   |   |         | 16,710   |         |   | 29,423 |   |
| Fuel,                    Materials and Supplies                                                                               |   |         | (25,875  | )            |   | (21,872 | ) |
| Accounts                    Payable                                                                                           |   |         | 27,026   |         |   | (32,223 | ) |
| Taxes                    Accrued                                                                                              |   |         | (29,847  | )            |   | 27,674 |   |
| Customer                    Deposits                                                                                          |   |         | 15,447   |         |   | 11,623 |   |
| Interest                    Accrued                                                                                           |   |         | 2,741    |         |   | 36 |   |
| Other                    Current Assets                                                                                       |   |         | (13,897  | )            |   | 6,425 |   |
| Other                    Current Liabilities                                                                                  |   |         | (6,358   | )            |   | (7,974 | ) |
| **Net                    Cash Flows From Operating Activities**                                                               |   |         | 75,113   |         |   | 229,420 |   |
|                                                                                                                          |   |         |     |         |   |   |   |
| **INVESTING                    ACTIVITIES**                                                                                   |   |         |     |         |   |   |   |
| Construction                    Expenditures                                                                                  |   |         | (268,009 | )            |   | (204,648 | ) |
| Change                    in Other Cash Deposits, Net                                                                         |   |         | 966      |         |   | 40,615 |   |
| Proceeds                    from Sale of Assets                                                                               |   |         | 7,731    |         |   | 524 |   |
| **Net                    Cash Flows Used For Investing Activities**                                                           |   |         | (259,312 | )            |   | (163,509 | ) |
|                                                                                                                          |   |         |     |         |   |   |   |
| **FINANCING                    ACTIVITIES**                                                                                   |   |         |     |         |   |   |   |
| Issuance                    of Long-term Debt - Nonaffiliated                                                                 |   |         | 594,717  |         |   | - |   |
| Issuance                    of Long-term Debt - Affiliated                                                                    |   |         | 100,000  |         |   | - |   |
| Retirement                    of Long-term Debt                                                                               |   |         | (575,005 | )            |   | (85,005 | ) |
| Capital                    Contribution from Parent                                                                           |   |         | 100,000  |         |   | - |   |
| Changes                    in Advances to/from Affiliates, Net                                                                |   |         | (34,368  | )            |   | 68,564 |   |
| Dividends                    Paid on Cumulative Preferred Stock                                                               |   |         | (400     | )            |   | (400 | ) |
| Dividends                    Paid on Common Stock                                                                             |   |         | -        |         |   | (50,000 | ) |
| **Net                    Cash Flows From (Used For) Financing Activities**                                                    |   |         | 184,944  |         |   | (66,841 | ) |
|                                                                                                                          |   |         |     |         |   |   |   |
| **Net                    Increase (Decrease) in Cash and Cash Equivalents**                                                   |   |         | 745      |         |   | (930 | ) |
| **Cash                    and Cash Equivalents at Beginning of Period**                                                       |   |         | 536      |         |   | 4,561 |   |
| **Cash                    and Cash Equivalents at End of Period**                                                             |   | $            | 1,281    |         | $      | 3,631 |   |

| **SUPPLEMENTAL                    DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cash                    paid for interest net of capitalized amounts was $45,064,000                    and                    $46,739,000 and for income taxes was $47,461,000 and $3,946,000                    in 2005                    and 2004, respectively. Noncash capital lease acquisitions in                    2005 and                    2004 were $748,000 and $910,000, respectively. Construction Expenditures                    include the change in construction-related Accounts Payable of                    $8,151,000                    and $(3,646,000) in 2005 and 2004,                    respectively. |

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

----

**APPALACHIAN          POWER COMPANY AND SUBSIDIARIES**

**INDEX          TO CONDENSED NOTES TO 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  |
| Benefit                    Plans                           | Note                    8  |
| Business                    Segments                       | Note                    9  |
| Income                    Taxes                            | Note                    10 |
| Financing                    Activities                    | Note                    11 |
| Company-wide                    Staffing and Budget Review | 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 Second Quarter of 2004 to Second Quarter of 2005 Net            Income**

**(in            millions)**

| **Second                      Quarter of 2004 Net Income**            |   |   |   |   | $      | 31     |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                      Margins                                   |   |   | (5     | )      |   |   |   |
| Transmission                      Revenues                            |   |   | (5     | )      |   |   |   |
| Off-system                      Sales                                 |   |   | 4      |   |   |   |   |
| Other                      Revenues                                   |   |   | 1      |   |   |   |   |
| **Total                      Change in Gross Margin**                 |   |   |   |   |   | (5     | )      |
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Depreciation                      and Amortization                    |   |   | 9      |   |   |   |   |
| Nonoperating                      Income and Expenses, Net            |   |   | 4      |   |   |   |   |
| Interest                      Charges                                 |   |   | (1     | )      |   |   |   |
| **Total                      Change in Operating Expenses and Other** |   |   |   |   |   | 12     |   |
|                                                                  |   |   |   |   |   |   |   |
| Income                      Tax Expense                               |   |   |   |   |   | (3     | )      |
|                                                                  |   |   |   |   |   |   |   |
| **Second                      Quarter of 2005 Net Income**            |   |   |   |   | $      | 35     |   |

| · | Retail                      Margins were $5 million less than the prior period primarily                      due to lower                      fuel margins partially offset by lower capacity settlement                      costs.                                                                                                                      |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Transmission                      Revenues decreased $5 million primarily due to the loss of                      through and out                      rates, net of replacement SECA rates. See “FERC Order on Regional Through                      and Out Rates” for additional discussion of these FERC rate                      changes. |
| · | Off-system                      Sales margins increased $4 million primarily due to favorable                      price                      margins.                                                                                                                                                                                                      |

| · | Depreciation                      and Amortization expense decreased $9 million primarily due                      to the order                      in the rate stabilization plan which resulted in a reversal                      of unused                      shopping credits of $18 million partially offset by the establishment                      of a                      $7 million regulatory liability to benefit low income customers                      and for                      economic development. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Nonoperating                      Income and Expenses, Net increased $4 million primarily due                      to the                      establishment of a regulatory asset for carrying costs on environmental                      capital expenditures.                                                                                                                                                                                                                                                                 |

*Income            Tax*

**Reconciliation            of Six Months Ended June 30, 2004 to Six Months Ended June 30, 2005 Net            Income**

**(in            millions)**

| **Six                      Months Ended June 30, 2004 Net Income**    |   |   |   |   | $      | 76     |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                      Margins                                   |   |   | (11    | )      |   |   |   |
| Transmission                      Revenues                            |   |   | (11    | )      |   |   |   |
| Off-system                      Sales                                 |   |   | 6      |   |   |   |   |
| Other                      Revenues                                   |   |   | (1     | )      |   |   |   |
| **Total                      Change in Gross Margin**                 |   |   |   |   |   | (17    | )      |
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                      Operation and Maintenance                  |   |   | 11     |   |   |   |   |
| Depreciation                      and Amortization                    |   |   | 8      |   |   |   |   |
| Taxes                      Other Than Income Taxes                    |   |   | (1     | )      |   |   |   |
| Nonoperating                      Income and Expenses, Net            |   |   | 6      |   |   |   |   |
| Interest                      Charges                                 |   |   | (1     | )      |   |   |   |
| **Total                      Change in Operating Expenses and Other** |   |   |   |   |   | 23     |   |
|                                                                  |   |   |   |   |   |   |   |
| Income                      Tax Expense                               |   |   |   |   |   | -      |   |
|                                                                  |   |   |   |   |   |   |   |
| **Six                      Months Ended June 30, 2005 Net Income**    |   |   |   |   | $      | 82     |   |

| · | Retail                      Margins were $11 million less than the prior period primarily                      due to lower                      fuel margins partially offset by lower capacity settlement                      costs. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Transmission                      Revenues decreased $11 million primarily due to the loss of                      through and                      out rates, net of replacement SECA rates.                                           |
| · | Off-system                      Sales margins increased $6 million primarily due to favorable                      price                      margins.                                                                                  |

| · | Other                      Operation and Maintenance expenses decreased $11 million primarily                      due to                      lower expenditures than estimated for storm expenses from the                      major ice                      storm in December 2004, a decrease in transmission expenses                      related to the                      AEP Transmission Equalization Agreement, and the settlement                      and                      cancellation of the corporate owned life insurance policy in                      February                      2005. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Depreciation                      and Amortization expense decreased $8 million primarily due                      to the order                      in the rate stabilization plan which resulted in a reversal                      of unused                      shopping credits of $18 million partially offset by the establishment                      of a                      $7 million regulatory liability to benefit low income customers                      and for                      economic development.                                                                                     |
| · | Nonoperating                      Income and Expenses, Net increased $6 million primarily due                      to the                      establishment of a regulatory asset for carrying costs on environmental                      capital expenditures offset by lower margins on risk management                      activities.                                                                                                                                                                                                                                                                          |

*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**

**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**

**Six            Months Ended June 30, 2005**

**(in            thousands**

| **Total                      MTM Risk Management Contract Net Assets at December 31,                      2004**                      |   | $      | 30,919 |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                      Loss from Contracts Realized/Settled During the Period (a)                                                |   |   | (7,395 | )      |
| Fair                      Value of New Contracts When Entered During the Period (b)                                                   |   |   | 599    |   |
| Net                      Option Premiums Paid/(Received) (c)                                                                          |   |   | (153   | )      |
| Change                      in Fair Value Due to Valuation Methodology Changes                                                        |   |   | -      |   |
| Changes                      in Fair Value of Risk Management Contracts (d)                                                           |   |   | 8,160  |   |
| Changes                      in Fair Value of Risk Management Contracts Allocated to Regulated                      Jurisdictions (e) |   |   | -      |   |
| **Total                      MTM Risk Management Contract Net Assets**                                                                |   |   | 32,130 |   |
| Net                      Cash Flow Hedge Contracts (f)                                                                                |   |   | (4,502 | )      |
| DETM                      Assignment (g)                                                                                              |   |   | (9,694 | )      |
| **Total                      MTM Risk Management Contract Net Assets at June 30, 2005**                                               |   | $      | 17,934 |   |

| (a) | “(Gain)                      Loss from Contracts Realized/Settled During the Period” includes realized                      risk management contracts and related derivatives that settled                      during 2005                      where we entered into the contract prior to 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Fair                      Value of New Contracts When Entered During the Period” represents the fair                      value at inception of long-term contracts entered into with                      customers                      during 2005. 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. |
| (c) | “Net                      Option Premiums Paid/(Received)” reflects the net option premiums                      paid/(received) as they relate to unexercised and unexpired                      option                      contracts that were entered in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (d) | “Changes                      in Fair Value of Risk Management Contracts” represents the fair value                      change in the risk management portfolio due to market fluctuations                      during                      the current period. Market fluctuations are attributable to                      various                      factors such as supply/demand, weather, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (e) | “Changes                      in Fair Value of Risk Management Contracts 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 assets/liabilities                      for                      those subsidiaries that operate in regulated                      jurisdictions.                                                                                                                                                                                                                                                                                                                                  |
| (f) | “Net                      Cash Flow Hedge Contracts” (pretax) are discussed below in Accumulated                      Other Comprehensive Income (Loss).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (g) | See                      “Natural Gas Contracts with DETM” section in Note 17 of the 2004 Annual                      Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

**Reconciliation              of MTM Risk Management Contracts to**

**Condensed            Consolidated Balance Sheets**

**As            of June 30, 2005**

**(in            thousands)**

|                                                                                                       |   | **MTM                      Risk Management Contracts (a)** |    | **Cash                      Flow Hedges** |   | **DETM                      Assignment (b)** |   | **Total                      (c)** |   |
|------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|---------|-------------------------------------------|--------|----------------------------------------------|--------|------------------------------------|--------|
| Current                      Assets                                                                        |   | $                                                          | 46,828  |                                      | $      | 177                                          |   | $                                  | -      |   | $ | 47,005 |   |
| Noncurrent                      Assets                                                                     |   |                                                       | 84,091  |                                      |   | 51                                           |   |                               | -      |   |   | 84,142 |   |
| **Total                      MTM Derivative Contract Assets**                                              |   |                                                       | 130,919 |                                      |   | 228                                          |   |                               | -      |   |   | 131,147 |   |
|                                                                                                       |   |                                                       |    |                                      |   |                                         |   |                               |   |   |   |   |   |
| Current                      Liabilities                                                                   |   |                                                       | (43,099 | )                                         |   | (4,322                                       | )      |                               | (3,261 | ) |   | (50,682 | ) |
| Noncurrent                      Liabilities                                                                |   |                                                       | (55,690 | )                                         |   | (408                                         | )      |                               | (6,433 | ) |   | (62,531 | ) |
| **Total                      MTM Derivative Contract  Liabilities**                                   |   |                                                       | (98,789 | )                                         |   | (4,730                                       | )      |                               | (9,694 | ) |   | (113,213 | ) |
|                                                                                                       |   |                                                       |    |                                      |   |                                         |   |                               |   |   |   |   |   |
| **Total                      MTM Derivative Contract Net  Assets                      (Liabilities)** |   | $                                                          | 32,130  |                                      | $      | (4,502                                       | )      | $                                  | (9,694 | ) | $ | 17,934 |   |

| (a) | Does                      not include Cash Flow Hedges.                                                                                                                                                                                                                                                                                                                         |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | See                      “Natural Gas Contracts with DETM” section in Note 17 of the 2004 Annual                      Report.                                                                                                                                                                                                                                       |
| (c) | Represents                      amount of total MTM derivative contracts recorded within Risk                      Management                      Assets, Long-term Risk Management Assets, Risk Management Liabilities                      and                      Long-term Risk Management Liabilities on our Condensed Consolidated                      Balance Sheets. |

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

| · | The                      source of 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 June 30, 2005**

**(in            thousands)**

|                                                                                                                                    |   | **Remainder                      of 2005** |   | **2006** |   | **2007** |   | **2008** |   | **2009** |   | **After****2009                      (c)** |   | **Total                      (d)** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|--------------------------------------------|--------|------------------------------------|--------|
| Prices                      Actively Quoted - Exchange Traded                      Contracts                                            |   |  $                                    | (5,397 | )        | $      | (44      | )      | $        | 4,279  |     | $      | -                                          |   | $                                  | -      |   | $ | - |   | $ | (1,162 | ) |
| Prices                      Provided by Other External Sources                      - OTC                        Broker Quotes (a) |   |                                       | 11,698 |     |   | 16,857   |   |     | 5,854  |     |   | 6,009                                      |   |                               | -      |   |   | - |   |   | 40,418 |   |
| Prices                      Based on Models and Other Valuation                                              Methods (b)      |   |                                       | (5,991 | )        |   | (8,712   | )      |     | (2,436 | )        |   | 806                                        |   |                               | 5,102  |   |   | 4,105 |   |   | (7,126 | ) |
| **Total**                                                                                                                               |   | $                                          | 310    |     | $      | 8,101    |   | $        | 7,697  |     | $      | 6,815                                      |   | $                                  | 5,102  |   | $ | 4,105 |   | $ | 32,130 |   |

| (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 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. |
| (c) | There                      is mark-to-market value in excess of 10 percent of our total                      mark-to-market value in individual periods beyond 2009. $4.4                      million of                      this mark-to-market value is in 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (d) | Amounts                      exclude Cash Flow Hedges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

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

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

**Six            Months Ended June 30, 2005**

**(in            thousands)**

|                                                               |   | **Power** |   |
|--------------------------------------------------------------------|--------|-----------|--------|
| **Beginning                      Balance December 31, 2004**       |   | $         | 1,393  |   |
| Changes                      in Fair Value (a)                     |   |      | (2,044 | ) |
| Reclassifications                      from AOCI to Net Income (b) |   |      | (2,241 | ) |
| **Ending                      Balance June 30, 2005**              |   | $         | (2,892 | ) |

| (a) | “Changes                      in Fair Value” shows changes in the fair value of derivatives designated                      as cash flow hedges during the reporting period that are not                      yet settled                      at June 30, 2005. Amounts are reported net of related income                      taxes.                                                     |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Reclassifications                      from AOCI to Net Income” represents gains or losses from derivatives used                      as hedging instruments in cash flow hedges that were reclassified                      into net                      income during the reporting period. Amounts are reported net                      of related                      income taxes. |

**Credit            Risk**

**VaR            Associated with Risk Management Contracts**

|   | **Six                      Months Ended** |   | **Twelve                      Months Ended** |   |
|--------|-------------------------------------------|--------|----------------------------------------------|--------|
|   | **June                      30, 2005**    |   | **December                      31, 2004**   |   |
|   | **(in                      thousands)**   |   | **(in                      thousands)**      |   |
|   | **End**                                   |   | **High**                                     |   | **Average** |   | **Low** |   | **End** |   | **High** |   | **Average** |   | **Low** |   |
|   | $595                                      |   | $712                                         |   | $347 |   | $204 |   | $332 |   | $1,083 |   | $467 |   | $160 |   |

**VaR            Associated with Debt Outstanding**

----

**COLUMBUS            SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED            CONSOLIDATED STATEMENTS OF INCOME**

**For            the Three and Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                                                                                                     |   | **Three                      Months Ended** |    | **Six                      Months Ended** |   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|---------|-------------------------------------------|--------|
|                                                                                                                                     |   | **2005**                                    |    | **2004**                                  |   | **2005** |   | **2004** |   |
| **OPERATING                      REVENUES**                                                                                              |   |                                   |    |                                 |   |   |   |   |   |
| Electric                      Generation, Transmission and Distribution                                                                  |   | $                                           | 339,969 |                                      | $      | 337,387 |   | $ | 680,125 |   | $ | 681,465 |   |
| Sales                      to AEP Affiliates                                                                                             |   |                                        | 20,918  |                                      |   | 21,333 |   |   | 45,011 |   |   | 39,952 |   |
| **TOTAL**                                                                                                                                |   |                                        | 360,887 |                                      |   | 358,720 |   |   | 725,136 |   |   | 721,417 |   |
|                                                                                                                                     |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **OPERATING                      EXPENSES**                                                                                              |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| Fuel                      for Electric Generation                                                                                        |   |                                        | 46,558  |                                      |   | 51,159 |   |   | 107,910 |   |   | 92,796 |   |
| Fuel                      from Affiliates for Electric Generation                                                                        |   |                                        | -       |                                      |   | 1,755 |   |   | - |   |   | 10,603 |   |
| Purchased                      Electricity for Resale                                                                                    |   |                                        | 8,703   |                                      |   | 4,769 |   |   | 17,906 |   |   | 9,450 |   |
| Purchased                      Electricity from AEP Affiliates                                                                           |   |                                        | 95,172  |                                      |   | 85,706 |   |   | 174,947 |   |   | 167,421 |   |
| Other                      Operation                                                                                                     |   |                                        | 58,302  |                                      |   | 59,390 |   |   | 107,070 |   |   | 117,263 |   |
| Maintenance                                                                                                                              |   |                                        | 26,700  |                                      |   | 25,944 |   |   | 42,084 |   |   | 42,770 |   |
| Depreciation                      and Amortization                                                                                       |   |                                        | 27,333  |                                      |   | 36,445 |   |   | 65,531 |   |   | 73,263 |   |
| Taxes                      Other Than Income Taxes                                                                                       |   |                                        | 32,913  |                                      |   | 32,726 |   |   | 69,075 |   |   | 68,052 |   |
| Income                      Taxes                                                                                                        |   |                                        | 18,047  |                                      |   | 16,197 |   |   | 38,469 |   |   | 40,662 |   |
| **TOTAL**                                                                                                                                |   |                                        | 313,728 |                                      |   | 314,091 |   |   | 622,992 |   |   | 622,280 |   |
|                                                                                                                                     |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **OPERATING                      INCOME**                                                                                                |   |                                        | 47,159  |                                      |   | 44,629 |   |   | 102,144 |   |   | 99,137 |   |
|                                                                                                                                     |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| Nonoperating                      Income                                                                                                 |   |                                        | 578     |                                      |   | 650 |   |   | 5,788 |   |   | 5,617 |   |
| Carrying                      Costs Income                                                                                               |   |                                        | 4,158   |                                      |   | 120 |   |   | 6,916 |   |   | 231 |   |
| Nonoperating                      Expenses                                                                                               |   |                                        | 986     |                                      |   | 859 |   |   | 1,742 |   |   | 1,593 |   |
| Nonoperating                      Income Tax Expense (Credit)                                                                            |   |                                        | 590     |                                      |   | (628 | ) |   | 2,407 |   |   | 291 |   |
| Interest                      Charges                                                                                                    |   |                                        | 15,668  |                                      |   | 14,413 |   |   | 28,580 |   |   | 27,227 |   |
|                                                                                                                                     |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **NET                      INCOME**                                                                                                      |   |                                        | 34,651  |                                      |   | 30,755 |   |   | 82,119 |   |   | 75,874 |   |
|                                                                                                                                     |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| Preferred                      Stock Dividend Requirements including Capital Stock                        Expense and Other Expense |   |                                        | 1,858   |                                      |   | 254 |   |   | 2,112 |   |   | 508 |   |
|                                                                                                                                     |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **EARNINGS                      APPLICABLE TO COMMON STOCK**                                                                             |   | $                                           | 32,793  |                                      | $      | 30,501 |   | $ | 80,007 |   | $ | 75,366 |   |

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

*See            Condensed Notes to 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 Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                             |   | **Common                      Stock** |   | **Paid-in                      Capital** |   | **Retained                      Earnings** |   | **Accumulated                      Other Comprehensive Income (Loss)** |    | **Total** |   |
|------------------------------------------------------------------|--------|---------------------------------------|--------|------------------------------------------|--------|--------------------------------------------|--------|------------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                      31, 2003**                       |   | $                                     | 41,026 |                                     | $      | 576,400                                    |   | $                                                                      | 326,782 |      | $      | (46,327 | ) | $ | 897,881 |   |
|                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Common                      Stock Dividends                      |   |                                  |   |                                     |   |                                       |   |                                                                   | (62,500 | )         |   |   |   |   | (62,500 | ) |
| Capital                      Stock Expense                       |   |                                  |   |                                     |   | 508                                        |   |                                                                   | (508    | )         |   |   |   |   | - |   |
| **TOTAL**                                                        |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 835,381 |   |
|                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                    |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Loss, Net of Taxes:** |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $1,290      |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | (2,397 | ) |   | (2,397 | ) |
| **NET                      INCOME**                              |   |                                  |   |                                     |   |                                       |   |                                                                   | 75,874  |      |   |   |   |   | 75,874 |   |
| **TOTAL                      COMPREHENSIVE INCOME**              |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 73,477 |   |
|                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **JUNE                      30, 2004**                           |   | $                                     | 41,026 |                                     | $      | 576,908                                    |   | $                                                                      | 339,648 |      | $      | (48,724 | ) | $ | 908,858 |   |
|                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **DECEMBER                      31, 2004**                       |   | $                                     | 41,026 |                                     | $      | 577,415                                    |   | $                                                                      | 341,025 |      | $      | (60,816 | ) | $ | 898,650 |   |
|                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Common                      Stock Dividends                      |   |                                  |   |                                     |   |                                       |   |                                                                   | (57,000 | )         |   |   |   |   | (57,000 | ) |
| Capital                      Stock Expense and Other             |   |                                  |   |                                     |   | 2,112                                      |   |                                                                   | (2,112  | )         |   |   |   |   | - |   |
| **TOTAL**                                                        |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 841,650 |   |
|                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                    |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Loss, Net of Taxes:** |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $2,307      |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | (4,285 | ) |   | (4,285 | ) |
| **NET                      INCOME**                              |   |                                  |   |                                     |   |                                       |   |                                                                   | 82,119  |      |   |   |   |   | 82,119 |   |
| **TOTAL                      COMPREHENSIVE INCOME**              |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 77,834 |   |
|                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **JUNE                      30, 2005**                           |   | $                                     | 41,026 |                                     | $      | 579,527                                    |   | $                                                                      | 364,032 |      | $      | (65,101 | ) | $ | 919,484 |   |

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

----

**COLUMBUS            SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED            CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**June            30, 2005 and December 31, 2004**

**(Unaudited)**

**(in            thousands)**

|                                                           |   | **2005**     |      | **2004**     |   |
|----------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **ELECTRIC                      UTILITY PLANT**                |   |    |      |    |   |
| Production                                                     |   | $            | 1,716,269 |         | $      | 1,658,552 |   |
| Transmission                                                   |   |         | 444,161   |         |   | 432,714 |   |
| Distribution                                                   |   |         | 1,323,790 |         |   | 1,300,252 |   |
| General                                                        |   |         | 164,354   |         |   | 167,985 |   |
| Construction                      Work in Progress             |   |         | 102,952   |         |   | 131,743 |   |
| **Total**                                                      |   |         | 3,751,526 |         |   | 3,691,246 |   |
| Accumulated                      Depreciation and Amortization |   |         | 1,510,315 |         |   | 1,471,950 |   |
| **TOTAL                      - NET**                           |   |         | 2,241,211 |         |   | 2,219,296 |   |
|                                                           |   |         |      |         |   |   |   |
| **OTHER                      PROPERTY AND INVESTMENTS**        |   |         |      |         |   |   |   |
| Nonutility                      Property, Net                  |   |         | 21,817    |         |   | 22,322 |   |
| Other                      Investments                         |   |         | 4,105     |         |   | 5,147 |   |
| **TOTAL**                                                      |   |         | 25,922    |         |   | 27,469 |   |
|                                                           |   |         |      |         |   |   |   |
| **CURRENT                      ASSETS**                        |   |         |      |         |   |   |   |
| Cash                      and Cash Equivalents                 |   |         | 694       |         |   | 25 |   |
| Other                      Cash Deposits                       |   |         | -         |         |   | 33 |   |
| Advances                      to Affiliates                    |   |         | 62,172    |         |   | 141,550 |   |
| Accounts                      Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                      |   |         | 42,718    |         |   | 41,130 |   |
| Affiliated                      Companies                      |   |         | 57,540    |         |   | 72,854 |   |
| Accrued                      Unbilled Revenues                 |   |         | 11,527    |         |   | 19,580 |   |
| Miscellaneous                                                  |   |         | 1,117     |         |   | 1,145 |   |
| Allowance                      for Uncollectible Accounts      |   |         | (555      | )            |   | (674 | ) |
| Fuel                                                           |   |         | 35,671    |         |   | 34,026 |   |
| Materials                      and Supplies                    |   |         | 33,835    |         |   | 37,137 |   |
| Risk                      Management Assets                    |   |         | 47,005    |         |   | 46,631 |   |
| Margin                      Deposits                           |   |         | 6,769     |         |   | 4,848 |   |
| Prepayments                      and Other                     |   |         | 16,234    |         |   | 11,499 |   |
| **TOTAL**                                                      |   |         | 314,727   |         |   | 409,784 |   |
|                                                           |   |         |      |         |   |   |   |
| **DEFERRED                      DEBITS AND OTHER ASSETS**      |   |         |      |         |   |   |   |
| Regulatory                      Assets:                        |   |         |      |         |   |   |   |
| SFAS                      109 Regulatory Asset, Net            |   |         | 17,591    |         |   | 16,481 |   |
| Transition                      Regulatory Assets              |   |         | 159,269   |         |   | 156,676 |   |
| Unamortized                      Loss on Reacquired Debt       |   |         | 12,772    |         |   | 13,155 |   |
| Other                                                          |   |         | 47,414    |         |   | 25,691 |   |
| Long-term                      Risk Management Assets          |   |         | 84,142    |         |   | 46,735 |   |
| Deferred                      Property Taxes                   |   |         | 32,544    |         |   | 64,754 |   |
| Deferred                      Charges and Other                |   |         | 47,762    |         |   | 49,855 |   |
| **TOTAL**                                                      |   |         | 401,494   |         |   | 373,347 |   |
|                                                           |   |         |      |         |   |   |   |
| **TOTAL                      ASSETS**                          |   | $            | 2,983,354 |         | $      | 3,029,896 |   |

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

----

**COLUMBUS            SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED            CONSOLIDATED BALANCE SHEETS**

**CAPITALIZATION**
**            AND LIABILITIES**

**June            30, 2005 and December 31, 2004**

**(Unaudited)**

|                                                                    |   | **2005**                                |      | **2004**     |   |
|-------------------------------------------------------------------------|--------|-----------------------------------------|-----------|--------------|--------|
| **CAPITALIZATION**                                                      |   | **(in                      thousands)** |      |
| Common                      Shareholder’s Equity:                 |   |                               |      |    |   |
| Common                      Stock - No par value:                       |   |                                    |      |         |   |   |   |
|  Authorized                      - 24,000,000 shares               |   |                                    |      |         |   |   |   |
|  Outstanding                      - 16,410,426 shares              |   | $                                       | 41,026    |         | $      | 41,026 |   |
| Paid-in                      Capital                                    |   |                                    | 579,527   |         |   | 577,415 |   |
| Retained                      Earnings                                  |   |                                    | 364,032   |         |   | 341,025 |   |
| Accumulated                      Other Comprehensive Income (Loss)      |   |                                    | (65,101   | )            |   | (60,816 | ) |
| **Total                      Common Shareholder’s Equity**        |   |                                    | 919,484   |         |   | 898,650 |   |
| Preferred                      Stock - No Shares Outstanding            |   |                                    | -         |         |   | - |   |
| Authorized                      - 2,500,000 shares at $100 par value    |   |                                    |      |         |   |   |   |
| Authorized                      - 7,000,000 shares at $25 par value     |   |                                    |      |         |   |   |   |
| **Total                      Shareholder’s Equity**               |   |                                    | 919,484   |         |   | 898,650 |   |
| Long-term                      Debt:                                    |   |                                    |      |         |   |   |   |
| Nonaffiliated                                                           |   |                                    | 851,757   |         |   | 851,626 |   |
| Affiliated                                                              |   |                                    | 100,000   |         |   | 100,000 |   |
| **Total                      Long-term Debt**                           |   |                                    | 951,757   |         |   | 951,626 |   |
| **TOTAL**                                                               |   |                                    | 1,871,241 |         |   | 1,850,276 |   |
|                                                                    |   |                                    |      |         |   |   |   |
| **CURRENT                      LIABILITIES**                            |   |                                    |      |         |   |   |   |
| Long-term                      Debt Due Within One Year - Nonaffiliated |   |                                    | 36,000    |         |   | 36,000 |   |
| Accounts                      Payable:                                  |   |                                    |      |         |   |   |   |
| General                                                                 |   |                                    | 51,674    |         |   | 63,606 |   |
| Affiliated                      Companies                               |   |                                    | 54,920    |         |   | 45,745 |   |
| Customer                      Deposits                                  |   |                                    | 32,508    |         |   | 24,890 |   |
| Taxes                      Accrued                                      |   |                                    | 102,195   |         |   | 195,284 |   |
| Interest                      Accrued                                   |   |                                    | 16,615    |         |   | 16,320 |   |
| Risk                      Management Liabilities                        |   |                                    | 50,682    |         |   | 42,172 |   |
| Obligations                      Under Capital Leases                   |   |                                    | 3,402     |         |   | 3,854 |   |
| Other                                                                   |   |                                    | 25,451    |         |   | 24,338 |   |
| **TOTAL**                                                               |   |                                    | 373,447   |         |   | 452,209 |   |
|                                                                    |   |                                    |      |         |   |   |   |
| **DEFERRED                      CREDITS AND OTHER LIABILITIES**         |   |                                    |      |         |   |   |   |
| Deferred                      Income Taxes                              |   |                                    | 446,650   |         |   | 464,545 |   |
| Regulatory                      Liabilities:                            |   |                                    |      |         |   |   |   |
| Asset                      Removal Costs                                |   |                                    | 106,850   |         |   | 103,104 |   |
| Deferred                      Investment Tax Credits                    |   |                                    | 26,612    |         |   | 27,933 |   |
| Other                                                                   |   |                                    | 22,104    |         |   | - |   |
| Employee                      Benefits and Pension Obligations          |   |                                    | 37,813    |         |   | 62,778 |   |
| Long-term                      Risk Management Liabilities              |   |                                    | 62,531    |         |   | 32,731 |   |
| Obligations                      Under Capital Leases                   |   |                                    | 7,488     |         |   | 8,660 |   |
| Asset                      Retirement Obligations                       |   |                                    | 12,006    |         |   | 11,585 |   |
| Deferred                      Credits and Other                         |   |                                    | 16,612    |         |   | 16,075 |   |
| **TOTAL**                                                               |   |                                    | 738,666   |         |   | 727,411 |   |
|                                                                    |   |                                    |      |         |   |   |   |
| Commitments                      and Contingencies (Note 5)             |   |                                    |      |         |   |   |   |
|                                                                    |   |                                    |      |         |   |   |   |
| **TOTAL                      CAPITALIZATION****AND LIABILITIES**        |   | $                                       | 2,983,354 |         | $      | 3,029,896 |   |
|                                                                    |   |                                    |      |         |   |   |   |

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

----

**COLUMBUS            SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED            CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For            the Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                                                                                                    |   | **2005**     |    | **2004**     |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **OPERATING                      ACTIVITIES**                                                                                           |   |    |    |    |   |
| **Net                      Income**                                                                                                     |   | $            | 82,119  |         | $      | 75,874 |   |
| **Adjustments                      to Reconcile Net Income to Net Cash Flows**** From                      Operating Activities:** |   |         |    |         |   |   |   |
| Depreciation                      and Amortization                                                                                      |   |         | 65,531  |         |   | 73,263 |   |
| Deferred                      Income Taxes                                                                                              |   |         | (1,593  | )            |   | 8,642 |   |
| Deferred                      Investment Tax Credits                                                                                    |   |         | (1,321  | )            |   | (1,473 | ) |
| Pension                      and Postemployment Benefit Reserves                                                                        |   |         | 257     |         |   | (2,674 | ) |
| Deferred                      Property Taxes                                                                                            |   |         | 32,210  |         |   | 30,763 |   |
| Mark-to-Market                      of Risk Management Contracts                                                                        |   |         | (5,171  | )            |   | 1,611 |   |
| Carrying                      Costs Income                                                                                              |   |         | (6,916  | )            |   | (231 | ) |
| Pension                      Contributions                                                                                              |   |         | (25,222 | )            |   | (8 | ) |
| Gain                      on Sale of Assets                                                                                             |   |         | (1,352  | )            |   | (1,786 | ) |
| Change                      in Other Noncurrent Assets                                                                                  |   |         | (19,416 | )            |   | (19,464 | ) |
| Change                      in Other Noncurrent Liabilities                                                                             |   |         | 3,536   |         |   | (809 | ) |
| **Changes                      in Components of Working Capital:**                                                                      |   |         |    |         |   |   |   |
| Accounts                      Receivable, Net                                                                                           |   |         | 21,688  |         |   | 20,483 |   |
| Fuel,                      Materials and Supplies                                                                                       |   |         | 1,657   |         |   | (13,704 | ) |
| Accounts                      Payable                                                                                                   |   |         | (2,180  | )            |   | (20,128 | ) |
| Taxes                      Accrued                                                                                                      |   |         | (93,089 | )            |   | (18,790 | ) |
| Customer                      Deposits                                                                                                  |   |         | 7,618   |         |   | 6,745 |   |
| Interest                      Accrued                                                                                                   |   |         | 295     |         |   | 5 |   |
| Other                      Current Assets                                                                                               |   |         | (6,656  | )            |   | 3,230 |   |
| Other                      Current Liabilities                                                                                          |   |         | 661     |         |   | (2,894 | ) |
| **Net                      Cash Flows From Operating Activities**                                                                       |   |         | 52,656  |         |   | 138,655 |   |
|                                                                                                                                    |   |         |    |         |   |   |   |
| **INVESTING                      ACTIVITIES**                                                                                           |   |         |    |         |   |   |   |
| Construction                      Expenditures                                                                                          |   |         | (78,061 | )            |   | (66,693 | ) |
| Change                      in Other Cash Deposits, Net                                                                                 |   |         | 33      |         |   | 18 |   |
| Proceeds                      from Sale of Assets                                                                                       |   |         | 3,663   |         |   | 2,244 |   |
| **Net                      Cash Flows Used For Investing Activities**                                                                   |   |         | (74,365 | )            |   | (64,431 | ) |
|                                                                                                                                    |   |         |    |         |   |   |   |
| **FINANCING                      ACTIVITIES**                                                                                           |   |         |    |         |   |   |   |
| Changes                      in Advances to/from Affiliates, Net                                                                        |   |         | 79,378  |         |   | (558 | ) |
| Dividends                      Paid on Common Stock                                                                                     |   |         | (57,000 | )            |   | (62,500 | ) |
| Issuance                      of Long-term Debt                                                                                         |   |         | -       |         |   | 43,095 |   |
| Retirement                      of Long-term Debt                                                                                       |   |         | -       |         |   | (54,695 | ) |
| **Net                      Cash Flows From (Used For) Financing Activities**                                                            |   |         | 22,378  |         |   | (74,658 | ) |
|                                                                                                                                    |   |         |    |         |   |   |   |
| **Net                      Increase (Decrease) in Cash and Cash Equivalents**                                                           |   |         | 669     |         |   | (434 | ) |
| **Cash                      and Cash Equivalents at Beginning of Period**                                                               |   |         | 25      |         |   | 3,377 |   |
| **Cash                      and Cash Equivalents at End of Period**                                                                     |   | $            | 694     |         | $      | 2,943 |   |

| **SUPPLEMENTAL                      DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cash                      paid (received) for interest net of capitalized amounts was                      $27,390,000                      and $25,131,000 and for income taxes was $78,019,000 and $(3,747,000)                      in                      2005 and 2004, respectively. Noncash capital lease acquisitions                      were                      $343,000 and $162,000 in 2005 and 2004, respectively. Construction                      Expenditures include the change in construction-related Accounts                      Payable                      of $(577,000) and $44,000 in 2005 and 2004,                      respectively. |

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

----

**COLUMBUS            SOUTHERN POWER COMPANY AND SUBSIDIARIES**

**INDEX            TO CONDENSED NOTES TO 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  |
| Acquisitions,                      Dispositions and Assets Held for Sale | Note                      7  |
| Benefit                      Plans                                       | Note                      8  |
| Business                      Segments                                   | Note                      9  |
| Income                      Taxes                                        | Note                      10 |
| Financing                      Activities                                | Note                      11 |
| Company-wide                      Staffing and Budget Review             | 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 Second Quarter of 2004 to Second Quarter of 2005 Net            Income**

**(in            millions)**

| **Second                      Quarter of 2004 Net Income**            |   |   |   |   | $      | 27     |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                      Margins                                   |   |   | 11     |   |   |   |   |
| Transmission                      Revenues                            |   |   | (5     | )      |   |   |   |
| **Total                      Change in Gross Margin**                 |   |   |   |   |   | 6      |   |
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                      Operation and Maintenance                  |   |   | 4      |   |   |   |   |
| Interest                      Charges                                 |   |   | 2      |   |   |   |   |
| **Total                      Change in Operating Expenses and Other** |   |   |   |   |   | 6      |   |
|                                                                  |   |   |   |   |   |   |   |
| Income                      Tax Expense                               |   |   |   |   |   | (3     | )      |
|                                                                  |   |   |   |   |   |   |   |
| **Second                      Quarter of 2005 Net Income**            |   |   |   |   | $      | 36     |   |

| · | Retail                      Margins increased $11 million primarily due to an increase                      in capacity                      settlement payments received under the Interconnection Agreement                      related                      to the increase in an affiliate’s peak.                                               |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Transmission                      Revenues decreased $5 million primarily due to the loss of                      through and out                      rates, net of replacement SECA rates. See “FERC Order on Regional Through                      and Out Rates” for additional discussion of these FERC rate                      changes. |

| · | Other                      Operation and Maintenance expenses decreased $4 million primarily                      due to                      lower distribution maintenance expense reflecting the effect                      of 2004 storm                      damage. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Interest                      Charges decreased $2 million primarily due to lower long-term                      debt                      outstanding and lower interest                      rates.                                                                      |

*Income            Tax*

**Reconciliation            of Six Months Ended June 30, 2004 to Six Months Ended June 30, 2005 Net            Income**

**(in            millions)**

| **Six                      Months Ended June 30, 2004 Net Income**    |   |   |   |   | $      | 70     |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                      Margins                                   |   |   | 16     |   |   |   |   |
| Transmission                      Revenues                            |   |   | (12    | )      |   |   |   |
| Off-system                      Sales and Other Revenues              |   |   | 3      |   |   |   |   |
| **Total                      Change in Gross Margin**                 |   |   |   |   |   | 7      |   |
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                      Operation and Maintenance                  |   |   | (3     | )      |   |   |   |
| Taxes                      Other Than Income Taxes                    |   |   | (2     | )      |   |   |   |
| Nonoperating                      Income and Expenses, Net            |   |   | (4     | )      |   |   |   |
| Interest                      Charges                                 |   |   | 4      |   |   |   |   |
| **Total                      Change in Operating Expenses and Other** |   |   |   |   |   | (5     | )      |
|                                                                  |   |   |   |   |   |   |   |
| Income                      Tax Expense                               |   |   |   |   |   | 3      |   |
|                                                                  |   |   |   |   |   |   |   |
| **Six                      Months Ended June 30, 2005 Net Income**    |   |   |   |   | $      | 75     |   |

| · | Retail                      Margins increased $16 million primarily due to a $21 million                      increase in                      capacity settlement payments received under the Interconnection                      Agreement                      related to the increase in an affiliate’s peak partially offset by an                      increase in unrecovered fuel costs due to fuel caps in our                      Indiana                      jurisdiction. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Transmission                      Revenues decreased $12 million primarily due to the loss of                      through and                      out rates, net of replacement SECA                      rates.                                                                                                                                                                                                                                                                             |

| · | Other                      Operation and Maintenance expenses increased $3 million primarily                      due to a                      $6 million increase in distribution maintenance mainly for                      January 2005                      storm damage expenses and $4 million of accruals for employee                      severance                      costs partially offset by the settlement and cancellation of                      COLI policies                      in February 2005. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Taxes                      Other Than Income Taxes increased $2 million primarily due                      to a $1 million                      increase in property taxes and a $1 million increase in payroll-related                      taxes.                                                                                                                                                                                                                                                                        |
| · | Nonoperating                      Income and Expenses, Net declined $4 million reflecting lower                      margins on                      risk management transactions.                                                                                                                                                                                                                                                                                                                                         |
| · | Interest                      Charges decreased $4 million primarily due to lower long-term                      debt                      outstanding and lower interest                      rates.                                                                                                                                                                                                                                                                                                                      |

*Income              Tax*

**Financial            Condition**

**Credit            Ratings**

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

**Cash            Flow**

|                                                                      |   | **2005**                                |     | **2004** |   |
|---------------------------------------------------------------------------|--------|-----------------------------------------|----------|----------|--------|
|                                                                      |   | **(in                      thousands)** |     |
| **Cash                      and Cash Equivalents at Beginning of Period** |   | $                                       | 465      |     | $      | 3,899 |   |
| Cash                      Flows From (Used For):                          |   |                                    |     |     |   |   |   |
| Operating                      Activities                                 |   |                                    | 67,046   |     |   | 266,994 |   |
| Investing                      Activities                                 |   |                                    | (111,578 | )        |   | (84,403 | ) |
| Financing                      Activities                                 |   |                                    | 44,605   |     |   | (183,319 | ) |
| Net                      Increase (Decrease) in Cash and Cash Equivalents |   |                                    | 73       |     |   | (728 | ) |
| **Cash                      and Cash Equivalents at End of Period**       |   | $                                       | 538      |     | $      | 3,171 |   |

*Operating            Activities*

*Investing            Activities*

*Financing            Activities*

**Liquidity**

**Off-Balance            Sheet Arrangements**

**Summary            Obligation Information**

**Significant            Factors**

***I&M            Indiana Settlement Agreement***

**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**

**Six            Months Ended June 30, 2005**

**(in            thousands)**

| **Total                      MTM Risk Management Contract Net Assets at December 31,                      2004**                      |   | $      | 34,573  |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| (Gain)                      Loss from Contracts Realized/Settled During the Period (a)                                                |   |   | 62      |   |
| Fair                      Value of New Contracts When Entered During the Period (b)                                                   |   |   | -       |   |
| Net                      Option Premiums Paid/(Received) (c)                                                                          |   |   | (221    | )      |
| Change                      in Fair Value Due to Valuation Methodology Changes                                                        |   |   | -       |   |
| Changes                      in Fair Value of Risk Management Contracts (d)                                                           |   |   | 263     |   |
| Changes                      in Fair Value of Risk Management Contracts Allocated to Regulated                      Jurisdictions (e) |   |   | 1,067   |   |
| **Total                      MTM Risk Management Contract Net Assets**                                                           |   |   | 35,744  |   |
| Net                      Cash Flow and                      Fair Value Hedge                      Contracts (f)                       |   |   | (5,740  | )      |
| DETM                      Assignment (g)                                                                                              |   |   | (10,839 | )      |
| **Total                      MTM Risk Management Contract Net Assets at June 30, 2005**                                               |   | $      | 19,165  |   |

| (a) | “(Gain)                      Loss from Contracts Realized/Settled During the Period” includes realized                      risk management contracts and related derivatives that settled                      during 2005                      where                      we entered into the contract prior                      to 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Fair                      Value of New Contracts When Entered During the Period” represents the fair                      value at inception of long-term contracts entered into with                      customers                      during 2005. 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. |
| (c) | “Net                      Option Premiums Paid/(Received)” reflects the net option premiums                      paid/(received) as they relate to unexercised and unexpired                      option                      contracts that were entered in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (d) | “Changes                      in Fair Value of Risk Management Contracts” represents the fair value                      change in the risk management portfolio due to market fluctuations                      during                      the current period. Market fluctuations are attributable to                      various                      factors such as supply/demand, weather, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (e) | “Changes                      in Fair Value of Risk Management Contracts 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 assets/liabilities                      for                      those subsidiaries that operate in regulated                      jurisdictions.                                                                                                                                                                                                                                                                                                                                  |
| (f) | “Net                      Cash Flow and                      Fair Value Hedge                      Contracts” (pretax) are discussed below in Accumulated Other Comprehensive                      Income (Loss).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (g) | See                      “Natural Gas Contracts with DETM” section in Note 17 of the 2004 Annual                      Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

**Reconciliation              of MTM Risk Management Contracts to**

**Condensed            Consolidated Balance Sheets**

**As            of June 30, 2005**

**(in            thousands)**

|                                                                               |   | **MTM                      Risk Management Contracts (a)** |     | **Hedges** |   | **DETM                      Assignment (b)** |   | **Total                      (c)** |    |
|------------------------------------------------------------------------------------|--------|------------------------------------------------------------|----------|------------|--------|----------------------------------------------|--------|------------------------------------|---------|
| Current                      Assets                                                |   | $                                                          | 52,473   |       | $      | 197                                          |   | $                                  | -       |   | $ | 52,670 |   |
| Noncurrent                      Assets                                             |   |                                                       | 94,069   |       |   | 57                                           |   |                               | -       |   |   | 94,126 |   |
| **Total                      MTM Derivative Contract****Assets**                   |   |                                                       | 146,542  |       |   | 254                                          |   |                               | -       |   |   | 146,796 |   |
|                                                                               |   |                                                       |     |       |   |                                         |   |                               |    |   |   |   |   |
| Current                      Liabilities                                           |   |                                                       | (48,293  | )          |   | (5,378                                       | )      |                               | (3,646  | ) |   | (57,317 | ) |
| Noncurrent                      Liabilities                                        |   |                                                       | (62,505  | )          |   | (616                                         | )      |                               | (7,193  | ) |   | (70,314 | ) |
| **Total                      MTM Derivative Contract Liabilities**                 |   |                                                       | (110,798 | )          |   | (5,994                                       | )      |                               | (10,839 | ) |   | (127,631 | ) |
|                                                                               |   |                                                       |     |       |   |                                         |   |                               |    |   |   |   |   |
| **Total                      MTM Derivative Contract Net Assets****(Liabilities)** |   | $                                                          | 35,744   |       | $      | (5,740                                       | )      | $                                  | (10,839 | ) | $ | 19,165 |   |

| (a) | Does                      not include Cash Flow and Fair Value Hedges.                                                                                                                                                                                                                                                                                                          |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | See                      “Natural Gas Contracts with DETM” section in Note 17 of the 2004 Annual                      Report.                                                                                                                                                                                                                                       |
| (c) | Represents                      amount of total MTM derivative contracts recorded within Risk                      Management                      Assets, Long-term Risk Management Assets, Risk Management Liabilities                      and                      Long-term Risk Management Liabilities on our Condensed Consolidated                      Balance Sheets. |

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

| · | The                      source of 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 June 30, 2005**

**(in            thousands)**

|                                                                                                                                   |   | **Remainder                      of 2005** |   | **2006** |   | **2007** |   | **2008** |   | **2009** |   | **After****2009                      (c)** |   | **Total                      (d)** |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|--------------------------------------------|--------|------------------------------------|--------|
| Prices                      Actively Quoted - Exchange Traded                      Contracts                                           |   | $                                          | (6,034 | )        | $      | (49      | )      | $        | 4,785  |     | $      | -                                          |   | $                                  | -      |   | $ | - |   | $ | (1,298 | ) |
| Prices                      Provided by Other External Sources                      - OTC                       Broker Quotes (a) |   |                                       | 13,069 |     |   | 18,926   |   |     | 6,445  |     |   | 6,719                                      |   |                               | -      |   |   | - |   |   | 45,159 |   |
| Prices                      Based on Models and Other Valuation                                             Methods (b)           |   |                                       | (6,707 | )        |   | (9,820   | )      |     | (2,787 | )        |   | 902                                        |   |                               | 5,705  |   |   | 4,590 |   |   | (8,117 | ) |
| **Total**                                                                                                                              |   | $                                          | 328    |     | $      | 9,057    |   | $        | 8,443  |     | $      | 7,621                                      |   | $                                  | 5,705  |   | $ | 4,590 |   | $ | 35,744 |   |

| (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 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. |
| (c) | There                      is mark-to-market value in excess of 10 percent of our total                      mark-to-market value in individual periods beyond 2009. $4.9                      million of                      this mark-to-market value is in 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (d) | Amounts                      exclude Cash Flow and Fair Value                      Hedges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

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

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

**Six            Months Ended June 30, 2005**

**(in            thousands)**

|                                                                                    |   | **Power** |   | **Interest                      Rate** |   | **Total** |   |
|-----------------------------------------------------------------------------------------|--------|-----------|--------|----------------------------------------|--------|-----------|--------|
| **Beginning                      Balance December 31, 2004**                            |   | $         | 1,558  |                                   | $      | (5,634    | )      | $ | (4,076 | ) |
| Changes                      in Fair Value (a)                                          |   |      | (2,285 | )                                      |   | (186      | )      |   | (2,471 | ) |
| Reclassifications                      from AOCI to Net Income                      (b) |   |      | (2,506 | )                                      |   | 285       |   |   | (2,221 | ) |
| **Ending                      Balance June 30, 2005**                                   |   | $         | (3,233 | )                                      | $      | (5,535    | )      | $ | (8,768 | ) |

| (a) | “Changes                      in Fair Value” shows changes in the fair value of derivatives designated                      as cash flow hedges during the reporting period that are not                      yet settled                      at June 30, 2005. Amounts are reported net of related income                      taxes.                                                     |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Reclassifications                      from AOCI to Net Income” represents gains or losses from derivatives used                      as hedging instruments in cash flow hedges that were reclassified                      into net                      income during the reporting period. Amounts are reported net                      of related                      income taxes. |

**Credit            Risk**

**VaR            Associated with Risk Management Contracts**

|   | **Six                      Months Ended** |   | **Twelve                      Months Ended** |   |
|--------|-------------------------------------------|--------|----------------------------------------------|--------|
|   | **June                      30, 2005**    |   | **December                      31, 2004**   |   |
|   | **(in                      thousands)**   |   | **(in                      thousands)**      |   |
|   | **End**                                   |   | **High**                                     |   | **Average** |   | **Low** |   | **End** |   | **High** |   | **Average** |   | **Low** |   |
|   | $665                                      |   | $796                                         |   | $388 |   | $228 |   | $371 |   | $1,211 |   | $522 |   | $178 |   |

**VaR            Associated with Debt Outstanding**

----

**INDIANA            MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED            CONSOLIDATED STATEMENTS OF INCOME**

**For            the Three and Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                                                                                   |   | **Three                      Months Ended** |    | **Six                      Months Ended** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|---------|-------------------------------------------|--------|
|                                                                                                                   |   | **2005**                                    |    | **2004**                                  |   | **2005** |   | **2004** |   |
| **OPERATING                      REVENUES**                                                                            |   |                                   |    |                                 |   |   |   |   |   |
| Electric                      Generation, Transmission and Distribution                                                |   | $                                           | 357,500 |                                      | $      | 340,766 |   | $ | 719,092 |   | $ | 694,588 |   |
| Sales                      to AEP Affiliates                                                                           |   |                                        | 79,858  |                                      |   | 65,025 |   |   | 160,409 |   |   | 122,670 |   |
| **TOTAL**                                                                                                              |   |                                        | 437,358 |                                      |   | 405,791 |   |   | 879,501 |   |   | 817,258 |   |
|                                                                                                                   |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **OPERATING                      EXPENSES**                                                                            |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| Fuel                      for Electric Generation                                                                      |   |                                        | 78,342  |                                      |   | 65,582 |   |   | 156,166 |   |   | 129,623 |   |
| Purchased                      Electricity for Resale                                                                  |   |                                        | 12,730  |                                      |   | 6,191 |   |   | 24,002 |   |   | 12,554 |   |
| Purchased                      Electricity from AEP Affiliates                                                         |   |                                        | 71,984  |                                      |   | 65,665 |   |   | 145,993 |   |   | 128,793 |   |
| Other                      Operation                                                                                   |   |                                        | 100,026 |                                      |   | 106,116 |   |   | 191,002 |   |   | 206,966 |   |
| Maintenance                                                                                                            |   |                                        | 48,366  |                                      |   | 46,276 |   |   | 102,688 |   |   | 84,318 |   |
| Depreciation                      and Amortization                                                                     |   |                                        | 42,224  |                                      |   | 42,696 |   |   | 84,969 |   |   | 85,411 |   |
| Taxes                      Other Than Income Taxes                                                                     |   |                                        | 15,110  |                                      |   | 15,472 |   |   | 32,617 |   |   | 30,688 |   |
| Income                      Taxes                                                                                      |   |                                        | 18,326  |                                      |   | 14,798 |   |   | 38,260 |   |   | 39,097 |   |
| **TOTAL**                                                                                                              |   |                                        | 387,108 |                                      |   | 362,796 |   |   | 775,697 |   |   | 717,450 |   |
|                                                                                                                   |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **OPERATING                      INCOME**                                                                              |   |                                        | 50,250  |                                      |   | 42,995 |   |   | 103,804 |   |   | 99,808 |   |
|                                                                                                                   |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| Nonoperating                      Income                                                                               |   |                                        | 21,709  |                                      |   | 19,866 |   |   | 39,206 |   |   | 40,454 |   |
| Nonoperating                      Expenses                                                                             |   |                                        | 19,238  |                                      |   | 17,176 |   |   | 35,251 |   |   | 32,027 |   |
| Nonoperating                      Income Tax Expense                                                                   |   |                                        | 650     |                                      |   | 878 |   |   | 413 |   |   | 2,491 |   |
| Interest                      Charges                                                                                  |   |                                        | 16,478  |                                      |   | 17,777 |   |   | 32,084 |   |   | 35,706 |   |
|                                                                                                                   |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **NET                      INCOME**                                                                                    |   |                                        | 35,593  |                                      |   | 27,030 |   |   | 75,262 |   |   | 70,038 |   |
|                                                                                                                   |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| Preferred                      Stock Dividend Requirements including Capital Stock                        Expense |   |                                        | 107     |                                      |   | 119 |   |   | 225 |   |   | 237 |   |
|                                                                                                                   |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **EARNINGS                      APPLICABLE TO COMMON STOCK**                                                           |   | $                                           | 35,486  |                                      | $      | 26,911 |   | $ | 75,037 |   | $ | 69,801 |   |

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

*See            Condensed Notes to 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 Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                                                     |   | **Common                      Stock** |   | **Paid-in                      Capital** |   | **Retained                      Earnings** |   | **Accumulated                      Other Comprehensive Income (Loss)** |    | **Total** |   |
|------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|------------------------------------------|--------|--------------------------------------------|--------|------------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                      31, 2003**                                               |   | $                                     | 56,584 |                                     | $      | 858,694                                    |   | $                                                                      | 187,875 |      | $      | (25,106 | ) | $ | 1,078,047 |   |
|                                                                                     |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Common                      Stock Dividends                                              |   |                                  |   |                                     |   |                                       |   |                                                                   | (59,293 | )         |   |   |   |   | (59,293 | ) |
| Preferred                      Stock Dividends                                           |   |                                  |   |                                     |   |                                       |   |                                                                   | (169    | )         |   |   |   |   | (169 | ) |
| Capital                      Stock Expense                                               |   |                                  |   |                                     |   | 67                                         |   |                                                                   | (67     | )         |   |   |   |   | - |   |
| **TOTAL**                                                                                |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 1,018,585 |   |
|                                                                                     |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                                            |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Loss,****Net                      of Taxes:** |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $1,603                              |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | (2,978 | ) |   | (2,978 | ) |
| **NET                      INCOME**                                                      |   |                                  |   |                                     |   |                                       |   |                                                                   | 70,038  |      |   |   |   |   | 70,038 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                                      |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 67,060 |   |
|                                                                                     |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **JUNE                      30, 2004**                                                   |   | $                                     | 56,584 |                                     | $      | 858,761                                    |   | $                                                                      | 198,384 |      | $      | (28,084 | ) | $ | 1,085,645 |   |
|                                                                                     |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **DECEMBER                      31, 2004**                                               |   | $                                     | 56,584 |                                     | $      | 858,835                                    |   | $                                                                      | 221,330 |      | $      | (45,251 | ) | $ | 1,091,498 |   |
|                                                                                     |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Common                      Stock Dividends                                              |   |                                  |   |                                     |   |                                       |   |                                                                   | (42,000 | )         |   |   |   |   | (42,000 | ) |
| Preferred                      Stock Dividends                                           |   |                                  |   |                                     |   |                                       |   |                                                                   | (169    | )         |   |   |   |   | (169 | ) |
| Capital                      Stock Expense and Other                                     |   |                                  |   |                                     |   | 2,455                                      |   |                                                                   | (56     | )         |   |   |   |   | 2,399 |   |
| **TOTAL**                                                                                |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 1,051,728 |   |
|                                                                                     |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                                            |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Loss,****Net                      of Taxes:** |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $2,527                              |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | (4,692 | ) |   | (4,692 | ) |
| **NET                      INCOME**                                                      |   |                                  |   |                                     |   |                                       |   |                                                                   | 75,262  |      |   |   |   |   | 75,262 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                                      |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 70,570 |   |
|                                                                                     |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **JUNE                      30, 2005**                                                   |   | $                                     | 56,584 |                                     | $      | 861,290                                    |   | $                                                                      | 254,367 |      | $      | (49,943 | ) | $ | 1,122,298 |   |

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

----

**INDIANA            MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED            CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**June            30, 2005 and December 31, 2004**

**(Unaudited)**

**(in            thousands)**

|                                                                                                          |   | **2005**     |      | **2004**     |   |
|---------------------------------------------------------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **ELECTRIC                      UTILITY PLANT**                                                               |   |    |      |    |   |
| Production                                                                                                    |   | $            | 3,133,714 |         | $      | 3,122,883 |   |
| Transmission                                                                                                  |   |         | 1,012,817 |         |   | 1,009,551 |   |
| Distribution                                                                                                  |   |         | 1,012,925 |         |   | 990,826 |   |
| General                      (including nuclear fuel)                                                         |   |         | 273,264   |         |   | 275,622 |   |
| Construction                      Work in Progress                                                            |   |         | 215,354   |         |   | 163,515 |   |
| **Total**                                                                                                     |   |         | 5,648,074 |         |   | 5,562,397 |   |
| Accumulated                      Depreciation and Amortization                                                |   |         | 2,663,174 |         |   | 2,603,479 |   |
| **TOTAL                      - NET**                                                                          |   |         | 2,984,900 |         |   | 2,958,918 |   |
|                                                                                                          |   |         |      |         |   |   |   |
| **OTHER                      PROPERTY AND INVESTMENTS**                                                       |   |         |      |         |   |   |   |
| Nuclear                      Decommissioning and Spent Nuclear Fuel Disposal Trust                      Funds |   |         | 1,095,165 |         |   | 1,053,439 |   |
| Nonutility                      Property, Net                                                                 |   |         | 49,375    |         |   | 50,440 |   |
| Other                      Investments                                                                        |   |         | 13,245    |         |   | 21,848 |   |
| **TOTAL**                                                                                                     |   |         | 1,157,785 |         |   | 1,125,727 |   |
|                                                                                                          |   |         |      |         |   |   |   |
| **CURRENT                      ASSETS**                                                                       |   |         |      |         |   |   |   |
| Cash                      and Cash Equivalents                                                                |   |         | 538       |         |   | 465 |   |
| Other                      Cash Deposits                                                                      |   |         | -         |         |   | 46 |   |
| Advances                      to Affiliates                                                                   |   |         | -         |         |   | 5,093 |   |
| Accounts                      Receivable:                                                                     |   |         |      |         |   |   |   |
| Customers                                                                                                     |   |         | 61,968    |         |   | 62,608 |   |
| Affiliated                      Companies                                                                     |   |         | 100,326   |         |   | 124,134 |   |
| Miscellaneous                                                                                                 |   |         | 3,557     |         |   | 4,339 |   |
| Allowance                      for Uncollectible Accounts                                                     |   |         | (15       | )            |   | (187 | ) |
| Fuel                                                                                                          |   |         | 25,667    |         |   | 27,218 |   |
| Materials                      and Supplies                                                                   |   |         | 104,332   |         |   | 103,342 |   |
| Risk                      Management Assets                                                                   |   |         | 52,670    |         |   | 52,141 |   |
| Margin                      Deposits                                                                          |   |         | 7,569     |         |   | 5,400 |   |
| Prepayments                      and Other                                                                    |   |         | 15,428    |         |   | 10,541 |   |
| **TOTAL**                                                                                                     |   |         | 372,040   |         |   | 395,140 |   |
|                                                                                                          |   |         |      |         |   |   |   |
| **DEFERRED                      DEBITS AND OTHER ASSETS**                                                     |   |         |      |         |   |   |   |
| Regulatory                      Assets:                                                                       |   |         |      |         |   |   |   |
| SFAS                      109 Regulatory Asset, Net                                                           |   |         | 136,468   |         |   | 147,167 |   |
| Incremental                      Nuclear Refueling Outage Expenses, Net                                       |   |         | 45,002    |         |   | 44,244 |   |
| Unamortized                      Loss on Reacquired Debt                                                      |   |         | 22,712    |         |   | 21,039 |   |
| DOE                      Decontamination Fund                                                                 |   |         | 11,640    |         |   | 14,215 |   |
| Other                                                                                                         |   |         | 48,440    |         |   | 31,015 |   |
| Long-term                      Risk Management Assets                                                         |   |         | 94,126    |         |   | 52,256 |   |
| Emission                      Allowances                                                                      |   |         | 31,301    |         |   | 27,093 |   |
| Deferred                      Property Taxes                                                                  |   |         | 22,009    |         |   | 22,372 |   |
| Deferred                      Charges and Other Assets                                                        |   |         | 16,816    |         |   | 28,955 |   |
| **TOTAL**                                                                                                     |   |         | 428,514   |         |   | 388,356 |   |
|                                                                                                          |   |         |      |         |   |   |   |
| **TOTAL                      ASSETS**                                                                         |   | $            | 4,943,239 |         | $      | 4,868,141 |   |

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

----

**INDIANA            MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED            CONSOLIDATED BALANCE SHEETS**

**CAPITALIZATION**
**            AND LIABILITIES**

**June            30, 2005 and December 31, 2004**

**(Unaudited)**

|                                                                                |   | **2005**                                |      | **2004**     |   |
|-------------------------------------------------------------------------------------|--------|-----------------------------------------|-----------|--------------|--------|
| **CAPITALIZATION**                                                                  |   | **(in                      thousands)** |      |
| 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   |         |   | 858,835 |   |
| Retained                      Earnings                                              |   |                                    | 254,367   |         |   | 221,330 |   |
| Accumulated                      Other Comprehensive Income (Loss)                  |   |                                    | (49,943   | )            |   | (45,251 | ) |
| **Total                      Common Shareholder’s Equity**                    |   |                                    | 1,122,298 |         |   | 1,091,498 |   |
| Cumulative                      Preferred Stock Not Subject to Mandatory Redemption |   |                                    | 8,084     |         |   | 8,084 |   |
| **Total                      Shareholders’ Equity**                           |   |                                    | 1,130,382 |         |   | 1,099,582 |   |
| Long-term                      Debt                                                 |   |                                    | 1,315,927 |         |   | 1,312,843 |   |
| **TOTAL**                                                                           |   |                                    | 2,446,309 |         |   | 2,412,425 |   |
|                                                                                |   |                                    |      |         |   |   |   |
| **CURRENT                      LIABILITIES**                                        |   |                                    |      |         |   |   |   |
| Cumulative                      Preferred Stock Due Within One Year                 |   |                                    | -         |         |   | 61,445 |   |
| Advances                      from Affiliates                                       |   |                                    | 143,126   |         |   | - |   |
| Accounts                      Payable:                                              |   |                                    |      |         |   |   |   |
| General                                                                             |   |                                    | 83,109    |         |   | 91,472 |   |
| Affiliated                      Companies                                           |   |                                    | 45,996    |         |   | 51,066 |   |
| Customer                      Deposits                                              |   |                                    | 35,079    |         |   | 29,366 |   |
| Taxes                      Accrued                                                  |   |                                    | 54,263    |         |   | 123,159 |   |
| Interest                      Accrued                                               |   |                                    | 13,152    |         |   | 12,465 |   |
| Risk                      Management Liabilities                                    |   |                                    | 57,317    |         |   | 47,174 |   |
| Obligations                      Under Capital Leases                               |   |                                    | 6,009     |         |   | 6,124 |   |
| Other                                                                               |   |                                    | 57,067    |         |   | 70,237 |   |
| **TOTAL**                                                                           |   |                                    | 495,118   |         |   | 492,508 |   |
|                                                                                |   |                                    |      |         |   |   |   |
| **DEFERRED                      CREDITS AND OTHER LIABILITIES**                     |   |                                    |      |         |   |   |   |
| Deferred                      Income Taxes                                          |   |                                    | 306,028   |         |   | 315,730 |   |
| Regulatory                      Liabilities:                                        |   |                                    |      |         |   |   |   |
| Asset                      Removal Costs                                            |   |                                    | 287,280   |         |   | 280,054 |   |
| Deferred                      Investment Tax Credits                                |   |                                    | 79,138    |         |   | 82,802 |   |
| Excess                      ARO for Nuclear Decommissioning                         |   |                                    | 259,103   |         |   | 245,175 |   |
| Unrealized                      Gain on Forward Commitments                         |   |                                    | 45,611    |         |   | 35,534 |   |
| Other                                                                               |   |                                    | 33,097    |         |   | 33,695 |   |
| Deferred                      Gain on Sale and Leaseback - Rockport Plant Unit 2    |   |                                    | 64,618    |         |   | 66,472 |   |
| Long-term                      Risk Management Liabilities                          |   |                                    | 70,314    |         |   | 36,815 |   |
| Obligations                      Under Capital Leases                               |   |                                    | 38,544    |         |   | 44,608 |   |
| Asset                      Retirement Obligations                                   |   |                                    | 735,401   |         |   | 711,769 |   |
| Employee                      Benefits and Pension Obligations                      |   |                                    | 43,694    |         |   | 70,027 |   |
| Deferred                      Credits and Other                                     |   |                                    | 38,984    |         |   | 40,527 |   |
| **TOTAL**                                                                           |   |                                    | 2,001,812 |         |   | 1,963,208 |   |
|                                                                                |   |                                    |      |         |   |   |   |
| Commitments                      and Contingencies (Note 5)                         |   |                                    |      |         |   |   |   |
|                                                                                |   |                                    |      |         |   |   |   |
| **TOTAL                      CAPITALIZATION AND LIABILITIES**                       |   | $                                       | 4,943,239 |         | $      | 4,868,141 |   |

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

----

**INDIANA            MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**CONDENSED            CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For            the Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                                                                                                    |   | **2005**     |     | **2004**     |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                      ACTIVITIES**                                                                                           |   |    |     |    |   |
| **Net                      Income**                                                                                                     |   | $            | 75,262   |         | $      | 70,038 |   |
| **Adjustments                      to Reconcile Net Income to Net Cash Flows**** From                      Operating Activities:** |   |         |     |         |   |   |   |
| Depreciation                      and Amortization                                                                                      |   |         | 84,969   |         |   | 85,411 |   |
| Accretion                      Expense                                                                                                  |   |         | 23,632   |         |   | 19,567 |   |
| Amortization,                      net of Deferrals of Incremental Nuclear                                                              |   |         |     |         |   |   |   |
| Refueling                      Outage Expenses                                                                                          |   |         | (758     | )            |   | 26,004 |   |
| Deferred                      Income Taxes                                                                                              |   |         | 3,476    |         |   | (524 | ) |
| Deferred                      Investment Tax Credits                                                                                    |   |         | (3,664   | )            |   | (3,664 | ) |
| Pension                      Contributions                                                                                              |   |         | (30,701  | )            |   | (972 | ) |
| Mark-to-Market                      of Risk Management Contracts                                                                        |   |         | (5,598   | )            |   | 1,461 |   |
| Change                      in Other Noncurrent Assets                                                                                  |   |         | (246     | )            |   | (1,933 | ) |
| Change                      in Other Noncurrent Liabilities                                                                             |   |         | (11,947  | )            |   | 490 |   |
| **Changes                      in Components of Working Capital:**                                                                      |   |         |     |         |   |   |   |
| Accounts                      Receivable, Net                                                                                           |   |         | 25,058   |         |   | 42,682 |   |
| Fuel,                      Materials and Supplies                                                                                       |   |         | 561      |         |   | (9,463 | ) |
| Accounts                      Payable                                                                                                   |   |         | (10,161  | )            |   | (22,740 | ) |
| Taxes                      Accrued                                                                                                      |   |         | (68,896  | )            |   | 44,323 |   |
| Customer                      Deposits                                                                                                  |   |         | 5,713    |         |   | 8,911 |   |
| Other                      Current Assets                                                                                               |   |         | (7,056   | )            |   | 5,542 |   |
| Other                      Current Liabilities                                                                                          |   |         | (12,598  | )            |   | 1,861 |   |
| **Net                      Cash Flows From Operating Activities**                                                                       |   |         | 67,046   |         |   | 266,994 |   |
|                                                                                                                                    |   |         |     |         |   |   |   |
| **INVESTING                      ACTIVITIES**                                                                                           |   |         |     |         |   |   |   |
| Construction                      Expenditures                                                                                          |   |         | (121,092 | )            |   | (84,363 | ) |
| Change                      in Other Cash Deposits, Net                                                                                 |   |         | 46       |         |   | (40 | ) |
| Proceeds                      from Sale of Assets                                                                                       |   |         | 9,468    |         |   | - |   |
| **Net                      Cash Flows Used For Investing Activities**                                                                   |   |         | (111,578 | )            |   | (84,403 | ) |
|                                                                                                                                    |   |         |     |         |   |   |   |
| **FINANCING                      ACTIVITIES**                                                                                           |   |         |     |         |   |   |   |
| Retirement                      of Cumulative Preferred Stock                                                                           |   |         | (61,445  | )            |   | (2,000 | ) |
| Retirement                      of Long-term Debt                                                                                       |   |         | -        |         |   | (55,000 | ) |
| Changes                      in Advances to/from Affiliates, Net                                                                        |   |         | 148,219  |         |   | (66,857 | ) |
| Dividends                      Paid on Common Stock                                                                                     |   |         | (42,000  | )            |   | (59,293 | ) |
| Dividends                      Paid on Cumulative Preferred Stock                                                                       |   |         | (169     | )            |   | (169 | ) |
| **Net                      Cash Flows From (Used For) Financing Activities**                                                            |   |         | 44,605   |         |   | (183,319 | ) |
|                                                                                                                                    |   |         |     |         |   |   |   |
| **Net                      Increase (Decrease) in Cash and Cash Equivalents**                                                           |   |         | 73       |         |   | (728 | ) |
| **Cash                      and Cash Equivalents at Beginning of Period**                                                               |   |         | 465      |         |   | 3,899 |   |
| **Cash                      and Cash Equivalents at End of Period**                                                                     |   | $            | 538      |         | $      | 3,171 |   |

| **SUPPLEMENTAL                      DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cash                      paid for interest net of capitalized amounts was $29,427,000                      and                      $34,825,000 and for income taxes was $106,891,000 and $189,000                      in 2005 and                      2004, respectively. Noncash acquisitions under capital leases                      were                      $652,000 and $1,165,000 in 2005 and 2004, respectively. Construction                      Expenditures include the change in construction-related Accounts                      Payable                      of $(3,272,000) and $(9,365,000) in 2005 and 2004,                      respectively. |

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

----

**INDIANA            MICHIGAN POWER COMPANY AND SUBSIDIARIES**

**INDEX            TO CONDENSED NOTES TO 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  |
| Benefit                      Plans                           | Note                      8  |
| Business                      Segments                       | Note                      9  |
| Financing                      Activities                    | Note                      11 |
| Company-wide                      Staffing and Budget Review | Note                      12 |

----

**KENTUCKY            POWER COMPANY**

----

**KENTUCKY            POWER COMPANY**

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

**Results            of Operations**

**Reconciliation            of Second Quarter of 2004 to Second Quarter of 2005 Net            Income**

**(in            millions)**

| **Second                      Quarter of 2004 Net Income**        |   |   |   |   | $      | 4      |   |
|-------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                              |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                 |   |   |   |   |   |   |   |
| Retail                      Margins                               |   |   | (7     | )      |   |   |   |
| Off-system                      Sales                             |   |   | 3      |   |   |   |   |
| Transmission                      Revenues                        |   |   | (1     | )      |   |   |   |
| Other                      Revenues                               |   |   | 2      |   |   |   |   |
|                                                              |   |   |   |   |   |   |   |
| Total                      Change in Gross Margin                 |   |   |   |   |   | (3     | )      |
|                                                              |   |   |   |   |   |   |   |
| Total                      Change in Operating Expenses and Other |   |   |   |   |   | **-**  |   |
|                                                              |   |   |   |   |   |   |   |
| Income                      Tax Expense                           |   |   |   |   |   | 1      |   |
|                                                              |   |   |   |   |   |   |   |
| **Second                      Quarter of 2005 Net Income**        |   |   |   |   | $      | 2      |   |
|                                                              |   |   |   |   |   |   |   |

| · | Retail                      Margins decreased by $7 million in comparison to 2004 primarily                      due to a                      $5 million increase in capacity settlement payments under the                      Interconnection Agreement resulting from our higher MLR share                      caused by                      the increase in our peak demand established in January 2005. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Margins                      from Off-system Sales for 2005 increased by $3 million in comparison                      to                      2004 primarily due to higher physical sales as well as higher                      optimization                      activity.                                                                                                                                    |
| · | Transmission                      Revenues decreased $1 million primarily due to the elimination                      of revenues                      related to through and out rates, net of replacement SECA rates.                      See “FERC                      Order on Regional Through and Out Rates” additional discussion of these                      FERC rate changes.          |
| · | Other                      Revenues increased $2 million primarily due to a gain on sales                      of emission                      allowances.                                                                                                                                                                                                                                                      |

*Income            Taxes*

**Reconciliation            of Six Months Ended June 30, 2004 to Six Months Ended June 30, 2005 Net            Income**

**(in            millions)**

| **Six                      Months Ended June 30, 2004 Net Income** |   |   |   |   | $      | 16     |   |
|--------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                               |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                  |   |   |   |   |   |   |   |
| Retail                      Margins                                |   |   | (11    | )      |   |   |   |
| Off-system                      Sales                              |   |   | 7      |   |   |   |   |
| Transmission                      Revenues                         |   |   | (3     | )      |   |   |   |
| **Total                      Change in Gross Margin**              |   |   |   |   |   | (7     | )      |
|                                                               |   |   |   |   |   |   |   |
| Total                      Change in Operating Expenses and Other  |   |   |   |   |   | -      |   |
|                                                               |   |   |   |   |   |   |   |
| Income                      Tax Expense                            |   |   |   |   |   | 3      |   |
|                                                               |   |   |   |   |   |   |   |
| **Six                      Months Ended June 30, 2005 Net Income** |   |   |   |   | $      | 12     |   |

| · | Retail                      Margins decreased by $11 million in comparison to 2004 primarily                      due to a                      $9 million increase in capacity settlement payments under the                      Interconnection Agreement resulting from our higher MLR share                      caused by                      the increase in our peak demand established in both December                      2004 and                      January 2005. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Margins                      from Off-system Sales for 2005 increased by $7 million in comparison                      to                      2004 primarily due to higher physical sales as well as higher                      optimization                      activity.                                                                                                                                                                                                      |
| · | Transmission                      Revenues decreased $3 million primarily due to the elimination                      of revenues                      related to through and out rates, net of replacement SECA rates.                                                                                                                                                                                                                                                            |

*Income            Taxes*

**Financial            Condition**

**Credit            Ratings**

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

**Financing              Activity**

|                                          |   | **Principal**                           |   | **Interest** |   | **Due**  |
|-----------------------------------------------|--------|-----------------------------------------|--------|--------------|--------|----------|
| **Type                      of Debt**         |   | **Amount**                              |   | **Rate**     |   | **Date** |
|                                          |   | **(in                      thousands)** |   | **(%)**      |   |     |
|                                          |   |                                    |   |         |   |     |
| Notes                      Payable-Affiliated |   | $20,000                                 |   | 6.501        |   | 2006     |

**Liquidity**

**Summary            Obligation Information**

**Significant            Factors**

**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**

**Six            Months Ended June 30, 2005**

**(in            thousands)**

| **Total                      MTM Risk Management Contract Net Assets at December 31,                      2004**                      |   | $      | 12,691 |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                      Loss from Contracts Realized/Settled During the Period (a)                                                |   |   | (26    | )      |
| Fair                      Value of New Contracts When Entered During the Period (b)                                                   |   |   | -      |   |
| Net                      Option Premiums Paid/(Received) (c)                                                                          |   |   | (67    | )      |
| Change                      in Fair Value Due to Valuation Methodology Changes                                                        |   |   | -      |   |
| Changes                      in Fair Value of Risk Management Contracts (d)                                                           |   |   | 487    |   |
| Changes                      in Fair Value of Risk Management Contracts Allocated to Regulated                      Jurisdictions (e) |   |   | 1,875  |   |
| **Total                      MTM Risk Management Contract Net Assets**                                                                |   |   | 14,960 |   |
| Net                      Cash Flow and                      Fair Value Hedge                      Contracts (f)                       |   |   | (2,120 | )      |
| DETM                      Assignment (g)                                                                                              |   |   | (4,509 | )      |
| **Total                      MTM Risk Management Contract Net Assets at June 30, 2005**                                               |   | $      | 8,331  |   |

| (a) | “(Gain)                      Loss from Contracts Realized/Settled During the Period” includes realized                      risk management contracts and related derivatives that settled                      during 2005                      where                      we entered into the contract prior                      to 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Fair                      Value of New Contracts When Entered During the Period” represents the fair                      value at inception of long-term contracts entered into with                      customers                      during 2005. 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. |
| (c) | “Net                      Option Premiums Paid/(Received)” reflects the net option premiums                      paid/(received) as they relate to unexercised and unexpired                      option                      contracts that were entered in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (d) | “Changes                      in Fair Value of Risk Management Contracts” represents the fair value                      change in the risk management portfolio due to market fluctuations                      during                      the current period. Market fluctuations are attributable to                      various                      factors such as supply/demand, weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (e) | “Changes                      in Fair Value of Risk Management Contracts 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 assets/liabilities                      for                      those subsidiaries that operate in regulated                      jurisdictions.                                                                                                                                                                                                                                                                                                                                               |
| (f) | “Net                      Cash Flow and                      Fair Value Hedge                      Contracts” (pretax) are discussed below in Accumulated Other Comprehensive                      Income (Loss).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (g) | See                      “Natural Gas Contracts with DETM” section in Note 17 of the 2004 Annual                      Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

**Reconciliation            of MTM Risk Management Contracts to**

**Condensed            Balance Sheets**

**As            of June 30, 2005**

**(in            thousands)**

|                                                                                                    |   | **MTM                      Risk Management Contracts (a)** |    | **Hedges** |   | **DETM                      Assignment (b)** |   | **Total                      (c)** |   |
|---------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|---------|------------|--------|----------------------------------------------|--------|------------------------------------|--------|
| Current                      Assets                                                                     |   | $                                                          | 21,769  |       | $      | 211                                          |   | $                                  | -      |   | $ | 21,980 |   |
| Noncurrent                      Assets                                                                  |   |                                                       | 39,105  |       |   | 24                                           |   |                               | -      |   |   | 39,129 |   |
| **Total                      MTM Derivative Contract****Assets**                                        |   |                                                       | 60,874  |       |   | 235                                          |   |                               | -      |   |   | 61,109 |   |
|                                                                                                    |   |                                                       |    |       |   |                                         |   |                               |   |   |   |   |   |
| Current                      Liabilities                                                                |   |                                                       | (20,035 | )          |   | (2,010                                       | )      |                               | (1,517 | ) |   | (23,562 | ) |
| Noncurrent                      Liabilities                                                             |   |                                                       | (25,879 | )          |   | (345                                         | )      |                               | (2,992 | ) |   | (29,216 | ) |
| **Total                      MTM Derivative Contract ****Liabilities**                             |   |                                                       | (45,914 | )          |   | (2,355                                       | )      |                               | (4,509 | ) |   | (52,778 | ) |
|                                                                                                    |   |                                                       |    |       |   |                                         |   |                               |   |   |   |   |   |
| **Total                      MTM Derivative Contract****Net                      Assets (Liabilities)** |   | $                                                          | 14,960  |       | $      | (2,120                                       | )      | $                                  | (4,509 | ) | $ | 8,331 |   |

| (a) | Does                      not include Cash Flow and Fair Value Hedges.                                                                                                                                                                                                                                                                                             |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | See                      “Natural Gas Contracts with DETM” section in Note 17 of the 2004 Annual                      Report.                                                                                                                                                                                                                          |
| (c) | Represents                      amount of total MTM derivative contracts recorded within Risk                      Management                      Assets, Long-term Risk Management Assets, Risk Management Liabilities                      and                      Long-term Risk Management Liabilities on our Condensed Balance                      Sheets. |

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

| · | The                      source of 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 June 30, 2005**

**(in            thousands)**

|                                                                                                                                    |   | **Remainder                      of 2005** |   | **2006** |   | **2007** |   | **2008** |   | **2009** |   | **After****2009                      (c)** |   | **Total                      (d)** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|--------------------------------------------|--------|------------------------------------|--------|
| Prices                      Actively Quoted - Exchange Traded                      Contracts                                            |   | $                                          | (2,510 | )        | $      | (20      | )      | $        | 1,990  |     | $      | -                                          |   | $                                  | -      |   | $ | - |   | $ | (540 | ) |
| Prices                      Provided by Other External Sources                      - OTC                        Broker Quotes (a) |   |                                       | 5,442  |     |   | 7,832    |   |     | 2,733  |     |   | 2,794                                      |   |                               | -      |   |   | - |   |   | 18,801 |   |
| Prices                      Based on Models and Other Valuation                                             Methods (b)            |   |                                       | (2,785 | )        |   | (4,045   | )      |     | (1,127 | )        |   | 375                                        |   |                               | 2,372  |   |   | 1,909 |   |   | (3,301 | ) |
| **Total**                                                                                                                               |   | $                                          | 147    |     | $      | 3,767    |   | $        | 3,596  |     | $      | 3,169                                      |   | $                                  | 2,372  |   | $ | 1,909 |   | $ | 14,960 |   |

| (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 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. |
| (c) | There                      is mark-to-market value in excess of 10 percent of our total                      mark-to-market value in individual periods beyond 2009. $2.0                      million of                      this mark-to-market value is in 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (d) | Amounts                      exclude Cash Flow and Fair Value                      Hedges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

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

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

**Six            Months Ended June 30, 2005**

**(in            thousands)**

|                                                                                         |   | **Power** |   | **Interest                      Rate** |   | **Total** |   |
|----------------------------------------------------------------------------------------------|--------|-----------|--------|----------------------------------------|--------|-----------|--------|
| **Beginning                      Balance December 31, 2004**                                 |   | $         | 569    |                                   | $      | 244       |   | $ | 813 |   |
| Changes                      in Fair Value (a)                                               |   |      | (876   | )                                      |   | -         |   |   | (876 | ) |
| Reclassifications                      from AOCI to Net Income                      (b) |   |      | (1,037 | )                                      |   | (43       | )      |   | (1,080 | ) |
| **Ending                      Balance June 30, 2005**                                        |   | $         | (1,344 | )                                      | $      | 201       |   | $ | (1,143 | ) |

| (a) | “Changes                      in Fair Value” shows changes in the fair value of derivatives designated                      as cash flow hedges during the reporting period that are not                      yet settled                      at June 30, 2005. Amounts are reported net of related income                      taxes.                                                     |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Reclassifications                      from AOCI to Net Income” represents gains or losses from derivatives used                      as hedging instruments in cash flow hedges that were reclassified                      into net                      income during the reporting period. Amounts are reported net                      of related                      income taxes. |

**Credit            Risk**

**VaR              Associated with Risk Management Contracts**

|   | **Six                      Months Ended** |   | **Twelve                      Months Ended** |   |
|--------|-------------------------------------------|--------|----------------------------------------------|--------|
|   | **June                      30, 2005**    |   | **December                      31, 2004**   |   |
|   | **(in                      thousands)**   |   | **(in                      thousands)**      |   |
|   | **End**                                   |   | **High**                                     |   | **Average** |   | **Low** |   | **End** |   | **High** |   | **Average** |   | **Low** |   |
|   | $277                                      |   | $331                                         |   | $162 |   | $95 |   | $135 |   | $442 |   | $191 |   | $65 |   |

**VaR            Associated with Debt Outstanding**

----

**KENTUCKY            POWER COMPANY**

**CONDENSED            STATEMENTS OF INCOME**

**For            the Three and Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                                    |   | **Three                      Months Ended** |    | **Six                      Months Ended** |   |
|-------------------------------------------------------------------------|--------|---------------------------------------------|---------|-------------------------------------------|--------|
|                                                                    |   | **2005**                                    |    | **2004**                                  |   | **2005** |   | **2004** |   |
| **OPERATING                      REVENUES**                             |   |                                   |    |                                 |   |   |   |   |   |
| Electric                      Generation, Transmission and Distribution |   | $                                           | 109,294 |                                      | $      | 94,380 |   | $ | 224,954 |   | $ | 201,426 |   |
| Sales                      to AEP Affiliates                            |   |                                        | 13,007  |                                      |   | 12,373 |   |   | 25,196 |   |   | 18,985 |   |
| **TOTAL**                                                               |   |                                        | 122,301 |                                      |   | 106,753 |   |   | 250,150 |   |   | 220,411 |   |
|                                                                    |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **OPERATING                      EXPENSES**                             |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| Fuel                      for Electric Generation                       |   |                                        | 30,692  |                                      |   | 25,224 |   |   | 58,584 |   |   | 46,118 |   |
| Purchased                      Electricity for Resale                   |   |                                        | 44,796  |                                      |   | 31,817 |   |   | 89,659 |   |   | 65,123 |   |
| Other                      Operation                                    |   |                                        | 15,417  |                                      |   | 13,499 |   |   | 29,977 |   |   | 26,771 |   |
| Maintenance                                                             |   |                                        | 8,482   |                                      |   | 10,214 |   |   | 14,398 |   |   | 17,539 |   |
| Depreciation                      and Amortization                      |   |                                        | 11,225  |                                      |   | 10,905 |   |   | 22,377 |   |   | 21,764 |   |
| Taxes                      Other Than Income Taxes                      |   |                                        | 2,219   |                                      |   | 2,395 |   |   | 4,644 |   |   | 4,723 |   |
| Income                      Taxes                                       |   |                                        | 279     |                                      |   | 1,094 |   |   | 4,287 |   |   | 7,554 |   |
| **TOTAL**                                                               |   |                                        | 113,110 |                                      |   | 95,148 |   |   | 223,926 |   |   | 189,592 |   |
|                                                                    |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **OPERATING                      INCOME**                               |   |                                        | 9,191   |                                      |   | 11,605 |   |   | 26,224 |   |   | 30,819 |   |
|                                                                    |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| Nonoperating                      Income                                |   |                                        | 621     |                                      |   | 482 |   |   | 1,066 |   |   | 1,434 |   |
| Nonoperating                      Expenses                              |   |                                        | 141     |                                      |   | 274 |   |   | 312 |   |   | 1,587 |   |
| Nonoperating                      Income Tax Expense (Credit)           |   |                                        | 157     |                                      |   | 33 |   |   | 209 |   |   | (94 | ) |
| Interest                      Charges                                   |   |                                        | 7,068   |                                      |   | 7,712 |   |   | 14,438 |   |   | 15,081 |   |
|                                                                    |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **NET                      INCOME**                                     |   | $                                           | 2,446   |                                      | $      | 4,068 |   | $ | 12,331 |   | $ | 15,679 |   |

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

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

----

**KENTUCKY            POWER COMPANY**

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

**EQUITY            AND COMPREHENSIVE INCOME (LOSS)**

**For            the Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                             |   | **Common                      Stock** |   | **Paid-in                      Capital** |   | **Retained                      Earnings** |   | **Accumulated                      Other Comprehensive Income (Loss)** |    | **Total** |   |
|------------------------------------------------------------------|--------|---------------------------------------|--------|------------------------------------------|--------|--------------------------------------------|--------|------------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                      31, 2003**                       |   | $                                     | 50,450 |                                     | $      | 208,750                                    |   | $                                                                      | 64,151  |      | $      | (6,213 | ) | $ | 317,138 |   |
|                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Common                      Stock Dividends                      |   |                                  |   |                                     |   |                                       |   |                                                                   | (12,500 | )         |   |   |   |   | (12,500 | ) |
| **TOTAL**                                                        |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 304,638 |   |
|                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                    |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Loss, Net of Taxes:** |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $518        |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | (962 | ) |   | (962 | ) |
| **NET                      INCOME**                              |   |                                  |   |                                     |   |                                       |   |                                                                   | 15,679  |      |   |   |   |   | 15,679 |   |
| **TOTAL                      COMPREHENSIVE INCOME**              |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 14,717 |   |
|                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **JUNE                      30, 2004**                           |   | $                                     | 50,450 |                                     | $      | 208,750                                    |   | $                                                                      | 67,330  |      | $      | (7,175 | ) | $ | 319,355 |   |
|                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **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 $1,053      |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   | (1,956 | ) |   | (1,956 | ) |
| **NET                      INCOME**                              |   |                                  |   |                                     |   |                                       |   |                                                                   | 12,331  |      |   |   |   |   | 12,331 |   |
| **TOTAL                      COMPREHENSIVE INCOME**              |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 10,375 |   |
|                                                             |   |                                  |   |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **JUNE                      30, 2005**                           |   | $                                     | 50,450 |                                     | $      | 208,750                                    |   | $                                                                      | 82,886  |      | $      | (10,731 | ) | $ | 331,355 |   |

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

----

**KENTUCKY            POWER COMPANY**

**CONDENSED**
** **
**BALANCE            SHEETS**

**ASSETS**

**June            30, 2005 and December 31, 2004**

**(Unaudited)**

**(in            thousands)**

|                                                           |   | **2005**     |      | **2004**     |   |
|----------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **ELECTRIC                      UTILITY PLANT**                |   |    |      |    |   |
| Production                                                     |   | $            | 466,370   |         | $      | 462,641 |   |
| Transmission                                                   |   |         | 387,910   |         |   | 385,667 |   |
| Distribution                                                   |   |         | 446,449   |         |   | 438,766 |   |
| General                                                        |   |         | 59,475    |         |   | 57,929 |   |
| Construction                      Work in Progress             |   |         | 19,336    |         |   | 16,544 |   |
| **Total**                                                      |   |         | 1,379,540 |         |   | 1,361,547 |   |
| Accumulated                      Depreciation and Amortization |   |         | 414,048   |         |   | 398,455 |   |
| **TOTAL                      - NET**                           |   |         | 965,492   |         |   | 963,092 |   |
|                                                           |   |         |      |         |   |   |   |
| **OTHER                      PROPERTY AND INVESTMENTS**        |   |         |      |         |   |   |   |
| Nonutility                      Property, Net                  |   |         | 5,434     |         |   | 5,438 |   |
| Other                      Investments                         |   |         | 351       |         |   | 422 |   |
| **TOTAL**                                                      |   |         | 5,785     |         |   | 5,860 |   |
|                                                           |   |         |      |         |   |   |   |
| **CURRENT                      ASSETS**                        |   |         |      |         |   |   |   |
| Cash                      and Cash Equivalents                 |   |         | 237       |         |   | 127 |   |
| Other                      Cash Deposits                       |   |         | 11        |         |   | 5 |   |
| Advances                      to Affiliates                    |   |         | 12,647    |         |   | 16,127 |   |
| Accounts                      Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                      |   |         | 23,885    |         |   | 22,130 |   |
| Affiliated                      Companies                      |   |         | 18,314    |         |   | 23,046 |   |
| Accrued                      Unbilled Revenues                 |   |         | 2,620     |         |   | 7,340 |   |
| Miscellaneous                                                  |   |         | 106       |         |   | 94 |   |
| Allowance                      for Uncollectible Accounts      |   |         | (2        | )            |   | (34 | ) |
| Fuel                                                           |   |         | 10,663    |         |   | 6,551 |   |
| Materials                      and Supplies                    |   |         | 8,103     |         |   | 9,385 |   |
| Risk                      Management Assets                    |   |         | 21,980    |         |   | 19,845 |   |
| Margin                      Deposits                           |   |         | 3,148     |         |   | 1,960 |   |
| Prepayments                      and Other                     |   |         | 4,014     |         |   | 1,782 |   |
| **TOTAL**                                                      |   |         | 105,726   |         |   | 108,358 |   |
|                                                           |   |         |      |         |   |   |   |
| **DEFERRED                      DEBITS AND OTHER ASSETS**      |   |         |      |         |   |   |   |
| Regulatory                      Assets:                        |   |         |      |         |   |   |   |
| SFAS                      109 Regulatory Asset, Net            |   |         | 101,714   |         |   | 103,849 |   |
| Other                                                          |   |         | 23,163    |         |   | 14,558 |   |
| Long-term                      Risk Management Assets          |   |         | 39,129    |         |   | 19,067 |   |
| Emission                      Allowances                       |   |         | 12,077    |         |   | 9,666 |   |
| Deferred                      Property Taxes                   |   |         | 3,605     |         |   | 7,036 |   |
| Deferred                      Charges and Other                |   |         | 7,848     |         |   | 11,761 |   |
| **TOTAL**                                                      |   |         | 187,536   |         |   | 165,937 |   |
|                                                           |   |         |      |         |   |   |   |
| **TOTAL                      ASSETS**                          |   | $            | 1,264,539 |         | $      | 1,243,247 |   |

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

----

**KENTUCKY            POWER COMPANY**

**CONDENSED            BALANCE SHEETS**

**CAPITALIZATION**
**            AND LIABILITIES**

**June            30, 2005 and December 31, 2004**

**(Unaudited)**

|                                                                 |   | **2005**                                |      | **2004**     |   |
|----------------------------------------------------------------------|--------|-----------------------------------------|-----------|--------------|--------|
| **CAPITALIZATION**                                                   |   | **(in                      thousands)** |      |
| 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                               |   |                                    | 82,886    |         |   | 70,555 |   |
| Accumulated                      Other Comprehensive Income (Loss)   |   |                                    | (10,731   | )            |   | (8,775 | ) |
| **Total                      Common Shareholder’s Equity**     |   |                                    | 331,355   |         |   | 320,980 |   |
| Long-term                      Debt:                                 |   |                                    |      |         |   |   |   |
| Nonaffiliated                                                        |   |                                    | 427,716   |         |   | 428,310 |   |
| Affiliated                                                           |   |                                    | 20,000    |         |   | 80,000 |   |
| **Total                      Long-term Debt**                        |   |                                    | 447,716   |         |   | 508,310 |   |
| **TOTAL**                                                            |   |                                    | 779,071   |         |   | 829,290 |   |
|                                                                 |   |                                    |      |         |   |   |   |
| **CURRENT                      LIABILITIES**                         |   |                                    |      |         |   |   |   |
| Long-term                      Debt Due Within One Year - Affiliated |   |                                    | 40,000    |         |   | - |   |
| Accounts                      Payable:                               |   |                                    |      |         |   |   |   |
| General                                                              |   |                                    | 30,311    |         |   | 20,080 |   |
| Affiliated                      Companies                            |   |                                    | 24,766    |         |   | 24,899 |   |
| Risk                      Management Liabilities                     |   |                                    | 23,562    |         |   | 17,205 |   |
| Taxes                      Accrued                                   |   |                                    | 7,717     |         |   | 9,248 |   |
| Interest                      Accrued                                |   |                                    | 6,795     |         |   | 6,754 |   |
| Customer                      Deposits                               |   |                                    | 16,304    |         |   | 12,309 |   |
| Obligations                      Under Capital Leases                |   |                                    | 1,356     |         |   | 1,561 |   |
| Other                                                                |   |                                    | 7,505     |         |   | 9,038 |   |
| **TOTAL**                                                            |   |                                    | 158,316   |         |   | 101,094 |   |
|                                                                 |   |                                    |      |         |   |   |   |
| **DEFERRED                      CREDITS AND OTHER LIABILITIES**      |   |                                    |      |         |   |   |   |
| Deferred                      Income Taxes                           |   |                                    | 226,829   |         |   | 227,536 |   |
| Regulatory                      Liabilities:                         |   |                                    |      |         |   |   |   |
| Asset                      Removal Costs                             |   |                                    | 29,441    |         |   | 28,232 |   |
| Deferred                      Investment Tax Credits                 |   |                                    | 6,137     |         |   | 6,722 |   |
| Other                      Regulatory Liabilities                    |   |                                    | 20,464    |         |   | 15,622 |   |
| Employee                      Benefits and Pension Obligations       |   |                                    | 12,198    |         |   | 17,729 |   |
| Long-term                      Risk Management Liabilities           |   |                                    | 29,216    |         |   | 13,484 |   |
| Obligations                      Under Capital Leases                |   |                                    | 2,366     |         |   | 2,802 |   |
| Deferred                      Credits                                |   |                                    | 501       |         |   | 736 |   |
| **TOTAL**                                                            |   |                                    | 327,152   |         |   | 312,863 |   |
|                                                                 |   |                                    |      |         |   |   |   |
| Commitments                      and Contingencies (Note 5)          |   |                                    |      |         |   |   |   |
|                                                                 |   |                                    |      |         |   |   |   |
| **TOTAL                      CAPITALIZATION****AND LIABILITIES**     |   | $                                       | 1,264,539 |         | $      | 1,243,247 |   |

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

----

**KENTUCKY            POWER COMPANY**

**CONDENSED            STATEMENTS OF CASH FLOWS**

**For            the Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                                                                                                    |   | **2005**     |    | **2004**     |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **OPERATING                      ACTIVITIES**                                                                                           |   |    |    |    |   |
| **Net                      Income**                                                                                                     |   | $            | 12,331  |         | $      | 15,679 |   |
| **Adjustments                      to Reconcile Net Income to Net Cash Flows**** From                      Operating Activities:** |   |         |    |         |   |   |   |
| Depreciation                      and Amortization                                                                                      |   |         | 22,377  |         |   | 21,764 |   |
| Deferred                      Income Taxes                                                                                              |   |         | 2,482   |         |   | 4,616 |   |
| Deferred                      Investment Tax Credits                                                                                    |   |         | (585    | )            |   | (585 | ) |
| Deferred                      Property Taxes                                                                                            |   |         | 3,431   |         |   | 3,336 |   |
| Pension                      Contributions                                                                                              |   |         | (6,092  | )            |   | (113 | ) |
| Pension                      and Postemployment Benefit Reserves                                                                        |   |         | 561     |         |   | (814 | ) |
| Mark-to-Market                      of Risk Management Contracts                                                                        |   |         | (3,330  | )            |   | 1,064 |   |
| Over/Under                      Fuel Recovery                                                                                           |   |         | (7,181  | )            |   | (1,514 | ) |
| (Gain)/Loss                      on Sale of Assets                                                                                      |   |         | (8      | )            |   | 1,051 |   |
| Change                      in Other Noncurrent Assets                                                                                  |   |         | (731    | )            |   | (8,360 | ) |
| Change                      in Other Noncurrent Liabilities                                                                             |   |         | 3,725   |         |   | 9,035 |   |
| **Changes                      in Components of Working Capital:**                                                                      |   |         |    |         |   |   |   |
| Accounts                      Receivable, Net                                                                                           |   |         | 7,653   |         |   | 3,774 |   |
| Fuel,                      Materials and Supplies                                                                                       |   |         | (2,830  | )            |   | (2,398 | ) |
| Accounts                      Payable                                                                                                   |   |         | 10,960  |         |   | (2,173 | ) |
| Taxes                      Accrued                                                                                                      |   |         | (1,531  | )            |   | 3,670 |   |
| Customer                      Deposits                                                                                                  |   |         | 3,995   |         |   | 2,777 |   |
| Interest                      Accrued                                                                                                   |   |         | 41      |         |   | (132 | ) |
| Other                      Current Assets                                                                                               |   |         | (3,421  | )            |   | 1,430 |   |
| Other                      Current Liabilities                                                                                          |   |         | (1,736  | )            |   | (737 | ) |
| **Net                      Cash Flows From Operating Activities**                                                                       |   |         | 40,111  |         |   | 51,370 |   |
|                                                                                                                                    |   |         |    |         |   |   |   |
| **INVESTING                      ACTIVITIES**                                                                                           |   |         |    |         |   |   |   |
| Construction                      Expenditures                                                                                          |   |         | (23,484 | )            |   | (18,964 | ) |
| Change                      in Other Cash Deposits, Net                                                                                 |   |         | (6      | )            |   | 6 |   |
| Proceeds                      from Sale of Assets                                                                                       |   |         | 9       |         |   | 1,538 |   |
| **Net                      Cash Flows Used For Investing Activities**                                                                   |   |         | (23,481 | )            |   | (17,420 | ) |
|                                                                                                                                    |   |         |    |         |   |   |   |
| **FINANCING                      ACTIVITIES**                                                                                           |   |         |    |         |   |   |   |
| Issuance                      of Long-term Debt - Affiliated                                                                            |   |         | -       |         |   | 20,000 |   |
| Retirement                      of Long-term Debt - Affiliated                                                                          |   |         | (20,000 | )            |   | - |   |
| Changes                      in Advances to/from Affiliates, Net                                                                        |   |         | 3,480   |         |   | (41,618 | ) |
| Dividends                      Paid on Common Stock                                                                                     |   |         | -       |         |   | (12,500 | ) |
| **Net                      Cash Flows Used For Financing Activities**                                                                   |   |         | (16,520 | )            |   | (34,118 | ) |
|                                                                                                                                    |   |         |    |         |   |   |   |
| **Net                      Increase (Decrease) in Cash and Cash Equivalents**                                                           |   |         | 110     |         |   | (168 | ) |
| **Cash                      and Cash Equivalents at Beginning of Period**                                                               |   |         | 127     |         |   | 863 |   |
| **Cash                      and Cash Equivalents at End of Period**                                                                     |   | $            | 237     |         | $      | 695 |   |

| **SUPPLEMENTAL                      DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cash                      paid for interest net of capitalized amounts was $13,942,000                      and                      $14,625,000 and for income taxes was $3,761,000 and $658,000                      in 2005 and                      2004, respectively. Noncash capital lease acquisitions in 2005                      and 2004                      were $230,000 and $387,000, respectively. Construction Expenditures                      include the change in construction-related Accounts Payable                      of $(862,000)                      and $(984,000) in 2005 and 2004,                      respectively. |

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

----

**KENTUCKY            POWER COMPANY**

**INDEX            TO CONDENSED NOTES TO 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  |
| Benefit                        Plans                           | Note                        8  |
| Business                        Segments                       | Note                        9  |
| Financing                        Activities                    | Note                        11 |
| Company-wide                        Staffing and Budget Review | Note                        12 |

----

**OHIO            POWER COMPANY CO**
**NSOLIDATED**

----

**OHIO            POWER COMPANY CONSOLIDATED**

**MANAGEMENT’S            FINANCIAL DISCUSSION AND ANALYSIS**

**Results            of Operations**

**Reconciliation            of Second Quarter of 2004 to Second Quarter of 2005 Net            Income**

**(in            millions)**

| **Second                      Quarter of 2004 Net Income**            |   |   |   |   | $      | 39     |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                      Margins                                   |   |   | 36     |   |   |   |   |
| Transmission                      Revenues                            |   |   | (6     | )      |   |   |   |
| Off-system                      Sales                                 |   |   | 6      |   |   |   |   |
| Other                      Revenues                                   |   |   | 2      |   |   |   |   |
| **Total                      Change in Gross Margin**                 |   |   |   |   |   | 38     |   |
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                      Operation and Maintenance                  |   |   | 8      |   |   |   |   |
| Depreciation                      and Amortization                    |   |   | (9     | )      |   |   |   |
| Nonoperating                      Income and Expenses, Net            |   |   | 6      |   |   |   |   |
| Interest                      Charges                                 |   |   | 5      |   |   |   |   |
| **Total                      Change in Operating Expenses and Other** |   |   |   |   |   | 10     |   |
|                                                                  |   |   |   |   |   |   |   |
| Income                      Tax Expense                               |   |   |   |   |   | (16    | )      |
|                                                                  |   |   |   |   |   |   |   |
| **Second                      Quarter of 2005 Net Income**            |   |   |   |   | $      | 71     |   |

| · | Retail                        Margins were $36 million higher than the prior period primarily                        due                        to:                                                                                                                                                                                                                   |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | -                                                                                                                                                                                                                                                                                                                                                                     | a                        favorable variance of $16 million from the receipt of SO2                        allowances from Buckeye Power, Inc. under the Cardinal Station                        Allowance                        Agreement, |
|   | -                                                                                                                                                                                                                                                                                                                                                                     | increased                        retail sales of $17 million due to increased industrial and                        residential                        sales from higher usage |
|   | -                                                                                                                                                                                                                                                                                                                                                                     | and                        an increase of $8 million from capacity settlements under                        the                        Interconnection Agreement related to the increase in an affiliate’s                        peak, |
|   | -                                                                                                                                                                                                                                                                                                                                                                     | partially                        offset by decreased fuel margins of $5 million as a result                        of increased                        fuel costs. |
| · | Transmission                        Revenues decreased $6 million primarily due to the loss of                        through and out                        rates, net of replacement SECA rates. See “FERC Order on Regional Through                        and Out Rates” for additional discussion of these FERC rate                        changes. |
| · | Margins                        from Off-system Sales increased $6 million primarily due                        to favorable                        price margins.                                                                                                                                                                                                     |

| · | Depreciation                      and Amortization expense increased $9 million primarily due                      to the                      establishment of a $7 million regulatory liability to benefit                      low income                      customers and for economic development, as ordered in the rate                      stabilization plan.                                                                                                                                                                |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Other                      Operation and Maintenance expenses decreased $8 million primarily                      due to                      $4 million of expenses from the 2004 Amos Plant outage and                      $3 million of                      expenses related to major storms in the second quarter of                      2004.                                                                                                                                                                                    |
| · | Nonoperating                      Income and Expenses, Net increased $6 million primarily due                      to the                      establishment of a regulatory asset for carrying costs on environmental                      capital expenditures as a result of the rate stabilization                      plan                      order.                                                                                                                                                                             |
| · | Interest                      Charges decreased by $5 million primarily due to capitalized                      interest                      related to construction of the Mitchell and Cardinal plant                      scrubbers and                      the Mitchell plant Selective Catalytic Reduction (SCR) project                      that began                      after June 2004 in addition to refinancing debt maturities                      and optional                      redemptions with lower cost debt. |

*Income            Tax *

**Reconciliation            of Six Months Ended June 30, 2004 to Six Months Ended June 30, 2005 Net            Income**

**(in            millions)**

| **Six                      Months Ended June 30, 2004 Net Income**    |   |   |   |   | $      | 119    |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                      Margins                                   |   |   | 29     |   |   |   |   |
| Transmission                      Revenues                            |   |   | (13    | )      |   |   |   |
| Off-system                      Sales                                 |   |   | 11     |   |   |   |   |
| Other                      Revenues                                   |   |   | 2      |   |   |   |   |
| **Total                      Change in Gross Margin**                 |   |   |   |   |   | 29     |   |
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                      Operation and Maintenance                  |   |   | 14     |   |   |   |   |
| Depreciation                      and Amortization                    |   |   | (11    | )      |   |   |   |
| Nonoperating                      Income and Expenses, Net            |   |   | 29     |   |   |   |   |
| Interest                      Charges                                 |   |   | 11     |   |   |   |   |
| **Total                      Change in Operating Expenses and Other** |   |   |   |   |   | 43     |   |
|                                                                  |   |   |   |   |   |   |   |
| Income                      Tax Expense                               |   |   |   |   |   | (20    | )      |
|                                                                  |   |   |   |   |   |   |   |
| **Six                      Months Ended June 30, 2005 Net Income**    |   |   |   |   | $      | 171    |   |

| · | Retail                        Margins were $29 million higher than the prior period primarily                        due                        to:                                                                                                                                                                                                                    |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | -                                                                                                                                                                                                                                                                                                                                                                      | a                        favorable variance of $18 million from the receipt of SO2                        allowances from Buckeye Power, Inc. under the Cardinal Station                        Allowance                        Agreement, |
|   | -                                                                                                                                                                                                                                                                                                                                                                      | increased                        retail sales of $16 million due to increased industrial and                        residential                        sales from higher usage |
|   | -                                                                                                                                                                                                                                                                                                                                                                      | and                        an increase of $11 million from capacity settlements under                        the                        Interconnection Agreement related to the increase in an affiliate’s                        peak, |
|   | -                                                                                                                                                                                                                                                                                                                                                                      | partially                        offset by decreased fuel margins of $16 million as a result                        of increased                        fuel costs. |
| · | Transmission                        Revenues decreased $13 million primarily due to the loss                        of through and                        out rates, net of replacement SECA rates. See “FERC Order on Regional                        Through and Out Rates” for additional discussion of these FERC rate                        changes. |
| · | Margins                        from Off-system Sales increased $11 million primarily due                        to favorable                        price margins.                                                                                                                                                                                                     |

| · | Nonoperating                      Income and Expenses, Net increased $29 million primarily due                      to the                      establishment of a regulatory asset for carrying costs on environmental                      capital expenditures as a result of the rate stabilization                      plan                      order.                                                                                                                                                                      |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Other                      Operation and Maintenance expenses decreased $14 million primarily                      due to                      the settlement and cancellation of the COLI policy of $7 million                      in                      February 2005 and a decrease in administrative expenses of                      $7 million                      related to the Gavin scrubber.                                                                                                                        |
| · | Interest                      Charges decreased by $11 million primarily due to capitalized                      interest                      related to construction of the Mitchell and Cardinal plant                      scrubbers and                      the Mitchell plant SCR project that began after June 2004.                      Interest                      Charges also decreased due to refinancing debt maturities and                      optional                      redemptions with lower cost debt. |
| · | Depreciation                      and Amortization expense increased $11 million due to the establishment                      of                      a $7 million regulatory liability to benefit low income customers                      and for                      economic development, as ordered in the rate stabilization                      plan. The                      increase is also attributable to a higher depreciation base                      in electric                      utility plants.        |

*Income            Tax *

**Financial            Condition**

**Credit            Ratings**

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

**Cash            Flow**

|                                                                      |   | **2005**                                |     | **2004** |   |
|---------------------------------------------------------------------------|--------|-----------------------------------------|----------|----------|--------|
|                                                                      |   | **(in                      thousands)** |     |
| **Cash                      and Cash Equivalents at Beginning of Period** |   | $                                       | 9,300    |     | $      | 7,233 |   |
| Cash                      Flows From (Used For):                          |   |                                    |     |     |   |   |   |
| Operating                      Activities                                 |   |                                    | 182,835  |     |   | 303,385 |   |
| Investing                      Activities                                 |   |                                    | (288,713 | )        |   | (78,441 | ) |
| Financing                      Activities                                 |   |                                    | 97,931   |     |   | (225,783 | ) |
| Net                      Decrease in Cash and Cash Equivalents            |   |                                    | (7,947   | )        |   | (839 | ) |
| **Cash                      and Cash Equivalents at End of Period**       |   | $                                       | 1,353    |     | $      | 6,394 |   |

*Operating            Activities*

*Investing            Activities*

*Financing            Activities*

**Financing            Activity**

|                                                |   |  **Principal**                           |   | **Interest** |   | **Due**  |   |
|-----------------------------------------------------|--------|-----------------------------------------------|--------|--------------|--------|----------|--------|
| **Type                      of Debt**               |   |  **Amount**                              |   | **Rate**     |   | **Date** |   |
|                                                |   |  **(in                      thousands)** |   | **(%)**      |   |     |   |
| Installment                      Purchase Contracts |   | $                                             | 54,500 |         |   | Variable |   |   | 2029 |   |
| Installment                      Purchase Contracts |   |                                          | 54,500 |         |   | Variable |   |   | 2028 |   |
| Installment                      Purchase Contracts |   |                                          | 54,500 |         |   | Variable |   |   | 2028 |   |
| Installment                      Purchase Contracts |   |                                          | 54,500 |         |   | Variable |   |   | 2028 |   |

|                                                |   |  **Principal**                           |   | **Interest** |   | **Due**  |   |
|-----------------------------------------------------|--------|-----------------------------------------------|--------|--------------|--------|----------|--------|
| **Type                      of Debt**               |   |  **Amount**                              |   | **Rate**     |   | **Date** |   |
|                                                |   |  **(in                      thousands)** |   | **(%)**      |   |     |   |
| Installment                      Purchase Contracts |   | $                                             | 51,000 |         |   | 6.375    |   |   | 2029 |   |
| Installment                      Purchase Contracts |   |                                          | 51,000 |         |   | 6.375    |   |   | 2029 |   |
| Installment                      Purchase Contracts |   |                                          | 40,000 |         |   | Variable |   |   | 2028 |   |
| Installment                      Purchase Contracts |   |                                          | 40,000 |         |   | Variable |   |   | 2028 |   |
| Installment                      Purchase Contracts |   |                                          | 18,000 |         |   | Variable |   |   | 2029 |   |
| Installment                      Purchase Contracts |   |                                          | 18,000 |         |   | Variable |   |   | 2029 |   |
| Notes                      Payable                  |   |                                          | 2,927  |         |   | 6.81     |   |   | 2008 |   |
| Notes                      Payable                  |   |                                          | 3,250  |         |   | 6.27     |   |   | 2009 |   |

**Liquidity**

**Summary            Obligation Information**

**Significant            Factors**

**Critical            Accounting Estimates**

----

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

**Market            Risks**

**Roll-Forward            of MTM Risk Management Contract Net Assets**

**MTM            Risk Management Contract Net Assets**

**Six            Months Ended June 30, 2005**

**(in            thousands)**

| **Total                      MTM Risk Management Contract Net Assets at December 31,                      2004**                      |   | $      | 47,777  |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| (Gain)                      Loss from Contracts Realized/Settled During the Period (a)                                                |   |   | (13,297 | )      |
| Fair                      Value of New Contracts When Entered During the Period (b)                                                   |   |   | 835     |   |
| Net                      Option Premiums Paid/(Received) (c)                                                                          |   |   | (372    | )      |
| Change                      in Fair Value Due to Valuation Methodology Changes                                                        |   |   | -       |   |
| Changes                      in Fair Value of Risk Management Contracts (d)                                                           |   |   | 9,576   |   |
| Changes                      in Fair Value of Risk Management Contracts Allocated to Regulated                      Jurisdictions (e) |   |   | -       |   |
| **Total                      MTM Risk Management Contract Net Assets**                                                                |   |   | 44,519  |   |
| Net                      Cash Flow Hedge Contracts (f)                                                                                |   |   | (8,836  | )      |
| DETM                      Assignment (g)                                                                                              |   |   | (13,536 | )      |
| **Total                      MTM Risk Management Contract Net Assets at June 30, 2005**                                               |   | $      | 22,147  |   |

| (a) | “(Gain)                      Loss from Contracts Realized/Settled During the Period” includes realized                      risk management contracts and related derivatives that settled                      during 2005                      where                      we entered into the contract prior                      to 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Fair                      Value of New Contracts When Entered During the Period” represents the fair                      value at inception of long-term contracts entered into with                      customers                      during 2005. 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. |
| (c) | “Net                      Option Premiums Paid/(Received)” reflects the net option premiums                      paid/(received) as they relate to unexercised and unexpired                      option                      contracts that were entered in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (d) | “Changes                      in Fair Value of Risk Management Contracts” represents the fair value                      change in the risk management portfolio due to market fluctuations                      during                      the current period. Market fluctuations are attributable to                      various                      factors such as supply/demand, weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (e) | “Changes                      in Fair Value of Risk Management Contracts 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 assets/liabilities                      for                      those subsidiaries that operate in regulated                      jurisdictions.                                                                                                                                                                                                                                                                                                                                  |
| (f) | “Net                      Cash Flow Hedge Contracts” (pretax) are discussed below in Accumulated                      Other Comprehensive Income (Loss).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (g) | See                      “Natural Gas Contracts with DETM” section in Note 17 of the 2004 Annual                      Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

**Reconciliation            of MTM Risk Management Contracts to**

**Condensed            Consolidated Balance Sheets**

**As            of June 30, 2005**

**(in            thousands)**

|                                                                                             |   | **MTM                      Risk Management Contracts (a)** |     | **Cash                      Flow****Hedges** |   | **DETM****Assignment****(b)** |   | **Total                      (c)** |          |
|--------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|----------|----------------------------------------------|--------|-------------------------------|--------|------------------------------------|---------------|
| Current                      Assets                                                              |   | $                                                          | 73,367   |                                         | $      | 669                           |   | $                                  | -             |   | $ | 74,036 |   |
| Noncurrent                      Assets                                                           |   |                                                       | 119,965  |                                         |   | 72                            |   |                               | -             |   |   | 120,037 |   |
| **Total                      MTM Derivative Contract Assets**                                    |   |                                                       | 193,332  |                                         |   | 741                           |   |                               | -             |   |   | 194,073 |   |
|                                                                                             |   |                                                       |     |                                         |   |                          |   |                               |          |   |   |   |   |
| Current                      Liabilities                                                         |   |                                                       | (67,887  | )                                            |   | (9,007                        | )      |                               | (4,554        | ) |   | (81,448 | ) |
| Noncurrent                      Liabilities                                                      |   |                                                       | (80,926  | )                                            |   | (570                          | )      |                               | (8,982        | ) |   | (90,478 | ) |
| **Total                    MTM                    Derivative Contract Liabilities**         |   |                                                       | (148,813 | )                                            |   | (9,577                        | )      |                               | (13,536       | ) |   | (171,926 | ) |
|                                                                                             |   |                                                       |     |                                         |   |                          |   |                               |          |   |   |   |   |
| **Total                    MTM Derivative Contract Net Assets                    (Liabilities)** |   | $                                                          | 44,519   |                                         | $      | (8,836                        | )      | $                                  |  (13,536 | )  | $ |  22,147 |   |

| (a) | Does                      not include Cash Flow Hedges.                                                                                                                                                                                                                                                                                                                         |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | See                      “Natural Gas Contracts with DETM” section in Note 17 of the 2004 Annual                      Report.                                                                                                                                                                                                                                       |
| (c) | Represents                      amount of total MTM derivative contracts recorded within Risk                      Management                      Assets, Long-term Risk Management Assets, Risk Management Liabilities                      and                      Long-term Risk Management Liabilities on our Condensed Consolidated                      Balance Sheets. |

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

| · | The                      source of 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 June 30, 2005**

**(in            thousands)**

|                                                                                                        |   | **Remainder                      of 2005** |   | **2006** |   | **2007** |   | **2008** |   | **2009** |   | **After****2009                      (c)** |   | **Total                      (d)** |   |
|-------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|--------------------------------------------|--------|------------------------------------|--------|
| Prices                      Actively Quoted - Exchange Traded                      Contracts                |   | $                                          | (7,535 | )        | $      | (61      | )      | $        | 5,975  |     | $      | -                                          |   | $                                  | -      |   | $ | - |   | $ | (1,621 | ) |
| Prices                      Provided by Other External Sources                      - OTC Broker Quotes (a) |   |                                       | 17,902 |     |   | 22,301   |   |     | 8,397  |     |   | 8,390                                      |   |                               | -      |   |   | - |   |   | 56,990 |   |
| Prices                      Based on Models and Other Valuation                      Methods (b)            |   |                                       | (8,485 | )        |   | (12,533  | )      |     | (3,813 | )        |   | 1,126                                      |   |                               | 7,124  |   |   | 5,731 |   |   | (10,850 | ) |
| **Total**                                                                                                   |   | $                                          | 1,882  |     | $      | 9,707    |   | $        | 10,559 |     | $      | 9,516                                      |   | $                                  | 7,124  |   | $ | 5,731 |   | $ | 44,519 |   |

| (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 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. |
| (c) | There                      is mark-to-market value in excess of 10 percent of our total                      mark-to-market value in individual periods beyond 2009. $6.1                      million of                      this mark-to-market value is in 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (d) | Amounts                      exclude Cash Flow Hedges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

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

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

**Six            Months Ended June 30, 2005**

**(in            thousands)**

|                                                                                    |   |  **Power** |   |  **Interest**** Rate**  |   | ** Foreign**** Currency** |   | ** Total**  |   |
|-----------------------------------------------------------------------------------------|--------|-----------------|--------|----------------------------------------|--------|-------------------------------------|--------|-----------------------|--------|
|                                                                                    |   |       |   |                              |   |                           |   |             |   |
| **Beginning                      Balance December 31, 2004**                            |   | $               | 1,599  |                                   | $      | -                                   |   | $                     | (358   | ) | $ | 1,241 |   |
| Changes                      in Fair Value (a)                                          |   |            | (3,130 | )                                      |   | (1,001                              | )      |                  | -      |   |   | (4,131 | ) |
| Reclassifications                      from AOCI to Net Income                      (b) |   |            | (2,975 | )                                      |   | -                                   |   |                  | 7      |   |   | (2,968 | ) |
| **Ending                      Balance June 30, 2005**                                   |   | $               | (4,506 | )                                      | $      | (1,001                              | )      | $                     | (351   | ) | $ | (5,858 | ) |

| (a) | “Changes                      in Fair Value” shows changes in the fair value of derivatives designated                      as cash flow hedges during the reporting period that are not                      yet settled                      at June 30, 2005. Amounts are reported net of related income                      taxes.                                                           |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Reclassifications                      from AOCI to Net Income” represents gains or losses from derivatives used                      as hedging instruments in cash flow hedges that were reclassified                      into net                      income during the reporting period. Amounts are reported net                      of related                      income taxes above. |

**Credit            Risk**

**VaR            Associated with Risk Management Contracts**

|   | **Six                      Months Ended** |   | **Twelve                      Months Ended** |   |
|--------|-------------------------------------------|--------|----------------------------------------------|--------|
|   | **June                      30, 2005**    |   | **December                      31, 2004**   |   |
|   | **(in                      thousands)**   |   | **(in                      thousands)**      |   |
|   | **End**                                   |   | **High**                                     |   | **Average** |   | **Low** |   | **End** |   | **High** |   | **Average** |   | **Low** |   |
|   | $831                                      |   | $994                                         |   | $485 |   | $285 |   | $464 |   | $1,513 |   | $652 |   | $223 |   |

**VaR            Associated with Debt Outstanding**

----

**OHIO            POWER COMPANY CONSOLIDATED**

**CONDENSED            CONSOLIDATED STATEMENTS OF INCOME**

**For            the Three and Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                                                                                  |   | **Three                      Months Ended** |    | **Six                      Months Ended** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|---------|-------------------------------------------|--------|
|                                                                                                                  |   | **2005**                                    |    | **2004**                                  |   | **2005** |   | **2004** |   |
| **OPERATING                      REVENUES**                                                                           |   |                                   |    |                                 |   |   |   |   |   |
| Electric                      Generation, Transmission and Distribution                                               |   | $                                           | 450,122 |                                      | $      | 399,535 |   | $ | 906,353 |   | $ | 843,264 |   |
| Sales                      to AEP Affiliates                                                                          |   |                                        | 156,607 |                                      |   | 135,413 |   |   | 308,446 |   |   | 281,901 |   |
| **TOTAL**                                                                                                             |   |                                        | 606,729 |                                      |   | 534,948 |   |   | 1,214,799 |   |   | 1,125,165 |   |
|                                                                                                                  |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **OPERATING                      EXPENSES**                                                                           |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| Fuel                      for Electric Generation                                                                     |   |                                        | 168,693 |                                      |   | 145,503 |   |   | 348,954 |   |   | 311,774 |   |
| Purchased                      Electricity for Resale                                                                 |   |                                        | 22,423  |                                      |   | 14,155 |   |   | 41,185 |   |   | 26,338 |   |
| Purchased                      Electricity from AEP Affiliates                                                        |   |                                        | 25,093  |                                      |   | 23,169 |   |   | 50,711 |   |   | 42,472 |   |
| Other                      Operation                                                                                  |   |                                        | 92,950  |                                      |   | 96,224 |   |   | 166,733 |   |   | 187,320 |   |
| Maintenance                                                                                                           |   |                                        | 51,355  |                                      |   | 56,733 |   |   | 97,110 |   |   | 90,784 |   |
| Depreciation                      and Amortization                                                                    |   |                                        | 79,941  |                                      |   | 70,388 |   |   | 153,888 |   |   | 142,170 |   |
| Taxes                      Other Than Income Taxes                                                                    |   |                                        | 43,686  |                                      |   | 43,646 |   |   | 90,828 |   |   | 90,836 |   |
| Income                      Taxes                                                                                     |   |                                        | 32,064  |                                      |   | 22,220 |   |   | 70,635 |   |   | 62,202 |   |
| **TOTAL**                                                                                                             |   |                                        | 516,205 |                                      |   | 472,038 |   |   | 1,020,044 |   |   | 953,896 |   |
|                                                                                                                  |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **OPERATING                      INCOME**                                                                             |   |                                        | 90,524  |                                      |   | 62,910 |   |   | 194,755 |   |   | 171,269 |   |
|                                                                                                                  |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| Nonoperating                      Income                                                                              |   |                                        | 50,231  |                                      |   | 52,704 |   |   | 105,203 |   |   | 69,455 |   |
| Carrying                      Costs Income                                                                            |   |                                        | 7,511   |                                      |   | 178 |   |   | 29,548 |   |   | 357 |   |
| Nonoperating                      Expenses                                                                            |   |                                        | 48,027  |                                      |   | 49,231 |   |   | 93,054 |   |   | 57,300 |   |
| Nonoperating                      Income Tax Expense (Credit)                                                         |   |                                        | 2,920   |                                      |   | (3,120 | ) |   | 13,487 |   |   | 1,967 |   |
| Interest                      Charges                                                                                 |   |                                        | 25,838  |                                      |   | 30,898 |   |   | 52,001 |   |   | 62,867 |   |
|                                                                                                                  |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **NET                      INCOME**                                                                                   |   |                                        | 71,481  |                                      |   | 38,783 |   |   | 170,964 |   |   | 118,947 |   |
|                                                                                                                  |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| Preferred                      Stock Dividend Requirements (Including Other                        Expense) |   |                                        | 357     |                                      |   | 183 |   |   | 540 |   |   | 366 |   |
|                                                                                                                  |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **EARNINGS                      APPLICABLE TO COMMON STOCK**                                                          |   | $                                           | 71,124  |                                      | $      | 38,600 |   | $ | 170,424 |   | $ | 118,581 |   |

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

*See            Condensed Notes to 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 Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                                       |   | **Common                      Stock** |    | **Paid-in                      Capital** |   | **Retained                      Earnings** |   | **Accumulated                      Other Comprehensive Income (Loss)** |     | **Total** |   |
|----------------------------------------------------------------------------|--------|---------------------------------------|---------|------------------------------------------|--------|--------------------------------------------|--------|------------------------------------------------------------------------|----------|-----------|--------|
| **DECEMBER                      31, 2003**                                 |   | $                                     | 321,201 |                                     | $      | 462,484                                    |   | $                                                                      | 729,147  |      | $      | (48,807 | ) | $ | 1,464,025 |   |
|                                                                       |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   |   |   |   |   |   |
| Common                      Stock Dividends                                |   |                                  |    |                                     |   |                                       |   |                                                                   | (114,115 | )         |   |   |   |   | (114,115 | ) |
| Preferred                      Stock Dividends                             |   |                                  |    |                                     |   |                                       |   |                                                                   | (366     | )         |   |   |   |   | (366 | ) |
| **TOTAL**                                                                  |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   |   |   |   | 1,349,544 |   |
|                                                                       |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                              |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   |   |   |   |   |   |
| **Other                      Comprehensive Loss, Net of Taxes:**           |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $1,746                |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   | (3,242 | ) |   | (3,242 | ) |
| Minimum                      Pension Liability, Net of Tax of  $2,123 |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   | (3,942 | ) |   | (3,942 | ) |
| **NET                      INCOME**                                        |   |                                  |    |                                     |   |                                       |   |                                                                   | 118,947  |      |   |   |   |   | 118,947 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                        |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   |   |   |   | 111,763 |   |
|                                                                       |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   |   |   |   |   |   |
| **JUNE                      30, 2004**                                     |   | $                                     | 321,201 |                                     | $      | 462,484                                    |   | $                                                                      | 733,613  |      | $      | (55,991 | ) | $ | 1,461,307 |   |
|                                                                       |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   |   |   |   |   |   |
| **DECEMBER                      31, 2004**                                 |   | $                                     | 321,201 |                                     | $      | 462,485                                    |   | $                                                                      | 764,416  |      | $      | (74,264 | ) | $ | 1,473,838 |   |
|                                                                       |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   |   |   |   |   |   |
| Common                      Stock Dividends                                |   |                                  |    |                                     |   |                                       |   |                                                                   | (14,999  | )         |   |   |   |   | (14,999 | ) |
| Preferred                      Stock Dividends                             |   |                                  |    |                                     |   |                                       |   |                                                                   | (366     | )         |   |   |   |   | (366 | ) |
| Other                                                                      |   |                                  |    |                                     |   | 4,151                                      |   |                                                                   | (174     | )         |   |   |   |   | 3,977 |   |
| **TOTAL**                                                                  |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   |   |   |   | 1,462,450 |   |
|                                                                       |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                              |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   |   |   |   |   |   |
| **Other                      Comprehensive Loss, Net of Taxes:**           |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $3,823                |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   | (7,099 | ) |   | (7,099 | ) |
| **NET                      INCOME**                                        |   |                                  |    |                                     |   |                                       |   |                                                                   | 170,964  |      |   |   |   |   | 170,964 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                        |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   |   |   |   | 163,865 |   |
|                                                                       |   |                                  |    |                                     |   |                                       |   |                                                                   |     |      |   |   |   |   |   |   |
| **JUNE                      30, 2005**                                     |   | $                                     | 321,201 |                                     | $      | 466,636                                    |   | $                                                                      | 919,841  |      | $      | (81,363 | ) | $ | 1,626,315 |   |

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

----

**OHIO            POWER COMPANY CONSOLIDATED**

**CONDENSED            CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**June            30, 2005 and December 31, 2004**

**(Unaudited)**

**(in            thousands)**

|                                                           |   | **2005**     |      | **2004**     |   |
|----------------------------------------------------------------|--------|--------------|-----------|--------------|--------|
| **ELECTRIC                      UTILITY PLANT**                |   |    |      |    |   |
| Production                                                     |   | $            | 4,240,563 |         | $      | 4,127,284 |   |
| Transmission                                                   |   |         | 995,634   |         |   | 978,492 |   |
| Distribution                                                   |   |         | 1,228,611 |         |   | 1,202,550 |   |
| General                                                        |   |         | 240,018   |         |   | 248,749 |   |
| Construction                      Work in Progress             |   |         | 342,832   |         |   | 240,957 |   |
| **Total**                                                      |   |         | 7,047,658 |         |   | 6,798,032 |   |
| Accumulated                      Depreciation and Amortization |   |         | 2,657,146 |         |   | 2,617,238 |   |
| **TOTAL                      - NET**                           |   |         | 4,390,512 |         |   | 4,180,794 |   |
|                                                           |   |         |      |         |   |   |   |
| **OTHER                      PROPERTY AND INVESTMENTS**        |   |         |      |         |   |   |   |
| Nonutility                      Property, Net                  |   |         | 44,438    |         |   | 44,774 |   |
| Other                                                          |   |         | 8,856     |         |   | 13,409 |   |
| **TOTAL**                                                      |   |         | 53,294    |         |   | 58,183 |   |
|                                                           |   |         |      |         |   |   |   |
| **CURRENT                      ASSETS**                        |   |         |      |         |   |   |   |
| Cash                      and Cash Equivalents                 |   |         | 1,353     |         |   | 9,300 |   |
| Other                      Cash Deposits                       |   |         | 31        |         |   | 37 |   |
| Advances                      to Affiliates                    |   |         | -         |         |   | 125,971 |   |
| Accounts                      Receivable:                      |   |         |      |         |   |   |   |
| Customers                                                      |   |         | 108,026   |         |   | 98,951 |   |
| Affiliated                      Companies                      |   |         | 144,638   |         |   | 144,175 |   |
| Accrued                      Unbilled Revenues                 |   |         | 14,754    |         |   | 10,641 |   |
| Miscellaneous                                                  |   |         | 453       |         |   | 7,626 |   |
| Allowance                      for Uncollectible Accounts      |   |         | (114      | )            |   | (93 | ) |
| Fuel                                                           |   |         | 111,013   |         |   | 70,309 |   |
| Materials                      and Supplies                    |   |         | 58,962    |         |   | 55,569 |   |
| Emissions                      Allowances                      |   |         | 38,170    |         |   | 95,303 |   |
| Risk                      Management Assets                    |   |         | 74,036    |         |   | 79,541 |   |
| Margin                      Deposits                           |   |         | 10,174    |         |   | 7,056 |   |
| Prepayments                      and Other                     |   |         | 14,642    |         |   | 10,492 |   |
| **TOTAL**                                                      |   |         | 576,138   |         |   | 714,878 |   |
|                                                           |   |         |      |         |   |   |   |
| **DEFERRED                      DEBITS AND OTHER ASSETS**      |   |         |      |         |   |   |   |
| Regulatory                      Assets:                        |   |         |      |         |   |   |   |
| SFAS                      109 Regulatory Asset, Net            |   |         | 172,933   |         |   | 169,866 |   |
| Transition                      Regulatory Assets              |   |         | 182,469   |         |   | 225,273 |   |
| Unamortized                      Loss on Reacquired Debt       |   |         | 14,197    |         |   | 11,046 |   |
| Other                                                          |   |         | 74,122    |         |   | 22,189 |   |
| Long-term                      Risk Management Assets          |   |         | 120,037   |         |   | 66,727 |   |
| Deferred                      Property Taxes                   |   |         | 37,960    |         |   | 70,214 |   |
| Deferred                      Charges and Other Assets         |   |         | 62,845    |         |   | 74,095 |   |
| **TOTAL**                                                      |   |         | 664,563   |         |   | 639,410 |   |
|                                                           |   |         |      |         |   |   |   |
| **TOTAL                      ASSETS**                          |   | $            | 5,684,507 |         | $      | 5,593,265 |   |

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

----

**OHIO            POWER COMPANY CONSOLIDATED**

**CONDENSED            CONSOLIDATED BALANCE SHEETS**

**CAPITALIZATION**
**            AND LIABILITIES**

**June            30, 2005 and December 31, 2004**

**(Unaudited)**

|                                                                                |   | **2005**                                |      | **2004**     |   |
|-------------------------------------------------------------------------------------|--------|-----------------------------------------|-----------|--------------|--------|
| **CAPITALIZATION**                                                                  |   | **(in                      thousands)** |      |
| Common                      Shareholder’s Equity                              |   |                               |      |    |   |
| Common                      Stock - No par value:                                   |   |                                    |      |         |   |   |   |
|  Authorized                      - 40,000,000 shares                           |   |                                    |      |         |   |   |   |
|  Outstanding                      - 27,952,473 shares                          |   | $                                       | 321,201   |         | $      | 321,201 |   |
| Paid-in                      Capital                                                |   |                                    | 466,636   |         |   | 462,485 |   |
| Retained                      Earnings                                              |   |                                    | 919,841   |         |   | 764,416 |   |
| Accumulated                      Other Comprehensive Income (Loss)                  |   |                                    | (81,363   | )            |   | (74,264 | ) |
| **Total                      Common Shareholder’s Equity**                    |   |                                    | 1,626,315 |         |   | 1,473,838 |   |
| Cumulative                      Preferred Stock Not Subject to Mandatory Redemption |   |                                    | 16,641    |         |   | 16,641 |   |
| **Total                      Shareholders’ Equity**                           |   |                                    | 1,642,956 |         |   | 1,490,479 |   |
| Long-term                      Debt:                                                |   |                                    |      |         |   |   |   |
| Nonaffiliated                                                                       |   |                                    | 1,593,273 |         |   | 1,598,706 |   |
| Affiliated                                                                          |   |                                    | 200,000   |         |   | 400,000 |   |
| **Total                      Long-term Debt**                                       |   |                                    | 1,793,273 |         |   | 1,998,706 |   |
| **TOTAL**                                                                           |   |                                    | 3,436,229 |         |   | 3,489,185 |   |
|                                                                                |   |                                    |      |         |   |   |   |
| Minority                      Interest                                              |   |                                    | 12,906    |         |   | 14,083 |   |
|                                                                                |   |                                    |      |         |   |   |   |
| **CURRENT                      LIABILITIES**                                        |   |                                    |      |         |   |   |   |
| Short-term                      Debt - Nonaffiliated                                |   |                                    | 14,352    |         |   | 23,498 |   |
| Long-term                      Debt Due Within One Year - Affiliated                |   |                                    | 200,000   |         |   | - |   |
| Long-term                      Debt Due Within One Year - Nonaffiliated             |   |                                    | 12,354    |         |   | 12,354 |   |
| Cumulative                      Preferred Stock Subject to Mandatory Redemption     |   |                                    | -         |         |   | 5,000 |   |
| Advances                      from Affiliates                                       |   |                                    | 11,528    |         |   | - |   |
| Accounts                      Payable:                                              |   |                                    |      |         |   |   |   |
| General                                                                             |   |                                    | 164,615   |         |   | 143,247 |   |
| Affiliated                      Companies                                           |   |                                    | 76,171    |         |   | 116,615 |   |
| Customer                      Deposits                                              |   |                                    | 32,258    |         |   | 22,620 |   |
| Taxes                      Accrued                                                  |   |                                    | 139,726   |         |   | 233,026 |   |
| Interest                      Accrued                                               |   |                                    | 37,249    |         |   | 39,254 |   |
| Risk                      Management Liabilities                                    |   |                                    | 81,448    |         |   | 70,311 |   |
| Obligations                      Under Capital Leases                               |   |                                    | 8,847     |         |   | 9,081 |   |
| Other                                                                               |   |                                    | 91,531    |         |   | 74,977 |   |
| **TOTAL**                                                                           |   |                                    | 870,079   |         |   | 749,983 |   |
|                                                                                |   |                                    |      |         |   |   |   |
| **DEFERRED                      CREDITS AND OTHER LIABILITIES**                     |   |                                    |      |         |   |   |   |
| Deferred                      Income Taxes                                          |   |                                    | 910,767   |         |   | 943,465 |   |
| Regulatory                      Liabilities:                                        |   |                                    |      |         |   |   |   |
| Asset                      Removal Costs                                            |   |                                    | 107,043   |         |   | 102,875 |   |
| Deferred                      Investment Tax Credits                                |   |                                    | 12,040    |         |   | 12,539 |   |
| Other                                                                               |   |                                    | 48,864    |         |   | - |   |
| Long-term                      Risk Management Liabilities                          |   |                                    | 90,478    |         |   | 46,261 |   |
| Deferred                      Credits                                               |   |                                    | 23,057    |         |   | 24,377 |   |
| Employee                      Benefits and Pension Obligations                      |   |                                    | 86,939    |         |   | 126,825 |   |
| Obligations                      Under Capital Leases                               |   |                                    | 33,037    |         |   | 31,652 |   |
| Asset                      Retirement Obligations                                   |   |                                    | 47,402    |         |   | 45,606 |   |
| Other                                                                               |   |                                    | 5,666     |         |   | 6,414 |   |
| **TOTAL**                                                                           |   |                                    | 1,365,293 |         |   | 1,340,014 |   |
| Commitments                      and Contingencies (Note 5)                         |   |                                    |      |         |   |   |   |
|                                                                                |   |                                    |      |         |   |   |   |
| **TOTAL                      CAPITALIZATION AND LIABILITIES**                       |   | $                                       | 5,684,507 |         | $      | 5,593,265 |   |

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

----

**OHIO            POWER COMPANY CONSOLIDATED**

**CONDENSED            CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For            the Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                                                                                              |   | **2005**     |     | **2004**     |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                      ACTIVITIES**                                                                                     |   |    |     |    |   |
| **Net                      Income**                                                                                               |   | $            | 170,964  |         | $      | 118,947 |   |
| **Adjustments                      to Reconcile Net Income to Net Cash Flows****From                      Operating Activities:** |   |         |     |         |   |   |   |
| Depreciation                      and Amortization                                                                                |   |         | 153,888  |         |   | 142,170 |   |
| Accretion                      Expense                                                                                            |   |         | 1,796    |         |   | 1,682 |   |
| Deferred                      Income Taxes                                                                                        |   |         | 9,923    |         |   | 4,400 |   |
| Deferred                      Investment Tax Credits                                                                              |   |         | (499     | )            |   | (1,523 | ) |
| Deferred                      Property Taxes                                                                                      |   |         | 32,254   |         |   | 30,792 |   |
| Pension                      and Postemployment Benefit Reserves                                                                  |   |         | 128      |         |   | 1,528 |   |
| Mark-to-Market                      of Risk Management Contracts                                                                  |   |         | (2,271   | )            |   | 4,819 |   |
| Pension                      Contributions                                                                                        |   |         | (40,013  | )            |   | (191 | ) |
| Carrying                      Costs Income                                                                                        |   |         | (29,548  | )            |   | (357 | ) |
| Change                      in Other Noncurrent Assets                                                                            |   |         | (13,611  | )            |   | (20,362 | ) |
| Change                      in Other Noncurrent Liabilities                                                                       |   |         | (1,810   | )            |   | (5,217 | ) |
| **Changes                      in Components of Working Capital:**                                                                |   |         |     |         |   |   |   |
| Accounts                      Receivable, Net                                                                                     |   |         | (6,457   | )            |   | (1,616 | ) |
| Fuel,                      Materials and Supplies                                                                                 |   |         | (44,097  | )            |   | (12,888 | ) |
| Accounts                      Payable                                                                                             |   |         | (28,330  | )            |   | 4,921 |   |
| Taxes                      Accrued                                                                                                |   |         | (93,300  | )            |   | 20,692 |   |
| Customer                      Deposits                                                                                            |   |         | 9,638    |         |   | 10,791 |   |
| Interest                      Accrued                                                                                             |   |         | (2,005   | )            |   | (359 | ) |
| Other                      Current Assets                                                                                         |   |         | 49,864   |         |   | 11,050 |   |
| Other                      Current Liabilities                                                                                    |   |         | 16,321   |         |   | (5,894 | ) |
| **Net                      Cash Flows From Operating Activities**                                                                 |   |         | 182,835  |         |   | 303,385 |   |
|                                                                                                                              |   |         |     |         |   |   |   |
| **INVESTING                      ACTIVITIES**                                                                                     |   |         |     |         |   |   |   |
| Construction                      Expenditures                                                                                    |   |         | (296,048 | )            |   | (130,495 | ) |
| Change                      in Other Cash Deposits, Net                                                                           |   |         | 6        |         |   | 50,952 |   |
| Proceeds                      from Sale of Assets                                                                                 |   |         | 7,329    |         |   | 1,102 |   |
| **Net                      Cash Flows Used For Investing Activities**                                                             |   |         | (288,713 | )            |   | (78,441 | ) |
|                                                                                                                              |   |         |     |         |   |   |   |
| **FINANCING                      ACTIVITIES**                                                                                     |   |         |     |         |   |   |   |
| Change                      in Short-term Debt, Net                                                                               |   |         | (9,146   | )            |   | (4,402 | ) |
| Issuance                      of Long-term Debt - Nonaffiliated                                                                   |   |         | 214,120  |         |   | - |   |
| Issuance                      of Long-term Debt - Affiliated                                                                      |   |         | -        |         |   | 200,000 |   |
| Retirement                      of Long-term Debt - Nonaffiliated                                                                 |   |         | (224,177 | )            |   | (204,427 | ) |
| Retirement                      of Cumulative Preferred Stock                                                                     |   |         | (5,000   | )            |   | (2,251 | ) |
| Changes                      in Advances to/from Affiliates, Net                                                                  |   |         | 137,499  |         |   | (100,222 | ) |
| Dividends                      Paid on Common Stock                                                                               |   |         | (14,999  | )            |   | (114,115 | ) |
| Dividends                      Paid on Cumulative Preferred Stock                                                                 |   |         | (366     | )            |   | (366 | ) |
| **Net                      Cash Flows From (Used For) Financing Activities**                                                      |   |         | 97,931   |         |   | (225,783 | ) |
|                                                                                                                              |   |         |     |         |   |   |   |
| **Net                      Decrease in Cash and Cash Equivalents**                                                                |   |         | (7,947   | )            |   | (839 | ) |
| **Cash                      and Cash Equivalents at Beginning of Period**                                                         |   |         | 9,300    |         |   | 7,233 |   |
| **Cash                      and Cash Equivalents at End of Period**                                                               |   | $            | 1,353    |         | $      | 6,394 |   |

| **SUPPLEMENTAL                      DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cash                      paid (received) for interest net of capitalized amounts was                      $52,403,000                      and $59,407,000 and for income taxes was $114,782,000 and $(8,420,000)                      in                      2005 and 2004, respectively. Noncash capital lease acquisitions                      were                      $7,210,000 and $6,846,000 in 2005 and 2004, respectively. Construction                      Expenditures include the change in construction-related Accounts                      Payable                      of $9,253,000 and $(3,280,000) in 2005 and 2004,                      respectively. |

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

----

**OHIO            POWER COMPANY CONSOLIDATED**

**INDEX            TO CONDENSED NOTES TO 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  |
| Benefit                      Plans                              | Note                      8  |
| Business                      Segments                          | Note                      9  |
| Income                      Taxes                               | Note                      10 |
| Financing                      Activities                       | Note                      11 |
| Company-wide                      Staffing and Budget Review    | Note                      12 |

----

**PUBLIC            SERVICE COMPANY OF OKLAHOMA**

----

**PUBLIC            SERVICE COMPANY OF OKLAHOMA**

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

**Results            of Operations**

**Reconciliation            of Second Quarter of 2004 to Second Quarter of 2005 Net            Income**

**(in            millions)**

| **Second                      Quarter of 2004 Net Income**            |   |   |   |   | $      | 7      |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                      Margins                                   |   |   | (1     | )      |   |   |   |
| Off-system                      Sales                                 |   |   | 1      |   |   |   |   |
| **Total                      Change in Gross Margin**                 |   |   |   |   |   | -      |   |
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                      Operation and Maintenance                  |   |   | 9      |   |   |   |   |
| Taxes                      Other Than Income Taxes                    |   |   | 4      |   |   |   |   |
| Interest                      Charges                                 |   |   | 1      |   |   |   |   |
| **Total                      Change in Operating Expenses and Other** |   |   |   |   |   | 14     |   |
|                                                                  |   |   |   |   |   |   |   |
| Income                      Tax Expense                               |   |   |   |   |   | (3     | )      |
|                                                                  |   |   |   |   |   |   |   |
| **Second                      Quarter of 2005 Net Income**            |   |   |   |   | $      | 18     |   |

| · | Retail                      Margins decreased by $1 million primarily                      due to a $3 million decrease in net fuel revenue/fuel expense,                      offset by a                      $2 million increase in retail base revenue due to slightly                      higher                      volumes. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Margins                      from Off-system Sales increased by $1 million primarily due                      to higher                      capacity sales and by slightly higher optimization                      activity.                                                                                                       |

| · | Other                      Operation and Maintenance expenses decreased $9 million primarily                      attributed to the higher cost of scheduled plant maintenance                      and overhead                      line maintenance due to storm damage, both in 2004.                                     |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Taxes                      Other Than Income Taxes decreased $4 million primarily due                      to a prior year                      adjustment of property related taxes.                                                                                                                                         |
| · | Interest                      Charges decreased $1 million primarily due to the retirement                      of higher                      rate First Mortgage Bonds and Trust Preferred Securities in                      2004 replaced                      by lower rate Senior Unsecured                      Notes. |

*Income            Taxes*

**Reconciliation            of Six Months Ended June 30, 2004 to Six Months Ended June 30, 2005 Net            Income            (Loss)**

**(in            millions)**

| **Six                      Months Ended June 30, 2004 Net Loss**      |   |   |   |   | $      | (2     | )      |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                     |   |   |   |   |   |   |   |
| Retail                      Margins                                   |   |   | (5     | )      |   |   |   |
| Off-system                      Sales                                 |   |   | 4      |   |   |   |   |
| **Total                      Change in Gross Margin**                 |   |   |   |   |   | (1     | )      |
|                                                                  |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**     |   |   |   |   |   |   |   |
| Other                      Operation and Maintenance                  |   |   | 24     |   |   |   |   |
| Taxes                      Other Than Income Taxes                    |   |   | 4      |   |   |   |   |
| Interest                      Charges                                 |   |   | 3      |   |   |   |   |
| Nonoperating                      Income and Expense, Net             |   |   | 1      |   |   |   |   |
| **Total                      Change in Operating Expenses and Other** |   |   |   |   |   | 32     |   |
|                                                                  |   |   |   |   |   |   |   |
| Income                      Tax Expense                               |   |   |   |   |   | (10    | )      |
|                                                                  |   |   |   |   |   |   |   |
| **Six                      Months Ended June 30, 2005 Net Income**    |   |   |   |   | $      | 19     |   |

| · | Retail                      Margins decreased by $5 primarily                      due to a $6 million decrease in net fuel revenue/fuel expense,                      offset by a                      $1 million increase in retail base revenue due to slightly                      higher                      volumes. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Margins                      from Off-system Sales increased by $4 million primarily due                      to higher                      margins of $3 million and higher capacity sales of $1                      million.                                                                                             |

| · | Other                      Operation and Maintenance expenses decreased $24 million. Transmission                      related expenses decreased $7 million primarily due to adjustments                      in 2004                      for affiliated OATT and ancillary services resulting from revised                      ERCOT                      data for the years 2001 through 2003 of approximately $5 million.                      Distribution expenses decreased $3 million resulting primarily                      from a 2004                      labor settlement. Administrative and general expenses decreased                      approximately $7 million due to lower outside services and                      employee                      related expenses, offset in part by increased customer related                      expense of                      $2 million. Maintenance decreased $10 million primarily attributed                      to the                      higher cost of scheduled power plant maintenance and overhead                      line                      maintenance due to storm damage, both in 2004. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Interest                      Charges decreased $3 million primarily due to the retirement                      of higher                      rate First Mortgage Bonds and Trust Preferred Securities in                      2004 replaced                      by lower rate Senior Unsecured                      Notes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

*Income            Taxes*

**Financial            Condition**

**Credit            Ratings**

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

**Financing            Activity**

|                                        |   | **Principal**                           |   | **Interest** |   | **Due**  |   |
|---------------------------------------------|--------|-----------------------------------------|--------|--------------|--------|----------|--------|
| **Type                      of Debt**       |   | **Amount**                              |   | **Rate**     |   | **Date** |   |
|                                        |   | **(in                      thousands)** |   | **(%)**      |   |     |   |
| Senior                      Unsecured Notes |   | $                                       | 75,000 |         |   | 4.70     |   |   | 2011 |   |

|                                      |   | **Principal**                           |   | **Interest** |   | **Due**  |   |
|-------------------------------------------|--------|-----------------------------------------|--------|--------------|--------|----------|--------|
| **Type                      of Debt**     |   | **Amount**                              |   | **Rate**     |   | **Date** |   |
|                                      |   | **(in                      thousands)** |   | **(%)**      |   |     |   |
| First                      Mortgage Bonds |   | $                                       | 50,000 |         |   | 6.50     |   |   | 2005 |   |

**Liquidity**

**Summary            Obligation Information**

**Significant            Factors**

**Oklahoma            Regulatory Activity**

*Rate            Review*

*Fuel            and Purchased Power *

**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**

**Six            Months Ended June 30, 2005**

**(in            thousands)**

| **Total                      MTM Risk Management Contract Net Assets at December 31,                      2004**                      |   | $      | 14,771  |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| (Gain)                      Loss from Contracts Realized/Settled During the Period (a)                                                |   |   | 172     |   |
| Fair                      Value of New Contracts When Entered During the Period (b)                                                   |   |   | -       |   |
| Net                      Option Premiums Paid/(Received) (c)                                                                          |   |   | (56     | )      |
| Change                      in Fair Value Due to Valuation Methodology Changes                                                        |   |   | -       |   |
| Changes                      in Fair Value of Risk Management Contracts (d)                                                           |   |   | -       |   |
| Changes                      in Fair Value of Risk Management Contracts Allocated to Regulated                      Jurisdictions (e) |   |   | (11,050 | )      |
| **Total                      MTM Risk Management Contract Net Assets**                                                                |   |   | 3,837   |   |
| Net                      Cash Flow Hedge Contracts (f)                                                                                |   |   | (849    | )      |
| **Total                      MTM Risk Management Contract Net Assets at June 30, 2005**                                               |   | $      | 2,988   |   |

| (a) | “(Gain)                      Loss from Contracts Realized/Settled During the Period” includes realized                      risk management contracts and related derivatives that settled                      during 2005                      where                      we entered into the contract prior                      to 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Fair                      Value of New Contracts When Entered During the Period” represents the fair                      value at inception of long-term contracts entered into with                      customers                      during 2005. 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. |
| (c) | “Net                      Option Premiums Paid/(Received)” reflects the net option premiums                      paid/(received) as they relate to unexercised and unexpired                      option                      contracts that were entered in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (d) | “Changes                      in Fair Value of Risk Management Contracts” represents the fair value                      change in the risk management portfolio due to market fluctuations                      during                      the current period. Market fluctuations are attributable to                      various                      factors such as supply/demand, weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (e) | “Changes                      in Fair Value of Risk Management Contracts 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 assets/liabilities                      for                      those subsidiaries that operate in regulated                      jurisdictions.                                                                                                                                                                                                                                                                                                                                           |
| (f) | “Net                      Cash Flow Hedge Contracts” (pretax) are discussed below in Accumulated                      Other Comprehensive Income (Loss).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

**Reconciliation            of MTM Risk Management Contracts to**

**Condensed            Balance Sheets**

**As            of June 30, 2005**

**(in            thousands)**

|                                                                            |   | **MTM                      Risk Management Contracts (a)** |   | **Cash                      Flow Hedges** |   | **Total                      (b)** |   |
|---------------------------------------------------------------------------------|--------|------------------------------------------------------------|--------|-------------------------------------------|--------|------------------------------------|--------|
| Current                      Assets                                             |   | $                                                          | 6,171  |                                      | $      | 33                                 |   | $ | 6,204 |   |
| Noncurrent                      Assets                                          |   |                                                       | 7,613  |                                      |   | 9                                  |   |   | 7,622 |   |
| **Total                      MTM Derivative Contract Assets**                   |   |                                                       | 13,784 |                                      |   | 42                                 |   |   | 13,826 |   |
|                                                                            |   |                                                       |   |                                      |   |                               |   |   |   |   |
| Current                      Liabilities                                        |   |                                                       | (5,772 | )                                         |   | (814                               | )      |   | (6,586 | ) |
| Noncurrent                      Liabilities                                     |   |                                                       | (4,175 | )                                         |   | (77                                | )      |   | (4,252 | ) |
| **Total                      MTM Derivative Contract Liabilities**              |   |                                                       | (9,947 | )                                         |   | (891                               | )      |   | (10,838 | ) |
|                                                                            |   |                                                       |   |                                      |   |                               |   |   |   |   |
| **Total                      MTM Derivative Contract Net Assets (Liabilities)** |   | $                                                          | 3,837  |                                      | $      | (849                               | )      | $ | 2,988 |   |

| (a) | Does                      not include Cash Flow Hedges.                                                                                                                                                                                                                                                                                                            |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Represents                      amount of total MTM derivative contracts recorded within Risk                      Management                      Assets, Long-term Risk Management Assets, Risk Management Liabilities                      and                      Long-term Risk Management Liabilities on our Condensed Balance                      Sheets. |

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

| · | The                      source of 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 June 30, 2005**

**(in            thousands)**

|                                                                                                        |   | **Remainder                      of 2005** |   | **2006** |   | **2007** |   | **2008** |   | **2009** |   | **After****2009                      (c)** |   | **Total                      (d)** |   |
|-------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|--------------------------------------------|--------|------------------------------------|--------|
| Prices                      Actively Quoted - Exchange Traded                      Contracts                |   | $                                          | (1,016 | )        | $      | (8       | )      | $        | 805    |     | $      | -                                          |   | $                                  | -      |   | $ | - |   | $ | (219 | ) |
| Prices                      Provided by Other External Sources                      - OTC Broker Quotes (a) |   |                                       | 2,162  |     |   | 2,815    |   |     | 830    |     |   | 987                                        |   |                               | -      |   |   | - |   |   | 6,794 |   |
| Prices                      Based on Models and Other Valuation                      Methods (b)            |   |                                       | (1,109 | )        |   | (2,028   | )      |     | (869   | )        |   | (88                                        | )      |                               | 620    |   |   | 736 |   |   | (2,738 | ) |
| **Total**                                                                                                   |   | $                                          | 37     |     | $      | 779      |   | $        | 766    |     | $      | 899                                        |   | $                                  | 620    |   | $ | 736 |   | $ | 3,837 |   |

| (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 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. |
| (c) | There                      is mark-to-market value in excess of 10 percent of our total                      mark-to-market value in individual periods beyond 2009. $442                      thousand of                      this mark-to-market value is in 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (d) | Amounts                      exclude Cash Flow Hedges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

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

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

**Six            Months Ended June 30, 2005**

**(in            thousands)**

|                                                                                    |   | **Power** |   | **Interest                      Rate** |   | **Total** |   |
|-----------------------------------------------------------------------------------------|--------|-----------|--------|----------------------------------------|--------|-----------|--------|
| **Beginning                      Balance December 31, 2004**                            |   | $         | 1,000  |                                   | $      | (600      | )      | $ | 400 |   |
| Changes                      in Fair Value (a)                                          |   |      | (1,122 | )                                      |   | 48        |   |   | (1,074 | ) |
| Reclassifications                      from AOCI to Net Income                      (b) |   |      | (422   | )                                      |   | 13        |   |   | (409 | ) |
| **Ending                      Balance June 30, 2005**                                   |   | $         | (544   | )                                      | $      | (539      | )      | $ | (1,083 | ) |

| (a) | “Changes                      in Fair Value” shows changes in the fair value of derivatives designated                      as cash flow hedges during the reporting period that are not                      yet settled                      at June 30, 2005. Amounts are reported net of related income                      taxes.                                                     |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Reclassifications                      from AOCI to Net Income” represents gains or losses from derivatives used                      as hedging instruments in cash flow hedges that were reclassified                      into net                      income during the reporting period. Amounts are reported net                      of related                      income taxes. |

**Credit            Risk**

**VaR            Associated with Risk Management Contracts**

|   | **Six                      Months Ended** |   | **Twelve                      Months Ended** |   |
|--------|-------------------------------------------|--------|----------------------------------------------|--------|
|   | **June                      30, 2005**    |   | **December                      31, 2004**   |   |
|   | **(in                      thousands)**   |   | **(in                      thousands)**      |   |
|   | **End**                                   |   | **High**                                     |   | **Average** |   | **Low** |   | **End** |   | **High** |   | **Average** |   | **Low** |   |
|   | $112                                      |   | $134                                         |   | $65 |   | $38 |   | $238 |   | $778 |   | $335 |   | $115 |   |

**VaR            Associated with Debt Outstanding**

----

**PUBLIC            SERVICE COMPANY OF OKLAHOMA**

**CONDENSED            STATEMENTS OF OPERATIONS**

**For            the Three and Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                                            |   | **Three                      Months Ended** |    | **Six                      Months Ended** |   |
|---------------------------------------------------------------------------------|--------|---------------------------------------------|---------|-------------------------------------------|--------|
|                                                                            |   | **2005**                                    |    | **2004**                                  |   | **2005** |   | **2004** |   |
| **OPERATING                      REVENUES**                                     |   |                                   |    |                                 |   |   |   |   |   |
| Electric                      Generation, Transmission and Distribution         |   | $                                           | 272,693 |                                      | $      | 228,864 |   | $ | 523,061 |   | $ | 432,907 |   |
| Sales                      to AEP Affiliates                                    |   |                                        | 13,650  |                                      |   | 2,954 |   |   | 16,282 |   |   | 6,096 |   |
| **TOTAL**                                                                       |   |                                        | 286,343 |                                      |   | 231,818 |   |   | 539,343 |   |   | 439,003 |   |
|                                                                            |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **OPERATING                      EXPENSES**                                     |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| Fuel                      for Electric Generation                               |   |                                        | 129,536 |                                      |   | 87,006 |   |   | 263,707 |   |   | 176,080 |   |
| Fuel                      from Affiliates for Electric Generation               |   |                                        | -       |                                      |   | - |   |   | - |   |   | 11 |   |
| Purchased                      Energy for Resale                                |   |                                        | 30,132  |                                      |   | 5,583 |   |   | 44,925 |   |   | 14,751 |   |
| Purchased                      Electricity from AEP Affiliates                  |   |                                        | 15,389  |                                      |   | 28,200 |   |   | 38,234 |   |   | 55,099 |   |
| Other                      Operation                                            |   |                                        | 36,287  |                                      |   | 36,979 |   |   | 66,472 |   |   | 80,374 |   |
| Maintenance                                                                     |   |                                        | 14,153  |                                      |   | 22,875 |   |   | 25,512 |   |   | 35,997 |   |
| Depreciation                      and Amortization                              |   |                                        | 22,247  |                                      |   | 22,159 |   |   | 44,866 |   |   | 44,335 |   |
| Taxes                      Other Than Income Taxes                              |   |                                        | 6,061   |                                      |   | 9,727 |   |   | 15,738 |   |   | 19,544 |   |
| Income                      Taxes (Credits)                                     |   |                                        | 5,657   |                                      |   | 2,429 |   |   | 4,805 |   |   | (4,904 | ) |
| **TOTAL**                                                                       |   |                                        | 259,462 |                                      |   | 214,958 |   |   | 504,259 |   |   | 421,287 |   |
|                                                                            |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **OPERATING                      INCOME**                                       |   |                                        | 26,881  |                                      |   | 16,860 |   |   | 35,084 |   |   | 17,716 |   |
|                                                                            |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| Nonoperating                      Income                                        |   |                                        | 524     |                                      |   | 127 |   |   | 1,002 |   |   | 371 |   |
| Nonoperating                      Expenses                                      |   |                                        | 385     |                                      |   | 762 |   |   | 936 |   |   | 1,304 |   |
| Nonoperating                      Income Tax Credit                             |   |                                        | 171     |                                      |   | 467 |   |   | 421 |   |   | 859 |   |
| Interest                      Charges                                           |   |                                        | 8,621   |                                      |   | 9,301 |   |   | 16,496 |   |   | 19,254 |   |
|                                                                            |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **NET                      INCOME (LOSS)**                                      |   |                                        | 18,570  |                                      |   | 7,391 |   |   | 19,075 |   |   | (1,612 | ) |
|                                                                            |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| Preferred                      Stock Dividend Requirements                      |   |                                        | 53      |                                      |   | 53 |   |   | 106 |   |   | 106 |   |
|                                                                            |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **EARNINGS                      (LOSS) APPLICABLE TO COMMON   STOCK** |   | $                                           | 18,517  |                                      | $      | 7,338 |   | $ | 18,969 |   | $ | (1,718 | ) |

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

*See            Condensed Notes to 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 Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                             |   | **Common                      Stock** |    | **Paid-in                      Capital** |   | **Retained                      Earnings** |   | **Accumulated                      Other Comprehensive Income (Loss)** |    | **Total** |   |
|------------------------------------------------------------------|--------|---------------------------------------|---------|------------------------------------------|--------|--------------------------------------------|--------|------------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                      31, 2003**                       |   | $                                     | 157,230 |                                     | $      | 230,016                                    |   | $                                                                      | 139,604 |      | $      | (43,842 | ) | $ | 483,008 |   |
| Gain                      on Reacquired Preferred Stock          |   |                                  |    |                                     |   |                                       |   |                                                                   | 2       |      |   |   |   |   | 2 |   |
| Common                      Stock Dividends                      |   |                                  |    |                                     |   |                                       |   |                                                                   | (17,500 | )         |   |   |   |   | (17,500 | ) |
| Preferred                      Stock Dividends                   |   |                                  |    |                                     |   |                                       |   |                                                                   | (106    | )         |   |   |   |   | (106 | ) |
| **TOTAL**                                                        |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 465,404 |   |
|                                                             |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      LOSS**                      |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Loss, Net of Taxes:** |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $283        |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   | (526 | ) |   | (526 | ) |
| **NET                      LOSS**                                |   |                                  |    |                                     |   |                                       |   |                                                                   | (1,612  | )         |   |   |   |   | (1,612 | ) |
| **TOTAL                      COMPREHENSIVE LOSS**                |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | (2,138 | ) |
|                                                             |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **JUNE                      30, 2004**                           |   | $                                     | 157,230 |                                     | $      | 230,016                                    |   | $                                                                      | 120,388 |      | $      | (44,368 | ) | $ | 463,266 |   |
|                                                             |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **DECEMBER                      31, 2004**                       |   | $                                     | 157,230 |                                     | $      | 230,016                                    |   | $                                                                      | 141,935 |      | $      | 75 |   | $ | 529,256 |   |
|                                                             |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Common                      Stock Dividends                      |   |                                  |    |                                     |   |                                       |   |                                                                   | (17,000 | )         |   |   |   |   | (17,000 | ) |
| Preferred                      Stock Dividends                   |   |                                  |    |                                     |   |                                       |   |                                                                   | (106    | )         |   |   |   |   | (106 | ) |
| **TOTAL**                                                        |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 512,150 |   |
|                                                             |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                    |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Loss, Net of Taxes:** |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $798        |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   | (1,483 | ) |   | (1,483 | ) |
| **NET                      INCOME**                              |   |                                  |    |                                     |   |                                       |   |                                                                   | 19,075  |      |   |   |   |   | 19,075 |   |
| **TOTAL                      COMPREHENSIVE INCOME**              |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 17,592 |   |
|                                                             |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **JUNE                      30, 2005**                           |   | $                                     | 157,230 |                                     | $      | 230,016                                    |   | $                                                                      | 143,904 |      | $      | (1,408 | ) | $ | 529,742 |   |

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

----

**PUBLIC            SERVICE COMPANY OF OKLAHOMA**

**CONDENSED            BALANCE SHEETS**

**ASSETS**

**June            30, 2005 and December 31, 2004 **

**(Unaudited)**

**(in            thousands)**

|                                                                 |   | **2005** |      | **2004** |   |
|----------------------------------------------------------------------|--------|----------|-----------|----------|--------|
| **ELECTRIC                      UTILITY PLANT**                      |   |     |      |
| Production                                                           |   | $        | 1,069,477 |     | $      | 1,072,022 |   |
| Transmission                                                         |   |     | 472,944   |     |   | 468,735 |   |
| Distribution                                                         |   |     | 1,114,572 |     |   | 1,089,187 |   |
| General                                                              |   |     | 200,682   |     |   | 200,044 |   |
| Construction                      Work in Progress                   |   |     | 54,459    |     |   | 41,028 |   |
| **Total**                                                            |   |     | 2,912,134 |     |   | 2,871,016 |   |
| Accumulated                      Depreciation and Amortization       |   |     | 1,131,114 |     |   | 1,117,113 |   |
| **TOTAL                      - NET**                                 |   |     | 1,781,020 |     |   | 1,753,903 |   |
|                                                                 |   |     |      |     |   |   |   |
| **OTHER                      PROPERTY AND INVESTMENTS**              |   |     |      |     |   |   |   |
| Nonutility                      Property, Net                        |   |     | 4,594     |     |   | 4,401 |   |
| Other                      Investments                               |   |     | -         |     |   | 81 |   |
| **TOTAL**                                                            |   |     | 4,594     |     |   | 4,482 |   |
|                                                                 |   |     |      |     |   |   |   |
| **CURRENT                      ASSETS**                              |   |     |      |     |   |   |   |
| Cash                      and Cash Equivalents                       |   |     | 778       |     |   | 91 |   |
| Other                      Cash Deposits                             |   |     | 6         |     |   | 188 |   |
| Advances                      to Affiliates                          |   |     | 7,084     |     |   | - |   |
| Accounts                      Receivable:                            |   |     |      |     |   |   |   |
| Customers                                                            |   |     | 18,358    |     |   | 34,002 |   |
| Affiliated                      Companies                            |   |     | 39,598    |     |   | 46,399 |   |
| Miscellaneous                                                        |   |     | 7,798     |     |   | 6,984 |   |
| Allowance                      for Uncollectible Accounts            |   |     | -         |     |   | (76 | ) |
| Fuel                      Inventory                                  |   |     | 17,711    |     |   | 14,268 |   |
| Materials                      and Supplies                          |   |     | 38,797    |     |   | 35,485 |   |
| Risk                      Management Assets                          |   |     | 6,204     |     |   | 21,388 |   |
| Regulatory                      Asset for Under-Recovered Fuel Costs |   |     | -         |     |   | 366 |   |
| Margin                      Deposits                                 |   |     | 1,128     |     |   | 2,881 |   |
| Prepayments                      and Other                           |   |     | 2,786     |     |   | 1,378 |   |
| **TOTAL**                                                            |   |     | 140,248   |     |   | 163,354 |   |
|                                                                 |   |     |      |     |   |   |   |
| **DEFERRED                      DEBITS AND OTHER ASSETS**            |   |     |      |     |   |   |   |
| Regulatory                      Assets:                              |   |     |      |     |   |   |   |
| Unamortized                      Loss on Reacquired Debt             |   |     | 13,581    |     |   | 14,705 |   |
| Other                                                                |   |     | 20,470    |     |   | 17,246 |   |
| Long-term                      Risk Management Assets                |   |     | 7,622     |     |   | 14,477 |   |
| Prepaid                      Pension Obligations                     |   |     | 82,411    |     |   | 82,419 |   |
| Deferred                      Property Taxes                         |   |     | 16,245    |     |   | - |   |
| Deferred                      Charges and Other Assets               |   |     | 16,841    |     |   | 18,232 |   |
| **TOTAL**                                                            |   |     | 157,170   |     |   | 147,079 |   |
|                                                                 |   |     |      |     |   |   |   |
| **TOTAL                      ASSETS**                                |   | $        | 2,083,032 |     | $      | 2,068,818 |   |

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

----

**PUBLIC            SERVICE COMPANY OF OKLAHOMA **

**CONDENSED            BALANCE SHEETS**

**CAPITALIZATION**
**            AND LIABILITIES**

**June            30, 2005 and December 31, 2004**

**(Unaudited)**

|                                                                                |   | **2005**                                |      | **2004**     |   |
|-------------------------------------------------------------------------------------|--------|-----------------------------------------|-----------|--------------|--------|
| **CAPITALIZATION**                                                                  |   | **(in                      thousands)** |      |
| 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                                              |   |                                    | 143,904   |         |   | 141,935 |   |
| Accumulated                      Other Comprehensive Income (Loss)                  |   |                                    | (1,408    | )            |   | 75 |   |
| **Total                      Common Shareholder’s Equity**                    |   |                                    | 529,742   |         |   | 529,256 |   |
| Cumulative                      Preferred Stock Not Subject to Mandatory Redemption |   |                                    | 5,262     |         |   | 5,262 |   |
| **Total                      Shareholders’ Equity**                           |   |                                    | 535,004   |         |   | 534,518 |   |
| Long-term                      Debt:                                                |   |                                    |      |         |   |   |   |
| Nonaffiliated                                                                       |   |                                    | 521,041   |         |   | 446,092 |   |
| Affiliated                                                                          |   |                                    | -         |         |   | 50,000 |   |
| **Total                      Long-term Debt**                                       |   |                                    | 521,041   |         |   | 496,092 |   |
| **TOTAL**                                                                           |   |                                    | 1,056,045 |         |   | 1,030,610 |   |
| **CURRENT                      LIABILITIES**                                        |   |                                    |      |         |   |   |   |
| Long-term                      Debt Due Within One Year - Nonaffiliated             |   |                                    | -         |         |   | 50,000 |   |
| Long-term                      Debt Due Within One Year - Affiliated                |   |                                    | 50,000    |         |   | - |   |
| Advances                      from Affiliates                                       |   |                                    | -         |         |   | 55,002 |   |
| Accounts                      Payable:                                              |   |                                    |      |         |   |   |   |
| General                                                                             |   |                                    | 112,435   |         |   | 71,442 |   |
| Affiliated                      Companies                                           |   |                                    | 67,002    |         |   | 58,632 |   |
| Customer                      Deposits                                              |   |                                    | 34,774    |         |   | 33,757 |   |
| Taxes                      Accrued                                                  |   |                                    | 29,996    |         |   | 18,835 |   |
| Interest                      Accrued                                               |   |                                    | 3,324     |         |   | 4,023 |   |
| Risk                      Management Liabilities                                    |   |                                    | 6,586     |         |   | 13,705 |   |
| Regulatory                      Liability for Over-Recovered Fuel Costs             |   |                                    | 1,185     |         |   | - |   |
| Obligations                      Under Capital Leases                               |   |                                    | 603       |         |   | 537 |   |
| Other                                                                               |   |                                    | 21,083    |         |   | 30,477 |   |
| **TOTAL**                                                                           |   |                                    | 326,988   |         |   | 336,410 |   |
|                                                                                |   |                                    |      |         |   |   |   |
| **DEFERRED                      CREDITS AND OTHER LIABILITIES**                     |   |                                    |      |         |   |   |   |
| Deferred                      Income Taxes                                          |   |                                    | 387,520   |         |   | 384,090 |   |
| Long-term                      Risk Management Liabilities                          |   |                                    | 4,252     |         |   | 7,455 |   |
| Regulatory                      Liabilities:                                        |   |                                    |      |         |   |   |   |
| Asset                      Removal Costs                                            |   |                                    | 233,774   |         |   | 220,298 |   |
| Deferred                      Investment Tax Credits                                |   |                                    | 27,724    |         |   | 28,620 |   |
| SFAS                      109 Regulatory Liability, Net                             |   |                                    | 20,734    |         |   | 21,963 |   |
| Unrealized                      Gain on Forward Commitments                         |   |                                    | 6,703     |         |   | 19,676 |   |
| Obligations                      Under Capital Leases                               |   |                                    | 1,111     |         |   | 747 |   |
| Deferred                      Credits and Other                                     |   |                                    | 18,181    |         |   | 18,949 |   |
| **TOTAL**                                                                           |   |                                    | 699,999   |         |   | 701,798 |   |
|                                                                                |   |                                    |      |         |   |   |   |
| Commitments                      and Contingencies (Note 5)                         |   |                                    |      |         |   |   |   |
|                                                                                |   |                                    |      |         |   |   |   |
| **TOTAL                      CAPITALIZATION AND LIABILITIES**                       |   | $                                       | 2,083,032 |         | $      | 2,068,818 |   |

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

----

**PUBLIC            SERVICE COMPANY OF OKLAHOMA **

**CONDENSED            STATEMENTS OF CASH FLOWS**

**For            the Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                                                                                              |   | **2005**     |    | **2004**     |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|--------------|---------|--------------|--------|
| **OPERATING                      ACTIVITIES**                                                                                     |   |    |    |    |   |
| **Net                      Income (Loss)**                                                                                        |   | $            | 19,075  |         | $      | (1,612 | ) |
| **Adjustments                      to Reconcile Net Income to Net Cash Flows****From                      Operating Activities:** |   |         |    |         |   |   |   |
| Depreciation                      and Amortization                                                                                |   |         | 44,866  |         |   | 44,335 |   |
| Deferred                      Property Taxes                                                                                      |   |         | (16,245 | )            |   | (17,295 | ) |
| Deferred                      Income Taxes                                                                                        |   |         | 2,998   |         |   | 11,043 |   |
| Deferred                      Investment Tax Credits                                                                              |   |         | (896    | )            |   | (895 | ) |
| Mark-to-Market                      of Risk Management Contracts                                                                  |   |         | 10,934  |         |   | 10,237 |   |
| Fuel                      Recovery                                                                                                |   |         | 1,551   |         |   | (12,683 | ) |
| Change                      in Other Noncurrent Assets                                                                            |   |         | (16,856 | )            |   | (4,152 | ) |
| Change                      in Other Noncurrent Liabilities                                                                       |   |         | (1,943  | )            |   | (4,605 | ) |
| **Changes                      in Components of Working Capital:**                                                                |   |         |    |         |   |   |   |
| Accounts                      Receivable, Net                                                                                     |   |         | 21,555  |         |   | (5,441 | ) |
| Fuel,                      Materials and Supplies                                                                                 |   |         | (6,755  | )            |   | (3,534 | ) |
| Accounts                      Payable                                                                                             |   |         | 49,958  |         |   | 20,508 |   |
| Customer                      Deposits                                                                                            |   |         | 1,017   |         |   | 2,952 |   |
| Taxes                      Accrued                                                                                                |   |         | 11,161  |         |   | 7,911 |   |
| Interest                      Accrued                                                                                             |   |         | (699    | )            |   | (259 | ) |
| Other                      Current Assets                                                                                         |   |         | 343     |         |   | 3,513 |   |
| Other                      Current Liabilities                                                                                    |   |         | (9,326  | )            |   | (13,898 | ) |
| **Net                      Cash Flows From Operating Activities**                                                                 |   |         | 110,738 |         |   | 36,125 |   |
|                                                                                                                              |   |         |    |         |   |   |   |
| **INVESTING                      ACTIVITIES**                                                                                     |   |         |    |         |   |   |   |
| Construction                      Expenditures                                                                                    |   |         | (55,449 | )            |   | (36,713 | ) |
| Change                      in Other Cash Deposits, Net                                                                           |   |         | 182     |         |   | 3,565 |   |
| Proceeds                      from Sale of Assets                                                                                 |   |         | -       |         |   | 458 |   |
| **Net                      Cash Flows Used For Investing Activities**                                                             |   |         | (55,267 | )            |   | (32,690 | ) |
|                                                                                                                              |   |         |    |         |   |   |   |
| **FINANCING                      ACTIVITIES**                                                                                     |   |         |    |         |   |   |   |
| Issuance                      of Long-term Debt                                                                                   |   |         | 74,408  |         |   | 83,129 |   |
| Retirement                      of Long-term Debt                                                                                 |   |         | (50,000 | )            |   | (111,020 | ) |
| Reacquired                      Preferred Stock                                                                                   |   |         | -       |         |   | (3 | ) |
| Changes                      in Advances to/from Affiliates, Net                                                                  |   |         | (62,086 | )            |   | 42,170 |   |
| Dividends                      Paid on Common Stock                                                                               |   |         | (17,000 | )            |   | (17,500 | ) |
| Dividends                      Paid on Cumulative Preferred Stock                                                                 |   |         | (106    | )            |   | (106 | ) |
| **Net                      Cash Flows Used For Financing Activities**                                                             |   |         | (54,784 | )            |   | (3,330 | ) |
|                                                                                                                              |   |         |    |         |   |   |   |
| **Net                      Increase in Cash and Cash Equivalents**                                                                |   |         | 687     |         |   | 105 |   |
| **Cash                      and Cash Equivalents at Beginning of Period**                                                         |   |         | 91      |         |   | 3,738 |   |
| **Cash                      and Cash Equivalents at End of Period**                                                               |   | $            | 778     |         | $      | 3,843 |   |

| **SUPPLEMENTAL                      DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cash                      paid (received) for interest net of capitalized amounts was                      $15,028,000                      and $17,600,000 and for income taxes was $3,590,000 and $(2,695,000)                      in                      2005 and 2004, respectively. Noncash capital lease acquisitions                      were                      $738,000 and $337,000 in 2005 and 2004, respectively. Construction                      Expenditures include the change in construction-related Accounts                      Payable                      of $(595,000) and $(174,000) in 2005 and 2004,                      respectively. |

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

----

**PUBLIC            SERVICE COMPANY OF OKLAHOMA**

**INDEX            TO CONDENSED NOTES TO 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  |
| Benefit                      Plans                           | Note                      8  |
| Business                      Segments                       | Note                      9  |
| Income                      Taxes                            | Note                      10 |
| Financing                      Activities                    | Note                      11 |
| Company-wide                      Staffing and Budget Review | Note                      12 |

----

**SOUTHWESTERN            ELECTRIC POWER COMPANY CONSOLIDATED**

----

**SOUTHWESTERN            ELECTRIC POWER COMPANY CONSOLIDATED**

**MANAGEMENT’S            FINANCIAL DISCUSSION AND ANALYSIS**

**Results            of Operations**

**Reconciliation            of Second Quarter of 2004 to Second Quarter of 2005 Net            Income**

**(in            millions)**

| **Second                      Quarter of 2004 Net Income**             |   |   |   |   | $      | 28     |   |
|------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                   |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                      |   |   |   |   |   |   |   |
| Retail                      Margins (a)                                |   |   | (14    | )      |   |   |   |
| Off-system                      Sales                                  |   |   | 3      |   |   |   |   |
| Other                      Revenues                                    |   |   | 1      |   |   |   |   |
| **Total                      Change in Gross Margin**                  |   |   |   |   |   | (10    | )      |
|                                                                   |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**      |   |   |   |   |   |   |   |
| Other                      Operation and Maintenance                   |   |   | (6     | )      |   |   |   |
| Depreciation                      and Amortization                     |   |   | (1     | )      |   |   |   |
| Taxes                      Other Than Income Taxes                     |   |   | (1     | )      |   |   |   |
| Interest                      Charges                                  |   |   | 1      |   |   |   |   |
| **Total                      Change in Operating Expenses and Other:** |   |   |   |   |   | (7     | )      |
|                                                                   |   |   |   |   |   |   |   |
| Income                      Tax Expense                                |   |   |   |   |   | 8      |   |
|                                                                   |   |   |   |   |   |   |   |
| **Second                      Quarter of 2005 Net Income**             |   |   |   |   | $      | 19     |   |

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

| · | Retail                      Margins decreased $14 million primarily                      due to a $22 million decrease in net fuel revenue/fuel expense,                      of which                      $11 million is increased capacity expense, offset by an increase                      in retail                      base revenue of $5 million and an increase of $3 million in                      wholesale base                      revenue, due to higher volumes. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Margins                      from Off-system Sales increased $3 million primarily due to                      increased                      capacity and affiliated sales                      margins.                                                                                                                                                                                                                                                                              |

| · | Other                      Operation and Maintenance expenses increased $6 million primarily                      due to                      increased maintenance expense of $4 million resulting from                      extended power                      plant outages, increased production related expense and higher                      administrative and general expenses. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Income            Taxes*

**Reconciliation            of Six Months Ended June 30, 2004 to Six Months Ended June 30, 2005 Net            Income**

**(in            millions)**

| **Six                      Months Ended June 30, 2004 Net Income**     |   |   |   |   | $      | 33     |   |
|------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                   |   |   |   |   |   |   |   |
| **Changes                      in Gross Margin:**                      |   |   |   |   |   |   |   |
| Retail                      Margins (a)                                |   |   | (9     | )      |   |   |   |
| Off-system                      Sales                                  |   |   | 2      |   |   |   |   |
| Transmission                      Revenues                             |   |   | (1     | )      |   |   |   |
| Other                      Revenues                                    |   |   | 2      |   |   |   |   |
| **Total                      Change in Gross Margin**                  |   |   |   |   |   | (6     | )      |
|                                                                   |   |   |   |   |   |   |   |
| **Changes                      in Operating Expenses and Other:**      |   |   |   |   |   |   |   |
| Other                      Operation and Maintenance                   |   |   | -      |   |   |   |   |
| Depreciation                      and Amortization                     |   |   | (2     | )      |   |   |   |
| Interest                      Charges                                  |   |   | 3      |   |   |   |   |
| **Total                      Change in Operating Expenses and Other:** |   |   |   |   |   | 1      |   |
|                                                                   |   |   |   |   |   |   |   |
| Income                      Tax Expense                                |   |   |   |   |   | 4      |   |
|                                                                   |   |   |   |   |   |   |   |
| **Six                      Months Ended June 30, 2005 Net Income**     |   |   |   |   | $      | 32     |   |

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

| · | Retail                      Margins decreased $9 million primarily                      due to a $24 million decrease in net fuel revenue/fuel expense,                      of which                      $13 million is increased capacity expense, offset by an increase                      in retail                      base revenue of $5 million and an increase of $10 million in                      wholesale                      base revenue, due to higher volumes. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Margins                      from Off-system Sales increased $2 million primarily due to                      higher                      optimization activity.                                                                                                                                                                                                                                                                                                                      |
| · | Transmission                      Revenues decreased $1 million primarily due to reduced SPP                      revenues.                                                                                                                                                                                                                                                                                                                                                           |

| · | Operation                      expenses decreased $3 million primarily due to a $6 million                      adjustment in                      2004 for affiliated OATT and ancillary services resulting from                      revised                      ERCOT data for the years 2001 through 2003, offset in part                      by $3 million                      of higher production plant related expenses. Maintenance expense                      increased                      $4 million primarily due to major power plant outages in                      2005. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Interest                      Charges decreased $3 million primarily due to refinancing debt                      maturities                      and optional redemptions with lower cost                      debt.                                                                                                                                                                                                                                                                                                                                                                           |

*Income            Taxes*

**Financial            Condition**

**Credit            Ratings**

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

**Cash            Flow**

|                                                                      |   | **2005**                                |    | **2004** |   |
|---------------------------------------------------------------------------|--------|-----------------------------------------|---------|----------|--------|
|                                                                      |   | **(in                      thousands)** |    |
| **Cash                      and Cash Equivalents at Beginning of Period** |   | $                                       | 2,308   |     | $      | 5,676 |   |
| Cash                      Flows From (Used For):                          |   |                                    |    |     |   |   |   |
| Operating                      Activities                                 |   |                                    | 98,139  |     |   | 112,966 |   |
| Investing                      Activities                                 |   |                                    | (65,750 | )        |   | (42,760 | ) |
| Financing                      Activities                                 |   |                                    | (30,106 | )        |   | (64,280 | ) |
| Net                      Increase in Cash and Cash Equivalents            |   |                                    | 2,283   |     |   | 5,926 |   |
| **Cash                      and Cash Equivalents at End of Period**       |   | $                                       | 4,591   |     | $      | 11,602 |   |

*Operating            Activities*

*Investing            Activities*

*Financing            Activities*

**Financing            Activity**

|                                        |   |  **Principal**                           |    | **Interest** |   | **Due**  |   |
|---------------------------------------------|--------|-----------------------------------------------|---------|--------------|--------|----------|--------|
| **Type                      of Debt**       |   |  **Amount**                              |    | **Rate**     |   | **Date** |   |
|                                        |   |  **(in                      thousands)** |    | **(%)**      |   |     |   |
| Senior                      Unsecured Notes |   | $                                             | 150,000 | (a)          |   | 4.90     |   |   | 2015 |   |

|                                  |   |  **Principal**                           |   | **Interest** |   | **Due**  |   |
|---------------------------------------|--------|-----------------------------------------------|--------|--------------|--------|----------|--------|
| **Type                      of Debt** |   |  **Amount**                              |   | **Rate**     |   | **Date** |   |
|                                  |   |  **(in                      thousands)** |   | **(%)**      |   |     |   |
| Note                      Payable     |   | $                                             | 3,415  |         |   | 4.47     |   |   | 2011 |   |
| Note                      Payable     |   |                                          | 1,500  |         |   | Variable |   |   | 2008 |   |

**Liquidity**

**Summary            Obligation Information**

**Significant            Factors**

**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**

**Six            Months Ended June 30, 2005**

**(in            thousands)**

| **Total                      MTM Risk Management Contract Net Assets at December 31,                      2004**                      |   | $      | 17,527 |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|
| (Gain)                      Loss from Contracts Realized/Settled During the Period (a)                                                |   |   | (3,428 | )      |
| Fair                      Value of New Contracts When Entered During the Period (b)                                                   |   |   | 47     |   |
| Net                      Option Premiums Paid/(Received) (c)                                                                          |   |   | (84    | )      |
| Change                      in Fair Value Due to Valuation Methodology Changes                                                        |   |   | -      |   |
| Changes                      in Fair Value of Risk Management Contracts (d)                                                           |   |   | (1,087 | )      |
| Changes                      in Fair Value of Risk Management Contracts Allocated to Regulated                      Jurisdictions (e) |   |   | (8,479 | )      |
| **Total                      MTM Risk Management Contract Net Assets**                                                                |   |   | 4,496  |   |
| Net                      Cash Flow Hedge Contracts (f)                                                                                |   |   | (1,311 | )      |
| **Total                      MTM Risk Management Contract Net Assets at June 30, 2005**                                               |   | $      | 3,185  |   |

| (a) | “(Gain)                      Loss from Contracts Realized/Settled During the Period” includes realized                      risk management contracts and related derivatives that settled                      during 2005                      where                      we entered into the contract prior                      to 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Fair                      Value of New Contracts When Entered During the Period” represents the fair                      value at inception of long-term contracts entered into with                      customers                      during 2005. 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. |
| (c) | “Net                      Option Premiums Paid/(Received)” reflects the net option premiums                      paid/(received) as they relate to unexercised and unexpired                      option                      contracts that were entered in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (d) | “Changes                      in Fair Value of Risk Management Contracts” represents the fair value                      change in the risk management portfolio due to market fluctuations                      during                      the current period. Market fluctuations are attributable to                      various                      factors such as supply/demand, weather, storage, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (e) | “Changes                      in Fair Value of Risk Management Contracts 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 assets/liabilities                      for                      those subsidiaries that operate in regulated                      jurisdictions.                                                                                                                                                                                                                                                                                                                                  |
| (f) | “Net                      Cash Flow Hedge Contracts” (pretax) are discussed below in Accumulated                      Other Comprehensive Income (Loss).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

**Reconciliation            of MTM Risk Management Contracts to**

**Condensed            Consolidated Balance Sheets**

**As            of June 30, 2005**

**(in            thousands)**

|                                                                            |   | **MTM                      Risk Management Contracts (a)** |    | **Cash                      Flow Hedges** |   | **Total                      (b)** |   |
|---------------------------------------------------------------------------------|--------|------------------------------------------------------------|---------|-------------------------------------------|--------|------------------------------------|--------|
| Current                      Assets                                             |   | $                                                          | 7,417   |                                      | $      | 39                                 |   | $ | 7,456 |   |
| Noncurrent                      Assets                                          |   |                                                       | 9,084   |                                      |   | 11                                 |   |   | 9,095 |   |
| **Total                      MTM Derivative Contract Assets**                   |   |                                                       | 16,501  |                                      |   | 50                                 |   |   | 16,551 |   |
|                                                                            |   |                                                       |    |                                      |   |                               |   |   |   |   |
| Current                      Liabilities                                        |   |                                                       | (6,940  | )                                         |   | (1,098                             | )      |   | (8,038 | ) |
| Noncurrent                      Liabilities                                     |   |                                                       | (5,065  | )                                         |   | (263                               | )      |   | (5,328 | ) |
| **Total                      MTM Derivative Contract Liabilities**              |   |                                                       | (12,005 | )                                         |   | (1,361                             | )      |   | (13,366 | ) |
|                                                                            |   |                                                       |    |                                      |   |                               |   |   |   |   |
| **Total                      MTM Derivative Contract Net Assets (Liabilities)** |   | $                                                          | 4,496   |                                      | $      | (1,311                             | )      | $ | 3,185 |   |

| (a) | Does                      not include Cash Flow Hedges.                                                                                                                                                                                                                                                                                                                         |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Represents                      amount of total MTM derivative contracts recorded within Risk                      Management                      Assets, Long-term Risk Management Assets, Risk Management Liabilities                      and                      Long-term Risk Management Liabilities on our Condensed Consolidated                      Balance Sheets. |

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

| · | The                      source of 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 June 30, 2005**

**(in            thousands)**

|                                                                                                        |   | **Remainder                      of 2005** |   | **2006** |   | **2007** |   | **2008** |   | **2009** |   | **After****2009                      (c)** |   | **Total                      (d)** |   |
|-------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|--------------------------------------------|--------|------------------------------------|--------|
| Prices                      Actively Quoted - Exchange Traded                      Contracts                |   | $                                          | (1,207 | )        | $      | (10      | )      | $        | 957    |     | $      | -                                          |   | $                                  | -      |   | $ | - |   | $ | (260 | ) |
| Prices                      Provided by Other External Sources                      - OTC Broker Quotes (a) |   |                                       | 2,564  |     |   | 3,373    |   |     | 950    |     |   | 1,174                                      |   |                               | -      |   |   | - |   |   | 8,061 |   |
| Prices                      Based on Models and Other Valuation                      Methods (b)            |   |                                       | (1,319 | )        |   | (2,439   | )      |     | (1,055 | )        |   | (104                                       | )      |                               | 737    |   |   | 875 |   |   | (3,305 | ) |
| **Total**                                                                                                   |   | $                                          | 38     |     | $      | 924      |   | $        | 852    |     | $      | 1,070                                      |   | $                                  | 737    |   | $ | 875 |   | $ | 4,496 |   |

| (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 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. |
| (c) | There                      is mark-to-market value in excess of 10 percent of our total                      mark-to-market value in individual periods beyond 2009. $525                      thousand of                      this mark-to-market value is in 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (d) | Amounts                      exclude Cash Flow Hedges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

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

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

**Six            Months Ended June 30, 2005**

**(in            thousands)**

|                                                                                    |   | **Power** |   | **Interest                      Rate** |   | **Total** |   |
|-----------------------------------------------------------------------------------------|--------|-----------|--------|----------------------------------------|--------|-----------|--------|
| **Beginning                      Balance December 31, 2004**                            |   | $         | 1,188  |                                   | $      | (2,008    | )      | $ | (820 | ) |
| Changes                      in Fair Value (a)                                          |   |      | (1,334 | )                                      |   | (3,378    | )      |   | (4,712 | ) |
| Reclassifications                      from AOCI to Net Income                      (b) |   |      | (500   | )                                      |   | -         |   |   | (500 | ) |
| **Ending                      Balance June 30, 2005**                                   |   | $         | (646   | )                                      | $      | (5,386    | )      | $ | (6,032 | ) |

| (a) | “Changes                      in Fair Value” shows changes in the fair value of derivatives designated                      as cash flow hedges during the reporting period that are not                      yet settled                      at June 30, 2005. Amounts are reported net of related income                      taxes.                                                           |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | “Reclassifications                      from AOCI to Net Income” represents gains or losses from derivatives used                      as hedging instruments in cash flow hedges that were reclassified                      into net                      income during the reporting period. Amounts are reported net                      of related                      income taxes above. |

**Credit            Risk**

**VaR            Associated with Risk Management Contracts**

|   | **Six                      Months Ended** |   | **Twelve                      Months Ended** |   |
|--------|-------------------------------------------|--------|----------------------------------------------|--------|
|   | **June                      30, 2005**    |   | **December                      31, 2004**   |   |
|   | **(in                      thousands)**   |   | **(in                      thousands)**      |   |
|   | **End**                                   |   | **High**                                     |   | **Average** |   | **Low** |   | **End** |   | **High** |   | **Average** |   | **Low** |   |
|   | $133                                      |   | $159                                         |   | $78 |   | $46 |   | $283 |   | $923 |   | $398 |   | $136 |   |

**VaR            Associated with Debt Outstanding**

----

**SOUTHWESTERN            ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED            CONSOLIDATED STATEMENTS OF INCOME**

**For            the Three and Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                                    |   | **Three                      Months Ended** |    | **Six                      Months Ended** |   |
|-------------------------------------------------------------------------|--------|---------------------------------------------|---------|-------------------------------------------|--------|
|                                                                    |   | **2005**                                    |    | **2004**                                  |   | **2005** |   | **2004** |   |
| **OPERATING                      REVENUES**                             |   |                                   |    |                                 |   |   |   |   |   |
| Electric                      Generation, Transmission and Distribution |   | $                                           | 326,175 |                                      | $      | 251,550 |   | $ | 556,049 |   | $ | 465,500 |   |
| Sales                      to AEP Affiliates                            |   |                                        | 6,837   |                                      |   | 17,498 |   |   | 23,959 |   |   | 39,709 |   |
| **TOTAL**                                                               |   |                                        | 333,012 |                                      |   | 269,048 |   |   | 580,008 |   |   | 505,209 |   |
|                                                                    |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **OPERATING                      EXPENSES**                             |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| Fuel                      for Electric Generation                       |   |                                        | 116,167 |                                      |   | 94,245 |   |   | 206,277 |   |   | 183,068 |   |
| Purchased                      Electricity for Resale                   |   |                                        | 32,803  |                                      |   | (4,008 | ) |   | 46,183 |   |   | 1,926 |   |
| Purchased                      Electricity from AEP Affiliates          |   |                                        | 22,003  |                                      |   | 7,113 |   |   | 27,867 |   |   | 14,420 |   |
| Other                      Operation                                    |   |                                        | 47,115  |                                      |   | 44,593 |   |   | 91,564 |   |   | 94,861 |   |
| Maintenance                                                             |   |                                        | 27,645  |                                      |   | 24,011 |   |   | 43,360 |   |   | 39,659 |   |
| Depreciation                      and Amortization                      |   |                                        | 33,257  |                                      |   | 31,979 |   |   | 65,650 |   |   | 63,264 |   |
| Taxes                      Other Than Income Taxes                      |   |                                        | 15,887  |                                      |   | 15,148 |   |   | 31,550 |   |   | 31,715 |   |
| Income                      Taxes                                       |   |                                        | 5,861   |                                      |   | 14,439 |   |   | 10,457 |   |   | 14,570 |   |
| **TOTAL**                                                               |   |                                        | 300,738 |                                      |   | 227,520 |   |   | 522,908 |   |   | 443,483 |   |
|                                                                    |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **OPERATING                      INCOME**                               |   |                                        | 32,274  |                                      |   | 41,528 |   |   | 57,100 |   |   | 61,726 |   |
|                                                                    |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| Nonoperating                      Income                                |   |                                        | 991     |                                      |   | 792 |   |   | 2,310 |   |   | 2,195 |   |
| Nonoperating                      Expenses                              |   |                                        | 617     |                                      |   | 723 |   |   | 1,091 |   |   | 1,334 |   |
| Nonoperating                      Income Tax Credit                     |   |                                        | 371     |                                      |   | 541 |   |   | 571 |   |   | 897 |   |
| Interest                      Charges                                   |   |                                        | 12,901  |                                      |   | 13,379 |   |   | 25,681 |   |   | 28,822 |   |
| Minority                      Interest                                  |   |                                        | (814    | )                                         |   | (813 | ) |   | (1,700 | ) |   | (1,694 | ) |
|                                                                    |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **NET                      INCOME**                                     |   |                                        | 19,304  |                                      |   | 27,946 |   |   | 31,509 |   |   | 32,968 |   |
|                                                                    |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| Preferred                      Stock Dividend Requirements              |   |                                        | 58      |                                      |   | 58 |   |   | 115 |   |   | 115 |   |
|                                                                    |   |                                        |    |                                      |   |   |   |   |   |   |   |   |   |
| **EARNINGS                      APPLICABLE TO COMMON STOCK**            |   | $                                           | 19,246  |                                      | $      | 27,888 |   | $ | 31,394 |   | $ | 32,853 |   |

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

*See*
*            Condensed*
*            Notes to 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 Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                                        |   | **Common                      Stock** |    | **Paid-in                      Capital** |   | **Retained                      Earnings** |   | **Accumulated                      Other Comprehensive Income (Loss)** |    | **Total** |   |
|-----------------------------------------------------------------------------|--------|---------------------------------------|---------|------------------------------------------|--------|--------------------------------------------|--------|------------------------------------------------------------------------|---------|-----------|--------|
| **DECEMBER                      31, 2003**                                  |   | $                                     | 135,660 |                                     | $      | 245,003                                    |   | $                                                                      | 359,907 |      | $      | (43,910 | ) | $ | 696,660 |   |
|                                                                        |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Common                      Stock Dividends                                 |   |                                  |    |                                     |   |                                       |   |                                                                   | (30,000 | )         |   |   |   |   | (30,000 | ) |
| Preferred                      Stock Dividends                              |   |                                  |    |                                     |   |                                       |   |                                                                   | (115    | )         |   |   |   |   | (115 | ) |
| **TOTAL**                                                                   |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 666,545 |   |
|                                                                        |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                               |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Income (Loss), Net of Taxes:**   |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $333                   |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   | (618 | ) |   | (618 | ) |
| Minimum                      Pension Liability, Net of Tax of  $12,420 |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   | 23,066 |   |   | 23,066 |   |
| **NET                      INCOME**                                         |   |                                  |    |                                     |   |                                       |   |                                                                   | 32,968  |      |   |   |   |   | 32,968 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                         |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 55,416 |   |
|                                                                        |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **JUNE                      30, 2004**                                      |   | $                                     | 135,660 |                                     | $      | 245,003                                    |   | $                                                                      | 362,760 |      | $      | (21,462 | ) | $ | 721,961 |   |
|                                                                        |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **DECEMBER                      31, 2004**                                  |   | $                                     | 135,660 |                                     | $      | 245,003                                    |   | $                                                                      | 389,135 |      | $      | (1,180 | ) | $ | 768,618 |   |
|                                                                        |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Common                      Stock Dividends                                 |   |                                  |    |                                     |   |                                       |   |                                                                   | (25,000 | )         |   |   |   |   | (25,000 | ) |
| Preferred                      Stock Dividends                              |   |                                  |    |                                     |   |                                       |   |                                                                   | (115    | )         |   |   |   |   | (115 | ) |
| **TOTAL**                                                                   |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 743,503 |   |
|                                                                        |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **COMPREHENSIVE                      INCOME**                               |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **Other                      Comprehensive Loss, Net of Taxes:**            |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| Cash                      Flow Hedges, Net of Tax of $2,807                 |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   | (5,212 | ) |   | (5,212 | ) |
| **NET                      INCOME**                                         |   |                                  |    |                                     |   |                                       |   |                                                                   | 31,509  |      |   |   |   |   | 31,509 |   |
| **TOTAL                      COMPREHENSIVE INCOME**                         |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   | 26,297 |   |
|                                                                        |   |                                  |    |                                     |   |                                       |   |                                                                   |    |      |   |   |   |   |   |   |
| **JUNE                      30, 2005**                                      |   | $                                     | 135,660 |                                     | $      | 245,003                                    |   | $                                                                      | 395,529 |      | $      | (6,392 | ) | $ | 769,800 |   |

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

----

**SOUTHWESTERN            ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED            CONSOLIDATED BALANCE SHEETS**

**ASSETS**

**June            30, 2005 and December 31, 2004**

**(Unaudited)**

**(in            thousands)**

|                                                                 |   | **2005** |      | **2004** |   |
|----------------------------------------------------------------------|--------|----------|-----------|----------|--------|
| **ELECTRIC                      UTILITY PLANT**                      |   |     |      |
| Production                                                           |   | $        | 1,667,723 |     | $      | 1,663,161 |   |
| Transmission                                                         |   |     | 639,968   |     |   | 632,964 |   |
| Distribution                                                         |   |     | 1,133,748 |     |   | 1,114,480 |   |
| General                                                              |   |     | 435,127   |     |   | 427,910 |   |
| Construction                      Work in Progress                   |   |     | 70,161    |     |   | 48,852 |   |
| **Total**                                                            |   |     | 3,946,727 |     |   | 3,887,367 |   |
| Accumulated                      Depreciation and Amortization       |   |     | 1,762,560 |     |   | 1,709,758 |   |
| **TOTAL                      - NET**                                 |   |     | 2,184,167 |     |   | 2,177,609 |   |
|                                                                 |   |     |      |     |   |   |   |
| **OTHER                      PROPERTY AND INVESTMENTS**              |   |     |      |     |   |   |   |
| Nonutility                      Property, Net                        |   |     | 4,047     |     |   | 4,049 |   |
| Other                      Investments                               |   |     | 4,628     |     |   | 4,628 |   |
| **TOTAL**                                                            |   |     | 8,675     |     |   | 8,677 |   |
|                                                                 |   |     |      |     |   |   |   |
| **CURRENT                      ASSETS**                              |   |     |      |     |   |   |   |
| Cash                      and Cash Equivalents                       |   |     | 4,591     |     |   | 2,308 |   |
| Other                      Cash Deposits                             |   |     | -         |     |   | 6,292 |   |
| Advances                      to Affiliates                          |   |     | 188,077   |     |   | 39,106 |   |
| Accounts                      Receivable:                            |   |     |      |     |   |   |   |
| Customers                                                            |   |     | 39,842    |     |   | 39,042 |   |
| Affiliated                      Companies                            |   |     | 16,447    |     |   | 28,817 |   |
| Miscellaneous                                                        |   |     | 5,215     |     |   | 5,856 |   |
| Allowance                      for Uncollectible Accounts            |   |     | (5        | )        |   | (45 | ) |
| Fuel                      Inventory                                  |   |     | 44,260    |     |   | 45,793 |   |
| Materials                      and Supplies                          |   |     | 36,022    |     |   | 36,051 |   |
| Risk                      Management Assets                          |   |     | 7,456     |     |   | 25,379 |   |
| Regulatory                      Asset for Under-Recovered Fuel Costs |   |     | 25,762    |     |   | 4,687 |   |
| Margin                      Deposits                                 |   |     | 1,341     |     |   | 3,419 |   |
| Prepayments                      and Other                           |   |     | 17,048    |     |   | 18,331 |   |
| **TOTAL**                                                            |   |     | 386,056   |     |   | 255,036 |   |
|                                                                 |   |     |      |     |   |   |   |
|                                                                 |   |     |      |     |   |   |   |
| **DEFERRED                      DEBITS AND OTHER ASSETS**            |   |     |      |     |   |   |   |
| Regulatory                      Assets:                              |   |     |      |     |   |   |   |
| SFAS                      109 Regulatory Asset, Net                  |   |     | 21,903    |     |   | 18,000 |   |
| Unamortized                      Loss on Reacquired Debt             |   |     | 19,369    |     |   | 20,765 |   |
| Other                                                                |   |     | 13,234    |     |   | 16,350 |   |
| Long-term                      Risk Management Assets                |   |     | 9,095     |     |   | 17,179 |   |
| Prepaid                      Pension Obligations                     |   |     | 80,599    |     |   | 81,132 |   |
| Deferred                      Property Taxes                         |   |     | 19,047    |     |   | - |   |
| Deferred                      Charges                                |   |     | 46,159    |     |   | 51,561 |   |
| **TOTAL**                                                            |   |     | 209,406   |     |   | 204,987 |   |
|                                                                 |   |     |      |     |   |   |   |
| **TOTAL                      ASSETS**                                |   | $        | 2,788,304 |     | $      | 2,646,309 |   |

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

----

**SOUTHWESTERN            ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED            CONSOLIDATED BALANCE SHEETS**

**CAPITALIZATION**
**            AND LIABILITIES**

**June            30, 2005 and December 31, 2004**

**(Unaudited)**

|                                                                                |   | **2005**                                |      | **2004**     |   |
|-------------------------------------------------------------------------------------|--------|-----------------------------------------|-----------|--------------|--------|
| **CAPITALIZATION**                                                                  |   | **(in                      thousands)** |      |
| 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                                              |   |                                    | 395,529   |         |   | 389,135 |   |
| Accumulated                      Other Comprehensive Income (Loss)                  |   |                                    | (6,392    | )            |   | (1,180 | ) |
| **Total                      Common Shareholder’s Equity**                    |   |                                    | 769,800   |         |   | 768,618 |   |
| Cumulative                      Preferred Stock Not Subject to Mandatory Redemption |   |                                    | 4,700     |         |   | 4,700 |   |
| **Total                      Shareholders’ Equity**                           |   |                                    | 774,500   |         |   | 773,318 |   |
| Long-term                      Debt:                                                |   |                                    |      |         |   |   |   |
| Nonaffiliated                                                                       |   |                                    | 690,546   |         |   | 545,395 |   |
| Affiliated                                                                          |   |                                    | 50,000    |         |   | 50,000 |   |
| **Total                      Long-term Debt**                                       |   |                                    | 740,546   |         |   | 595,395 |   |
| **TOTAL**                                                                           |   |                                    | 1,515,046 |         |   | 1,368,713 |   |
|                                                                                |   |                                    |      |         |   |   |   |
| Minority                      Interest                                              |   |                                    | 1,953     |         |   | 1,125 |   |
|                                                                                |   |                                    |      |         |   |   |   |
| **CURRENT                      LIABILITIES**                                        |   |                                    |      |         |   |   |   |
| Long-term                      Debt Due Within One Year - Nonaffiliated             |   |                                    | 209,954   |         |   | 209,974 |   |
| Accounts                      Payable:                                              |   |                                    |      |         |   |   |   |
| General                                                                             |   |                                    | 56,582    |         |   | 40,001 |   |
| Affiliated                      Companies                                           |   |                                    | 42,099    |         |   | 33,285 |   |
| Customer                      Deposits                                              |   |                                    | 30,082    |         |   | 30,550 |   |
| Taxes                      Accrued                                                  |   |                                    | 46,433    |         |   | 45,474 |   |
| Interest                      Accrued                                               |   |                                    | 12,049    |         |   | 12,509 |   |
| Risk                      Management Liabilities                                    |   |                                    | 8,038     |         |   | 18,607 |   |
| Obligations                      Under Capital Leases                               |   |                                    | 4,781     |         |   | 3,692 |   |
| Regulatory                      Liability for Over-Recovered Fuel Costs             |   |                                    | 6,076     |         |   | 9,891 |   |
| Other                                                                               |   |                                    | 34,419    |         |   | 33,417 |   |
| **TOTAL**                                                                           |   |                                    | 450,513   |         |   | 437,400 |   |
|                                                                                |   |                                    |      |         |   |   |   |
| **DEFERRED                      CREDITS AND OTHER LIABILITIES**                     |   |                                    |      |         |   |   |   |
| Deferred                      Income Taxes                                          |   |                                    | 401,158   |         |   | 399,756 |   |
| Long-term                      Risk Management Liabilities                          |   |                                    | 5,328     |         |   | 9,128 |   |
| Reclamation                      Reserve                                            |   |                                    | -         |         |   | 7,624 |   |
| Regulatory                      Liabilities:                                        |   |                                    |      |         |   |   |   |
| Asset                      Removal Costs                                            |   |                                    | 251,382   |         |   | 249,892 |   |
| Deferred                      Investment Tax Credits                                |   |                                    | 33,392    |         |   | 35,539 |   |
| Excess                      Earnings                                                |   |                                    | 3,167     |         |   | 3,167 |   |
| Other                                                                               |   |                                    | 6,667     |         |   | 21,320 |   |
| Asset                      Retirement Obligations                                   |   |                                    | 33,461    |         |   | 27,361 |   |
| Obligations                      Under Capital Leases                               |   |                                    | 33,578    |         |   | 30,854 |   |
| Deferred                      Credits and Other                                     |   |                                    | 52,659    |         |   | 54,430 |   |
| **TOTAL**                                                                           |   |                                    | 820,792   |         |   | 839,071 |   |
|                                                                                |   |                                    |      |         |   |   |   |
| Commitments                      and Contingencies (Note 5)                         |   |                                    |      |         |   |   |   |
|                                                                                |   |                                    |      |         |   |   |   |
| **TOTAL                      CAPITALIZATION AND LIABILITIES**                       |   | $                                       | 2,788,304 |         | $      | 2,646,309 |   |

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

----

**SOUTHWESTERN            ELECTRIC POWER COMPANY CONSOLIDATED**

**CONDENSED            CONSOLIDATED STATEMENTS OF CASH FLOWS**

**For            the Six Months Ended June 30, 2005 and 2004**

**(Unaudited)**

**(in            thousands)**

|                                                                                                                              |   | **2005**     |     | **2004**     |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|--------------|----------|--------------|--------|
| **OPERATING                      ACTIVITIES**                                                                                     |   |    |     |    |   |
| **Net                      Income**                                                                                               |   | $            | 31,509   |         | $      | 32,968 |   |
| **Adjustments                      to Reconcile Net Income to Net Cash Flows****From                      Operating Activities:** |   |         |     |         |   |   |   |
| Depreciation                      and Amortization                                                                                |   |         | 65,650   |         |   | 63,264 |   |
| Deferred                      Property Taxes                                                                                      |   |         | (19,047  | )            |   | (19,375 | ) |
| Deferred                      Income Taxes                                                                                        |   |         | 176      |         |   | (4,519 | ) |
| Deferred                      Investment Tax Credits                                                                              |   |         | (2,147   | )            |   | (2,163 | ) |
| Mark-to-Market                      of Risk Management Contracts                                                                  |   |         | 13,031   |         |   | 12,181 |   |
| Over/Under                      Fuel Recovery                                                                                     |   |         | (24,890  | )            |   | 8,598 |   |
| Change                      in Other Noncurrent Assets                                                                            |   |         | 6,326    |         |   | (12,889 | ) |
| Change                      in Other Noncurrent Liabilities                                                                       |   |         | (20,982  | )            |   | 3,747 |   |
| **Changes                      in Components of Working Capital:**                                                                |   |         |     |         |   |   |   |
| Accounts                      Receivable, Net                                                                                     |   |         | 12,171   |         |   | (4,473 | ) |
| Fuel,                      Materials and Supplies                                                                                 |   |         | 1,562    |         |   | 2,110 |   |
| Accounts                      Payable                                                                                             |   |         | 27,772   |         |   | 3,352 |   |
| Taxes                      Accrued                                                                                                |   |         | 959      |         |   | 46,489 |   |
| Customer                      Deposits                                                                                            |   |         | (468     | )            |   | 2,471 |   |
| Interest                      Accrued                                                                                             |   |         | (460     | )            |   | (5,004 | ) |
| Other                      Current Assets                                                                                         |   |         | 3,361    |         |   | 5,727 |   |
| Other                      Current Liabilities                                                                                    |   |         | 3,616    |         |   | (19,518 | ) |
| **Net                      Cash Flows From Operating Activities**                                                                 |   |         | 98,139   |         |   | 112,966 |   |
|                                                                                                                              |   |         |     |         |   |   |   |
| **INVESTING                      ACTIVITIES**                                                                                     |   |         |     |         |   |   |   |
| Construction                      Expenditures                                                                                    |   |         | (72,150  | )            |   | (45,879 | ) |
| Change                      in Other Cash Deposits, Net                                                                           |   |         | 6,292    |         |   | 803 |   |
| Proceeds                      from Sale of Assets                                                                                 |   |         | 108      |         |   | 2,316 |   |
| **Net                      Cash Flows Used For Investing Activities**                                                             |   |         | (65,750  | )            |   | (42,760 | ) |
|                                                                                                                              |   |         |     |         |   |   |   |
| **FINANCING                      ACTIVITIES**                                                                                     |   |         |     |         |   |   |   |
| Issuance                      of Long-term Debt                                                                                   |   |         | 148,895  |         |   | 92,441 |   |
| Retirement                      of Long-term Debt                                                                                 |   |         | (4,915   | )            |   | (220,000 | ) |
| Changes                      in Advances to/from Affiliates, Net                                                                  |   |         | (148,971 | )            |   | 93,394 |   |
| Dividends                      Paid on Common Stock                                                                               |   |         | (25,000  | )            |   | (30,000 | ) |
| Dividends                      Paid on Cumulative Preferred Stock                                                                 |   |         | (115     | )            |   | (115 | ) |
| **Net                      Cash Flows Used For Financing Activities**                                                             |   |         | (30,106  | )            |   | (64,280 | ) |
|                                                                                                                              |   |         |     |         |   |   |   |
| **Net                      Increase in Cash and Cash Equivalents**                                                                |   |         | 2,283    |         |   | 5,926 |   |
| **Cash                      and Cash Equivalents at Beginning of Period**                                                         |   |         | 2,308    |         |   | 5,676 |   |
| **Cash                      and Cash Equivalents at End of Period**                                                               |   | $            | 4,591    |         | $      | 11,602 |   |

| **SUPPLEMENTAL                      DISCLOSURE:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Cash                      paid for interest net of capitalized amounts was $22,279,000                      and                      $29,841,000 and for income taxes was $35,969,000 and $3,220,000                      in 2005                      and 2004, respectively. Noncash capital lease acquisitions                      were $2,035,000                      and $16,379,000 in 2005 and 2004, respectively. Construction                      Expenditures                      include the change in construction-related Accounts Payable                      of                      $(2,377,000) and $164,000 in 2005 and 2004,                      respectively. |

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

----

**SOUTHWESTERN            ELECTRIC POWER COMPANY CONSOLIDATED**

**INDEX            TO CONDENSED NOTES TO 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  |
| Benefit                      Plans                           | Note                      8  |
| Business                      Segments                       | Note                      9  |
| Financing                      Activities                    | Note                      11 |
| Company-wide                      Staffing and Budget Review | Note                      12 |

----

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

| The                  condensed notes to financial statements that follow are a combined                  presentation for AEP’s 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, 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.                                                                                                                                                                                                                                                   | Acquisitions,                  Dispositions and Assets                  Held for Sale | CSPCo,                  TCC |
|  8.                                                                                                                                                                                                                                                   | Benefit                  Plans | APCo,                  CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
|  9.                                                                                                                                                                                                                                                   | Business                  Segments | AEGCo,                  APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 10.                                                                                                                                                                                                                                                        | Income                  Taxes | APCo,                  CSPCo, OPCo, PSO, TCC |
| 11.                                                                                                                                                                                                                                                        | Financing                  Activities | AEGCo,                  APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC, TNC |
| 12.                                                                                                                                                                                                                                                        | Company-wide                  Staffing and Budget Review | AEGCo,                  APCo, CSPCo, I&M, KPCo, OPCo, PSO, SWEPCo, TCC,                  TNC |

----

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

***General***

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

|                                            |   | **June                  30,**       |    | **December                  31,** |   |
|-------------------------------------------------|--------|-------------------------------------|---------|-----------------------------------|--------|
|                                            |   | **2005**                            |    | **2004**                          |   |
|                                            |   | **(in                  thousands)** |    |
| **Components**                                  |   |                           |    |                         |   |
| **Cash                  Flow Hedges:**          |   |                           |    |                         |   |
| APCo                                            |   | $                                   | (23,206 | )                                 | $      | (9,324 | ) |
| CSPCo                                           |   |                                | (2,892  | )                                 |   | 1,393 |   |
| I&M                                         |   |                                | (8,768  | )                                 |   | (4,076 | ) |
| KPCo                                            |   |                                | (1,143  | )                                 |   | 813 |   |
| OPCo                                            |   |                                | (5,858  | )                                 |   | 1,241 |   |
| PSO                                             |   |                                | (1,083  | )                                 |   | 400 |   |
| SWEPCo                                          |   |                                | (6,032  | )                                 |   | (820 | ) |
| TCC                                             |   |                                | (357    | )                                 |   | 657 |   |
| TNC                                             |   |                                | (154    | )                                 |   | 285 |   |
|                                            |   |                                |    |                              |   |   |   |
| **Minimum                  Pension Liability:** |   |                                |    |                              |   |   |   |
| APCo                                            |   | $                                   | (72,348 | )                                 | $      | (72,348 | ) |
| CSPCo                                           |   |                                | (62,209 | )                                 |   | (62,209 | ) |
| I&M                                         |   |                                | (41,175 | )                                 |   | (41,175 | ) |
| KPCo                                            |   |                                | (9,588  | )                                 |   | (9,588 | ) |
| OPCo                                            |   |                                | (75,505 | )                                 |   | (75,505 | ) |
| PSO                                             |   |                                | (325    | )                                 |   | (325 | ) |
| SWEPCo                                          |   |                                | (360    | )                                 |   | (360 | ) |
| TCC                                             |   |                                | (4,816  | )                                 |   | (4,816 | ) |
| TNC                                             |   |                                | (413    | )                                 |   | (413 | ) |

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

|                         |   | **Balance                  at January 1, 2005** |   | **Accretion** |   | **Liabilities                  Incurred** |   | **Liabilities                  Settled** |   | **Revisions                  in Cash Flow Estimates** |   | **Balance                  at June 30, 2005** |   |
|------------------------------|--------|-------------------------------------------------|--------|---------------|--------|-------------------------------------------|--------|------------------------------------------|--------|-------------------------------------------------------|--------|-----------------------------------------------|--------|
|                         |   | **(in                  millions)**              |   |
| AEGCo                  (a)   |   | $                                               | 1.2    |          | $      | 0.1                                       |   | $                                        | -      |                                                  | $      | -                                             |   | $ | - |   | $ | 1.3 |   |
| APCo                  (a)    |   |                                            | 24.6   |          |   | 1.0                                       |   |                                     | -      |                                                  |   | -                                             |   |   | - |   |   | 25.6 |   |
| CSPCo                  (a)   |   |                                            | 11.6   |          |   | 0.4                                       |   |                                     | -      |                                                  |   | -                                             |   |   | - |   |   | 12.0 |   |
| I&M                  (b) |   |                                            | 711.8  |          |   | 23.6                                      |   |                                     | -      |                                                  |   | -                                             |   |   | - |   |   | 735.4 |   |
| OPCo                  (a)    |   |                                            | 45.6   |          |   | 1.8                                       |   |                                     | -      |                                                  |   | -                                             |   |   | - |   |   | 47.4 |   |
| SWEPCo                  (c)  |   |                                            | 27.4   |          |   | 0.6                                       |   |                                     | 8.8    |                                                  |   | (0.1                                          | )      |   | - |   |   | 36.7 |   |
| TCC                  (d)     |   |                                            | 248.9  |          |   | 7.5                                       |   |                                     | -      |                                                  |   | (256.4                                        | )      |   | - |   |   | - |   |

| (a) | Consists                  of ARO related to ash ponds.                                                                                                                                                                                                                                                                                                                                                                                            |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | Consists                  of ARO related to ash ponds ($1.3 million at June 30, 2005) and                  nuclear                  decommissioning costs for the Cook Plant ($734.1 million at June                  30,                  2005).                                                                                                                                                                                                 |
| (c) | Consists                  of ARO related to Sabine Mining Company and Dolet Hills Lignite                  Company,                  LLC (Dolet Hills). The current portion of Dolet Hills ARO, totaling                  $3.2                  million, is included in Other in the Current Liabilities section                  of                  SWEPCo’s June 30, 2005 Condensed Consolidated Balance                  Sheet.         |
| (d) | The                  ARO for TCC’s share of STP was included in Liabilities Held for Sale -                  Texas Generation Plants in TCC’s Consolidated Balance Sheet at December                  31, 2004 and was subsequently transferred to the buyer with the                  sale in                  the second quarter of 2005 (see “Texas Plants - South Texas Project”                  section of Note 7). |

***Reclassification***

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

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

***SFAS        154 “Accounting Changes and Error Corrections” (SFAS        154)***

***FASB        Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations”        (FIN 47)***

***Future        Accounting Changes***

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

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

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

***I&M        Indiana Settlement Agreement - Affecting I&M***

***I&M        Michigan Fuel Recovery Plan - Affecting I&M***

***PSO        Fuel and Purchased Power - Affecting PSO***

***PSO        Lawton Power Supply Agreement - Affecting PSO***

***PSO        Rate Review - Affecting PSO***

***SWEPCo        Louisiana Fuel Audit - Affecting SWEPCo***

***TCC        Rate Case - Affecting TCC***

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

***Unbundled        Cost of Service (UCOS) Appeal - Affecting TCC***

***Hold        Harmless Proceeding - Affecting APCo, CSPCo, I&M, KPCo and OPCo***

***FERC        Order on Regional Through and Out Rates - Affecting APCo, CSPCo, I&M, KPCo        and OPCo***

|        |   | **Three                  Months Ended****June                  30, 2005** |   | **Six                  Months****Ended****June                  30, 2005** |   |   **December                  2004** |   |
|-------------|--------|---------------------------------------------------------------------------|--------|----------------------------------------------------------------------------|--------|------------------------------------------------|--------|
| **Company** |   | **(in                  millions)**                                        |   |
| APCo        |   | $                                                                         | 10.4   |                                                                       | $      | 19.0                                           |   | $ | 3.5 |   |
| CSPCo       |   |                                                                      | 5.3    |                                                                       |   | 9.6                                            |   |   | 2.0 |   |
| I&M     |   |                                                                      | 5.9    |                                                                       |   | 10.8                                           |   |   | 2.3 |   |
| KPCo        |   |                                                                      | 2.5    |                                                                       |   | 4.5                                            |   |   | 0.8 |   |
| OPCo        |   |                                                                      | 7.4    |                                                                       |   | 13.5                                           |   |   | 2.8 |   |

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

|        |   | **PJM-Billed                  Integration Costs** |   | **Non-PJM                  Billed Formation/****Integration                  Costs** |   |
|-------------|--------|---------------------------------------------------|--------|--------------------------------------------------------------------------------------|--------|
| **Company** |   | **(in                  millions)**                |   |
| APCo        |   | $                                                 | 4.8    |                                                                                 | $      | 5.1 |   |
| CSPCo       |   |                                              | 2.0    |                                                                                 |   | 2.2 |   |
| I&M     |   |                                              | 3.8    |                                                                                 |   | 3.8 |   |
| KPCo        |   |                                              | 1.1    |                                                                                 |   | 1.1 |   |
| OPCo        |   |                                              | 5.5    |                                                                                 |   | 5.7 |   |

|        |   | **PJM-Billed                  Integration Costs** |   | **Non-PJM                  Billed Formation/****Integration                  Costs** |   |
|-------------|--------|---------------------------------------------------|--------|--------------------------------------------------------------------------------------|--------|
| **Company** |   | **(in                  millions)**                |   |
| APCo        |   | $                                                 | 5.0    |                                                                                 | $      | 4.7 |   |
| CSPCo       |   |                                              | 2.1    |                                                                                 |   | 2.0 |   |
| I&M     |   |                                              | 3.9    |                                                                                 |   | 3.5 |   |
| KPCo        |   |                                              | 1.2    |                                                                                 |   | 1.0 |   |
| OPCo        |   |                                              | 5.8    |                                                                                 |   | 5.2 |   |

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

**OHIO        RESTRUCTURING - Affecting CSPCo and OPCo**

**TEXAS        RESTRUCTURING - Affecting TCC and TNC**

***The        Components of TCC’s Recorded Net True-up Regulatory Asset (inclusive of        provisions) as of June 30, 2005 and December 31, 2004 are:***

|                                                                                              |   | **TCC**                            |   |
|---------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                              |   | **June                  30, 2005** |   | **December                  31, 2004** |   |
|                                                                                              |   | **(in                  millions)** |   |
| Stranded                  Generation Plant Costs                                                  |   | $                                  | 887    |   | $ | 897 |   |
| Net                  Generation-related Regulatory Asset                                          |   |                               | 249    |   |   | 249 |   |
| Unrefunded                  Excess Earnings                                                       |   |                               | (3     | ) |   | (10 | ) |
| **Net                  Stranded Generation Costs**                                                |   |                               | 1,133  |   |   | 1,136 |   |
| Carrying                  Costs on Stranded Generation Plant Costs                                |   |                               | 215    |   |   | 225 |   |
| **Net                  Stranded Generation Costs Designated for                  Securitization** |   |                               | 1,348  |   |   | 1,361 |   |
|                                                                                              |   |                               |   |   |   |   |   |
| Wholesale                  Capacity Auction True-up                                               |   |                               | 483    |   |   | 483 |   |
| Carrying                  Costs on Wholesale Capacity Auction True-up                             |   |                               | 102    |   |   | 77 |   |
| Retail                  Clawback                                                                  |   |                               | (61    | ) |   | (61 | ) |
| Deferred                  Over-recovered Fuel Balance                                             |   |                               | (209   | ) |   | (212 | ) |
| **Net                  Other Recoverable True-up Amounts**                                        |   |                               | 315    |   |   | 287 |   |
| **Total                  Recorded Net True-up Regulatory Asset**                                  |   | $                                  | 1,663  |   | $ | 1,648 |   |

***The        Components of TNC’s Net True-up Regulatory Liability as of June 30, 2005 and        December 31, 2004 are:***

|                                                                 |   | **TNC**                            |   |
|----------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                 |   | **June                  30, 2005** |   | **December                  31, 2004** |   |
|                                                                 |   | **(in                  millions)** |   |
| Retail                  Clawback                                     |   | $                                  | (14    | ) | $ | (14 | ) |
| Deferred                  Over-recovered Fuel Balance                |   |                               | (5     | ) |   | (4 | ) |
| **Total                  Recorded Net True-up Regulatory Liability** |   | $                                  | (19    | ) | $ | (18 | ) |

***Deferred        Investment Tax Credits Included in Stranded Generation Plant        Costs***

***TCC        Fuel Reconciliation***

***TCC        Carrying Costs on Net True-up Regulatory Assets***

***TCC        Unrefunded Excess Earnings***

***TCC        True-up Proceeding***

***TNC        True-Up Proceeding***

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

**ENVIRONMENTAL**

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

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

**OPERATIONAL**

***TEM        Litigation - Affecting OPCo***

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

***Enron        Bankruptcy -Affecting APCo, CSPCo, I&M, KPCo and        OPCo***

***Enron        Bankruptcy - Commodity trading settlement disputes***

***Enron        Bankruptcy - Summary***

***Texas        Commercial Energy, LLP Lawsuit - Affecting TCC and        TNC***

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

**6.**
**GUARANTEES**

***Letters        of Credit***

***SWEPCo***

***Indemnifications        and Other Guarantees***

***Contracts***

***Master        Operating Lease***

| **Maximum                  Potential Loss** |   |
|---------------------------------------------|--------|
| **Subsidiary**                              |   | **(in                  millions)** |   |
| APCo                                        |   | $ | 6 |   |
| CSPCo                                       |   |   | 2 |   |
| I&M                                     |   |   | 4 |   |
| KPCo                                        |   |   | 1 |   |
| OPCo                                        |   |   | 5 |   |
| PSO                                         |   |   | 4 |   |
| SWEPCo                                      |   |   | 4 |   |
| TCC                                         |   |   | 6 |   |
| TNC                                         |   |   | 3 |   |

**7.**
**ACQUISITIONS,        DISPOSITIONS AND ASSETS HELD FOR SALE**

**ACQUISITIONS**

***Public        Service Enterprise Group (PSEG) Waterford Energy LLC (Affecting        CSPCo)***

***Monongahela        Power Company (Affecting CSPCo***

**DISPOSITIONS        COMPLETED AND ANTICIPATED BEING COMPLETED DURING 2005**

***Texas        Plants - Oklaunion Power Station***

***Texas        Plants - South Texas Project***

|                                                                                            |   | **Texas                  Plants**  |   |
|-------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                                            |   | **June                  30, 2005** |   | **December                  31, 2004** |   |
| **Assets:**                                                                                     |   | **(in                  millions)** |   |
| Other                  Current Assets                                                           |   | $                                  | 2      |   | $ | 24 |   |
| Property,                  Plant and Equipment, Net                                             |   |                               | 44     |   |   | 413 |   |
| Regulatory                  Assets                                                              |   |                               | -      |   |   | 48 |   |
| Nuclear                  Decommissioning Trust Fund                                             |   |                               | -      |   |   | 143 |   |
| **Total                  Assets Held for Sale - Texas Generation Plants**                       |   | $                                  | 46     |   | $ | 628 |   |
|                                                                                            |   |                               |   |   |   |   |   |
| **Liabilities:**                                                                                |   |                               |   |   |   |   |   |
| Regulatory                  Liabilities                                                         |   | $                                  | 1      |   | $ | 1 |   |
| Asset                  Retirement Obligations                                                   |   |                               | -      |   |   | 249 |   |
| **Total                  Liabilities Held for Sale - Texas Generation                  Plants** |   | $                                  | 1      |   | $ | 250 |   |

**8.**
**BENEFIT        PLANS**

| **Three                  Months Ended June 30, 2005 and 2004** |   | **Pension                  Plans** |   | **Other                  Postretirement Benefit Plans** |   |
|----------------------------------------------------------------|--------|------------------------------------|--------|---------------------------------------------------------|--------|
|                                                           |   | **2005**                           |   | **2004**                                                |   | **2005** |   | **2004** |   |
|                                                           |   | **(in                  millions)** |   |
| Service                  Cost                                  |   | $                                  | 23     |                                                    | $      | 21 |   | $ | 10 |   | $ | 10 |   |
| Interest                  Cost                                 |   |                               | 56     |                                                    |   | 56 |   |   | 26 |   |   | 29 |   |
| Expected                  (Return) on Plan Assets              |   |                               | (78    | )                                                       |   | (72 | ) |   | (22 | ) |   | (20 | ) |
| Amortization                  of Transition Obligation         |   |                               | -      |                                                    |   | 1 |   |   | 7 |   |   | 7 |   |
| Amortization                  of Net Actuarial Loss            |   |                               | 14     |                                                    |   | 4 |   |   | 7 |   |   | 9 |   |
| **Net                  Periodic Benefit Cost**                 |   | $                                  | 15     |                                                    | $      | 10 |   | $ | 28 |   | $ | 35 |   |

| **Six                  Months Ended June 30, 2005 and 2004** |   | **Pension                  Plans** |   | **Other                  Postretirement Benefit Plans** |   |
|--------------------------------------------------------------|--------|------------------------------------|--------|---------------------------------------------------------|--------|
|                                                         |   | **2005**                           |   | **2004**                                                |   | **2005** |   | **2004** |   |
|                                                         |   | **(in                  millions)** |   |
| Service                  Cost                                |   | $                                  | 46     |                                                    | $      | 43 |   | $ | 21 |   | $ | 20 |   |
| Interest                  Cost                               |   |                               | 112    |                                                    |   | 112 |   |   | 53 |   |   | 58 |   |
| Expected                  (Return) on Plan Assets            |   |                               | (155   | )                                                       |   | (144 | ) |   | (45 | ) |   | (40 | ) |
| Amortization                  of Transition Obligation       |   |                               | -      |                                                    |   | 1 |   |   | 14 |   |   | 14 |   |
| Amortization                  of Net Actuarial Loss          |   |                               | 27     |                                                    |   | 8 |   |   | 14 |   |   | 18 |   |
| **Net                  Periodic Benefit Cost**               |   | $                                  | 30     |                                                    | $      | 20 |   | $ | 57 |   | $ | 70 |   |

| **Three                  Months Ended June 30, 2005 and 2004** |   | **Pension                  Plans**  |   | **Other                  Postretirement Benefit Plans** |   |
|----------------------------------------------------------------|--------|-------------------------------------|--------|---------------------------------------------------------|--------|
|                                                           |   | **2005**                            |   | **2004**                                                |   | **2005** |   | **2004** |   |
|                                                           |   | **(in                  thousands)** |   |
| APCo                                                           |   | $                                   | 1,848  |                                                    | $      | 318 |   | $ | 5,147 |   | $ | 6,462 |   |
| CSPCo                                                          |   |                                | 534    |                                                    |   | (407 | ) |   | 2,123 |   |   | 2,765 |   |
| I&M                                                        |   |                                | 2,365  |                                                    |   | 1,114 |   |   | 3,464 |   |   | 4,313 |   |
| KPCo                                                           |   |                                | 376    |                                                    |   | 144 |   |   | 571 |   |   | 742 |   |
| OPCo                                                           |   |                                | 1,206  |                                                    |   | (105 | ) |   | 3,632 |   |   | 4,801 |   |
| PSO                                                            |   |                                | 72     |                                                    |   | 700 |   |   | 1,799 |   |   | 2,110 |   |
| SWEPCo                                                         |   |                                | 364    |                                                    |   | 901 |   |   | 1,765 |   |   | 2,101 |   |
| TCC                                                            |   |                                | (219   | )                                                       |   | 746 |   |   | 1,935 |   |   | 2,535 |   |
| TNC                                                            |   |                                | 41     |                                                    |   | 338 |   |   | 846 |   |   | 1,073 |   |

| **Six                  Months Ended June 30, 2005 and 2004** |   | **Pension                  Plans**  |   | **Other                  Postretirement Benefit Plans** |   |
|--------------------------------------------------------------|--------|-------------------------------------|--------|---------------------------------------------------------|--------|
|                                                         |   | **2005**                            |   | **2004**                                                |   | **2005** |   | **2004** |   |
|                                                         |   | **(in                  thousands)** |   |
| APCo                                                         |   | $                                   | 3,696  |                                                    | $      | 636 |   | $ | 10,492 |   | $ | 12,924 |   |
| CSPCo                                                        |   |                                | 1,068  |                                                    |   | (814 | ) |   | 4,345 |   |   | 5,530 |   |
| I&M                                                      |   |                                | 4,730  |                                                    |   | 2,228 |   |   | 7,095 |   |   | 8,626 |   |
| KPCo                                                         |   |                                | 752    |                                                    |   | 288 |   |   | 1,174 |   |   | 1,484 |   |
| OPCo                                                         |   |                                | 2,412  |                                                    |   | (210 | ) |   | 7,459 |   |   | 9,602 |   |
| PSO                                                          |   |                                | 144    |                                                    |   | 1,400 |   |   | 3,668 |   |   | 4,220 |   |
| SWEPCo                                                       |   |                                | 728    |                                                    |   | 1,802 |   |   | 3,602 |   |   | 4,202 |   |
| TCC                                                          |   |                                | (438   | )                                                       |   | 1,492 |   |   | 3,943 |   |   | 5,070 |   |
| TNC                                                          |   |                                | 82     |                                                    |   | 676 |   |   | 1,723 |   |   | 2,146 |   |

**9.**
**BUSINESS        SEGMENTS**

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

| **Company** |   |  **Amount****(in                  thousands)** |   |
|-------------|--------|-----------------------------------------------------|--------|
| CSPCo       |   | $                                                   | 15,104 |   |
| OPCo        |   |                                                | 41,864 |   |
| APCo        |   |                                                | 2,769  |   |
| PSO         |   |                                                | 706    |   |
| TCC         |   |                                                | 365    |   |

**11.**
**FINANCING        ACTIVITIES**

| **Company**    |   | **Type                  of Debt**               |   | **Principal                  Amount** |    | **Interest                  Rate** |     | **Due                  Date** |
|----------------|--------|-------------------------------------------------|--------|---------------------------------------|---------|------------------------------------|----------|-------------------------------|
|           |   |                                            |   | **(in                  thousands)**   |    | **(%)**                            |     |                          |
| **Issuances:** |   |                                            |   |                                  |    |                               |     |                          |   |
| APCo           |   | Senior                  Unsecured Notes         |   | $                                     | 200,000 |                               | 4.95%    |                          | 2015 |
| APCo           |   | Senior                  Unsecured Notes         |   |                                  | 150,000 |                               | 4.40%    |                          | 2010 |
| APCo           |   | Senior                  Unsecured Notes         |   |                                  | 250,000 |                               | 5.00%    |                          | 2017 |
| OPCo           |   | Installment                  Purchase Contracts |   |                                  | 54,500  |                               | Variable |                          | 2029 |
| OPCo           |   | Installment                  Purchase Contracts |   |                                  | 163,500 |                               | Variable |                          | 2028 |
| PSO            |   | Senior                  Unsecured Notes         |   |                                  | 75,000  |                               | 4.70%    |                          | 2011 |
| SWEPCo         |   | Senior                  Unsecured Notes         |   |                                  | 150,000 |                               | 4.90%    |                          | 2015 |
| TCC            |   | Installment                  Purchase Contracts |   |                                  | 161,700 |                               | Variable |                          | 2030 |
| TCC            |   | Installment                  Purchase Contracts |   |                                  | 120,265 |                               | Variable |                          | 2028 |

| **Company**                                                                               |   | **Type                  of Debt**               |   | **Principal                  Amount** |    | **Interest                  Rate** |     | **Due                  Date** |
|-------------------------------------------------------------------------------------------|--------|-------------------------------------------------|--------|---------------------------------------|---------|------------------------------------|----------|-------------------------------|
|                                                                                      |   |                                            |   | **(in                  thousands)**   |    | **(%)**                            |     |                          |
| **Retirements                  and  Principal****                   Payments:** |   |                                            |   |                                  |    |                               |     |                          |   |
| APCo                                                                                      |   | Other                  Debt                     |   | $                                     | 5       |                               | 13.718%  |                          | 2026 |
| APCo                                                                                      |   | First                  Mortgage Bonds           |   |                                  | 50,000  |                               | 8.00%    |                          | 2005 |
| APCo                                                                                      |   | First                  Mortgage Bonds           |   |                                  | 30,000  |                               | 6.89%    |                          | 2005 |
| APCo                                                                                      |   | First                  Mortgage Bonds           |   |                                  | 45,000  |                               | 8.00%    |                          | 2025 |
| APCo                                                                                      |   | Senior                  Unsecured Notes         |   |                                  | 450,000 |                               | 4.80%    |                          | 2005 |
| OPCo                                                                                      |   | Installment                  Purchase Contracts |   |                                  | 102,000 |                               | 6.375%   |                          | 2029 |
| OPCo                                                                                      |   | Installment                  Purchase Contracts |   |                                  | 80,000  |                               | Variable |                          | 2028 |
| OPCo                                                                                      |   | Installment                  Purchase Contracts |   |                                  | 36,000  |                               | Variable |                          | 2029 |
| OPCo                                                                                      |   | Notes                  Payable                  |   |                                  | 2,927   |                               | 6.81%    |                          | 2008 |
| OPCo                                                                                      |   | Notes                  Payable                  |   |                                  | 3,250   |                               | 6.27%    |                          | 2009 |
| PSO                                                                                       |   | First                  Mortgage Bonds           |   |                                  | 50,000  |                               | 6.50%    |                          | 2005 |
| SWEPCo                                                                                    |   | Notes                  Payable                  |   |                                  | 3,415   |                               | 4.47%    |                          | 2011 |
| SWEPCo                                                                                    |   | Notes                  Payable                  |   |                                  | 1,500   |                               | Variable |                          | 2008 |
| TCC                                                                                       |   | Senior                  Unsecured Notes         |   |                                  | 150,000 |                               | 3.00%    |                          | 2005 |
| TCC                                                                                       |   | Senior                  Unsecured Notes         |   |                                  | 100,000 |                               | Variable |                          | 2005 |
| TCC                                                                                       |   | Securitization                  Bonds           |   |                                  | 29,386  |                               | 3.54%    |                          | 2005 |

| **Company**      |   | **Type                  of Debt** |   | **Principal                  Amount** |    | **Interest                  Rate** |   | **Due                  Date** |
|------------------|--------|-----------------------------------|--------|---------------------------------------|---------|------------------------------------|--------|-------------------------------|
|             |   |                              |   | **(in                  thousands)**   |    | **(%)**                            |   |                          |
| **Issuances:**   |   |                              |   |                                  |    |                               |   |                          |   |
| APCo             |   | Notes                  Payable    |   | $                                     | 100,000 |                               | 4.708% |                          | 2010 |
|             |   |                              |   |                                  |    |                               |   |                          |   |
| **Retirements:** |   |                              |   |                                  |    |                               |   |                          |   |
| KPCo             |   | Notes                  Payable    |   | $                                     | 20,000  |                               | 6.501% |                          | 2006 |

***Other        Matters***

| **Company** |   | **Series** |   | **Number                  of Shares Redeemed** |   | **Amount**                         |   |
|-------------|--------|------------|--------|------------------------------------------------|--------|------------------------------------|--------|
|        |   |       |   |                                           |   | **(in                  millions)** |   |
| I&M     |   | 5.900%     |   | 132,000                                        |   | $                                  | 13     |   |
| I&M     |   | 6.250%     |   | 192,500                                        |   |                               | 19     |   |
| I&M     |   | 6.875%     |   | 157,500                                        |   |                               | 16     |   |
| I&M     |   | 6.300%     |   | 132,450                                        |   |                               | 13     |   |
| OPCo        |   | 5.900%     |   |   50,000                             |   |                               | 5      |   |
|        |   |       |   |                                           |   | $                                  | 66     |   |

***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 June 30,                  2005** |   | **SEC                  Authorized Short-Term Borrowing Limit** |   |
|-------------|--------|-----------------------------------------------------------------|---------|----------------------------------------------------------|--------|-----------------------------------------------------------------|--------|----------------------------------------------------------|---------|---------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|
|        |   | **(in                  thousands)**                             |    |
| AEGCo       |   | $                                                               | 45,694  |                                                     | $      | 9,305                                                           |   | $                                                        | 16,070  |                                                                                                    | $      | 4,803                                                          |   | $ | (24,621 | ) | $ | 125,000 |   |
| APCo        |   |                                                            | 236,798 |                                                     |   | 321,977                                                         |   |                                                     | 95,331  |                                                                                                    |   | 47,143                                                         |   |   | (176,692 | ) |   | 600,000 |   |
| CSPCo       |   |                                                            | -       |                                                     |   | 181,238                                                         |   |                                                     | -       |                                                                                                    |   | 104,861                                                        |   |   | 62,172 |   |   | 350,000 |   |
| I&M     |   |                                                            | 203,248 |                                                     |   | 11,768                                                          |   |                                                     | 81,472  |                                                                                                    |   | 5,797                                                          |   |   | (143,126 | ) |   | 500,000 |   |
| KPCo        |   |                                                            | 3,386   |                                                     |   | 35,779                                                          |   |                                                     | 2,307   |                                                                                                    |   | 17,596                                                         |   |   | 12,647 |   |   | 200,000 |   |
| OPCo        |   |                                                            | 44,192  |                                                     |   | 182,495                                                         |   |                                                     | 22,467  |                                                                                                    |   | 80,796                                                         |   |   | (11,528 | ) |   | 600,000 |   |
| PSO         |   |                                                            | 55,009  |                                                     |   | 55,602                                                          |   |                                                     | 22,523  |                                                                                                    |   | 26,635                                                         |   |   | 7,084 |   |   | 300,000 |   |
| SWEPCo      |   |                                                            | 221     |                                                     |   | 188,215                                                         |   |                                                     | 221     |                                                                                                    |   | 42,793                                                         |   |   | 188,077 |   |   | 350,000 |   |
| TCC         |   |                                                            | 320,508 |                                                     |   | 120,937                                                         |   |                                                     | 152,714 |                                                                                                    |   | 49,350                                                         |   |   | (120,064 | ) |   | 600,000 |   |
| TNC         |   |                                                            | -       |                                                     |   | 75,045                                                          |   |                                                     | -       |                                                                                                    |   | 49,428                                                         |   |   | 63,665 |   |   | 250,000 |   |

| **Company** |   | **Average                  Interest Rate for Funds Borrowed from the Utility Money                  Pool** |   | **Average                  Interest Rate for Funds Loaned to the Utility Money                  Pool** |   |
|-------------|--------|------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------|--------|
|        |   | **(in                  percentages)**                                                                      |   |
| AEGCo       |   |                                                                                                       | 2.40   |                                                                                                   |   | 3.14 |   |
| APCo        |   |                                                                                                       | 2.65   |                                                                                                   |   | 2.69 |   |
| CSPCo       |   |                                                                                                       | -      |                                                                                                   |   | 2.44 |   |
| I&M     |   |                                                                                                       | 2.96   |                                                                                                   |   | 2.12 |   |
| KPCo        |   |                                                                                                       | 2.96   |                                                                                                   |   | 2.42 |   |
| OPCo        |   |                                                                                                       | 3.32   |                                                                                                   |   | 2.39 |   |
| PSO         |   |                                                                                                       | 2.50   |                                                                                                   |   | 3.19 |   |
| SWEPCo      |   |                                                                                                       | 3.21   |                                                                                                   |   | 2.54 |   |
| TCC         |   |                                                                                                       | 2.91   |                                                                                                   |   | 2.12 |   |
| TNC         |   |                                                                                                       | -      |                                                                                                   |   | 2.65 |   |

**12.**
**COMPANY-WIDE        STAFFING AND BUDGET REVIEW**

| **Company** |   |  **Amounts****(in                  millions)** |   |
|-------------|--------|-----------------------------------------------------|--------|
| AEGCo       |   | $                                                   | 0.2    |   |
| APCo        |   |                                                | 3.9    |   |
| CSPCo       |   |                                                | 2.3    |   |
| I&M     |   |                                                | 4.0    |   |
| KPCo        |   |                                                | 0.7    |   |
| OPCo        |   |                                                | 3.4    |   |
| PSO         |   |                                                | 1.2    |   |
| SWEPCo      |   |                                                | 1.6    |   |
| TCC         |   |                                                | 3.8    |   |
| TNC         |   |                                                | 1.1    |   |

----

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

**Significant        Factors**

**FERC        Order on Regional Through and Out Rates**

|        |   | **Three                  Months Ended June 30, 2005** |   | **Six                  Months****Ended                  June 30, 2005** |   |   **December                  2004** |   |
|-------------|--------|-------------------------------------------------------|--------|-------------------------------------------------------------------------|--------|------------------------------------------------|--------|
| **Company** |   | **(in                  millions)**                    |   |
| APCo        |   | $                                                     | 10.4   |                                                                    | $      | 19.0                                           |   | $ | 3.5 |   |
| CSPCo       |   |                                                  | 5.3    |                                                                    |   | 9.6                                            |   |   | 2.0 |   |
| I&M     |   |                                                  | 5.9    |                                                                    |   | 10.8                                           |   |   | 2.3 |   |
| KPCo        |   |                                                  | 2.5    |                                                                    |   | 4.5                                            |   |   | 0.8 |   |
| OPCo        |   |                                                  | 7.4    |                                                                    |   | 13.5                                           |   |   | 2.8 |   |

**Ohio        Regulatory Activity**

***Ohio        Restructuring***

***Integrated        Gasification Combined Cycle (IGCC) Power Plant***

**Litigation**

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

***Merger          Litigation***

***Texas        Commercial Energy, LLP Lawsuit***

**Environmental        Matters**

| · | Legislative                  and regulatory proposals to adopt stringent controls on sulfur                  dioxide                  (SO2),                  nitrogen oxide (NOx)                  and mercury emissions from coal-fired power plants, |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Clean                  Water Act rules 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 climatic change.                                                                                    |

***Future        Reduction Requirements for SO***
***2***

***,        NO***
**x**

***,        and Mercury***

*Regulatory        Emissions Reductions*

| · | The                  Federal EPA proposed a Clean Air Interstate Rule (CAIR) to reduce                  SO2                  and NOx                  emissions across the Eastern United States (29 states and the District                  of                  Columbia) and make progress toward attainment of the new fine particulate                  matter and ground-level ozone national ambient air quality standards.                  These reductions could also satisfy these states’ obligations to make                  reasonable progress towards the national visibility goal under                  the                  regional haze program. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | The                  Federal EPA proposed to regulate mercury emissions from coal-fired                  electric generating units.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

***New        Source Review Litigation***

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

***Emergency        Release Reporting***

----

**CONTROLS        AND PROCEDURES**

----

**PART        II. OTHER INFORMATION**

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

*Commitments        and Contingencies, *

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

| **Period**                           |   | **Total                  Number****of                  Shares****Purchased                  (a)** |   | **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** |   |
|--------------------------------------|--------|---------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 04/01/05                  - 04/30/05 |   |                                                                                              | -      |                                                                  | $      | -                                                                                                                                       |   |                                                                                                                                                                | -      |   | $ | - |   |
| 05/01/05                  - 05/31/05 |   |                                                                                              | 1      |                                                                  |   | 82.00                                                                                                                                   |   |                                                                                                                                                                | -      |   |   | - |   |
| 06/01/05                  - 06/30/05 |   |                                                                                              | -      |                                                                  |   | -                                                                                                                                       |   |                                                                                                                                                                | -      |   |   | - |   |
| **Total**                            |   |                                                                                              | 1      |                                                                  | $      | 82.00                                                                                                                                   |   |                                                                                                                                                                | -      |   | $ | - |   |

| (a) | OPCo repurchased 1 share of its 4.5% cumulative preferred                stock, in a privately-negotiated transaction outside of an announced                program. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| 1.   | Election                  of eleven directors to hold office until the next annual meeting                  and until                  their successors are duly elected. Each nominee for director received                  the                  votes of shareholders as follows: |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                   | No.                  of Shares Voted For |   | No.                  of Shares Abstaining |
|----------------------------------------|------------------------------------------|--------|-------------------------------------------|
|                                   |                                     |   |                                      |
| E.                  R. Brooks          | 263,054,307                              |   | 75,891,318                                |
| Donald                  M. Carlton     | 328,620,376                              |   | 10,325,249                                |
| John                  P. DesBarres     | 328,782,449                              |   | 10,163,176                                |
| Robert                  W. Fri         | 328,507,125                              |   | 10,438,500                                |
| William                  R. Howell     | 329,883,269                              |   | 9,062,356                                 |
| Lester                  A. Hudson, Jr. | 330,110,186                              |   | 8,835,439                                 |
| Michael                  G. Morris     | 330,275,243                              |   | 8,670,382                                 |
| Lionel                  L. Nowell, III | 332,065,869                              |   | 6,879,756                                 |
| Richard                  L. Sandor     | 330,065,869                              |   | 8,687,824                                 |
| Donald                  G. Smith       | 330,181,157                              |   | 8,764,468                                 |
| Kathryn                  D. Sullivan   | 330,057,810                              |   | 8,887,815                                 |

| 2.   | Ratification                  of the appointment of the firm of Deloitte & Touche LLP as the                  independent registered public accounting firm for 2005. The proposal                  was                  approved by a vote of the shareholders as                  follows: |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Votes                  FOR         |   | 322,692,857 |
|------------------------------------|--------|-------------|
| Votes                  AGAINST     |   | 12,412,630  |
| Votes                  ABSTAINED   |   | 3,840,138   |
| Broker                  NON-VOTES* |   | 0           |

| 3.   | Approval                  of an amendment to the AEP System Long-term Incentive Plan. The                  proposal                  was approved by a vote of the shareholders as                  follows: |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Votes                  FOR         |   | 249,862,019 |
|------------------------------------|--------|-------------|
| Votes                  AGAINST     |   | 28,710,198  |
| Votes                  ABSTAINED   |   | 8,059,517   |
| Broker                  NON-VOTES* |   | 52,313,891  |

| Carl                  L. English       |   | Michael                  G. Morris |
|----------------------------------------|--------|------------------------------------|
| John                  B. Keane         |   | Robert                  P. Powers  |
| Holly                  K. Koeppel      |   | Stephen                  P. Smith  |
| Venita                  McCellon-Allen |   | Susan                  Tomasky     |

| Carl                  L. English       |   | Michael                  G. Morris |
|----------------------------------------|--------|------------------------------------|
| Thomas                  M. Hagan       |   | Robert                  P. Powers  |
| John                  B. Keane         |   | Stephen                  P. Smith  |
| Venita                  McCellon-Allen |   | Susan                  Tomasky     |

| Karl                  G. Boyd     |   | Venita                  McCellon-Allen   |
|-----------------------------------|--------|------------------------------------------|
| John                  E. Ehler    |   | Susanne                  M. Moorman Rowe |
| Carl                  L. English  |   | Michael                  G. Morris       |
| Patrick                  C. Hale  |   | Robert                  P. Powers        |
| Holly                  K. Koeppel |   | John                  R. Sampson         |
| David                  L. Lahrman |   | Susan                  Tomasky           |
| Marc                  E. Lewis    |   |                                     |

| Carl                  L. English       |   | Michael                  G. Morris |
|----------------------------------------|--------|------------------------------------|
| John                  B. Keane         |   | Robert                  P. Powers  |
| Holly                  K. Koeppel      |   | Stephen                  P. Smith  |
| Venita                  McCellon-Allen |   | Susan                  Tomasky     |

| Carl                  L. English       |   | Michael                  G. Morris |
|----------------------------------------|--------|------------------------------------|
| Thomas                  M. Hagan       |   | Robert                  P. Powers  |
| John                  B. Keane         |   | Stephen                  P. Smith  |
| Venita                  McCellon-Allen |   | Susan                  Tomasky     |

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

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

*AEP*

*AEP,        APCo, OPCo*

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

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

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

----

**SIGNATURE**